Finisar Corporation
Dec 5, 2013
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Finisar Announces Fifth Consecutive Quarter of Revenue Growth

SUNNYVALE, CA -- (Marketwired) -- 12/05/13 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second fiscal quarter ended October 27, 2013.

COMMENTARY

"I am pleased to report second quarter revenues were $290.7 million, a new all-time record for Finisar. Revenues increased by $24.7 million, or 9.3%, over the first quarter and $58.7 million, or 25.3%, over the second quarter of the prior year. Revenues grew for the fifth consecutive quarter. This quarter's revenue growth came from both datacom and telecom products," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to make significant strides in new product development that we believe will drive future revenue growth. For example, we demonstrated our new 100Gbps CFP4 Ethernet transceiver for short reach datacom applications. This transceiver provides 75% greater face plate density and 80% less power consumption than our original CFP," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - SECOND QUARTER ENDED October 27, 2013
Summary GAAP Results Second First
Quarter Quarter
Ended Ended
October 27, 2013 July 28, 2013
(in thousands, except per share amounts)
Revenues $ 290,722 $ 266,068
Gross margin 35.6 % 34.3 %
Operating expenses $ 73,264 $ 64,270
Operating income $ 30,109 $ 27,103
Operating margin 10.4 % 10.2 %
Net income $ 29,965 $ 26,011
Income per share-basic $ 0.31 $ 0.27
Income per share-diluted $ 0.29 $ 0.26
Basic shares 95,941 94,609
Diluted shares 103,696 101,125
Summary Non-GAAP Results (a) Second First
Quarter Quarter
Ended Ended
October 27, 2013 July 28, 2013
(in thousands, except per share amounts)
Revenues $ 290,722 $ 266,068
Gross margin 37.1 % 35.1 %
Operating expenses $ 63,159 $ 60,903
Operating income $ 44,767 $ 32,397
Operating margin 15.4 % 12.2 %
Net income $ 43,767 $ 31,269
Income per share-basic $ 0.46 $ 0.33
Income per share-diluted $ 0.43 $ 0.31
Basic shares 95,941 94,609
Diluted shares 103,696 101,125
(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 second quarter of fiscal 2014:

OUTLOOK

The Company indicated that it currently expects revenues for the third quarter of fiscal 2014 to be in the range of $290 to $305 million; GAAP operating margin to be approximately 11.5%; non-GAAP operating margin to be approximately 15.5% and non-GAAP earnings per diluted share to be in the range of approximately $0.43 to $0.47.

CONFERENCE CALL

Finisar will discuss its financial results for the second quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, December 5, 2013, 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 1-877-719-9795 (domestic) or +1-719-325-4786 (international) and enter conference ID 5981213.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or +1-719-457-0820 and then following the prompts: enter conference ID 5981213 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 Six Months Ended Three Months Ended
October 27, 2013 October 28, 2012 October 27, 2013 October 28, 2012 July 28, 2013
(Unaudited) (Unaudited)
Revenues $ 290,722 $ 232,041 $ 556,790 $ 452,567 $ 266,068
Cost of revenues 186,168 166,167 359,270 327,624 173,102
Amortization of acquired developed technology 1,181 2,000 2,774 3,272 1,593
Gross profit 103,373 63,874 194,746 121,671 91,373
Gross margin 35.6 % 27.5 % 35.0 % 26.9 % 34.3 %
Operating expenses:
Research and development 44,959 39,620 88,489 77,789 43,530
Sales and marketing 12,322 10,219 24,127 20,893 11,805
General and administrative 15,388 12,919 23,728 26,261 8,340
Amortization of purchased intangibles 595 1,062 1,190 1,871 595
Total operating expenses 73,264 63,820 137,534 126,814 64,270
Income (loss) from operations 30,109 54 57,212 (5,143 ) 27,103
Interest income 282 162 499 358 217
Interest expense (367 ) (750 ) (919 ) (1,397 ) (552 )
Other income (expenses), net 495 (101 ) 983 (20 ) 488
Income (loss) before income taxes and non-controlling interest 30,519 (635 ) 57,775 (6,202 ) 27,256
Provision (benefits) for income taxes 568 (1,062 ) 1,989 (420 ) 1,421
Income (loss) before non-controlling interest 29,951 427 55,786 (5,782 ) 25,835
Adjust for net (income) loss attributable to non-controlling interest 14 (156 ) 190 (144 ) 176
Net income (loss) attributable to Finisar Corporation $ 29,965 $ 271 $ 55,976 $ (5,926 ) $ 26,011
Net income (loss) per share attributable to Finisar Corporation common stockholders:
Basic $ 0.31 $ 0.00 $ 0.59 $ (0.06 ) $ 0.27
Diluted $ 0.29 $ 0.00 $ 0.56 $ (0.06 ) $ 0.26
Shares used in computing net income (loss) per share - basic 95,941 92,780 95,275 92,386 94,609
Shares used in computing net income (loss) per share - diluted 103,696 94,735 102,771 92,386 101,125
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
October 27, 2013 July 28, 2013 April 28, 2013
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 316,488 $ 288,433 $ 289,076
Accounts receivable, net 186,486 171,823 149,612
Accounts receivable, other 25,890 34,386 16,538
Inventories 231,235 207,029 200,670
Prepaid expenses 20,902 19,533 18,402
Total current assets 781,001 721,204 674,298
Property, equipment and improvements, net 231,022 213,044 201,442
Purchased intangible assets, net 23,587 25,416 30,457
Goodwill 90,986 90,986 90,986
Minority investments 1,841 1,711 884
Other assets 16,946 12,954 9,780
Total assets $ 1,145,383 $ 1,065,315 $ 1,007,847
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 98,220 $ 90,488 $ 77,630
Accrued compensation 48,182 32,001 31,492
Other accrued liabilities 32,943 31,542 23,533
Deferred revenue 14,235 12,582 9,182
Short term debt 4,700 - -
Current portion of convertible notes 40,015 - -
Total current liabilities 238,295 166,613 141,837
Long-term liabilities:
Convertible notes, net of current portion - 40,015 40,015
Other non-current liabilities 12,756 12,908 13,480
Total liabilities 251,051 219,536 195,332
Stockholders' equity:
Common stock 96 96 94
Additional paid-in capital 2,377,198 2,363,514 2,350,146
Accumulated other comprehensive income 27,315 22,397 28,525
Accumulated deficit (1,515,984 ) (1,545,949 ) (1,571,960 )
Finisar Corporation stockholders' equity 888,625 840,058 806,805
Non-controlling interest 5,707 5,721 5,710
Total stockholders' equity 894,332 845,779 812,515
Total liabilities and stockholders' equity $ 1,145,383 $ 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:

