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CST: 19/03/2019 20:53:09   

Finisar Announces Third Quarter of Fiscal 2019 Financial Results

19 Days ago

SUNNYVALE, Calif., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for third quarter of fiscal 2019, ended January 27, 2019. Finisar will not hold an earnings call, nor provide forward guidance for the fourth quarter of fiscal 2019 due to the previously announced proposed acquisition by II-VI Incorporated (NASDAQ: IIVI).

COMMENTARY

“I am pleased to report that revenues again grew over the prior quarter and gross margins also improved over the prior quarter, primarily due to favorable product mix and continued focus on reducing manufacturing overhead,” said Michael Hurlston, Finisar’s Chief Executive Officer.  “The combination of the above resulted in significant improvement in operating margins and profitability.”

FINANCIAL HIGHLIGHTS – Third Quarter Ended January 27,2019

Summary GAAP Results Third
  Second
  Quarter
  Quarter
  Ended
  Ended
  January 27, 2019
  October 28, 2018
  (in thousands, except per share amounts)
               
Revenues $ 327,636     $ 325,423  
Gross margin   28.8 %     26.3 %
Operating expenses $ 93,890     $ 89,788  
Operating income (loss) $ 533     $ (4,105 )
Operating margin   0.2 %     (1.3 )%
Net loss $ (15,301 )   $ (5,275 )
Loss per share-basic $ (0.13 )   $ (0.04 )
Loss per share-diluted $ (0.13 )   $ (0.04 )
               
Basic shares   117,608       117,284  
Diluted shares   117,608       117,284  
               



Summary Non-GAAP Results (a) Third
  Second
  Quarter
  Quarter
  Ended
  Ended
  January 27, 2019
  October 28, 2018
  (in thousands, except per share amounts)
               
Revenues $ 327,636     $ 325,423  
Non-GAAP Gross margin   30.2 %     28.3 %
Non-GAAP Operating expenses $ 63,645     $ 63,559  
Non-GAAP Operating income  $ 35,229     $ 28,626  
Non-GAAP Operating margin   10.8 %     8.8 %
Non-GAAP Net income $ 34,192     $ 30,600  
Non-GAAP Income per share-basic $ 0.29     $ 0.26  
Non-GAAP Income per share-diluted $ 0.29     $ 0.26  
               
Basic shares   117,608       117,284  
Diluted shares   119,570       118,290  

_____________

(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 resultsA 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 2019: 

  • Revenues increased by $2.2 million, or 0.7%, compared to the second quarter of fiscal 2019 as the result of increased sales of wavelength selective switches and VCSEL arrays for 3D applications, partially offset by a decline in sales of 10G and lower transceivers.
     
  • GAAP gross margin improved from 26.3% in the second quarter to 28.8% primarily due to favorable product mix and continued focus on reducing manufacturing overhead.

  • Non-GAAP gross margin improved from 28.3% in the second quarter to 30.2%.

  • GAAP operating margin improved from (1.3)% of revenue in the second quarter to 0.2% due to the combination of higher revenues and improved gross margins.

  • Non-GAAP operating margin improved from 8.8% in the second quarter to 10.8%.

  • During the quarter, the Company redeemed approximately $257.7 million of convertible notes.

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; intensive competition; the risk that our pending merger with II-VI does not close, due to the failure of one or more conditions to closing; uncertainty as to the market value of the II-VI merger consideration to be paid in the merger; the risk that required governmental or stockholder approvals of the merger (including China antitrust approval) will not be obtained or that such approvals will be delayed beyond current expectations; the risk of litigation in respect of either Finisar or II-VI or the merger; disruption from the merger making it more difficult to maintain our customer, supplier, key personnel and other strategic relationships.  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 15, 2018) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (NASDAQ: FNSR) is a global technology leader in optical communications, providing components and subsystems to networking equipment manufacturers, data center operators, telecom service providers, consumer electronics and automotive companies.  Founded in 1988, Finisar designs products that meet the increasing demands for network bandwidth, data storage and 3D sensing subsystems. The company is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. Visit our website at 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 27, 2019   Jan 28, 2018   Jan 27, 2019   Jan 28, 2018   Oct 28, 2018
Revenues $  327,636     $  332,403     $  970,395     $  1,006,414     $  325,423  
Cost of revenues    232,717        243,724        708,116        705,009        239,244  
Amortization of acquired developed technology    496        611        1,488        1,833        496  
Gross profit    94,423        88,068        260,791        299,572        85,683  
Gross margin   28.8 %     26.5 %     26.9 %     29.8 %     26.3 %
Operating expenses:                  
Research and development    51,274        59,888        167,008        178,488        52,674  
Sales and marketing    12,170        11,913        37,077        36,494        12,427  
General and administrative    14,973        19,739        40,448        47,310        12,832  
Start-up costs    15,136        638        34,108        638        11,419  
Amortization of purchased intangibles    337        666        1,413        2,039        436  
Impairment of long-lived assets    -         1,353        -         1,353        -   
Total operating expenses    93,890        94,197        280,054        266,322        89,788  
Income (loss) from operations    533        (6,129 )      (19,263 )      33,250        (4,105 )
Interest income    5,333        3,995        16,469        11,181        5,981  
Interest expense    (8,167 )      (9,192 )      (27,043 )      (27,336 )      (9,490 )
Other income (expenses), net    (38 )      (459 )      (1,043 )      (2,042 )      784  
Income (loss) before income taxes    (2,339 )      (11,785 )      (30,880 )      15,053        (6,830 )
Provision (benefit) for income taxes    12,962        43,874        8,185        44,996        (1,555 )
Net loss $  (15,301 )   $  (55,659 )   $  (39,065 )   $  (29,943 )   $  (5,275 )
                   
