Finisar Announces Record Second Fiscal Quarter Revenues and Profits

SUNNYVALE, CA--(Marketwired - December 08, 2016) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second quarter of fiscal year 2017, ended October 30, 2016.

/EINPresswire.com/ -- COMMENTARY

"I am pleased to announce that Finisar achieved all-time quarterly records for revenues and profits in our second quarter. Revenues were $369.9 million, an increase of $28.5 million, or 8.4% over the first quarter. This growth was primarily driven by strong demand for 100G transceivers. In addition, customer demand for wavelength selective switch and ROADM line card products was strong. Our gross margins improved significantly due to a favorable product mix and leverage achieved from our vertical integration with larger volumes. The combination of revenues being at the higher end of our guidance range with higher gross margins resulted in earnings per fully diluted share above our guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.


FINANCIAL HIGHLIGHTS - Second Quarter Ended October 30, 2016

Summary GAAP Results	Second	First
	Quarter	Quarter
	Ended	Ended
	October 30, 2016	July 31, 2016
	(in thousands, except per share amounts)

Revenues	$369,863	$341,325
Gross margin	36.1%	31.7%
Operating expenses	$80,853	$79,854
Operating income	$52,828	$28,311
Operating margin	14.3%	8.3%
Net income	$48,765	$23,949
Income per share-basic	$0.44	$0.22
Income per share-diluted	$0.43	$0.22

Basic shares	110,407	108,820
Diluted shares	113,192	110,821

Summary Non-GAAP Results (a)	Second	First
	Quarter	Quarter
	Ended	Ended
	October 30, 2016	July 31, 2016
	(in thousands, except per share amounts)

Revenues	$369,863	$341,325
Non-GAAP Gross margin	37.2%	33.1%
Non-GAAP Operating expenses	$69,418	$69,344
Non-GAAP Operating income	$68,250	$43,520
Non-GAAP Operating margin	18.5%	12.8%
Non-GAAP Net income	$65,154	$41,825
Non-GAAP Income per share-basic	$0.59	$0.38
Non-GAAP Income per share-diluted	$0.58	$0.38

Basic shares	110,407	108,820
Diluted shares	113,192	110,821

(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.

Financial Statement Highlights for the Second Quarter of Fiscal 2017:

Revenues were $369.9 million, an increase of $28.5 million, or 8.4%, from $341.3 million in the first quarter.
Sales of telecom products increased by $9.7 million, or 9.9%, compared to the first quarter. This increase was due primarily to higher sales of 100G transceivers, as well as wavelength selective switch and ROADM line card products.
Sales of datacom products increased by $18.8 million, or 7.7%, compared to the first quarter. This increase was due primarily to growth in demand for 100G transceivers. Sales of 100G transceivers for datacom applications increased approximately 30% compared to the first quarter, and more than 80% compared to the second quarter of the prior fiscal year. Sales of 40G datacom transceivers were approximately flat compared to the first quarter.
GAAP gross margin improved to 36.1%, compared to 31.7% in the first quarter, primarily due to favorable product mix and the operational leverage from our vertical integration.
Non-GAAP gross margin improved to 37.2% compared to 33.1% in the first quarter.
GAAP operating expenses were $80.9 million compared to $79.9 million in the first quarter. GAAP operating expenses as a percentage of revenue decreased to approximately 21.9% of revenue compared to 23.4% in the first quarter.
Non-GAAP operating expenses were $69.4 million compared to $69.3 million in the first quarter. Non-GAAP operating expenses as a percentage of revenue decreased to approximately 18.8% compared to 20.3% in the first quarter.
GAAP operating margin improved to 14.3% from 8.3% in the first quarter.
Non-GAAP operating margin improved to 18.5% from 12.8% in the first quarter.
GAAP earnings per fully diluted share was $0.43 compared to $0.22 in the first quarter, primarily due to higher revenue levels and improved gross margins.
Non-GAAP earnings per fully diluted share was $0.58 compared to $0.38 in the preceding quarter.
Cash, cash equivalents and short-term investments increased $32.5 million to $626.3 million at the end of the second quarter, compared to $593.8 million at the end of the preceding quarter.

OUTLOOK

Finisar indicated that for the third quarter of fiscal 2017 it currently expects revenues in the range of $378 to $398 million, non-GAAP gross margin of approximately 37% to 38%, non-GAAP operating margin of approximately 18.5% to 19.5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.58 to $0.64.

