Finisar Announces Third Fiscal Quarter Financial Results

SUNNYVALE, CA--(Marketwire - Mar 7, 2013) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third fiscal quarter ended January 27, 2013.

COMMENTARY

"I am pleased to report fiscal third quarter revenues of $238.4 million, which is $6.3 million, or 2.7%, greater than the prior quarter. Our growth in revenues came primarily from sales of 10G and 100G transceivers and transponders for datacom applications," said Jerry Rawls, Finisar's executive Chairman of the Board.

"During the quarter, we continued to invest significantly in technology and product development and made substantial progress on a number of new products for our datacom and telecom products lines. We are planning several compelling product announcements at the OFC show during the week of March 18^th in Anaheim, California," said Eitan Gertel, Finisar's Chief Executive Officer.

FINANCIAL HIGHLIGHTS -THIRD QUARTER ENDED January 27, 2013
Summary GAAP Results		Third				Second
		Quarter				Quarter
		Ended				Ended
		January 27, 2013				October 28, 2012
		(in thousands, except per share amounts)
Revenues		$	238,351			$	232,041
Gross margin			28.5	%			27.5	%
Operating expenses		$	68,841			$	63,820
Operating income (loss)		$	(797	)		$	54
Operating margin			(0.3	)%			0.0	%
Income (loss)		$	(3,407	)		$	271
Income (loss) per share-basic		$	(0.04	)		$	0.00
Income (loss) per share-diluted		$	(0.04	)		$	0.00
Basic shares			93,097				92,780
Diluted shares			93,097				94,735
Summary Non-GAAP Results (a)		Third				Second
		Quarter				Quarter
		Ended				Ended
		January 27, 2013				October 28, 2012
		(in thousands, except per share amounts)
Revenues		$	238,351			$	232,041
Gross margin			30.7	%			30.5	%
Operating expenses		$	55,816			$	54,846
Operating income		$	17,377			$	15,838
Operating margin			7.3	%			6.8	%
Income		$	16,390			$	14,205
Income per share-basic		$	0.18			$	0.15
Income per share-diluted		$	0.17			$	0.15
Basic shares			93,097				92,780
Diluted shares			99,094				98,483

(a)	In evaluating the operating performance of Finisar's business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. generally accepted accounting principles, or GAAP, that are considered by management to be outside Finisar's core operating results. A reconciliation of Finisar's non-GAAP financial measures to the most directly comparable GAAP measures, as well as additional related information, can be found under the heading "Finisar Non-GAAP Financial Measures" below.

Operating Statement Highlights for the third quarter of fiscal 2013: 

• Revenues increased to $238.4 million, an increase of $6.3 million, or 2.7%, from $232.0 million in the preceding quarter, primarily driven by growth in revenues from 10G and 100G transceivers and transponders for datacom applications.
  
  
• Compared to the preceding quarter, the sale of products for datacom applications increased by $7.8 million, or 5.6%, and the sale of products for telecom applications decreased by $1.5 million, or (1.6)%, as the result of the impact of approximately one month of the annual telecom price reductions that typically go into effect on approximately January 1^st, partially offset in the increase in unit sales including tunable XFP transceivers. 
  
  
• Gross margin increased to 28.5% on a GAAP basis and 30.7% on a non-GAAP basis, from 27.5% and 30.5%, respectively, in the preceding quarter, primarily as a result of higher revenue levels, partially offset by the impact of one month of the annual telecom price reductions that typically go into effect on approximately January 1^st.
  
  
• GAAP operating loss increased $0.8 million to $0.8 million, or (0.3) % of revenues, compared to an operating gain of $0.05 million, or 0.0% of revenues, in the preceding quarter.
  
  
• Non-GAAP operating income increased $1.5 million to $17.4 million, or 7.3% of revenues, compared to $15.8 million, or 6.8% of revenues, in the preceding quarter as the Company was able to hold non-GAAP operating expenses relatively flat while revenues grew.
  
  
• Non-GAAP EBITDA increased $2.4 million to $31.1 million, or 13.1% of revenues, compared to $28.7 million, or 12.4% of revenues, in the preceding quarter.
  
  

Balance Sheet Highlights for the third quarter of fiscal 2013:

• Cash and cash equivalents totaled $265.5 million at the end of the third quarter, compared to $262.4 million at the end of the preceding quarter.
  
  
• At the end of the third quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share.
  
  

OUTLOOK

The Company currently expects revenues for the fourth quarter of fiscal 2013 to be in the range of $235 to $250 million; GAAP operating margin to be approximately 2%; non-GAAP operating margin to be approximately 7%; and non-GAAP earnings per diluted share to be in the range of approximately $0.15 to $0.19.

CONFERENCE CALL

Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 7, 2013, 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 1-888-417-8533 (domestic) or (719) 457-2697 (international) and enter conference ID 4484284.

