Finisar Corporation Announces Second Quarter Financial ResultsSUNNYVALE, CA -- 12/05/2007 -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today announced financial results for the second quarter ended October 28, 2007.
FINANCIAL HIGHLIGHTS - SECOND QUARTER ENDED OCTOBER 28, 2007
Results According to GAAP
- -- Revenues of $100.7 million were down 4.8% sequentially and 6.9% from
the second quarter of the prior year. These results were in line with
the Company's preannouncement on November 8, 2007 wherein management
indicated that second quarter revenues would be lower than originally
anticipated due to several factors. Among these factors were:
1. Firmware changes were required for the recently qualified 10Gbps
X2-SR transceiver which reduced the Company's ability to ship
this product during the quarter. The changes were successfully
completed at the end of the quarter.
2. Firmware changes were required for certain 40Gbps transponders
which limited the Company's capacity to ship. The changes were
successfully completed at the end of the quarter.
3. Supplier issues limited production levels for 10Gbps 40/80 km
XFP transceivers.
4. Excess inventory of SAN transceivers at a large customer limited
shipments.
- -- Revenues related to the Company's 10-40Gbps product lines totaled
$18.2 million in the second quarter, the same as the first quarter, due to
several factors which affected the Company's ability to supply these
products as noted above. Even so, revenues from these product lines were up
126% from $8.1 million in the second quarter of the prior year.
- -- Net loss of $9.8 million, or $.03 per share, compares to a net loss of
$7.3 million, or $.02 per share, in the first quarter and a net loss of
$30.3 million, or $.10 per share, in the second quarter of the prior year.
- -- Gross margin of 31.6% increased sequentially from 30.6% in the first
quarter but was down from 34.8% in the second quarter of the prior year.
- -- Cash and short-term investments, plus other long-term investments
which can be readily converted into cash, totaled $115 million at October
28, 2007, down from $121.1 million at the end of last quarter due in part
to the Company's semi-annual interest payments on outstanding convertible
notes. 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 $2.5 million, or $.01 per share, compares to net income
of $3.7 million, or $.01 per share, in the first quarter and net income of
$9.9 million, or $.03 per share, in the second quarter of the prior year.
- -- Gross margin of 37.0% increased sequentially from 35.9% in the first
quarter, but was down from 38.8% in the second quarter of the prior year.
- -- The Company generated approximately $10.8 million in EBITDA during the
quarter while investing approximately $5.1 million in capital expenditures.
SECOND QUARTER OPERATING RESULTS
Total revenues in the second quarter of fiscal 2008 were $100.7 million, down 4.8% on a sequential basis from $105.7 million in the first quarter and 6.9% from $108.2 million in the second quarter of the prior year which was an all-time record for the Company. Total revenues from the sale of optical subsystems were $90.9 million in the second quarter, down 5.6% on a sequential basis from $96.4 million in the first quarter and 8.2% from $99.0 million in the second quarter of the prior year. Sales of network test and monitoring systems of $9.8 million were up 4.2% from $9.4 million in the first quarter and 6.4% from $9.2 million in the second quarter of the prior year.
On a GAAP basis, the Company's gross profit for the second quarter was $31.8 million, or 31.6% of total revenues, compared to 30.6% in the first quarter and 34.8% in the second quarter of the prior year.
The Company reported a loss of $9.8 million, or $.03 per share, compared to a loss of $7.3 million, or $.02 per share, in the first quarter and $30.3 million, or $.10 per share, in the second quarter of the prior year. Last year's loss was the result of a $31.6 million charge associated with the exchange of $100 million of the Company's outstanding 2-1/2% convertible notes due in 2010 for new notes with the same interest rate but incorporating a net share settlement feature whereby the Company agreed to pay the underlying principal in cash.
The Company's operating results include a number of non-cash and cash charges principally related to acquisitions, the sale of minority investments, restructuring activities and financing transactions. For the second quarter of fiscal 2008, these items resulted in net charges of $12.3 million and included, among other items, $2.5 million in stock compensation expense, $3.1 million in expenses related to the Company's stock option investigation and related restatement, $2.5 million related to charges for slow-moving and obsolete inventory, $2.2 million in amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions and $1.3 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 second quarter was $2.6 million, or $.01 per share, compared to net income of $3.8 million, or $.01 per share, in the first quarter and $9.9 million, or $.03 per share, in the second quarter of the prior year. On a non-GAAP basis, gross margins were 37.0% in the second quarter of fiscal 2008, compared to 35.9% in the first quarter and 38.8% in the second quarter of the prior year.
