Finisar Announces Fiscal 2018 Financial Results

SUNNYVALE, Calif., June 14, 2018 (GLOBE NEWSWIRE) -- Finisar Corporation (NASDAQ:FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its fourth fiscal quarter and full fiscal year, ended April 29, 2018.

COMMENTARY

“While fiscal fourth quarter revenues were in line with the mid-point of our guidance range, gross margin was lower than expected driven by under absorption of fixed manufacturing expenses in our Allen Texas VCSEL laser fab and an increase in non-cash inventory reserves,” said Michael Hurlston, Finisar’s Chief Executive Officer. “While we are disappointed in last quarter’s results, we do expect both revenues and gross margins will increase in our fiscal first quarter. In addition, we have begun to make changes at Finisar that I believe will not only bring more focus to our product development efforts, but will lead to better execution and efficiency, allowing the company to reduce relative expense levels.”


FINANCIAL HIGHLIGHTS – Fourth Quarter Ended April 29, 2018

Summary GAAP Results	Fourth		Third
	Quarter		Quarter
	Ended		Ended
	April 29, 2018		January 28, 2018
	(in thousands, except per share amounts)

Revenues	$310,069		$332,403
Gross margin	20.2	%	26.5	%
Operating expenses	$89,330		$94,197
Operating loss	$(26,737	)	$(6,129	)
Operating margin	(8.6	)%	(1.8	)%
Net loss	$(18,344	)	$(55,659	)
Loss per share-basic	$(0.16	)	$(0.49	)
Loss per share-diluted	$(0.16	)	$(0.49	)

Basic shares	114,742		114,209
Diluted shares	114,742		114,209

Summary Non-GAAP Results (a)	Fourth		Third
	Quarter		Quarter
	Ended		Ended
	April 29, 2018		January 28, 2018
	(in thousands, except per share amounts)

Revenues	$310,069		$332,403
Non-GAAP Gross margin	24.7	%	28.6	%
Non-GAAP Operating expenses	$72,029		$72,375
Non-GAAP Operating income	$4,573		$22,703
Non-GAAP Operating margin	1.5	%	6.8	%
Non-GAAP Net income	5,780		22,801
Non-GAAP Income per share-basic	$0.05		$0.20
Non-GAAP Income per share-diluted	$0.05		$0.20

Basic shares	114,742		114,209
Diluted shares	115,991		115,661

_____________

(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 of Finisar’s core ongoing 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.

Revenue Details for the Fourth Quarter of Fiscal 2018:

Sales of datacom products decreased from $266.1 million to $248.0 million, or by $18.1 million, or (6.8)%, compared to the third quarter of fiscal 2018, primarily due to a decline in revenues for our VCSEL laser arrays for 3D sensing applications.
Sales of telecom products decreased from $66.3 million to $62.1 million, or by $4.2 million, or (6.4)%, compared to the third quarter of fiscal 2018, primarily due to the full three-month impact of the annual telecom price reductions.


FINANCIAL HIGHLIGHTS – Fiscal Year Ended April 29, 2018

Summary GAAP Results
	Fiscal Year		Fiscal Year
	Ended		Ended
	April 29, 2018		April 30, 2017
	(in thousands, except per share amounts)

Revenues	$1,316,483		$1,449,303
Gross margin	27.5	%	34.8	%
Operating expenses	$355,652		$326,762
Operating income	$6,513		$176,884
Operating margin	0.5	%	12.2	%
Net income (loss)	$(48,287	)	$249,346
Income (loss) per share-basic	$(0.42	)	$2.26
Income (loss) per share-diluted	$(0.42	)	$2.19

Basic shares	113,864		110,405
Diluted shares	113,864		114,097

Summary Non-GAAP Results (b)
	Fiscal Year		Fiscal Year
	Ended		Ended
	April 29, 2018		April 30, 2017
	(in thousands, except per share amounts)

Revenues	$1,316,483		$1,449,303
Non-GAAP Gross margin	29.7	%	35.9	%
Non-GAAP Operating expenses	$292,197		$280,252
Non-GAAP Operating income	$99,195		$240,556
Non-GAAP Operating margin	7.5	%	16.6	%
Non-GAAP Net income	$100,420		$231,698
Non-GAAP Income per share-basic	$0.88		$2.10
Non-GAAP Income per share-diluted	$0.86		$2.03

Basic shares	113,864		110,405
Diluted shares	116,274		114,097

_____________

(b) 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 of Finisar’s core ongoing 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.

