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This content is a press release from our partner Globe Newswire. The AP newsroom and editorial departments were not involved in its creation.

Finisar Announces Third Quarter of Fiscal 2019 Financial Results

February 28, 2019

SUNNYVALE, Calif., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for third quarter of fiscal 2019, ended January 27, 2019. Finisar will not hold an earnings call, nor provide forward guidance for the fourth 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 again grew over the prior quarter and gross margins also improved over the prior quarter, primarily due to favorable product mix and continued focus on reducing manufacturing overhead,” said Michael Hurlston, Finisar’s Chief Executive Officer. “The combination of the above resulted in significant improvement in operating margins and profitability.”

FINANCIAL HIGHLIGHTS – Third Quarter Ended January 27,2019

Summary GAAP Results Third Second Quarter Quarter Ended Ended January 27, October 28, 2019 2018 (in thousands, except per share amounts) Revenues $ 327,636 $ 325,423 Gross margin 28.8 % 26.3 % Operating expenses $ 93,890 $ 89,788 Operating income (loss) $ 533 $ (4,105 ) Operating margin 0.2 % (1.3 )% Net loss $ (15,301 ) $ (5,275 ) Loss per share-basic $ (0.13 ) $ (0.04 ) Loss per share-diluted $ (0.13 ) $ (0.04 ) Basic shares 117,608 117,284 Diluted shares 117,608 117,284

Summary Non-GAAP Results (a) Third Second Quarter Quarter Ended Ended January 27, October 28, 2019 2018 (in thousands, except per share amounts) Revenues $ 327,636 $ 325,423 Non-GAAP Gross margin 30.2 % 28.3 % Non-GAAP Operating expenses $ 63,645 $ 63,559 Non-GAAP Operating income $ 35,229 $ 28,626 Non-GAAP Operating margin 10.8 % 8.8 % Non-GAAP Net income $ 34,192 $ 30,600 Non-GAAP Income per share-basic $ 0.29 $ 0.26 Non-GAAP Income per share-diluted $ 0.29 $ 0.26 Basic shares 117,608 117,284 Diluted shares 119,570 118,290

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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 Third Quarter of Fiscal 2019:

-- Revenues increased by $2.2 million, or 0.7%, compared to the second quarter of fiscal 2019 as the result of increased sales of wavelength selective switches and VCSEL arrays for 3D applications, partially offset by a decline in sales of 10G and lower transceivers. -- GAAP gross margin improved from 26.3% in the second quarter to 28.8% primarily due to favorable product mix and continued focus on reducing manufacturing overhead. -- Non-GAAP gross margin improved from 28.3% in the second quarter to 30.2%. -- GAAP operating margin improved from (1.3)% of revenue in the second quarter to 0.2% due to the combination of higher revenues and improved gross margins. -- Non-GAAP operating margin improved from 8.8% in the second quarter to 10.8%. -- During the quarter, the Company redeemed approximately $257.7 million of convertible notes.

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 Statements of Operations (Unaudited, in thousands, except per share data) Three Three Months Ended Nine Months Ended Months Ended ------------------------ -------------------------- ----------- Jan 27, Jan 28, Jan 27, Jan 28, 2018 Oct 28, 2019 2018 2019 2018 ----------- ----------- ----------- ------------- ----------- Revenues $ 327,636 $ 332,403 $ 970,395 $ 1,006,414 $ 325,423 Cost of revenues 232,717 243,724 708,116 705,009 239,244 Amortization of acquired developed 496 611 1,488 1,833 496 technology - ------- - - ------- - - ------- - - --------- - - ------- - Gross profit 94,423 88,068 260,791 299,572 85,683 Gross margin 28.8 % 26.5 % 26.9 % 29.8 % 26.3 % Operating expenses: Research and development 51,274 59,888 167,008 178,488 52,674 Sales and marketing 12,170 11,913 37,077 36,494 12,427 General and administrative 14,973 19,739 40,448 47,310 12,832 Start-up costs 15,136 638 34,108 638 11,419 Amortization of purchased intangibles 337 666 1,413 2,039 436 Impairment of long-lived assets - 1,353 - 1,353 - Total operating expenses 93,890 94,197 280,054 266,322 89,788 - ------- - - ------- - - ------- - - --------- - - ------- - Income (loss) from operations 533 (6,129 ) (19,263 ) 33,250 (4,105 ) Interest income 5,333 3,995 16,469 11,181 5,981 Interest expense (8,167 ) (9,192 ) (27,043 ) (27,336 ) (9,490 ) Other income (expenses), net (38 ) (459 ) (1,043 ) (2,042 ) 784 - ------- - - ------- - - ------- - - --------- - - ------- - Income (loss) before income taxes (2,339 ) (11,785 ) (30,880 ) 15,053 (6,830 ) Provision (benefit) for income taxes 12,962 43,874 8,185 44,996 (1,555 ) - ------- - - ------- - - ------- - - --------- - - ------- - Net loss $ (15,301 ) $ (55,659 ) $ (39,065 ) $ (29,943 ) $ (5,275 ) - ------- - - ------- - - ------- - - --------- - - ------- - Net income (loss) per share: Basic $ (0.13 ) $ (0.49 ) $ (0.33 ) $ (0.26 ) $ (0.04 ) Diluted $ (0.13 ) $ (0.49 ) $ (0.33 ) $ (0.26 ) $ (0.04 ) Shares used in computing net income (loss) 117,608 114,209 116,919 113,571 117,284 per share - basic Shares used in computing net income (loss) 117,608 114,209 116,919 113,571 117,284 per share - diluted

