SUNNYVALE, CA -- 03/02/2006 -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today reported financial results for its third fiscal quarter ended January 31, 2006.
FINANCIAL HIGHLIGHTS -- THIRD FISCAL QUARTER ENDED JANUARY 31, 2006
GAAP
-- Revenues of $93.5 million were up 8% sequentially, exceeding the
upper end of guidance for the quarter of $88-$93 million, and up
28% from the third quarter of the prior year. The Company has
recorded ten consecutive quarters of revenue growth, the last six
of which have set new records.
-- Net income of $.03 per diluted share compares to a net loss of
$.05 per share in the second quarter and a net loss of $.15 per
share in the third quarter of the prior year.
-- Gross margins of 30.2% were up from 23.8% in the second quarter
and 22.8% in the third quarter of the prior year.
-- Cash and short-term investments of $116.3 million at January 31,
2006 were up from $95.7 million at the end of last quarter
reflecting $11 million of proceeds from the sale of a minority
investment and a $9.9 million loan received during the
quarter. The Company generated approximately $17 million in
EBITDA during the quarter.
Non-GAAP Financial Measures
-- Net income of $.03 per diluted share, compares to $.00 per
share in the second quarter and a net loss of $.04 per share in
the third quarter of the prior year.
-- Gross margins of 38.8% were up from 32.7% in the second quarter
and 29.8% in the third quarter of the prior year.
OPERATING RESULTSTotal revenues in the third quarter of fiscal 2006 were $93.5 million, up 8% on a sequential basis from $86.6 million in the second quarter and 28% from $73.1 million in the third quarter of the prior year. The Company's revenues have grown sequentially for ten consecutive quarters, the last six of which set new records. Total revenues from the sale of optical subsystems were $84.2 million in the third quarter, up 9% on a sequential basis from $77.4 million in the second quarter and 33% from $63.4 million in the third quarter of the prior year. Sales of network test and monitoring systems were $9.3 million in the third quarter compared to $9.2 million in the second quarter and down 3% from $9.7 million in the third quarter of the prior year.
The Company reported net income of $8.3 million, or $0.03 per diluted share, for the third quarter of fiscal 2006, compared to a net loss of $15.8 million, or $0.05 per share, in the second quarter and a net loss of $33.0 million, or $0.15 per share, in the third quarter of fiscal 2005. The Company's gross profit for the third quarter was $28.2 million, or 30.2% of total revenues, compared to 23.8% in the second quarter and 22.8% in the third quarter of 2005.
The Company's operating results include a number of non-cash and cash charges and gains principally related to acquisitions, the sale of minority investments, restructuring activities and financing transactions. For the third quarter of fiscal 2006, these items resulted in a net charge of $554,000 and included, among other items, a gain of $11.0 million associated with the sale of a minority investment and $1.3 million related to the reversal of a charge for expected warranty work offset by $4.5 million in amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions, $4.5 million related to charges for slow-moving and obsolete inventory reserves, and $1.1 million related to the amortization of discount on convertible notes issued in 2001. The charge for slow-moving and obsolete inventory was largely based on an estimate of the amount of inventory that will be unused after twelve months although a portion of that inventory may in fact be used beyond this period. Also included in the current quarter is a non-cash tax provision of $.6 million resulting from timing differences associated with the amortization of goodwill for tax reporting purposes which is not amortized for financial reporting purposes.
The Company excludes these and certain other items for the purpose of tracking its performance on a non-GAAP basis. Non-GAAP gross profit and non-GAAP net income (loss), as reported by the Company, give an indication of the Company's baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results.
The Company's non-GAAP net income for the third quarter of fiscal 2006 was $7.7 million, or $.03 per share, compared to net income of $850,000, or $.00 per share, in the second quarter and a net loss of $7.9 million, or $.04 per share, in the third quarter of the prior year. On a non-GAAP basis, gross margins were 38.8% in the third quarter compared to 32.7% in the second quarter and 29.8% in the third quarter of the prior year.
"We are proud of the progress we made in the third quarter," said Jerry Rawls, Finisar's President, CEO and Chairman. "We have been pointing to this quarter for more than a year as the one in which we would become profitable, at least on a non-GAAP basis. While we were able to generate a small non-GAAP profit earlier than expected in the second quarter, we are especially pleased that we were able to achieve our third quarter profitability goal. While our march to profitability has been a long and arduous path, we have remained steadfast in our commitment to delivering value to customers through focused R&D, in-house manufacturing and vertical integration. Our gross margins improved again this quarter from increased revenues and our relentless push for improved manufacturing efficiency and lower costs. In addition, we have laid the foundation for strengthening our balance sheet by generating almost $17 million of EBITDA last quarter and increased our cash balance by $21 million to $116 million."
CONFERENCE CALL
Finisar plans to review its third quarter results and discuss its current business outlook during a conference call for investors at 5:00 p.m. EST (2:00 p.m. PST) today, March 2, 2006. 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.
