Finisar Announces First Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Sep 4, 2012) - 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 29, 2012. 

COMMENTARY

"As expected, our first quarter of fiscal year 2013 was challenging. This was primarily the result of sluggish macroeconomic conditions, especially in Europe, as well as the slowing of economic growth in China. Generally telecom spending throughout the world has been soft. In addition, we had two fewer shipping days in the first quarter than in the previous quarter," said Jerry Rawls, Finisar's executive Chairman of the Board. "However, I am happy to report that we expect revenue growth to resume in the second quarter. In addition, we expect to hold operating expenses relatively flat, excluding the impact of a full quarter of the RED-C acquisition. Thus, we expect operating income will grow in the second quarter."

"During the quarter, we continued to ramp a significant number of new products for both the datacom and telecom markets. We expect these new products to help drive our future revenue growth and market share expansion. During the last quarter, we acquired RED-C Optical Networks to broaden our product lines primarily for telecom applications by adding key amplification technologies," said Eitan Gertel, Finisar's Chief Executive Officer. "These technologies are considered critical for ROADM line cards and are increasingly important in cost-effectively extending the reach of transceivers and transponders, especially for 100 Gb/s and 40 Gb/s coherent transmission, and low latency networks. We expect that the integration of RED-C technology into Finisar products will enable us to offer our customers a much higher level of product integration with increased cost effectiveness. The combination should accelerate our market share growth."

FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED July 29, 2012
Summary GAAP Results		First Quarter Ended July 29, 2012				Fourth Quarter Ended April 30, 2012
		(in thousands, except per share amounts)
Revenues		$	220,526			$	239,910
Gross margin			26.2	%			27.3	%
Operating expenses		$	62,994			$	53,369
Operating income (loss)		$	(5,197	)		$	12,111
Operating margin			(2.4	)%			5.0	%
Income (loss)		$	(6,197	)		$	18,015
Income (loss) per share-basic		$	(0.07	)		$	0.20
Income (loss) per share-diluted		$	(0.07	)		$	0.19
Basic shares			91,988				91,349
Diluted shares			91,988				98,528
Summary Non-GAAP Results (a)			First Quarter Ended July 29, 2012				Fourth Quarter Ended April 30, 2012
			(in thousands, except per share amounts)
Revenues		$	220,526			$	239,910
Gross margin			30.3	%			31.4	%
Operating expenses		$	54,710			$	54,552
Operating income		$	12,000			$	20,856
Operating margin			5.4	%			8.7	%
Income		$	10,871			$	20,234
Income per share-basic		$	0.12			$	0.22
Income per share-diluted		$	0.12			$	0.21
Basic shares			91,988				91,349
Diluted shares			94,204				98,528

_____________

(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.

Operating Statement Highlights for the first quarter of fiscal 2013:

• Revenues decreased to $220.5 million, down $19.4 million, or 8.1%, from $239.9 million in the preceding quarter primarily as a result of current macroeconomic conditions, especially in Europe, as well as the slowing of economic growth in China. Generally telecom spending throughout the world has been soft. In addition, there were two fewer shipping days in the first quarter than in the previous quarter.
  
  
• Compared to the preceding quarter, the sale of products for datacom applications decreased by $6.6 million, or (4.5)%, and the sale of products for telecom applications decreased by $12.8 million, or (13.6)%. 
  
  
• Gross margin was 26.2% on a GAAP basis and 30.3% on a non-GAAP basis, compared to 27.3% and 31.4%, respectively, in the preceding quarter primarily due to the impact of lower revenue levels relative to fixed manufacturing costs.
  
  
• GAAP operating income (loss) decreased $17.3 million to $(5.2) million, or (2.4)% of revenues, compared to $12.1 million of operating income, or 5.0% of revenues, in the preceding quarter.
  
  
• Non-GAAP operating income decreased $8.9million to $12.0 million, or 5.4% of revenues, compared to $20.9 million, or 8.7% of revenues, in the preceding quarter primarily due to lower revenue levels.
  
  
• Non-GAAP EBITDA decreased $9.3 million to $24.9 million, or 11.3% of revenues, compared to $34.2 million, or 14.2% of revenues, in the preceding quarter. 
  
  

Balance Sheet Highlights for the first quarter of fiscal 2013:

• Cash and cash equivalents totaled $220.4 million at the end of the first quarter, compared to $234.5 million at the end of the preceding quarter.
  
