FNSR
$28.60
Finisar
$.24
.85%
Earnings Details
3rd Quarter January 2017
Thursday, March 09, 2017 4:01:34 PM
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Summary

Finisar Misses

Finisar (FNSR) reported 3rd Quarter January 2017 earnings of $0.58 per share on revenue of $380.6 million. The consensus earnings estimate was $0.62 per share on revenue of $389.1 million. The Earnings Whisper number was $0.65 per share. Revenue grew 23.1% on a year-over-year basis.

The company said it expects fourth quarter non-GAAP earnings of $0.50 to $0.56 per share on revenue of $360.0 million to $380.0 million. The current consensus earnings estimate is $0.58 per share on revenue of $388.8 million for the quarter ending April 30, 2017.

Finisar Corp is a provider of optical subsystems and components that are used in data communication and telecommunication applications.

Results
Reported Earnings
$0.58
Earnings Whisper
$0.65
Consensus Estimate
$0.62
Reported Revenue
$380.6 Mil
Revenue Estimate
$389.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Finisar Announces Record Third Fiscal Quarter Revenues

Finisar Corporation (FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third quarter of fiscal year 2017, ended January 29, 2017.

COMMENTARY

"I am pleased to announce that Finisar achieved another new all-time quarterly records for revenues and Non-GAAP profits in our third quarter. Revenues were $380.6 million, an increase of $10.7 million, or 2.9%, over the second quarter and 23.1% over the third quarter a year ago. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products continued to be strong," said Jerry Rawls, Finisar’s Chief Executive Officer.

FINANCIAL HIGHLIGHTS - Third Quarter Ended January 29, 2017
Summary GAAP Results
Third
Second
Quarter
Quarter
Ended
Ended
January 29, 2017
October 30, 2016
(in thousands, except per share amounts)
Revenues
$
380,588
$
369,863
Gross margin
35.9
%
36.1
%
Operating expenses
$
81,731
$
80,853
Operating income
$
54,906
$
52,828
Operating margin
14.4
%
14.3
%
Net income
$
46,387
$
48,765
Income per share-basic
$
0.42
$
0.44
Income per share-diluted
$
0.40
$
0.43
Basic shares
110,956
110,407
Diluted shares
114,873
113,192
Summary Non-GAAP Results (a)
Third
Second
Quarter
Quarter
Ended
Ended
January 29, 2017
October 30, 2016
(in thousands, except per share amounts)
Revenues
$
380,588
$
369,863
Non-GAAP Gross margin
37.0
%
37.2
%
Non-GAAP Operating expenses
$
70,538
$
69,418
Non-GAAP Operating income
$
70,375
$
68,250
Non-GAAP Operating margin
18.5
%
18.5
%
Non-GAAP Net income
$
67,204
$
65,154
Non-GAAP Income per share-basic
$
0.61
$
0.59
Non-GAAP Income per share-diluted $
0.59
$
0.58
Basic shares
110,956
110,407
Diluted shares
114,873
113,192

_____________

(a) In evaluating the operating performance of Finisar’s business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. generally accepted accounting principles, or GAAP, that are considered by management to be outside of Finisar’s core ongoing operating results. A reconciliation of Finisar’s non-GAAP financial measures to the most directly comparable GAAP measures, as well as additional related information, can be found under the heading "Finisar Non-GAAP Financial Measures" below.

Financial Statement Highlights for the Third Quarter of Fiscal 2017:

Revenues were $380.6 million, an increase of $10.7 million, or 2.9%, from $369.9 million in the second quarter.

Sales of datacom products increased by $7.3 million, or 2.8%, compared to the second quarter. This increase was due primarily to growth in demand for 100G transceivers. Sales of 100G transceivers for datacom applications increased approximately 9% compared to the second quarter, and over 110% compared to the third quarter of the prior fiscal year.

Sales of telecom products increased by $3.5 million, or 3.2%, compared to the second quarter. This increase was due primarily to higher sales of wavelength selective switch and ROADM line card products, primarily driven by our Chinese OEM customers.