"Our revenue miss last quarter was due to a combination of product and customer specific issues that occurred at a small number of large customers," said Jerry Rawls, Finisar's Chairman of the Board, President and CEO. "The shortfall was not caused by lack of demand. And, the problems have been resolved since the quarter's end. Our customers continue to be optimistic about the prospects for growth for our 10 and 40 Gbps product lines. In response to their encouragement, we continue to invest heavily in high-speed optical communication devices. Examples include 40 and 100 Gigabit Ethernet transponders and the recently announced 10 Gigabit Laserwire active optical link which replaces bulky and power hungry copper-based connections in data centers."
The Company's cash position has been impacted by two acquisitions in recent quarters involving an outlay of approximately $13.7 million in cash in addition to approximately $10 million in expenses related to the stock option investigation.
CONFERENCE CALL
Finisar will host a conference call to discuss these financial statements in addition to its regular earnings conference call scheduled for tomorrow, Wednesday, December 5, 2007 at 2:00 p.m. Pacific Time. To listen to the call you may connect to the investor page of Finisar at www.finisar.com or dial 877-407-0890 (domestic) or 201-689-7827 (international) and enter passcode 264132.
A replay will be available approximately one hour after the call for two weeks following the call's conclusion. To access the replay, dial 877-660-6853 (domestic) or 201-612-7415 (international) and then following the prompts to enter account number 2791 followed by conference ID number 264132. A Web archive will be made available at www.finisar.com until the next conference call to be held approximately 90 days following the call's conclusion.
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 global technology leader for fiber optic components and subsystems and network test and monitoring systems. These products enable high-speed voice, video and data communications for networking, storage and wireless applications over Local Area Networks (LANs), Storage Area Networks (SANs), and Metropolitan Area Networks (MANs) using Ethernet, Fibre Channel, IP, SAS, SATA and SONET/SDH protocols. The Company is headquartered in Sunnyvale, California, USA. More information can be found at www.finisar.com.
FINANCIAL STATEMENTS
The following financial tables are presented in accordance with GAAP.
NON-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
Preliminary Consolidated Balance Sheets
(In thousands)
October 28, July 29, April 30,
2007 2007 2007
------------ ------------ ------------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 46,249 $ 52,090 $ 56,106
Short-term available-for-sale
investments 59,768 59,910 56,511
Restricted investments,
short-term - 625 625
Accounts receivable, net 54,463 58,434 55,969
Accounts receivable, other 7,584 4,724 7,752
Inventories 78,557 77,351 77,670
Prepaid expenses 4,231 4,352 4,553
------------ ------------ ------------
Total current assets 250,852 257,486 259,186
Long-term available-for-sale
investments - debt 8,932 9,074 11,079
Long-term available-for-sale
investments - equity 4,540 8,211 8,776
Property, plant and improvements,
net 84,246 84,325 84,071
Purchased technology, net 14,893 16,622 18,351
Other purchased intangible
assets, net 4,667 5,157 5,647
Goodwill 128,949 128,949 128,949
Minority investments 11,250 11,250 11,250
Other assets 20,538 19,832 19,363
------------ ------------ ------------
Total assets $ 528,867 $ 540,906 $ 546,672
============ ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 31,117 $ 32,825 $ 40,187
Accrued compensation 10,475 12,977 10,550
Other accrued liabilities 15,932 15,287 12,590
Deferred revenue 6,065 5,864 5,473
Current portion of other
long-term liabilities 2,344 2,299 2,255
Convertible notes 112,469 66,950 66,950
Non-cancelable purchase
obligations 2,426 2,676 2,798
------------ ------------ ------------
