Finisar Announces 7% Revenue Growth Over Prior Quarter

SUNNYVALE, CA--(Marketwired - Sep 4, 2014) -  Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its first quarter of fiscal 2015, ended July 27, 2014. 

COMMENTARY

"I am pleased to report that first quarter revenues were $327.6 million, a new all-time record for Finisar. Quarterly revenues increased by $21.6 million, or 7.1%, over the fourth fiscal quarter of fiscal 2014. Quarterly revenues grew for the eighth consecutive quarter," said Jerry Rawls, Finisar's executive Chairman of the Board.

"While demand for our transceivers that address wireless applications was very strong in the first quarter, demand for these products is now expected to decrease in the second quarter. We expect the demand to return and revenues to increase sequentially for these products in the third quarter. As a result of this decrease in demand for wireless transceivers, as well as a decrease in demand for telecom products due to soft carrier spending and a decrease in demand from several datacom customers with lumpy order patterns, we expect our overall revenues to decline in the second fiscal quarter," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED JULY 27, 2014
Summary GAAP Results		First				Fourth
		Quarter				Quarter
		Ended				Ended
		July 27, 2014				April 27, 2014
		(in thousands, except per share amounts)
Revenues		$	327,638			$	306,025
Gross margin			30.2	%			31.6	%
Operating expenses		$	78,451			$	75,457
Operating income		$	20,368			$	21,107
Operating margin			6.2	%			6.9	%
Net income		$	14,243			$	28,750
Income per share-basic		$	0.14			$	0.30
Income per share-diluted		$	0.14			$	0.28
Basic shares			98,241				96,965
Diluted shares			106,036				105,418
Summary Non-GAAP Results (a)		First				Fourth
		Quarter				Quarter
		Ended				Ended
		July 27, 2014				April 27, 2014
		(in thousands, except per share amounts)
Revenues		$	327,638			$	306,025
Gross margin			32.0	%			34.2	%
Operating expenses		$	69,439			$	65,931
Operating income		$	35,404			$	38,882
Operating margin			10.8	%			12.7	%
Net income		$	33,332			$	36,992
Income per share-basic		$	0.34			$	0.38
Income per share-diluted		$	0.32			$	0.36
Basic shares			98,241				96,965
Diluted shares			106,036				105,418

_____________          

(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 first quarter of fiscal 2015:

• Revenues increased to $327.6 million, up $21.6 million, or 7.1%, from $306.0 million in the preceding quarter.
  
  
• The sale of products for datacom applications increased by $18.2 million, or 8.2%, compared to the preceding quarter, primarily as the result of strong demand for our transceivers that address wireless applications.
  
  
• The sale of products for telecom applications increased by $3.4 million, or 4.1%, compared to the preceding quarter.
  
  
• GAAP gross margin decreased to 30.2% from 31.6% in the preceding quarter, primarily driven by less favorable product mix, primarily the result of increased sales of transceivers that address wireless applications and lower sales of our 100G ethernet transceivers, as well as an increase in depreciation as a result of an increased level of capital expenditures.
  
  
• Non-GAAP gross margin decreased to 32.0% from 34.2% in the preceding quarter.
  
  
• GAAP operating expenses increased to $78.5 million from $75.5 million in the preceding quarter, primarily from the impact of the full quarter operating expenses associated with the acquisition of u2t Photonics AG which closed during our fiscal fourth quarter, the acquisition of LightSmyth which occurred during the fiscal first quarter, the employer portion of payroll taxes associated with the annual vesting of RSUs which occurs every June and higher legal expenses associated with multiple current ongoing patent litigations.
  
  
• Non-GAAP operating expenses increased to $69.4 million from $65.9 million in the preceding quarter. 
  
  
• GAAP operating income decreased $0.7 million to $20.4 million or 6.2% of revenues, compared to $21.1 million or 6.9% of revenues in the preceding quarter, primarily as the result of lower gross margins and higher operating expenses.
  
  
• Non-GAAP operating income decreased $3.5 million to $35.4 million, or 10.8% of revenues, compared to $38.9 million, or 12.7% of revenues, in the preceding quarter.  
  
