Finisar Corporation Announces Second Quarter Financial ResultsSUNNYVALE, CA -- 12/09/2008 -- Finisar Corporation (NASDAQ: FNSR), a global technology leader for fiber optic subsystems and network test systems, today announced financial results for its second fiscal quarter ended November 2, 2008. Revenues of $159.5 million included approximately two months of financial results of Optium Corporation following the combination of the two companies on August 29, 2008.
FINISAR FINANCIAL HIGHLIGHTS – SECOND QUARTER ENDED NOVEMBER 2, 2008
GAAP GAAP Non-GAAP(a) Non-GAAP(a)
Nov 2, Oct 28, Nov 2, Oct 28,
2008 2007 2008 2007
--------- --------- ---------- ----------
(in thousands, except per share data)
Optical products revenues $ 147,746 $ 90,930 $ 147,746 $ 90,930
Network test products
revenues $ 11,760 $ 9,769 $ 11,760 $ 9,769
Total revenues $ 159,506 $ 100,699 $ 159,506 $ 100,699
Gross margin 30.2% 31.6% 35.6% 37.0%
Income (loss) from
operations - before
impairment $ (10,257) $ (7,422) $ 12,799 $ 3,514
Operating margin - before
impairment (6.4)% (7.4)% 8.0% 3.5%
Goodwill impairment charge $ 178,768 $ - $ - $ -
Net income (loss) $(186,831) $ (10,813) $ 10,345 $ 1,485
Net income (loss) per share
- basic $ (0.44) $ (0.04) $ 0.02 $ 0.00
Net income (loss) per share
- diluted $ (0.44) $ (0.04) $ 0.02 $ 0.00
Shares - basic 426,601 308,635 426,601 308,635
(a) In evaluating the operating performance of Finisar’s business, Finisar
management utilizes financial measures that exclude certain charges
and credits required by generally accepted accounting principles, or
GAAP, that are considered by management to be outside Finisar’s core
operating results. A reconciliation of Finisar’s non-GAAP financial
measures to the most directly comparable GAAP measures as well as
additional related information can be found under the heading
"Finisar Non-GAAP Financial Measures" below.
Highlights for the quarter included:
- -- Total revenues increased to $159.5 million, up $30.8 million, or
23.9%, from $128.7 million in the preceding quarter and up $58.8 million,
or 58.4%, from $100.7 million in the second quarter of the prior year;
- -- Optics revenues increased to $147.7 million, up $32.0 million, or
27.6% from $115.8 million in the preceding quarter and $56.8 million, or
62.5%, from $90.9 million in the second quarter of the prior year. Revenues
for the second quarter included approximately two months of Optium results
following the merger totaling approximately $36.5 million;
- -- Revenues from the sale of products for 10/40 Gbps applications reached
$54.0 million in the second quarter including approximately two months of
Optium results, up $21.8 million, or 67.6%, from $32.2 million in the
preceding quarter and up $35.8 million, or 96.1%, from $18.2 million in the
second quarter of the prior year;
- -- Network Test revenues decreased to $11.8 million, down $1.2 million,
or 9.1%, from a record $12.9 million in the preceding quarter, but up $2.0
million, or 20.4%, from $9.8 million in the second quarter of the prior
year. The sequential decrease primarily reflected the sale of the Netwisdom
product line in the first quarter;
- -- Gross margin decreased to 30.2%, compared to 38.4% in the preceding
quarter and 31.6% in the second quarter of the prior year. The decrease
from the prior quarter reflects in part the results of the merger as the
blended gross margin for the combined company for the preceding quarter
would have been approximately 35.0% had the merger been effective in that
quarter;
- -- Operating loss before a charge for goodwill impairment was $10.3
million, or (6.4)% of revenue, compared to operating income of $7.7
million, or 6.0% of revenue, in the preceding quarter and an operating
loss of $7.4 million, or 7.4% of revenue, in the second quarter of the
prior year;
- -- A charge of $178.8 million for the impairment of goodwill was
recognized in conjunction with a deterioration in the macroeconomic
environment and a material reduction in the Company's market value as of
the end of the second quarter. This followed the addition of $150.1 million
in goodwill as a result of the Optium merger;
- -- A net loss of $186.8 million, or $0.44 per share, compared to net
income of $4.0 million, or $0.01 per share, in the preceding quarter and a
net loss of $10.8 million, or $0.04 per share, in the second quarter of the
prior year; and
- -- Cash and short-term investments, plus other long-term investments that
can be readily converted into cash, totaled $51.9 million compared to
$124.6 million for the prior quarter. The decrease reflects the payment of
$92.0 million in debt reduction for the Company's 5.25% convertible notes
that matured on October 15, 2008, partially offset by the addition of $31.8
million in additional cash as a result of the Optium merger. Finisar 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.