Revenue Details for Fiscal 2018:

Sales of products for datacom applications decreased by $12.8 million, or (1.2)%, compared to the preceding year, primarily due to lower demand from our Chinese OEM customers.
Sales of products for telecom applications decreased by $120.0 million, or (29.5)%, compared to the preceding year primarily due to lower demand from our Chinese OEM customers.

OUTLOOK

Finisar indicated that for the first quarter of fiscal 2019 it currently expects revenues in the range of $305 to $325 million, non-GAAP gross margin of approximately 26%-27%, non-GAAP operating margin of approximately 4-5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.10 to $0.16.

Finisar has not provided a reconciliation of its first quarter outlook for non-GAAP gross margin, non-GAAP operating margin and non-GAAP earnings per fully diluted share because estimates of all of the reconciling items cannot be provided without unreasonable efforts. It is difficult to reasonably provide a forward-looking estimate of certain reconciling items between such non-GAAP forward-looking measures and the comparable forward-looking GAAP measures. Certain factors that are materially significant to Finisar’s ability to estimate these items are out of its control and/or cannot be reasonably predicted, including with respect to restructuring charges, litigation settlements and resolutions and related costs, and the timing of tax related adjustments. Accordingly, a reconciliation of such non-GAAP forward-looking measures to the comparable forward-looking GAAP measures are not available within a reasonable range of predictability.

CONFERENCE CALL

Finisar will discuss its financial results for the fourth quarter and full fiscal 2018 and current business outlook during its regular quarterly conference call scheduled for June 14, 2018, 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-(855) 473-9088 (domestic) or 1- (720) 405-0995 (international) and enter conference ID 3799557.

An audio replay will be available for two weeks following the call by dialing 1- (855) 859-2056 (domestic) or 1-404-537-3406 (international) and then following the prompts: enter conference ID 3799557 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on Finisar’s website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statement concerning Finisar’s expected financial performance. These statements are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current expectations, estimates, assumptions and projections about our business and industry, and the markets and customers we serve, and they are subject to numerous risks and uncertainties that may cause these forward-looking statements to be inaccurate. 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 16, 2017) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (NASDAQ:FNSR) is a global technology leader in optical communications, providing components and subsystems to networking equipment manufacturers, data center operators, telecom service providers, consumer electronics and automotive companies. Founded in 1988, Finisar designs products that meet the increasing demands for network bandwidth, data storage and 3D sensing subsystems. The company is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. Visit our website at www.finisar.com.

FINISAR FINANCIAL STATEMENTS The following financial tables are presented in accordance with GAAP.


Finisar Corporation
Consolidated Balance Sheets
(in thousands)

	Apr 29, 2018			Jan 28, 2018			Oct 29, 2017			Jul 30, 2017			Apr 30, 2017
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	312,257		$	259,023		$	274,547		$	278,826		$	260,228
Short-term held-to-maturity investments		884,838			957,267			958,216			954,026			976,595
Accounts receivable, net		233,529			243,963			260,870			273,180			272,377
Inventories		348,527			382,179			369,078			356,845			331,388
Other current assets		56,001			53,023			61,517			63,629			68,269
Total current assets		1,835,152			1,895,455			1,924,228			1,926,506			1,908,857
Property, equipment and improvements, net		520,849			495,364			443,733			420,298			383,919
Purchased intangible assets, net		7,878			9,148			10,424			11,700			13,019
Goodwill		106,735			106,735			106,735			106,735			106,735
Other assets		31,721			21,883			21,424			22,256			20,125
Deferred tax assets		80,850			78,593			116,055			108,567			107,225
Total assets	$	2,583,185		$	2,607,178		$	2,622,599		$	2,596,062		$	2,539,880

