FINANCIAL HIGHLIGHTS - FIRST QUARTER ENDED AUGUST 1, 2010
First First Fourth
Quarter Quarter Quarter
Summary Results per GAAP Ended Ended Ended
August 1, August 2, April 30,
2010 2009 2010
---------- --------- ----------
(in thousands, except per share amounts)
Continuing operations
---------------------
Revenues $ 207,882 $ 128,725 $ 188,490
---------- --------- ----------
Gross margin 34.1% 22.8% 31.2%
Operating expenses $ 47,151 $ 38,188 $ 45,932
Operating income (loss) $ 23,747 $ ( 8,786) $ 12,919
Operating margin (deficit) 11.4% (6.8)% 6.9%
Income (loss) $ 19,410 $ (11,116) $ 14,111
Income (loss) per share-basic $ 0.26 $ (0.18) $ 0.20
Income (loss) per share-diluted $ 0.24 $ (0.18) $ 0.19
Basic shares 76,111 60,181 70,596
Diluted shares 88,215 60,181 82,351
Discontinued operations
-----------------------
Income (loss) $ (284) $ 37,079 $ 56
Income (loss) per share-basic $ 0.00 $ 0.62 $ 0.00
Income (loss) per share-diluted $ 0.00 $ 0.62 $ 0.00
Basic shares 76,111 60,181 70,596
Diluted shares 88,215 60,181 82,351
First First Fourth
Quarter Quarter Quarter
Non-GAAP Results (a) Ended Ended Ended
August 1, August 2, April 30,
2010 2009 2010
---------- --------- ----------
Continuing operations
---------------------
Revenues $ 207,882 $ 128,725 $ 188,490
Gross margin 35.2% 28.8% 32.6%
Operating expenses $ 44,234 $ 33,760 $ 43,186
Operating income $ 29,043 $ 3,260 $ 18,331
Operating margin 14.0% 2.5% 9.7%
Income $ 25,812 $ 1,765 $ 16,685
Income per share-basic $ 0.34 $ 0.03 $ 0.24
Income per share-diluted $ 0.31 $ 0.03 $ 0.22
Basic shares 76,111 60,181 70,596
Diluted shares 88,215 61,076 82,483
(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 first quarter of fiscal 2011 under GAAP:
-- Revenues increased to $207.9 million, up $19.4 million, or 10.3%, from $188.5 million in the preceding quarter and up $79.2 million, or 61.5%, from $128.7 million in the first quarter of the prior year. -- Compared to the preceding quarter, the sale of products for applications equal to or greater than 10 Gbps increased $20.1 million, or 27.2%, the sale of products for applications less than 10 Gbps decreased $(4.2) million, or (5.0)%, the sale of ROADM related products, including wavelength selective switches, or WSS, increased $3.6 million, or 13.5%, as unit shipments of WSS products increased faster than higher-priced ROADM linecards containing a WSS, and the sale of products for cable TV applications, CATV, decreased $(0.2) million, or (3.9)%. -- Compared to the first quarter of the prior year, the sale of products for applications equal to or greater than 10 Gbps increased $42.2 million, or 81.3%, the sale of products for applications less than 10 Gbps increased $16.9 million, or 27.2%, the sale of ROADM related products increased $19.5 million, or 178.5%, and the sale of products for CATV applications increased $0.6 million, or 15.0%. -- Gross margin increased to 34.1% from 31.2% in the preceding quarter and 22.8% in the first quarter of the prior year. -- Operating income increased to $23.7 million, or 11.4% of revenues, compared to $12.9 million, or 6.9% of revenues, in the preceding quarter and an operating loss of $(8.8) million, or (6.8)% of revenues, in the first quarter of the prior year. -- Net income from continuing operations was $19.4 million, or $0.24 per diluted share, compared to $14.1 million, or $0.19 per diluted share, in the preceding quarter and a loss of $(11.1) million, or $(0.18) per share, in the first quarter of the prior year. -- Cash and short-term investments, plus other long-term investments that can be readily converted into cash, totaled $192.2 million at the end of the first quarter compared to $207.0 million at the end of the preceding quarter. The $14.9 million decrease was primarily related to an increase in accounts receivable and inventory of $24.9 million and $15.1 million, respectively, partially offset by cash generated from operations. The increase in accounts receivable, which represented an increase in days sales outstanding, or DSOs, to 67 days compared to 62 days in the prior quarter, was due to the timing of shipments during the quarter rather than delays in customer payments. The increase in inventory was due in part to expected revenue growth in the second quarter. Finisar has classified certain of its investments as long-term based on their scheduled maturities, although they can be readily sold if required. -- Capital expenditures were $12.1 million compared to $10.0 million in the preceding quarter and $3.1 million in the first quarter of the prior year. -- 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 first 