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding its operating performance on a non-GAAP basis. Finisar believes this additional information provides investors and management with additional insight into its underlying core operating performance by excluding a number of non-cash and cash charges as well as gains or losses principally related to acquisitions, the sale of minority investments, restructuring or other transition activities, impairments and financing transactions. For the second quarter of fiscal 2009, these excluded items included, among other items described in Finisar Non-GAAP Financial Measures below, a non-cash charge of $178.8 million for the impairment of goodwill; a $10.5 million non-cash charge for acquired in-process research and development related to the Optium merger; a $4.8 million noncash charge for slow moving and obsolete inventory; $3.8 million in non-cash stock compensation expense; $2.3 million in amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions; a non-cash charge of $1.7 million related to a foreign exchange transaction loss; a non-cash charge of $1.4 million related to the valuation of inventory acquired in the Optium merger, a non-cash charge of $1.2 million related to impairment of a minority investment; and a non-cash benefit of $8.4 million related to tax timing differences.
Excluding these items:
- -- Non-GAAP gross margins decreased sequentially to 35.6%, compared to
40.0% in the preceding quarter and 37.0% in the second quarter of the prior
year. The sequential decrease in non-GAAP gross margin was primarily the
result of the Optium merger as the blended gross margin for the combined
company for the preceding quarter would have been approximately 36.2% had
the merger been effective in that quarter; and
- -- Non-GAAP operating income of $12.8 million, or 8.0% of revenue, was
down from a record $13.4 million, or 10.4% of revenue, in the preceding
quarter, but up from $3.5 million, or 3.5% of revenues, in the second
quarter of the prior year. The decrease in operating margin from the
previous quarter was primarily due to of the effect of the inclusion of
approximately two months of Optium results in the quarter; and
- -- Non-GAAP net income decreased to $10.3 million, or $0.02 per diluted
share, compared to $10.9 million, or $0.03 per diluted share, in the
preceding quarter and $1.5 million, or $0.00 per diluted share, in the
second quarter of the prior year.
"While our results for last quarter fell within expectations, current economic conditions are challenging," said Jerry Rawls, Finisar's executive Chairman of the Board. "Based on a variety of data points, it appears that revenues in our upcoming quarter will be down on a sequential basis. However, thanks to a pipeline of new product qualifications, we see the potential for a return to sequential growth in the April quarter."
"We have largely completed the integration of both companies as of the end of last quarter and are already racing to realize the additional synergies that were identified at our Analyst Day in New York on October 7, 2008," said Eitan Gertel, Finisar's Chief Executive Officer. "In addition, we have recently undertaken a number of cost reduction actions in response to the current macroeconomic environment."
Adoption of New Accounting Principle
In conjunction with aligning the accounting practices of Finisar and Optium following the merger, the Company has determined that it will no longer capitalize third party costs associated with new patent filings. The Company has decided that all such costs will be expensed going forward and it will adjust prior quarters to reflect the net impact of expensing previously capitalized costs and reversing the associated amortization. The impact for the first six months of the current fiscal year was an additional charge of approximately $454,000.
CONFERENCE CALL
Finisar will discuss these financial statements and its current business outlook during its regular quarterly conference call scheduled for today, December 9, 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 866-393-6455 (domestic) or 706-634-9717 (international) and enter passcode 74889122.