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	132,161		$	127,248		$	152,047		$	148,605		$	140,568
Accrued compensation		32,525			39,660			36,614			42,030			54,520
Other accrued liabilities		32,824			36,947			40,130			46,648			43,697
Deferred revenue		9,535			14,539			17,716			14,348			13,015
Current portion of convertible notes		251,278			248,426			-			-			-
Total current liabilities		458,323			466,820			246,507			251,631			251,800
Long-term liabilities:
Convertible notes		488,877			483,481			723,784			715,722			707,782
Other non-current liabilities		12,368			16,464			17,176			17,546			17,594
Total liabilities		959,568			966,765			987,467			984,899			977,176
Stockholders' equity:
Common stock		115			114			114			114			112
Additional paid-in capital		2,850,195			2,839,701			2,814,713			2,799,118			2,784,204
Accumulated other comprehensive income (loss)		(14,659	)		(5,712	)		(41,664	)		(44,181	)		(57,865	)
Accumulated deficit		(1,212,034	)		(1,193,690	)		(1,138,031	)		(1,143,888	)		(1,163,747	)
Total stockholders' equity		1,623,617			1,640,413			1,635,132			1,611,163			1,562,704
Total liabilities and stockholders' equity	$	2,583,185		$	2,607,178		$	2,622,599		$	2,596,062		$	2,539,880

Note - Balance sheet amounts as of April 30, 2017 are derived from the audited consolidated financial statements as of that date.


Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)

	Three Months Ended						Twelve Months Ended						Three Months Ended
	Apr 29, 2018			Apr 30, 2017			Apr 29, 2018			Apr 30, 2017			Jan 28, 2018
Revenues	$	310,069		$	357,527		$	1,316,483		$	1,449,303		$	332,403
Cost of revenues		246,501			231,374			951,510			941,164			243,724
Amortization of acquired developed technology		604			990			2,437			4,493			611
Impairment of long-lived assets		371			-			371			-			-
Gross profit		62,593			125,163			362,165			503,646			88,068
Gross margin		20.2	%		35.0	%		27.5	%		34.8	%		26.5	%
Operating expenses:
Research and development		60,520			58,973			239,008			217,914			59,888
Sales and marketing		12,530			12,322			49,024			50,644			11,913
General and administrative		12,207			12,316			59,517			55,442			19,739
Startup costs		2,897			-			3,535			-			638
Amortization of purchased intangibles		666			713			2,705			2,762			666
Impairment of long-lived assets		510			-			1,863			-			1,353
Total operating expenses		89,330			84,324			355,652			326,762			94,197
Income (loss) from operations		(26,737	)		40,839			6,513			176,884			(6,129	)
Interest income		4,904			3,299			16,085			6,763			3,995
Interest expense		(9,322	)		(8,953	)		(36,658	)		(20,363	)		(9,192	)
Other income (expenses), net		1,097			(488	)		(945	)		(90	)		(459	)
Income (loss) before income taxes		(30,058	)		34,697			(15,005	)		163,194			(11,785	)
Provision (benefit) for income taxes		(11,714	)		(95,548	)		33,282			(86,152	)		43,874
Net income (loss)	$	(18,344	)	$	130,245		$	(48,287	)	$	249,346		$	(55,659	)

Net income (loss) per share attributable to Finisar Corporation common stockholders:

Basic	$	(0.16	)	$	1.17		$	(0.42	)	$	2.26		$	(0.49	)
Diluted	$	(0.16	)	$	1.13		$	(0.42	)	$	2.19		$	(0.49	)

