Finisar Announces Fifth Consecutive Quarter of Revenue Growth

SUNNYVALE, CA--(Marketwired - Dec 5, 2013) - 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:

• Revenues increased to $290.7 million, up $24.7 million, or 9.3%, from $266.1 million in the preceding quarter.
• The sale of products for datacom applications increased by $ 19.8 million, or 10.7%, over the preceding quarter, and the sale of products for telecom applications increased by $4.8 million, or 5.9%, over the preceding quarter
• GAAP gross margin increased to 35.6% from 34.3% in the preceding quarter, primarily as the result of a favorable product mix.
• Non-GAAP gross margin increased to 37.1% from 35.1% in the preceding quarter.
• GAAP operating income increased $3.0 million to $30.1 million, or 10.4% of revenues, compared to $27.1 million, or 10.2%, of revenues in the preceding quarter.
• Non-GAAP operating income increased $12.4 million to $44.8 million, or 15.4% of revenues, compared to $32.4 million, or 12.2% of revenues, in the preceding quarter.  
• Cash and cash equivalents increased $28.1 million to $316.5 million at the end of the second quarter, compared to $288.4 million at the end of the preceding quarter.

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:

• 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);
• Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges);
• 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); and
• Amortization of purchased intangibles (non-cash charges).

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

• 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);
• Debt extinguishment loss (non-cash charges);
• 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								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