Finisar Announces Third Quarter Fiscal 2012 Financial Results

| Source: Finisar Finisar

SUNNYVALE, CA--(Marketwire - Feb 29, 2012) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third quarter of fiscal 2012 ended January 29, 2012.

COMMENTARY
"In our just completed fiscal third quarter, our revenues were $243.0 million, 0.6% greater than the preceding quarter. Sales of datacom products were strong. Gross margin was relatively unchanged from the preceding quarter, despite the impact of one month of the annual price reduction for telecom products. We held operating expenses below plan, so that operating income and operating margin increased relative to the preceding quarter," said Jerry Rawls, Finisar's executive Chairman of the Board.

"We continued to execute well on our product development plan and have delivered to customers a number of new innovative products," said Eitan Gertel, Finisar's Chief Executive Officer. "Production of our 100G ethernet transceivers and tunable XFP transceiver products continued to ramp during the quarter. In addition, we have started the qualification process for our high port count wavelength selective switch(WSS) modules with multiple customers. In our parallel optics product line we continue to see significant traction with several key OEM customers for our optical engine product. "

FINANCIAL HIGHLIGHTS -THIRD QUARTER ENDED January 29, 2012
Summary GAAP Results Third Second
Quarter Quarter
Ended Ended
Jan 29, 2012 Oct 30, 2011
(in thousands, except per share amounts)
Continuing operations
Revenues $ 242,954 $ 241,489
Gross margin 29.3 % 29.1 %
Operating expenses $ 59,794 $ 61,464
Operating income $ 11,308 $ 8,817
Operating margin 4.7 % 3.7 %
Income $ 8,909 $ 5,927
Income per share-basic $ 0.10 $ 0.07
Income per share-diluted $ 0.09 $ 0.06
Basic shares 91,001 90,715
Diluted shares 94,032 93,599
Summary Non-GAAP Results (a) Third Second
Quarter Quarter
Ended Ended
Jan 29, 2012 Oct 30, 2011
(in thousands, except per share amounts)
Continuing operations
Revenues $ 242,954 $ 241,489
Gross margin 31.8 % 32.1 %
Operating expenses $ 53,289 $ 53,845
Operating income $ 23,973 $ 23,559
Operating margin 9.9 % 9.8 %
Income $ 21,878 $ 21,537
Income per share-basic $ 0.24 $ 0.24
Income per share-diluted $ 0.23 $ 0.23
Basic shares 91,001 90,715
Diluted shares 97,781 97,347
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 third quarter of fiscal 2012:

  • Revenues increased to $243.0 million, up $1.5 million, or 0.6%, from $241.5 million in the preceding quarter, driven by growth in sales of datacom products, partially offset by lower telecom product sales.

  • Compared to the preceding quarter, the sale of products for datacom applications increased by $5.1 million, or 4.0%, and the sale of products for telecom applications decreased by $3.7 million, or (3.3)%.

  • Gross margin was relatively unchanged from the preceding quarter at 29.3% on a GAAP basis and 31.8% on a non-GAAP basis. The impact of the one month of the annual price reductions for telecom products that typically take effect on January 1 was partially offset by favorable product mix.

  • GAAP operating income increased $2.5 million to $11.3 million, or 4.7% of revenues, compared to $8.8 million, or 3.7% of revenues in the preceding quarter, as we controlled operating expenses below plan.

  • Non-GAAP operating income increased $0.4 million to $24.0 million, or 9.9% of revenues, compared to $23.6 million, or 9.8% of revenues, in the preceding quarter.

  • Non-GAAP EBITDA increased $1.0 million to $35.2 million, or 14.5% of revenues, compared to $34.3 million, or 14.2% of revenues in the preceding quarter.

Balance Sheet Highlights for the third quarter of fiscal 2012:

  • Cash and cash equivalents totaled $218.3 million at the end of the third quarter compared to $228.0 million at the end of the preceding quarter. The decline was primarily the result of increases in accounts receivable and inventory as well as a decrease in accounts payable as detailed below.

  • Accounts receivable increased $8.1 million over the preceding quarter.

  • Inventory turns were 3.0, compared to 3.2 in the preceding quarter, and overall inventory at the end of the third quarter increased $10.6 million over the preceding quarter, primarily driven by lower than expected revenues from the sale of telecom products.

  • Accounts payable decreased $4.8 million compared to the preceding quarter.

  • At the end of the third quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share.

