Finisar Announces Third Fiscal Quarter 2016 Financial Results

SUNNYVALE, CA--(March 10, 2016) - Finisar Corporation (FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its third quarter of fiscal 2016, ended January 31, 2016.

COMMENTARY

"Revenues for our third fiscal quarter were $309.2 million, approximately in line with the midpoint of our prior guidance range for the quarter of $300 to $320 million. Better than expected gross margins, due to favorable product mix, as well as lower than expected operating and other expenses, resulted in earnings per fully diluted share at the upper end of our prior guidance range," said Jerry Rawls, Finisar's Chief Executive Officer.



FINANCIAL HIGHLIGHTS - Third Quarter Ended January 31, 2016

Summary GAAP Results	Third			Second
	Quarter			Quarter
	Ended			Ended
	January 31, 2016			November 1, 2015
	(in thousands, except per share amounts)

Revenues	$	309,206		$	321,136
Gross margin		28.4	%		27.7	%
Operating expenses	$	77,282		$	79,723
Operating income	$	10,458		$	9,368
Operating margin		3.4	%		2.9	%
Net income	$	12,084		$	6,644
Income per share-basic	$	0.11		$	0.06
Income per share-diluted	$	0.11		$	0.06

Basic shares		107,180			106,635
Diluted shares		108,128			107,493



Summary Non-GAAP Results (a)	Third			Second
	Quarter			Quarter
	Ended			Ended
	January 31, 2016			November 1, 2015
	(in thousands, except per share amounts)

Revenues	$	309,206		$	321,136
Non-GAAP Gross margin		30.3	%		30.0	%
Non-GAAP Operating expenses	$	67,292		$	68,025
Non-GAAP Operating income	$	26,309		$	28,274
Non-GAAP Operating margin		8.5	%		8.8	%
Non-GAAP Net income	$	26,604		$	26,857
Non-GAAP Income per share-basic	$	0.25		$	0.25
Non-GAAP Income per share-diluted	$	0.25		$	0.25

Basic shares		107,180			106,635
Diluted shares		108,128			107,493

(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 2016:

Revenues were $309.2 million, a decrease of $11.9 million, or (3.7)%, from $321.1 million in the preceding quarter.
Sales of products for telecom applications increased by $2.6 million, or 2.9%, compared to the preceding quarter, primarily driven by growth in wavelength selective switches.
Sales of products for datacom applications decreased by $14.5 million, or (6.2)%, compared to the preceding quarter, primarily driven by a decline in 40 gigabit transceivers, primarily as the result of reduced levels of capital spending by web 2.0 and hyperscale data center customers in anticipation of the roll out of next generation 100G QSFP28 transceivers.
GAAP gross margin was 28.4% compared to 27.7% in the preceding quarter.
Non-GAAP gross margin improved to 30.3% compared to 30.0% in the prior quarter as favorable product mix more than offset the impact of one month of annual telecom price negotiations, which typically take effect on January 1.
GAAP operating expenses were $77.3 million compared to $79.7 million in the prior quarter.
Non-GAAP operating expenses were $67.3 million compared to $68.0 million in the prior quarter.
GAAP earnings per fully diluted share was $0.11 compared to $0.06 in the preceding quarter.
Non-GAAP earnings per fully diluted share was $0.25 compared to $0.25 in the preceding quarter.
Cash, cash equivalents and short term investments increased $10.3 million to $531.1 million at the end of the third quarter, compared to $520.8 million at the end of the preceding quarter.

OUTLOOK

The Company indicated that for the fourth quarter of fiscal 2016 it currently expects revenues in the range of $307 to $327 million, non-GAAP gross margin of approximately 30%, non-GAAP operating margin of approximately 8.2% to 9.2%, and non-GAAP earnings per fully diluted share in the range of approximately $0.22 to $0.28.

CONFERENCE CALL

Finisar will discuss its financial results for the third quarter and current business outlook during its regular quarterly conference call scheduled for Thursday, March 10, 2016, at 2:00 pm PT (5:00 pm ET). To listen to the call you may connect through the Finisar investor relations page athttp://investor.finisar.com/ or dial 877-675-4756 (domestic) or +1.719.325.4812 (international) and enter conference ID 1574347.

An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or +1-719-457-0820 and then following the prompts: enter conference ID 1574347 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company'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 19, 2015) and quarterly SEC filings.

ABOUT FINISAR

Finisar Corporation (FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, networking, storage, wireless, and cable TV applications. For 25 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.

