September 5, 2013

Finisar Announces Record Revenue for First Fiscal Quarter

SUNNYVALE, CA--(Marketwired - Sep 5, 2013) -  Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its first fiscal quarter ended July 28, 2013. 

COMMENTARY

"I am pleased to report first quarter revenues were $266.1 million, an all-time record for Finisar. This was an increase of $22.7 million, or 9.3%, over the prior quarter and an increase of $45.5 million, or 20.7% over the first quarter of the prior year. Revenues exceeded the guidance of $245 million to $260 million that we provided early in the first quarter and grew for the fourth consecutive quarter. The growth in revenues in the first quarter came primarily from increased sales of 10G, 40G and 100G Ethernet transceivers for datacom applications. As a result of these higher than expected revenues, a favorable product mix and operating leverage, we also were able to achieve gross margin and earnings per diluted share that exceeded our original guidance range," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to invest significantly in technology and product development. Our new products for 100 gigabit parallel and serial applications for either single mode and multi mode fiber applications continue to have strong customer demand. We also expect our new platform of high density dual and single WSS will extend our leadership in the WSS market in both the component and ROADM linecard form," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED July 28, 2013

Summary GAAP Results   First     Fourth  
  Quarter     Quarter  
  Ended     Ended  
    July 28,
2013
    April 28,
2013
 
    (in thousands, except per share amounts)  
             
Revenues   $ 266,068     $ 243,417  
Gross margin     34.3 %     27.7 %
Operating expenses   $ 64,270     $ 66,941  
Operating income   $ 27,103     $ 385  
Operating margin     10.2 %     0.2 %
Net income   $ 26,011     $ 3,879  
Income per share-basic   $ 0.27     $ 0.04  
Income per share-diluted   $ 0.26     $ 0.04  
                 
Basic shares     94,609       93,567  
Diluted shares     101,125       96,192  
                 
Summary Non-GAAP Results (a)   First     Fourth  
  Quarter     Quarter  
  Ended     Ended  
    July 28,
2013
    April 28,
2013
 
    (in thousands, except per share amounts)  
                 
Revenues   $ 266,068     $ 243,417  
Gross margin     35.1 %     32.2 %
Operating expenses   $ 60,903     $ 58,295  
Operating income   $ 32,397     $ 20,032  
Operating margin     12.2 %     8.2 %
Net income   $ 31,269     $ 19,789  
Income per share-basic   $ 0.33     $ 0.21  
Income per share-diluted   $ 0.31     $ 0.20  
                 
Basic shares     94,609       93,567  
Diluted shares     101,125       99,941  
                 
   
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.
   

Financial Statement Highlights for the first quarter of fiscal 2014:

  • Revenues increased to $266.1 million, up $22.7 million, or 9.3%, from $243.4 million in the preceding quarter primarily driven by strength in sales of datacom products.
  • The sale of products for datacom applications increased by $20.5 million, or 12.5%, over the preceding quarter and the sale of products for telecom applications increased by $2.2 million, or 2.7%, over the preceding quarter.
  • Adjusted to reflect the elimination of recently divested businesses, revenues were approximately 12% greater than the preceding quarter.
  • Gross margin increased to 34.3% on a GAAP basis from 27.7% in the preceding quarter primarily as the result of higher revenues, a favorable product mix and operating leverage.
  • Non-GAAP gross margin increased to 35.1% from 32.2% in the preceding quarter.
  • GAAP operating income increased $26.7 million to $27.1 million, or 10.2% of revenues, compared to $0.4 million, or 0.2% of revenues in the preceding quarter, primarily as the result of increased revenues and the improvement in gross margin.
  • Non-GAAP operating income increased $12.4 million to $32.4 million, or 12.2% of revenues, compared to $20.0 million, or 8.2% of revenues, in the preceding quarter.

OUTLOOK

The Company indicated that it currently expects revenues for the second quarter of fiscal 2014 to be in the range of $277 to $292 million; GAAP operating margin to be in the range of approximately 9.7% to 10.7%; non-GAAP operating margin to be in the range of approximately 13.7% to 14.7% and non-GAAP earnings per diluted share to be in the range of approximately $0.37 to $0.41.

CONFERENCE CALL

Finisar will discuss its financial results for the first quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, September 5, 2013, at 2:00 pm PDT (5:00 pm EDT). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-877-852-6575 (domestic) or (719) 325-4826 (international) and enter conference ID 6969862.

