FNSR Finisar Corp

Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its fourth quarter and full fiscal year, ended April 28, 2019. Finisar will not hold an earnings call, nor provide forward guidance for the first quarter of fiscal 2020 due to the previously announced proposed acquisition by II-VI Incorporated (NASDAQ: IIVI).

FINANCIAL HIGHLIGHTS – Fourth Quarter Ended April 28, 2019
Summary GAAP Results	Fourth				Third
	Quarter				Quarter
	Ended				Ended
		April 28, 2019				January 27, 2019
	(in thousands, except per share amounts)
Revenues	$	310,085			$	327,636
Gross margin		28.2	%			28.8		%
Operating expenses	$	98,579			$	93,890
Operating income (loss)	$	(11,278	)		$	533
Operating margin		(3.6	)%			0.2		%
Net loss	$	(14,151	)		$	(15,301		)
Loss per share-basic	$	(0.12	)		$	(0.13		)
Loss per share-diluted	$	(0.12	)		$	(0.13		)
Basic shares		117,953				117,608
Diluted shares		117,953				117,608

Summary Non-GAAP Results (a)	Fourth					Third
	Quarter					Quarter
	Ended					Ended
	April 28, 2019					January 27, 2019
	(in thousands, except per share amounts)
Revenues	$	310,085				$	327,636
Non-GAAP Gross margin		30.8		%			30.2		%
Non-GAAP Operating expenses	$	64,642				$	63,645
Non-GAAP Operating income	$	30,895				$	35,229
Non-GAAP Operating margin		10.0		%			10.8		%
Non-GAAP Net income	$	32,960				$	34,192
Non-GAAP Income per share-basic	$	0.28				$	0.29
Non-GAAP Income per share-diluted	$	0.27				$	0.29
Basic shares		117,953					117,608
Diluted shares		120,795					119,570

_____________(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 2019: 

• Revenues for datacom applications decreased by $12.8 million, or (5.5)%, compared to the third quarter of fiscal 2019, primarily as the result of a decline in sales of 40G and lower transceivers as well as VCSELs arrays for 3D applications. 
• Revenues for telecom applications decreased by $4.8 million, or (5.0)%, compared to the third quarter of fiscal 2019, primarily as a result of a decline in sales of 10G tunable transceivers. 

FINANCIAL HIGHLIGHTS – Fiscal Year Ended April 28, 2019
Summary GAAP Results
	Fiscal Year					Fiscal Year
	Ended					Ended
	April 28, 2019					April 29, 2018
	(in thousands, except per share amounts)
Revenues	$	1,280,480				$	1,316,483
Gross margin		27.2		%			27.5	%
Operating expenses	$	378,633				$	355,652
Operating income (loss)	$	(30,541		)		$	6,513
Operating margin		(2.4		)%			0.5	%
Net loss	$	(53,216		)		$	(48,287	)
Loss per share-basic	$	(0.45		)		$	(0.42	)
Loss per share-diluted	$	(0.45		)		$	(0.42	)
Basic shares		117,178					113,864
Diluted shares		117,178					113,864
Summary Non-GAAP Results (b)
	Fiscal Year					Fiscal Year
	Ended					Ended
	April 28, 2019					April 29, 2018
	(in thousands, except per share amounts)
Revenues	$	1,280,480				$	1,316,483
Non-GAAP Gross margin		29.2		%			29.7	%
Non-GAAP Operating expenses	$	260,157				$	292,197
Non-GAAP Operating income	$	113,591				$	99,195
Non-GAAP Operating margin		8.9		%			7.5	%
Non-GAAP Net income	$	119,049				$	100,420
Non-GAAP Income per share-basic	$	1.02				$	0.88
Non-GAAP Income per share-diluted	$	1.00				$	0.86
Basic shares		117,178					113,864
Diluted shares		119,389					116,274

_____________(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 Fiscal 2019: 

• Revenues for datacom applications decreased by $102.3 million, or (9.9)%, compared to fiscal 2018, primarily as the result of a decline in sales of 40G transceivers due to our customers switching their technology infrastructure to higher speed transceivers as well as lower 100G datacom transceiver revenue due to a decrease in the average selling prices for our products. 
• Revenues for telecom applications increased by $66.2 million, or 23.0%, compared to the fiscal 2018, primarily as the result of an increase in sales of WSS products. 