-- GAAP gross margin was 35.9% compared to 36.1% in the second quarter.

-- Non-GAAP gross margin was 37.0% compared to 37.2% in the second quarter.

GAAP operating expenses were $81.7 million compared to $80.9 million in the second quarter. GAAP operating expenses as a percentage of revenue decreased to approximately 21.5% of revenue compared to 21.9% in the second quarter.

Non-GAAP operating expenses were $70.5 million compared to $69.4 million in the second quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 18.5% compared to 18.8% in the second quarter.

-- GAAP operating was 14.4% compared to 14.3% in the second quarter.

-- Non-GAAP operating margin was 18.5% compared to 18.5% in the second quarter.

-- GAAP earnings per fully diluted share was $0.40 compared to $0.43 in the second quarter.

Non-GAAP earnings per fully diluted share was $0.59 compared to $0.58 in the second quarter.

Cash, cash equivalents and short-term investments increased $588.0 million to approximately $1.2 billion at the end of the third quarter, compared to $626.3 million at the end of the second quarter. This increase was primarily due to the issuance of $575.0 million of 0.50% convertible notes due in December 2036, which yielded net proceeds of $569.3 million. Excluding those net proceeds, cash would have increased $18.7 million during the quarter.

OUTLOOK

Finisar indicated that for the fourth quarter of fiscal 2017 it currently expects revenues in the range of $360 to $380 million, non-GAAP gross margin of approximately 36%, non-GAAP operating margin of approximately 17%, and non-GAAP earnings per fully diluted share in the range of approximately $0.50 to $0.56.

Finisar has not provided a reconciliation of its fourth quarter outlook for non-GAAP gross margin, non-GAAP operating margin and non-GAAP earnings per fully diluted share because estimates of all of the reconciling items cannot be provided without unreasonable efforts. It is difficult to reasonably provide a forward-looking estimate of certain reconciling items between such non-GAAP forward-looking measures and the comparable forward-looking GAAP measures. Certain factors that are materially significant to Finisar’s ability to estimate these items are out of its control and/or cannot be reasonably predicted, including with respect to restructuring charges, litigation settlements and resolutions and related costs, and the timing of tax related adjustments. Accordingly, a reconciliation of such non-GAAP forward-looking measures to the comparable forward-looking GAAP measures are not available within a reasonable range of predictability.

CONFERENCE CALL

Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 9, 2017, at 2:00 pm PT (5:00 pm ET). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-855-473-9088 (domestic) or 1-720-405-0995 (international) and enter conference ID 59806101.

An audio replay will be available for two weeks following the call by dialing 1-855-859-2056 (domestic) or 1-404-537-3406 (international) and then following the prompts: enter conference ID 59806101 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on Finisar’s website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statement concerning Finisar’s expected financial performance. These statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current expectations, estimates, assumptions and projections about our business and industry, and the markets and customers we serve, and they are subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate. Finisar assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those projected. Examples of such risks include those associated with: the uncertainty of customer demand for Finisar’s products; the rapidly evolving markets for Finisar’s products and uncertainty regarding the development of these markets; Finisar’s historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period; ongoing new product development and introduction of new and enhanced products; the challenges of rapid growth followed by periods of contraction; and intensive competition. Further information regarding these and other risks relating to Finisar’s business is set forth in Finisar’s annual report on Form 10-K (filed June 17, 2016) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, networking, storage, wireless, and cable TV applications. For over 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

FINISAR FINANCIAL STATEMENTS

The following financial tables are presented in accordance with GAAP.

Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
Three Months Ended
Nine Months Ended
Three Months Ended
Jan 29, 2017
Jan 31, 2016
Jan 29, 2017
Jan 31, 2016
Oct 30, 2016
Revenues
$
380,588
$
309,206
$
1,091,776
$
944,372
$
369,863
Cost of revenues
242,961
219,836
709,790
674,593
235,192
Impairment of long-lived assets
-
-
-
1,071
-
Amortization of acquired developed technology
990
1,630
3,503
4,500
990
Gross profit
136,637
87,740
378,483
264,208
133,681
Gross margin
35.9
%
28.4
%
34.7
%
28.0
%
36.1
%
Operating expenses:
Research and development
54,691
49,840
158,941
153,220
53,242
Sales and marketing
13,092
11,899
38,322
34,998
13,367
General and administrative
13,235
14,875
43,126
46,269
13,576
Impairment of long-lived assets
-
-
-
830
-
Amortization of purchased intangibles
713
668
2,049
2,004
668
Total operating expenses
81,731
77,282
242,438
237,321
80,853
Income from operations
54,906
10,458
136,045
26,887
52,828
Interest income
1,717
709
3,464
1,543
1,021
Interest expense
(5,399
)
(2,933
)
(11,410
)
(8,733
)
(3,025
)
Other income (expenses), net
(338
)
1,968
398
3,294
795
Income before income taxes
50,886
10,202
128,497
22,991
51,619
Provision for income taxes
4,499
(1,882
)
9,396
870
2,854
Net income
$
46,387
$
12,084
$
119,101
$
22,121
$
48,765
Net income per share attributable to Finisar Corporation common stockholders:
Basic
$
0.42
$
0.11
$
1.08
$
0.21
$
0.44
Diluted
$
0.40
$
0.11
$
1.05
$
0.20
$
0.43
Shares used in computing net income per share - basic
110,956
107,180
110,061
106,367
110,407
Shares used in computing net income per share - diluted
114,873
108,128
113,506
108,488
113,192
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
Jan 29, 2017
Oct 30, 2016
Jul 31, 2016
May 1, 2016
(Unaudited)
(Unaudited)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
240,593
$
282,963
$
280,414
$
299,221
Short-term held-to-maturity investments
973,675
343,319
313,389
263,255
Accounts receivable, net
280,098
277,667
255,036
249,257
Accounts receivable, other
58,498
49,997
43,678
44,576
Inventories
312,271
292,439
272,592
273,291
Prepaid expenses and other assets
20,526
17,140
18,646
18,483
Total current assets
1,885,661
1,263,525
1,183,755
1,148,083
Property, equipment and improvements, net
357,039
341,563
338,918
348,613
Purchased intangible assets, net
14,638
16,339
16,197
18,388
Goodwill
106,735
106,735
106,735
106,735
Minority investments
3,322
3,893
3,974
4,051
Other assets
24,275
18,008
18,928
19,501
Total assets
$
2,391,670
$
1,750,063
$
1,668,507
$
1,645,371
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
155,916
$
153,023
$
136,317
$
141,591
Accrued compensation
50,640
45,213
36,332
36,084
Other accrued liabilities
43,081
36,736
39,201
42,206
Deferred revenue
14,965
17,818
16,468
13,529
Total current liabilities
264,602
252,790
228,318
233,410
Long-term liabilities:
Convertible notes
699,903
234,679
232,016
229,393
Other non-current liabilities
12,594
13,279
14,056
14,882
Total liabilities
977,099
500,748
474,390
477,685
Stockholders’ equity:
Common stock
111
111
110
108
Additional paid-in capital
2,768,396
2,639,355
2,621,260
2,605,859
Accumulated other comprehensive income (loss)
(59,944
)
(49,772
)
(38,109
)
(25,188
)
Accumulated deficit
(1,293,992 )
(1,340,379 )
(1,389,144 )
(1,413,093 )
Total stockholders’ equity
1,414,571
1,249,315
1,194,117
1,167,686
Total liabilities and stockholders’ equity
$
2,391,670
$
1,750,063
$
1,668,507
$
1,645,371
Note - Balance sheet amounts as of May 1, 2016 are derived from the audited consolidated financial statements as of the date.

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission: non-GAAP gross profit, non-GAAP operating income, non-GAAP income and non-GAAP net income per share. These non-GAAP financial measures are supplemental information regarding Finisar’s operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be outside of our ongoing core operating results. Management believes that tracking non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our ongoing core current operations, our ability to generate cash and the underlying business trends that are affecting our performance. These non-GAAP measures are used by both management and our Board of Directors, along with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry.

