Finisar Corporation
Jun 12, 2014
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Finisar Announces Seventh Consecutive Quarter of Revenue Growth and FY14 Annual Revenue Growth of 24%

SUNNYVALE, CA -- (Marketwired) -- 06/12/14 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its fourth fiscal quarter and full 2014 fiscal year ended April 27, 2014.

COMMENTARY

"I am pleased to report that fourth quarter revenues were $306.0 million, and annual fiscal 2014 revenues were $1,156.8 million, both new all-time records for Finisar. Quarterly revenues increased by $12.0 million, or 4.1%, over the third fiscal quarter and $62.6 million, or 25.7%, over the fourth fiscal quarter of the prior year. Quarterly revenues grew for the seventh consecutive quarter. Annual revenues increased by $222.5 million, or 23.8%, over the prior fiscal year," said Jerry Rawls, Finisar's executive Chairman of the Board.

"Demand for transceivers operating at 10Gb/s and faster continued to be strong during the quarter. Demand was also strong for our transceivers for LTE wireless applications. We continue to develop and release new products, which we expect will enable Finisar to expand our market share and continue to grow revenue," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - FOURTH QUARTER ENDED APRIL 27, 2014
Summary GAAP Results (a)
Fourth
Quarter
Ended
April 27, 2014
Third
Quarter
Ended
January 26, 2014
(in thousands, except per share amounts)
Revenues $ 306,025 $ 294,018
Gross margin 31.7 % 35.9 %
Operating expenses $ 75,369 $ 72,593
Operating income $ 21,560 $ 33,096
Operating margin 7.0 % 11.3 %
Net income $ 28,375 $ 27,061
Income per share-basic $ 0.29 $ 0.28
Income per share-diluted $ 0.27 $ 0.26
Basic shares 96,965 96,394
Diluted shares 105,418 104,361
Summary Non-GAAP Results (b) Fourth
Quarter
Ended
April 27, 2014
Third
Quarter
Ended
January 26, 2014
(in thousands, except per share amounts)
Revenues $ 306,025 $ 294,018
Gross margin 34.2 % 37.2 %
Operating expenses $ 65,931 $ 63,209
Operating income $ 38,882 $ 46,295
Operating margin 12.7 % 15.7 %
Net income $ 36,992 $ 44,993
Income per share-basic $ 0.38 $ 0.47
Income per share-diluted $ 0.36 $ 0.44
Basic shares 96,965 96,394
Diluted shares 105,418 104,361

_____________

(a) The GAAP financial results included in this press release for the fourth quarter and fiscal 2014 do not include the impact of the amortization of acquired intangible assets in connection with the acquisition of u2t Photonics AG because the Company is in the process of obtaining a third-party valuation of such intangible assets and thus such impact has not yet been determined. The amount of such amortization of acquired intangible assets, when determined, is not expected to be material in the periods presented.
(b) 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 fourth quarter of fiscal 2014:

FINANCIAL HIGHLIGHTS - FISCAL YEAR 2014 ENDED APRIL 27, 2014
Summary GAAP Results (a)
Fiscal Year
Ended
April 27, 2014
Fiscal Year
Ended
April 28, 2013
(in thousands, except per share amounts)
Revenues $ 1,156,833 $ 934,335
Gross margin 34.3 % 27.5 %
Operating expenses $ 285,496 $ 262,596
Operating income $ 111,868 $ (5,555 )
Operating margin 9.7 % (0.6 )%
Net income $ 111,412 $ (5,454 )
Income per share-basic $ 1.16 $ (0.06 )
Income per share-diluted $ 1.09 $ (0.06 )
Basic shares 95,979 92,860
Diluted shares 104,112 92,860
Summary Non-GAAP Results (b) Fiscal Year
Ended
April 27, 2014
Fiscal Year
Ended
April 28, 2013
(in thousands, except per share amounts)
Revenues $ 1,156,833 $ 934,335
Gross margin 35.9 % 30.9 %
Operating expenses $ 253,202 $ 223,667
Operating income $ 162,341 $ 65,247
Operating margin 14.0 % 7.0 %
Net income $ 157,021 $ 61,255
Income per share-basic $ 1.64 $ 0.66
Income per share-diluted $ 1.53 $ 0.64
Basic shares 95,979 92,860
Diluted shares 104,112 99,284

