Finisar Announces Second Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Dec 5, 2012) - 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 28, 2012. 

COMMENTARY

"I am pleased to report fiscal second quarter revenues of $232.0 million, which is $11.5 million, or 5.2%, greater than the prior quarter. Our growth in revenues came primarily from sales of tunable XFP transceivers and wavelength selective switches, including ROADM line cards," said Jerry Rawls, Finisar's executive Chairman of the Board. "In addition, operating income increased at a faster rate than revenues because we were able to hold operating expenses relatively flat. This was accomplished in spite of the impact of a full quarter of operating expenses from operation of our RED-C subsidiary, which we acquired during the first quarter."

"During the quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products including tunable SFP+ transceivers, 100G coherent transponders, and next generation 100G client CFP and CFP2 transponders. We expect these new products to drive our future revenue growth and market share expansion in calendar 2013 and beyond," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS -SECOND QUARTER ENDED October 28, 2012
Summary GAAP Results		Second				First
		Quarter				Quarter
		Ended				Ended
		October 28, 2012				July 29, 2012
		(in thousands, except per share amounts)
Revenues		$	232,041			$	220,526
Gross margin			27.5	%			26.2	%
Operating expenses		$	63,820			$	62,994
Operating income (loss)		$	54			$	(5,197	)
Operating margin			0.0	%			(2.4	)%
Income (loss)		$	271			$	(6,197	)
Income (loss) per share-basic		$	0.00			$	(0.07	)
Income (loss) per share-diluted		$	0.00			$	(0.07	)
Basic shares			92,780				91,988
Diluted shares			94,735				91,988
Summary Non-GAAP Results (a)		Second				First
		Quarter				Quarter
		Ended				Ended
		October 28, 2012				July 29, 2012
		(in thousands, except per share amounts)
Revenues		$	232,041			$	220,526
Gross margin			30.5	%			30.3	%
Operating expenses		$	54,846			$	54,710
Operating income		$	15,838			$	12,000
Operating margin			6.8	%			5.4	%
Income		$	14,205			$	10,871
Income per share-basic		$	0.15			$	0.12
Income per share-diluted		$	0.15			$	0.12
Basic shares			92,780				91,988
Diluted shares			98,483				94,204

_____________

(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 second quarter of fiscal 2013:

• Revenues increased to $232.0 million, an increase of $11.5 million, or 5.2%, from $220.5 million in the preceding quarter, primarily driven by growth in revenues from tunable XFP transceivers and wavelength selective switches, including ROADM line cards.
  
  
• Compared to the preceding quarter, the sale of products for telecom applications increased by $11.1 million, or 13.7%, and the sale of products for datacom applications increased by $0.4 million, or 0.3%. 
  
  
• Gross margin increased to 27.5% on a GAAP basis and 30.5% on a non-GAAP basis, from 26.2% and 30.3%, respectively, in the preceding quarter, primarily as the result of higher revenue levels.
  
  
• GAAP operating income (loss) increased $5.3 million to $54,000, or 0.0 % of revenues, compared to an operating loss of $(5.2) million, or (2.4)% of revenues, in the preceding quarter.
  
  
• Non-GAAP operating income increased $3.8 million to $15.8 million, or 6.8% of revenues, compared to $12.0 million, or 5.4% of revenues, in the preceding quarter as the Company was able to hold operating expenses relatively flat, in spite of the impact of a full quarter of operating expenses from the operation of the Company's RED-C subsidiary which we acquired during the first quarter. 
  
  
• Non-GAAP EBITDA increased $3.9 million to $28.7 million, or 12.4% of revenues, compared to $24.9 million, or 11.3% of revenues, in the preceding quarter. 
  
  

Balance Sheet Highlights for the second quarter of fiscal 2013:

• Cash and cash equivalents totaled $262.4 million at the end of the second quarter, compared to $220.5 million at the end of the preceding quarter.
  
  
• At the end of the second 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 third quarter of fiscal 2013 to be in the range of $230 to $245 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 6.5% to 8.0%; and non-GAAP earnings per diluted share to be in the range of approximately $0.14 to $0.18.

CONFERENCE CALL

Finisar will discuss its financial results for the second quarter and current business outlook during its regular quarterly conference call scheduled for Wednesday, December 5, 2012, at 2:00 pm PST (5:00 pm EST). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-888-516-2377 (domestic) or (719) 457-2637 (international) and enter conference ID 7734918.