FINISAR FINANCIAL STATEMENTS The following financial tables are presented in accordance with GAAP.



Finisar Corporation
Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)

			Three Months Ended						Nine Months Ended						Three Months Ended
			Jan 31, 2016			January 25, 2015			Jan 31, 2016			January 25, 2015			Nov 01, 2015
Revenues			$	309,206		$	306,283		$	944,372		$	930,902		$	321,136
Cost of revenues				219,836			221,173			674,593			659,183			230,610
Impairment of long-lived assets				-			5,722			1,071			5,722			-
Amortization of acquired developed technology				1,630			1,435			4,500			4,304			1,435
Gross profit				87,740			77,953			264,208			261,693			89,091
Gross margin				28.4	%		25.5	%		28.0	%		28.1	%		27.7	%
Operating expenses:
	Research and development			49,840			48,782			153,220			150,972			50,972
	Sales and marketing			11,899			10,926			34,998			34,378			11,897
	General and administrative			14,875			14,062			46,269			57,553			16,186
	Impairment of long-lived assets			-			45			2,004			45			-
	Amortization of purchased intangibles			668			737			830			2,235			668
		Total operating expenses		77,282			74,552			237,321			245,183			79,723
Income from operations				10,458			3,401			26,887			16,510			9,368
Interest income				709			321			1,543			1,275			469
Interest expense				(2,933	)		(2,686	)		(8,733	)		(8,687	)		(2,917	)
Other income (expenses), net				1,968			2,051			3,294			58			445
Income before income taxes				10,202			3,087			22,991			9,156			7,365
Provision (benefit) for income taxes				(1,882	)		1,409			870			4,596			721
Net income			$	12,084		$	1,678		$	22,121		$	4,560		$	6,644

Net income per share attributable to Finisar Corporation common stockholders:

	Basic		$	0.11		$	0.02		$	0.21		$	0.05		$	0.06
	Diluted		$	0.11		$	0.02		$	0.20		$	0.04		$	0.06

Shares used in computing net income per share - basic				107,180			103,563			106,367			100,475			106,635
Shares used in computing net income per share - diluted				108,128			105,990			108,488			103,825			107,493



Finisar Corporation
Consolidated Balance Sheets
(in thousands)

			Jan 31, 2016			Nov 01, 2015			Aug 02, 2015			May 03, 2015
			(Unaudited)			(Unaudited)			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	268,330		$	258,270		$	232,997		$	197,443
	Short-term held-to-maturity investments			262,726			262,500			262,695			292,748
	Accounts receivable, net			241,384			230,065			234,798			213,234
	Accounts receivable, other			41,933			39,982			40,807			40,650
	Inventories			262,591			264,706			282,093			283,670
	Prepaid expenses and other assets			25,317			20,538			22,649			36,518
		Total current assets		1,102,281			1,076,061			1,076,039			1,064,263
Property, equipment and improvements, net				342,818			344,695			322,043			315,777
Purchased intangible assets, net				20,686			22,983			25,086			27,188
Goodwill				106,735			106,735			106,735			106,735
Minority investments				3,692			3,647			2,997			2,847
Other assets				21,516			23,133			34,960			35,072
		Total assets	$	1,597,728		$	1,577,254		$	1,567,860		$	1,551,882

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	131,240		$	133,220		$	139,600		$	131,510
	Accrued compensation			32,908			31,680			26,392			24,918
	Other accrued liabilities			45,492			43,301			39,753			39,238
	Deferred revenue			11,933			12,438			11,480			9,850
		Total current liabilities		221,573			220,639			217,225			205,516
Long-term liabilities:
	Convertible notes, net of current portion			228,561			226,151			223,760			221,406
	Other non-current liabilities			21,765			23,195			21,545			21,167
		Total liabilities		471,899			469,985			462,530			448,089
Stockholders' equity:
	Common stock			108			107			107			104
	Additional paid-in capital			2,593,587			2,577,246			2,564,506			2,551,114
	Accumulated other comprehensive income (loss)			(41,701	)		(31,835	)		(14,390	)		861
	Accumulated deficit			(1,426,165	)		(1,438,249	)		(1,444,893	)		(1,448,286	)
		Total stockholders' equity		1,125,829			1,107,269			1,105,330			1,103,793
Total liabilities and stockholders' equity			$	1,597,728		$	1,577,254		$	1,567,860		$	1,551,882

	Note - Balance sheet amounts as of May 3, 2015 are derived from the audited consolidated financial statements as of the date.