Total current liabilities 180,828 138,878 140,803
Long-term liabilities:
Convertible notes 150,000 194,262 193,066
Other long-term liabilities 19,111 20,346 21,042
Deferred income taxes 7,178 6,634 6,090
------------ ------------ ------------
Total long-term liabilities 176,289 221,242 220,198
Stockholders' equity:
Common stock 309 309 309
Additional paid-in capital 1,534,718 1,532,068 1,529,322
Accumulated other comprehensive
income 8,936 10,852 11,162
Accumulated deficit (1,372,213) (1,362,443) (1,355,122)
------------ ------------ ------------
Total stockholders' equity 171,750 180,786 185,671
------------ ------------ ------------
Total liabilities and
stockholders' equity $ 528,867 $ 540,906 $ 546,672
============ ============ ============
Finisar Corporation
Preliminary Consolidated Statements of Operations
Three
Months
Three Months Ended Six Months Ended Ended
-------------------- -------------------- ---------
October October October October July
28, 29, 28, 29, 29,
2007 2006 2007 2006 2007
--------- --------- --------- --------- ---------
(Unaudited, in thousands, except
per share data)
Revenues
Optical subsystems
and components $ 90,930 $ 99,009 $ 187,290 $ 195,052 $ 96,360
Network test and
monitoring
systems 9,769 9,180 19,144 19,380 9,375
--------- --------- --------- --------- ---------
Total revenues 100,699 108,189 206,434 214,432 105,735
Cost of revenues 67,180 68,995 138,883 139,716 71,703
Amortization of
acquired developed
technology 1,729 1,505 3,458 3,024 1,729
--------- --------- --------- --------- ---------
Gross profit 31,790 37,689 64,093 71,692 32,303
Gross margin 31.6% 34.8% 31.0% 33.4% 30.6%
Operating expenses:
Research and
development 17,630 16,000 35,132 30,395 17,502
Sales and
marketing 9,178 9,439 19,234 18,273 10,056
General and
administrative 10,871 7,092 18,862 14,606 7,991
Amortization of
purchased
intangibles 490 313 980 612 490
--------- --------- --------- --------- ---------
Total operating
expenses 38,169 32,844 74,208 63,886 36,039
--------- --------- --------- --------- ---------
Income (loss) from
operations (6,379) 4,845 (10,115) 7,806 (3,736)
Interest income 1,537 1,399 2,952 2,654 1,415
Interest expense (4,358) (3,900) (8,604) (7,821) (4,246)
Loss on debt
extinguishment - (31,606) - (31,606) -
Other expense, net 85 (440) (48) (810) (133)
--------- --------- --------- --------- ---------
Loss before income
taxes (9,115) (29,702) (15,815) (29,777) (6,700)
Provision for income
taxes 655 627 1,276 1,258 621
--------- --------- --------- --------- ---------
Loss before
cumulative effect (9,770) (30,329) (17,091) (31,035) (7,321)
Cumulative effect - - - (1,213) -
--------- --------- --------- --------- ---------
Net loss $ (9,770) $ (30,329) $ (17,091) $ (29,822) $ (7,321)
========= ========= ========= ========= =========
Net loss per share -
basic and diluted $ (0.03) $ (0.10) $ (0.06) $ (0.10) $ (0.02)
Shares used in
computing net loss
per share - Basic
and diluted 308,635 307,558 308,634 307,027 308,634
Finisar Corporation
Non-GAAP Consolidated Statements of Operations
Three
Months
Three Months Ended Six Months Ended Ended
-------------------- -------------------- ---------
October October October October July
28, 29, 28, 29, 29,
2007 2006 2007 2006 2007
--------- --------- --------- --------- ---------
Revenues
Optical subsystems
and components $ 90,930 $ 99,009 $ 187,290 $ 195,052 $ 96,360
Network test and
monitoring
systems 9,769 9,180 19,144 19,380 9,375
--------- --------- --------- --------- ---------
Total revenues 100,699 108,189 206,434 214,432 105,735
Cost of revenues 63,457 66,175 131,193 132,994 67,736
--------- --------- --------- --------- ---------
Gross profit 37,242 42,014 75,241 81,438 37,999
Gross margin 37.0% 38.8% 36.4% 38.0% 35.9%
Operating expenses:
Research and
development 16,594 14,840 33,113 28,010 16,519
Sales and
marketing 8,715 8,907 18,307 17,205 9,592
General and
administrative 7,376 6,450 13,574 13,329 6,198
--------- --------- --------- --------- ---------
Total
operating