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. Finisar believes this supplemental 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 infrequently occurring gains or losses principally related to acquisitions, the sale of minority investments, restructuring or other transition activities, impairments and financing transactions. For the first quarter of fiscal 2011, these excluded items related to continuing operations represented net charges of $6.4 million. Excluded charges included $3.3 million in non-cash stock-based compensation expenses; $1.6 million in non-cash amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions; $800,000 representing the difference between cash payments for taxes and the related GAAP tax provision, less non-recurring items; $405,000 in non-cash charges related to slow-moving and excess inventory; and $375,000 in non-cash charges for imputed interest expense on the Company's debt obligations. Other excluded items are as described in Finisar Non-GAAP Financial Measures below. Highlights for the first quarter of fiscal 2011 on a non-GAAP basis:
-- Non-GAAP gross margin was 35.2% compared to 32.6% in the preceding quarter and 28.8% in the first quarter of the prior year. The improvement in gross margin compared to the preceding quarter was due primarily to a favorable shift in product mix as a result of the growth in revenues from higher speed products and from ROADM related products. The improvement compared to the prior year reflects both a favorable shift in product mix and a reduction in manufacturing unit costs due to higher shipment volumes. -- Non-GAAP operating expenses were $44.2 million, an increase of $1.0 million from $43.2 million in the preceding quarter and $10.5 million from $33.8 million in the first quarter of the prior year. Operating expenses as a percent of revenues declined to 21.3% of revenue in the first quarter compared to 22.9% in the preceding quarter and 26.2% in the prior year due primarily to the growth in revenues. -- Non-GAAP operating income was $29.0 million, or 14.0% of revenues, up $10.7 million from $18.3 million, or 9.7% of revenues, in the preceding quarter, and up $25.7 million from $3.3 million, or 2.5% of revenues, in the first quarter of the prior year. -- Non-GAAP net income from continuing operations was $25.8 million, or $0.31 per diluted share, compared to net income of $16.7 million, or $0.22 per diluted share, in the preceding quarter and $1.8 million, or $0.03 per diluted share, in the first quarter of the prior year. -- Non-GAAP EBITDA rose to $37.3 million compared to $26.0 million in the preceding quarter and $10.4 million in the first quarter of the prior year.OUTLOOK The Company indicated that it currently expects revenues for its second fiscal quarter ending October 31, 2010 to be in the range of $215 to $230 million. On a GAAP basis, operating margin is expected to exceed 11.5%. Additional non-cash and infrequently occurring charges excluded in calculating non-GAAP operating income are expected to total approximately $5 to $7 million. As a result, on a non-GAAP basis, operating margin is expected to be in the range of 14% to 15%. CONFERENCE CALL Finisar will discuss its financial results for the first quarter and its current business outlook during its regular quarterly conference call scheduled for today, September 2, 2010, at 2:00 p.m. PDT/5:00 EDT. To listen to the call you may connect through the Finisar investor relations page at investor.finisar.com or dial 888-220-8448 (domestic) or (913) 312-1487 (international) and enter conference ID 5635437. An audio replay will be available for two weeks following the call by dialing (888) 203-1112 (domestic) or (719) 457-0820 and then following the prompts, enter conference ID 5635437 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; 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 July 1, 2010) and quarterly SEC filings. ABOUT FINISAR Finisar Corporation (
Finisar Corporation
Consolidated Statements of Operations
Three Months Ended
-------------------------------
August 1, August 2, April 30,
2010 2009 2010
--------- --------- ---------
(Unaudited)
(in thousands, except
per share data)
Revenues $ 207,882 $ 128,725 $ 188,490
Cost of revenues 135,792 98,130 128,447
Amortization of acquired developed
technology 1,192 1,193 1,192
--------- --------- ---------
Gross profit 70,898 29,402 58,851
Gross margin 34.1% 22.8% 31.2%
Operating expenses:
Research and development 26,617 21,047 27,256
Sales and marketing 9,075 6,819 8,648
General and administrative 11,076 9,621 9,645
Amortization of purchased intangibles 383 701 383