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 6969862 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; 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 24, 2013) 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 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth. 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 
(in thousands, except per share data) 
 
    Three Months Ended  
    July 28, 2013     July 29, 2012     April 28, 2013  
    (Unaudited)  
Revenues   $ 266,068     $ 220,526     $ 243,417  
Cost of revenues     173,102       161,457       166,093  
Impairment of acquired developed technology and other long-lived assets     -       -       8,156  
Amortization of acquired developed technology     1,593       1,272       1,842  
Gross profit     91,373       57,797       67,326  
Gross margin     34.3 %     26.2 %     27.7 %
Operating expenses:                        
  Research and development     43,530       38,169       41,270  
  Sales and marketing     11,805       10,674       11,056  
  General and administrative     8,340       13,342       6,279  
  Amortization of purchased intangibles     595       809       734  
  Impairment of long-lived assets     -       -       7,602  
    Total operating expenses     64,270       62,994       66,941  
Income (loss) from operations     27,103       (5,197 )     385  
Interest income     217       196       211  
Interest expense     (552 )     (647 )     (544 )
Other income (expenses), net     488       81       (154 )
Income (loss) before income taxes and non-controlling interest     27,256       (5,567 )     (102 )
Provision (benefits) for income taxes     1,421       642       (1,506 )
Income (loss) before non-controlling interest     25,835       (6,209 )     1,404  
Adjust for net loss attributable to non-controlling interest     176       12       2,475  
Net income (loss) attributable to Finisar Corporation   $ 26,011     $ (6,197 )   $ 3,879  
                         
Net income (loss) per share attributable to Finisar Corporation common stockholders:                        
                         
  Basic   $ 0.27     $ (0.07 )   $ 0.04  
  Diluted   $ 0.26     $ (0.07 )   $ 0.04  
                         
Shares used in computing net income (loss) per share - basic     94,609       91,988       93,567  
Shares used in computing net income (loss) per share - diluted     101,125       91,988       96,192  
                         
 
Finisar Corporation 
Consolidated Balance Sheets 
(in thousands) 
 
    July 28, 2013     April 28, 2013  
    (Unaudited)        
ASSETS            
Current assets:                
  Cash and cash equivalents   $ 288,433     $ 289,076  
  Accounts receivable, net     171,823       149,612  
  Accounts receivable, other     34,386       16,538  
  Inventories     207,029       200,670  
  Prepaid expenses     19,533       18,402  
    Total current assets     721,204       674,298  
Property, equipment and improvements, net     213,044       201,442  
Purchased intangible assets, net     25,416       30,457  
Goodwill     90,986       90,986  
Minority investments     1,711       884  
Other assets     12,954       9,780  
    Total assets   $ 1,065,315     $ 1,007,847  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:                
  Accounts payable   $ 90,488     $ 77,630  
  Accrued compensation     32,001       31,492  
  Other accrued liabilities     31,542       23,533  
  Deferred revenue     12,582       9,182  
    Total current liabilities     166,613       141,837  
Long-term liabilities:                
  Convertible notes, net of current portion     40,015       40,015  
  Other non-current liabilities     12,908       13,480  
    Total liabilities     219,536       195,332  
Stockholders' equity:                
  Common stock     96       94  
  Additional paid-in capital     2,363,514       2,350,146  
  Accumulated other comprehensive income     22,397       28,525  
  Accumulated deficit     (1,545,949 )     (1,571,960 )
    Finisar Corporation stockholders' equity     840,058       806,805  
  Non-controlling interest     5,721       5,710  
    Total stockholders' equity     845,779       812,515  
Total liabilities and stockholders' equity   $ 1,065,315     $ 1,007,847  
                 
Note - Balance sheet amounts as of April 28, 2013 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 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 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:

  • Changes in excess and obsolete inventory reserve (predominantly non-cash charges or non-cash benefits);
  • Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
  • Stock-based compensation expense (non-cash charges);
  • Impairment of acquired developed technology and other long-lived assets (non-cash charges);
  • Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges);
  • Flood-related expense (non-recurring cash charge);
  • Reduction in force costs (non-recurring cash charges); and
  • Acquisition related retention payments (non-recurring 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:

  • Gain or loss on litigation settlements and resolutions and related costs (non-recurring cash charges or benefits);
  • Shareholder class action and derivative litigation costs (non-recurring cash expenses associated with the derivative litigation related to our historical stock option granting practices and related to the class action and derivative litigation related to our March 8, 2011 earnings announcement);
  • Acquisition related costs (non-recurring cash charges);
  • Amortization of purchased intangibles (non-cash charges);
  • Gain on fair value remeasurement of contingent consideration liability (non-cash benefit); and
  • Impairment of purchased intangibles and other long-lived assets.

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

  • Interest income from legal settlements (non-recurring benefit);
  • Imputed interest related to restructuring (non-cash charges);
  • Gains and losses on sales of assets (non-recurring or non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
  • Gains and losses related to minority investments (non-cash or non-recurring benefits or charges);
  • Other miscellaneous expenses (income) (non-recurring charges or benefits);
  • Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
  • Non-controlling interest non-GAAP adjustment (non-cash and/or non-recurring charges or benefits attributable to the non-controlling interest in majority-controlled subsidiaries); and
  • Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

In calculating non-GAAP income per share in this release, we have included the shares issuable upon conversion of our outstanding convertible notes and excluded the interest expenses associated with such notes in such periods where such treatment is dilutive to non-GAAP income (loss) per share.

