Finisar Corporation
Sep 1, 2011
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Finisar Announces First Quarter Fiscal 2012 Financial Results

Revenues of $228.2 Million, 9.8% Year-to-Year Growth
Non-GAAP Earnings per Diluted Share of $0.21

SUNNYVALE, CA -- (MARKET WIRE) -- 09/01/11 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optics communications, today announced financial results for its first quarter of fiscal 2012 ended July 31, 2011.

COMMENTARY

"In our just completed fiscal first quarter, our revenues were $228.2 million, 9.8% greater than the prior year period but 3.7% less than the preceding quarter. The sequential decline in revenues was primarily driven by continued softness in demand from our telecom customers, particularly Chinese OEMs. We achieved a non-GAAP gross margin of 32.1%, exceeding our prior guidance of 30.7% to 31.7%. This resulted from lower than expected manufacturing costs. Our non-GAAP earnings per diluted share were $0.21, exceeding our prior guidance of $0.16 to $0.20, as our operating expenses were also lower than expected," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the first quarter we continued to invest in our new product development programs, including our tunable XFP transceivers, 40Gbps and 100Gbps products, 16Gbps fiber channel transceivers and our edge or access ROADMs. We are currently qualified at multiple OEM customers for our tunable XFP transceiver and are in qualification with more than 15 additional customers. We expect production of this product to start to ramp during the second quarter of fiscal 2012. In addition, on June 29, 2011, we successfully closed our previously announced cash tender offer for the remaining outstanding shares of Ignis ASA and now hold 100% of the outstanding shares of Ignis," said Eitan Gertel, Finisar's Chief Executive Officer.




          FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED July 31, 2011



                                  First           First          Fourth

                                 Quarter         Quarter         Quarter

   Summary GAAP Results           Ended           Ended           Ended

                              July 31, 2011    Aug 1, 2010   April 30, 2011

                             --------------  --------------  --------------

                                (in thousands, except per share amounts)

Continuing operations

--------------------------

Revenues                     $      228,226  $      207,882  $      236,946

Gross margin                           29.1%           34.1%           31.6%

Operating expenses           $       59,391  $       47,151  $       53,644

Operating income             $        7,090  $       23,747  $       21,265

Operating margin                        3.1%           11.4%            9.0%

Income                       $       10,142  $       19,410  $       16,352

Income per share-basic       $         0.11  $         0.26  $         0.18

Income per share-diluted     $         0.11  $         0.24  $         0.17



Basic shares                         90,221          76,111          89,584

Diluted shares                       93,527          88,215          97,837





                                  First           First          Fourth

                                 Quarter         Quarter         Quarter

Summary Non-GAAP Results (a)      Ended           Ended           Ended

                              July 31, 2011    Aug 1, 2010   April 30, 2011

                             --------------  --------------  --------------

                                (in thousands, except per share amounts)

Continuing operations

--------------------------

Revenues                     $      228,226  $      207,882  $      236,946

Gross margin                           32.1%           35.2%           34.2%

Operating expenses           $       52,414  $       44,234  $       48,043

Operating income             $       20,944  $       29,043  $       33,069

Operating margin                        9.2%           14.0%           14.0%

Income                       $       19,528  $       25,812  $       32,113

Income per share-basic       $         0.22  $         0.34  $         0.36

Income per share-diluted     $         0.21  $         0.31  $         0.33



Basic shares                         90,221          76,111          89,584

Diluted shares                       97,275          88,215          97,837





--------------

 (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 Finisar's core

     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.





Highlights for the first quarter of fiscal 2012 under GAAP:

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding its operating performance on a non-GAAP basis. Finisar believes this supplemental information provides investors and management with additional insight into its underlying core operating performance by excluding a number of non-cash and cash charges, as well as infrequently occurring gains or losses principally related to acquisitions, the sale of minority investments, restructuring or other transition activities, legal settlements, impairments and financing transactions. For the first quarter of fiscal 2011, items related to continuing operations representing a net charge of approximately $9.4 million were excluded. Excluded charges included $7.1 million in non-cash stock-based compensation expenses; $2.3 million in non-cash amortization charges related to acquired developed technology and other purchased intangibles arising from previous acquisitions; a $1.9 million non-cash purchase accounting adjustment from the sale of acquired inventory related to the Ignis acquisition; a non-cash charge of $619,000 related to the Company's equity interest in the net loss of Ignis due to Finisar's 32% ownership position in Ignis prior to attaining control and the implementation of consolidation accounting as of May 18, 2011; a $650,000 charge related to a reduction of force; $1.1 million in non-cash charges related to slow-moving and excess inventory; $ 5.4 million in non-cash gain on remeasurement of initial investment in Ignis relative to tender offer price; $419,000 in non-recurring debt extinguishment loss resulting from repayment of debt of Ignis; and $1.1 million in non-recurring transaction expenses related to the acquisition of the Ignis shares. Other excluded items are described in Finisar Non-GAAP Financial Measures below.