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 Months Ended								Twelve Months Ended								Three Months Ended
	Apr 28, 2019				Apr 29, 2018				Apr 28, 2019				Apr 29, 2018				Jan 27, 2019
Revenues	$	310,085			$	310,069			$	1,280,480			$	1,316,483			$	327,636
Cost of revenues		218,513				246,501				926,550				951,510				232,655
Amortization of acquired developed technology		471				604				1,959				2,437				496
Impairment of long-lived assets		3,800				371				3,879				371				62
Gross profit		87,301				62,593				348,092				362,165				94,423
Gross margin		28.2	%			20.2	%			27.2	%			27.5	%			28.8	%
Operating expenses:
Research and development		51,133				60,520				217,878				239,008				51,228
Sales and marketing		12,000				12,530				49,077				49,024				12,170
General and administrative		14,396				12,207				54,844				59,517				14,973
Amortization of purchased intangibles		324				666				1,737				2,705				337
Impairment of long-lived assets		317				510				580				1,863				46
Startup costs		20,409				2,897				54,517				3,535				15,136
Total operating expenses		98,579				89,330				378,633				355,652				93,890
Income (loss) from operations		(11,278	)			(26,737	)			(30,541	)			6,513				533
Interest income		4,731				4,904				21,200				16,085				5,333
Interest expense		(6,447	)			(9,322	)			(33,490	)			(36,658	)			(8,167	)
Other income (expenses), net		325				1,097				(718	)			(945	)			(38	)
Loss before income taxes		(12,669	)			(30,058	)			(43,549	)			(15,005	)			(2,339	)
Provision (benefit) for income taxes		1,482				(11,714	)			9,667				33,282				12,962
Net loss	$	(14,151	)		$	(18,344	)		$	(53,216	)		$	(48,287	)		$	(15,301	)
Net loss per share attributable to Finisar Corporation common stockholders:
Basic	$	(0.12	)		$	(0.16	)		$	(0.45	)		$	(0.42	)		$	(0.13	)
Diluted	$	(0.12	)		$	(0.16	)		$	(0.45	)		$	(0.42	)		$	(0.13	)
Shares used in computing net loss per share - basic		117,953				114,742				117,178				113,864				117,608
Shares used in computing net loss per share - diluted		117,953				114,742				117,178				113,864				117,608