Shares used in computing net income per share - basic		114,742			111,438			113,864			110,405			114,209
Shares used in computing net income per share - diluted		114,742			115,242			113,864			114,097			114,209

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission: non-GAAP gross profit, non-GAAP operating income, non-GAAP income and non-GAAP net income per share. These non-GAAP financial measures are supplemental information regarding Finisar’s operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be outside of our ongoing core operating results. Management believes that tracking non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our ongoing core current operations, our ability to generate cash and the underlying business trends that 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 in this release:

Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
Duplicate facility costs during facility move (non-core cash charges);
Stock-based compensation expense (non-cash charges);
Impairment of long-lived/intangible assets (non-cash charges);
Reduction in force costs (non-core cash charges);
Acquisition related retention payments (non-core cash charges); and
Inventory write-off related to discontinued products (non-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 in this release:

Discontinued product services fee (non-core cash charges);
Acquisition related costs (non-core cash charges);
Litigation settlements and resolutions and related costs (non-core cash charges);
Unclaimed property tax audit accrual (non-core benefits);
Amortization of purchased intangibles (non-cash charges); and
Start-up cash costs related to our Sherman VCSEL fab until we begin commercial production.

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

Imputed interest expenses on convertible debt (non-cash charges);
Imputed interest related to restructuring (non-cash charges);
Other interest income (non-core benefits);
Gains and losses on sales of assets (non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
Loss (gain) related to minority investment (non-core charges or benefits);
Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); and
Amortization of debt issuance costs (non-cash charges).

In addition, in this release we have adjusted non-GAAP income and non-GAAP income per share for the difference between GAAP income taxes and non-GAAP income.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below:


Finisar Corporation
Reconciliation of Results of Operations under GAAP and non-GAAP
(Unaudited, in thousands, except per share data)

	Three Months Ended						Twelve Months Ended						Three Months Ended
	Apr 29, 2018			Apr 30, 2017			Apr 29, 2018			Apr 30, 2017			Jan 28, 2018
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP	$	62,593		$	125,163		$	362,165		$	503,646		$	88,068
Gross margin - GAAP		20.2	%		35.0	%		27.5	%		34.8	%		26.5	%
Adjustments:
Cost of revenues
Amortization of acquired technology		604			990			2,437			4,493			611
Duplicate facility costs during facility move		-			10			-			36			-
Stock compensation		3,453			3,071			12,665			12,249			2,918
Impairment of long-lived/intangible assets		371			-			371			-			-
Reduction in force costs		556			103			1,188			287			7
Acquisition related retention payment		30			26			123			97			26
Write off of discontinued product inventory		8,995			-			12,443			-			3,448
Total cost of revenues adjustments		14,009			4,200			29,227			17,162			7,010
Gross profit - non-GAAP		76,602			129,363			391,392			520,808			95,078
Gross margin - non-GAAP		24.7	%		36.2	%		29.7	%		35.9	%		28.6	%

