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Infinera Corporation Reports Second Quarter 2013 Financial Results

SUNNYVALE, CA -- (Marketwired) -- 07/24/13 -- Infinera Corporation (NASDAQ: INFN), a leader in Intelligent Transport Networks™, today released financial results for the second quarter ended June 29, 2013.

GAAP revenues for the second quarter of 2013 were $138.4 million compared to $124.6 million in the first quarter of 2013 and $93.5 million in the second quarter of 2012.

GAAP gross margin for the second quarter of 2013 was 37% compared to 34% in the first quarter of 2013 and 35% in the second quarter of 2012. GAAP net loss for the quarter was $(10.0) million, or $(0.09) per share, compared to net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013 and net loss of $(29.5) million, or $(0.27) per share, in the second quarter of 2012.

Non-GAAP gross margin for the second quarter of 2013 was 39% compared to 36% in the first quarter of 2013 and 37% in the second quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2013 was $(1.2) million, or $(0.01) per share excluding non-cash stock-based compensation expenses and the amortization of debt discount on our convertible senior notes. This compared to a non-GAAP net loss of $(7.3) million, or $(0.06) per share, in the first quarter of 2013 and a non-GAAP net loss of $(18.6) million, or $(0.16) per share, in the second quarter of 2012.

Management Commentary

"We continued to increase momentum in the second quarter, delivering strong revenue growth, improved gross margin, and positive cash flow from operations," said Tom Fallon, chief executive officer. "Customer acceptance of the DTN-X platform also continues to grow. During the quarter, we received seven new purchase commitments, including three from customers new to Infinera, bringing the total number of commitments to 34 since the platform was introduced a year ago.

"Our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services. Infinera's recently announced Intelligent Transport Network offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition.

"We remain focused on winning new network deployments and expanding our market presence to generate sustainable revenue growth and profitability in the future while we help our customers prepare for the Terabit Era."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results and its outlook for the third quarter today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the Investor Relations' section of the company's website at www.infinera.com. Following the webcast, an archived version will be available on the website for 90 days. To hear the replay, parties in the United States and Canada should call 1-800-846-1910. International parties can access the replay at 1-402-280-9953.

About Infinera

Infinera is a leader in Intelligent Transport Networks. Intelligent Transport Networks help carriers exploit the increasing demand for cloud-based services and data center connectivity as they advance into the Terabit Era. Infinera is unique in its use of breakthrough semiconductor technology to deliver large scale Photonic Integrated Circuit (PICs) and the application of PICs to vertically integrated optical networking solutions that deliver the industry's only commercially available 500 Gb/s FlexCoherent super-channels. Infinera Intelligent Transport Network solutions include the DTN-X, DTN and ATN platforms. Find more at www.infinera.com.

Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to Infinera as of the date hereof and actual results could differ materially from those stated or implied due to risks and uncertainties. Forward-looking statements include statements regarding Infinera's expectations, beliefs, intentions or strategies regarding the future including statements that customer acceptance of the DTN-X platform continues to grow; that our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services; and that Infinera's recently announced Intelligent Transport Network™ offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition. Such forward-looking statements can be identified by forward-looking words such as "anticipated," "believed," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include aggressive business tactics by our competitors, our reliance on single-source suppliers, our ability to protect our intellectual property, claims by others that we infringe their intellectual property, and our ability to respond to rapid technological changes, and other risks that may impact our business are set forth in our annual reports on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2013, as well as subsequent reports filed with or furnished to the SEC. These reports are available on our website at www.infinera.com and the SEC's website at www.sec.gov. Infinera assumes no obligation to, and does not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses and amortization of debt discount on our convertible senior notes. We believe these adjustments are appropriate to enhance an overall understanding of our underlying financial performance and also our prospects for the future and are considered by management for the purpose of making operational decisions. In addition, these results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), basic and diluted net income (loss) per share, or gross margin prepared in accordance with GAAP. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations. For a description of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, "GAAP to Non-GAAP Reconciliations." We anticipate disclosing forward-looking non-GAAP information in our conference call to discuss our second quarter results, including an estimate of non-GAAP earnings for the third quarter of 2013 that excludes non-cash stock-based compensation expenses and amortization of debt discount on our convertible senior notes.

