TMCNet:  Finisar Announces Second Fiscal Quarter Financial Results

[December 05, 2012]

Finisar Announces Second Fiscal Quarter Financial Results

(Marketwire Via Acquire Media NewsEdge) SUNNYVALE, CA -- (Marketwire) -- 12/05/12 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second fiscal quarter ended October 28, 2012.


COMMENTARY "I am pleased to report fiscal second quarter revenues of $232.0 million, which is $11.5 million, or 5.2%, greater than the prior quarter. Our growth in revenues came primarily from sales of tunable XFP transceivers and wavelength selective switches, including ROADM line cards," said Jerry Rawls, Finisar's executive Chairman of the Board. "In addition, operating income increased at a faster rate than revenues because we were able to hold operating expenses relatively flat. This was accomplished in spite of the impact of a full quarter of operating expenses from operation of our RED-C subsidiary, which we acquired during the first quarter." "During the quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products including tunable SFP+ transceivers, 100G coherent transponders, and next generation 100G client CFP and CFP2 transponders. We expect these new products to drive our future revenue growth and market share expansion in calendar 2013 and beyond," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS -SECOND QUARTER ENDED October 28, 2012 Summary GAAP Results Second First Quarter Quarter Ended Ended October 28, July 29, 2012 2012 ----------- ----------- (in thousands, except per share amounts) Revenues $ 232,041 $ 220,526 Gross margin 27.5% 26.2% Operating expenses $ 63,820 $ 62,994 Operating income (loss) $ 54 $ (5,197) Operating margin 0.0% (2.4)% Income (loss) $ 271 $ (6,197) Income (loss) per share-basic $ 0.00 $ (0.07) Income (loss) per share-diluted $ 0.00 $ (0.07) Basic shares 92,780 91,988 Diluted shares 94,735 91,988 Summary Non-GAAP Results (a) Second First Quarter Quarter Ended Ended October 28, July 29, 2012 2012 ----------- ----------- (in thousands, except per share amounts) Revenues $ 232,041 $ 220,526 Gross margin 30.5% 30.3% Operating expenses $ 54,846 $ 54,710 Operating income $ 15,838 $ 12,000 Operating margin 6.8% 5.4% Income $ 14,205 $ 10,871 Income per share-basic $ 0.15 $ 0.12 Income per share-diluted $ 0.15 $ 0.12 Basic shares 92,780 91,988 Diluted shares 98,483 94,204 _____________ (a) In evaluating the operating performance of Finisar's business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. generally accepted accounting principles, or GAAP, that are considered by management to be outside Finisar's core operating results. A reconciliation of Finisar's non-GAAP financial measures to the most directly comparable GAAP measures, as well as additional related information, can be found under the heading "Finisar Non-GAAP Financial Measures" below.

Operating Statement Highlights for the second quarter of fiscal 2013: Revenues increased to $232.0 million, an increase of $11.5 million, or 5.2%, from $220.5 million in the preceding quarter, primarily driven by growth in revenues from tunable XFP transceivers and wavelength selective switches, including ROADM line cards. Compared to the preceding quarter, the sale of products for telecom applications increased by $11.1 million, or 13.7%, and the sale of products for datacom applications increased by $0.4 million, or 0.3%. Gross margin increased to 27.5% on a GAAP basis and 30.5% on a non-GAAP basis, from 26.2% and 30.3%, respectively, in the preceding quarter, primarily as the result of higher revenue levels. GAAP operating income (loss) increased $5.3 million to $54,000, or 0.0 % of revenues, compared to an operating loss of $(5.2) million, or (2.4)% of revenues, in the preceding quarter. Non-GAAP operating income increased $3.8 million to $15.8 million, or 6.8% of revenues, compared to $12.0 million, or 5.4% of revenues, in the preceding quarter as the Company was able to hold operating expenses relatively flat, in spite of the impact of a full quarter of operating expenses from the operation of the Company's RED-C subsidiary which we acquired during the first quarter. Non-GAAP EBITDA increased $3.9 million to $28.7 million, or 12.4% of revenues, compared to $24.9 million, or 11.3% of revenues, in the preceding quarter. Balance Sheet Highlights for the second quarter of fiscal 2013: Cash and cash equivalents totaled $262.4 million at the end of the second quarter, compared to $220.5 million at the end of the preceding quarter. At the end of the second quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share. OUTLOOK The Company currently expects revenues for the third quarter of fiscal 2013 to be in the range of $230 to $245 million; GAAP operating margin to in the range of approximately 0.0% to 1.5%; non-GAAP operating margin to be in the range of approximately 6.5% to 8.0%; and non-GAAP earnings per diluted share to be in the range of approximately $0.14 to $0.18.

