AP NEWS

Finisar Announces Fiscal 2018 Financial Results

June 14, 2018

SUNNYVALE, Calif., June 14, 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 fourth fiscal quarter and full fiscal year, ended April 29, 2018.

COMMENTARY

“While fiscal fourth quarter revenues were in line with the mid-point of our guidance range, gross margin was lower than expected driven by under absorption of fixed manufacturing expenses in our Allen Texas VCSEL laser fab and an increase in non-cash inventory reserves,” said Michael Hurlston, Finisar’s Chief Executive Officer. “While we are disappointed in last quarter’s results, we do expect both revenues and gross margins will increase in our fiscal first quarter. In addition, we have begun to make changes at Finisar that I believe will not only bring more focus to our product development efforts, but will lead to better execution and efficiency, allowing the company to reduce relative expense levels.”

FINANCIAL HIGHLIGHTS – Fourth Quarter Ended April 29, 2018 Summary GAAP Results Fourth Third Quarter Quarter Ended Ended April 29, January 28, 2018 2018 (in thousands, except per share amounts) Revenues $310,069 $332,403 Gross margin 20.2 % 26.5 % Operating expenses $89,330 $94,197 Operating loss $(26,737 ) $(6,129 ) Operating margin (8.6 )% (1.8 )% Net loss $(18,344 ) $(55,659 ) Loss per share-basic $(0.16 ) $(0.49 ) Loss per share-diluted $(0.16 ) $(0.49 ) Basic shares 114,742 114,209 Diluted shares 114,742 114,209 Summary Non-GAAP Results (a) Fourth Third Quarter Quarter Ended Ended April 29, January 28, 2018 2018 (in thousands, except per share amounts) Revenues $310,069 $332,403 Non-GAAP Gross margin 24.7 % 28.6 % Non-GAAP Operating expenses $72,029 $72,375 Non-GAAP Operating income $4,573 $22,703 Non-GAAP Operating margin 1.5 % 6.8 % Non-GAAP Net income 5,780 22,801 Non-GAAP Income per share-basic $0.05 $0.20 Non-GAAP Income per share-diluted $0.05 $0.20 Basic shares 114,742 114,209 Diluted shares 115,991 115,661

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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.

Revenue Details for the Fourth Quarter of Fiscal 2018:

-- Sales of datacom products decreased from $266.1 million to $248.0 million, or by $18.1 million, or (6.8)%, compared to the third quarter of fiscal 2018, primarily due to a decline in revenues for our VCSEL laser arrays for 3D sensing applications. -- Sales of telecom products decreased from $66.3 million to $62.1 million, or by $4.2 million, or (6.4)%, compared to the third quarter of fiscal 2018, primarily due to the full three-month impact of the annual telecom price reductions.

FINANCIAL HIGHLIGHTS – Fiscal Year Ended April 29, 2018 Summary GAAP Results Fiscal Year Fiscal Year Ended Ended April 29, April 30, 2018 2017 (in thousands, except per share amounts) Revenues $1,316,483 $1,449,303 Gross margin 27.5 % 34.8 % Operating expenses $355,652 $326,762 Operating income $6,513 $176,884 Operating margin 0.5 % 12.2 % Net income (loss) $(48,287 ) $249,346 Income (loss) per share-basic $(0.42 ) $2.26 Income (loss) per share-diluted $(0.42 ) $2.19 Basic shares 113,864 110,405 Diluted shares 113,864 114,097 Summary Non-GAAP Results (b) Fiscal Year Fiscal Year Ended Ended April 29, April 30, 2018 2017 (in thousands, except per share amounts) Revenues $1,316,483 $1,449,303 Non-GAAP Gross margin 29.7 % 35.9 % Non-GAAP Operating expenses $292,197 $280,252 Non-GAAP Operating income $99,195 $240,556 Non-GAAP Operating margin 7.5 % 16.6 % Non-GAAP Net income $100,420 $231,698 Non-GAAP Income per share-basic $0.88 $2.10 Non-GAAP Income per share-diluted $0.86 $2.03 Basic shares 113,864 110,405 Diluted shares 116,274 114,097

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(b) 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.

Revenue Details for Fiscal 2018:

-- Sales of products for datacom applications decreased by $12.8 million, or (1.2)%, compared to the preceding year, primarily due to lower demand from our Chinese OEM customers. -- Sales of products for telecom applications decreased by $120.0 million, or (29.5)%, compared to the preceding year primarily due to lower demand from our Chinese OEM customers.