In calculating non-GAAP gross profit in this release, we have excluded the following items from cost of revenues in applicable periods in this release:

-- Changes in excess and obsolete inventory reserve (predominantly non-cash charges);

Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);

-- Duplicate facility costs during facility move (non-core cash charges);

-- Stock-based compensation expense (non-cash charges);

-- Impairment of long-lived assets (non-cash charges);

-- Reduction in force costs (non-core cash charges); and

-- Acquisition related retention payments (non-core cash charges).

In calculating non-GAAP operating income in this release, we have excluded the same items to the extent they are classified as operating expenses, and have also excluded the following items in applicable periods in this release:

-- Acquisition related costs (non-core cash charges);

Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits);

-- Unclaimed property tax audit accrual (non-core charges and benefits); and

-- Amortization of purchased intangibles (non-cash charges).

In calculating non-GAAP income and non-GAAP income per share in this release, we have also excluded the following items in applicable periods in this release:

-- Other interest income (non-core cash benefits);

-- Imputed interest expenses on convertible debt (non-cash charges);

-- Imputed interest related to restructuring (non-cash charges);

Gains and losses on sales of assets (non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);

-- Loss (gain) related to minority investment (non-core charges or benefits);

-- Other miscellaneous expenses (income) (non-core charges or benefits);

Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); and

-- Amortization of debt issuance costs (non-cash charges).

In addition, in this release we have adjusted non-GAAP income and non-GAAP income per share for the difference between GAAP income taxes and non-GAAP income taxes.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below:

