Finisar: Fiscal 4Q08 Financial Results

Finisar Corporation announced financial results for its fourth quarter and fiscal year ended April 30, 2008.

• Fourth quarter revenues of $121.0 million, a new record for the Company, increased 7% from $112.7 million in the third quarter and 25% from $96.6 million in the fourth quarter of the prior year. These results were in line with the Company’s preannouncement on May 16, 2008 wherein management indicated that fourth quarter revenues would be approximately $120 million.

  Financial Highlights
  for the Quarter Ended April 30, 2008

• Optics revenues of $111.4 million increased 8% from $103.0 million in the third quarter and 26% from $88.2 million in the prior year; while Network Tools revenues of $9.6 million declined slightly from $9.8 million in the prior quarter and increased 15% from $8.4 million in the fourth quarter of the prior year.
• Revenues of $31.2 million from products for 10/40 Gbps applications increased 7% from $29.1 million in the prior quarter and 110% from $14.9 million in the fourth quarter of the prior year.
• Revenues of $50.6 million from products for 1-8 Gbps LAN/SAN applications increased 12% from $45.4 million in the prior quarter and 11% from $45.7 million in the fourth quarter of the prior year.
• Gross margin of 32.9% compares to 33.4% in the third quarter and 32.3% in the fourth quarter of the prior year.
• Net loss of $8.7 million, or $.03 per share, compares to a net loss of $10.6 million, or $.03 per share, in the third quarter and a net loss of $16.0 million, or $.05 per share, in the fourth quarter of the prior year.
• Cash and short-term investments, plus other long-term investments which can be readily converted into cash, of $116.4 million decreased $6.0 million from $122.4 million at January 27, 2008, but also reflects a reduction in outstanding debt of $14.2 million during the quarter and $2.5 million in minority investments. Excluding these items, cash would have increased to approximately $133 million in the fourth quarter. The Company has classified certain of its investments as long-term based on its intent to hold these securities until maturity, although they can be readily sold if required.

The Company’s operating results include a number of non-cash and cash charges and gains or losses principally related to acquisitions, the sale of minority investments, restructuring activities, impairments and financing transactions. For the fourth quarter of fiscal 2008, these items resulted in net charges of $16.6 million and included, among other items, $3.0 million in non-cash stock compensation expense; a $4.8 million non-cash charge related to an impairment in the value of patents that have been capitalized; a $3.1 million non-cash charge related to slow-moving and obsolete inventory; $1.6 million in amortization charges related to acquired developed technology and purchased intangibles arising from previous acquisitions; a $1.4 million loss related to minority investments; $1.2 million related to the amortization of discount on convertible notes issued in 2001; and a $721,000 cash charge associated with employee retention related to a previous acquisition. The charge for slow-moving and obsolete inventory was largely based on an estimate of the amount of inventory that will be unused after twelve months although a portion of that inventory may in fact be used beyond this period.

The Company excludes these and certain other items for the purpose of tracking its performance on a non-GAAP basis. Non-GAAP gross profit and non-GAAP net income (loss), as reported by the Company, give an indication of the Company’s baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results.

The Company’s non-GAAP net income for the fourth quarter was $7.9 million, or $.03 per share, compared to $6.7 million, or $.02 per share, in the third quarter and $2.3 million, or $.01 per share, in the fourth quarter of the prior year. On a non-GAAP basis, gross margins were 37.4% in the fourth quarter of fiscal 2008 compared to 38.2% in the third quarter and 37.6% in the fourth quarter of the prior year. The decrease in gross margins compared to the prior quarter is primarily related to an unfavorable product mix as revenues from Network Tools declined as a percent of total revenues while revenues for short distance LAN/SAN applications increased in the quarter.

Profitability in the fourth quarter reflects non-GAAP operating expenses of $35.6 million compared to $34.6 million in the third quarter and $32.7 million in the fourth quarter of the prior year. Most of the increase from the prior quarter was related to higher expenses for research and development while prior year comparisons were impacted by two acquisitions completed during the fourth quarter of the prior year.

Financial Highlights
for the Fiscal Year Ended April 30, 2008
Revenues of $440.2 million for the fiscal year, a new record for the Company, increased 5% from $418.5 million in the prior year.
Revenues of $401.6 million from optical components and subsystems increased 5% from $381.3 million in the prior year.
Revenues of $96.8 million from products for 10/40 Gbps applications increased 140% from $40.3 million in the prior year partially offset by a decrease in revenues for 1-4 Gbps LAN/SAN applications.
Revenues of $38.6 million from Network Tools increased 3% from $37.3 million in the prior year.
Net loss of $36.4 million was improved from $45.4 million in the prior year.
Net income of $20.8 million on a non-GAAP basis was down $14.1 million from $34.9 million in the prior year primarily due to an increase in operating expenses of $13.1 million, or 11%, from the prior year, approximately half of which was related to two acquisitions completed in the fourth quarter of the prior fiscal year.

"While fiscal 2008 was a challenging year for us at the top line, it was extremely gratifying to see us recover and set new revenue records for the company in the last half of the year," said Jerry Rawls, Finisar’s Chairman and CEO. "Demand for our products for both 10-40 Gbps and shorter distance LAN/SAN applications continues to be healthy during these uncertain economic times. And with the announcement of our proposed merger with Optium, we are extremely excited about the future potential for growth and profitability."