OUTLOOK

Finisar indicated that for the first quarter of fiscal 2019 it currently expects revenues in the range of $305 to $325 million, non-GAAP gross margin of approximately 26%-27%, non-GAAP operating margin of approximately 4-5%, and non-GAAP earnings per fully diluted share in the range of approximately $0.10 to $0.16.

Finisar has not provided a reconciliation of its first 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 fourth quarter and full fiscal 2018 and current business outlook during its regular quarterly conference call scheduled for June 14, 2018, 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-(855) 473-9088 (domestic) or 1- (720) 405-0995 (international) and enter conference ID 3799557.

An audio replay will be available for two weeks following the call by dialing 1- (855) 859-2056 (domestic) or 1-404-537-3406 (international) and then following the prompts: enter conference ID 3799557 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 16, 2017) 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) Apr 29, 2018 Jan 28, 2018 Oct 29, 2017 Jul 30, 2017 Apr 30, 2017 -------------- -------------- -------------- -------------- -------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 312,257 $ 259,023 $ 274,547 $ 278,826 $ 260,228 Short-term held-to-maturity 884,838 957,267 958,216 954,026 976,595 investments Accounts receivable, net 233,529 243,963 260,870 273,180 272,377 Inventories 348,527 382,179 369,078 356,845 331,388 Other current assets 56,001 53,023 61,517 63,629 68,269 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total current assets 1,835,152 1,895,455 1,924,228 1,926,506 1,908,857 Property, equipment and 520,849 495,364 443,733 420,298 383,919 improvements, net Purchased intangible assets, 7,878 9,148 10,424 11,700 13,019 net Goodwill 106,735 106,735 106,735 106,735 106,735 Other assets 31,721 21,883 21,424 22,256 20,125 Deferred tax assets 80,850 78,593 116,055 108,567 107,225 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total assets $ 2,583,185 $ 2,607,178 $ 2,622,599 $ 2,596,062 $ 2,539,880 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 132,161 $ 127,248 $ 152,047 $ 148,605 $ 140,568 Accrued compensation 32,525 39,660 36,614 42,030 54,520 Other accrued liabilities 32,824 36,947 40,130 46,648 43,697 Deferred revenue 9,535 14,539 17,716 14,348 13,015 Current portion of convertible 251,278 248,426 - - - notes - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total current liabilities 458,323 466,820 246,507 251,631 251,800 Long-term liabilities: Convertible notes 488,877 483,481 723,784 715,722 707,782 Other non-current liabilities 12,368 16,464 17,176 17,546 17,594 - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total liabilities 959,568 966,765 987,467 984,899 977,176 Stockholders’ equity: Common stock 115 114 114 114 112 Additional paid-in capital 2,850,195 2,839,701 2,814,713 2,799,118 2,784,204 Accumulated other (14,659 ) (5,712 ) (41,664 ) (44,181 ) (57,865 ) comprehensive income (loss) Accumulated deficit (1,212,034 ) (1,193,690 ) (1,138,031 ) (1,143,888 ) (1,163,747 ) - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Total stockholders’ equity 1,623,617 1,640,413 1,635,132 1,611,163 1,562,704 Total liabilities and $ 2,583,185 $ 2,607,178 $ 2,622,599 $ 2,596,062 $ 2,539,880 stockholders’ equity - ---------- - - ---------- - - ---------- - - ---------- - - ---------- - Note - Balance sheet amounts as of April 30, 2017 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 Twelve Months Ended Months Ended ------------------------ ---------------------------- ----------- Apr 29, Apr 30, Apr 29, 2018 Apr 30, 2017 Jan 28, 2018 2017 2018 ----------- ----------- ------------- ------------- ----------- Revenues $ 310,069 $ 357,527 $ 1,316,483 $ 1,449,303 $ 332,403 Cost of revenues 246,501 231,374 951,510 941,164 243,724 Amortization of acquired developed 604 990 2,437 4,493 611 technology Impairment of long-lived assets 371 - 371 - - - ------- - - ------- - - --------- - - --------- - - ------- - Gross profit 62,593 125,163 362,165 503,646 88,068 Gross margin 20.2 % 35.0 % 27.5 % 34.8 % 26.5 % Operating expenses: Research and development 60,520 58,973 239,008 217,914 59,888 Sales and marketing 12,530 12,322 49,024 50,644 11,913 General and administrative 12,207 12,316 59,517 55,442 19,739 Startup costs 2,897 - 3,535 - 638 Amortization of purchased intangibles 666 713 2,705 2,762 666 Impairment of long-lived assets 510 - 1,863 - 1,353 Total operating expenses 89,330 84,324 355,652 326,762 94,197 - ------- - - ------- - - --------- - - --------- - - ------- - Income (loss) from operations (26,737 ) 40,839 6,513 176,884 (6,129 ) Interest income 4,904 3,299 16,085 6,763 3,995 Interest expense (9,322 ) (8,953 ) (36,658 ) (20,363 ) (9,192 ) Other income (expenses), net 1,097 (488 ) (945 ) (90 ) (459 ) - ------- - - ------- - - --------- - - --------- - - ------- - Income (loss) before income taxes (30,058 ) 34,697 (15,005 ) 163,194 (11,785 ) Provision (benefit) for income taxes (11,714 ) (95,548 ) 33,282 (86,152 ) 43,874 - ------- - - ------- - - --------- - - --------- - - ------- - Net income (loss) $ (18,344 ) $ 130,245 $ (48,287 ) $ 249,346 $ (55,659 ) - ------- - - ------- - - --------- - - --------- - - ------- - Net income (loss) per share attributable to Finisar Corporation common stockholders: Basic $ (0.16 ) $ 1.17 $ (0.42 ) $ 2.26 $ (0.49 ) Diluted $ (0.16 ) $ 1.13 $ (0.42 ) $ 2.19 $ (0.49 ) Shares used in computing net income per 114,742 111,438 113,864 110,405 114,209 share - basic Shares used in computing net income per 114,742 115,242 113,864 114,097 114,209 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); -- Duplicate facility costs during facility move (non-core cash charges); -- Stock-based compensation expense (non-cash charges); -- Impairment of long-lived/intangible assets (non-cash charges); -- Reduction in force costs (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); -- Acquisition related costs (non-core cash charges); -- Litigation settlements and resolutions and related costs (non-core cash charges); -- Unclaimed property tax audit accrual (non-core benefits); -- 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 (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.