Finisar Corporation
Reconciliation of Results of Operations under GAAP and non-GAAP
(Unaudited, in thousands, except per share data)
Three Months Ended
Nine Months Ended
Three Months Ended
Jan 29, 2017
Jan 31, 2016
Jan 29, 2017
Jan 31, 2016
Oct 30, 2016
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP
$
136,637
$
87,740
$
378,483
$
264,208
$
133,681
Gross margin - GAAP
35.9
%
28.4
%
34.7
%
28.0
%
36.1
%
Adjustments:
Cost of revenues
Change in excess and obsolete inventory valuation adjustments (1)
-
1,293
-
5,125
-
Amortization of acquired technology
990
1,630
3,503
4,500
990
Duplicate facility costs during facility move
10
7
26
93
8
Stock compensation
3,182
2,539
9,178
8,153
2,949
Impairment of long-lived assets
-
-
-
1,282
-
Reduction in force costs
68
364
184
1,335
14
Acquisition related retention payment
26
28
71
121
26
Total cost of revenue adjustments
4,276
5,861
12,962
20,609
3,987
Gross profit - non-GAAP
140,913
93,601
391,445
284,817
137,668
Gross margin - non-GAAP
37.0
%
30.3
%
35.9
%
30.2
%
37.2
%
GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP
54,906
10,458
136,045
26,887
52,828
Operating margin - GAAP
14.4
%
3.4
%
12.5
%
2.8
%
14.3
%
Adjustments:
Total cost of revenue adjustments
4,276
5,861
12,962
20,609
3,987
Total operating expense adjustments
Operating expenses - GAAP
81,731
77,282
242,438
237,321
80,853
Research and development
Reduction in force costs
30
230
292
518
88
Duplicate facility costs during facility move
10
7
24
277
7
Acquisition related retention payment
32
32
96
190
32
Stock compensation
5,461
4,723
16,124
14,531
5,552
Impairment of long-lived assets
-
-
-
287
-
Sales and marketing
Reduction in force costs
-
44
29
224
-
Acquisition related retention payment
-
2
-
15
-
Stock compensation
1,921
1,713
5,549
5,138
1,877
General and administrative
Reduction in force costs
20
39
53
1,354
20
Duplicate facility costs
168
150
465
167
154
Acquisition related retention payment
-
-
(2
)
(5
)
-
Stock compensation
2,807
2,343
8,349
7,860
2,989
Acquisition related costs
21
39
54
435
2
Litigation settlements and resolutions and related costs
47
-
93
16
46
Unclaimed property tax audit accrual
(37
)
-
(37
)
-
-
Amortization of purchased intangibles
713
668
2,049
2,004
668
Impairment of
long-lived assets
-
-
-
587
-
Total operating expense adjustments
11,193
9,990
33,138
33,598
11,435
Operating expenses - non-GAAP
70,538
67,292
209,300
203,723
69,418
Operating income - non-GAAP
70,375
26,309
182,145
81,094
68,250
Operating margin - non-GAAP
18.5
%
8.5
%
16.7
%
8.6
%
18.5
%
GAAP to non-GAAP reconciliation of income before income taxes:
Income before income taxes - GAAP
50,886
10,202
128,497
22,991
51,619
Adjustments:
Total cost of revenue adjustments
4,276
5,861
12,962
20,609
3,987
Total operating expense adjustments
11,193
9,990
33,138
33,598
11,435
Other interest income
-
(113
)
-
(113
)
-
Non-cash imputed interest expenses on convertible debt
4,464
2,411
9,442
7,156
2,509
Imputed interest related to restructuring
34
42
109
131
37
Other (income) expense, net
Loss (gain) on sale of assets
35
(644
)
10
(744
)
(17
)
Loss related to minority investments
643
-
643
-
-
Other miscellaneous income
(280
)
(1,503
)
(280
)
(1,640
)
-
Foreign exchange transaction (gain) or loss
(204
)
1,205
(1,203
)
563
(970
)
Amortization of
debt issuance cost
257
154
565
462
154
Total Interest and other adjustments
4,949
1,552
9,286
5,815
1,713
Income before income taxes - non-GAAP
71,304
27,605
183,883
83,013
68,754
GAAP to non-GAAP reconciliation of net income:
Net income - GAAP
46,387
12,084
119,101
22,121
48,765
Total cost of revenue adjustments
4,276
5,861
12,962
20,609
3,987
Total operating expense adjustments
11,193
9,990
33,138
33,598
11,435
Total Interest and other adjustments
4,949
1,552
9,286
5,815
1,713
Income tax provision adjustments
399
(2,883
)
(304
)
(4,150
)
(746
)
Total adjustments
20,817
14,520
55,082
55,872
16,389
Net income - non-GAAP
$
67,204
$
26,604
$
174,183
$
77,993
$
65,154
Non-GAAP net income for diluted earnings per share calculation
Non-GAAP net income
$
67,204
$
26,604
$
174,183
$
77,993
$
65,154
Add: interest expense for dilutive convertible notes
-
-
-
-
-
Adjusted non-GAAP income
$
67,204
$
26,604
$
174,183
$
77,993
$
65,154
Basic non-GAAP income per share
GAAP earnings per share
$
0.42
$
0.11
$
1.08
$
0.21
$
0.44
Impact of all non-GAAP adjustments
$
0.19
$
0.14
$
0.50
$
0.52
$
0.15
Non-GAAP earnings per share
$
0.61
$
0.25
$
1.58
$
0.73
$
0.59
Diluted non-GAAP income per share
GAAP earnings per share
$
0.40
$
0.11
$
1.05
$
0.20
$
0.43
Impact of all non-GAAP adjustments
$
0.19
$
0.14
$
0.48
$
0.52
$
0.15
Non-GAAP earnings per share
$
0.59
$
0.25
$
1.53
$
0.72
$
0.58
Shares used in computing non-GAAP income per share
Basic
110,956
107,180
110,061
106,367
110,407
Diluted
114,873
108,128
113,506
108,488
113,192
(1) Non-GAAP adjustment no longer made effective fiscal 2017.

Finisar-F

Investor Contact:
Kurt Adzema
Chief Financial Officer
408-542-5050 or Investor.relations@finisar.com
Press contact:
Victoria McDonald
Director, Corporate Communications
408-542-4261

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