Finisar Corporation Announces Third Quarter Financial ResultsSUNNYVALE, CA -- 03/03/2008 -- Finisar Corporation (NASDAQ: FNSR), a technology leader in gigabit fiber optic solutions for high-speed data networks, today announced financial results for its third fiscal quarter ended January 27, 2008.
FINANCIAL HIGHLIGHTS - THIRD QUARTER ENDED JANUARY 27, 2008
Financial Results
- -- Revenues of $112.7 million, a new record for the Company, were up 12.0%
sequentially from $100.7 million in the second quarter and 4.9% from
$107.5 million in the third quarter of the prior year. These results
were in line with the Company's preannouncement on February 6, 2008
wherein management indicated that third quarter revenues would be
approximately $112 million.
- -- Among the factors contributing to the $12 million sequential increase
in revenues were:
1. Revenues from 10/40 Gbps products increased to approximately $29.1
million in the quarter, up $10.9 million from $18.2 million in the
prior quarter. Of this increase:
-- Approximately $8 million was from increased shipments of the
Company's SFP+, XFP and X2 transceivers for 10 Gbps Ethernet and
Sonet applications.
-- Approximately $2 million was from the sale of 40 Gbps 300 pin
transponders that we were unable to ship in the second quarter due
to firmware problems. Those problems were corrected and the
products were shipped in the third quarter.
2. Revenues from the sale of 8Gbps Fibre Channel SAN transceivers exceeded
$2 million in the quarter.
- -- Net loss of $10.6 million, or $.03 per share, compares to a net loss of
$9.8 million, or $.03 per share, in the second quarter and breakeven,
or $.00 per share, in the third quarter of the prior year. However,
included in the net loss for the current quarter was a charge of $7.4
million related to the completion of the investigation into our
historical granting practices and an accrual for employee and employer
tax liabilities arising from that investigation. These charges
affected both gross profit and operating expenses in the quarter.
- -- Gross margin of 33.4% increased sequentially from 31.6% in the second
quarter but was down from 36.6% in the third quarter of the prior year.
- -- Cash and short-term investments, plus other long-term investments
which can be readily converted into cash, increased $7.5 million from
$114.9 million at October 28, 2007, to $122.4 million at January 27,
2008. 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
- -- Excluding certain items as described below, net income was $7.0
million, or $.02 per share, compared to $2.5 million, or $.02 per share, in
the second quarter and to $11.8 million, or $.04 per share, in the third
quarter of the prior year.
- -- Gross margin, excluding certain items, increased sequentially to 38.2%
from 37.0% in the second quarter, but was down from 41.2% in the third
quarter of the prior year.
- -- The Company generated approximately $15 million in EBITDA during the
third quarter while investing approximately $6.7 million in capital
expenditures.
THIRD QUARTER OPERATING RESULTS
Total revenues in the third quarter of fiscal 2008 were a record $112.7 million, up $12.0 million, or 12.0%, on a sequential basis, from $100.7 million in the second quarter and 4.9% from $107.5 million in the third quarter of the prior year. Total revenues from the sale of optical subsystems reached $103.0 million in the third quarter, up $12.1 million, or 13.2%, on a sequential basis, from $90.9 million in the second quarter and 5.1% from $98.0 million in the third quarter of the prior year. The increase in revenues from the sale of optical subsystems was primarily the result of increased sales of products for 10-40 Gbps applications. Sales of network test and monitoring systems of $9.8 million were unchanged on a sequential basis from the second quarter and were up $.3 million, or 2.9%, from $9.5 million in the third quarter of the prior year.
The Company's gross profit for the third quarter was $37.6 million, or 33.4% of total revenues, compared to $31.8 million, or 31.6%, in the second quarter and $39.4 million, or 36.6%, in the third quarter of the prior year.
The Company reported a loss of $10.6 million, or $.03 per share, compared to a loss of $9.8 million, or $.03 per share, in the second quarter and net income of $.4 million, or $.00 per share, in the third quarter of the prior year.
The Company's operating results include a number of non-cash and cash charges and gains or losses principally related to acquisitions, the sale of minority investments, restructuring activities and financing transactions. For the third quarter of fiscal 2008, these items resulted in net charges of $17.6 million and included, among other items, $3.3 million in non-cash stock compensation expense; $7.4 million in expenses related to the completion of the Company's stock option investigation, of which $3.2 million was related to costs associated with the investigation and the restatement of previous financial statements and $4.2 million was related to employee and employer tax liabilities arising from the investigation and cost of the tender offer to prevent any further tax liabilities in the future; $1.6 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; $1.3 million related to the amortization of discount on convertible notes issued in 2001; and $1.1 million related to a charge associated with employee retention related to a previous acquisition. 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 third quarter was $7.0 million, or $.02 per share, compared to $2.5 million, or $.01 per share, in the second quarter and $11.8 million, or $.04 per share, in the third quarter of the prior year. On a non-GAAP basis, gross margins were 38.2% in the third quarter of fiscal 2008 compared to 37.0% in the second quarter and 41.2% in the third quarter of the prior year.
