Finisar Corporation
Mar 6, 2014
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Finisar Announces Sixth Consecutive Quarter of Revenue Growth

SUNNYVALE, CA -- (Marketwired) -- 03/06/14 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third fiscal quarter ended January 26, 2014.

COMMENTARY

"I am pleased to report third quarter revenues were $294.0 million, a new all-time record for Finisar. Revenues increased by $3.3 million, or 1.1%, over the second quarter and $55.7 million, or 23.4%, over the third quarter of the prior year. Revenues grew for the sixth consecutive quarter," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to make significant strides in new product development. We are scheduled to make several important product announcements and demonstrations at the Optical Fiber Conference trade show in San Francisco next week," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - THIRD QUARTER ENDED January 26, 2014
Summary GAAP Results Third Second
Quarter Quarter
Ended Ended
January 26, 2014 October 27, 2013
(in thousands, except per share amounts)
Revenues $ 294,018 $ 290,722
Gross margin 35.9 % 35.6 %
Operating expenses $ 72,593 $ 73,264
Operating income $ 33,096 $ 30,109
Operating margin 11.3 % 10.4 %
Net income $ 27,061 $ 29,965
Income per share-basic $ 0.28 $ 0.31
Income per share-diluted $ 0.26 $ 0.29
Basic shares 96,394 95,941
Diluted shares 104,361 103,696
Summary Non-GAAP Results (a) Third Second
Quarter Quarter
Ended Ended
January 26, 2014 October 27, 2013
(in thousands, except per share amounts)
Revenues $ 294,018 $ 290,722
Gross margin 37.2 % 37.1 %
Operating expenses $ 63,209 $ 63,159
Operating income $ 46,295 $ 44,767
Operating margin 15.7 % 15.4 %
Net income $ 44,993 $ 43,767
Income per share-basic $ 0.47 $ 0.46
Income per share-diluted $ 0.44 $ 0.43
Basic shares 96,394 95,941
Diluted shares 104,361 103,696

_____________

(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 third quarter of fiscal 2014:

OUTLOOK

Without taking into account the acquisition of u2t, the Company indicated that it currently expects revenues for the fourth quarter of fiscal 2014 to be in the range of $290 to $305 million; non-GAAP gross margin of approximately 36%, non-GAAP operating margin of approximately 13.8% to 14.8%, and non-GAAP earnings per diluted share to be in the range of approximately $0.38 to $0.42.

After taking into account the acquisition of u2t, including the elimination of any intercompany revenue or expense transactions with Finisar, the Company indicated that it currently expects revenues for the fourth quarter of fiscal 2014 to be in the range of $296 to $311 million, non-GAAP gross margin of approximately 35.5%, non-GAAP operating margin of approximately 12.8% to 13.8%, and non-GAAP earnings per diluted share to be in the range of approximately $0.36 to $0.40.

The Company expects the acquisition of u2t to be accretive to non-GAAP earnings per diluted share in approximately one year as it realizes cost and other synergies over time.

CONFERENCE CALL

Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 6, 2014, 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 1-877-397-0298 (domestic) or +1-719-325-4770 (international) and enter conference ID 7659562.