--------- --------- ---------
Total operating expenses 47,151 38,188 45,932
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Income (loss) from operations 23,747 (8,786) 12,919
Interest income 92 10 40
Interest expense (2,155) (2,434) (2,115)
Gain (loss) on repayment/purchase of
convertible notes - - -
Other income (expense), net (192) 253 1,009
--------- --------- ---------
Income (loss) from continuing operations
before income taxes 21,492 (10,957) 11,853
Provision for (benefit from) income taxes 2,082 159 (2,258)
--------- --------- ---------
Income (loss) from continuing operations 19,410 (11,116) 14,111
Income (loss) from discontinued
operations, net of taxes (284) 37,079 56
--------- --------- ---------
Net income (loss) $ 19,126 $ 25,963 $ 14,167
========= ========= =========
Income (loss) per share from continuing
operations - basic $ 0.26 $ (0.18) $ 0.20
Income (loss) per share from continuing
operations - diluted $ 0.24 $ (0.18) $ 0.19
Income (loss) per share from discontinued
operations - basic $ (0.00) $ 0.62 $ 0.00
Income (loss) per share from discontinued
operations - diluted $ (0.00) $ 0.62 $ 0.00
Shares used in computing net loss per
share from continuing operations - basic 76,111 60,181 70,596
Shares used in computing net loss per
share from continuing operations -
diluted 88,215 60,181 82,351
Shares used in computing net income (loss)
per share from discontinued operations -
basic 76,111 60,181 70,596
Shares used in computing net income (loss)
per share from discontinued operations -
diluted 88,215 60,181 82,351
Finisar Corporation
Consolidated Balance Sheets
(In thousands)
August 1, April 30,
2010 2010
---------- ----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 192,152 $ 207,024
Short-term available-for-sale investments - -
Accounts receivable, net 152,477 127,617
Accounts receivable, other 9,885 12,855
Inventories 154,586 139,525
Deferred tax assets 852 2,238
Prepaid expenses 7,306 6,956
---------- ----------
Total current assets 517,258 496,215
Property, plant and improvements, net 93,386 89,214
Purchased technology, net 10,497 11,689
Other intangible assets, net 11,312 11,713
Minority investments 12,289 12,289
Other assets 5,131 5,610
---------- ----------
Total assets $ 649,873 $ 626,730
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 79,121 $ 76,838
Accrued compensation 14,479 18,289
Other accrued liabilities 19,450 21,076
Deferred revenue 6,290 6,571
Current portion of convertible notes 29,214 28,839
Current portion of long-term debt 4,000 4,000
Non-cancelable purchase obligations 756 722
---------- ----------
Total current liabilities 153,310 156,335
Long-term liabilities:
Convertible notes, net of current portion 100,000 100,000
Long-term debt, net of current portion 14,250 15,250
Other non-current liabilities 6,102 6,260
Deferred tax liabilities 255 239
Non-current liabilities associated with
discontinued operations - -
---------- ----------
Total liabilities 273,917 278,084
Stockholders' equity:
Common stock 76 76
Additional paid-in capital 2,038,636 2,030,373
Accumulated other comprehensive income 15,712 15,791
Accumulated deficit (1,678,468) (1,697,594)
---------- ----------
Total stockholders' equity 375,956 348,646
---------- ----------
Total liabilities and stockholders' equity $ 649,873 $ 626,730
========== ==========
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); 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:
-- The cost of covering employee and employer tax liabilities (non-recurring cash charges) arising from the special investigation into our historical stock option granting practices ; and -- Gain or loss on settlement of lawsuits (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); -- 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); -- Other miscellaneous income; -- Foreign exchange transaction losses (gains) (non-recurring and non-cash charges); and -- Differences between cash payable for tax and GAAP provision, less non-recurring items.In calculating non-GAAP income (loss) from discontinued operations and non-GAAP income (loss) from discontinued operations per share in this release, we have also excluded gains on disposal of a product line and disposal of discontinued operations. 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 Ended
August 1, August 2, April 30,
2010 2009 2010
--------- --------- ---------
(Unaudited)
(in thousands, except per
share data)
Reconciliation of GAAP income (loss) to
non-GAAP income (loss) from continuing
operations
Reconciliation of GAAP Gross Profit to
non-GAAP Gross Profit:
Gross profit per GAAP $ 70,898 $ 29,402 $ 58,851