  
• Cash, cash equivalents and short term investments decreased $15.6 million to $497.4 million at the end of the first quarter, compared to $513.0 million at the end of the preceding quarter, primarily as the result of capital expenditures of $44.2 million, increased inventory of $10.4 million, increased accounts receivables of $6.3 million and a reduction in accrued compensation of $10.3 million primarily due to the payment of fiscal year end cash bonuses.
  
  
• During the quarter, Finisar completed the acquisition of LightSmyth Technologies, Inc. of Eugene Oregon, a pioneer in the use of semiconductor manufacturing tools to produce differentiated, high performance and cost-effective grating products. LightSmyth previously was a supplier of grating products for Finisar's WSS and ROADM products. This acquisition further advances Finisar's vertical integration strategy.
  
  

OUTLOOK

The Company indicated that for the second quarter of fiscal 2015 it currently expects revenues in the range of $305 to $320 million, non-GAAP gross margin of approximately 31% to 32%, non-GAAP operating margin of approximately 8.5% to 9.5%, and non-GAAP earnings per diluted share in the range of approximately $0.23 to $0.27.

CONFERENCE CALL

Finisar will discuss its financial results for the first quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, September 4, 2014, 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 1-888-299-7205 (domestic) or +1-719-325-3210 (international) and enter conference ID 7685228.

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 7685228 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

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; intensive competition; and the uncertainty of achieving anticipated cost savings and synergies in connection with the recently completed u2t acquisition. 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 26, 2014) 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 Balance Sheets
(in thousands)
				July 27, 2014				April 27, 2014
				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	287,455			$	303,101
	Short-term held-to-maturity investments				209,927				209,922
	Accounts receivable, net				231,312				225,020
	Accounts receivable, other				41,595				33,749
	Inventories				270,122				259,759
	Prepaid expenses and other assets				38,582				33,022
		Total current assets			1,078,993				1,064,573
Property, equipment and improvements, net					301,020				273,328
Purchased intangible assets, net					33,680				34,141
Goodwill					106,735				106,115
Minority investments					2,317				2,117
Other assets					20,907				17,272
		Total assets		$	1,543,652			$	1,497,546
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	143,224			$	119,439
	Accrued compensation				28,215				38,541
	Other accrued liabilities				27,568				31,533
	Deferred revenue				16,872				16,659
	Short term debt				247				243
	Current portion of convertible notes				40,015				40,015
		Total current liabilities			256,141				246,430
Long-term liabilities:
	Convertible notes, net of current portion				214,496				212,253
	Other non-current liabilities				24,042				22,804
		Total liabilities			494,679				481,487
Stockholders' equity:
	Common stock				100				97
	Additional paid-in capital				2,469,687				2,456,110
	Accumulated other comprehensive income				25,116				20,025
	Accumulated deficit				(1,445,930	)			(1,460,173	)
		Total stockholders' equity			1,048,973				1,016,059
Total liabilities and stockholders' equity				$	1,543,652			$	1,497,546

Note - Balance sheet amounts as of April 27, 2014 are derived from the audited consolidated financial statements as of the date.

Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
				Three Months Ended
				July 27, 2014				July 28, 2013				April 27, 2014
Revenues				$	327,638			$	266,068			$	306,025
Cost of revenues					227,385				173,102				208,135
Amortization of acquired developed technology					1,434				1,593				1,326
Gross profit					98,819				91,373				96,564
Gross margin					30.2	%			34.3	%			31.6	%
Operating expenses:
	Research and development				51,006				43,530				48,132
	Sales and marketing				11,965				11,805				11,509
	General and administrative				14,719				8,340				15,133
	Amortization of purchased intangibles				761				595				683
		Total operating expenses			78,451				64,270				75,457
Income from operations					20,368				27,103				21,107
Interest income					612				217				485
Interest expense					(3,134	)			(552	)			(2,965	)
Other income (expenses), net					(2,026	)			488				8,124
Income before income taxes and non-controlling interest					15,820				27,256				26,751
Provision (benefits) for income taxes					1,577				1,421				(1,932	)
Income before non-controlling interest					14,243				25,835				28,683
Adjust for net loss attributable to non-controlling interest					-				176				67
Net income attributable to Finisar Corporation				$	14,243			$	26,011			$	28,750
Net income per share attributable to Finisar Corporation common stockholders:
	Basic			$	0.14			$	0.27			$	0.30
	Diluted			$	0.14			$	0.26			$	0.28
Shares used in computing net income per share - basic					98,241				94,609				96,965
Shares used in computing net income per share - diluted					106,036				101,125				105,418