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 Twelve Months Ended Months Ended ------------------------ ------------------------ ----------- Apr 29, Apr 30, Apr 29, Apr 30, Jan 28, 2018 2017 2018 2017 2018 ----------- ----------- ----------- ----------- ----------- GAAP to non-GAAP reconciliation of gross profit: Gross profit - GAAP $ 62,593 $ 125,163 $ 362,165 $ 503,646 $ 88,068 Gross margin - GAAP 20.2 % 35.0 % 27.5 % 34.8 % 26.5 % Adjustments: Cost of revenues Amortization of acquired technology 604 990 2,437 4,493 611 Duplicate facility costs during facility move - 10 - 36 - Stock compensation 3,453 3,071 12,665 12,249 2,918 Impairment of long-lived/intangible assets 371 - 371 - - Reduction in force costs 556 103 1,188 287 7 Acquisition related retention payment 30 26 123 97 26 Write off of discontinued product inventory 8,995 - 12,443 - 3,448 - ------- - - ------- - - ------- - - ------- - - ------- - Total cost of revenues adjustments 14,009 4,200 29,227 17,162 7,010 Gross profit - non-GAAP 76,602 129,363 391,392 520,808 95,078 - ------- - - ------- - - ------- - - ------- - - ------- - Gross margin - non-GAAP 24.7 % 36.2 % 29.7 % 35.9 % 28.6 % GAAP to non-GAAP reconciliation of operating income (loss): Operating income (loss) - GAAP (26,737 ) 40,839 6,513 176,884 (6,129 ) Operating margin - GAAP -8.6 % 11.4 % 0.5 % 12.2 % -1.8 % Adjustments: Total cost of revenues adjustments 14,009 4,200 29,227 17,162 7,010 Total operating expense adjustments Operating expenses - GAAP 89,330 84,324 355,652 326,762 94,197 Research and development Reduction in force costs 1,505 46 2,412 338 792 Duplicate facility costs during facility move - 10 - 34 - Acquisition related retention payment 32 32 140 128 44 Stock compensation 6,034 5,613 24,336 21,737 6,073 Impairment of long-lived assets - 2,387 - 2,387 - Discontinued product service fees 185 - 185 - - Sales and marketing Reduction in force costs 335 19 323 48 - Acquisition related retention payment - 2 (2 ) 2 - Stock compensation 1,956 1,889 7,931 7,438 1,892 General and administrative Reduction in force costs 145 5 536 58 341 Duplicate facility costs during facility move 129 176 568 641 119 Acquisition related retention payment - - - (2 ) - Stock compensation 2,233 2,823 18,189 11,172 9,888 Acquisition related costs 127 (343 ) 146 (289 ) (25 ) Litigation settlements and resolutions and 551 - 551 93 - related costs Unclaimed property tax audit accrual - - - (37 ) - Amortization of purchased intangibles 666 713 2,705 2,762 666 Startup costs 2,897 - 3,535 - 638 Impairment of long-lived assets/intangible 506 - 1,900 - 1,394 assets - ------- - - ------- - - ------- - - ------- - - ------- - Total operating expense adjustments 17,301 13,372 63,455 46,510 21,822 Operating expenses - non-GAAP 72,029 70,952 292,197 280,252 