FINISAR NON-GAAP FINANCIAL MEASURES

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides the following financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission: non-GAAP gross profit, non-GAAP operating income, non-GAAP income and non-GAAP net income per share. These non-GAAP financial measures are supplemental information regarding the Company'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 which are affecting our performance. These non-GAAP measures are used by both management and our Board of Directors, along with the comparable GAAP information, in evaluating our current performance and planning our future business activities. In particular, management finds it useful to exclude non-cash charges in order to better correlate our operating activities with our ability to generate cash from operations and to exclude certain cash charges as a means of more accurately predicting our liquidity requirements. We believe that these non-GAAP measures, when used in conjunction with our GAAP financial information, also allow investors to better evaluate our financial performance in comparison to other periods and to other companies in our industry.

In calculating non-GAAP gross profit in this release, we have excluded the following items from cost of revenues in applicable periods in this release:

Changes in excess and obsolete inventory reserve (predominantly non-cash charges or non-cash benefits);
Amortization of acquired technology (non-cash charges related to technology obtained in acquisitions);
Duplicate facility costs during facility move (non-core cash charges);
Stock-based compensation expense (non-cash charges);
Impairment of long-lived assets (non-cash charges);
Reduction in force costs (non-core cash charges); and
Acquisition related retention payments (non-core cash charges).

In calculating non-GAAP operating income in this release, we have excluded the same items to the extent they are classified as operating expenses, and have also excluded the following items in applicable periods in this release:

Gain or loss on litigation settlements and resolutions and related costs (non-core cash charges or benefits);
Shareholder class action and derivative litigation costs (non-core cash charges associated with the derivative litigation related to our historical stock option granting practices and related to the class action and derivative litigation related to our March 8, 2011 earnings announcement);
Acquisition related costs (non-core cash charges); and
Amortization of purchased intangibles (non-cash charges).

In calculating non-GAAP income and non-GAAP income per share in this release, we have also excluded the following items in applicable periods in this release:

Imputed interest expenses on convertible debt (non-cash charges);
Imputed interest related to restructuring (non-cash charges);
Gains and losses on sales of assets (non-cash losses and cash gains related to the periodic disposal of assets no longer required for current activities);
Other miscellaneous expenses (income) (non-core charges or benefits);
Dollar denominated foreign exchange transaction losses (gains) (non-cash charges or benefits);
Amortization of debt issuance costs (non-cash charges); and
Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items.

A reconciliation of this non-GAAP financial information to the corresponding GAAP information is set forth below:



Finisar Corporation
Reconciliation of Results of Operations under GAAP and non-GAAP
(Unaudited, in thousands, except per share data)

				Three Months Ended						Nine Months Ended						Three Months Ended
				Jan 31, 2016			January 25, 2015			Jan 31, 2016			January 25, 2015			Nov 01, 2015
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP				$	87,740		$	77,953		$	264,208		$	261,693		$	89,091
Gross margin - GAAP					28.4	%		25.5	%		28.0	%		28.1	%		27.7	%
Adjustments:
Cost of revenues
	Change in excess and obsolete inventory valuation adjustments				1,293			3,772			5,125			7,541			2,402
	Amortization of acquired technology				1,630			1,435			4,500			4,304			1,435
	Duplicate facility costs during facility move				7			6			93			772			4
	Stock compensation				2,539			2,660			8,153			7,524			2,922
	Impairment of long-lived assets				-			5,722			1,282			5,846			-
	Reduction in force costs				364			371			1,335			1,165			417
	Acquisition related retention payment				28			61			121			268			28
		Total cost of revenue adjustments			5,861			14,027			20,609			27,420			7,208
Gross profit - non-GAAP					93,601			91,980			284,817			289,113			96,299
Gross margin - non-GAAP					30.3	%		30.0	%		30.2	%		31.1	%		30.0	%