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 7734918 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
				Three Months Ended								Six Months Ended								Three Months Ended
				October 28, 2012				October 30, 2011				October 28, 2012				October 30, 2011				July 29, 2012
				(Unaudited)
				( in thousands, except per share data)
Revenues				$	232,041			$	241,489			$	452,567			$	469,715			$	220,526
Cost of revenues					166,167				169,571				327,624				329,794				161,457
Amortization of acquired developed technology					2,000				1,637				3,272				3,159				1,272
Gross profit					63,874				70,281				121,671				136,762				57,797
Gross margin					27.5	%			29.1	%			26.9	%			29.1	%			26.2	%
Operating expenses:
	Research and development				39,620				36,707				77,789				72,103				38,169
	Sales and marketing				10,219				10,125				20,893				19,711				10,674
	General and administrative				12,919				13,773				26,261				27,725				13,342
	Amortization of purchased intangibles				1,062				859				1,871				1,638				809
	Restructuring recoveries				-				-				-				(322	)			-
		Total operating expenses			63,820				61,464				126,814				120,855				62,994
Income (loss) from operations					54				8,817				(5,143	)			15,907				(5,197	)
Interest income					162				100				358				260				196
Interest expense					(750	)			(1,138	)			(1,397	)			(2,049	)			(647	)
Loss on debt extinguishment					-				-				-				(419	)			-
Other income (expenses), net					(101	)			(140	)			(20	)			4,523				81
Income (loss) before income taxes and non-controlling interest					(635	)			7,639				(6,202	)			18,222				(5,567	)
Provision (benefits) for income taxes					(1,062	)			1,369				(420	)			1,917				642
Income (loss) before non-controlling interest					427				6,270				(5,782	)			16,305				(6,209	)
Adjust for net income (loss) attributable to non-controlling interest					(156	)			(343	)			(144	)			(236	)			12
Net income (loss) attributable to Finisar Corporation				$	271			$	5,927			$	(5,926	)		$	16,069			$	(6,197	)
Net income (loss) per share attributable to Finisar Corporation common stockholders:
	Basic			$	0.00			$	0.07			$	(0.06	)		$	0.18			$	(0.07	)
	Diluted			$	0.00			$	0.06			$	(0.06	)		$	0.17			$	(0.07	)
Shares used in computing net income (loss) per share - basic					92,780				90,715				92,386				90,470				91,988
Shares used in computing net income (loss) per share - diluted					94,735				93,599				92,386				93,712				91,988

Finisar Corporation
Consolidated Balance Sheets
(in thousands)
				October 28, 2011				July 29, 2012				April 30, 2012
				(Unaudited)				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	262,432			$	220,409			$	234,544
	Accounts receivable, net				155,949				179,441				167,760
	Accounts receivable, other				15,240				14,972				21,004
	Inventories				203,554				208,168				218,432
	Prepaid expenses				25,183				24,430				25,482
		Total current assets			662,358				647,420				667,222
Property, equipment and improvements, net					173,284				165,837				163,817
Purchased intangible assets, net					53,300				43,049				45,177
Goodwill					91,098				97,994				81,431
Minority investments					884				884				884
Other assets					7,263				7,393				10,896
		Total assets		$	988,187			$	962,577			$	969,427
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	72,844			$	71,295			$	72,339
	Accrued compensation				27,901				22,210				27,090
	Other accrued liabilities				22,774				21,456				20,871
	Deferred revenue				7,868				9,775				8,970
	Current portion of long-term debt				-				-				3,150
		Total current liabilities			131,387				124,736				132,420
Long-term liabilities:
	Convertible notes, net of current portion				40,015				40,015				40,015
	Other non-current liabilities				21,171				16,274				15,175
	Deferred tax liabilities				2,459				2,433				1,972
		Total liabilities			195,032				183,458				189,582
Stockholders' equity:
	Common stock				93				93				91
	Additional paid-in capital				2,330,683				2,321,064				2,309,219
	Accumulated other comprehensive income				26,346				22,356				28,720
	Accumulated deficit				(1,572,432	)			(1,572,703	)			(1,566,506	)
		Finisar Corporation stockholders' equity			784,690				770,810				771,524
	Non-controlling interest				8,465				8,309				8,321
		Total stockholders' equity			793,155				779,119				779,845
Total liabilities and stockholders' equity				$	988,187			$	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);
• 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);
• Amortization of purchased intangibles (non-cash charges); and
• Restructuring costs and recoveries (non-recurring charges and benefits).