  
• During the first quarter, Finisar completed the acquisition of RED-C Optical Networks Inc. for a total of $23.7 million in initial cash consideration.
  
  
• During the first quarter, Finisar repaid the remaining outstanding debt balance of $3.2 million at our Ignis subsidiary.
  
  
• At the end of the first quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share. 
  
  

OUTLOOK

The Company currently expects revenues for the second quarter of fiscal 2013 to be in the range of $225 to $240 million; GAAP operating margin to in the range of approximately 0.0% to 1.5%; non-GAAP operating margin to be in the range of approximately 5.7% to 7.2% and non-GAAP earnings per diluted share to be in the range of approximately $0.12 to $0.16.

CONFERENCE CALL

Finisar will discuss its financial results for the first quarter and current business outlook during its regular quarterly conference call scheduled for Tuesday, September 4, 2012, 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 1-866-293-8969 (domestic) or (913) 312-0671 (international) and enter conference ID 2107413.

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 2107413 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; challenges related to the integration of the recently completed RED-C acquisition; 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 29, 2012) 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 more than 20 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. 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 29, 2012				July 31, 2011				April 30, 2012
				(Unaudited)
Revenues				$	220,526			$	228,226			$	239,910
Cost of revenues					161,457				160,223				172,915
Amortization of acquired developed technology					1,272				1,522				1,515
Gross profit					57,797				66,481				65,480
Gross margin					26.2	%			29.1	%			27.3	%
Operating expenses:
	Research and development				38,169				35,396				37,430
	Sales and marketing				10,674				9,586				10,114
	General and administrative				13,342				13,952				4,928
	Amortization of purchased intangibles				809				779				897
	Restructuring recoveries				-				(322	)			-
		Total operating expenses			62,994				59,391				53,369
Income (loss) from operations					(5,197	)			7,090				12,111
Interest income					196				160				662
Interest expense					(647	)			(911	)			(805	)
Loss on debt extinguishment					-				(419	)			-
Other income, net					81				4,663				4,587
Income (loss) before income taxes and non-controlling interest					(5,567	)			10,583				16,555
Provision for income taxes					642				548				(787	)
Income (loss) before non-controlling interest					(6,209	)			10,035				17,342
Adjust for net loss attributable to non-controlling interest					12				107				673
Net income (loss) attributable to Finisar Corporation				$	(6,197	)		$	10,142			$	18,015
Net income (loss) per share attributable to Finisar Corporation common stockholders:
	Basic			$	(0.07	)		$	0.11			$	0.20
	Diluted			$	(0.07	)		$	0.11			$	0.19
Shares used in computing net income (loss) per share - basic					91,988				90,221				91,349
Shares used in computing net income (loss) per share - diluted					91,988				93,527				98,528

Finisar Corporation
Consolidated Balance Sheets
(in thousands)
				July 29, 2012				April 30, 2012
				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	220,409			$	234,544
	Accounts receivable, net				179,441				167,760
	Accounts receivable, other				14,972				21,004
	Inventories				208,168				218,432
	Prepaid expenses				24,430				25,482
		Total current assets			647,420				667,222
Property, equipment and improvements, net					165,837				163,817
Purchased intangible assets, net					43,049				45,177
Goodwill					97,994				81,431
Minority investments					884				884
Other assets					7,393				10,896
		Total assets		$	962,577			$	969,427
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	71,295			$	72,339
	Accrued compensation				22,210				27,090
	Other accrued liabilities				21,456				20,871
	Deferred revenue				9,775				8,970
	Current portion of long-term debt				-				3,150
		Total current liabilities			124,736				132,420
Long-term liabilities:
	Convertible notes, net of current portion				40,015				40,015
	Other non-current liabilities				16,274				15,175
	Deferred tax liabilities				2,433				1,972
		Total liabilities			183,458				189,582
Stockholders' equity:
	Common stock				93				91
	Additional paid-in capital				2,321,064				2,309,219
	Accumulated other comprehensive income				22,356				28,720
	Accumulated deficit				(1,572,703	)			(1,566,506	)
		Finisar Corporation stockholders' equity			770,810				771,524
	Non-controlling interest				8,309				8,321
		Total stockholders' equity			779,119				779,845
Total liabilities and stockholders' equity				$	962,577			$	969,427
Note - Balance sheet amounts as of April 30, 2012 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);
• Expense related to recent flooding in Thailand (non-recurring charges); and
• Reduction in force costs (non-recurring cash 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); and
• Restructuring costs and recoveries (non-recurring cash charges).

