AP NEWS

Finisar Announces Second Quarter of Fiscal 2019 Financial Results

December 3, 2018

SUNNYVALE, Calif., Dec. 03, 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 second quarter of fiscal 2019, ended October 28, 2018. Finisar will not hold an earnings call, nor provide forward guidance for the third quarter of fiscal 2019, due to the previously announced proposed acquisition by II-VI Incorporated (NASDAQ: IIVI).

COMMENTARY

“I am pleased to report that revenues grew over the prior quarter and gross margins also improved over the prior quarter and were above our guidance estimate, primarily due to favorable product mix and continued focus on reducing manufacturing overhead,” said Michael Hurlston, Finisar’s Chief Executive Officer. “In addition, we were able to accelerate the process of improving efficiencies and reducing relative operating expense levels faster than expected. In combination, this led to increased earnings per share, exceeding the high end of our guidance range.”

FINANCIAL HIGHLIGHTS – Second Quarter Ended October 28, 2018 Second First Summary GAAP Results Quarter Quarter Ended Ended October 28, 2018 July 29, 2018 (in thousands, except per share amounts) Revenues $325,423 $317,336 Gross margin 26.3% 25.4% Operating expenses $89,788 $96,376 Operating loss $(4,105) $(15,691) Operating margin (1.3)% (4.9)% Net loss $(5,275) $(18,489) Loss per share-basic $(0.04) $(0.16) Loss per share-diluted $(0.04) $(0.16) Basic shares 117,284 115,867 Diluted shares 117,284 115,867

Second First Summary Non-GAAP Results (a) Quarter Quarter Ended Ended October 28, 2018 July 29, 2018 (in thousands, except per share amounts) Revenues $325,423 $317,336 Non-GAAP Gross margin 28.3% 27.5% Non-GAAP Operating expenses $63,559 $68,311 Non-GAAP Operating income $28,626 $18,841 Non-GAAP Operating margin 8.8% 5.9% Non-GAAP Net income 30,600 21,297 Non-GAAP Income per share-basic $0.26 $0.18 Non-GAAP Income per share-diluted $0.26 $0.18 Basic shares 117,284 115,867 Diluted shares 118,290 117,191

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(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 2019:

-- Revenues increased by $8.1 million, or 2.5%, compared to the first quarter of fiscal 2019, as a result of increased sales of wavelength selective switches and VCSEL arrays for 3D applications. -- GAAP gross margin improved from 25.4% in the first quarter to 26.3%, primarily due to favorable product mix and continued focus on reducing manufacturing overhead. -- Non-GAAP gross margin improved from 27.5% in the first quarter to 28.3%. -- GAAP operating expenses decreased from 30.4% of revenue in the first quarter to 27.6%, as we were able to accelerate the process of improving efficiencies and reducing relative operating expense levels faster than expected. -- Non-GAAP operating expenses decreased from 21.5% of revenue in the first quarter to 19.5%, which is within the range of our operating model target of 18 to 20%. -- GAAP operating loss decreased $11.6 million, or 73.8%, compared to the first quarter. -- Non-GAAP operating income increased $9.8 million, or 51.9%, compared to the first quarter. -- GAAP operating margin improved from (4.9)% of revenue in the first quarter to (1.3)% due to the combination of higher revenues, better gross margins and lower operating expense levels. -- Non-GAAP operating margin improved from 5.9% in the first quarter to 8.8%. -- GAAP diluted earnings per share improved from $(0.16) in the first quarter to $(0.04). -- Non-GAAP diluted earnings per share increased from $0.18 in the first quarter to $0.26. -- Cash, cash equivalents and short-term investments increased approximately $11 million from the first quarter despite higher than typical levels of capital expenditures associated with the continued progress on our new Sherman fab for VCSEL arrays for 3D sensing applications and the construction of the third building at our Wuxi, China manufacturing site.

