Finisar Corporation Announces Results for Third Quarter Ended January 31, 2004SUNNYVALE, CA -- 03/02/2004 -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today reported its financial results for its third quarter ended January 31, 2004.
Finisar plans to review its third quarter results and discuss its current outlook for the balance of the year and next fiscal year during its conference call for investors at 5:00 p.m. EST (2:00 p.m. PST) today, Tuesday, March 2, 2004. The call will be broadcast live over the Internet on the Investor Relations section of Finisar's web site, located at www.finisar.com. To listen to the Webcast, interested investors are encouraged to log onto the broadcast at least 15 minutes prior to the call. Participating in the call will be Jerry Rawls, Finisar's President and CEO, and Steve Workman, Finisar's CFO.
Total revenues in the third quarter of fiscal 2004 of $46.4 million were up 9% on a sequential basis from $42.8 million in the second quarter and 20% from $38.7 million in the third quarter of the prior year. Total revenues from the sale of optical subsystems of $40.7 million in the third quarter were up 12% on a sequential basis from $36.4 million in the second quarter and were up 28% from $31.9 million in the third quarter of the prior year. Sales of network test and monitoring systems of $5.7 million in the third quarter were down 11% on a sequential basis from $6.3 million in the second quarter and 17% from $6.8 million in the third quarter of the prior year.
"We saw strong demand within our optical subsystems business last quarter driven by double-digit sequential growth for both LAN/SAN and Metro applications. Based on continuing strength in our incoming orders and backlog we believe that we should see a sequential increase in revenues next quarter, both in optics as well as network tools," said Jerry Rawls, Finisar's President and CEO. "In addition, we expect to pick up two months of operating results from the acquisition of Honeywell's VCSEL Optical Products Business which should add to our top and bottom line."
OPERATING RESULTS
The Company reported a net loss of $15.5 million, or $0.07 per share, for the third quarter of fiscal 2004, compared to a net loss of $32.6 million, or $0.15 per share, in the second quarter and a net loss of $32.8 million, or $0.17 per share, in the third quarter of fiscal 2003.
The Company reported a gross profit of $9.0 million, or 19.4% of revenues, during the third quarter of fiscal 2004, up from a gross profit of $6.1 million, or 14.2% of revenues, in the second quarter and a gross profit of $3.2 million, or 8.2% of revenues, in the third quarter of fiscal 2003. The increase in gross profit from the second quarter was primarily due to the use of material previously classified as slow-moving and obsolete inventory.
Interest expense, net of interest income, of $2.5 million for the third quarter of fiscal 2004 includes a non-cash charge of $1.0 million associated with the amortization of discount on our older convertible notes as well as a full quarter of interest expense associated with the issuance of $150 million in new convertible notes in the second quarter of fiscal 2004.
Amortization of acquired developed technology, amortization of purchased intangibles, other acquisition costs and the cumulative effect of a change in accounting related to the adoption of SFAS 142 consist of merger-related costs associated with several acquisitions completed during fiscal years 2001 through 2003.
NON-GAAP FINANCIAL RESULTS
The Company provides non-GAAP financial measures to complement its consolidated financial statements presented in accordance with GAAP. These non-GAAP financial measures are intended to supplement the user's overall understanding of the Company's current financial performance and its prospects for the future. Specifically, the Company believes the non-GAAP results provide useful information to both management and investors by identifying certain expenses, gains and losses that, when excluded from the GAAP results, may provide additional understanding of the Company's core operating results or business performance. However, these non-GAAP financial measures are not intended to supercede or replace the Company's GAAP results. A detailed reconciliation of the non-GAAP results to the GAAP results is provided in the "Non-GAAP Condensed Consolidated Statements of Operations" schedules below.
Operating results reported on a non-GAAP basis exclude a number of non-cash and cash charges related to deferred compensation, acquisitions, minority investments, inventory obsolescence, a discount associated with the Company's convertible debt offering in October 2001 and inducements associated with the conversion of a portion of the notes, the loss realized upon the closure of the Company's Demeter Technologies subsidiary and its German facility, and the accelerated depreciation on certain assets to be abandoned in connection with those closures along with other restructuring charges and a non-cash charge associated with the conversion of a portion of the Company's convertible subordinated notes.
The Company reported a non-GAAP gross margin of 22.1% in the third quarter of fiscal 2004, compared to 22.7% in the prior quarter and 22.7% in the third quarter of the prior year. Non-GAAP gross margin compared to the previous quarter and prior year was negatively impacted by lower revenues for network test and monitoring systems which have a higher gross margin than revenues from optical subsystems. Revenues from the sale of network test and monitoring systems as a percent of total revenues declined from 18% in the prior year quarter to 15% in the second quarter of fiscal 2004 and 12% in the current quarter.
