Revenues of $241.5 Million, 5.8% Quarter-Over-Quarter Growth
Non-GAAP Operating Income of $23.6 Million, 12.5% Quarter-Over-Quarter Growth
Non-GAAP Earnings per Diluted Share of $0.23
SUNNYVALE, CA -- (Marketwire - November 30, 2011) - Finisar Corporation (NASDAQ: FNSR), a global technology leader for subsystems and components for fiber optic communications, today announced financial results for its second quarter of fiscal 2012 ended October 30, 2011.
COMMENTARY
"In our just completed fiscal second quarter, our revenues were $241.5 million, 5.8% greater than the preceding first quarter, primarily driven by growth in sales of our WSS and ROADM line card products, tunable XFP transceivers, and the consolidation of a full quarter of the financial results of our Ignis subsidiary. We achieved a non-GAAP gross margin of 32.1%. Non-GAAP operating income increased 12.5% from the preceding quarter, and non-GAAP operating margin increased to 9.8% from 9.2% in the preceding quarter. Our non-GAAP earnings per diluted share were $0.23," said Jerry Rawls, Finisar's executive Chairman of the Board.
"We continued to execute well on our product development plan and have delivered to customers a number of innovative products in the WSS and pluggable product lines during the second quarter," said Eitan Gertel, Finisar's Chief Executive Officer. "Production of our tunable XFP transceiver products began to ramp during the second quarter of fiscal 2012. Tunable XFPs were qualified at several additional customers during the second quarter and we expect more qualifications in the third quarter. In addition, we have qualified our next generation edge or access WSS modules with multiple customers and expect revenue from these products to continue to ramp in the first half of calendar 2012."
FINANCIAL HIGHLIGHTS -SECOND QUARTER ENDED October 30, 2011 Second Second First Quarter Quarter Quarter Summary GAAP Results Ended Ended Ended Oct 30, 2011 Oct 31, 2010 July 31, 2011 ------------- ------------- -------------- (in thousands, except per share amounts) Continuing operations ------------------------------ Revenues $ 241,489 $ 240,943 $ 228,226 Gross margin 29.1% 34.2% 29.1% Operating expenses $ 61,464 $ 46,295 $ 59,391 Operating income $ 8,817 $ 36,105 $ 7,090 Operating margin 3.7% 15.0% 3.1% Income $ 5,927 $ 33,796 $ 10,142 Income per share-basic $ 0.07 $ 0.44 $ 0.11 Income per share-diluted $ 0.06 $ 0.39 $ 0.11 Basic shares 90,715 76,766 90,221 Diluted shares 93,599 89,521 93,527 Second Second First Quarter Quarter Quarter Summary Non-GAAP Results (a) Ended Ended Ended Oct 30, 2011 Oct 31, 2010 July 31, 2011 ------------- ------------- -------------- (in thousands, except per share amounts) Continuing operations ------------------------------ Revenues $ 241,489 $ 240,943 $ 228,226 Gross margin 32.1% 35.5% 32.1% Operating expenses $ 53,845 $ 44,594 $ 52,414 Operating income $ 23,559 $ 40,897 $ 20,944 Operating margin 9.8% 17.0% 9.2% Income $ 21,537 $ 38,302 $ 19,528 Income per share-basic $ 0.24 $ 0.50 $ 0.22 Income per share-diluted $ 0.23 $ 0.44 $ 0.21 Basic shares 90,715 76,766 90,221 Diluted shares 97,347 89,521 97,275
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(a) In evaluating the operating performance of Finisar's business, Finisar management utilizes financial measures that exclude certain charges and credits required by U.S. 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 second quarter of fiscal 2012 under GAAP:
- Revenues increased to $241.5 million, up $13.3 million, or 5.8%, from $228.2 million in the preceding quarter, primarily driven by growth in sales of our WSS/ROADM line card products and tunable XFP transceiver products, as well as the consolidation of a full quarter of the financial results of our Ignis subsidiary.
- Compared to the preceding quarter, the sale of products for datacom applications decreased by $0.6 million, or (0.4%), and the sale of products for telecom applications increased by $13.8 million, or 13.9%.
- Gross margin was unchanged from the preceding quarter at 29.1% of revenues as the benefits of the increased revenue levels were offset by the consolidation of a full quarter of the financial results of Ignis, which has a lower average gross margin than the overall corporate average.