Profitability in the current quarter reflects non-GAAP operating expenses of $34.6 million compared to $32.7 million in the second quarter and $30.9 million compared to the prior year. An increase of $1.0 million in research and development expenses compared to the prior quarter and $2.0 million compared to the prior year reflects an increase in the level of activity while year-over-year comparisons are impacted by two acquisitions completed during the fourth quarter of the prior year. An increase of $.8 million in G&A expense compared to the prior quarter and $1.4 million compared to the prior year primarily reflects an increase in expenses associated with the Company's ongoing patent litigation.
"It was gratifying to see our revenues reach record levels after spending the last few quarters working our way through several customer specific issues," said Jerry Rawls, Finisar's CEO. "Demand for our products for 10-40 Gbps was particularly robust this past quarter and we expect that demand to remain healthy for the foreseeable future. In addition, we will continue to innovate and introduce new products for both the data center and telecom markets."
CONFERENCE CALL
Finisar will discuss these financial statements and its current business outlook during its regular quarterly conference call scheduled for today, Monday, March 3, 2008 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 276001.
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 276001. 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. 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. Examples of such 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 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; and intensive competition. Additional risks include the potential impact of regulatory review or civil litigation arising from the investigation of our historical option granting practices or the recent filing of restated financial information. 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 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.
Finisar Corporation
Consolidated Statements of Operations
Three
Months
Three Months Ended Nine Months Ended Ended
---------------------- ---------------------- ----------
January January January January October
27, 2008 28, 2007 27, 2008 28, 2007 28, 2007
---------- ---------- ---------- ---------- ----------
(Unaudited, in thousands, except per share data)
Revenues
Optical
subsystems
and
components $ 102,957 $ 98,007 $ 290,247 $ 293,059 $ 90,930
Network
test and
monitoring
systems 9,784 9,512 28,928 28,892 9,769
---------- ---------- ---------- ---------- ----------
Total
revenues 112,741 107,519 319,175 321,951 100,699
Cost of
revenues 73,396 66,634 212,279 206,350 67,180
Amortization of
acquired
developed
technology 1,729 1,512 5,187 4,536 1,729
---------- ---------- ---------- ---------- ----------
Gross profit 37,616 39,373 101,709 111,065 31,790
Gross margin 33.4% 36.6% 31.9% 34.5% 31.6%
Operating
expenses:
Research
and
development 21,218 16,593 56,350 46,988 17,630
Sales and
marketing 10,492 9,068 29,726 27,341 9,178
General and
administr-
ative 12,768 8,871 31,630 23,477 10,871
Amortization
of purchased
intangibles 488 925 1,468 1,537 490
---------- ---------- ---------- ---------- ----------
Total
operating
expenses 44,966 35,457 119,174 99,343 38,169
---------- ---------- ---------- ---------- ----------
Income (loss)
from
operations (7,350) 3,916 (17,465) 11,722 (6,379)
Interest income 1,501 1,668 4,453 4,322 1,537
Interest
expense (4,291) (4,071) (12,895) (11,892) (4,358)
Loss on debt
extinguishment - - - (31,606) -
Other income
(expense), net 310 (345) 262 (1,155) 85
---------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes (9,830) 1,168 (25,645) (28,609) (9,115)
Provision for
income taxes 807 772 2,083 2,030 655
---------- ---------- ---------- ---------- ----------
Income (loss)
before
cumulative
effect (10,637) 396 (27,728) (30,639) (9,770)
Cumulative
effect - - - (1,213) -
---------- ---------- ---------- ---------- ----------
Net income
(loss) $ (10,637) $ 396 $ (27,728) $ (29,426) $ (9,770)
========== ========== ========== ========== ==========
Net income
(loss) per
share - basic $ (0.03) $ 0.00 $ (0.09) $ (0.10) $ (0.03)
Net income
(loss) per
share -
diluted $ (0.03) $ 0.00 $ (0.09) $ (0.10) $ (0.03)
Shares used in
computing net
income (loss)
per share -
basic 308,663 308,538 308,645 307,528 308,635
Shares used in
computing net
income (loss)
per share -
diluted 308,663 324,350 308,645 307,528 308,635
Finisar Corporation
Consolidated Balance Sheets
(In thousands)
January 27, October 28, July 29, April 30,
2008 2007 2007 2007
----------- ----------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash
equivalents $ 75,437 $ 46,249 $ 52,090 $ 56,106
Short-term
available-for-sale
investments 38,096 59,768 59,910 56,511
Restricted
investments,
short-term - - 625 625
Accounts receivable,
net 55,035 54,463 58,434 55,969
Accounts receivable,
other 8,701 7,584 4,724 7,752
