Revenues Increase 30% Year-Over-Year
SUNNYVALE, CA -- 09/05/2006 -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today reported financial results for its first fiscal quarter ended July 31, 2006.
FINANCIAL HIGHLIGHTS - FIRST FISCAL QUARTER ENDED JULY 31, 2006
Results According to GAAP
- -- Revenues of $106.2 million were up 3.7% sequentially and up 30.0% from the first quarter of the prior year. These results compare to management's revenue guidance of $104-$110 million for the quarter. The Company has now recorded twelve consecutive quarters of revenue growth, the last eight of which have set new records for the company. - -- Net loss of $0.8 million, or $.00 per diluted share, compares to net income of $1.7 million, or $.01 per share, in the fourth quarter and a net loss of $19.1 million, or $.07 per share, in the first quarter of the prior year. The current quarter includes a charge of $2.2 million associated with stock-related compensation as a result of the adoption of FAS123R and a non- cash tax provision of $2.2 million (see explanation below). - -- Gross margins of 32.7% were down from 33.7% in the fourth quarter but up from 18.7% in the first quarter of the prior year. - -- Cash and short-term investments, plus other long-term investments which can be readily converted into cash, totaled $122.4 million at July 31, 2006, up from $118.8 million at the end of last quarter. The Company has classified certain of its investments as long-term based on its intent to hold these securities until maturity, although they can be readily sold if required.Non-GAAP Financial Measures
- -- Net income of $.03 per share compares to net income of $.03 per share in the fourth quarter and a net loss of $.03 per share in the first quarter of the prior year. These results were in line with management's guidance for the quarter. - -- Gross margins of 37.1% were down from 39.2% in the fourth quarter, but up from 27.6% in the first quarter of the prior year. - -- The Company generated approximately $18 million in EBITDA during the quarter and $12 million in free cash flow (EBITDA less capex).FIRST QUARTER OPERATING RESULTS
Total revenues in the first quarter of fiscal 2007 were $106.2 million, up 3.7% on a sequential basis from $102.4 million in the fourth quarter and 30.0% from $81.7 million in the first quarter of the prior year. The Company's revenues have grown sequentially for twelve consecutive quarters, the last eight of which set new records. Total revenues from the sale of optical subsystems were $96.0 million in the first quarter, up 4.5% on a sequential basis from $91.9 million in the fourth quarter and 32.7% from $72.4 million in the first quarter of the prior year. Sales of network test and monitoring systems of $10.2 million were down 2.5% from $10.5 million in the fourth quarter but were up 9.0% from $9.4 million in the first quarter of the prior year.
On a GAAP basis, the Company's gross profit for the first quarter was $34.8 million, or 32.7% of total revenues, compared to 33.7% in the fourth quarter and 18.7% in the first quarter of 2006. The Company reported a net loss of $0.8 million, or $.00 per diluted share, compared to net income of $1.7 million, or $.01 per diluted share, in the fourth quarter and a net loss of $19.1 million, or $.07 per share, in the first quarter of fiscal 2006. GAAP results for the quarter were adversely affected by a tax provision of $2.2 million against a pretax income of $1.3 million. Because the Company expects to be profitable in fiscal 2007, the provision for income taxes reflects the anticipated use of net operating loss, or NOL, carryforward. Since the Company's oldest NOL relates to a 2001 acquisition, use of that NOL is subject to the accounting rules under SFAS 109 regarding business combinations. These rules require the Company to credit the NOL tax benefit to goodwill on the balance sheet related to that acquisition rather than against the provision for income taxes on the income statement resulting in a non-cash charge of $1.6 million. Also included are non-cash charges of approximately $500,000 for deferred tax liabilities that were recorded for tax amortization of goodwill for which no financial statement amortization has occurred.
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 first quarter of fiscal 2007, these items resulted in a net charge of $10.2 million and included, among other items, $2.4 million related to charges for slow-moving and obsolete inventory, $2.2 million related to the expensing of stock compensation pursuant to the adoption of FAS123R, $2.0 million related to timing differences associated with the amortization of goodwill for tax reporting purposes which is not amortized for financial reporting purposes and the use of net operating loss carryforward from prior acquisitions, $1.8 million in amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions 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.
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 first quarter of fiscal 2007 was $9.4 million, or $.03 per share, compared to net income of $9.0 million, or $.03 per share, in the fourth quarter and a net loss of $8.5 million, or $.03 per share, in the first quarter of the prior year. On a non-GAAP basis, gross margins were 37.1% in the first quarter of fiscal 2007 compared to 39.2% in the fourth quarter and 27.6% in the first quarter of the prior year.
"We are very proud of achieving our 12th consecutive quarter of sequential revenue growth and eighth consecutive quarter of record revenues," said Jerry Rawls, Finisar's Chairman of the Board, President and CEO. "We expect to continue that record-setting pace at least for the remainder of this fiscal year. Our expectations for continued growth are driven in part by the progress we are making in qualifying a range of 10Gb/s products at a number of customers. We believe sales of these products will contribute to our revenue growth in the second half of this fiscal year. The richer product mix resulting from sales of these products should positively impact our gross margins and help offset the effect of a delay in the adoption of the 8Gb/s Fibre Channel standard which was expected to provide a boost to revenues for our Network Tools business in the second half."