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

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or (719) 457-0820 and then following the prompts: enter conference ID 7734918 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next regularly scheduled earnings conference call.

SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements included in this press release are based upon information available to Finisar as of the date hereof, and Finisar assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those projected. Examples of such risks include those associated with: the uncertainty of customer demand for Finisar's products; the rapidly evolving markets for Finisar's products and uncertainty regarding the development of these markets; Finisar's historical dependence on sales to a limited number of customers and fluctuations in the mix of products and customers in any period; ongoing new product development and introduction of new and enhanced products; challenges related to the integration of the recently completed RED-C acquisition; the challenges of rapid growth followed by periods of contraction; and intensive competition. Further information regarding these and other risks relating to Finisar's business is set forth in Finisar's annual report on Form 10-K (filed June 29, 2012) and quarterly SEC filings.

ABOUT FINISAR Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, networking, storage, wireless, and cable TV applications. For more than 20 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

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

Finisar Corporation Consolidated Statements of Operations Three Months Three Months Ended Six Months Ended Ended -------------------- -------------------- --------- October October October October July 29, 28, 2012 30, 2011 28, 2012 30, 2011 2012 --------- --------- --------- --------- --------- (Unaudited) ----------------------------------------------------- ( in thousands, except per share data) ----------------------------------------------------- Revenues $ 232,041 $ 241,489 $ 452,567 $ 469,715 $ 220,526 Cost of revenues 166,167 169,571 327,624 329,794 161,457 Amortization of acquired developed technology 2,000 1,637 3,272 3,159 1,272 --------- --------- --------- --------- --------- Gross profit 63,874 70,281 121,671 136,762 57,797 Gross margin 27.5% 29.1% 26.9% 29.1% 26.2% Operating expenses: Research and development 39,620 36,707 77,789 72,103 38,169 Sales and marketing 10,219 10,125 20,893 19,711 10,674 General and administrative 12,919 13,773 26,261 27,725 13,342 Amortization of purchased intangibles 1,062 859 1,871 1,638 809 Restructuring recoveries - - - (322) - --------- --------- --------- --------- --------- Total operating expenses 63,820 61,464 126,814 120,855 62,994 --------- --------- --------- --------- --------- Income (loss) from operations 54 8,817 (5,143) 15,907 (5,197) Interest income 162 100 358 260 196 Interest expense (750) (1,138) (1,397) (2,049) (647) Loss on debt extinguishment - - - (419) - Other income (expenses), net (101) (140) (20) 4,523 81 --------- --------- --------- --------- --------- Income (loss) before income taxes and non-controlling interest (635) 7,639 (6,202) 18,222 (5,567) Provision (benefits) for income taxes (1,062) 1,369 (420) 1,917 642 --------- --------- --------- --------- --------- Income (loss) before non-controlling interest 427 6,270 (5,782) 16,305 (6,209) Adjust for net income (loss) attributable to non-controlling interest (156) (343) (144) (236) 12 --------- --------- --------- --------- --------- Net income (loss) attributable to Finisar Corporation $ 271 $ 5,927 $ (5,926) $ 16,069 $ (6,197) ========= ========= ========= ========= ========= Net income (loss) per share attributable to Finisar Corporation common stockholders: Basic $ 0.00 $ 0.07 $ (0.06) $ 0.18 $ (0.07) Diluted $ 0.00 $ 0.06 $ (0.06) $ 0.17 $ (0.07) Shares used in computing net income (loss) per share - basic 92,780 90,715 92,386 90,470 91,988 Shares used in computing net income (loss) per share - diluted 94,735 93,599 92,386 93,712 91,988 Finisar Corporation Consolidated Balance Sheets (in thousands) October 28, July 29, April 30, 2011 2012 2012 ------------ ------------ ------------ (Unaudited) (Unaudited) ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 262,432 $ 220,409 $ 234,544 Accounts receivable, net 155,949 179,441 167,760 Accounts receivable, other 15,240 14,972 21,004 Inventories 203,554 208,168 218,432 Prepaid expenses 25,183 24,430 25,482 ------------ ------------ ------------ Total current assets 662,358 647,420 667,222 Property, equipment and improvements, net 173,284 165,837 163,817 Purchased intangible assets, net 53,300 43,049 45,177 Goodwill 91,098 97,994 81,431 Minority investments 884 884 884 Other assets 7,263 7,393 10,896 ------------ ------------ ------------ Total assets $ 988,187 $ 962,577 $ 969,427 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 72,844 $ 71,295 $ 72,339 Accrued compensation 27,901 22,210 27,090 Other accrued liabilities 22,774 21,456 20,871 Deferred revenue 7,868 9,775 8,970 Current portion of long-term debt - - 3,150 ------------ ------------ ------------ Total current liabilities 131,387 124,736 132,420 Long-term liabilities: Convertible notes, net of current portion 40,015 40,015 40,015 Other non-current liabilities 21,171 16,274 15,175 Deferred tax liabilities 2,459 2,433 1,972 ------------ ------------ ------------ Total liabilities 195,032 183,458 189,582 Stockholders' equity: Common stock 93 93 91 Additional paid-in capital 2,330,683 2,321,064 2,309,219 Accumulated other comprehensive income 26,346 22,356 28,720 Accumulated deficit (1,572,432) (1,572,703) (1,566,506) ------------ ------------ ------------ Finisar Corporation stockholders' equity 784,690 770,810 771,524 Non-controlling interest 8,465 8,309 8,321 ------------ ------------ ------------ Total stockholders' equity 793,155 779,119 779,845 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 988,187 $ 962,577 $ 969,427 ============ ============ ============ Note - Balance sheet amounts as of April 30, 2012 are derived from the audited consolidated financial statements as of the date.