A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next conference call to be held approximately 90 days from today. An audio replay of the call will be accessible to the public by calling (800) 642-1687 (domestic) or (706) 645-9291 (international) and then, following the prompts, enter conference ID 74889122 and record your name, affiliation, and contact number. The audio replay will be available for two weeks following the call.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT 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 integration of the operations of Optium and the realization of synergies expected to result from Finisar's combination with Optium; 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 pending civil litigation arising from the investigation of Finisar's historical option granting practices. Further information regarding these and other risks relating to Finisar's business, including the recently acquired operations of Optium, is set forth in Finisar's quarterly report on Form 10-Q (filed September 12, 2008).
ABOUT FINISAR
Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic subsystems and network test systems that enable high-speed voice, video and data communications for networking, storage, wireless, and cable TV applications. For more than 20 years, Finisar has provided critical optics technologies to system manufacturers to meet the increasing demands for network bandwidth and storage. Finisar is headquartered in Sunnyvale, California, USA with R&D, manufacturing sites, and sales offices worldwide. For additional information, visit www.finisar.com.
FINISAR FINANCIAL STATEMENTS
The following financial tables are presented in accordance with GAAP.
Finisar Corporation
Consolidated Statements of Operations
Three
Months
Three Months Ended Six Months Ended* Ended*
November October November October August 3,
2, 2008 28, 2007* 2, 2008 28, 2007 2008
---------- --------- ---------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
(in thousands, except (in thousands, except
share and per share share and per share
data) data)
Revenues
Optical
subsystems
and components $ 147,746 $ 90,930 $ 263,520 $ 187,290 $ 115,774
Network
performance
test systems 11,760 9,769 24,698 19,144 12,938
---------- --------- ---------- --------- ---------
Total
revenues 159,506 100,699 288,218 206,434 128,712
Cost of revenues 109,859 67,180 187,903 138,883 78,044
Amortization of
acquired developed
technology 1,503 1,729 2,749 3,458 1,246
---------- --------- ---------- --------- ---------
Gross profit 48,144 31,790 97,566 64,093 49,422
Gross margin 30.2% 31.6% 33.9% 31.0% 38.4%
Operating
expenses:
Research and
development 24,868 17,630 45,641 35,132 20,773
Sales and
marketing 10,552 9,178 20,701 19,234 10,149
General and
administrative 11,728 11,914 22,225 20,732 10,497
Acquired
in-process
research and
development 10,500 - 10,500 - -
Amortization
of purchased
intangibles 753 490 1,021 980 268
Impairment of
goodwill and
intangible
assets 178,768 - 178,768 - -
---------- --------- ---------- --------- ---------
Total
operating
expenses 237,169 39,212 278,856 76,078 41,687
---------- --------- ---------- --------- ---------
Income (loss) from
operations (189,025) (7,422) (181,290) (11,985) 7,735
Interest income 657 1,537 1,625 2,952 968
Interest expense (2,878) (4,358) (6,886) (8,604) (4,008)
Other income
(expense), net (3,328) 85 (3,271) (48) 57
---------- --------- ---------- --------- ---------
Income (loss)
before income
taxes (194,574) (10,158) (189,822) (17,685) 4,752
Provision for
income taxes (7,743) 655 (6,997) 1,276 746
---------- --------- ---------- --------- ---------
Net income (loss) $ (186,831) $ (10,813) $ (182,825) $ (18,961) $ 4,006
========== ========= ========== ========= =========
Net income (loss)
per share - basic $ (0.44) $ (0.04) $ (0.50) $ (0.06) $ 0.01
Net income (loss)
per share -
diluted $ (0.44) $ (0.04) $ (0.50) $ (0.06) $ 0.01
Shares used in
computing net
loss per share -
basic 426,601 308,635 367,115 308,634 310,133
Shares used in
computing net
loss per share -
diluted 426,601 308,635 367,115 308,634 311,614
*Adjusted to reflect adoption of new accounting principle.