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

• Interest income on legal settlements and resolutions (non-recurring benefits)
• 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);
• Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
• Gain on fair value re-measurement of contingent consideration liability (non-recurring benefits);
• Other miscellaneous expenses (income) (non-recurring charges or benefits);
• Loss related to minority and equity method investments (non-cash charges);
• Debt extinguishment loss (non-recurring charges);
• Fair value re-measurement of equity investment (non-cash gain from re-measurement of value of prior investment in an investee); 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
(in thousands, except per share data)
				Three Months Ended
				July 29, 2012				July 31, 2011				April 30, 2012
				(Unaudited)
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	57,797			$	66,481			$	65,480
Gross margin - GAAP					26.2	%			29.1	%			27.3	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory reserve				4,866				1,090				5,027
	Amortization of acquired technology				1,272				1,522				1,515
	Stock compensation				1,486				1,859				1,139
	Acquisition method accounting adjustment for sale of acquired inventory				641				1,854				963
	Flood-related expense				-				-				1,222
	Reduction in force costs				648				552				62
		Total cost of revenue adjustments			8,913				6,877				9,928
Gross profit - non-GAAP					66,710				73,358				75,408
Gross margin - non-GAAP					30.3	%			32.1	%			31.4	%
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP					(5,197	)			7,090				12,111
Operating margin - GAAP					-2.4	%			3.1	%			5.0	%
Adjustments:
Total cost of revenue adjustments					8,913				6,877				9,928
Research and development
	Reduction in force costs				177				-				35
	Stock compensation				2,986				2,361				2,288
Sales and marketing
	Reduction in force costs				-				-				36
	Stock compensation				1,077				864				727
General and administrative
	Reduction in force costs				15				98				41
	Stock compensation				2,829				2,008				1,768
	Acquisition related costs				325				1,089				-
	Litigation settlements and resolutions and related costs				23				100				(7,422	)
	Shareholder class action and derivative litigation costs				43				-				447
Amortization of purchased intangibles					809				779				897
Restructuring recoveries					-				(322	)			-
		Total cost of revenue and operating expense adjustments			17,197				13,854				8,745
Operating income - non-GAAP					12,000				20,944				20,856
Operating margin - non-GAAP					5.4	%			9.2	%			8.7	%
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Income (loss) attributable to Finisar Corporation - GAAP					(6,197	)			10,142				18,015
Adjustments:
Total cost of revenue and operating expense adjustments					17,197				13,854				8,745
Interest income from legal settlement					-				-				(434	)
Imputed interest related to restructuring					62				70				133
Other (income) expense, net
	Loss (gain) on sale of assets				(19	)			1				3
	Loss related to minority and equity method investments				-				619				-
	Gain on fair value remeasurement of contingent consideration liability				-				-				(4,853	)
	Other miscellaneous income				(160	)			-				(424	)
	Foreign exchange transaction loss (gain)				(4	)			(148	)			506
	Debt extinguishment loss				-				419				-
	Fair value remeasurement of equity investment				-				(5,429	)			(3	)
Provision for income taxes
	Income tax provision adjustments				(8	)			-				(1,454	)
Total adjustments					17,068				9,386				2,219
Net income attributable to Finisar Corporation - non-GAAP					10,871				19,528				20,234
Non-GAAP income attributable to Finisar Corporation				$	10,871			$	19,528			$	20,234
Add: interest expense for dilutive convertible notes					-				539				539
Adjusted non-GAAP income attributable to Finisar Corporation				$	10,871			$	20,067			$	20,773
Non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic			$	0.12			$	0.22			$	0.22
	Diluted			$	0.12			$	0.21			$	0.21
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic				91,988				90,221				91,349
	Diluted				94,204				97,275				98,528
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation				$	10,871			$	19,528			$	20,234
Depreciation expense					12,711				10,595				12,583
Amortization					236				208				227
Interest expense					389				681				444
Income tax expense					650				548				667
Non-GAAP EBITDA				$	24,857			$	31,560			$	34,155