CONFERENCE CALL
Finisar plans to review its first quarter results and discuss its current business outlook during a conference call for investors at 5:00 p.m. EDT (2:00 p.m. PDT) today, September 5, 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 Sheets (In thousands) July 31, April 30, 2006 2006 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 63,472 $ 63,361 Short-term available-for-sale investments 40,394 33,507 Restricted investments, short-term 3,725 3,705 Accounts receivable, net 65,572 57,388 Accounts receivable, other 9,773 8,963 Inventories 52,440 52,974 Prepaid expenses 3,492 4,112 ---------- ---------- Total current assets 238,868 224,010 Long-term available-for-sale investments - debt 18,497 21,918 Long-term available-for-sale investments - equity 15,527 - Property, plant and improvements, net 82,202 82,225 Restricted investments, long-term 1,827 1,815 Purchased technology, net 13,460 14,972 Other purchased intangible assets, net 3,878 4,184 Goodwill 122,960 124,532 Minority investments 11,250 15,093 Other assets 17,392 17,125 ---------- ---------- Total assets $ 525,861 $ 505,874 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,531 $ 34,221 Accrued compensation 10,011 9,376 Other accrued liabilities 13,483 13,129 Deferred revenue 5,415 5,070 Current portion of other long-term liabilities 2,284 2,333 Non-cancelable purchase obligations 1,693 1,209 ---------- ---------- Total current liabilities 68,417 65,338 Long-term liabilities: Convertible notes 239,423 238,275 Other long-term liabilities 20,612 21,253 Deferred income taxes 4,518 4,053 ---------- ---------- Total long-term liabilities 264,553 263,581 Stockholders' equity: Common stock 307 306 Additional paid-in capital 1,376,535 1,371,180 Accumulated other comprehensive income 13,098 1,698 Accumulated deficit (1,197,049) (1,196,229) ---------- ---------- Total stockholders' equity 192,891 176,955 ---------- ---------- Total liabilities and stockholders' equity $ 525,861 $ 505,874 ========== ========== Finisar Corporation Consolidated Statements of Operations Three Months Ended ------------------------------------ July 31, July 31, April 30, 2006 2005 2006 ---------- ---------- ---------- (Unaudited, in thousands, except per share data) Revenues Optical subsystems and components $ 96,043 $ 72,370 $ 91,938 Network test and monitoring systems 10,200 9,362 10,466 ---------- ---------- ---------- Total revenues 106,243 81,732 102,404 Cost of revenues 69,950 60,791 65,306 Amortization of acquired developed technology 1,519 5,654 2,593 ---------- ---------- ---------- Gross profit 34,774 15,287 34,505 Gross margin 32.7% 18.7% 33.7% Operating expenses: Research and development 14,059 13,021 13,216 Sales and marketing 8,669 8,371 7,934 General and administrative 7,376 8,009 7,987 Amortization of purchased intangibles 299 476 365 ---------- ---------- ---------- Total operating expenses 30,403 29,877 29,502 ---------- ---------- ---------- Income (loss) from operations 4,371 (14,590) 5,003 Interest income 1,255 783 1,076 Interest expense (3,921) (4,087) (4,087) Other income (expense), net (370) (600) 269 ---------- ---------- ---------- Income (loss) before income taxes 1,335 (18,494) 2,261 Provision for income taxes 2,155 594 575 ---------- ---------- ---------- Net income (loss) $ (820) $ (19,088) $ 1,686 ========== ========== ========== Net income (loss) per share - basic and diluted $ (0.00) $ (0.07) $ 0.01 ========== ========== ========== Shares used in computing net loss per share: Basic 306,499 272,228 302,316 Diluted 306,499 272,228 326,781NON-GAAP FINANCIAL MEASURES
The 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 Three Months Ended ----------------------------------- July 31, July 31, April 30, 2006 2005 2006 --------- --------- --------- (Unaudited, in thousands, except per share data) Reconciliation of GAAP Gross Profit to non-GAAP Gross Profit: Gross profit per GAAP 34,774 15,287 34,505 Gross margin, GAAP 32.7% 18.7% 33.7% Adjustments: Cost of revenues Change in excess and obsolete inventory reserve 2,377 (473) 2,385 Amortization of acquired technology 1,519 5,654 2,593 Duplicate facility costs during facility move 297 566 640 Stock compensation 457 - - Purchase accounting adjustment for sale of acquired inventory - 231 - Reduction in force and employee retention costs related to acquisitions - 1,310 - --------- --------- --------- Total cost of revenue adjustments 4,650 7,288 5,618 Gross profit, non-GAAP 39,424 22,575 40,123 Gross margin, non-GAAP 37.1% 27.6% 39.2% Reconciliation of GAAP net income (loss) to non-GAAP net income (loss): Net income (loss) per GAAP (820) (19,088) 1,686 Total cost of revenue adjustments 4,650 7,288 5,618 Research and development Reduction in force costs - 252 9 Stock compensation 889 - - Sales and marketing Reduction in force costs - 209 - Stock compensation 371 - - General and administrative Reduction in force costs 12 117 89 Stock compensation 485 - - Amortization of purchased intangibles 299 476 365 Amortization of discount on convertible debt 1,148 1,081 1,148 Other expense, net Loss (gain) on sale of assets 38 28 (1,080) Loss on minority investments 237 522 602 Provision for income tax Timing difference related to asset purchases 2,042 584 565 --------- --------- --------- Total adjustments 10,171 10,557 7,316 --------- --------- --------- Net income (loss), non-GAAP $ 9,351 $ (8,531) $ 9,002 ========= ========= ========= Net income (loss), non-GAAP per share - basic and diluted $ 0.03 $ (0.03) $ 0.03 ========= ========= ========= Shares used in computing pro forma net income (loss) per share: Basic 306,499 272,228 302,316 Diluted 324,474 272,228 326,781
Contact: Steve Workman Chief Financial Officer 408-548-1000 Investor Relations 408-542-5050 investor.relations@Finisar.com