expenses 32,685 30,197 64,994 58,544 32,309
--------- --------- --------- --------- ---------
Income (loss) from
operations 4,557 11,817 10,247 22,894 5,690
Interest income
(expense), net (1,564) (1,290) (3,199) (2,808) (1,635)
Other income
(expense), net (354) (312) (591) (407) (237)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes 2,639 10,215 6,457 19,679 3,818
Provision for income
taxes 111 278 188 (1,133) 77
--------- --------- --------- --------- ---------
Net income (loss) $ 2,528 $ 9,937 $ 6,269 $ 20,812 $ 3,741
========= ========= ========= ========= =========
Net income (loss)
per share - basic $ 0.01 $ 0.03 $ 0.02 $ 0.07 $ 0.01
Net income (loss)
per share - diluted $ 0.01 $ 0.03 $ 0.02 $ 0.06 $ 0.01
Shares used in
computing net
income (loss) per
share - basic 308,635 307,558 308,634 307,027 308,634
Shares used in
computing net
income (loss) per
share - diluted 322,968 327,606 324,496 327,821 325,964
Finisar Corporation
Reconciliation of Preliminary Results of Operations under GAAP and non-GAAP
Three
Months
Three Months Ended Six Months Ended Ended
-------------------- -------------------- ---------
October October October October July
28, 29, 28, 29, 29,
2007 2006 2007 2006 2007
--------- --------- --------- --------- ---------
(Unaudited, in thousands,
except per share data)
Reconciliation of GAAP
Gross Profit to non-GAAP
Gross Profit:
Gross profit per GAAP 31,790 37,689 64,093 71,692 32,303
Gross margin, GAAP 31.6% 34.8% 31.0% 33.4% 30.6%
Adjustments:
Cost of revenues
Change in excess and
obsolete inventory
reserve 2,487 1,699 4,767 4,076 2,280
Amortization of
acquired technology 1,729 1,505 3,458 3,024 1,729
Duplicate facility
costs during facility
move - 178 - 475 -
Stock compensation 703 899 1,425 2,034 722
Payroll related costs - 44 - 137 -
Purchase accounting
adjustment for sale of
acquired inventory 441 - 1,306 - 865
Reduction in force
costs 92 - 192 - 100
-------- -------- -------- -------- --------
Total cost of
revenue
adjustments 5,452 4,325 11,148 9,746 5,696
Gross profit, non-GAAP 37,242 42,014 75,241 81,438 37,999
Gross margin, non-GAAP 37.0% 38.8% 36.4% 38.0% 35.9%
Reconciliation of GAAP
net income (loss) to
non-GAAP net income
(loss):
Net income (loss) per
GAAP (9,770) (30,329) (17,091) (29,822) (7,321)
Total cost of revenue
adjustments 5,452 4,325 11,148 9,746 5,696
Research and development
Reduction in force
costs - - 28 - 28
Stock compensation 1,036 1,090 1,991 2,265 955
Payroll related costs - 70 - 120 -
Sales and marketing
Reduction in force
costs 21 - 34 - 13
Stock compensation 442 505 893 1,035 451
Payroll related costs - 27 - 33 -
General and
administrative
Reduction in force
costs - - 6 12 6
Stock compensation 350 629 981 1,236 631
Payroll related costs - 13 - 29 -
Project services 3,145 - 4,301 - 1,156
Amortization of purchased
intangibles 490 313 980 612 490
Amortization of discount
on convertible debt 1,257 1,210 2,453 2,358 1,196
Loss on debt
extinguishment - 31,606 - 31,606 -
Other expense, net
Loss (gain) on sale of
assets (372) 129 (359) 167 13
Loss on minority
investments (67) (184) 237 (117)
Provision for income tax
Timing difference
related to asset
purchases 544 349 1,088 2,391 544
Cumulative Effect
Cumulative effect of
change in accounting
principle - - - (1,213) -
-------- -------- -------- -------- --------
Total adjustments 12,298 40,266 23,360 50,634 11,062
-------- -------- -------- -------- --------
Net income (loss),
non-GAAP $ 2,528 $ 9,937 $ 6,269 $ 20,812 $ 3,741
======== ======== ======== ======== ========
Net income (loss),
non-GAAP per share -
basic $ 0.01 $ 0.03 $ 0.02 $ 0.07 $ 0.01
Net income (loss),
non-GAAP per share -
diluted $ 0.01 $ 0.03 $ 0.02 $ 0.06 $ 0.01
Shares used in computing
non-GAAP net income
(loss) per share - basic 308,635 307,558 308,634 307,027 308,634
Shares used in computing
non-GAAP net income
(loss) per share -
diluted 322,968 327,606 324,496 327,821 325,964
Contact:
Steve Workman
Chief Financial Officer
408-548-1000
Investor Relations
408-542-5050
investor.relations@Finisar.com
