SUNNYVALE, 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