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; the risk that our pending merger with II-VI does not close, due to the failure of one or more conditions to closing; uncertainty as to the market value of the II-VI merger consideration to be paid in the merger; the risk that required governmental or stockholder approvals of the merger (including China antitrust approval) will not be obtained or that such approvals will be delayed beyond current expectations; the risk of litigation in respect of either Finisar or II-VI or the merger; disruption from the merger making it more difficult to maintain our customer, supplier, key personnel and other strategic relationships. 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 15, 2018) 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) Oct 28, Jul 29, Apr 29, 2018 2018 2018 ----------- - ----------- - ----------- - (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 332,138 $ 326,189 $ 312,257 Short-term investments 837,658 832,681 884,838 Accounts receivable, net 247,688 248,138 233,529 Inventories 309,500 325,846 348,527 Other current assets 51,232 54,863 56,001 ----------- - ----------- - ----------- - Total current assets 1,778,216 1,787,717 1,835,152 Property, equipment and improvements, net 600,972 587,203 520,849 Purchased intangible assets, net 5,810 6,742 7,878 Goodwill 106,735 106,735 106,735 Other assets 12,250 25,179 31,721 Deferred tax assets 89,202 85,873 80,850 ----------- - ----------- - ----------- - Total assets $ 2,593,185 $ 2,599,449 $ 2,583,185 - --------- - - --------- - - --------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 133,539 $ 149,876 $ 132,161 Accrued compensation 36,152 35,349 32,525 Other accrued liabilities 54,746 50,944 32,824 Deferred revenue - - 9,535 Current portion of convertible debt 257,067 254,150 251,278 ----------- - ----------- - ----------- - Total current liabilities 481,504 490,319 458,323 Long-term liabilities: Convertible debt, net of current portion 499,838 494,316 488,877 Other non-current liabilities 11,558 11,366 12,368 ----------- - ----------- - ----------- - Total liabilities 992,900 996,001 959,568 Stockholders’ equity: Common stock 117 117 115 Additional paid-in capital 2,885,319 2,869,657 2,850,195 Accumulated other comprehensive loss (57,906 ) (44,356 ) (14,659 ) Accumulated deficit (1,227,245 ) (1,221,970 ) (1,212,034 ) ----------- - ----------- - ----------- - Total stockholders’ equity 1,600,285 1,603,448 1,623,617 Total liabilities and stockholders’ equity $ 2,593,185 $ 2,599,449 $ 2,583,185 - --------- - - --------- - - --------- - Note - Balance sheet amounts as of April 29, 2018 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 Three Months Ended Six Months Ended Months Ended ---------------------- - ------------------------ ----------- Oct 28, Oct 29, Oct 28, Oct 29, Jul 29, 2018 2017 2018 2017 2018 --------- - ----------- --------- - ----------- --------- - Revenues $ 325,423 $ 332,205 $ 642,759 $ 674,011 $ 317,336 Cost of revenues 239,244 235,389 475,399 461,285 236,155 Amortization of acquired developed technology 496 611 992 1,222 496 --------- - --------- - --------- - --------- - --------- - Gross profit 85,683 96,205 166,368 211,504 80,685 Gross margin 26.3 % 29.0 % 25.9 % 31.4 % 25.4 % Operating expenses: Research and development 52,674 60,560 115,734 118,600 63,060 Sales and marketing 12,427 12,230 24,907 24,581 12,480 General and administrative 12,832 13,282 25,475 27,571 12,643 Start-up costs 11,419 - 18,972 - 7,553 Amortization of purchased intangibles 436 666 1,076 1,373 640 Total operating expenses 89,788 86,738 186,164 172,125 96,376 --------- - --------- - --------- - --------- - --------- - Income (loss) from operations (4,105 ) 9,467 (19,796 ) 39,379 (15,691 ) Interest income 5,981 3,746 11,136 7,186 5,155 Interest expense (9,490 ) (9,131 ) (18,876 ) (18,144 ) (9,386 ) Other income (expenses), net 784 1,111 (1,005 ) (1,583 ) (1,789 ) --------- - --------- - --------- - --------- - --------- - Income (loss) before income taxes (6,830 ) 5,193 (28,541 ) 26,838 (21,711 ) Provision (benefit) for income taxes (1,555 ) (664 ) (4,777 ) 1,122 (3,222 ) --------- - --------- - --------- - --------- - --------- - Net income (loss) $ (5,275 ) $ 5,857 $ (23,764 ) $ 25,716 $ (18,489 ) - ------- - - ------- - - ------- - - ------- - - ------- - Net income (loss) per share: Basic $ (0.04 ) $ 0.05 $ (0.20 ) $ 0.23 $ (0.16 ) Diluted $ (0.04 ) $ 0.05 $ (0.20 ) $ 0.22 $ (0.16 ) Shares used in computing net income (loss) per 117,284 113,960 116,575 113,252 115,867 share - basic Shares used in computing net income (loss) per 117,284 115,443 116,575 115,973 115,867 share - diluted