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  
    July 28, 2013     July 29, 2012     April 28, 2013  
GAAP to non-GAAP reconciliation of gross profit:                        
Gross profit - GAAP   $ 91,373     $ 57,797     $ 67,326  
Gross margin - GAAP     34.3 %     26.2 %     27.7 %
Adjustments:                        
Cost of revenues                        
  Change in excess and obsolete inventory reserve     (1,528 )     4,866       390  
  Amortization of acquired technology     1,593       1,272       1,842  
  Stock compensation     1,777       1,486       1,731  
  Impairment of acquired developed technology and other long-lived assets     -       -       8,156  
  Acquisition method accounting adjustment for sale of acquired inventory     -       641       -  
  Flood-related expense (recovery)     -       -       (1,197 )
  Reduction in force costs     23       648       17  
  Acquisition related retention payment     62       -       62  
    Total cost of revenue adjustments     1,927       8,913       11,001  
Gross profit - non-GAAP     93,300       66,710       78,327  
Gross margin - non-GAAP     35.1 %     30.3 %     32.2 %
                         
GAAP to non-GAAP reconciliation of operating income:                        
Operating income (loss) - GAAP     27,103       (5,197 )     385  
Operating margin - GAAP     10.2 %     -2.4 %     0.2 %
Adjustments:                        
Total cost of revenue adjustments     1,927       8,913       11,001  
Research and development                        
  Reduction in force costs     12       177       52  
  Acquisition related retention payment     191       -       204  
  Stock compensation     3,525       2,986       2,856  
Sales and marketing                        
  Acquisition related retention payment     17       -       17  
  Stock compensation     1,184       1,077       1,015  
General and administrative                        
  Reduction in force costs     67       15       24  
  Acquisition related retention payment     217       -       220  
  Stock compensation     2,423       2,829       2,586  
  Acquisition related costs     225       325       322  
  Litigation settlements and resolutions and related costs     5       23       -  
  Shareholder class action and derivative litigation costs     (5,094 )     43       144  
  Gain on fair value remeasurement of contingent consideration liability     -       -       (7,130 )
Amortization of purchased intangibles     595       809       734  
Impairment purchased intangibles and other long-lived assets     -       -       7,602  
    Total cost of revenue and operating expense adjustments     5,294       17,197       19,647  
Operating income - non-GAAP     32,397       12,000       20,032  
Operating margin - non-GAAP     12.2 %     5.4 %     8.2 %
                         
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:                        
Net income (loss) attributable to Finisar Corporation - GAAP     26,011       (6,197 )     3,879  
Adjustments:                        
Total cost of revenue and operating expense adjustments     5,294       17,197       19,647  
Imputed interest related to restructuring     57       62       146  
Other (income) expense, net                        
  Gain on sale of assets     (110 )     (19 )     (1,160 )
  Gain related to minority investments     (743 )     -       -  
  Other miscellaneous income     -       (160 )     (2 )
  Foreign exchange transaction (gain) or loss     567       (4 )     1,034  
Provision for income taxes                        
  Income tax provision adjustments     126       (8 )     (1,506 )
Non-controlling interest non-GAAP adjustment     67       -       (2,249 )
Total adjustments     5,258       17,068       15,910  
Net income attributable to Finisar Corporation - non-GAAP     31,269       10,871       19,789  
                         
Non-GAAP income attributable to Finisar Corporation   $ 31,269     $ 10,871     $ 19,789  
Add: interest expense for dilutive convertible notes     539       -       539  
Adjusted non-GAAP income attributable to Finisar Corporation   $ 31,808     $ 10,871     $ 20,328  
                         
Non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic   $ 0.33     $ 0.12     $ 0.21  
  Diluted   $ 0.31     $ 0.12     $ 0.20  
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders                        
  Basic     94,609       91,988       93,567  
  Diluted     101,125       94,204       99,941  
                         
Non-GAAP EBITDA                        
Non-GAAP income attributable to Finisar Corporation   $ 31,269     $ 10,871     $ 19,789  
Depreciation expense     13,927       12,711       13,692  
Amortization     94       236       94  
Interest expense     278       389       187  
Income tax expense     1,295       650       -  
Non-GAAP EBITDA   $ 46,863     $ 24,857     $ 33,762  
                         

Finisar-F

Investor Contact:
Kurt Adzema
Chief Financial Officer
408-542-5050
Investor.relations@finisar.com

Press Contact:
Victoria McDonald
Director, Corporate Communications
408-542-4261


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