Finisar Corporation
Consolidated Balance Sheets
(In thousands)
Memo Optium
balance sheet
upon merger
November 2, August 3, April 30, (August 29,
2008 2008 2008 2008)
---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
Current assets:
Cash and cash equivalents $ 44,192 $ 96,499 $ 79,442 $ 31,825
Short-term available
-for-sale investments 7,382 20,636 27,776 -
Short-term available-
for-sale investments
- equity - 1,287 2,801 -
Accounts receivable, net 94,737 57,186 48,005 29,094
Accounts receivable,
other 10,237 10,936 12,408 -
Inventories 120,873 88,823 82,554 34,283
Prepaid expenses 9,054 8,291 7,652 856
---------- ---------- ---------- ----------
Total current assets 286,475 283,658 260,638 96,058
Long-term
available-for-sale
investments - debt 326 7,452 9,236 -
Property, plant and
improvements, net 92,136 75,624 89,847 19,129
Purchased technology, net 21,200 10,604 11,850 12,192
Other intangible assets,
net 15,982 3,632 3,899 13,000
Goodwill 59,589 88,242 88,242 150,115
Minority investments 14,289 14,289 13,250 -
Other assets 3,552 4,955 3,241 796
---------- ---------- ---------- ----------
Total assets $ 493,549 $ 488,456 $ 480,203 $ 291,290
========== ========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,599 $ 49,342 $ 43,040 $ 29,663
Accrued compensation 17,621 13,521 14,397 1,483
Other accrued liabilities 36,413 22,460 23,397 15,859
Deferred revenue 4,922 5,692 5,312 -
Current portion of
other long-term
liabilities 6,085 5,286 2,436 -
Convertible notes - 91,146 101,918 -
Non-cancelable purchase
obligations 5,326 1,995 3,206 -
---------- ---------- ---------- ----------
Total current
liabilities 142,966 189,442 193,706 47,005
Long-term liabilities:
Convertible notes 150,000 150,000 150,000 -
Other long-term
liabilities 22,217 23,569 18,911 973
Deferred income taxes 1,190 9,454 8,903 -
---------- ---------- ---------- ----------
Total long-term
liabilities 173,407 183,023 177,814 973
Stockholders' equity:
Common stock 473 311 309 161
Additional paid-in
capital 1,801,642 1,546,344 1,540,241 253,651
Accumulated other
comprehensive income 2,726 10,170 12,973 -
Accumulated deficit (1,627,665) (1,440,834) (1,444,840) (10,500)
---------- ---------- ---------- ----------
Total stockholders'
equity 177,176 115,991 108,683 243,312
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $ 493,549 $ 488,456 $ 480,203 $ 291,290
========== ========== ========== ==========
FINISAR 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. Some of these non-GAAP measures also exclude the ongoing impact of historical business decisions made in different business and economic environments. Management believes that tracking non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP net income per share provides 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 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 profit, 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);
- -- Duplicate facility costs during facility move (non-recurring charges);
- -- Stock-based compensation expense (non-cash charges);
- -- 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 operating 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 general and administrative
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;
- -- Disposal of a product line (non-recurring charges);
- -- Acquired in-process research and development expense (non-recurring
and non-cash charges);
- -- Amortization of purchased intangibles (non-cash charges related to
prior acquisitions); and
- -- Impairment charges associated with intangible assets (non-cash and non-
recurring).