- Operating income increased $1.7 million to $8.8 million, or 3.7% of revenues, compared to $7.1 million, or 3.1% of revenues, in the preceding quarter as revenue grew faster than operating expenses despite the consolidation of a full quarter of the operating expenses of Ignis.
- Income from continuing operations was $5.9 million, or $0.06 per diluted share, compared to $10.1 million, or $0.11 per diluted share, in the preceding quarter.
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles, or GAAP, Finisar provides supplemental information regarding its operating performance on a non-GAAP basis. For the second quarter of fiscal 2011, items related to continuing operations representing a net charge of approximately $15.6 million were excluded. The excluded items are described in Finisar Non-GAAP Financial Measures below.
Highlights for the second quarter of fiscal 2012 on a non-GAAP basis:
- Non-GAAP gross margin was unchanged from the preceding quarter at 32.1% of revenues as the benefits of the increased revenue levels were offset by the consolidation of a full quarter of the financial results of Ignis, which has a lower average gross margin than the overall corporate average.
- Non-GAAP operating income increased $2.6 million to $23.6 million, or 9.8% of revenues, compared to $20.9 million, or 9.2% of revenues, in the preceding quarter as revenue grew faster than operating expenses despite the consolidation of a full quarter of the operating expenses of Ignis.
- Non-GAAP income from continuing operations was $21.6 million, or $0.23 per diluted share, compared to $19.5 million, or $0.21 per diluted share in the preceding quarter.
- Non-GAAP EBITDA increased $2.7 million to $34.3 million, or 14.2% of revenues, compared to $31.6 million, or 13.8% of revenues in the preceding quarter.
Balance Sheet Highlights for the second quarter of fiscal 2012:
- Cash and cash equivalents totaled $228.0 million at the end of the second quarter compared to $238.1 million at the end of the preceding quarter. The decline was primarily the result of the repayment of $5.6 million of Ignis debt and increases in accounts receivable and inventory as detailed below.
- Days sales outstanding increased to 67 days from 65 days in the preceding quarter. The combination of higher DSOs and higher revenue levels resulted in an increase in the balance of accounts receivable of $10.0 million.
- Inventory turns were 3.2, the same as the preceding quarter, while overall inventory at the end of the second quarter increased $6.4 million over the preceding quarter.
- At the end of the second quarter, Finisar had approximately $40.0 million in principal amount of convertible notes outstanding with a conversion price of $10.675 per share.
- At the end of the second quarter, Ignis also had outstanding debt equivalent to approximately $4.3 million, which is reflected in Finisar's consolidated balance sheet.
- Under Finisar's $70.0 million secured credit facility with Wells Fargo Foothill, LLC, no borrowings were outstanding and $66.6 million was available to borrow at the end of the second quarter.
OUTLOOK
The Company indicated that it currently expects third fiscal quarter revenues to be in the range of $235 to $250 million; GAAP operating margin to be in the range of approximately 3.5% to 5.0%; non-GAAP operating margin to be in the range of 8.5% to 10.0% and non-GAAP earnings per diluted share to be in the range of approximately $0.20 to $0.24.
CONFERENCE CALL
Finisar will discuss its financial results for the second quarter and current business outlook during its regular quarterly conference call scheduled for Wednesday, November 30, 2011, at 2:00 pm PST (5:00 pm EST). To listen to the call you may connect through the Finisar investor relations page at http://investor.finisar.com/ or dial 1-888-542-1102 (domestic) or (719) 325-2373 (international) and enter conference ID 4696405.
An audio replay will be available for two weeks following the call by dialing 1-888-203-1112 (domestic) or (719) 457-0820 and then following the prompts: enter conference ID 4696405 and provide your name, affiliation, and contact number. A replay of the webcast will be available shortly after the conclusion of the call on the Company's website until the next regularly scheduled earnings conference 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 uncertainty of customer demand for Finisar's products; 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; challenges related to the integration of the Ignis acquisition and realizing anticipated benefits of improved access to a supply of tunable lasers; 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 (filed June 28, 2011) and quarterly SEC filings.