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

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 Six Months Ended Three Months Ended
October 27, 2013 October 28, 2012 October 27, 2013 October 28, 2012 July 28, 2013
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP $ 103,373 $ 63,874 $ 194,746 $ 121,671 $ 91,373
Gross margin - GAAP 35.6 % 27.5 % 35.0 % 26.9 % 34.3 %
Adjustments:
Cost of revenues
Change in excess and obsolete inventory reserve 1,199 2,003 (329 ) 6,869 (1,528 )
Amortization of acquired technology 1,181 2,000 2,774 3,272 1,593
Stock compensation 2,056 1,876 3,833 3,362 1,777
Acquisition method accounting adjustment for sale of acquired inventory - 722 - 1,363 -
Reduction in force costs 47 136 70 784 23
Acquisition related retention payment 70 73 132 73 62
Total cost of revenue adjustments 4,553 6,810 6,480 15,723 1,927
Gross profit - non-GAAP 107,926 70,684 201,226 137,394 93,300
Gross margin - non-GAAP 37.1 % 30.5 % 36.1 % 30.4 % 35.1 %
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP 30,109 54 57,212 (5,143 ) 27,103
Operating margin - GAAP 10.4 % 0.0 % 10.3 % -1.1 % 10.2 %
Adjustments:
Total cost of revenue adjustments 4,553 6,810 6,480 15,723 1,927
Research and development
Reduction in force costs 16 - 28 177 12
Acquisition related retention payment 190 222 381 222 191
Stock compensation 4,069 3,353 7,594 6,339 3,525
Sales and marketing
Acquisition related retention payment 17 20 34 20 17
Stock compensation 1,382 1,002 2,566 2,079 1,184
General and administrative
Reduction in force costs 173 54 240 69 67
Acquisition related retention payment 830 253 1,047 253 217
Stock compensation 2,663 2,956 5,086 5,785 2,423
Acquisition related costs 124 96 349 421 225
Litigation settlements and resolutions and related costs - (10 ) 5 13 5
Shareholder class action and derivative litigation costs 46 (34 ) (5,048 ) 9 (5,094 )
Amortization of purchased intangibles 595 1,062 1,190 1,871 595
Total cost of revenue and operating expense adjustments 14,658 15,784 19,952 32,981 5,294
Operating income - non-GAAP 44,767 15,838 77,164 27,838 32,397
Operating margin - non-GAAP 15.4 % 6.8 % 13.9 % 6.2 % 12.2 %
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Net income (loss) attributable to Finisar Corporation - GAAP 29,965 271 55,976 (5,926 ) 26,011
Adjustments:
Total cost of revenue and operating expense adjustments 14,658 15,784 19,952 32,981 5,294
Imputed interest related to restructuring 56 164 113 226 57
Other (income) expense, net
Gain on sale of assets 5 (170 ) (105 ) (189 ) (110 )
Gain related to minority investments - - (743 ) - (743 )
Other miscellaneous income (2 ) - (2 ) (160 ) -
Foreign exchange transaction (gain) or loss (208 ) (607 ) 359 (611 ) 567
Debt extinguishment loss - 573 - 573 -
Provision for income taxes
Income tax provision adjustments (832 ) (1,810 ) (706 ) (1,818 ) 126
Non-controlling interest non-GAAP adjustment 125 - 192 - 67
Total adjustments 13,802 13,934 19,060 31,002 5,258
Net income attributable to Finisar Corporation - non-GAAP $ 43,767 $ 14,205 $ 75,036 $ 25,076 $ 31,269
Non-GAAP income attributable to Finisar Corporation $ 43,767 $ 14,205 $ 75,036 $ 25,076 $ 31,269
Add: interest expense for dilutive convertible notes 539 539 1,078 - 539
Adjusted non-GAAP income attributable to Finisar Corporation $ 44,306 $ 14,744 $ 76,114 $ 25,076 $ 31,808
Non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic $ 0.46 $ 0.15 $ 0.79 $ 0.27 $ 0.33
Diluted $ 0.43 $ 0.15 $ 0.74 $ 0.26 $ 0.31
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic 95,941 92,780 95,275 92,386 94,609
Diluted 103,696 98,483 102,771 94,780 101,125
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation $ 43,767 $ 14,205 $ 75,036 $ 25,076 $ 31,269
Depreciation expense 14,621 13,106 28,548 25,817 13,927
Amortization 94 237 188 473 94
Interest expense 29 424 307 813 278
Income tax expense 1,400 748 2,695 1,398 1,295
Non-GAAP EBITDA $ 59,911 $ 28,720 $ 106,774 $ 53,577 $ 46,863

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

Source: Finisar

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