Finisar Corporation Consolidated Balance Sheets (in thousands) Jan 27, 2019 Oct 28, 2018 Jul 29, 2018 Apr 29, 2018 -------------- -------------- -------------- -------------- (Unaudited) (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 906,854 $ 332,138 $ 326,189 $ 312,257 Short-term investments 3,754 837,658 832,681 884,838 Accounts receivable, net 263,737 247,688 248,138 233,529 Inventories 306,864 309,500 325,846 348,527 Other current assets 44,713 51,232 54,863 56,001 - ---------- - - ---------- - - ---------- - - ---------- - Total current assets 1,525,922 1,778,216 1,787,717 1,835,152 Property, equipment and improvements, net 622,770 600,972 587,203 520,849 Purchased intangible assets, net 4,977 5,810 6,742 7,878 Goodwill 106,735 106,735 106,735 106,735 Other assets 12,185 12,250 25,179 31,721 Deferred tax assets 85,372 89,202 85,873 80,850 - ---------- - - ---------- - - ---------- - - ---------- - Total assets $ 2,357,961 $ 2,593,185 $ 2,599,449 $ 2,583,185 - ---------- - - ---------- - - ---------- - - ---------- - LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 128,594 $ 133,539 $ 149,876 $ 132,161 Accrued compensation 41,216 36,152 35,349 32,525 Other accrued liabilities 54,890 54,746 50,944 32,824 Deferred revenue - - - 9,535 Current portion of convertible debt - 257,067 254,150 251,278 - ---------- - - ---------- - - ---------- - - ---------- - Total current liabilities 224,700 481,504 490,319 458,323 Long-term liabilities: Convertible debt, net of current portion 506,454 499,838 494,316 488,877 Other non-current liabilities 11,864 11,558 11,366 12,368 - ---------- - - ---------- - - ---------- - - ---------- - Total liabilities 743,018 992,900 996,001 959,568 Stockholders’ equity: Common stock 118 117 117 115 Additional paid-in capital 2,904,016 2,885,319 2,869,657 2,850,195 Accumulated other comprehensive loss (46,645 ) (57,906 ) (44,356 ) (14,659 ) Accumulated deficit (1,242,546 ) (1,227,245 ) (1,221,970 ) (1,212,034 ) - ---------- - - ---------- - - ---------- - - ---------- - Total stockholders’ equity 1,614,943 1,600,285 1,603,448 1,623,617 Total liabilities and stockholders’ equity $ 2,357,961 $ 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 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); -- 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 Nine Months Ended Months Ended ------------------------ ------------------------ ----------- Jan 27, Jan 28, Jan 27, Jan 28, Oct 28, 2019 2018 2019 2018 2018 ----------- ----------- ----------- ----------- ----------- GAAP to non-GAAP reconciliation of gross profit: Gross profit - GAAP $ 94,423 $ 88,068 $ 260,791 $ 299,572 $ 85,683 Gross margin - GAAP 28.8 % 26.5 % 26.9 % 29.8 % 26.3 % Adjustments: Cost of revenues Amortization of acquired technology 496 611 1,488 1,833 496 Stock compensation 4,248 2,918 11,547 9,212 3,493 Impairment of long-lived/intangible assets 62 - 79 - 17 Reduction in force costs 544 7 2,685 632 1,659 Acquisition related retention payment (5 ) 26 28 93 21 Write off of discontinued product inventory (894 ) 3,448 1,593 3,448 816 - ------- - - ------- - - ------- - - ------- - - ------- - Total cost of revenues adjustments 4,451 7,010 17,420 15,218 6,502 Gross profit - non-GAAP 98,874 95,078 278,211 314,790 92,185 - ------- - - ------- - - ------- - - ------- - - ------- - Gross margin - non-GAAP 30.2 % 28.6 % 28.7 % 31.3 % 28.3 % GAAP to non-GAAP reconciliation of operating income (loss): Operating income (loss) - GAAP 533 (6,129 ) (19,263 ) 33,250 (4,105 ) Operating margin - GAAP 0.2 % -1.8 % -2.0 % 3.3 % -1.3 % Adjustments: Total cost of revenues adjustments 4,451 7,010 17,420 15,218 6,502 Total operating expense adjustments Operating expenses - GAAP 93,890 94,197 280,054 266,322 89,788 Research and development Reduction in force costs and other 186 792 8,182 907 972 restructuring Acquisition related retention payment (5 ) 44 41 108 17 Stock compensation 5,683 6,073 17,820 18,302 5,962 Discontinued product service fees - - 921 - 608 Sales and marketing Reduction in force costs 32 - 716 (12 ) 282 Acquisition related retention payment - - - (2 ) - Stock compensation 2,012 1,892 6,179 5,975 2,021 General and administrative Reduction in force costs and other 190 460 966 830 257 