ABOUT FINISAR
Finisar Corporation (NASDAQ: FNSR) is a global technology leader for fiber optic subsystems and components that enable high-speed voice, video and data communications for telecommunications, 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 ------------------ ------------------ -------- October October October October July 31, 30, 2011 31, 2010 30, 2011 31, 2010 2011 -------- -------- -------- -------- -------- (Unaudited) ------------------------------------------------ (in thousands, except per share data) ------------------------------------------------ Revenues $241,489 $240,943 $469,715 $448,825 $228,226 Cost of revenues 169,571 157,343 329,794 293,135 160,223 Amortization of acquired developed technology 1,637 1,200 3,159 2,392 1,522 -------- -------- -------- -------- -------- Gross profit 70,281 82,400 136,762 153,298 66,481 Gross margin 29.1% 34.2% 29.1% 34.2% 29.1% Operating expenses: Research and development 36,707 28,148 72,103 54,765 35,396 Sales and marketing 10,125 9,247 19,711 18,322 9,586 General and administrative 13,773 8,517 27,725 19,593 13,952 Amortization of purchased intangibles 859 383 1,638 766 779 Restructuring recoveries - - (322) - (322) -------- -------- -------- -------- -------- Total operating expenses 61,464 46,295 120,855 93,446 59,391 -------- -------- -------- -------- -------- Income from operations 8,817 36,105 15,907 59,852 7,090 Interest income 100 143 260 235 160 Interest expense (1,138) (2,077) (2,049) (4,232) (911) Loss on debt extinguishment - - (419) - (419) Other income (expense), net (140) 192 4,523 - 4,663 -------- -------- -------- -------- -------- Income from continuing operations before income taxes and non- controlling interest 7,639 34,363 18,222 55,855 10,583 Provision for income taxes 1,369 567 1,917 2,649 548 -------- -------- -------- -------- -------- Consolidated net income 6,270 33,796 16,305 53,206 10,035 Adjust for net loss attributable to non- controlling interest (343) - (236) - 107 -------- -------- -------- -------- -------- Net income attributable to Finisar Corporation 5,927 33,796 16,069 53,206 10,142 Loss from discontinued operations, net of taxes - - - (284) - -------- -------- -------- -------- -------- Net income $ 5,927 $ 33,796 $ 16,069 $ 52,922 $ 10,142 ======== ======== ======== ======== ======== Income per share from continuing operations - basic $ 0.07 $ 0.44 $ 0.18 $ 0.70 $ 0.11 Income per share from continuing operations - diluted $ 0.06 $ 0.39 $ 0.17 $ 0.63 $ 0.11 Income per share from discontinued operations - basic $ - $ - $ - $ (0.00) $ - Income per share from discontinued operations - diluted $ - $ - $ - $ (0.00) $ - Shares used in computing net income per share from continuing operations - basic 90,715 76,766 90,470 76,433 90,221 Shares used in computing net income per share from continuing operations - diluted 93,599 89,521 93,712 89,013 93,527 Shares used in computing net income per share from discontinued operations - basic 90,715 76,766 90,470 76,433 90,221 Shares used in computing net income per share from discontinued operations - diluted 93,599 89,521 93,712 89,013 93,527
Finisar Corporation Consolidated Balance Sheets (In thousands) October 30, July 31, April 30, 2011 2011 2011 ------------ ------------ ------------ (Unaudited) (Unaudited) ------------ ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 228,040 $ 238,052 $ 314,765 Accounts receivable, net 176,494 166,536 168,386 Accounts receivable, other 11,558 12,788 12,733 Inventories 214,940 208,567 187,617 Prepaid expenses and other 19,120 16,029 9,906 ------------ ------------ ------------ Total current assets 650,152 641,972 693,407 Property, equipment and improvements, net 143,139 138,300 125,693 Purchased intangible assets, net 47,306 49,979 17,439 Goodwill 82,936 83,107 - Minority investments 12,289 12,289 12,289 Equity method investments - - 31,142 Other assets 21,773 21,291 5,179 ------------ ------------ ------------ Total assets $ 957,595 $ 946,938 $ 885,149 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 91,034 $ 87,996 $ 76,288 Accrued compensation 24,410 17,494 24,525 Other accrued liabilities 32,118 33,828 25,112 Deferred revenue 7,909 9,762 8,064 Current portion of long-term debt 4,281 7,547 - ------------ ------------ ------------ Total current liabilities 159,752 156,627 133,989 Long-term liabilities: Convertible notes, net of current portion 40,015 40,015 40,015 Long-term debt, net of current portion - 2,329 - Other non-current liabilities 15,771 16,314 11,988 Deferred tax liabilities 4,052 3,553 - ------------ ------------ ------------ Total liabilities 219,590 218,838 185,992 Stockholders' equity: Common stock 91 91 90 Additional paid-in capital 2,293,485 2,285,769 2,275,600 Accumulated other comprehensive income 29,323 33,404 32,966 Accumulated deficit (1,593,430) (1,599,357) (1,609,499) ------------ ------------ ------------ Finisar Corporation stockholders' equity 729,469 719,907 699,157 Non-controlling interest 8,536 8,193 - ------------ ------------ ------------ Total stockholders' equity 738,005 728,100 699,157 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 957,595 $ 946,938 $ 885,149 ============ ============ ============
FINISAR NON-GAAP FINANCIAL MEASURES
In addition to reporting financial results in accordance with U.S. 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 in this release, 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);
- Stock-based compensation expense (non-cash charges);
- Acquisition method accounting adjustment for sale of acquired inventory (non-cash charges); and
- Reduction in force costs (non-recurring charges).