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; 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 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 components and 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 Fibre Channel, IP, SAS, SATA and SONET/SDH protocols. The Company's headquarters is in Sunnyvale, California, USA. www.finisar.com.
FINANCIAL STATEMENTS
The following financial tables are presented in accordance with GAAP.
Finisar Corporation
Consolidated Balance Sheet
(In thousands)
January 31, October 31, April 30,
2006 2005 2005
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 54,228 $ 33,165 $ 29,431
Short-term investments 62,090 62,493 72,931
Restricted investments,
short-term 3,728 3,710 3,717
Accounts receivable, net 48,244 44,911 42,443
Accounts receivable, other 6,842 2,914 11,371
Inventories 48,039 40,890 33,933
Prepaid expenses 4,850 3,287 3,470
------------ ------------ ------------
Total current assets 228,021 191,370 197,296
Property, plant and improvements,
net 79,582 79,028 87,264
Restricted investments,
long-term 3,634 3,612 5,393
Purchased technology, net 17,558 21,554 33,046
Other purchased intangible
assets, net 4,556 5,016 4,424
Goodwill 132,484 132,275 119,690
Minority investments 15,696 16,172 21,366
Other assets 16,990 16,678 18,109
------------ ------------ ------------
Total assets $ 498,521 $ 465,705 $ 486,588
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,618 $ 32,927 $ 30,430
Accrued compensation 7,252 5,668 4,500
Other accrued liabilities 17,292 15,429 14,073
Deferred revenue 5,433 4,974 3,519
Current portion of other
long-term liabilities 2,229 628 2,242
Convertible notes 843 1,000 15,811
Non-cancelable purchase
obligations 1,390 1,390 6,449
------------ ------------ ------------
Total current liabilities 72,057 62,016 77,024
Long-term liabilities:
Convertible notes 237,127 236,043 250,019
Other long-term liabilities 23,220 13,930 13,623
Deferred income taxes 3,483 2,868 1,632
------------ ------------ ------------
Total long-term liabilities 263,830 252,841 265,274
Stockholders' equity:
Common stock 299 296 259
Additional paid-in capital 1,359,953 1,356,586 1,314,960
Accumulated other comprehensive
income 297 184 381
Accumulated deficit (1,197,915) (1,206,218) (1,171,310)
------------ ------------ ------------
Total stockholders' equity 162,634 150,848 144,290
------------ ------------ ------------
Total liabilities and
stockholders' equity $ 498,521 $ 465,705 $ 486,588
============ ============ ============
Finisar Corporation
Consolidated Statement of Operations
(In thousands, except per share data)
Three Months Nine Months Three Months
Ended Ended Ended
January 31, January 31, October 31,
-------------------- -------------------- ---------
2006 2005 2006 2005 2005
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
Revenues
Optical subsystems
and components $ 84,199 $ 63,417 $ 234,018 $ 177,079 $ 77,449
Network test and
monitoring systems 9,336 9,665 27,871 28,885 9,173
--------- --------- --------- --------- ---------
Total revenues 93,535 73,082 261,889 205,964 86,622
Cost of revenues 61,331 51,018 181,820 146,221 59,698
Impairment of acquired
developed technology - - 853 3,656 853
Amortization of
acquired developed
technology 4,003 5,376 15,078 17,027 5,421
--------- --------- --------- --------- ---------
Gross profit 28,201 16,688 64,138 39,060 20,650
Gross margin 30.2% 22.8% 24.5% 19.0% 23.8%
Operating expenses:
Research and
development 11,525 14,535 38,687 47,653 14,141
Sales and marketing 8,119 7,179 23,991 21,900 7,501
General and
administrative 6,644 5,476 21,421 15,153 6,768
Amortization of
deferred stock
compensation - 21 - 142 -
Amortization of
purchased
intangibles 453 170 1,382 483 453
Restructuring costs - - 3,064 - 3,064
Impairment of assets - 18,798 - 18,798 -
Acquired in-process
research and
development - - - 318 -
--------- --------- --------- --------- ---------
Total operating
expenses 26,741 46,179 88,545 104,447 31,927
Income (loss) from
operations 1,460 (29,491) (24,407) (65,387) (11,277)
Interest income 858 561 2,406 1,713 765
Interest expense (3,838) (3,872) (11,755) (10,787) (3,830)
Other income
(expense), net 10,498 (158) 9,077 (1,754) (821)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes 8,978 (32,960) (24,679) (76,215) (15,163)
Provision for income
taxes 675 - 1,926 57 657
--------- --------- --------- --------- ---------
Net income (loss) $ 8,303 $ (32,960) $ (26,605) $ (76,272) $ (15,820)
========= ========= ========= ========= =========
Net income (loss)
per share - basic $ 0.03 $ (0.15) $ (0.09) $ (0.34) $ (0.05)
Net income (loss)
per share - diluted $ 0.03 $ (0.15) $ (0.09) $ (0.34) $ (0.05)
========= ========= ========= ========= =========
Shares used in
computing net income
(loss) per share -
basic 297,265 224,170 286,434 223,491 289,968
Shares used in
computing net income
(loss) per share -
diluted 307,681 224,170 286,434 223,491 289,968
NON-GAAP FINANCIAL MEASURESThe Company provides supplemental information regarding the Company's operational performance on a non-GAAP basis which excludes various non-cash and cash charges, principally related to acquisitions, restructuring activities and financing transactions. Non-GAAP gross profit and non-GAAP net income (loss), as reported by the Company, give an indication of the Company's baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. While non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States, the Company's management uses this information for the purpose of evaluating the Company's historical and prospective financial performance in the ordinary course of business. The Company believes that providing this information to its investors, in addition to the GAAP presentation, allows investors to better evaluate the Company's progress over time and its financial results in comparison to other companies with whom it competes.