restructuring Stock compensation 3,542 9,888 9,761 15,956 3,202 Acquisition related costs 3,086 (25 ) 4,081 19 997 Litigation settlements and resolutions and - - 88 - 25 related costs Amortization of purchased intangibles 337 666 1,413 2,039 436 Startup costs 15,136 638 34,108 638 11,419 Impairment of long-lived assets/intangible 46 1,394 263 1,394 31 assets - ------- - - ------- - - ------- - - ------- - - ------- - Total operating expense adjustments 30,245 21,822 84,539 46,154 26,229 Operating expenses - non-GAAP 63,645 72,375 195,515 220,168 63,559 - ------- - - ------- - - ------- - - ------- - - ------- - Operating income - non-GAAP 35,229 22,703 82,696 94,622 28,626 - ------- - - ------- - - ------- - - ------- - - ------- - Operating margin - non-GAAP 10.8 % 6.8 % 8.5 % 9.4 % 8.8 % GAAP to non-GAAP reconciliation of income (loss) before income taxes: Income (loss) before income taxes - GAAP (2,339 ) (11,785 ) (30,880 ) 15,053 (6,830 ) Adjustments: Total cost of revenues adjustments 4,451 7,010 17,420 15,218 6,502 Total operating expense adjustments 30,245 21,822 84,539 46,154 26,229 Other interest income (13 ) (14 ) (13 ) (14 ) - Non-cash imputed interest expenses on 6,940 7,739 22,921 22,970 8,054 convertible debt Imputed interest related to restructuring 15 25 53 83 18 Other (income) expense, net (Gain) / loss on sale of assets and other 85 (79 ) (42 ) (158 ) (50 ) miscellaneous Loss related to impairment of minority - - 399 2,347 399 investments Foreign exchange transaction (gain) or loss 200 698 814 (318 ) (1,307 ) Amortization of debt issuance cost 308 385 1,078 1,155 385 Total interest and other adjustments 7,535 8,754 25,210 26,065 7,499 - ------- - - ------- - - ------- - - ------- - - ------- - Income before income taxes - non-GAAP 39,892 25,801 96,289 102,490 33,400 - ------- - - ------- - - ------- - - ------- - - ------- - GAAP to non-GAAP reconciliation of net income (loss): Net loss - GAAP (15,301 ) (55,659 ) (39,065 ) (29,943 ) (5,275 ) Total cost of revenues adjustments 4,451 7,010 17,420 15,218 6,502 Total operating expense adjustments 30,245 21,822 84,539 46,154 26,229 Total interest and other adjustments 7,535 8,754 25,210 26,065 7,499 Income tax provision adjustments 7,262 40,874 (2,015 ) 37,146 (4,355 ) - ------- - - ------- - - ------- - - ------- - - ------- - Total adjustments 49,493 78,460 125,154 124,583 35,875 Net income - non-GAAP $ 34,192 $ 22,801 $ 86,089 $ 94,640 $ 30,600 - ------- - - ------- - - ------- - - ------- - - ------- - Non-GAAP net income for diluted earnings per share calculation Net income - non-GAAP $ 34,192 $ 22,801 $ 86,089 $ 94,640 $ 30,600 Add: interest expense for dilutive convertible - - - - - notes Adjusted net income - non-GAAP $ 34,192 $ 22,801 $ 86,089 $ 94,640 $ 30,600 - ------- - - ------- - - ------- - - ------- - - ------- - Basic non-GAAP income per share GAAP earnings per share $ (0.13 ) $ (0.49 ) $ (0.33 ) $ (0.26 ) $ (0.04 ) Impact of all non-GAAP adjustments $ 0.42 $ 0.69 $ 1.07 $ 1.09 $ 0.30 Non-GAAP earnings per share $ 0.29 $ 0.20 $ 0.74 $ 0.83 $ 0.26 Diluted non-GAAP income per share GAAP earnings per share $ (0.13 ) $ (0.49 ) $ (0.33 ) $ (0.26 ) $ (0.04 ) Impact of all non-GAAP adjustments $ 0.42 $ 0.69 $ 1.06 $ 1.07 $ 0.30 Non-GAAP earnings per share $ 0.29 $ 0.20 $ 0.73 $ 0.81 $ 0.26 Shares used in computing non-GAAP income per share Basic 117,608 114,209 116,919 113,571 117,284 Diluted 119,570 115,661 118,617 116,138 118,290

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 has filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 (the “Form S-4”) that contains a proxy statement of the Company and a proxy statement and prospectus of Parent, which joint proxy statement/prospectus has been mailed or otherwise disseminated to the Company’s stockholders. Investors are urged to read the joint proxy statement/prospectus (including all amendments and supplements) because they contain important information. Investors may obtain free copies of the joint proxy statement/prospectus, 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 definitive joint proxy statement/prospectus regarding the transaction, which was filed with the SEC on February 8, 2019.

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.