_____________

(a) The GAAP financial results included in this press release for the fourth quarter and fiscal 2014 do not include the impact of the amortization of acquired intangible assets in connection with the acquisition of u2t Photonics AG because the Company is in the process of obtaining a third-party valuation of such intangible assets and thus such impact has not yet been determined. The amount of such amortization of acquired intangible assets, when determined, is not expected to be material in the periods presented.
(b) 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 fiscal 2014:

OUTLOOK

The Company indicated that it currently expects revenues for the first quarter of fiscal 2015 to be in the range of $320 to $335 million, non-GAAP gross margin of approximately 32%, non-GAAP operating margin of approximately 10.3% to 11.3%, and non-GAAP earnings per diluted share to be in the range of approximately $0.30 to $0.34.

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, June 12, 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 1-877-857-6173 (domestic) or +1-719-325-4797 (international) and enter conference ID 3838782.

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 3838782 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

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; 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, except that the GAAP financial results included in this press release for the fourth quarter and fiscal 2014 do not include the impact of the amortization of acquired intangible assets in connection with the acquisition of u2t Photonics AG because the Company is in the process of obtaining a third-party valuation of such intangible assets and thus such impact has not yet been determined. The amount of such amortization of acquired intangible assets, when determined, is not expected to be material in the periods presented.

Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
Three Months Ended Twelve Months Ended Three Months Ended
April 27, 2014 April 28, 2013 April 27, 2014 April 28, 2013 January 26, 2014
Revenues $ 306,025 $ 243,417 $ 1,156,833 $ 934,335 $ 294,018
Cost of revenues 208,135 166,093 754,773 662,094 187,368
Impairment of acquired developed technology and other long-lived assets - 8,156 - 8,156 -
Amortization of acquired developed technology 961 1,842 4,696 7,044 961
Gross profit 96,929 67,326 397,364 257,041 105,689
Gross margin 31.7 % 27.7 % 34.3 % 27.5 % 35.9 %
Operating expenses:
Research and development 48,132 41,270 183,355 158,784 46,734
Sales and marketing 11,509 11,056 46,547 42,347 10,911
General and administrative 15,133 6,279 53,214 45,337 14,353
Amortization of purchased intangibles 595 734 2,380 3,640 595
Impairment of purchased intangibles and other long-lived assets - 7,602 - 12,488 -
Total operating expenses 75,369 66,941 285,496 262,596 72,593
Income (loss) from operations 21,560 385 111,868 (5,555 ) 33,096
Interest income 485 211 1,319 755 335
Interest expense (2,965 ) (544 ) (5,547 ) (2,589 ) (1,663 )
Other income (expenses), net 8,124 (154 ) 7,234 (449 ) (1,873 )
Income (loss) before income taxes and non-controlling interest 27,204 (102 ) 114,874 (7,838 ) 29,895
Provision (benefits) for income taxes (1,104 ) (1,506 ) 3,712 227 2,827
Income (loss) before non-controlling interest 28,308 1,404 111,162 (8,065 ) 27,068
Adjust for net (income) loss attributable to non-controlling interest 67 2,475 250 2,611 (7 )
Net income (loss) attributable to Finisar Corporation $ 28,375 $ 3,879 $ 111,412 $ (5,454 ) $ 27,061
Net income (loss) per share attributable to Finisar Corporation common stockholders:
Basic $ 0.29 $ 0.04 $ 1.16 $ (0.06 ) $ 0.28
Diluted $ 0.27 $ 0.04 $ 1.09 $ (0.06 ) $ 0.26
Shares used in computing net income (loss) per share - basic 96,965 93,567 95,979 92,860 96,394
Shares used in computing net income (loss) per share - diluted 105,418 96,192 104,112 92,860 104,361
Finisar Corporation
Consolidated Balance Sheets
(in thousands)
April 27, 2014 January 26, 2014 October 27, 2013 July 28, 2013 April 28, 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 303,101 $ 374,902 $ 316,488 $ 288,433 $ 289,076
Short-term held-to-maturity investments 209,922 179,847 - - -
Accounts receivable, net 225,020 195,442 186,486 171,823 149,612
Accounts receivable, other 33,749 24,274 25,890 34,386 16,538
Inventories 259,759 247,126 231,235 207,029 200,670
Prepaid expenses and other assets 33,029 22,764 20,902 19,533 18,402
Total current assets 1,064,580 1,044,355 781,001 721,204 674,298
Property, equipment and improvements, net 273,328 247,394 231,022 213,044 201,442
Purchased intangible assets, net 21,113 21,976 23,587 25,416 30,457
Goodwill 115,279 90,986 90,986 90,986 90,986
Minority investments 2,117 2,041 1,841 1,711 884
Other assets 17,272 21,034 16,946 12,954 9,780
Total assets $ 1,493,689 $ 1,427,786 $ 1,145,383 $ 1,065,315 $ 1,007,847
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 119,439 $ 96,723 $ 98,220 $ 90,488 $ 77,630
Accrued compensation 38,541 46,402 48,182 32,001 31,492
Other accrued liabilities 31,976 26,370 32,943 31,542 23,533
Deferred revenue 16,659 15,620 14,235 12,582 9,182
Short term debt 243 4,230 4,700 - -
Current portion of convertible notes 40,015 40,015 40,015 - -
Total current liabilities 246,873 229,360 238,295 166,613 141,837
Long-term liabilities:
Convertible notes, net of current portion 212,253 210,029 - 40,015 40,015
Other non-current liabilities 18,879 11,680 12,756 12,908 13,480
Total liabilities 478,005 451,069 251,051 219,536 195,332
Stockholders' equity:
Common stock 97 97 96 96 94
Additional paid-in capital 2,456,110 2,440,849 2,377,198 2,363,514 2,350,146
Accumulated other comprehensive income 20,025 18,980 27,315 22,397 28,525
Accumulated deficit (1,460,548 ) (1,488,923 ) (1,515,984 ) (1,545,949 ) (1,571,960 )
Finisar Corporation stockholders' equity 1,015,684 971,003 888,625 840,058 806,805
Non-controlling interest - 5,714 5,707 5,721 5,710
Total stockholders' equity 1,015,684 976,717 894,332 845,779 812,515
Total liabilities and stockholders' equity $ 1,493,689 $ 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 the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commissions: non-GAAP gross profit, non-GAAP operating income and non-GAAP income per share. These non-GAAP financial measures are 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 Twelve Months Ended Three Months Ended
