AP NEWS

Finisar Announces First Quarter of Fiscal 2019 Financial Results

September 6, 2018

SUNNYVALE, Calif., Sept. 06, 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 first quarter of fiscal 2019, ended July 29, 2018.

COMMENTARY

“Revenues grew over the prior quarter and exceeded the mid-point of our guidance range, primarily driven by strength in demand for our wavelength selective switches. Gross margin also improved over the prior quarter and exceeded our guidance range due to favorable product mix,” said Michael Hurlston, Finisar’s Chief Executive Officer. “In addition, we were able to accelerate the process of bringing more focus to our product development efforts, which allowed the company to reduce relative expense levels faster than expected. In combination, this led to better earnings per share, exceeding the high end of our guidance range.”

FINANCIAL HIGHLIGHTS – First Quarter Ended July 29, 2018 Summary GAAP Results First Fourth Quarter Quarter Ended Ended July 29, 2018 April 29, 2018 (in thousands, except per share amounts) Revenues (a) $317,336 $310,069 Gross margin 25.4% 20.2% Operating expenses $96,376 $89,330 Operating loss $(15,691) $(26,737) Operating margin (4.9)% (8.6)% Net loss $(18,489) $(18,344) Loss per share-basic $(0.16) $(0.16) Loss per share-diluted $(0.16) $(0.16) Basic shares 115,867 114,742 Diluted shares 115,867 114,742 Summary Non-GAAP Results (b) First Fourth Quarter Quarter Ended Ended July 29, 2018 April 29, 2018 (in thousands, except per share amounts) Revenues (a) $317,336 $310,069 Non-GAAP Gross margin 27.5% 24.7% Non-GAAP Operating expenses $68,311 $72,029 Non-GAAP Operating income $18,841 $4,573 Non-GAAP Operating margin 5.9% 1.5% Non-GAAP Net income 21,297 5,780 Non-GAAP Income per share-basic $0.18 $0.05 Non-GAAP Income per share-diluted $0.18 $0.05 Basic shares 115,867 114,742 Diluted shares 117,191 115,991

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(a) During the first quarter of fiscal 2019, Finisar recognized revenue based on the ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” but revenue for the three months ended April 29, 2018 was recognized based on Topic 605. Therefore, the periods are not directly comparable. For additional information on the impact of the new revenue recognition accounting standard, see refer to Note 2 in the notes to condensed consolidated financial statements in Finisar’s Form 10-Q for the first quarter of fiscal 2019.

(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.

OUTLOOK

Finisar indicated that for the second quarter of fiscal 2019 it currently expects revenues in the range of $315 to $335 million, non-GAAP gross margin of approximately 28%, non-GAAP operating margin of approximately 7-8%, and non-GAAP earnings per fully diluted share in the range of approximately $0.19 to $0.25.

Finisar has not provided a reconciliation of its second 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 first fiscal quarter of 2019 and current business outlook during its regular quarterly conference call scheduled for September 6, 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 9594409.

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 9594409 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) Jul 29, 2018 Apr 29, 2018 -------------- -------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 326,189 $ 312,257 Short-term held-to-maturity investments 832,681 884,838 Accounts receivable, net 248,138 233,529 Inventories 325,846 348,527 Other current assets 54,863 56,001 - ---------- - - ---------- - Total current assets 1,787,717 1,835,152 Property, equipment and improvements, net 587,203 520,849 Purchased intangible assets, net 6,742 7,878 Goodwill 106,735 106,735 Other assets 25,179 31,721 Deferred tax assets 85,873 80,850 - ---------- - - ---------- - Total assets $ 2,599,449 $ 2,583,185 - ---------- - - ---------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 149,876 $ 132,161 Accrued compensation 35,349 32,525 Other accrued liabilities 50,944 32,824 Deferred revenue - 9,535 Current portion of convertible notes 254,150 251,278 - ---------- - - ---------- - Total current liabilities 490,319 458,323 Long-term liabilities: Convertible notes 494,316 488,877 Other non-current liabilities 11,366 12,368 - ---------- - - ---------- - Total liabilities 996,001 959,568 Stockholders’ equity: Common stock 117 115 Additional paid-in capital 2,869,657 2,850,195 Accumulated other comprehensive income (loss) (44,356 ) (14,659 ) Accumulated deficit (1,221,970 ) (1,212,034 ) - ---------- - - ---------- - Total stockholders’ equity 1,603,448 1,623,617 Total liabilities and stockholders’ equity $ 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 Months Ended ------------------------ ----------- Jul 29, Jul 30, Apr 29, 2018 2017 2018 ----------- ----------- ----------- Revenues $ 317,336 $ 341,806 $ 310,069 Cost of revenues 236,155 225,896 246,501 Amortization of acquired developed technology 496 611 604 Impairment of long-lived assets - - 371 - ------- - - ------- - - ------- - Gross profit 80,685 115,299 62,593 Gross margin 25.4 % 33.7 % 20.2 % Operating expenses: Research and development 62,874 58,040 60,520 Sales and marketing 12,480 12,351 12,530 General and administrative 12,643 14,289 12,207 Startup costs 7,553 - 2,897 Amortization of purchased intangibles 640 707 666 Impairment of long-lived assets 186 - 510 Total operating expenses 96,376 85,387 89,330 - ------- - - ------- - - ------- - Income (loss) from operations (15,691 ) 29,912 (26,737 ) Interest income 5,155 3,440 4,904 Interest expense (9,386 ) (9,013 ) (9,322 ) Other income (expenses), net (1,789 ) (2,694 ) 1,097 - ------- - - ------- - - ------- - Income (loss) before income taxes (21,711 ) 21,645 (30,058 ) Provision (benefit) for income taxes (3,222 ) 1,786 (11,714 ) - ------- - - ------- - - ------- - Net income (loss) $ (18,489 ) $ 19,859 $ (18,344 ) - ------- - - ------- - - ------- - Net income (loss) per share: Basic $ (0.16 ) $ 0.18 $ (0.16 ) Diluted $ (0.16 ) $ 0.17 $ (0.16 ) Shares used in computing net income (loss) per share - basic 115,867 112,544 114,742 Shares used in computing net income (loss) per share - diluted 115,867 115,698 114,742