FINISAR NON-GAAP FINANCIAL MEASURES In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which are affecting our performance. These non-GAAP measures are used by both management and our Board of Directors, along with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry.

In calculating non-GAAP gross profit in this release, we have excluded the following items from cost of revenues in applicable periods: Changes in excess and obsolete inventory reserve (predominantly non-cash charges or non-cash benefits); Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions); Stock-based compensation expense (non-cash charges); Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges); Expense related to recent flooding in Thailand (non-recurring charges); Reduction in force costs (non-recurring cash charges); and Acquisition related retention payments (non-recurring charges).

In calculating non-GAAP operating income in this release, we have excluded the same items to the extent they are classified as operating expenses, and have also excluded the following items in applicable periods: Gain or loss on litigation settlements and resolutions and related costs (non-recurring cash charges or benefits); Shareholder class action and derivative litigation costs (non-recurring cash expenses associated with the derivative litigation related to our historical stock option granting practices and related to the class action and derivative litigation related to our March 8, 2011 earnings announcement); Acquisition related costs (non-recurring cash charges); Amortization of purchased intangibles (non-cash charges); and Restructuring costs and recoveries (non-recurring charges and benefits).

In calculating non-GAAP income and non-GAAP income per share in this release, we have also excluded the following items in applicable periods: Imputed interest related to restructuring (non-cash charges); Gains and losses on sales of assets (non-recurring or non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities); Loss related to minority and equity method investments (non-cash charges); Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits); Other miscellaneous expenses (income) (non-recurring charges or benefits); Debt extinguishment loss (non-recurring charges); Fair value re-measurement of equity investment (non-cash gain from re-measurement of value of prior investment in an investee); and Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

