Finisar Announces Fifth Consecutive Quarter of Revenue Growth

Finisar Announces Fifth Consecutive Quarter of Revenue Growth 
SUNNYVALE, CA -- (Marketwired) -- 12/05/13 --  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  
                       Three Months Ended     Six Months Ended      Ended   
                      --------------------  --------------------  --------- 
                       October    October    October    October    July 28, 
                       27, 2013   28, 2012   27, 2013   28, 2012     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,    July 28,    April 28,  
                                          2013         2013         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  
                       Three Months Ended     Six Months Ended      Ended   
                      --------------------  --------------------  --------- 
                       October    October    October    October    July 28, 
                       27, 2013   28, 2012   27, 2013   28, 2012     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 
Investor Contact: 
Kurt Adzema 
Chief Financial Officer 
408-542-5050 
Investor.relations@finisar.com  
Press contact: 
Victoria McDonald
Director, Corporate Communications
408-542-4261