A copy of this press release can be found on the Investor Relations' page of Infinera's website at www.infinera.com.

Infinera Corporation and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners.

Infinera Corporation
GAAP Condensed Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Revenue:
Product $ 120,153 $ 77,843 $ 227,962 $ 170,234
Ratable product and related support and services 494 523 1,028 1,054
Services 17,738 15,092 34,020 26,871
Total revenue 138,385 93,458 263,010 198,159
Cost of revenue (1):
Cost of product 80,129 56,017 155,481 115,341
Cost of ratable product and related support and services 69 166 164 357
Cost of services 6,533 4,901 13,009 9,660
Total cost of revenue 86,731 61,084 168,654 125,358
Gross profit 51,654 32,374 94,356 72,801
Operating expenses (1):
Research and development 31,681 31,676 61,407 62,661
Sales and marketing 17,155 17,777 35,201 36,019
General and administrative 11,426 12,320 21,298 23,404
Total operating expenses 60,262 61,773 117,906 122,084
Loss from operations (8,608 ) (29,399 ) (23,550 ) (49,283 )
Other income (expense), net:
Interest income 207 228 404 503
Interest expense (849 ) - (849 ) -
Other gain (loss), net: (158 ) 149 (361 ) (275 )
Total other income (expense), net (800 ) 377 (806 ) 228
Loss before income taxes (9,408 ) (29,022 ) (24,356 ) (49,055 )
Provision for income taxes 601 527 932 1,106
Net loss $ (10,009 ) $ (29,549 ) $ (25,288 ) $ (50,161 )
Net loss per common share, basic and diluted $ (0.09 ) $ (0.27 ) $ (0.22 ) $ (0.46 )
Weighted average shares used in computing basic and diluted net loss per common share 116,911 110,403 115,609 109,534
(1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and six months ended June 29, 2013 and June 30, 2012:
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2013 2012 2013 2012
Cost of revenue $ 474 $ 686 $ 960 $ 1,292
Research and development 2,622 3,695 5,741 7,015
Sales and marketing 1,807 2,744 3,806 4,963
General and administration 1,591 2,705 2,360 4,928
6,494 9,830 12,867 18,198
Cost of revenue - amortization from balance sheet* 1,690 1,100 3,292 2,169
Total stock-based compensation expense $ 8,184 $ 10,930 $ 16,159 $ 20,367
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 29, March 30, June 30, June 29, June 30,
2013 2013 2012 2013 2012
Reconciliation of Gross Profit:
U.S. GAAP as reported $ 51,654 $ 42,702 $ 32,374 $ 94,356 $ 72,801
Stock-based compensation(1) 2,164 2,088 1,786 4,252 3,461
Non-GAAP as adjusted $ 53,818 $ 44,790 $ 34,160 $ 98,608 $ 76,262
Reconciliation of Gross Margin:
U.S. GAAP as reported 37 % 34 % 35 % 36 % 37 %
Stock-based compensation(1) 2 % 2 % 2 % 1 % 2 %
Non-GAAP as adjusted 39 % 36 % 37 % 37 % 39 %
Reconciliation of Lossfrom Operations:
U.S. GAAP as reported $ (8,608 ) $ (14,942 ) $ (29,399 ) $ (23,550 ) $ (49,283 )
Stock-based compensation(1) 8,184 7,975 10,930 16,159 20,367
Non-GAAP as adjusted $ (424 ) $ (6,967 ) $ (18,469 ) $ (7,391 ) $ (28,916 )
Reconciliation of Net Loss:
U.S. GAAP as reported $ (10,009 ) $ (15,279 ) $ (29,549 ) $ (25,288 ) $ (50,161 )
Stock-based compensation(1) 8,184 7,975 10,930 16,159 20,367
Amortization of debt discount(2) 580 - - 580 -
Non-GAAP as adjusted $ (1,245 ) $ (7,304 ) $ (18,619 ) $ (8,549 ) $ (29,794 )
Net Loss per Common Share - Basic:
U.S. GAAP as reported $ (0.09 ) $ (0.13 ) $ (0.27 ) $ (0.22 ) $ (0.46 )
Non-GAAP as adjusted $ (0.01 ) $ (0.06 ) $ (0.17 ) $ (0.07 ) $ (0.27 )
Net Loss per CommonShare - Diluted:
U.S. GAAP as reported $ (0.09 ) $ (0.13 ) $ (0.27 ) $ (0.22 ) $ (0.46 )
Non-GAAP as adjusted(3) $ (0.01 ) $ (0.06 ) $ (0.16 ) $ (0.07 ) $ (0.26 )
Weighted average sharesused in computing net lossper common share - U.S. GAAP:
Basic 116,911 114,308 110,403 115,609 109,534
Diluted 116,911 114,308 110,403 115,609 109,534
Weighted average sharesused in computing net lossper common share - Non-GAAP:
Basic 116,911 114,308 110,403 115,609 109,534
Diluted(3) 121,254 117,602 112,931 119,428 112,469
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, Compensation-Stock Compensation effective January 1, 2006. The following table summarizes the effects of stock-based compensation related to employees and non-employees:
Three Months Ended Six Months Ended
June 29, March 30, June 30, June 29, June 30,
2013 2013 2012 2013 2012
Cost of revenue $ 474 $ 486 $ 686 $ 960 $ 1,292
Research and development 2,622 3,119 3,695 5,741 7,015
Sales and marketing 1,807 1,999 2,744 3,806 4,963
General and administration 1,591 769 2,705 2,360 4,928
6,494 6,373 9,830 12,867 18,198
Cost of revenue - amortization from balance sheet* 1,690 1,602 1,100 3,292 2,169
Total stock-based compensation expense $ 8,184 $ 7,975 $ 10,930 $ 16,159 $ 20,367
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
(2) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as a debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on our $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at our non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of our underlying business performance.
(3) Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only.
Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)
June 29, December 29,
2013 2012
ASSETS
Current assets:
Cash and cash equivalents $ 181,211 $ 104,666
Short-term investments 120,437 76,146
Accounts receivable, net of allowance for doubtful accounts of $133 in 2013 and $94 in 2012 96,668 107,039
Other receivables 1,112 2,909
Inventory 121,317 127,809
Deferred inventory costs 850 1,029
Prepaid expenses and other current assets 14,495 9,899
Total current assets 536,090 429,497
Property, plant and equipment, net 78,391 80,343
Deferred inventory costs, non-current 38 100
Long-term investments 23,427 2,874
Cost-method investment 9,000 9,000
Long-term restricted cash 3,850 3,868
Deferred tax asset - 805
Other non-current assets 5,564 1,683
Total assets $ 656,360 $ 528,170
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,977 $ 61,428
Accrued expenses 18,221 25,483
Accrued compensation and related benefits 24,997 22,325
Accrued warranty 8,332 7,262
Deferred revenue 31,429 26,744
Deferred tax liability - 805
Total current liabilities 118,956 144,047
Long-term debt 105,580 -
Accrued warranty, non-current 11,369 9,220
Deferred revenue, non-current 2,964 3,210
Other long-term liabilities 18,341 15,557
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value
Authorized shares - 25,000 and no shares issued and outstanding - -
Common stock, $0.001 par value
Authorized shares - 500,000 as of June 29, 2013 and December 29, 2012
Issued and outstanding shares - 117,947 as of June 29, 2013 and 112,461 as of December 29, 2012 118 112
Additional paid-in capital 1,000,106 930,618
Accumulated other comprehensive loss (3,420 ) (2,228 )
Accumulated deficit (597,654 ) (572,366 )
Total stockholders' equity 399,150 356,136
Total liabilities and stockholders' equity $ 656,360 $ 528,170