Inventories 83,220 78,557 77,351 77,670
Prepaid expenses 5,586 4,751 4,352 4,553
----------- ----------- ----------- ----------
Total current
assets 266,075 251,372 257,486 259,186
Long-term
available-for-sale
investments - debt 8,872 8,932 9,074 11,079
Long-term
available-for-sale
investments - equity 3,730 4,540 8,211 8,776
Property, plant and
improvements, net 85,710 84,246 84,325 84,071
Purchased technology,
net 13,163 14,893 16,622 18,351
Other purchased
intangible assets, net 4,179 4,667 5,157 5,647
Goodwill 128,852 128,949 128,949 128,949
Minority investments 11,250 11,250 11,250 11,250
Other assets 20,886 20,018 19,832 19,363
----------- ----------- ----------- ----------
Total assets $ 542,717 $ 528,867 $ 540,906 $ 546,672
=========== =========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 37,100 $ 31,117 $ 32,825 $ 40,187
Accrued compensation 14,970 10,475 12,977 10,550
Other accrued
liabilities 23,593 15,932 15,287 12,590
Deferred revenue 5,135 5,543 5,864 5,473
Current portion of
other long-term
liabilities 2,390 2,344 2,299 2,255
Convertible notes 113,722 112,469 66,950 66,950
Non-cancelable
purchase
obligations 2,787 2,426 2,676 2,798
----------- ----------- ----------- ----------
Total current
liabilities 199,697 180,306 138,878 140,803
Long-term liabilities:
Convertible notes 150,000 150,000 194,262 193,066
Other long-term
liabilities 18,861 19,633 20,346 21,042
Deferred income
taxes 7,872 7,178 6,634 6,090
----------- ----------- ----------- ----------
Total long-term
liabilities 176,733 176,811 221,242 220,198
Stockholders' equity:
Common stock 309 309 309 309
Additional paid-in
capital 1,538,048 1,534,718 1,532,068 1,529,322
Accumulated other
comprehensive
income 10,780 8,936 10,852 11,162
Accumulated deficit (1,382,850) (1,372,213) (1,362,443) (1,355,122)
----------- ----------- ----------- ----------
Total
stockholders'
equity 166,287 171,750 180,786 185,671
----------- ----------- ----------- ----------
Total liabilities and
stockholders' equity $ 542,717 $ 528,867 $ 540,906 $ 546,672
=========== =========== =========== ==========
NON-GAAP FINANCIAL MEASURES
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding the Company's operating performance on a non-GAAP basis that excludes certain gains, losses and charges of a non-cash nature or which occur relatively infrequently and which management considers to be outside our core operating results. Management believes that tracking non-GAAP gross profit and non-GAAP net income provides both management and the investment community with valuable insight into our current operations, our ability to generate cash and the underlying business trends which are affecting our performance. These non-GAAP measures exclude the ongoing impact of historical business decisions made in different business and economic environments and 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 non-recurring and infrequently incurred 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 profits, we have excluded the following items from cost of revenues in applicable periods:
- -- Changes in excess and obsolete inventory reserve (predominantly non-
cash charges or non-cash benefits);
- -- Amortization of acquired technology (non-cash charges related to
technology obtained in acquisitions);
- -- Duplicative facility costs during facility move (non-recurring
charges);
- -- Stock compensation expense (non-cash charges);
- -- Acquisition related compensation costs (non-recurring cash charges
related to employee retention);
- -- Purchase accounting adjustment for sale of acquired inventory (non-
cash and non-recurring charges); and
- -- Reduction in force costs (non-recurring charges);
In calculating non-GAAP net income, 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:
- -- Options investigation costs included in G&A expense (non-recurring
cash charges related to the special investigation into our historical stock
option granting practices) and the cost of covering employee and employer
tax liabilities (non-recurring cash charges) arising from that
investigation recorded in each line of the income statement;
- -- Amortization of purchased intangibles (non-cash charges related to
prior acquisitions);
- -- Amortization of discount on convertible debt (non-cash charges);
- -- Loss on debt extinguishment (non-recurring and non-cash charge);
- -- Gains and losses on sales of assets (non-recurring or non-cash losses
and cash gains related to the periodic disposal of assets no longer
required for current activities);
- -- Gains and losses on minority investments (infrequently occurring and
principally non-cash gains and losses related to the disposal of
investments in other companies and non-cash income or loss from these
investments accounted for under the equity method);
- -- Tax charges arising from timing difference related to asset purchases
(non-cash provision); and
- -- Cumulative effect of change in accounting principle (non-recurring and
non-cash charges or income).