In calculating non-GAAP net income and non-GAAP net income per share, we have also excluded the following items in applicable periods:
- -- Amortization of discount on convertible debt (non-cash charges);
- -- Loss on debt extinguishment (non-recurring and non-cash charges);
- -- 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);
- -- Foreign exchange transaction loss (non-recurring and non-cash
charges);
- -- 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 Six Months Ended* Ended*
November October November October August 3,
2, 2008 28, 2007* 2, 2008 28, 2007 2008
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited)
(in thousands, (in thousands,
except per share except per share
data) data)
Reconciliation of
GAAP Gross Profit
to non-GAAP Gross
Profit:
Gross profit per
GAAP 48,144 31,790 97,566 64,093 49,422
Gross margin, GAAP 30.2% 31.6% 33.9% 31.0% 38.4%
Adjustments:
Cost of revenues
Change in excess
and obsolete
inventory reserve 4,785 2,487 4,500 4,767 (285)
Amortization of
acquired technology 1,503 1,729 2,749 3,458 1,246
Duplicate
facility costs
during facility
move 117 - 287 - 170
Stock compensation 864 703 1,720 1,425 856
Purchase
accounting
adjustment for
sale of acquired
inventory 1,402 441 1,402 1,306 -
Reduction in
force costs 19 92 55 192 36
--------- --------- --------- --------- ---------
Total cost
of revenue
adjustments 8,690 5,452 10,713 11,148 2,023
Gross profit,
non-GAAP 56,834 37,242 108,279 75,241 51,445
Gross margin,
non-GAAP 35.6% 37.0% 37.6% 36.4% 40.0%
Reconciliation of
GAAP operating
income (loss) to
non-GAAP operating
income (loss):
Operating income
(loss) per GAAP (189,025) (7,422) (181,290) (11,985) 7,735
Operating margin,
GAAP -118.5% -7.4% -62.9% -5.8% 6.0%
Adjustments:
Total cost of
revenue adjustments 8,690 5,452 10,713 11,148 2,023
Research and
development
Reduction in
force costs 76 - 76 28 -
Stock
compensation 1,671 1,036 2,779 1,991 1,108
Sales and marketing
Reduction in
force costs - 21 100 34 100
Stock
compensation 516 442 1,033 893 517
Acquisition
related
compensation - - - - -
General and
administrative
Reduction in
force costs - - - 6 -
Stock
compensation 720 350 1,296 981 576
Costs related to
options
investigation 130 3,145 276 4,301 146
Disposal of a
product line - - 919 - 919
Amortization of
purchased
intangibles 753 490 1,021 980 268
Acquired in-process
R&D 10,500 - 10,500 - -
Impairment of
intangible assets 178,768 - 178,768 - -
--------- --------- --------- --------- ---------
Total cost of
revenue and
operating
expense
adjustments 201,824 10,936 207,481 20,362 5,657
Operating income,
non-GAAP 12,799 3,514 26,191 8,377 13,392
Operating margin,
non-GAAP 8.0% 3.5% 9.1% 4.1% 10.4%
Reconciliation of
GAAP net income
(loss) to non-GAAP
net income (loss):
Net income (loss)
per GAAP (186,831) (10,813) (182,825) (18,961) 4,006
Total cost of
revenue and
operating expense
adjustments 201,824 10,936 207,481 20,362 5,657
Amortization of
discount on
convertible debt 671 1,257 1,817 2,453 1,146
Loss on debt
extinguishment 231 - 231 - -
Other expense, net
Loss (gain) on
sale of assets (20) (372) 393 (359) 413
Loss (gain) on
minority
investments 1,197 (67) 797 (184) (400)
Other misc income (58) - (558) - (500)
Foreign exchange
transaction loss 1,729 - 1,729 - -
Provision for income
tax
Timing difference
related to
asset purchases (8,398) 544 (7,847) 1,088 551
--------- --------- --------- --------- ---------
Total adjustments 197,176 12,298 204,043 23,360 6,867
--------- --------- --------- --------- ---------
Net income, non-GAAP $ 10,345 $ 1,485 $ 21,218 $ 4,399 $ 10,873
========= ========= ========= ========= =========
Net income, non-GAAP
per share - basic $ 0.02 $ 0.00 $ 0.06 $ 0.01 $ 0.03
Net income, non-GAAP
per share - diluted $ 0.02 $ 0.00 $ 0.06 $ 0.01 $ 0.03
Shares used in
computing non-GAAP
net income per
share - basic 426,601 308,635 367,115 308,634 426,601
Shares used in
computing non-GAAP
net income per
share - diluted 429,946 322,968 369,518 324,496 429,946
Non-GAAP EBITDA
Net income, non-GAAP $ 10,345 $ 1,485 $ 21,218 $ 4,399 $ 10,873
Depreciation expense 7,445 5,716 13,836 11,684 6,391
Interest expense 1,550 1,564 3,444 3,199 1,894
Income tax expense 655 111 850 188 195
--------- --------- --------- --------- ---------
Non-GAAP EBITDA $ 19,995 $ 8,876 $ 39,348 $ 19,470 $ 19,353
========= ========= ========= ========= =========
*Adjusted to reflect adoption of new accounting principle.
Contact:
Steve Workman
Chief Financial Officer
408-548-1000
Victoria McDonald
Senior Manager, Corporate Communications
408-542-4261
investor.relations@Finisar.com