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 29, June 30,
2013 2012
Cash Flows from Operating Activities:
Net loss $ (25,288 ) $ (50,161 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 12,621 11,224
(Recovery of) provision for other receivables (88 ) -
Provision for doubtful accounts 40 -
Amortization of debt discount and issuance costs 630 -
Amortization of premium on investments 450 1,098
Stock-based compensation expense 16,159 20,367
Other gain (243 ) (501 )
Changes in assets and liabilities:
Accounts receivable 10,332 24,416
Other receivables 1,629 (477 )
Inventory 791 (24,770 )
Prepaid expenses and other assets (4,083 ) 1,533
Deferred inventory costs 216 3,910
Accounts payable (23,980 ) (8,753 )
Accrued liabilities and other expenses (220 ) (2,272 )
Deferred revenue 4,440 (4,952 )
Accrued warranty 3,219 837
Net cash used in operating activities (3,375 ) (28,501 )
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (130,828 ) (42,853 )
Proceeds from sale of available-for-sale investments 2,850 5,194
Proceeds from maturities and calls of investments 62,647 70,464
Purchase of property and equipment (9,431 ) (19,770 )
Reimbursement of manufacturing capacity advance - 50
Change in restricted cash (6 ) (230 )
Net cash provided by (used in) investing activities (74,768 ) 12,855
Cash Flows from Financing Activities:
Proceeds from issuance of debt, net 144,469 -
Proceeds from issuance of common stock 12,496 7,093
Repurchase of common stock (1,499 ) (839 )
Net cash provided by financing activities 155,466 6,254
Effect of exchange rate changes on cash (778 ) (78 )
Net change in cash and cash equivalents 76,545 (9,470 )
Cash and cash equivalents at beginning of period 104,666 94,458
Cash and cash equivalents at end of period $ 181,211 $ 84,988
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 1,148 $ 595
Supplemental schedule of non-cash financing activities:
Non-cash settlement for manufacturing capacity advance $ - $ 275
Transfer of inventory to fixed assets $ 4,684 $ -
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13
Revenue ($ Mil) $ 104.0 $ 112.0 $ 104.7 $ 93.5 $ 112.2 $ 128.1 $ 124.6 $ 138.4
Gross Margin % (1) 41 % 42 % 40 % 37 % 39 % 36 % 36 % 39 %
Invoiced Shipment Composition:
Domestic % 65 % 70 % 71 % 70 % 70 % 63 % 63 % 64 %
International % 35 % 30 % 29 % 30 % 30 % 37 % 37 % 36 %
Largest Customer % < 10 % 14 % 13 % 15 % 13 % 13 % 14 % < 10 %
Cash Related Information:
Cash from (used in) Operations ($ Mil) $ 4.1 $ (5.1 ) $ (5.8 ) $ (22.7 ) $ (29.3 ) $ 8.3 $ (21.3 ) $ 17.9
Capital Expenditures ($ Mil) $ 5.9 $ 16.1 $ 13.6 $ 6.1 $ 2.5 $ 3.2 $ 4.9 $ 4.5
Depreciation & Amortization ($ Mil) $ 4.9 $ 4.5 $ 5.5 $ 5.7 $ 6.1 $ 6.4 $ 6.3 $ 6.3
DSO's 60 65 57 55 74 76 82 64
Inventory Metrics:
Raw Materials ($ Mil) $ 7.0 $ 12.1 $ 15.3 $ 14.8 $ 12.4 $ 13.0 $ 12.2 $ 9.8
Work in Process ($ Mil) $ 26.9 $ 37.0 $ 41.6 $ 49.4 $ 59.8 $ 57.3 $ 53.1 $ 41.0
Finished Goods ($ Mil) $ 36.4 $ 39.9 $ 44.7 $ 50.9 $ 46.3 $ 57.5 $ 65.7 $ 70.5
Total Inventory ($ Mil) $ 70.3 $ 89.0 $ 101.6 $ 115.1 $ 118.5 $ 127.8 $ 131.0 $ 121.3
Inventory Turns (1) 3.5 2.9 2.5 2.1 2.3 2.6 2.4 2.8
Worldwide Headcount 1,151 1,181 1,210 1,228 1,235 1,242 1,219 1,238
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.

Contacts:
Media:
Anna Vue
avue@infinera.com
Infinera Corporation
916-595-8157

Investors/Analysts:
Jenifer Kirtland/Bob Jones
jkirtland@infinera.com bjones@infinera.com
Infinera Corporation
408-543-8139/408-543-8140

Source: Infinera