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); -- Stock-based compensation expense (non-cash charges); -- Impairment of long-lived/intangible assets (non-cash charges); -- Reduction in force costs and other restructuring charges (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); -- Duplicate facility costs during facility move (non-core charges); -- Acquisition related costs (non-core cash charges); -- Litigation settlements and resolutions and related costs (non-core cash charges); -- 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 and other miscellaneous (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 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 Three Months Ended Six Months Ended Months Ended ---------------------- ------------------------ ---------- Oct 28, Oct 29, Oct 28, Oct 29, Jul 29, 2018 2017 2018 2017 2018 -------- - -------- - --------- - --------- - ---------- GAAP to non-GAAP reconciliation of gross profit: Gross profit - GAAP $ 85,683 $ 96,205 $ 166,368 $ 211,504 $ 80,685 Gross margin - GAAP 26.3 % 29.0 % 25.9 % 31.4 % 25.4 % Adjustments: Cost of revenues Amortization of acquired technology 496 611 992 1,222 496 Stock compensation 3,493 3,724 7,299 6,294 3,806 Impairment of long-lived/intangible assets 17 - 17 - - Reduction in force costs 1,659 (9 ) 2,141 625 482 Acquisition related retention payment 21 26 33 67 12 Write off of discontinued product inventory 816 - 2,487 - 1,671 -------- - -------- - --------- - --------- - -------- - Total cost of revenues adjustments 6,502 4,352 12,969 8,208 6,467 Gross profit - non-GAAP 92,185 100,557 179,337 219,712 87,152 -------- - -------- - --------- - --------- - -------- - Gross margin - non-GAAP 28.3 % 30.3 % 27.9 % 32.6 % 27.5 % - - - GAAP to non-GAAP reconciliation of operating income (loss): Operating income (loss) - GAAP (4,105 ) 9,467 (19,796 ) 39,379 (15,691 ) Operating margin - GAAP -1.3 % 2.8 % -3.1 % 5.8 % -4.9 % Adjustments: Total cost of revenues adjustments 6,502 4,352 12,969 8,208 6,467 Total operating expense adjustments Operating expenses - GAAP 89,788 86,738 186,164 172,125 96,376 Research and development Reduction in force costs and other restructuring 972 22 7,996 115 7,024 Acquisition related retention payment 17 32 46 64 29 Stock compensation 5,962 6,147 12,137 12,229 6,175 Discontinued product service fees 608 - 921 - 313 Sales and marketing Reduction in force costs 282 - 684 (12 ) 402 Acquisition related retention payment - - - (2 ) - Stock compensation 2,021 2,039 4,167 4,083 2,146 General and administrative Reduction in force costs and other restructuring 257 150 776 370 519 Stock compensation 3,202 2,999 6,219 6,068 3,017 Acquisition related costs 997 40 995 44 (2 ) Litigation settlements and resolutions and 25 - 88 - 63 related costs Amortization of purchased intangibles 436 666 1,076 1,373 640 Startup costs 11,419 - 18,972 - 7,553 Impairment of long-lived assets/intangible assets 31 - 217 - 186 -------- - -------- - --------- - --------- - -------- - Total operating expense adjustments 26,229 12,095 54,294 24,332 28,065 Operating expenses - non-GAAP 63,559 74,643 131,870 147,793 68,311 -------- - -------- - --------- - --------- - -------- - Operating income - non-GAAP 28,626 25,914 47,467 71,919 18,841 -------- - -------- - --------- - --------- - -------- - Operating margin - non-GAAP 8.8 % 7.8 % 7.4 % 10.7 % 5.9 % GAAP to non-GAAP reconciliation of income (loss) before income taxes: Income (loss) before income taxes - GAAP (6,830 ) 5,193 (28,541 ) 26,838 (21,711 ) Adjustments: Total cost of revenues adjustments 6,502 4,352 12,969 8,208 6,467 Total operating expense adjustments 26,229 12,095 54,294 24,332 28,065 Non-cash imputed interest expenses on convertible 8,054 7,676 15,981 15,231 7,927 debt Imputed interest related to restructuring 18 28 38 58 20 Other (income) expense, net (Gain) / loss on sale of assets and other (50) 38 (127 ) (79) (77 ) miscellaneous Loss related to impairment of minority 399 - 399 2,347 - investments Foreign exchange transaction (gain) or loss (1,307 ) (1,478 ) 614 (1,016 ) 1,921 Amortization of debt issuance cost 385 385 770 770 385 Total interest and other adjustments 7,499 6,649 17,675 17,311 10,176 -------- - -------- - --------- - --------- - -------- - Income before income taxes - non-GAAP 33,400 28,289 56,397 76,689 22,997 -------- - -------- - --------- - --------- - -------- - GAAP to non-GAAP reconciliation of net income (loss): Net income (loss) - GAAP (5,275 ) 5,857 (23,764 ) 25,716 (18,489 ) Total cost of revenues adjustments 6,502 4,352 12,969 8,208 6,467 Total operating expense adjustments 26,229 12,095 54,294 24,332 28,065 Total interest and other adjustments 7,499 6,649 17,675 17,311 10,176 Income tax provision adjustments (4,355 ) (2,864 ) (9,277 ) (3,728 ) (4,922 ) -------- - -------- - --------- - --------- - -------- - Total adjustments 35,875 20,232 75,661 46,123 39,786 Net income - non-GAAP $ 30,600 $ 26,089 $ 51,897 $ 71,839 $ 21,297 - ------ - - ------ - - ------- - - ------- - - ------ - Non-GAAP net income for diluted earnings per share calculation Net income - non-GAAP $ 30,600 $ 26,089 $ 51,897 $ 71,839 $ 21,297 Add: interest expense for dilutive convertible - - - - - notes Adjusted net income - non-GAAP $ 30,600 $ 26,089 $ 51,897 $ 71,839 $ 21,297 - ------ - - ------ - - ------- - - ------- - - ------ - Basic non-GAAP income per share GAAP earnings per share $ (0.04 ) $ 0.05 $ (0.20 ) $ 0.23 $ (0.16 ) Impact of all non-GAAP adjustments $ 0.30 $ 0.18 $ 0.65 $ 0.40 $ 0.34 Non-GAAP earnings per share $ 0.26 $ 0.23 $ 0.45 $ 0.63 $ 0.18 Diluted non-GAAP income per share GAAP earnings per share $ (0.04 ) $ 0.05 $ (0.20 ) $ 0.22 $ (0.16 ) Impact of all non-GAAP adjustments $ 0.30 $ 0.18 $ 0.64 $ 0.40 $ 0.34 Non-GAAP earnings per share $ 0.26 $ 0.23 $ 0.44 $ 0.62 $ 0.18 Shares used in computing non-GAAP income per share Basic 117,284 113,960 116,575 113,252 115,867 Diluted 118,290 115,443 117,954 115,973 117,191