In calculating non-GAAP income per share in this release, we have included the shares issuable upon conversion of our outstanding convertible notes and excluded the interest expenses associated with such notes in such periods where such treatment is dilutive to non-GAAP income (loss) per share.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below: Finisar Corporation Reconciliation of Results of Operations under GAAP and non-GAAP Three Months Three Months Ended Six Months Ended Ended -------------------- -------------------- --------- October October October October July 29, 28, 2012 30, 2011 28, 2012 30, 2011 2012 --------- --------- --------- --------- --------- (Unaudited) ----------------------------------------------------- ( in thousands, except per share data) ----------------------------------------------------- GAAP to non-GAAP reconciliation of gross profit: Gross profit - GAAP $ 63,874 $ 70,281 $ 121,671 $ 136,762 $ 57,797 Gross margin - GAAP 27.5% 29.1% 26.9% 29.1% 26.2% Adjustments: Cost of revenues Change in excess and obsolete inventory reserve 2,003 2,521 6,869 3,611 4,866 Amortization of acquired technology 2,000 1,637 3,272 3,159 1,272 Stock compensation 1,876 1,687 3,362 3,546 1,486 Acquisition method accounting adjustment for sale of acquired inventory 722 1,229 1,363 - 641 Flood-related expense - - - 3,083 - Reduction in force costs 136 49 784 601 648 Acquisition related retention payment 73 - 73 - - --------- --------- --------- --------- --------- Total cost of revenue adjustments 6,810 7,123 15,723 14,000 8,913 --------- --------- --------- --------- --------- Gross profit - non- GAAP 70,684 77,404 137,394 150,762 66,710 --------- --------- --------- --------- --------- Gross margin - non- GAAP 30.5% 32.1% 30.4% 32.1% 30.3% GAAP to non-GAAP reconciliation of operating income: Operating income (loss) - GAAP 54 8,817 (5,143) 15,907 (5,197) Operating margin - GAAP 0.0% 3.7% -1.1% 3.4% -2.4% Adjustments: Total cost of revenue adjustments 6,810 7,123 15,723 14,000 8,913 Research and development Reduction in force costs - 73 177 73 177 Acquisition related retention payment 222 - 222 - - Stock compensation 3,353 2,274 6,339 4,635 2,986 Sales and marketing Acquisition related retention payment 20 - 20 - - Stock compensation 1,002 767 2,079 1,631 1,077 General and administrative Reduction in force costs 54 865 69 963 15 Acquisition related retention payment 253 - 253 - - Stock compensation 2,956 1,945 5,785 3,953 2,829 Acquisition related costs 96 209 421 1,298 325 Litigation settlements and resolutions and related costs (10) (8) 13 92 23 Shareholder class action and derivative litigation costs (34) 635 9 635 43 Amortization of purchased intangibles 1,062 859 1,871 1,638 809 Restructuring recoveries - - - (322) - --------- --------- --------- --------- --------- Total cost of revenue and operating expense adjustments 15,784 14,742 32,981 28,596 17,197 --------- --------- --------- --------- --------- Operating income - non-GAAP 15,838 23,559 27,838 44,503 12,000 --------- --------- --------- --------- --------- Operating margin - non-GAAP 6.8% 9.8% 6.2% 9.5% 5.4% GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation: Income (loss) attributable to Finisar Corporation - GAAP 271 5,927 (5,926) 16,069 (6,197) Adjustments: Total cost of revenue and operating expense adjustments 15,784 14,742 32,981 28,596 17,197 Imputed interest related to restructuring 164 396 226 466 62 Other (income) expense, net Loss (gain) on sale of assets (170) 221 (189) 222 (19) Loss related to minority and equity method investments - - - 619 - Other miscellaneous income - 250 (160) 250 (160) Foreign exchange transaction loss (gain) (607) (494) (611) (642) (4) Debt extinguishment loss 573 - 573 419 - Fair value remeasurement of equity investment - - - (5,429) - Provision for income taxes Income tax provision adjustments (1,810) 495 (1,818) 495 (8) --------- --------- --------- --------- --------- Total adjustments 13,934 15,610 31,002 24,996 17,068 --------- --------- --------- --------- --------- Net income attributable to Finisar Corporation - non-GAAP 14,205 21,537 25,076 41,065 10,871 --------- --------- --------- --------- --------- Non-GAAP income attributable to Finisar Corporation $ 14,205 $ 21,537 $ 25,076 $ 41,065 $ 10,871 Add: interest expense for dilutive convertible notes 539 539 - 1,078 - --------- --------- --------- --------- --------- Adjusted non-GAAP income attributable to Finisar Corporation $ 14,744 $ 22,076 $ 25,076 $ 42,143 $ 10,871 ========= ========= ========= ========= ========= Non-GAAP income per share attributable to Finisar Corporation common stockholders Basic $ 0.15 $ 0.24 $ 0.27 $ 0.45 $ 0.12 Diluted $ 0.15 $ 0.23 $ 0.26 $ 0.43 $ 0.12 Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders Basic 92,780 90,715 92,386 90,470 91,988 Diluted 98,483 97,347 94,780 97,460 94,204 Non-GAAP EBITDA Non-GAAP income attributable to Finisar Corporation $ 14,205 $ 21,537 $ 25,076 $ 41,065 $ 10,871 Depreciation expense 13,106 10,995 25,817 21,590 12,711 Amortization 237 208 473 416 236 Interest expense 424 642 813 1,323 389 Income tax expense 748 874 1,398 1,422 650 --------- --------- --------- --------- --------- Non-GAAP EBITDA $ 28,720 $ 34,256 $ 53,577 $ 65,816 $ 24,857 ========= ========= ========= ========= ========= Investor Contact: Kurt Adzema Chief Financial Officer 408-542-5050 or Investor.relations@finisar.com Press contact: Victoria McDonald Sr. Manager, Corporate Communications 408-542-4261 Source: Finisar

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