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 facilities cost during facility move (non-core cash 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 miscellaneous 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 related to impairment of minority investment (non-core charges); -- 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 Months Ended ------------------------ ----------- Jul 29, Jul 30, Apr 29, 2018 2017 2018 ----------- ----------- ----------- GAAP to non-GAAP reconciliation of gross profit: Gross profit - GAAP $ 80,685 $ 115,299 $ 62,593 Gross margin - GAAP 25.4 % 33.7 % 20.2 % Adjustments: Cost of revenues Amortization of acquired technology 496 611 604 Stock compensation 3,806 2,570 3,453 Impairment of long-lived/intangible assets - - 371 Reduction in force costs 482 634 556 Acquisition related retention payment 12 41 30 Write off of discontinued product inventory 1,671 - 8,995 - ------- - - ------- - - ------- - Total cost of revenues adjustments 6,467 3,856 14,009 Gross profit - non-GAAP 87,152 119,155 76,602 - ------- - - ------- - - ------- - Gross margin - non-GAAP 27.5 % 34.9 % 24.7 % - GAAP to non-GAAP reconciliation of operating income (loss): Operating income (loss) - GAAP (15,691 ) 29,912 (26,737 ) Operating margin - GAAP -4.9 % 8.8 % -8.6 % Adjustments: Total cost of revenues adjustments 6,467 3,856 14,009 Total operating expense adjustments Operating expenses - GAAP 96,376 85,387 89,330 Research and development Reduction in force costs and other restructuring 7,024 93 1,505 Acquisition related retention payment 29 32 32 Stock compensation 6,175 6,082 6,034 Discontinued product service fees 313 - 185 Sales and marketing Reduction in force costs 402 (12 ) 335 Acquisition related retention payment - (2 ) - Stock compensation 2,146 2,044 1,956 General and administrative Reduction in force costs 493 37 145 Duplicate facility costs during facility move 26 183 129 Stock compensation 3,017 3,069 2,233 Acquisition related costs (2 ) 4 127 Litigation settlements and resolutions and related costs 63 - 551 Amortization of purchased intangibles 640 707 666 Startup costs 7,553 - 2,897 Impairment of long-lived assets/intangible assets 186 - 506 - ------- - - ------- - - ------- - Total operating expense adjustments 28,065 12,237 17,301 Operating expenses - non-GAAP 68,311 73,150 72,029 - ------- - - ------- - - ------- - Operating income - non-GAAP 18,841 46,005 4,573 - ------- - - ------- - - ------- - Operating margin - non-GAAP 5.9 % 13.5 % 1.5 % GAAP to non-GAAP reconciliation of income (loss) before income taxes: Income (loss) before income taxes - GAAP (21,711 ) 21,645 (30,058 ) Adjustments: Total cost of revenues adjustments 6,467 3,856 14,009 Total operating expense adjustments 28,065 12,237 17,301 Non-cash imputed interest expenses on convertible debt 7,927 7,555 7,863 Imputed interest related to restructuring 20 30 23 Other (income) expense, net Gain on sale of assets (57 ) (113 ) (157 ) Loss related to impairment of minority investments - 2,347 - Other miscellaneous income (20 ) (4 ) - Foreign exchange transaction (gain) or loss 1,921 463 (936 ) Amortization of debt issuance cost 385 385 385 Total interest and other adjustments 10,176 10,663 7,178 - ------- - - ------- - - ------- - Income before income taxes - non-GAAP 22,997 48,401 8,430 - ------- - - ------- - - ------- - GAAP to non-GAAP reconciliation of net income (loss): Net income (loss) - GAAP (18,489 ) 19,859 (18,344 ) Total cost of revenues adjustments 6,467 3,856 14,009 Total operating expense adjustments 28,065 12,237 17,301 Total interest and other adjustments 10,176 10,663 7,178 Income tax provision adjustments (4,922 ) (865 ) (14,364 ) - ------- - - ------- - - ------- - Total adjustments 39,786 25,891 24,124 Net income - non-GAAP $ 21,297 $ 45,750 $ 5,780 - ------- - - ------- - - ------- - Non-GAAP net income for diluted earnings per share calculation Non-GAAP net income $ 21,297 $ 45,750 $ 5,780 Add: interest expense for dilutive convertible notes - - - Adjusted non-GAAP income $ 21,297 $ 45,750 $ 5,780 - ------- - - ------- - - ------- - Basic non-GAAP income per share GAAP earnings per share $ (0.16 ) $ 0.18 $ (0.16 ) Impact of all non-GAAP adjustments $ 0.34 $ 0.23 $ 0.21 Non-GAAP earnings per share $ 0.18 $ 0.41 $ 0.05 Diluted non-GAAP income per share GAAP earnings per share $ (0.16 ) $ 0.17 $ (0.16 ) Impact of all non-GAAP adjustments $ 0.34 $ 0.23 $ 0.21 Non-GAAP earnings per share $ 0.18 $ 0.40 $ 0.05 Shares used in computing non-GAAP income per share Basic 115,867 112,544 114,742 Diluted 117,191 115,698 115,991

Finisar-F

Investor Contact: Press contact: Kurt Adzema Victoria McDonald Chief Financial Officer Director, Corporate Communications408-542-4261 408-542-5050 or Investor.relations@finisar.com

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