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 4484284 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 Balance Sheets
(in thousands)
				January 27, 2013				October 28, 2012				July 29, 2012				April 30, 2012
				(Unaudited)				(Unaudited)				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	265,454			$	262,432			$	220,409			$	234,544
	Accounts receivable, net				155,502				155,949				179,441				167,760
	Accounts receivable, other				10,843				15,240				14,972				21,004
	Inventories				202,123				203,554				208,168				218,432
	Prepaid expenses				22,875				25,183				24,430				25,482
		Total current assets			656,797				662,358				647,420				667,222
Property, equipment and improvements, net					192,381				173,284				165,837				163,817
Purchased intangible assets, net					45,823				53,300				43,049				45,177
Goodwill					91,551				91,098				97,994				81,431
Minority investments					884				884				884				884
Other assets					7,321				7,263				7,393				10,896
		Total assets		$	994,757			$	988,187			$	962,577			$	969,427
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	67,264			$	72,844			$	71,295			$	72,339
	Accrued compensation				28,436				27,901				22,210				27,090
	Other accrued liabilities				31,901				22,774				21,456				20,871
	Deferred revenue				9,760				7,868				9,775				8,970
	Current portion of long-term debt				-				-				-				3,150
		Total current liabilities			137,361				131,387				124,736				132,420
Long-term liabilities:
	Convertible notes, net of current portion				40,015				40,015				40,015				40,015
	Other non-current liabilities				14,078				21,171				16,274				15,175
	Deferred tax liabilities				2,512				2,459				2,433				1,972
		Total liabilities			193,966				195,032				183,458				189,582
Stockholders' equity:
	Common stock				93				93				93				91
	Additional paid-in capital				2,341,448				2,330,683				2,321,064				2,309,219
	Accumulated other comprehensive income				26,904				26,346				22,356				28,720
	Accumulated deficit				(1,575,839	)			(1,572,432	)			(1,572,703	)			(1,566,506	)
		Finisar Corporation stockholders' equity			792,606				784,690				770,810				771,524
	Non-controlling interest				8,185				8,465				8,309				8,321
		Total stockholders' equity			800,791				793,155				779,119				779,845
Total liabilities and stockholders' equity				$	994,757			$	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 Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
				Three Months Ended								Nine Months Ended								Three Months Ended
				January 27, 2013				January 29, 2012				January 27, 2013				January 29, 2012				October 28, 2012
Revenues				$	238,351			$	242,954			$	690,918			$	712,669			$	232,041
Cost of revenues					168,377				170,215				496,001				500,009				166,167
Amortization of acquired developed technology					1,930				1,637				5,202				4,796				2,000
Gross profit					68,044				71,102				189,715				207,864				63,874
Gross margin					28.5	%			29.3	%			27.5	%			29.2	%			27.5	%
Operating expenses:
	Research and development				39,725				36,470				117,514				108,573				39,620
	Sales and marketing				10,398				10,599				31,291				30,310				10,219
	General and administrative				12,797				11,766				39,058				39,491				12,919
	Amortization of purchased intangibles				1,035				959				2,906				2,597				1,062
	Impairment of long-lived assets				4,886				-				4,886				-				-
	Restructuring recoveries				-				-				-				(322	)			-
		Total operating expenses			68,841				59,794				195,655				180,649				63,820
Income (loss) from operations					(797	)			11,308				(5,940	)			27,215				54
Interest income					186				151				544				411				162
Interest expense					(648	)			(862	)			(2,045	)			(2,911	)			(750	)
Loss on debt extinguishment					-				-				-				(419	)			-
Other income (expenses), net					(275	)			(355	)			(295	)			4,168				(101	)
Income (loss) before income taxes and non-controlling interest					(1,534	)			10,242				(7,736	)			28,464				(635	)
Provision (benefits) for income taxes					2,153				875				1,733				2,792				(1,062	)
Income (loss) before non-controlling interest					(3,687	)			9,367				(9,469	)			25,672				427
Adjust for net (income) loss attributable to non-controlling interest					280				(458	)			136				(694	)			(156	)
Net income (loss) attributable to Finisar Corporation				$	(3,407	)		$	8,909			$	(9,333	)		$	24,978			$	271
Net income (loss) per share attributable to Finisar Corporation common stockholders:
	Basic			$	(0.04	)		$	0.10			$	(0.10	)		$	0.28			$	0.00
	Diluted			$	(0.04	)		$	0.09			$	(0.10	)		$	0.27			$	0.00
Shares used in computing net income (loss) per share - basic					93,097				91,001				92,624				90,644				92,780
Shares used in computing net income (loss) per share - diluted					93,097				94,032				92,624				93,904				94,735