Finisar Corporation
Consolidated Balance Sheets
(in thousands)
	4/28/2019				1/27/2019				10/28/2018				7/29/2018				Apr 29, 2018
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	814,185			$	906,854			$	332,138			$	326,189			$	312,257
Short-term held-to-maturity investments		100,000				3,754				837,658				832,681				884,838
Accounts receivable, net		263,394				263,737				247,688				248,138				233,529
Inventories		299,028				306,864				309,500				325,846				348,527
Other current assets		44,224				44,713				51,232				54,863				56,001
Total current assets		1,520,831				1,525,922				1,778,216				1,787,717				1,835,152
Property, equipment and improvements, net		622,979				622,770				600,972				587,203				520,849
Purchased intangible assets, net		4,183				4,977				5,810				6,742				7,878
Goodwill		106,735				106,735				106,735				106,735				106,735
Other assets		15,462				12,185				12,250				25,179				31,721
Deferred tax assets		81,977				85,372				89,202				85,873				80,850
Total assets	$	2,352,167			$	2,357,961			$	2,593,185			$	2,599,449			$	2,583,185
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	132,440			$	128,594			$	133,539			$	149,876			$	132,161
Accrued compensation		31,804				41,216				36,152				35,349				32,525
Other accrued liabilities		49,495				54,890				54,746				50,944				32,824
Deferred revenue		-				-				-				-				9,535
Current portion of convertible notes		-				-				257,067				254,150				251,278
Total current liabilities		213,739				224,700				481,504				490,319				458,323
Long-term liabilities:
Convertible notes		512,105				506,454				499,838				494,316				488,877
Other non-current liabilities		12,162				11,864				11,558				11,366				12,368
Total liabilities		738,006				743,018				992,900				996,001				959,568
Stockholders' equity:
Common stock		118				118				117				117				115
Additional paid-in capital		2,919,305				2,904,016				2,885,319				2,869,657				2,850,195
Accumulated other comprehensive income (loss)		(48,565	)			(46,645	)			(57,906	)			(44,356	)			(14,659	)
Accumulated deficit		(1,256,697	)			(1,242,546	)			(1,227,245	)			(1,221,970	)			(1,212,034	)
Total stockholders' equity		1,614,161				1,614,943				1,600,285				1,603,448				1,623,617
Total liabilities and stockholders' equity	$	2,352,167			$	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 Months Ended								Twelve Months Ended								Three Months Ended
	Apr 28, 2019				Apr 29, 2018				Apr 28, 2019				Apr 29, 2018				Jan 27, 2019
GAAP to non-GAAP reconciliation of gross profit:
Gross profit - GAAP	$	87,301			$	62,593			$	348,092			$	362,165			$	94,423
Gross margin - GAAP		28.2	%			20.2	%			27.2	%			27.5	%			28.8	%
Adjustments:
Cost of revenues
Amortization of acquired technology		471				604				1,959				2,437				496
Stock compensation		4,527				3,453				16,074				12,665				4,248
Impairment of long-lived/intangible assets		3,800				371				3,879				371				62
Reduction in force costs		27				556				2,712				1,188				544
Acquisition related retention payment		-				30				28				123				(5	)
Write off of discontinued product inventory		(589	)			8,995				1,004				12,443				(894	)
Total cost of revenues adjustments		8,236				14,009				25,656				29,227				4,451
Gross profit - non-GAAP		95,537				76,602				373,748				391,392				98,874
Gross margin - non-GAAP		30.8	%			24.7	%			29.2	%			29.7	%			30.2	%
GAAP to non-GAAP reconciliation of operating income (loss):
Operating income (loss) - GAAP		(11,278	)			(26,737	)			(30,541	)			6,513				533
Operating margin - GAAP		-3.6	%			-8.6	%			-2.4	%			0.5	%			0.2	%
Adjustments:
Total cost of revenues adjustments		8,236				14,009				25,656				29,227				4,451
Total operating expense adjustments
Operating expenses - GAAP		98,579				89,330				378,633				355,652				93,890
Research and development
Reduction in force costs and other restructuring		558				1,505				8,740				2,412				186
Acquisition related retention payment		(2	)			32				39				140				(5	)
Stock compensation		5,230				6,034				23,050				24,336				5,683
Discontinued product service fees		-				185				921				185				-
Sales and marketing
Reduction in force costs and other restructuring		(18	)			335				698				323				32
Acquisition related retention payment		-				-				-				(2	)			-
Stock compensation		2,034				1,956				8,213				7,931				2,012
General and administrative
Reduction in force costs and other restructuring		15				274				981				1,104				190
Stock compensation		4,194				2,233				13,955				18,189				3,542
Acquisition related costs		876				127				4,957				146				3,086
Litigation settlements and resolutions and related costs		-				551				88				551				-
Amortization of purchased intangibles		324				666				1,737				2,705				337
Startup costs		20,409				2,897				54,517				3,535				15,136
Impairment of long-lived assets/intangible assets		317				506				580				1,900				46
Total operating expense adjustments		33,937				17,301				118,476				63,455				30,245
Operating expenses - non-GAAP		64,642				72,029				260,157				292,197				63,645
Operating income - non-GAAP		30,895				4,573				113,591				99,195				35,229
Operating margin - non-GAAP		10.0	%			1.5	%			8.9	%			7.5	%			10.8	%
GAAP to non-GAAP reconciliation of income (loss) before income taxes:
Loss before income taxes - GAAP		(12,669	)			(30,058	)			(43,549	)			(15,005	)			(2,339	)
Adjustments:
Total cost of revenues adjustments		8,236				14,009				25,656				29,227				4,451
Total operating expense adjustments		33,937				17,301				118,476				63,455				30,245
Other interest income		-				-				(13	)			(14	)			(13	)
Non-cash imputed interest expenses on convertible debt		5,420				7,863				28,341				30,833				6,940
Imputed interest related to restructuring		12				23				65				106				15
Other (income) expense, net
Loss (gain) on sale of assets		(75	)			(157	)			(117	)			(315	)			85
Loss related to impairment of minority investments		-				-				399				2,347				-
Foreign exchange transaction (gain) or loss		(332	)			(936	)			482				(1,254	)			200
Amortization of debt issuance cost		231				385				1,309				1,540				308
Total interest and other adjustments		5,256				7,178				30,466				33,243				7,535
Income before income taxes - non-GAAP		34,760				8,430				131,049				110,920				39,892
GAAP to non-GAAP reconciliation of net income (loss):
Net loss - GAAP		(14,151	)			(18,344	)			(53,216	)			(48,287	)			(15,301	)
Total cost of revenues adjustments		8,236				14,009				25,656				29,227				4,451
Total operating expense adjustments		33,937				17,301				118,476				63,455				30,245
Total interest and other adjustments		5,256				7,178				30,466				33,243				7,535
Income tax provision adjustments		(318	)			(14,364	)			(2,333	)			22,782				7,262
Total adjustments		47,111				24,124				172,265				148,707				49,493
Net income - non-GAAP	$	32,960			$	5,780			$	119,049			$	100,420			$	34,192
Basic non-GAAP income per share
GAAP earnings per share	$	(0.12	)		$	(0.16	)		$	(0.45	)		$	(0.42	)		$	(0.13	)
Impact of all non-GAAP adjustments	$	0.40			$	0.21			$	1.47			$	1.30			$	0.42
Non-GAAP earnings per share	$	0.28			$	0.05			$	1.02			$	0.88			$	0.29
Diluted non-GAAP income per share
GAAP earnings per share	$	(0.12	)		$	(0.16	)		$	(0.45	)		$	(0.42	)		$	(0.13	)
Impact of all non-GAAP adjustments	$	0.39			$	0.21			$	1.45			$	1.28			$	0.42
Non-GAAP earnings per share	$	0.27			$	0.05			$	1.00			$	0.86			$	0.29
Shares used in computing non-GAAP income per share
Basic		117,953				114,742				117,178				113,864				117,608
Diluted		120,795				115,991				119,389				116,274				119,570

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

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.