Highlights for the third quarter under GAAP include the following:
-- Total revenues from continuing operations increased to $166.9 million, up $21.2 million, or 14.6%, from $145.7 million in the preceding quarter and $40.8 million, or 32.4%, from $126.1 million in the third quarter of the prior year; the last three quarters have seen revenues increase sequentially by 19.8%, 13.2% and 14.6%, respectively;-- Of the $21.2 million increase in revenues from the preceding quarter, the sale of products for applications greater than 10 Gbps increased $12.1 million, the sale of products applications less than 10 Gbps applications increased $4.5 million and the sale of ROADM products increased $3.7 million;-- Of the $40.8 million increase in revenues from the third quarter of the prior year, the sale of products for applications greater than 10 Gbps increased $18.3 million, the sale of ROADM products increased $12.9 million, and the sale of products for applications less than 10 Gbps increased $7.2 million;-- Gross margin from continuing operations increased to 31.0% from 27.3% in the preceding quarter and 27.6% in the third quarter of the prior year;-- Operating income from continuing operations increased to $9.1 million, or 5.5% of revenues, compared to $2.2 million, or 1.5% of revenues, in the preceding quarter (before a charge for restructuring) and an operating loss of $3.1 million, or (2.5)% of revenues, in the third quarter of the prior year;-- Net income from continuing operations was $5.6 million, or $0.08 per diluted share, compared to a loss of $31.4 million, or $(0.49) per share, in the preceding quarter and a loss of $49.3 million, or $(0.83) per share, in the third quarter of the prior year, which included a $46.5 million charge for the impairment of goodwill;-- Cash and short-term investments, plus other long-term investments that can be readily converted into cash, totaled $79.0 million at the end of the third quarter compared to $80.7 million at the end of the preceding quarter, reflecting net proceeds of $4.5 million from a loan tied to certain foreign operations and $10.0 million in borrowings under a secured credit line with Wells Fargo Foothill, LLC, which helped to fund the retirement of $5.5 million aggregate principal amount of 2.5% convertible notes and the early retirement of an equipment lease totaling approximately $2.6 million. Excluding the impact of these financing transactions, the Company's cash position decreased by approximately $8.7 million due primarily to the growth in working capital such as accounts receivable and inventory, which increased by approximately $30.0 million in the quarter. 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; and-- Under Finisar's $70.0 million secured credit facility with Wells Fargo Foothill, LLC, $54.9 million was available to borrow at the end of the third 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 third quarter of fiscal 2010, these excluded items related to continuing operations totaled $5.9 million of which $3.5 million is non-cash stock-based compensation expense; $1.6 million is a non-cash amortization charge related to acquired developed technology and purchased intangibles arising from previous acquisitions; $441,000 is a non-cash charge related to foreign currency translation; and $383,000 is a non-cash charge for imputed interest expense on the Company's debt obligations. Other items are as described in Finisar Non-GAAP Financial Measures below.
Excluding these items:
-- Non-GAAP gross margin from continuing operations was 32.2% in the third quarter compared to 29.6% in the preceding quarter and 28.7% in the third quarter of the prior year reflecting the cost benefit of spreading fixed manufacturing costs over a larger number of units and a more favorable product mix;-- Non-GAAP operating expenses for continuing operations were $39.7 million in the third quarter, an increase of $5.5 million from the preceding quarter and $5.8 million from the third quarter of the prior year. The increase in the current quarter reflects in part the restoration of salary cuts taken during the previous year as well as variable compensation associated with the company's improved performance. Approximately $2 million of the increase from the preceding quarter was for items other than those related to compensation;-- Non-GAAP operating income from continuing operations was $14.1 million, or 8.5% of revenues, in the third quarter, up $5.3 million from $8.9 million, or 6.1% of revenues, in the preceding quarter, and $11.8 million from $2.4 million, or 1.9% of revenues, in the third quarter of the prior year;-- Non-GAAP net income from continuing operations was $11.5 million, or $0.17 per diluted share, compared to net income of $7.5 million, or $0.11 per diluted share, in the preceding quarter and net income of $1.6 million, or $0.03 per basic and diluted share, in the third quarter of the prior year; and-- Non-GAAP EBITDA from continuing operations rose to $21.6 million in the third quarter compared to $16.0 million in the preceding quarter and $10.4 million in the third quarter of the prior year.
COMMENTARY
"This marks our third consecutive quarter of growth in revenues at double digit rates," said Jerry Rawls, Finisar's executive Chairman of the Board. "This is a result of a winning product portfolio and strong customer support as we worked to meet a surge in product demand. A robust order trend and healthy backlog have continued into our fourth fiscal quarter which should enable us to make a strong finish to this fiscal year."
"I am delighted with our progress in manufacturing operations and the improvements we were able to achieve in manufacturing yields," said Eitan Gertel, Finisar's Chief Executive Officer. "Our ongoing efforts to reduce product costs and transition production to our off-shore locations during the fourth fiscal quarter should position us well for realizing our previous target of 10% operating margin on a non-GAAP basis in the near future."
OUTLOOK
The Company indicated that it currently expects that revenues for its fourth fiscal quarter ending April 30, 2010 will likely range from $175 to $185 million. On a GAAP basis, gross margin is expected to be approximately the same as the third quarter with operating margin in the range of 4.5% to 6%. Additional non-cash and infrequently occurring charges excluded in calculating non-GAAP operating income are expected to total approximately $6 to $8 million. As a result, on a non-GAAP basis, gross margin is also expected to be approximately the same as the third quarter with non-GAAP operating margin in the range of 8.5% to 10%. |