Finisar has not provided a reconciliation of its third 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 second quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, December 8, 2016, 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 1-877-741-4239 (domestic) or 1-719-325-4771 (international) and enter conference ID 7509499.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or 1-719-457-0820 (international) and then following the prompts: enter conference ID 7509499 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 17, 2016) 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 over 25 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
(Unaudited, in thousands, except per share data)

			Three Months Ended						Six Months Ended						Three Months Ended
			Oct 30, 2016			Nov 01, 2015			Oct 30, 2016			Nov 01, 2015			Jul 31, 2016
Revenues			$	369,863		$	321,136		$	711,188		$	635,166		$	341,325
Cost of revenues				235,192			230,610			466,829			454,757			231,637
Impairment of long-lived assets				-			-			-			1,071			-
Amortization of acquired developed technology				990			1,435			2,513			2,870			1,523
Gross profit				133,681			89,091			241,846			176,468			108,165
Gross margin				36.1	%		27.7	%		34.0	%		27.8	%		31.7	%
Operating expenses:
	Research and development			53,242			50,972			104,250			103,380			51,008
	Sales and marketing			13,367			11,897			25,230			23,099			11,863
	General and administrative			13,576			16,186			29,891			31,394			16,315
	Impairment of long-lived assets			-			-			-			830			-
	Amortization of purchased intangibles			668			668			1,336			1,336			668
		Total operating expenses		80,853			79,723			160,707			160,039			79,854
Income from operations				52,828			9,368			81,139			16,429			28,311
Interest income				1,021			469			1,747			834			726
Interest expense				(3,025	)		(2,917	)		(6,011	)		(5,800	)		(2,986	)
Other income (expenses), net				795			445			736			1,326			(59	)
Income before income taxes				51,619			7,365			77,611			12,789			25,992
Provision for income taxes				2,854			721			4,897			2,752			2,043
Net income			$	48,765		$	6,644		$	72,714		$	10,037		$	23,949

Net income per share attributable to Finisar Corporation common stockholders:

	Basic		$	0.44		$	0.06		$	0.66		$	0.09		$	0.22
	Diluted		$	0.43		$	0.06		$	0.65		$	0.09		$	0.22

Shares used in computing net income per share - basic				110,407			106,635			109,614			105,961			108,820
Shares used in computing net income per share - diluted				113,192			107,493			112,450			108,238			110,821


Finisar Corporation
Consolidated Balance Sheets
(in thousands)

			Oct 30, 2016	Jul 31, 2016	May 1, 2016
			(Unaudited)	(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$ 282,963	$ 280,414	$ 299,221
	Short-term held-to-maturity investments		343,319	313,389	263,255
	Accounts receivable, net		277,667	255,036	249,257
	Accounts receivable, other		49,997	43,678	44,576
	Inventories		292,439	272,592	273,291
	Prepaid expenses and other assets		17,140	18,646	18,483
		Total current assets	1,263,525	1,183,755	1,148,083
Property, equipment and improvements, net			341,563	338,918	348,613
Purchased intangible assets, net			16,339	16,197	18,388
Goodwill			106,735	106,735	106,735
Minority investments			3,893	3,974	4,051
Other assets			18,008	18,928	19,501
		Total assets	$ 1,750,063	$ 1,668,507	$ 1,645,371

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$ 153,023	$ 136,317	$ 141,591
	Accrued compensation		45,213	36,332	36,084
	Other accrued liabilities		36,736	39,201	42,206
	Deferred revenue		17,818	16,468	13,529
		Total current liabilities	252,790	228,318	233,410
Long-term liabilities:
	Convertible notes, net of current portion		234,679	232,016	229,393
	Other non-current liabilities		13,279	14,056	14,882
		Total liabilities	500,748	474,390	477,685
Stockholders' equity:
	Common stock		111	110	108
	Additional paid-in capital		2,639,355	2,621,260	2,605,859
	Accumulated other comprehensive income (loss)		(49,772)	(38,109)	(25,188)
	Accumulated deficit		(1,340,379)	(1,389,144)	(1,413,093)
		Total stockholders' equity	1,249,315	1,194,117	1,167,686
Total liabilities and stockholders' equity			$ 1,750,063	$ 1,668,507	$ 1,645,371

Note - Balance sheet amounts as of May 1, 2016 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 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:

Changes in excess and obsolete inventory reserve (predominantly non-cash charges);
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 assets (non-cash charges);
Reduction in force costs (non-core cash charges); and
Acquisition related retention payments (non-core 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:

Acquisition related costs (non-core cash charges);
Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits); 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 in this release:

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-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
Other miscellaneous expenses (income) (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 taxes.

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						Six Months Ended						Three Months Ended
				Oct 30, 2016			Nov 01, 2015			Oct 30, 2016			Nov 01, 2015			Jul 31, 2016
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	133,681		$	89,091		$	241,846		$	176,468		$	108,165
Gross margin - GAAP					36.1	%		27.7	%		34.0	%		27.8	%		31.7	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory valuation adjustments (1)				-			2,402			-			3,832			-
	Amortization of acquired technology				990			1,435			2,513			2,870			1,523
	Duplicate facility costs during facility move				8			4			16			86			8
	Stock compensation				2,949			2,922			5,996			5,614			3,047
	Impairment of long-lived assets				-			-			-			1,282			-
	Reduction in force costs				14			417			116			971			102
	Acquisition related retention payment				26			28			45			93			19
		Total cost of revenue adjustments			3,987			7,208			8,686			14,748			4,699
Gross profit - non-GAAP					137,668			96,299			250,532			191,216			112,864
Gross margin - non-GAAP					37.2	%		30.0	%		35.2	%		30.1	%		33.1	%

GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP					52,828			9,368			81,139			16,429			28,311
Operating margin - GAAP					14.3	%		2.9	%		11.4	%		2.6	%		8.3	%
Adjustments:
Total cost of revenue adjustments					3,987			7,208			8,686			14,748			4,699
Total operating expense adjustments
	Operating expenses - GAAP				80,853			79,723			160,707			160,039			79,854
	Research and development
		Reduction in force costs			88			-			262			288			174
		Duplicate facility costs during facility move			7			49			14			270			7
		Acquisition related retention payment			32			67			64			158			32
		Stock compensation			5,552			4,970			10,663			9,808			5,111
		Impairment of long-lived assets			-			-			-			287			-
	Sales and marketing
		Reduction in force costs			-			117			29			180			29
		Acquisition related retention payment			-			3			-			13			-
		Stock compensation			1,877			1,718			3,628			3,425			1,751
	General and administrative
		Reduction in force costs			20			963			33			1,315			13
		Duplicate facility costs			154			8			297			17			143
		Acquisition related retention payment			-			-			(2	)		(5	)		(2	)
		Stock compensation			2,989			2,757			5,542			5,517			2,553
		Acquisition related costs			2			378			33			396			31
		Litigation settlements and resolutions and related costs			46			-			46			16			-
	Amortization of purchased intangibles				668			668			1,336			1,336			668
	Impairment of long-lived assets				-			-			-			587			-
			Total operating expense adjustments		11,435			11,698			21,945			23,608			10,510
	Operating expenses - non-GAAP				69,418			68,025			138,762			136,431			69,344
Operating income - non-GAAP					68,250			28,274			111,770			54,785			43,520
Operating margin - non-GAAP					18.5	%		8.8	%		15.7	%		8.6	%		12.8	%

GAAP to non-GAAP reconciliation of income before income taxes:
Income before income taxes - GAAP					51,619			7,365			77,611			12,789			25,992
Adjustments:
Total cost of revenue adjustments					3,987			7,208			8,686			14,748			4,699
Total operating expense adjustments					11,435			11,698			21,945			23,608			10,510
Total Interest and other adjustments
Non-cash imputed interest expenses on convertible debt					2,509			2,391			4,978			4,745			2,469
Imputed interest related to restructuring					37			44			75			89			38
Other (income) expense, net
	Loss (gain) on sale of assets				(17	)		85			(25	)		(100	)		(8	)
	Other miscellaneous income				-			(120	)		-			(137	)		-
	Foreign exchange transaction (gain) or loss				(970	)		51			(999	)		(642	)		(29	)
	Amortization of debt issuance cost				154			154			308			308			154
		Total Interest and other adjustments			1,713			2,605			4,337			4,263			2,624
Income before income taxes - non-GAAP					68,754			28,876			112,579			55,408			43,825

GAAP to non-GAAP reconciliation of net income:
Net income - GAAP					48,765			6,644			72,714			10,037			23,949
Total cost of revenue adjustments					3,987			7,208			8,686			14,748			4,699
Total operating expense adjustments					11,435			11,698			21,945			23,608			10,510
Total Interest and other adjustments					1,713			2,605			4,337			4,263			2,624
Income tax provision adjustments					(746	)		(1,298	)		(703	)		(1,267	)		43
	Total adjustments				16,389			20,213			34,265			41,352			17,876
Net income - non-GAAP				$	65,154		$	26,857		$	106,979		$	51,389		$	41,825

Non-GAAP net income for diluted earnings per share calcuation
Non-GAAP net income				$	65,154		$	26,857		$	106,979		$	51,389		$	41,825
Add: interest expense for dilutive convertible notes					-			-			-			-			-
Adjusted non-GAAP income				$	65,154		$	26,857		$	106,979		$	51,389		$	41,825

Basic non-GAAP income per share
GAAP earnings per share				$	0.44		$	0.06		$	0.66		$	0.09		$	0.22
Impact of all non-GAAP adjustments				$	0.15		$	0.19		$	0.31		$	0.39		$	0.16
Non-GAAP earnings per share				$	0.59		$	0.25		$	0.98		$	0.48		$	0.38

Diluted non-GAAP income per share
GAAP earnings per share				$	0.43		$	0.06		$	0.65		$	0.09		$	0.22
Impact of all non-GAAP adjustments				$	0.15		$	0.19		$	0.30		$	0.38		$	0.16
Non-GAAP earnings per share				$	0.58		$	0.25		$	0.95		$	0.47		$	0.38

Shares used in computing non-GAAP income per share
Basic					110,407			106,635			109,614			105,961			108,820
Diluted					113,192			107,493			112,450			108,238			110,821

(1) Non-GAAP adjustment no longer made effective fiscal 2017.

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

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Finisar Announces Record Second Fiscal Quarter Revenues and Profits

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