72,375 - ------- - - ------- - - ------- - - ------- - - ------- - Operating income - non-GAAP 4,573 58,411 99,195 240,556 22,703 - ------- - - ------- - - ------- - - ------- - - ------- - Operating margin - non-GAAP 1.5 % 16.3 % 7.5 % 16.6 % 6.8 % GAAP to non-GAAP reconciliation of income (loss) before income taxes: Income (loss) before income taxes - GAAP (30,058 ) 34,697 (15,005 ) 163,194 (11,785 ) Adjustments: Total cost of revenues adjustments 14,009 4,200 29,227 17,162 7,010 Total operating expense adjustments 17,301 13,372 63,455 46,510 21,822 Other interest income - - (14 ) - (14 ) Non-cash imputed interest expenses on 7,863 7,494 30,833 16,936 7,739 convertible debt Imputed interest related to restructuring 23 32 106 141 25 Other (income) expense, net Loss (gain) on sale of assets (157 ) 9 (315 ) (261 ) (79 ) Loss related to impairment of minority - - 2,347 643 - investments Foreign exchange transaction (gain) or loss (936 ) 326 (1,254 ) (877 ) 698 Amortization of debt issuance cost 385 385 1,540 950 385 Total interest and other adjustments 7,178 8,246 33,243 17,532 8,754 - ------- - - ------- - - ------- - - ------- - - ------- - Income before income taxes - non-GAAP 8,430 60,515 110,920 244,398 25,801 - ------- - - ------- - - ------- - - ------- - - ------- - GAAP to non-GAAP reconciliation of net income (loss): Net income (loss) - GAAP (18,344 ) 130,245 (48,287 ) 249,346 (55,659 ) Total cost of revenues adjustments 14,009 4,200 29,227 17,162 7,010 Total operating expense adjustments 17,301 13,372 63,455 46,510 21,822 Total interest and other adjustments 7,178 8,246 33,243 17,532 8,754 Income tax provision adjustments (14,364 ) (98,548 ) 22,782 (98,852 ) 40,874 - ------- - - ------- - - ------- - - ------- - Total adjustments 24,124 (72,730 ) 148,707 (17,648 ) 78,460 - ------- - Net income - non-GAAP $ 5,780 $ 57,515 $ 100,420 $ 231,698 $ 22,801 - ------- - - ------- - - ------- - - ------- - - ------- - Basic non-GAAP income per share GAAP earnings per share $ (0.16 ) $ 1.17 $ (0.42 ) $ 2.26 $ (0.49 ) Impact of all non-GAAP adjustments $ 0.21 $ (0.65 ) $ 1.30 $ (0.16 ) $ 0.69 Non-GAAP earnings per share $ 0.05 $ 0.52 $ 0.88 $ 2.10 $ 0.20 Diluted non-GAAP income per share GAAP earnings per share $ (0.16 ) $ 1.13 $ (0.42 ) $ 2.19 $ (0.49 ) Impact of all non-GAAP adjustments $ 0.21 $ (0.63 ) $ 1.28 $ (0.16 ) $ 0.69 Non-GAAP earnings per share $ 0.05 $ 0.50 $ 0.86 $ 2.03 $ 0.20 Shares used in computing non-GAAP income per share Basic 114,742 111,438 113,864 110,405 114,209 Diluted 115,991 115,242 116,274 114,097 115,661

Finisar-F

Investor Contact:Kurt AdzemaChief Financial Officer408-542-5050 or Investor.relations@finisar.com

Press contact:Victoria McDonaldDirector, Corporate Communications408-542-4261

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