Gross margin, GAAP 34.1% 22.8% 31.2%
Adjustments:
Cost of revenues
Change in excess and obsolete
inventory reserve 405 5,254 491
Amortization of acquired technology 1,192 1,192 1,192
Stock compensation 746 1,031 983
Reduction in force costs 36 141 -
--------- --------- ---------
Total cost of revenue adjustments 2,379 7,618 2,666
Gross profit, non-GAAP 73,277 37,020 61,517
Gross margin, non-GAAP 35.2% 28.8% 32.6%
Reconciliation of GAAP operating income
(loss) to non-GAAP operating income (loss):
Operating income (loss) per GAAP 23,747 (8,786) 12,919
Operating margin (deficit), GAAP 11.4% -6.8% 6.9%
Adjustments:
Total cost of revenue adjustments 2,379 7,618 2,666
Research and development
Reduction in force costs 5 29 -
Stock compensation 1,037 1,525 1,143
Sales and marketing
Reduction in force costs 74 - 35
Stock compensation 451 578 385
General and administrative
Reduction in force costs 42 49 90
Stock compensation 1,025 1,036 816
Payroll taxes related to options
investigation - 183 -
Litigation settlement (100) 327 (106)
Amortization of purchased intangibles 383 701 383
--------- --------- ---------
Total cost of revenue and
operating expense adjustments 5,296 12,046 5,412
Operating income, non-GAAP 29,043 3,260 18,331
Operating margin, non-GAAP 14.0% 2.5% 9.7%
Reconciliation of GAAP income (loss) to
non-GAAP income (loss) from continuing
operations:
Income (loss) per GAAP from continuing
operations before cumulative effect of
change in accounting principle 19,410 (11,116) 14,111
Total cost of revenue and operating
expense adjustments 5,296 12,046 5,412
No cash imputed interest expenses on
convertible debt 375 1,235 359
Other income (expense), net
Loss on sale of assets 16 21 4
Loss on minority investments - (375) -
Other misc income - (2) -
Foreign exchange transaction
loss/(gain) (67) (44) (1,202)
Provision for income tax
Difference between cash payable for
taxes and GAAP provision, less
non-recurring items 782 - (1,999)
--------- --------- ---------
Total adjustments 6,402 12,881 2,574
--------- --------- ---------
Income, non-GAAP, from continuing
operations 25,812 1,765 16,685
--------- --------- ---------
Reconciliation of GAAP income (loss) to
non-GAAP income (loss) from discontinued
operations:
Income (loss) per GAAP from discontinued
operations (284) 37,079 56
Adjustments:
Reduction in force costs - 6 -
Stock compensation - 704 -
Amortization of acquired technology - 170 -
Amortization of purchased intangibles - 77 -
Gain (loss) on disposal of a product
line - (1,250) -
Gain on disposal of discontinued
operations - (36,053) -
--------- --------- ---------
Total adjustments - (36,346) -
--------- --------- ---------
Income (loss) from discontinued
operations, non-GAAP (284) 733 56
--------- --------- ---------
Reconciliation of GAAP net income (loss)
to non-GAAP net income (loss):
Net income per GAAP 19,126 25,963 14,167
Total adjustments from continuing
operations 6,402 12,881 2,574
Total adjustments from discontinuing
operations - (36,346) -
--------- --------- ---------
Total adjustments 6,402 (23,465) 2,574
--------- --------- ---------
Net income, non-GAAP $ 25,528 $ 2,498 $ 16,741
========= ========= =========
Income from continuing operations $ 25,812 $ 1,765 $ 16,685
Add: interest expense for dilutive
convertible notes 1,378 $ - 1,378
--------- --------- ---------
Adjusted income from continuing operations $ 27,190 $ 1,765 $ 18,063
========= ========= =========
Income per share from continuing
operations - basic $ 0.34 $ 0.03 $ 0.24
Income per share from continuing
operations - diluted $ 0.31 $ 0.03 $ 0.22
Shares used in computing net income per
share from continuing operations - basic 76,111 60,181 70,596
Shares used in computing net income per
share from continuing operations -
diluted 88,215 61,076 82,483
Continuing operations
Net income, non-GAAP $ 25,812 $ 1,765 $ 16,685
Depreciation expense 8,166 7,172 7,531
Amortization 289 127 289
Interest expense 1,688 1,189 1,716
Income tax expense 1,301 159 (259)
--------- --------- ---------
Non-GAAP EBITDA $ 37,256 $ 10,412 $ 25,962
--------- --------- ---------
Discontinued operations
Net income (loss), non-GAAP (284) 733 56
Depreciation expense - 119 -
--------- --------- ---------
Non-GAAP EBITDA $ (284) $ 852 $ 56
--------- --------- ---------
--------- --------- ---------
Total Non-GAAP EBITDA $ 36,972 $ 11,264 $ 26,018
========= ========= =========
Contact Information: Investor Contact: Steve Workman SVP, Corporate Development & Investor Relations 408-542-5050 or Investor.relations@finisar.com Press contact: Victoria McDonald Sr. Manager, Corporate Communications 408-542-4261