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 7659562 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; intensive competition; and the uncertainty of achieving anticipated cost savings and synergies in connection with the recently completed u2t acquisition. 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
(Unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended Three Months Ended
January 26, 2014 January 27, 2013 January 26, 2014 January 27, 2013 October 27, 2013
Revenues $ 294,018 $ 238,351 $ 850,808 $ 690,918 $ 290,722
Cost of revenues 187,368 168,377 546,638 496,001 186,168
Amortization of acquired developed technology 961 1,930 3,735 5,202 1,181
Gross profit 105,689 68,044 300,435 189,715 103,373
Gross margin 35.9 % 28.5 % 35.3 % 27.5 % 35.6 %
Operating expenses:
Research and development 46,734 39,725 135,223 117,514 44,959
Sales and marketing 10,911 10,398 35,038 31,291 12,322
General and administrative 14,353 12,797 38,081 39,058 15,388
Amortization of purchased intangibles 595 1,035 1,785 2,906 595
Impairment of long-lived assets - 4,886 - 4,886 -
Total operating expenses 72,593 68,841 210,127 195,655 73,264
Income (loss) from operations 33,096 (797 ) 90,308 (5,940 ) 30,109
Interest income 335 186 834 544 282
Interest expense (1,663 ) (648 ) (2,582 ) (2,045 ) (367 )
Other income (expenses), net (1,873 ) (275 ) (890 ) (295 ) 495
Income (loss) before income taxes and non-controlling interest 29,895 (1,534 ) 87,670 (7,736 ) 30,519
Provision for income taxes 2,827 2,153 4,816 1,733 568
Income (loss) before non-controlling interest 27,068 (3,687 ) 82,854 (9,469 ) 29,951
Adjust for net (income) loss attributable to non-controlling interest (7 ) 280 183 136 14
Net income (loss) attributable to Finisar Corporation $ 27,061 $ (3,407 ) $ 83,037 $ (9,333 ) $ 29,965
Net income (loss) per share attributable to Finisar Corporation common stockholders:
Basic $ 0.28 $ (0.04 ) $ 0.87 $ (0.10 ) $ 0.31
Diluted $ 0.26 $ (0.04 ) $ 0.82 $ (0.10 ) $ 0.29
Shares used in computing net income (loss) per share - basic 96,394 93,097 95,649 92,624 95,941
Shares used in computing net income (loss) per share - diluted 104,361 93,097 103,491 92,624 103,696
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
January 26, 2014 October 27, 2013 July 28, 2013 April 28, 2013
(Unaudited) (Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 374,902 $ 316,488 $ 288,433 $ 289,076
Short-term held-to-maturity investments 179,847 - - -
Accounts receivable, net 195,442 186,486 171,823 149,612
Accounts receivable, other 24,274 25,890 34,386 16,538
Inventories 247,126 231,235 207,029 200,670
Prepaid expenses 22,764 20,902 19,533 18,402
Total current assets 1,044,355 781,001 721,204 674,298
Property, equipment and improvements, net 247,394 231,022 213,044 201,442
Purchased intangible assets, net 21,976 23,587 25,416 30,457
Goodwill 90,986 90,986 90,986 90,986
Minority investments 2,041 1,841 1,711 884
Other assets 21,034 16,946 12,954 9,780
Total assets $ 1,427,786 $ 1,145,383 $ 1,065,315 $ 1,007,847
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,723 $ 98,220 $ 90,488 $ 77,630
Accrued compensation 46,402 48,182 32,001 31,492
Other accrued liabilities 26,370 32,943 31,542 23,533
Deferred revenue 15,620 14,235 12,582 9,182
Short term debt 4,230 4,700 - -
Current portion of convertible notes 40,015 40,015 - -
Total current liabilities 229,360 238,295 166,613 141,837
Long-term liabilities:
Convertible notes, net of current portion 210,029 - 40,015 40,015
Other non-current liabilities 11,680 12,756 12,908 13,480
Total liabilities 451,069 251,051 219,536 195,332
Stockholders' equity:
Common stock 97 96 96 94
Additional paid-in capital 2,440,849 2,377,198 2,363,514 2,350,146
Accumulated other comprehensive income 18,980 27,315 22,397 28,525
Accumulated deficit (1,488,923 ) (1,515,984 ) (1,545,949 ) (1,571,960 )
Finisar Corporation stockholders' equity 971,003 888,625 840,058 806,805
Non-controlling interest 5,714 5,707 5,721 5,710
Total stockholders' equity 976,717 894,332 845,779 812,515
Total liabilities and stockholders' equity $ 1,427,786 $ 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:

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
January 26, 2014 January 27, 2013 January 26, 2014 January 27, 2013 October 27, 2013
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP $ 105,689 $ 68,044 $ 300,435 $ 189,715 $ 103,373
Gross margin - GAAP 35.9 % 28.5 % 35.3 % 27.5 % 35.6 %
Adjustments:
Cost of revenues
Change in excess and obsolete inventory reserve 384 989 55 7,858 1,199
Amortization of acquired technology 961 1,930 3,735 5,202 1,181
Stock compensation 2,374 2,140 6,207 5,502 2,056
Acquisition method accounting adjustment for sale of acquired inventory - - - 1,363 -
Reduction in force costs 34 17 104 801 47
Acquisition related retention payment 62 73 194 146 70
Total cost of revenue adjustments 3,815 5,149 10,295 20,872 4,553
Gross profit - non-GAAP 109,504 73,193 310,730 210,587 107,926
Gross margin - non-GAAP 37.2 % 30.7 % 36.5 % 30.5 % 37.1 %
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP 33,096 (797 ) 90,308 (5,940 ) 30,109
Operating margin - GAAP 11.3 % -0.3 % 10.6 % -0.9 % 10.4 %
Adjustments:
Total cost of revenue adjustments 3,815 5,149 10,295 20,872 4,553
Research and development
Reduction in force costs - 11 28 188 16
Acquisition related retention payment 190 213 571 435 190
Stock compensation 3,995 2,601 11,589 8,940 4,069
Sales and marketing
Acquisition related retention payment 17 17 51 37 17
Stock compensation 1,369 885 3,935 2,964 1,382
General and administrative
Reduction in force costs (82 ) 25 158 94 173
Acquisition related retention payment (11 ) 223 1,036 476 830
Stock compensation 2,618 2,218 7,704 8,003 2,663
Acquisition related costs 591 731 940 1,152 124
Litigation settlements and resolutions and related costs 5 - 10 13 -
Shareholder class action and derivative litigation costs 97 180 (4,951 ) 189 46
Amortization of purchased intangibles 595 1,035 1,785 2,906 595
Impairment of long-lived assets - 4,886 - 4,886 -
Total cost of revenue and operating expense adjustments 13,199 18,174 33,151 51,155 14,658
Operating income - non-GAAP 46,295 17,377 123,459 45,215 44,767
Operating margin - non-GAAP 15.7 % 7.3 % 14.5 % 6.5 % 15.4 %
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Net income (loss) attributable to Finisar Corporation - GAAP 27,061 (3,407 ) 83,037 (9,333 ) 29,965
Adjustments:
Total cost of revenue and operating expense adjustments 13,199 18,174 33,151 51,155 14,658
Non-cash imputed interest expenses on convertible debt 927 - 927 - -
Imputed interest related to restructuring 54 148 167 374 56
Other (income) expense, net
Loss (gain) on sale of assets (30 ) 38 (135 ) (151 ) 5
Gain related to minority investments - - (743 ) - -
Other miscellaneous income (3 ) (101 ) (5 ) (261 ) (2 )
Foreign exchange transaction (gain) or loss 2,200 431 2,559 (180 ) (208 )
Amortization of debt issuance cost 76 - 76 - -
Debt extinguishment loss - - - 573 -
Provision for income taxes
Income tax provision adjustments 1,327 1,107 621 (711 ) (832 )
Non-controlling interest non-GAAP adjustment 182 - 374 - 125
Total adjustments 17,932 19,797 36,992 50,799 13,802
Net income attributable to Finisar Corporation - non-GAAP $ 44,993 $ 16,390 $ 120,029 $ 41,466 $ 43,767
Non-GAAP income attributable to Finisar Corporation $ 44,993 $ 16,390 $ 120,029 $ 41,466 $ 43,767
Add: interest expense for dilutive convertible notes 539 539 1,617 1,618 539
Adjusted non-GAAP income attributable to Finisar Corporation $ 45,532 $ 16,929 $ 121,646 $ 43,084 $ 44,306
Non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic $ 0.47 $ 0.18 $ 1.25 $ 0.45 $ 0.46
Diluted $ 0.44 $ 0.17 $ 1.18 $ 0.44 $ 0.43
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic 96,394 93,097 95,649 92,624 95,941
Diluted 104,361 99,094 103,491 98,891 103,696
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation $ 44,993 $ 16,390 $ 120,029 $ 41,466 $ 43,767
Depreciation expense 15,960 13,306 44,508 39,123 14,621
Amortization 94 86 282 559 94
Interest expense 347 314 654 1,127 29
Income tax expense 1,500 1,046 4,195 2,444 1,400
Non-GAAP EBITDA $ 62,894 $ 31,142 $ 169,668 $ 84,719 $ 59,911

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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