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 Commissions: non-GAAP gross profit, non-GAAP operating income and non-GAAP income per share. These non-GAAP financial measures are 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);
• Impairment of acquired developed technology and other long-lived assets (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);
• Gain on fair value re-measurement of contingent consideration (non-cash benefit);
• 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:

• Imputed interest expenses on convertible debt (non-cash charges);
• Imputed interest related to restructuring (non-cash charges);
• Gains and losses on sales of assets (non-recurring and/or non-cash losses and 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);
• Amortization of debt issuance costs (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.

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
				July 27, 2014				July 28, 2013				April 27, 2014
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	98,819			$	91,373			$	96,564
Gross margin - GAAP					30.2	%			34.3	%			31.6	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory reserve				1,721				(1,528	)			3,384
	Amortization of acquired technology				1,434				1,593				1,326
	Stock compensation				2,276				1,777				2,531
	Acquisition method accounting adjustment for sale of acquired inventory				-				-				822
	Reduction in force costs				475				23				124
	Acquisition related retention payment				118				62				62
		Total cost of revenue adjustments			6,024				1,927				8,249
Gross profit - non-GAAP					104,843				93,300				104,813
Gross margin - non-GAAP					32.0	%			35.1	%			34.2	%
GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP					20,368				27,103				21,107
Operating margin - GAAP					6.2	%			10.2	%			6.9	%
Adjustments:
Total cost of revenue adjustments					6,024				1,927				8,249
Research and development
	Reduction in force costs				332				12				-
	Acquisition related retention payment				193				191				190
	Stock compensation				4,436				3,525				4,056
Sales and marketing
	Acquisition related retention payment				20				17				17
	Stock compensation				1,529				1,184				1,406
General and administrative
	Reduction in force costs				(5	)			67				69
	Acquisition related retention payment				16				217				8
	Stock compensation				2,812				2,423				2,525
	Acquisition related costs				230				225				567
	Litigation settlements and resolutions and related costs				(1,312	)			5				5
	Gain on fair value remeasurement of contingent consideration liability				-				(5,094	)			-
Amortization of purchased intangibles					761				595				683
		Total cost of revenue and operating expense adjustments			15,036				5,294				17,775
Operating income - non-GAAP					35,404				32,397				38,882
Operating margin - non-GAAP					10.8	%			12.2	%			12.7	%
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Net income attributable to Finisar Corporation - GAAP					14,243				26,011				28,750
Adjustments:
Total cost of revenue and operating expense adjustments					15,036				5,294				17,775
Non-cash imputed interest expenses on convertible debt					2,243				-				2,225
Imputed interest related to restructuring					51				57				53
Other (income) expense, net
	Loss (gain) on sale of assets				238				(110	)			(8,156	)
	Gain related to minority investments				-				(743	)			-
	Other miscellaneous income				(1	)			-				-
	Foreign exchange transaction (gain) or loss				1,991				567				(69	)
	Amortization of debt issuance cost				154				-				155
Provision for income taxes
	Income tax provision adjustments				(623	)			126				(3,737	)
Non-controlling interest non-GAAP adjustment					-				67				(4	)
Total adjustments					19,089				5,258				8,242
Net income attributable to Finisar Corporation - non-GAAP				$	33,332			$	31,269			$	36,992
Non-GAAP income attributable to Finisar Corporation				$	33,332			$	31,269			$	36,992
Add: interest expense for dilutive convertible notes					539				539				539
Adjusted non-GAAP income attributable to Finisar Corporation				$	33,871			$	31,808			$	37,531
Non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic			$	0.34			$	0.33			$	0.38
	Diluted			$	0.32			$	0.31			$	0.36
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic				98,241				94,609				96,965
	Diluted				106,036				101,125				105,418
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation				$	33,332			$	31,269			$	36,992
Depreciation expense					19,648				13,927				17,518
Amortization					39				94				94
Interest expense					228				278				202
Income tax expense					2,200				1,295				1,805
Non-GAAP EBITDA				$	55,447			$	46,863			$	56,611

Finisar-F