A reconciliation of each of these non-GAAP financial measures to GAAP information is set forth below (in thousands, except per share amounts):
Finisar Corporation
Reconciliation of Results of Operations under GAAP and non-GAAP
(In thousands, except per share data)
Three Months Nine Months Three Months
Ended Ended Ended
January 31, January 31, October 31,
-------------------- -------------------- ---------
2006 2005 2006 2005 2005
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
Reconciliation of GAAP
Gross Profit to
non-GAAP Gross Profit:
Gross profit per GAAP 28,201 16,688 64,138 39,060 20,650
Gross margin, GAAP 30.2% 22.8% 24.5% 19.0% 23.8%
Adjustments:
Cost of revenues
Change in excess and
obsolete inventory
reserve 4,504 (300) 2,904 (428) (1,127)
Change in warranty
reserve (1,327) - (1,327) - -
Purchase accounting
adjustment for sale
of acquired inventory - - 231 445 -
Reduction in force and
employee retention
costs related to
acquisitions - - 1,342 - 32
Duplicate facility
costs during
facility move 878 - 2,192 - 748
Abandonment of fixed
assets - - 1,666 - 1,666
Asset retirement
obligations - - 88 - 88
Impairment of
acquired developed
technology - - 853 3,656 853
Amortization of
acquired
technology 4,003 5,376 15,078 17,027 5,421
--------- --------- --------- --------- ---------
Total cost of
revenue
adjustments 8,058 5,076 23,027 20,700 7,681
Gross profit, non-GAAP 36,259 21,764 87,165 59,760 28,331
Gross margin, non-GAAP 38.8% 29.8% 33.3% 29.0% 32.7%
Reconciliation of GAAP
net income (loss) to
non-GAAP net income
(loss):
Net income (loss)
per GAAP 8,303 (32,960) (26,605) (76,272) (15,820)
Total cost of revenue
adjustments 8,058 5,076 23,027 20,700 7,681
Research and development
Reduction in force
costs - 38 338 (280) 86
Asset retirement
obligations - - 361 - 361
Abandonment of fixed
assets - - 1,588 - 1,588
Loss on sale of assets - - - 909 -
Sales and marketing
Reduction in force
costs - 67 224 67 15
Asset retirement
obligations - - 26 - 26
Abandonment of
fixed assets - - 153 - 153
General and administrative
Reduction in force
costs 31 - 148 (96) -
Abandonment of fixed
assets - - 130 - 130
Patent amortization - - 500 - 500
Amortization of deferred
compensation - 21 - 142 -
Amortization of
purchased intangibles 453 170 1,382 483 453
Acquired in-process R&D
for Data Transit
acquisition - - - 318 -
Impairment of assets - 18,798 - 18,798 -
Amortization of discount
on convertible debt 1,148 1,069 3,377 3,198 1,148
Restructuring costs - - 3,064 - 3,064
Other expense, net
Loss (gain) on
sale of assets (11,337) (583) (11,010) (502) 299
Loss on minority
investments 476 430 1,514 1,223 516
Provision for
income tax
Timing difference
related to asset
purchases 617 - 1,851 - 650
--------- --------- --------- --------- ---------
Total adjustments (554) 25,086 26,673 44,960 16,670
--------- --------- --------- --------- ---------
Net income (loss),
non-GAAP $ 7,749 $ (7,874) $ 68 $ (31,312) $ 850
========= ========= ========= ========= =========
Net income (loss),
non-GAAP per share -
basic $ 0.03 $ (0.04) $ 0.00 $ (0.14) $ 0.00
========= ========= ========= ========= =========
Net income (loss),
non-GAAP per share -
diluted $ 0.03 $ (0.04) $ 0.00 $ (0.14) $ 0.00
========= ========= ========= ========= =========
Shares used in
computing proforma
net income (loss)
per share - basic 297,265 224,170 286,434 223,491 289,968
Shares used in
computing proforma
net income (loss)
per share - diluted 307,681 224,170 286,434 223,491 289,968
Contact: Steve Workman Chief Financial Officer 408-548-1000 Investor Relations 408-542-5050 investor.relations@Finisar.com