  • At the end of the third quarter, our Ignis subsidiary also had outstanding debt equivalent to approximately $4.3 million, which is reflected in Finisar's consolidated balance sheet.

OUTLOOK
The Company indicated that it currently expects fourth fiscal quarter revenues to be in the range of $235 to $250 million; GAAP operating margin to be in the range of approximately 3.0% to 4.5%; non-GAAP operating margin to be in the range of 8.0% to 9.5% and non-GAAP earnings per diluted share to be in the range of approximately $0.18 to $0.22.

CONFERENCE CALL
Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Wednesday, February 29, 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 1-888-282-4591 (domestic) or (719) 457-1529 (international) and enter conference ID 8545316.

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 8545316 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 Ignis acquisition and realizing anticipated benefits of improved access to a supply of tunable lasers; 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 28, 2011) 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 Nine Months Ended Three Months Ended
January 29, 2012 January 30, 2011 January 29, 2012 January 30, 2011 October 30, 2011
(Unaudited)
Revenues $ 242,954 $ 263,016 $ 712,669 $ 711,841 $ 241,489
Cost of revenues 170,215 177,730 500,009 470,865 169,571
Amortization of acquired developed technology 1,637 1,221 4,796 3,613 1,637
Gross profit 71,102 84,065 207,864 237,363 70,281
Gross margin 29.3 % 32.0 % 29.2 % 33.3 % 29.1 %
Operating expenses:
Research and development 36,470 29,607 108,573 84,372 36,707
Sales and marketing 10,599 8,818 30,310 27,140 10,125
General and administrative 11,766 14,658 39,491 34,251 13,773
Amortization of purchased intangibles 959 383 2,597 1,149 859
Restructuring recoveries - - (322 ) - -
Total operating expenses 59,794 53,466 180,649 146,912 61,464
Income from operations 11,308 30,599 27,215 90,451 8,817
Interest income 151 204 411 439 100
Interest expense (862 ) (1,465 ) (2,911 ) (5,697 ) (1,138 )
Loss on debt extinguishment - (5,946 ) (419 ) (5,946 ) -
Other income (expense), net (355 ) (3,404 ) 4,168 (3,404 ) (140 )
Income from continuing operations before income taxes and non-controlling interest 10,242 19,988 28,464 75,843 7,639
Provision for income taxes 875 1,167 2,792 3,816 1,369
Consolidated net income 9,367 18,821 25,672 72,027 6,270
Adjust for net loss attributable to non-controlling interest (458 ) - (694 ) - (343 )
Net income attributable to Finisar Corporation 8,909 18,821 24,978 72,027 5,927
Loss from discontinued operations, net of taxes - - - (284 ) -
Net income $ 8,909 $ 18,821 $ 24,978 $ 71,743 $ 5,927
Income per share from continuing operations - basic $ 0.10 $ 0.24 $ 0.28 $ 0.93 $ 0.07
Income per share from continuing operations - diluted $ 0.09 $ 0.22 $ 0.27 $ 0.84 $ 0.06
Income per share from discontinued operations - basic $ - $ - $ - $ (0.00 ) $ -
Income per share from discontinued operations - diluted $ - $ - $ - $ (0.00 ) $ -
Shares used in computing net income per share from continuing operations - basic 91,001 80,080 90,644 77,638 90,715
Shares used in computing net income per share from continuing operations - diluted 94,032 93,388 93,904 90,694 93,599
Shares used in computing net income per share from discontinued operations - basic 91,001 80,080 90,644 77,638 90,715
Shares used in computing net income per share from discontinued operations - diluted 94,032 93,388 93,904 90,694 93,599
Finisar Corporation
Consolidated Balance Sheets
(In thousands)
January 29, 2012 October 30, 2011 July 31, 2011 April 30, 2011
(Unaudited) (Unaudited) (Unaudited) Note
ASSETS
Current assets:
Cash and cash equivalents $ 218,321 $ 228,040 $ 238,052 $ 314,765
Accounts receivable, net 178,294 176,494 166,536 168,386
Accounts receivable, other 17,839 11,558 12,788 12,733
Inventories 225,533 214,940 208,567 187,617
Prepaid expenses and other 22,402 19,120 16,029 9,906
Total current assets 662,389 650,152 641,972 693,407
Property, equipment and improvements, net 150,233 143,139 138,300 125,693
Purchased intangible assets, net 46,351 47,306 49,979 17,439
Goodwill 80,988 82,936 83,107 -
Minority investments 12,289 12,289 12,289 12,289
Equity method investments - - - 31,142
Other assets 20,395 21,773 21,291 5,179
Total assets $ 972,645 $ 957,595 $ 946,938 $ 885,149
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86,185 $ 91,034 $ 87,996 $ 76,288
Accrued compensation 24,667 24,410 17,494 24,525
Other accrued liabilities 31,912 32,118 33,828 25,112
Deferred revenue 8,342 7,909 9,762 8,064
Current portion of long-term debt 4,281 4,281 7,547 -
Total current liabilities 155,387 159,752 156,627 133,989
Long-term liabilities:
Convertible notes, net of current portion 40,015 40,015 40,015 40,015
Long-term debt, net of current portion - - 2,329 -
Other non-current liabilities 17,246 15,771 16,314 11,988
Deferred tax liabilities 4,047 4,052 3,553 -
Total liabilities 216,695 219,590 218,838 185,992
Stockholders' equity:
Common stock 91 91 91 90
Additional paid-in capital 2,301,850 2,293,485 2,285,769 2,275,600
Accumulated other comprehensive income 29,536 29,323 33,404 32,966
Accumulated deficit (1,584,521 ) (1,593,430 ) (1,599,357 ) (1,609,499 )
Finisar Corporation stockholders' equity 746,956 729,469 719,907 699,157
Non-controlling interest 8,994 8,536 8,193 -
Total stockholders' equity 755,950 738,005 728,100 699,157
Total liabilities and stockholders' equity $ 972,645 $ 957,595 $ 946,938 $ 885,149
Note - Balance sheet amounts as of April 30, 2011 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 non-recurring and infrequently incurred 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);