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
Three
Months
Three Months Ended Nine Months Ended Ended
------------------ ------------------ --------
January January January January October
27, 2008 28, 2007 27, 2008 28, 2007 28, 2007
-------- -------- -------- -------- --------
(Unaudited, in thousands, except per share data)
Reconciliation of GAAP
Gross Profit to non-GAAP
Gross Profit:
Gross profit per GAAP 37,616 39,373 101,709 111,065 31,790
Gross margin, GAAP 33.4% 36.6% 31.9% 34.5% 31.6%
Adjustments:
Cost of revenues
Change in excess and
obsolete inventory
reserve 1,587 2,195 6,354 6,271 2,487
Amortization of
acquired technology 1,729 1,512 5,187 4,536 1,729
Duplicate facility
costs during
facility move - 332 - 807 -
Stock compensation 895 843 2,320 2,877 703
Acquisition related
compensation 40 - 40 - -
Costs related to
options
investigation 1,084 12 1,084 149 -
Purchase accounting
adjustment for sale
of acquired
inventory - - 1,306 - 441
Reduction in force
costs 145 - 337 - 92
-------- -------- -------- -------- --------
Total cost of
revenue
adjustments 5,480 4,894 16,628 14,640 5,452
Gross profit, non-GAAP 43,096 44,267 118,337 125,705 37,242
Gross margin, non-GAAP 38.2% 41.2% 37.1% 39.0% 37.0%
Reconciliation of GAAP
net income (loss) to
non-GAAP net income
(loss):
Net income (loss) per
GAAP (10,637) 396 (27,728) (29,426) (9,770)
Total cost of revenue
adjustments 5,480 4,894 16,628 14,640 5,452
Research and development
Reduction in force
costs - - 28 - -
Stock compensation 1,247 965 3,238 3,230 1,036
Acquisition related
compensation 748 - 748 - -
Costs related to
options
investigation 1,648 18 1,648 138 -
Sales and marketing
Reduction in force
costs 49 90 83 90 21
Stock compensation 673 462 1,566 1,497 442
Acquisition related
compensation 128 - 128 - -
Costs related to
options
investigation 742 4 742 37 -
General and
administrative
Reduction in force
costs - - 6 12 -
Stock compensation 481 584 1,462 1,820 350
Acquisition related
compensation 164 - 164 - -
Costs related to
options investigation 3,961 1,490 8,262 1,519 3,145
Amortization of purchased
intangibles 488 925 1,468 1,537 490
Amortization of discount
on convertible debt 1,253 1,210 3,706 3,568 1,257
Loss on debt
extinguishment - - - 31,606 -
Other expense, net
Loss (gain) on sale
of assets (99) 104 (458) 271 (372)
Loss (gain) on
minority investments (22) - (206) 237 (67)
Other misc income (327) - (327) - -
Provision for income tax
Timing difference
related to asset
purchases 694 705 1,782 3,096 544
Cumulative Effect
Cumulative effect of
change in accounting
principle - - - (1,213) -
-------- -------- -------- -------- --------
Total adjustments 17,308 11,451 40,668 62,085 12,298
-------- -------- -------- -------- --------
Net income (loss),
non-GAAP $ 6,671 $ 11,847 $ 12,940 $ 32,659 $ 2,528
======== ======== ======== ======== ========
Net income (loss),
non-GAAP per share -
basic $ 0.02 $ 0.04 $ 0.04 $ 0.11 $ 0.01
Net income (loss),
non-GAAP per share -
diluted $ 0.02 $ 0.04 $ 0.04 $ 0.10 $ 0.01
Shares used in computing
non-GAAP net income
(loss) per share - basic 308,663 308,538 308,645 307,528 308,624
Shares used in computing
non-GAAP net income
(loss) per share -
diluted 312,097 324,350 321,595 323,816 326,284
Contact:
Steve Workman
Chief Financial Officer
408-548-1000
Investor Relations
408-542-5050
investor.relations@Finisar.com