Finisar-F

Investor Contact: Press contact: Kurt Adzema Victoria McDonald Chief Financial Officer Director, Corporate Communications 408-542-5050 or Investor.relations@finisar.com 408-542-4261

Additional Information and Where to Find It

In connection with the proposed acquisition of Finisar Corporation (the “Company”) by II-VI Incorporation (“Parent”) pursuant to the terms of an Agreement and Plan of Merger by and among the Company, Parent and Mutation Merger Sub Inc. (“Merger Subsidiary”), Parent will file with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 (the “Form S-4”) that will contain a proxy statement of the Company and a proxy statement and prospectus of Parent, which joint proxy statement/prospectus will be mailed or otherwise disseminated to the Company’s stockholders when it becomes available. Investors are urged to read the joint proxy statement/prospectus (including all amendments and supplements) because they will contain important information. Investors may obtain free copies of the joint proxy statement/prospectus when it becomes available, as well as other filings containing information about the Company and Parent, without charge, at the SEC’s Internet site (http://www.sec.gov). Copies of these documents may also be obtained for free from the companies’ web sites at www.finisar.com and www.ii-vi.com.

Participants in Solicitation

The Company, Parent and their respective officers and directors may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in connection with the proposed transaction. Information about the Company’s executive officers and directors is set forth in its Annual Report on Form 10-K, which was filed with the SEC on June 15, 2018, and the proxy statement for its 2018 annual meeting of stockholders, which was filed with the SEC on July 26, 2018. Investors may obtain more detailed information regarding the direct and indirect interests of Parent, the Company and their respective executive officers and directors in the acquisition by reading the preliminary and definitive joint proxy statement/prospectus regarding the transaction, which will be filed with the SEC.

Forward Looking Statements

This written communication contains forward-looking statements that involve risks and uncertainties concerning Parent’s proposed acquisition of the Company, the Company’s expected financial performance, as well as the Company’s strategic and operational plans. Actual events or results may differ materially from those described in this written communication due to a number of risks and uncertainties. The potential risks and uncertainties include, among others, the possibility that the Company may be unable to obtain required stockholder approval or that other conditions to closing the transaction may not be satisfied, such that the transaction will not close or that the closing may be delayed; the reaction of customers to the transaction; general economic conditions; the transaction may involve unexpected costs, liabilities or delays; risks that the transaction disrupts current plans and operations of the parties to the transaction; the ability to recognize the benefits of the transaction; the amount of the costs, fees, expenses and charges related to the transaction and the actual terms of any financings that will be obtained for the transaction; the outcome of any legal proceedings related to the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the transaction agreement. In addition, please refer to the documents that the Company files with the SEC on Forms 10-K, 10-Q and 8-K. The filings by the Company identify and address other important factors that could cause its financial and operational results to differ materially from those contained in the forward-looking statements set forth in this written communication. All forward-looking statements speak only as of the date of this written communication or, in the case of any document incorporated by reference, the date of that document. The Company is under no duty to update any of the forward-looking statements after the date of this written communication to conform to actual results.

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