Highlights for the fourth quarter of fiscal 2011 on a non-GAAP basis:

OUTLOOK

Finisar will apply consolidation accounting for its 100% ownership interest in Ignis for the full second quarter ending October 30, 2011, compared to the first quarter in which consolidation accounting was applied for approximately 50% of the quarter and for only 81% ownership. The expected impact of the consolidation of Ignis on the outlook for the second quarter is approximately $14 million of revenues at a gross margin of approximately 23-24%, additional operating expenses of approximately $5 million and dilution to earnings per share of approximately $0.02. As previously announced, Finisar expects the transaction with Ignis to be accretive to non-GAAP earnings per diluted share within one year following the closing of the tender offer, subject to the achievement of anticipated synergies.

Including the impact of the consolidation of Ignis, the Company indicated that it currently expects second fiscal quarter revenues to be in the range of $235 to $250 million; GAAP operating margin to be in the range of approximately 5.5% to 7.0%; non-GAAP operating margin to be in the range of 8.5% to 10.0% and non-GAAP earnings per diluted share to be in the range of approximately $0.20 to $0.24.

CONFERENCE CALL

Finisar will discuss its financial results for the fourth quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, September 1, 2011, at 2:00pm PDT (5:00pm EDT). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-877-397-0298 (domestic) or (719) 325-4767 (international) and enter conference ID 6630304.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or (719) 457-0820 and then following the prompts: enter conference ID 6630304 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements included in this press release are based upon information available to Finisar as of the date hereof, and 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; challenges related to the integration of the Ignis acquisition and realizing anticipated benefits of improved access to a supply of tunable lasers; 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 28, 2011) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (NASDAQ: 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 more than 20 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



                                           Three Months Ended

                             ----------------------------------------------

                              July 31, 2011  August 1, 2010  April 30, 2011

                             --------------  --------------  --------------

                                               (Unaudited)

                             ----------------------------------------------

                                  (in thousands, except per share data)

Revenues                     $      228,226  $      207,882  $      236,946

Cost of revenues                    160,223         135,792         160,966

Amortization of acquired

 developed technology                 1,522           1,192           1,071

                             --------------  --------------  --------------

Gross profit                         66,481          70,898          74,909

Gross margin                           29.1%           34.1%           31.6%

Operating expenses:

  Research and development           35,396          26,617          32,909

  Sales and marketing                 9,586           9,075           9,025

  General and administrative         13,952          11,076          11,328

  Amortization of purchased

   intangibles                          779             383             382

  Restructuring costs                  (322)              -               -

                             --------------  --------------  --------------

    Total operating expenses         59,391          47,151          53,644

                             --------------  --------------  --------------

Income from operations                7,090          23,747          21,265

Interest income                         160              92              91

Interest expense                       (911)         (2,155)           (668)

Loss on debt extinguishment            (419)              -          (2,394)

Other income (expense), net           4,663            (192)         (1,311)

Non-controlling interest                107               -               -

                             --------------  --------------  --------------

Income from continuing

 operations before income

 taxes                               10,690          21,492          16,983

Provision for income taxes              548           2,082             631

                             --------------  --------------  --------------

Income from continuing

 operations                          10,142          19,410          16,352

Income (loss) from

 discontinued operations,

 net of taxes                             -            (284)              -

                             --------------  --------------  --------------

Net income                   $       10,142  $       19,126  $       16,352

                             ==============  ==============  ==============



Income per share from

 continuing operations -

 basic                       $         0.11  $         0.26  $         0.18

Income per share from

 continuing operations -

 diluted                     $         0.11  $         0.24  $         0.17



Income per share from

 discontinued operations -

 basic                       $            -  $            -  $            -

Income per share from

 discontinued operations -

 diluted                     $            -  $            -  $            -



Shares used in computing net

 income per share from

 continuing operations -

 basic                               90,221          76,111          89,584



Shares used in computing net

 income per share from

 continuing operations -

 diluted                             93,527          88,215          97,837



Shares used in computing net

 income per share from

 discontinued operations -

 basic                               90,221          76,111          89,584



Shares used in computing net

 income per share from

 discontinued operations -

 diluted                             93,527          88,215          97,837







                            Finisar Corporation

                        Consolidated Balance Sheets

                               (In thousands)