Net income (loss) per share:                  
                   
Basic $  (0.13 )   $  (0.49 )   $  (0.33 )   $  (0.26 )   $  (0.04 )
Diluted $  (0.13 )   $  (0.49 )   $  (0.33 )   $  (0.26 )   $  (0.04 )
                   
Shares used in computing net income (loss) per share - basic   117,608       114,209       116,919       113,571       117,284  
Shares used in computing net income (loss) per share - diluted   117,608       114,209       116,919       113,571       117,284  
                   


Finisar Corporation
Consolidated Balance Sheets
 (in thousands)
                 
    Jan 27, 2019   Oct 28, 2018   Jul 29, 2018   Apr 29, 2018
    (Unaudited)   (Unaudited)   (Unaudited)    
ASSETS                
Current assets:                
Cash and cash equivalents   $  906,854     $  332,138     $  326,189     $  312,257  
Short-term investments      3,754        837,658        832,681        884,838  
Accounts receivable, net      263,737        247,688        248,138        233,529  
Inventories      306,864        309,500        325,846        348,527  
Other current assets      44,713        51,232        54,863        56,001  
Total current assets      1,525,922        1,778,216        1,787,717        1,835,152  
Property, equipment and improvements, net      622,770        600,972        587,203        520,849  
Purchased intangible assets, net      4,977        5,810        6,742        7,878  
Goodwill      106,735        106,735        106,735        106,735  
Other assets      12,185        12,250        25,179        31,721  
Deferred tax assets      85,372        89,202        85,873        80,850  
Total assets   $  2,357,961     $  2,593,185     $  2,599,449     $  2,583,185  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $  128,594     $  133,539     $  149,876     $  132,161  
Accrued compensation      41,216        36,152        35,349        32,525  
Other accrued liabilities      54,890        54,746        50,944        32,824  
Deferred revenue      -         -         -         9,535  
Current portion of convertible debt      -         257,067        254,150        251,278  
Total current liabilities      224,700        481,504        490,319        458,323  
Long-term liabilities:                
Convertible debt, net of current portion      506,454        499,838        494,316        488,877  
Other non-current liabilities      11,864        11,558        11,366        12,368  
Total liabilities      743,018        992,900        996,001        959,568  
Stockholders' equity:                
Common stock      118        117        117        115  
Additional paid-in capital      2,904,016        2,885,319        2,869,657        2,850,195  
Accumulated other comprehensive loss      (46,645 )      (57,906 )      (44,356 )      (14,659 )
Accumulated deficit      (1,242,546 )      (1,227,245 )      (1,221,970 )      (1,212,034 )
Total stockholders' equity      1,614,943        1,600,285        1,603,448        1,623,617  
Total liabilities and stockholders' equity   $  2,357,961     $  2,593,185     $  2,599,449     $  2,583,185  
                 
Note - Balance sheet amounts as of April 29, 2018 are derived from the audited consolidated financial statements as of that 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:

  • Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of long-lived/intangible assets (non-cash charges);
  • Reduction in force costs and other restructuring charges (non-core cash charges);
  • Acquisition related retention payments (non-core cash charges); and
  • Inventory write-off related to discontinued products (non-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:

  • Discontinued product services fee (non-core cash charges);
  • Acquisition related costs (non-core cash charges);
  • Litigation settlements and resolutions and related costs (non-core cash charges);
  • Amortization of purchased intangibles (non-cash charges); and
  • Start-up cash costs related to our Sherman VCSEL fab until we begin commercial production.