In calculating non-GAAP operating income in this release, 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:
- Transaction fees associated with acquisitions (non-recurring charges);
- Gain or loss on litigation settlements and resolutions and related costs (non-recurring charges);
- Amortization of purchased intangibles (non-cash charges);and
- Restructuring costs (non-recurring charges).
In calculating non-GAAP income from continuing operations and non-GAAP income from continuing operations per share in this release, we have also excluded the following items in applicable periods:
- Amortization of discount on convertible debt and imputed interest expense (non-cash charges);
- Imputed interest expense related to restructuring (amortization of imputed interest expense associated with previously incurred restructuring costs);
- 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);
- Dollar denominated foreign exchange transaction losses (gains) (non-cash charges);
- Charges related to the non-controlling equity interest in the net loss of an investee (non-cash charges);
- Debt extinguishment loss (non-recurring charges);
- Fair value remeasurement of equity investment (non-cash gain from remeasurement of value of prior investment in an investee);
- Differences between cash payable for income taxes and the provision for income taxes in accordance with GAAP, less discrete items; and
- Other miscellaneous income and expenses (non-recurring charges).
In calculating non-GAAP income (loss) per share in this release, we have included the shares issuable upon conversion of our outstanding convertible notes and excluded the interest expenses associated with such notes in such periods where such treatment is dilutive to non-GAAP income (loss) per share.
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 ------------------ ------------------ -------- October October October October July 31, 30, 2011 31, 2010 30, 2011 31, 2010 2011 -------- -------- -------- -------- -------- (Unaudited) ------------------------------------------------ (in thousands, except per share data) Reconciliation of GAAP income to non-GAAP income from continuing operations Reconciliation of GAAP Gross Profit to non-GAAP Gross Profit: Gross profit per GAAP $ 70,281 $ 82,400 $136,762 $153,298 $ 66,481 Gross margin, GAAP 29.1% 34.2% 29.1% 34.2% 29.1% Adjustments: Cost of revenues Change in excess and obsolete inventory reserve 2,521 575 3,611 980 1,090 Amortization of acquired technology 1,637 1,200 3,159 2,392 1,522 Stock compensation 1,687 1,310 3,546 2,056 1,859 Acquisition method accounting adjustment for sale of acquired inventory 1,229 - 3,083 - 1,854 Reduction in force costs 49 6 601 42 552 -------- -------- -------- -------- -------- Total cost of revenue adjustments 7,123 3,091 14,000 5,470 6,877 Gross profit, non-GAAP 77,404 85,491 150,762 158,768 73,358 Gross margin, non-GAAP 32.1% 35.5% 32.1% 35.4% 32.1% Reconciliation of GAAP operating income to non- GAAP operating income: Operating income per GAAP 8,817 36,105 15,907 59,852 7,090 Operating margin, GAAP 3.7% 15.0% 3.4% 13.3% 3.1% Adjustments: Total cost of revenue adjustments 7,123 3,091 14,000 5,470 6,877 Research and development Reduction in force costs 73 - 73 5 - Stock compensation 2,274 1,702 4,635 2,739 2,361 Sales and marketing Reduction in force costs - 81 - 155 - Stock compensation 767 528 1,631 979 864 General and administrative Reduction in force costs 865 50 963 92 98 Stock compensation 1,945 1,422 3,953 2,447 2,008 Acquisition related costs 209 - 1,298 - 1,089 Litigation settlements and resolutions and related costs 627 (2,465) 727 (2,565) 100 Amortization of purchased intangibles 859 383 1,638 766 779 Restructuring recoveries - - (322) - (322) -------- -------- -------- -------- -------- Total cost of revenue and operating expense adjustments 14,742 4,792 28,596 10,088 13,854 Operating income, non-GAAP 23,559 40,897 44,503 69,940 20,944 Operating margin, non-GAAP 9.8% 17.0% 9.5% 15.6% 9.2% Reconciliation of GAAP income to non-GAAP income from continuing operations: Income per GAAP from continuing operations 5,927 33,796 16,069 53,206 10,142 Total cost of revenue and operating expense adjustments 14,742 4,792 28,596 10,088 13,854 Non-cash imputed interest expenses on convertible debt - 367 - 742 - Imputed interest related to restructuring 396 - 466 - 70 Other income (expense), net Loss (gain) on sale of assets 221 (9) 222 7 1 Loss related to minority and equity method investments - - 619 - 619 Other misc. expenses or (income) 250 (58) 250 (58) - Foreign exchange transaction gain (494) (471) (642) (538) (148) Debt extinguishment loss - - 419 - 419 Fair value remeasurement of equity investment - - (5,429) - (5,429) Provision for income tax Timing differences 495 (115) 495 667 - -------- -------- -------- -------- -------- Total adjustments 15,610 4,506 24,996 10,908 9,386 -------- -------- -------- -------- -------- Income, non-GAAP, from continuing operations 21,537 38,302 41,065 64,114 19,528 -------- -------- -------- -------- -------- Reconciliation of GAAP loss to non-GAAP loss from discontinued operations: Loss per GAAP from discontinued operations - - - (284) - Loss from discontinued operations, non-GAAP - - - (284) - -------- -------- -------- -------- -------- Reconciliation of GAAP net income (loss) to non-GAAP net income (loss): Net income (loss) per GAAP 5,927 33,796 16,069 52,922 10,142 Total adjustments from continuing operations 15,610 4,506 24,996 10,908 9,386 Total adjustments from discontinuing operations - - - - - -------- -------- -------- -------- -------- Total adjustments 15,610 4,506 24,996 10,908 9,386 -------- -------- -------- -------- -------- Net income, non-GAAP $ 21,537 $ 38,302 $ 41,065 $ 63,830 $ 19,528 ======== ======== ======== ======== ======== Income from continuing operations $ 21,537 $ 38,302 $ 41,065 $ 64,114 $ 19,528 Add: interest expense for dilutive convertible notes 539 1,374 1,078 2,752 539 -------- -------- -------- -------- -------- Adjusted income from continuing operations $ 22,076 $ 39,676 $ 42,143 $ 66,866 $ 20,067 ======== ======== ======== ======== ======== Income per share from continuing operations - basic $ 0.24 $ 0.50 $ 0.45 $ 0.84 $ 0.22 Income per share from continuing operations - diluted $ 0.23 $ 0.44 $ 0.43 $ 0.75 $ 0.21 Shares used in computing net income per share from continuing operations - basic 90,715 76,766 90,470 76,433 90,221 Shares used in computing net income per share from continuing operations - diluted 97,347 89,521 97,460 89,013 97,275 Continuing operations Net income, non-GAAP $ 21,537 $ 38,302 $ 41,065 $ 64,114 $ 19,528 Depreciation expense 10,995 8,684 21,590 16,850 10,595 Amortization 208 289 416 578 208 Interest expense 642 1,567 1,323 3,255 681 Income tax expense 874 682 1,422 1,983 548 -------- -------- -------- -------- -------- Non-GAAP EBITDA $ 34,256 $ 49,524 $ 65,816 $ 86,780 $ 31,560 -------- -------- -------- -------- -------- Discontinued operations Net loss, non-GAAP - - - (284) - Depreciation expense - - - - - -------- -------- -------- -------- -------- Non-GAAP EBITDA $ - $ - $ - $ (284) $ - -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Non-GAAP EBITDA $ 34,256 $ 49,524 $ 65,816 $ 86,496 $ 31,560 ======== ======== ======== ======== ========
Investor Contact: Kurt Adzema Chief Financial Officer 408-542-5050 or Investor.relations@finisar.com Press contact: Victoria McDonald Sr. Manager, Corporate Communications 408-542-4261