April 27, 2014 April 28, 2013 April 27, 2014 April 28, 2013 January 26, 2014
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP $ 96,929 $ 67,326 $ 397,364 $ 257,041 $ 105,689
Gross margin - GAAP 31.7 % 27.7 % 34.3 % 27.5 % 35.9 %
Adjustments:
Cost of revenues
Change in excess and obsolete inventory reserve 3,384 390 3,439 8,248 384
Amortization of acquired technology 961 1,842 4,696 7,044 961
Stock compensation 2,531 1,731 8,738 7,233 2,374
Impairment of acquired developed technology and other long-lived assets - 8,156 - 8,156 -
Flood-related expenses - (1,197 ) - (1,197 ) -
Acquisition method accounting adjustment for sale of acquired inventory 822 - 822 1,363 -
Reduction in force costs 124 17 228 818 34
Acquisition related retention payment 62 62 256 208 62
Total cost of revenue adjustments 7,884 11,001 18,179 31,873 3,815
Gross profit - non-GAAP 104,813 78,327 415,543 288,914 109,504
Gross margin - non-GAAP 34.2 % 32.2 % 35.9 % 30.9 % 37.2 %
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP 21,560 385 111,868 (5,555 ) 33,096
Operating margin - GAAP 7.0 % 0.2 % 9.7 % -0.6 % 11.3 %
Adjustments:
Total cost of revenue adjustments 7,884 11,001 18,179 31,873 3,815
Research and development
Reduction in force costs - 52 28 240 -
Acquisition related retention payment 190 204 761 639 190
Stock compensation 4,056 2,856 15,645 11,796 3,995
Sales and marketing
Acquisition related retention payment 17 17 68 54 17
Stock compensation 1,406 1,015 5,341 3,979 1,369
General and administrative
Reduction in force costs 69 24 227 118 (82 )
Acquisition related retention payment 8 220 1,044 696 (11 )
Stock compensation 2,525 2,586 10,229 10,589 2,618
Acquisition related costs 567 322 1,507 1,474 591
Litigation settlements and resolutions and related costs 5 - 15 13 5
Gain on fair value remeasurement of contingent consideration liability - (7,130 ) - (7,130 ) -
Shareholder class action and derivative litigation costs - 144 (4,951 ) 333 97
Amortization of purchased intangibles 595 734 2,380 3,640 595
Impairment of long-lived assets - 7,602 - 12,488 -
Total cost of revenue and operating expense adjustments 17,322 19,647 50,473 70,802 13,199
Operating income - non-GAAP 38,882 20,032 162,341 65,247 46,295
Operating margin - non-GAAP 12.7 % 8.2 % 14.0 % 7.0 % 15.7 %
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Net income (loss) attributable to Finisar Corporation - GAAP 28,375 3,879 111,412 (5,454 ) 27,061
Adjustments:
Total cost of revenue and operating expense adjustments 17,322 19,647 50,473 70,802 13,199
Non-cash imputed interest expenses on convertible debt 2,225 - 3,152 - 927
Imputed interest related to restructuring 53 146 220 520 54
Other (income) expense, net
Gain on sale of assets (8,156 ) (1,160 ) (8,291 ) (1,311 ) (30 )
Gain related to minority investments - - (743 ) - -
Other miscellaneous income - (2 ) (5 ) (263 ) (3 )
Foreign exchange transaction (gain) or loss (69 ) 1,034 2,490 854 2,200
Amortization of debt issuance cost 155 - 231 - 76
Debt extinguishment loss - - - 573 -
Provision for income taxes
Income tax provision adjustments (2,909 ) (1,506 ) (2,288 ) (2,217 ) 1,327
Non-controlling interest non-GAAP adjustment (4 ) (2,249 ) 370 (2,249 ) 182
Total adjustments 8,617 15,910 45,609 66,709 17,932
Net income attributable to Finisar Corporation - non-GAAP $ 36,992 $ 19,789 $ 157,021 $ 61,255 $ 44,993
Non-GAAP income attributable to Finisar Corporation $ 36,992 $ 19,789 $ 157,021 $ 61,255 $ 44,993
Add: interest expense for dilutive convertible notes 539 539 2,156 2,157 539
Adjusted non-GAAP income attributable to Finisar Corporation $ 37,531 $ 20,328 $ 159,177 $ 63,412 $ 45,532
Non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic $ 0.38 $ 0.21 $ 1.64 $ 0.66 $ 0.47
Diluted $ 0.36 $ 0.20 $ 1.53 $ 0.64 $ 0.44
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
Basic 96,965 93,567 95,979 92,860 96,394
Diluted 105,418 99,941 104,112 99,284 104,361
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation $ 36,992 $ 19,789 $ 157,021 $ 61,255 $ 44,993
Depreciation expense 17,518 13,692 62,026 52,815 15,960
Amortization 94 94 376 653 94
Interest expense 202 187 856 1,314 347
Income tax expense 1,805 0 6,000 2,444 1,500
Non-GAAP EBITDA $ 56,611 $ 33,762 $ 226,279 $ 118,481 $ 62,894

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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