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:

  • Imputed interest expenses on convertible debt (non-cash charges);
  • Imputed interest related to restructuring (non-cash charges);
  • Other interest income (non-core benefits);
  • Gains and losses on sales of assets and other miscellaneous (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);
  • 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 27, 2019   Jan 28, 2018   Jan 27, 2019   Jan 28, 2018   Oct 28, 2018
GAAP to non-GAAP reconciliation of gross profit:                  
Gross profit - GAAP $  94,423     $  88,068     $  260,791     $  299,572     $  85,683  
Gross margin - GAAP   28.8 %     26.5 %     26.9 %     29.8 %     26.3 %
Adjustments:                  
Cost of revenues                  
Amortization of acquired technology    496        611        1,488        1,833        496  
Stock compensation    4,248        2,918        11,547        9,212        3,493  
Impairment of long-lived/intangible assets    62        -         79        -         17  
Reduction in force costs    544        7        2,685        632        1,659  
Acquisition related retention payment    (5 )      26        28        93        21  
Write off of discontinued product inventory    (894 )      3,448        1,593        3,448        816  
Total cost of revenues adjustments    4,451        7,010        17,420        15,218        6,502  
Gross profit - non-GAAP    98,874        95,078        278,211        314,790        92,185  
Gross margin - non-GAAP   30.2 %     28.6 %     28.7 %     31.3 %     28.3 %
                   
GAAP to non-GAAP reconciliation of operating income (loss):                  
Operating income (loss) - GAAP    533        (6,129 )      (19,263 )      33,250        (4,105 )
Operating margin - GAAP   0.2 %     -1.8 %     -2.0 %     3.3 %     -1.3 %
Adjustments:                  
Total cost of revenues adjustments    4,451          7,010        17,420          15,218        6,502  
Total operating expense adjustments                  
Operating expenses - GAAP    93,890        94,197        280,054        266,322        89,788  
Research and development                  
Reduction in force costs and other restructuring    186        792        8,182        907        972  
Acquisition related retention payment    (5 )      44        41        108        17  
Stock compensation    5,683        6,073        17,820        18,302        5,962  
Discontinued product service fees    -         -         921        -         608  
Sales and marketing                  
Reduction in force costs    32        -         716        (12 )      282  
Acquisition related retention payment    -         -         -         (2 )      -   
Stock compensation    2,012        1,892        6,179        5,975        2,021  
General and administrative                  
Reduction in force costs and other restructuring    190        460        966        830        257  
Stock compensation    3,542        9,888        9,761        15,956        3,202  
Acquisition related costs    3,086        (25 )      4,081        19        997  
Litigation settlements and resolutions and related costs    -         -         88        -         25  
Amortization of purchased intangibles    337        666        1,413        2,039        436  
Startup costs    15,136        638        34,108        638        11,419  
Impairment of long-lived assets/intangible assets    46        1,394        263        1,394        31  
Total operating expense adjustments   30,245       21,822       84,539       46,154       26,229  
Operating expenses - non-GAAP   63,645       72,375       195,515       220,168       63,559  
Operating income - non-GAAP   35,229       22,703       82,696       94,622       28,626  
Operating margin - non-GAAP   10.8 %     6.8 %     8.5 %     9.4 %     8.8 %
                   
GAAP to non-GAAP reconciliation of income (loss) before income taxes:                  
Income (loss) before income taxes - GAAP    (2,339 )      (11,785 )      (30,880 )      15,053        (6,830 )
Adjustments:                  
Total cost of revenues adjustments    4,451        7,010        17,420        15,218        6,502  
Total operating expense adjustments    30,245        21,822        84,539        46,154        26,229  
Other interest income    (13 )      (14 )      (13 )      (14 )      -   
Non-cash imputed interest expenses on convertible debt    6,940        7,739        22,921        22,970        8,054  
Imputed interest related to restructuring    15        25        53        83        18  
Other (income) expense, net                  
(Gain) / loss on sale of assets and other miscellaneous    85        (79 )      (42 )      (158 )      (50 )
Loss related to impairment of minority investments    -         -         399        2,347        399  
Foreign exchange transaction (gain) or loss    200        698        814        (318 )      (1,307 )
Amortization of debt issuance cost    308        385        1,078        1,155        385  
Total interest and other adjustments    7,535        8,754        25,210        26,065        7,499  
Income before income taxes - non-GAAP   39,892       25,801       96,289       102,490       33,400  
                   