The Company reported a non-GAAP pretax loss of $13.0 million in the third quarter compared to a pretax loss of $13.3 million in the prior quarter and a pretax loss of $11.6 million in the third quarter of the prior year. Because the Company does not intend to recognize any further tax benefits until it returns to profitability, the non-GAAP net loss for the third quarter totaled $13.1 million, or $0.06 per share, compared to a non-GAAP net loss of $13.4 million, or $0.06 per share, in the preceding quarter and $11.6 million, or $0.06 per share, in the third quarter of fiscal 2003.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACTS OF 1995
The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding Finisar's expectations, beliefs, intentions, or strategies regarding the future. All forward-looking statements included in this press release are based upon information available to Finisar as of the date hereof, and 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. These risks include those associated with 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 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; and potential problems related to the assimilation and integration of the operations, technologies and products of several recently acquired companies and product lines. Other risks relating to Finisar's business are set forth in Finisar's Annual Report on Form 10-K and other interim reports as filed with the Securities and Exchange Commission.
ABOUT FINISAR
Finisar Corporation (NASDAQ: FNSR) is a technology leader for fiber optic subsystems and network test and monitoring systems. These products enable high-speed data communications for networking and storage applications over Gigabit Ethernet local area networks (LANs), Fibre Channel storage area networks (SANs), and metropolitan area networks (MANs) using both IP and SONET/SDH-based protocols. The Company's headquarters is in Sunnyvale, California, USA. www.finisar.com.
Finisar Corporation
Consolidated Statement of Operations
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
January 31 January 31
------------------ -----------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues
Optical subsystems and
components $ 40,741 $ 31,929 $ 111,361 $ 103,419
Network test and
monitoring systems 5,675 6,818 17,262 23,278
--------- --------- --------- ---------
Total revenues 46,416 38,747 128,623 126,697
Cost of revenues 32,778 30,975 101,281 100,553
Amortization of acquired
developed technology 4,656 4,598 13,968 17,434
--------- --------- --------- ---------
Gross profit (loss) 8,982 3,174 13,374 8,710
19.4% 8.2% 10.4% 6.9%
Operating expenses:
Research and development 12,849 11,837 47,459 43,347
Sales and marketing 4,905 3,966 13,762 15,692
General and administrative 4,517 3,517 12,826 11,700
Amortization of deferred
compensation 115 85 (238) (467)
Amortization of goodwill
and purchased intangibles 143 143 429 615
Impairment of goodwill and
intangible assets - 10,101 - 10,586
Restructuring costs (1,199) 3,056 1,173 4,230
Other acquisition costs 45 176 239 207
--------- --------- --------- ---------
Total operating expenses 21,375 32,881 75,650 85,910
Loss from operations (12,393) (29,707) (62,276) (77,200)
Interest income (expense),
net (2,535) (1,865) (23,069) (4,789)
Other income, net (572) (1,211) (3,707) (50,865)
--------- --------- --------- ---------
Loss before income taxes and
cumulative effect of an
accounting change (15,500) (32,783) (89,052) (132,854)
Provision (benefit) for
income taxes 43 31 289 122
--------- --------- --------- ---------
Loss before cumulative effect
of an accounting change (15,543) (32,814) (89,341) (132,976)
Cumulative effect of an
accounting change to
adopt SFAS 142 - 0 - (460,580)
--------- --------- --------- ---------
Net loss $ (15,543) $ (32,814) $ (89,341) $(593,556)
========= ========= ========= =========
Loss per share before
cumulative effect of an
accounting change $ (0.07) $ (0.17) $ (0.42) $ (0.69)
========= ========= ========= =========
Cumulative per share effect
of an accounting change
to adopt SFAS 142 $ - $ - $ - $ (2.37)
========= ========= ========= =========
Loss per share - basic
and diluted $ (0.07) $ (0.17) $ (0.42) $ (3.06)
========= ========= ========= =========
Shares used in per-share
calculation-basic
and diluted 219,900 198,224 214,235 194,021
Finisar Corporation
Consolidated Balance Sheet
(In thousands)
January 31, October 31, April 30,
2004 2003 2003
ASSETS ---- ---- ----
Cash and cash equivalents $151,194 $163,534 $40,918
Short-term investments 75,458 73,259 78,520
Restricted investments 9,009 10,190 6,737
Accounts receivable, trade (net) 29,431 24,317 23,390
Accounts receivable, other 6,719 6,767 5,362
Inventories 26,729 21,719 36,470
Prepaid expenses 2,652 1,762 2,341
Deferred income taxes 2,559 3,068 3,324
-------- -------- --------
Total current assets 303,751 304,616 197,062
Property, plant, equipment and
improvements, net 95,255 96,725 112,125
Restricted investments, long-term 10,669 10,669 3,307
Purchased intangibles, net 38,513 43,312 52,910
Goodwill, net 19,985 19,985 19,838
Minority investment 24,601 25,056 28,844