  • The cost of covering employee and employer tax liabilities (non-recurring cash charges) arising from the special investigation into our historical stock option granting practices;

  • Acquisition method accounting adjustment for sale of acquired inventory (non-cash 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 the class action and derivative litigation related to our March 8th, 2011 earnings announcement);

  • Acquisition related costs (non-recurring cash charges)

  • Amortization of purchased intangibles (non-cash charges);and

  • Restructuring costs (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:

  • Amortization of discount on convertible debt and imputed interest expense (non-cash charges);

  • Imputed interest expense related to restructuring (amortization of imputed interest expense associated with previously incurred restructuring costs);

  • 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);

  • Loss related to minority and equity method investments (non-cash charges);

  • Debt extinguishment loss (non-recurring charges);

  • Fair value remeasurement of equity investment (non-cash gain from remeasurement of value of prior investment in an investee);

  • Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items; and

  • Other miscellaneous income and expenses (non-recurring charges).

In calculating non-GAAP income (loss) 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 Nine Months Ended Three Months Ended
January 29, 2012 January 30, 2011 January 29, 2012 January 30, 2011 October 30, 2011
(Unaudited)
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP $ 71,102 $ 84,065 $ 207,864 $ 237,363 $ 70,281
Gross margin - GAAP 29.3 % 32.0 % 29.2 % 33.3 % 29.1 %
Adjustments:
Cost of revenues
Change in excess and obsolete inventory reserve 1,732 4,589 5,343 5,569 2,521
Amortization of acquired technology 1,637 1,222 4,796 3,614 1,637
Stock compensation 1,596 1,353 5,142 3,409 1,687
Payroll taxes related to options investigation - (83 ) - (83 ) -
Acquisition method accounting adjustment for sale of acquired inventory 952 11 4,035 11 1,229
Reduction in force costs 243 1 844 43 49
Total cost of revenue adjustments 6,160 7,093 20,160 12,563 7,123
Gross profit - non-GAAP 77,262 91,158 228,024 249,926 77,404
Gross margin - non-GAAP 31.8 % 34.7 % 32.0 % 35.1 % 32.1 %
GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP 11,308 30,599 27,215 90,451 8,817
Operating margin - GAAP 4.7 % 11.6 % 3.8 % 12.7 % 3.7 %
Adjustments:
Total cost of revenue adjustments 6,160 7,093 20,160 12,563 7,123
Research and development
Reduction in force costs 693 25 766 30 73
Stock compensation 2,200 1,608 6,835 4,347 2,274
Payroll taxes related to options investigation - (118 ) - (118 ) -
Sales and marketing
Reduction in force costs - 69 - 224 -
Stock compensation 747 536 2,378 1,515 767
Payroll taxes related to options investigation - (42 ) - (42 ) -
General and administrative
Reduction in force costs 51 29 1,014 121 865
Stock compensation 1,746 1,189 5,699 3,636 1,945
Payroll taxes related to options investigation - (73 ) - (73 ) -
Acquisition related costs 304 - 1,602 - 209
Litigation settlements and resolutions and related costs (185 ) 3,437 (93 ) 872 (8 )
Shareholder class action and derivative litigation costs (10 ) - 625 - 635
Amortization of purchased intangibles 959 383 2,597 1,149 859