                                              July 31, 2011  April 30, 2011

                                             --------------  --------------

                                               (Unaudited)

                   ASSETS

Current assets:

  Cash and cash equivalents                  $      238,052  $      314,765

  Accounts receivable, net                          166,536         168,386

  Accounts receivable, other                         12,788          12,733

  Inventories                                       208,567         187,617

  Prepaid expenses                                   16,029           9,906

                                             --------------  --------------

    Total current assets                            641,972         693,407

Property, equipment and improvements, net           138,300         125,693

Purchased technology, net                            22,110           7,332

Other intangible assets, net                         27,869          10,107

Goodwill                                             83,107               -

Minority investments                                 12,289          12,289

Equity method investments                                 -          31,142

Other assets                                         21,291           5,179

                                             --------------  --------------

    Total assets                             $      946,938  $      885,149

                                             ==============  ==============



    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

  Accounts payable                           $       87,996  $       76,288

  Accrued compensation                               17,494          24,525

  Other accrued liabilities                          33,785          25,112

  Deferred revenue                                    9,762           8,064

  Deferred tax liabilities                               43               -

  Current portion of long-term debt                   7,547               -

                                             --------------  --------------

    Total current liabilities                       156,627         133,989

Long-term liabilities:

  Convertible notes, net of current portion          40,015          40,015

  Long-term debt, net of current portion              2,329               -

  Other non-current liabilities                      16,314          11,988

  Deferred tax liabilities                            3,553               -

                                             --------------  --------------

    Total liabilities                               218,838         185,992

Stockholders' equity:

  Common stock                                           91              90

  Additional paid-in capital                      2,285,769       2,275,600

  Accumulated other comprehensive income             33,404          32,966

  Accumulated deficit                            (1,599,357)     (1,609,499)

                                             --------------  --------------

    Parent stockholders' equity                     719,907         699,157

  Non-controlling interest                            8,193               -

                                             --------------  --------------

    Total stockholders' equity                      728,100         699,157

                                             --------------  --------------

Total liabilities and stockholders' equity   $      946,938  $      885,149

                                             ==============  ==============





FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which 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 non-recurring and infrequently incurred 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 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 calculating non-GAAP income from continuing operations and non-GAAP income from continuing operations per share in this release, we have also excluded the following items in applicable periods:

In calculating non-GAAP income (loss) from discontinued operations and non-GAAP income from discontinued operations per share in this release, we have also excluded gains on disposal of a product line and disposal of discontinued operations.

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



                                           Three Months Ended

                              July 31, 2011  August 1, 2010  April 30, 2011

                             --------------  --------------  --------------

                                               (Unaudited)

                             ----------------------------------------------

                                  (in thousands, except per share data)

Reconciliation of GAAP

 income to non-GAAP income

 from continuing operations

Reconciliation of GAAP Gross

 Profit to non-GAAP Gross

 Profit:

Gross profit per GAAP        $       66,481  $       70,898  $       74,909

Gross margin, GAAP                     29.1%           34.1%           31.6%

Adjustments:

Cost of revenues

  Change in excess and

   obsolete inventory

   reserve                            1,090             405           3,737

  Amortization of acquired

   technology                         1,522           1,192           1,071

  Stock compensation                  1,859             746           1,388

  Purchase accounting

   adjustment for sale of

   acquired inventory                 1,854               -               -

  Reduction in force costs              552              36               7

                             --------------  --------------  --------------

    Total cost of revenue

     adjustments                      6,877           2,379           6,203

Gross profit, non-GAAP               73,358          73,277          81,112

Gross margin, non-GAAP                 32.1%           35.2%           34.2%



Reconciliation of GAAP

 operating income to non-

 GAAP operating income:

Operating income per GAAP             7,090          23,747          21,265

Operating margin, GAAP                  3.1%           11.4%            9.0%

Adjustments:

Total cost of revenue

 adjustments                          6,877           2,379           6,203

Research and development

  Reduction in force costs                -               5              21

  Stock compensation                  2,361           1,037           2,162

Sales and marketing

  Reduction in force costs                -              74              46

  Stock compensation                    864             451             653

General and administrative

  Reduction in force costs               98              42              15

  Stock compensation                  2,008           1,025           1,421

  Acquisition related costs           1,089               -             995

  Litigation settlement                 100            (100)            (94)

Amortization of purchased

 intangibles                            779             383             382

Restructuring costs                    (322)              -               -

                             --------------  --------------  --------------

    Total cost of revenue

     and operating expense

     adjustments                     13,854           5,296          11,804

Operating income, non-GAAP           20,944          29,043          33,069

Operating margin, non-GAAP              9.2%           14.0%           14.0%



Reconciliation of GAAP

 income to non-GAAP income

 from continuing operations:

Income per GAAP from

 continuing operations               10,142          19,410          16,352

Total cost of revenue and

 operating expense

 adjustments                         13,854           5,296          11,804

No cash imputed interest

 expenses on convertible

 debt                                     -             375               -

Imputed interest related to

 restructuring                           70               -              73

Other income (expense), net

  Loss on sale of assets                  1              16            (144)

  Loss related to minority

   and equity method

   investments                          619               -             413

  Foreign exchange

   transaction loss/(gain)             (148)            (67)            574

  Debt extinguishment loss              419               -           2,652

  Fair value remeasurement

   of equity investment              (5,429)              -               -

Provision for income tax

  Timing differences                      -             782             389

                             --------------  --------------  --------------

Total adjustments                     9,386           6,402          15,761

                             --------------  --------------  --------------

Income, non-GAAP, from

 continuing operations               19,528          25,812          32,113

                             --------------  --------------  --------------



Reconciliation of GAAP

 income (loss) to non-GAAP

 income (loss) from

 discontinued operations:

Income (loss) per GAAP from

 discontinued operations                  -            (284)              -

                             --------------  --------------  --------------

Income (loss) from

 discontinued operations,

 non-GAAP                                 -            (284)              -

                             --------------  --------------  --------------



Reconciliation of GAAP net

 income to non-GAAP net

 income:

Net income per GAAP                  10,142          19,126          16,352

  Total adjustments from

   continuing operations              9,386           6,402          15,761

                             --------------  --------------  --------------

Total adjustments                     9,386           6,402          15,761

                             --------------  --------------  --------------

Net income, non-GAAP         $       19,528  $       25,528  $       32,113

                             ==============  ==============  ==============



Income from continuing

 operations                  $       19,528  $       25,812  $       32,113

Add: interest expense for

 dilutive convertible notes             539           1,378             560

                             --------------  --------------  --------------

Adjusted income from

 continuing operations       $       20,067  $       27,190  $       32,673

                             ==============  ==============  ==============



Income per share from

 continuing operations -

 basic                       $         0.22  $         0.34  $         0.36

Income per share from

 continuing operations -

 diluted                     $         0.21  $         0.31  $         0.33



Shares used in computing net

 income per share from

 continuing operations -

 basic                               90,221          76,111          89,584

Shares used in computing net

 income per share from

 continuing operations -

 diluted                             97,275          88,215          97,837



Continuing operations

Net income, non-GAAP         $       19,528  $       25,812  $       32,113



Depreciation expense                 10,595           8,166           9,922

Amortization                            208             289             208

Interest expense                        681           1,688             504

Income tax expense                      548           1,301             242

                             --------------  --------------  --------------

Non-GAAP EBITDA              $       31,560  $       37,256  $       42,989

                             --------------  --------------  --------------



Discontinued operations

Net income (loss), non-GAAP               -            (284)              -

                             --------------  --------------  --------------

Non-GAAP EBITDA              $            -  $         (284) $            -

                             --------------  --------------  --------------



                             --------------  --------------  --------------

Total Non-GAAP EBITDA        $       31,560  $       36,972  $       42,989

                             ==============  ==============  ==============





Investor Contact:

Kurt Adzema

Chief Financial Officer

408-542-5050

Investor.relations@finisar.com



Press contact:

Victoria McDonald

Sr. Manager, Corporate Communications

408-542-4261



Source: Finisar

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