Other assets 14,119 13,392 9,520
-------- -------- --------
Total assets $506,893 $513,755 $423,606
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $21,417 $17,418 $22,872
Accrued compensation 3,498 5,358 4,449
Other accrued liabilities 12,728 9,797 8,474
Income tax payable 602 665 536
Current portion of other long-term
liabilities 2,000 2,000 1,384
Non-cancelable purchase obligations 7,591 7,549 9,380
-------- -------- --------
Total current liabilities 47,836 42,787 47,095
Deferred income taxes 2,559 3,070 3,324
Convertible notes 228,399 227,361 94,023
Other long-term liabilities 2,206 2,200 4,184
Common stock 222 219 207
Additional paid-in capital 1,258,140 1,255,368 1,219,424
Notes receivable from stockholders (574) (753) (1,077)
Deferred stock compensation (296) (447) (1,045)
Accumulated other comprehensive income 1,112 1,118 841
Accumulated deficit (1,032,711) (1,017,168) (943,370)
-------- -------- --------
Total stockholders' equity 225,893 238,337 274,980
-------- -------- --------
Total liabilities and
stockholders' equity $506,893 $513,755 $423,606
======== ======== ========
The following non-GAAP financial results for the three and nine month periods ended January 31, 2004, and January 31, 2003, have been adjusted to exclude non-cash and cash charges related to acquisitions and the writedown in goodwill as a result of adoption of FASB 142, deferred stock compensation, the amortization of acquired developed technology and other intangible assets associated with a number of acquisitions, the sale of assets of the Company's Sensors Unlimited subsidiary, inventory obsolescence, other non-recurring gains and losses, the impairment of certain assets and restructuring costs at the Company's Demeter Technologies subsidiary, the write-off of minority investments, amortization of the discount on the issuance of convertible debt and the non-cash charge associated with the conversion of a portion of convertible securities into equity. A reconciliation of these results to what is reported under GAAP is also included.
Finisar Corporation
Non GAAP Consolidated Statement of Operations
(In thousands, except per share amounts)
--------------------- ---------------------
Three Months Ended Nine Months Ended
January 31 January 31
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Revenues
Optical subsystems
and components $ 40,741 $ 31,929 $ 111,361 $ 103,419
Network test
and monitoring systems 5,675 6,818 17,262 23,278
--------- --------- --------- ---------
Total revenues 46,416 38,747 128,623 126,697
Cost of revenues 36,169 29,947 97,669 95,009
--------- --------- --------- ---------
Gross profit 10,247 8,800 30,954 31,688
22.1% 22.7% 24.1% 25.0%
Operating expenses:
Research and development 12,849 11,837 40,576 43,347
Sales and marketing 4,905 3,966 13,762 15,692
General and administrative 3,674 3,517 11,227 11,700
--------- --------- --------- ---------
Total operating
expenses 21,428 19,320 65,565 70,739
Loss from operations (11,181) (10,520) (34,611) (39,051)
Interest income (expense),
net (1,447) (644) (3,130) (1,267)
Other income (expense), net (396) (426) (985) (922)
--------- --------- --------- ---------
Loss before income taxes (13,024) (11,590) (38,726) (41,240)
Provision for income taxes 43 31 289 122
--------- --------- --------- ---------
Net loss $ (13,067) $ (11,621) $ (39,015) $ (41,362)
========= ========= ========= =========
Net income loss per share
- basic and diluted $ (0.06) $ (0.06) $ (0.18) $ (0.21)
========= ========= ========= =========
Shares used in per-share
calculation - basic 219,900 198,224 214,235 194,021
The above pro forma results
exclude the following items
which are included in the
company's operating results
when presented in accordance
with generally accepted
accounting principles
(GAAP):
Inventory write off net
of sales of inventory
previously written off $ (3,391) $ 1,028 $ 2,424 $ 5,544
Charge for rework material - - 2,906 -
Final settlement of vendor
materials liability - - (1,718) -
Amortization of acquired
developed technology 4,656 4,598 13,968 17,434
Amortization of deferred
compensation 115 85 (238) (467)
Amortization of purchased
intangibles 143 143 429 615
Impairment of goodwill
and intangible assets - 10,101 - 10,586
Costs for reduction in
force 93 3,056 281 4,230
Other acquisition costs 45 176 239 207
Non-employee option
expense - - 891 -
Other than temporary
decline in value of
investment in Ciena
stock (278) - 250 -
Minority investment write
off 454 252 2,558 12,571
Amortization of discount on
convertible notes 1,038 1,221 9,126 3,522
Cost from sale of Sensors - - - 36,839
Closure of Demeter (1,199) 533 6,608 533
Closure of German facility - - 1,125 -
Debt extinguishment costs - - (86) -
Debt conversion costs 50 - 10,813 -
Settlement of claim 750 - 750 -
Cumulative effect of an
accounting change to
adopt SFAS 142 - - - 460,580
--------- --------- --------- ---------
GAAP net loss $ (15,543) $ (32,814) $ (89,341) $(593,556)
========= ========= ========= =========
Contact:
Steve Workman
Senior VP Finance, Chief Financial Officer
408-548-1000
Shelby Palmer
Investor Relations
408-542-5050
investor.relations@finisar.com