Restructuring recoveries - - (322 ) - -
Total cost of revenue and operating expense adjustments 12,665 14,136 41,261 24,224 14,742
Operating income - non-GAAP 23,973 44,735 68,476 114,675 23,559
Operating margin - non-GAAP 9.9 % 17.0 % 9.6 % 16.1 % 9.8 %
GAAP to non-GAAP reconciliation of income from continuing operations:
Income from continuing operations - GAAP 8,909 18,821 24,978 72,027 5,927
Total cost of revenue and operating expense adjustments 12,665 14,136 41,261 24,224 14,742
Non-cash imputed interest expenses on convertible debt - - - 742 -
Imputed interest related to restructuring 206 74 672 74 396
Other income (expense), net
Loss (gain) on sale of assets (229 ) 154 (7 ) 161 221
Loss related to minority and equity method investments - - 619 - -
Other miscellaneous expenses (income) 351 (3 ) 601 (61 ) 250
Foreign exchange transaction loss (gain) 362 2,357 (280 ) 1,819 (494 )
Debt extinguishment loss - 6,566 419 6,566 -
Fair value remeasurement of equity investment - - (5,429 ) - -
Provision for income taxes
Income tax provision adjustments (386 ) 416 109 1,083 495
Total adjustments 12,969 23,700 37,965 34,608 15,610
Income from continuing operations - non-GAAP 21,878 42,521 62,943 106,635 21,537
GAAP to non-GAAP reconciliation of loss from discontinued operations:
Loss from discontinued operations - GAAP - - - (284 ) -
Loss from discontinued operations - non-GAAP - - - (284 ) -
GAAP to non-GAAP reconciliation of net income:
Net income - GAAP 8,909 18,821 24,978 71,743 5,927
Total adjustments from continuing operations 12,969 23,700 37,965 34,608 15,610
Total adjustments from discontinued operations - - - - -
Total adjustments 12,969 23,700 37,965 34,608 15,610
Net income, non-GAAP $ 21,878 $ 42,521 $ 62,943 $ 106,351 $ 21,537
Non-GAAP income from continuing operations $ 21,878 $ 42,521 $ 62,943 $ 106,635 $ 21,537
Add: interest expense for dilutive convertible notes 539 1,283 1,617 4,035 539
Non-GAAP adjusted income from continuing operations $ 22,417 $ 43,804 $ 64,560 $ 110,670 $ 22,076
Non-GAAP income per share from continuing operations - basic $ 0.24 $ 0.53 $ 0.69 $ 1.37 $ 0.24
Non-GAAP income per share from continuing operations - diluted $ 0.23 $ 0.47 $ 0.66 $ 1.22 $ 0.23
Shares used in computing non-GAAP net income per share from continuing operations - basic 91,001 80,080 90,644 77,638 90,715
Shares used in computing non-GAAP net income per share from continuing operations - diluted 97,781 93,388 97,652 90,694 97,347
Non-GAAP EBITDA - Continuing operations
Non-GAAP income from continuing operations $ 21,878 $ 42,521 $ 62,943 $ 106,635 $ 21,537
Depreciation expense 11,388 8,922 32,978 25,772 10,995
Amortization 208 264 624 842 208
Interest expense 505 1,187 1,828 4,442 642
Income tax expense 1,261 751 2,683 2,734 874
Non-GAAP EBITDA - continuing operations $ 35,240 $ 53,645 $ 101,056 $ 140,425 $ 34,256
Non-GAAP EBITDA - Discontinued operations
Non-GAAP income from discontinuing operations - - - (284 ) -
Depreciation expense - - - - -
Non-GAAP EBITDA - Discontinued operations $ - $ - $ - $ (284 ) $ -
Total Non-GAAP EBITDA $ 35,240 $ 53,645 $ 101,056 $ 140,141 $ 34,256

Contact Information:

Investor Contact:
Kurt Adzema
Chief Financial Officer
408-542-5050
Investor.relations@finisar.com

Press contact:
Victoria McDonald
Sr. Manager, Corporate Communications
408-542-4261