GAAP to non-GAAP reconciliation of operating income:
Operating income - GAAP					10,458			3,401			26,887			16,510			9,368
Operating margin - GAAP					3.4	%		1.1	%		2.8	%		1.8	%		2.9	%
Adjustments:
Total cost of revenue adjustments					5,861			14,027			20,609			27,420			7,208
Total operating expense adjustments
	Operating expenses - GAAP				77,282			74,552			237,321			245,183			79,723
		Research and development
		Reduction in force costs			230			23			518			708			-
		Duplicate facility costs during facility move			7			99			277			866			49
		Acquisition related retention payment			32			132			190			491			67
		Stock compensation			4,723			4,669			14,531			13,832			4,970
		Impairment of long-lived assets			-			-			287			-			-
	Sales and marketing
		Reduction in force costs			44			-			224			-			117
		Acquisition related retention payment			2			9			15			38			3
		Stock compensation			1,713			1,600			5,138			4,754			1,718
	General and administrative
		Reduction in force costs			39			49			1,354			103			963
		Duplicate facility costs			150			36			167			152			8
		Acquisition related retention payment			-			7			(5	)		(32	)		-
		Stock compensation			2,343			2,654			7,860			8,083			2,757
		Payroll taxes related to options investigation			-			-			-			17			-
		Acquisition related costs			39			36			435			274			378
		Litigation settlements and resolutions and related costs			-			(662	)		16			11,754			-
		Shareholder class action and derivative litigation costs			-			(10	)		-			(10	)		-
	Amortization of purchased intangibles				668			737			2,004			2,235			668
	Impairment of long-lived assets				-			45			587			45			-
			Total operating expense adjustments		9,990			9,424			33,598			43,310			11,698
	Operating expenses - non-GAAP				67,292			65,128			203,723			201,873			68,025
Operating income - non-GAAP					26,309			26,852			81,094			87,240			28,274
Operating margin - non-GAAP					8.5	%		8.8	%		8.6	%		9.4	%		8.8	%

GAAP to non-GAAP reconciliation of income before income taxes:
Income before income taxes - GAAP					10,202			3,087			22,991			9,156			7,365
Adjustments:
Total cost of revenue adjustments					5,861			14,027			20,609			27,420			7,208
Total operating expense adjustments					9,990			9,424			33,598			43,310			11,698
Total Interest and other adjustments
Other interest income					(113	)		-			(113	)		-			-
Non-cash imputed interest expenses on convertible debt					2,411			2,297			7,156			6,819			2,391
Imputed interest related to restructuring					42			48			131			149			44
Other (income) expense, net
		Loss (gain) on sale of assets			(644	)		31			(744	)		242			85
		Other miscellaneous income			(1,503	)		(167	)		(1,640	)		(178	)		(120	)
		Foreign exchange transaction (gain) or loss			1,205			(338	)		563			1,980			51
		Amortization of debt issuance cost			154			154			462			462			154
			Total Interest and other adjustments		1,552			2,025			5,815			9,474			2,605
Income before income taxes - non-GAAP					27,605			28,563			83,013			89,360			28,876

GAAP to non-GAAP reconciliation of net income:
Net income - GAAP					12,084			1,678			22,121			4,560			6,644
Total cost of revenue adjustments					5,861			14,027			20,609			27,420			7,208
Total operating expense adjustments					9,990			9,424			33,598			43,310			11,698
Total Interest and other adjustments					1,552			2,025			5,815			9,474			2,605
Income tax provision adjustments					(2,883	)		(448	)		(4,150	)		(1,261	)		(1,298	)
	Total adjustments				14,520			25,028			55,872			78,943			20,213
Net income - non-GAAP				$	26,604		$	26,706		$	77,993		$	83,503		$	26,857

Non-GAAP net income for diluted earnings per share calcuation
Non-GAAP net income				$	26,604		$	26,706		$	77,993		$	83,503		$	26,857
Add: interest expense for dilutive convertible notes					-			-			-			1,072			-
Adjusted non-GAAP income				$	26,604		$	26,706		$	77,993		$	84,575		$	26,857

Basic non-GAAP income per share
	GAAP earnings per share			$	0.11		$	0.02		$	0.21		$	0.05		$	0.06
	Impact of all non-GAAP adjustments			$	0.14		$	0.24		$	0.53		$	0.79		$	0.19
	Non-GAAP earnings per share			$	0.25		$	0.26		$	0.73		$	0.83		$	0.25

Diluted non-GAAP income per share
	GAAP earnings per share			$	0.11		$	0.02		$	0.20		$	0.04		$	0.06
	Impact of all non-GAAP adjustments			$	0.14		$	0.23		$	0.52		$	0.76		$	0.19
	Non-GAAP earnings per share			$	0.25		$	0.25		$	0.72		$	0.80		$	0.25

Shares used in computing non-GAAP income per share
	Basic				107,180			103,563			106,367			100,475			106,635
	Diluted				108,128			105,990			108,488			106,339			107,493

Finisar-F

Contact:

Investor
Kurt Adzema
Chief Financial Officer
408-542-5050
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Press contact:
Victoria McDonald
Director, Corporate Communications
408-542-4261

Finisar Corporation ( FNSR )

Finisar Announces Third Fiscal Quarter 2016 Financial Results