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);
• Impairment of long-lived assets (non-cash charges)
• 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
(Unaudited, in thousands, except per share data)
				Three Months Ended								Nine Months Ended								Three Months Ended
				January 27, 2013				January 29, 2012				January 27, 2013				January 29, 2012				October 28, 2012
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	68,044			$	71,102			$	189,715			$	207,864			$	63,874
Gross margin - GAAP					28.5	%			29.3	%			27.5	%			29.2	%			27.5	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory reserve				989				1,732				7,858				5,343				2,003
	Amortization of acquired technology				1,930				1,637				5,202				4,796				2,000
	Stock compensation				2,140				1,596				5,502				5,142				1,876
	Acquisition method accounting adjustment for sale of acquired inventory				-				952				1,363				4,035				722
	Reduction in force costs				17				243				801				844				136
	Acquisition related retention payment				73				-				146				-				73
		Total cost of revenue adjustments			5,149				6,160				20,872				20,160				6,810
Gross profit - non-GAAP					73,193				77,262				210,587				228,024				70,684
Gross margin - non-GAAP					30.7	%			31.8	%			30.5	%			32.0	%			30.5	%
GAAP to non-GAAP reconciliation of operating income:
Operating income (loss) - GAAP					(797	)			11,308				(5,940	)			27,215				54
Operating margin - GAAP					-0.3	%			4.7	%			-0.9	%			3.8	%			0.0	%
Adjustments:
Total cost of revenue adjustments					5,149				6,160				20,872				20,160				6,810
Research and development
	Reduction in force costs				11				693				188				766				-
	Acquisition related retention payment				213				-				435				-				222
	Stock compensation				2,601				2,200				8,940				6,835				3,353
Sales and marketing
	Acquisition related retention payment				17				-				37				-				20
	Stock compensation				885				747				2,964				2,378				1,002
General and administrative
	Reduction in force costs				25				51				94				1,014				54
	Acquisition related retention payment				223				-				476				-				253
	Stock compensation				2,218				1,746				8,003				5,699				2,956
	Acquisition related costs				731				304				1,152				1,602				96
	Litigation settlements and resolutions and related costs				-				(185	)			13				(93	)			(10	)
	Shareholder class action and derivative litigation costs				180				(10	)			189				625				(34	)
Amortization of purchased intangibles					1,035				959				2,906				2,597				1,062
Impairment of long-lived assets					4,886				-				4,886				-				-
Restructuring recoveries					-				-				-				(322	)			-
		Total cost of revenue and operating expense adjustments			18,174				12,665				51,155				41,261				15,784
Operating income - non-GAAP					17,377				23,973				45,215				68,476				15,838
Operating margin - non-GAAP					7.3	%			9.9	%			6.5	%			9.6	%			6.8	%
GAAP to non-GAAP reconciliation of income attributable to Finisar Corporation:
Income (loss) attributable to Finisar Corporation - GAAP					(3,407	)			8,909				(9,333	)			24,978				271
Adjustments:
Total cost of revenue and operating expense adjustments					18,174				12,665				51,155				41,261				15,784
Imputed interest related to restructuring					148				206				374				672				164
Other (income) expense, net
	Loss (gain) on sale of assets				38				(229	)			(151	)			(7	)			(170	)
	Loss related to minority and equity method investments				-				-				-				619				-
	Other miscellaneous income				(101	)			351				(261	)			601				-
	Foreign exchange transaction loss (gain)				431				362				(180	)			(280	)			(607	)
	Debt extinguishment loss				-				-				573				419				573
	Fair value remeasurement of equity investment				-				-				-				(5,429	)			-
Provision for income taxes
	Income tax provision adjustments				1,107				(386	)			(711	)			109				(1,810	)
Total adjustments					19,797				12,969				50,799				37,965				13,934
Net income attributable to Finisar Corporation - non-GAAP					16,390				21,878				41,466				62,943				14,205
Non-GAAP income attributable to Finisar Corporation				$	16,390			$	21,878			$	41,466			$	62,943			$	14,205
Add: interest expense for dilutive convertible notes					539				539				1,618				1,617				539
Adjusted non-GAAP income attributable to Finisar Corporation				$	16,929			$	22,417			$	43,084			$	64,560			$	14,744
Non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic			$	0.18			$	0.24			$	0.45			$	0.69			$	0.15
	Diluted			$	0.17			$	0.23			$	0.44			$	0.66			$	0.15
Shares used in computing non-GAAP income per share attributable to Finisar Corporation common stockholders
	Basic				93,097				91,001				92,624				90,644				92,780
	Diluted				99,094				97,781				98,891				97,652				98,483
Non-GAAP EBITDA
Non-GAAP income attributable to Finisar Corporation				$	16,390			$	21,878			$	41,466			$	62,943			$	14,205
Depreciation expense					13,306				11,388				39,123				32,978				13,106
Amortization					86				208				559				624				237
Interest expense					314				505				1,127				1,828				424
Income tax expense					1,046				1,261				2,444				2,683				748
Non-GAAP EBITDA				$	31,142			$	35,240			$	84,719			$	101,056			$	28,720