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

• Imputed interest related to restructuring (non-cash charges);
• 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);
• Loss related to minority and equity method investments (non-cash charges);
• Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
• Other miscellaneous expenses (income) (non-recurring charges or benefits);
• 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
				Three Months Ended								Six Months Ended								Three Months Ended
				October 28, 2012				October 30, 2011				October 28, 2012				October 30, 2011				July 29, 2012
				(Unaudited)
				( in thousands, except per share data)
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	63,874			$	70,281			$	121,671			$	136,762			$	57,797
Gross margin - GAAP					27.5	%			29.1	%			26.9	%			29.1	%			26.2	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory reserve				2,003				2,521				6,869				3,611				4,866
	Amortization of acquired technology				2,000				1,637				3,272				3,159				1,272
	Stock compensation				1,876				1,687				3,362				3,546				1,486
	Acquisition method accounting adjustment for sale of acquired inventory				722				1,229				1,363				-				641
	Flood-related expense				-				-				-				3,083				-
	Reduction in force costs				136				49				784				601				648
	Acquisition related retention payment				73				-				73				-				-
		Total cost of revenue adjustments			6,810				7,123				15,723				14,000				8,913
Gross profit - non-GAAP					70,684				77,404				137,394				150,762				66,710
Gross margin - non-GAAP					30.5	%			32.1	%			30.4	%			32.1	%			30.3	%
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP					54				8,817				(5,143	)			15,907				(5,197	)
Operating margin - GAAP					0.0	%			3.7	%			-1.1	%			3.4	%			-2.4	%
Adjustments:
Total cost of revenue adjustments					6,810				7,123				15,723				14,000				8,913
Research and development
	Reduction in force costs				-				73				177				73				177
	Acquisition related retention payment				222				-				222				-				-
	Stock compensation				3,353				2,274				6,339				4,635				2,986
Sales and marketing
	Acquisition related retention payment				20				-				20				-				-
	Stock compensation				1,002				767				2,079				1,631				1,077
General and administrative
	Reduction in force costs				54				865				69				963				15
	Acquisition related retention payment				253				-				253				-				-
	Stock compensation				2,956				1,945				5,785				3,953				2,829
	Acquisition related costs				96				209				421				1,298				325
	Litigation settlements and resolutions and related costs				(10	)			(8	)			13				92				23
	Shareholder class action and derivative litigation costs				(34	)			635				9				635				43
Amortization of purchased intangibles					1,062				859				1,871				1,638				809
Restructuring recoveries					-				-				-				(322	)			-
		Total cost of revenue and operating expense adjustments			15,784				14,742				32,981				28,596				17,197
Operating income - non-GAAP					15,838				23,559				27,838				44,503				12,000
Operating margin - non-GAAP					6.8	%			9.8	%			6.2	%			9.5	%			5.4	%
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Income (loss) attributable to Finisar Corporation - GAAP					271				5,927				(5,926	)			16,069				(6,197	)
Adjustments:
Total cost of revenue and operating expense adjustments					15,784				14,742				32,981				28,596				17,197
Imputed interest related to restructuring					164				396				226				466				62
Other (income) expense, net
	Loss (gain) on sale of assets				(170	)			221				(189	)			222				(19	)
	Loss related to minority and equity method investments				-				-				-				619				-
	Other miscellaneous income				-				250				(160	)			250				(160	)
	Foreign exchange transaction loss (gain)				(607	)			(494	)			(611	)			(642	)			(4	)
	Debt extinguishment loss				573				-				573				419				-
	Fair value remeasurement of equity investment				-				-				-				(5,429	)			-
Provision for income taxes
	Income tax provision adjustments				(1,810	)			495				(1,818	)			495				(8	)
Total adjustments					13,934				15,610				31,002				24,996				17,068
Net income attributable to Finisar Corporation - non-GAAP					14,205				21,537				25,076				41,065				10,871
Non-GAAP income attributable to Finisar Corporation				$	14,205			$	21,537			$	25,076			$	41,065			$	10,871
Add: interest expense for dilutive convertible notes					539				539				-				1,078				-
Adjusted non-GAAP income attributable to Finisar Corporation				$	14,744			$	22,076			$	25,076			$	42,143			$	10,871
Non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic			$	0.15			$	0.24			$	0.27			$	0.45			$	0.12
	Diluted			$	0.15			$	0.23			$	0.26			$	0.43			$	0.12
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic				92,780				90,715				92,386				90,470				91,988
	Diluted				98,483				97,347				94,780				97,460				94,204
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation				$	14,205			$	21,537			$	25,076			$	41,065			$	10,871
Depreciation expense					13,106				10,995				25,817				21,590				12,711
Amortization					237				208				473				416				236
Interest expense					424				642				813				1,323				389
Income tax expense					748				874				1,398				1,422				650
Non-GAAP EBITDA				$	28,720			$	34,256			$	53,577			$	65,816			$	24,857