GAAP to non-GAAP reconciliation of net income (loss):                  
Net loss - GAAP    (15,301 )      (55,659 )      (39,065 )      (29,943 )      (5,275 )
Total cost of revenues adjustments    4,451        7,010        17,420        15,218        6,502  
Total operating expense adjustments    30,245        21,822        84,539        46,154        26,229  
Total interest and other adjustments   7,535        8,754       25,210        26,065       7,499  
Income tax provision adjustments    7,262        40,874        (2,015 )      37,146        (4,355 )
Total adjustments    49,493        78,460        125,154        124,583        35,875  
Net income - non-GAAP $  34,192     $  22,801     $  86,089     $  94,640     $  30,600  
                   
Non-GAAP net income for diluted earnings per share calculation                  
Net income - non-GAAP $  34,192     $  22,801     $  86,089     $  94,640     $  30,600  
Add: interest expense for dilutive convertible notes    -         -         -         -         -   
Adjusted net income - non-GAAP $  34,192     $  22,801     $  86,089     $  94,640     $  30,600  
                   
Basic non-GAAP income per share                  
GAAP earnings per share $  (0.13 )   $  (0.49 )   $  (0.33 )   $  (0.26 )   $  (0.04 )
Impact of all non-GAAP adjustments $  0.42     $  0.69     $  1.07     $  1.09     $  0.30  
Non-GAAP earnings per share $  0.29     $  0.20     $  0.74     $  0.83     $  0.26  
                   
Diluted non-GAAP income per share                  
GAAP earnings per share $  (0.13 )   $  (0.49 )   $  (0.33 )   $  (0.26 )   $  (0.04 )
Impact of all non-GAAP adjustments $  0.42     $  0.69     $  1.06     $  1.07     $  0.30  
Non-GAAP earnings per share $  0.29     $  0.20     $  0.73     $  0.81     $  0.26  
                   
Shares used in computing non-GAAP income per share                  
Basic   117,608       114,209       116,919       113,571       117,284  
Diluted   119,570       115,661       118,617       116,138       118,290  
                   


Finisar-F

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

Additional Information and Where to Find It

In connection with the proposed acquisition of Finisar Corporation (the “Company”) by II-VI Incorporation (“Parent”) pursuant to the terms of an Agreement and Plan of Merger by and among the Company, Parent and Mutation Merger Sub Inc. (“Merger Subsidiary”), Parent has filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 (the “Form S-4”) that contains a proxy statement of the Company and a proxy statement and prospectus of Parent, which joint proxy statement/prospectus has been mailed or otherwise disseminated to the Company’s stockholders.  Investors are urged to read the joint proxy statement/prospectus (including all amendments and supplements) because they contain important information.  Investors may obtain free copies of the joint proxy statement/prospectus, as well as other filings containing information about the Company and Parent, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of these documents may also be obtained for free from the companies’ web sites at www.finisar.com and www.ii-vi.com.

Participants in Solicitation

The Company, Parent and their respective officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in connection with the proposed transaction.  Information about the Company’s executive officers and directors is set forth in its Annual Report on Form 10-K, which was filed with the SEC on June 15, 2018, and the proxy statement for its 2018 annual meeting of stockholders, which was filed with the SEC on July 26, 2018. Investors may obtain more detailed information regarding the direct and indirect interests of Parent, the Company and their respective executive officers and directors in the acquisition by reading the definitive joint proxy statement/prospectus regarding the transaction, which was filed with the SEC on February 8, 2019.

Forward Looking Statements

This written communication contains forward-looking statements that involve risks and uncertainties concerning Parent’s proposed acquisition of the Company, the Company’s expected financial performance, as well as the Company’s strategic and operational plans. Actual events or results may differ materially from those described in this written communication due to a number of risks and uncertainties. The potential risks and uncertainties include, among others, the possibility that the Company may be unable to obtain required stockholder approval or that other conditions to closing the transaction may not be satisfied, such that the transaction will not close or that the closing may be delayed; the reaction of customers to the transaction; general economic conditions; the transaction may involve unexpected costs, liabilities or delays; risks that the transaction disrupts current plans and operations of the parties to the transaction; the ability to recognize the benefits of the transaction; the amount of the costs, fees, expenses and charges related to the transaction and the actual terms of any financings that will be obtained for the transaction; the outcome of any legal proceedings related to the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the transaction agreement.  In addition, please refer to the documents that the Company files with the SEC on Forms 10-K, 10-Q and 8-K. The filings by the Company identify and address other important factors that could cause its financial and operational results to differ materially from those contained in the forward-looking statements set forth in this written communication. All forward-looking statements speak only as of the date of this written communication or, in the case of any document incorporated by reference, the date of that document. The Company is under no duty to update any of the forward-looking statements after the date of this written communication to conform to actual results.

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