GAAP to non-GAAP reconciliation of operating income (loss):
Operating income (loss) - GAAP		(26,737	)		40,839			6,513			176,884			(6,129	)
Operating margin - GAAP		-8.6	%		11.4	%		0.5	%		12.2	%		-1.8	%
Adjustments:
Total cost of revenues adjustments		14,009			4,200			29,227			17,162			7,010
Total operating expense adjustments
Operating expenses - GAAP		89,330			84,324			355,652			326,762			94,197
Research and development
Reduction in force costs		1,505			46			2,412			338			792
Duplicate facility costs during facility move		-			10			-			34			-
Acquisition related retention payment		32			32			140			128			44
Stock compensation		6,034			5,613			24,336			21,737			6,073
Impairment of long-lived assets		-			2,387			-			2,387			-
Discontinued product service fees		185			-			185			-			-
Sales and marketing
Reduction in force costs		335			19			323			48			-
Acquisition related retention payment		-			2			(2	)		2			-
Stock compensation		1,956			1,889			7,931			7,438			1,892
General and administrative
Reduction in force costs		145			5			536			58			341
Duplicate facility costs during facility move		129			176			568			641			119
Acquisition related retention payment		-			-			-			(2	)		-
Stock compensation		2,233			2,823			18,189			11,172			9,888
Acquisition related costs		127			(343	)		146			(289	)		(25	)
Litigation settlements and resolutions and related costs		551			-			551			93			-
Unclaimed property tax audit accrual		-			-			-			(37	)		-
Amortization of purchased intangibles		666			713			2,705			2,762			666
Startup costs		2,897			-			3,535			-			638
Impairment of long-lived assets/intangible assets		506			-			1,900			-			1,394
Total operating expense adjustments		17,301			13,372			63,455			46,510			21,822
Operating expenses - non-GAAP		72,029			70,952			292,197			280,252			72,375
Operating income - non-GAAP		4,573			58,411			99,195			240,556			22,703
Operating margin - non-GAAP		1.5	%		16.3	%		7.5	%		16.6	%		6.8	%

GAAP to non-GAAP reconciliation of income (loss) before income taxes:
Income (loss) before income taxes - GAAP		(30,058	)		34,697			(15,005	)		163,194			(11,785	)
Adjustments:
Total cost of revenues adjustments		14,009			4,200			29,227			17,162			7,010
Total operating expense adjustments		17,301			13,372			63,455			46,510			21,822
Other interest income		-			-			(14	)		-			(14	)
Non-cash imputed interest expenses on convertible debt		7,863			7,494			30,833			16,936			7,739
Imputed interest related to restructuring		23			32			106			141			25
Other (income) expense, net
Loss (gain) on sale of assets		(157	)		9			(315	)		(261	)		(79	)
Loss related to impairment of minority investments		-			-			2,347			643			-
Foreign exchange transaction (gain) or loss		(936	)		326			(1,254	)		(877	)		698
Amortization of debt issuance cost		385			385			1,540			950			385
Total interest and other adjustments		7,178			8,246			33,243			17,532			8,754
Income before income taxes - non-GAAP		8,430			60,515			110,920			244,398			25,801

GAAP to non-GAAP reconciliation of net income (loss):
Net income (loss) - GAAP		(18,344	)		130,245			(48,287	)		249,346			(55,659	)
Total cost of revenues adjustments		14,009			4,200			29,227			17,162			7,010
Total operating expense adjustments		17,301			13,372			63,455			46,510			21,822
Total interest and other adjustments		7,178			8,246			33,243			17,532			8,754
Income tax provision adjustments		(14,364	)		(98,548	)		22,782			(98,852	)		40,874
Total adjustments		24,124			(72,730	)		148,707			(17,648	)		78,460
Net income - non-GAAP	$	5,780		$	57,515		$	100,420		$	231,698		$	22,801

Basic non-GAAP income per share
GAAP earnings per share	$	(0.16	)	$	1.17		$	(0.42	)	$	2.26		$	(0.49	)
Impact of all non-GAAP adjustments	$	0.21		$	(0.65	)	$	1.30		$	(0.16	)	$	0.69
Non-GAAP earnings per share	$	0.05		$	0.52		$	0.88		$	2.10		$	0.20

Diluted non-GAAP income per share
GAAP earnings per share	$	(0.16	)	$	1.13		$	(0.42	)	$	2.19		$	(0.49	)
Impact of all non-GAAP adjustments	$	0.21		$	(0.63	)	$	1.28		$	(0.16	)	$	0.69
Non-GAAP earnings per share	$	0.05		$	0.50		$	0.86		$	2.03		$	0.20

Shares used in computing non-GAAP income per share
Basic		114,742			111,438			113,864			110,405			114,209
Diluted		115,991			115,242			116,274			114,097			115,661

Finisar-F

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

Press contact:
Victoria McDonald
Director, Corporate Communications
408-542-4261