SOURCE: Infinera

Infinera

April 20, 2010 16:10 ET

Infinera Corporation Reports First Quarter 2010 Financial Results

Grows Revenues for Fourth Straight Quarter to $95.8 Million; Achieves Positive Cash Flow; Adds Five New Customers

SUNNYVALE, CA--(Marketwire - April 20, 2010) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the first quarter ended March 27, 2010.

--  GAAP revenues for the first quarter of 2010 were $95.8 million compared
    to $90.2 million in the fourth quarter of 2009 and $66.6 million in the
    first quarter of 2009.

--  GAAP gross margins for the quarter were 39% compared to 38% in the
    fourth quarter of 2009 and 30% in the first quarter of 2009.  GAAP net
    loss for the quarter was $20.0 million, or $(0.21) per share, compared
    to $18.7 million, or $(0.19) per share, in the fourth quarter of 2009
    and $24.3 million, or $(0.26) per share, in the first quarter of 2009.

--  Non-GAAP gross margins for the first quarter of 2010 were 41% compared
    to 40% in the fourth quarter of 2009 and 31% in the first quarter of
    2009, excluding restructuring and other related costs and non-cash
    stock-based compensation. Non-GAAP net loss for the first quarter of
    2010 was $7.0 million, or $(0.07) per share, compared to net loss of
    $6.5 million, or $(0.07) per share in the fourth quarter of 2009 and
    net loss of $17.6 million, or $(0.19) per share, in the first quarter
    of 2009.

Management Commentary

"Our solid first quarter results demonstrate that market demand remains strong for Infinera's PIC-based networks, which provide the optical industry's most cost-effective solution and most advanced intelligent bandwidth management capabilities," said Tom Fallon, president and chief executive officer. "In the first quarter of 2010, we grew revenue for the fourth consecutive quarter, improved gross margins for the third consecutive quarter and had record bookings for the second quarter in a row."

"Against the backdrop of an improving technology spending environment, business activity is healthy across all our major markets and customer segments," said Fallon. "During the first quarter we added five new customers to our roster including one of Japan's top three service providers, and we continued to grow our footprint across an expanded set of market opportunities."

The company also noted the following developments:

--  With the addition of the five new customers this quarter, the company's
    total customer count is 74. Among the new customers, three were from
    North America, one from Europe and one from Asia. The new Asia-based
    customer has begun Infinera deployments in both Asia and North America.

--  One new ATN win this quarter which brings the company's total ATN
    customer count to seven, six of which are existing DTN customers.

--  The company won expanded footprint with existing customers including a
    new significant opportunity with an existing Tier One account for a
    Latin American deployment, as well as an expanded relationship with
    another customer that will include participating in a series of large
    overbuilds in a global capacity expansion.

--  The Company generated $2.3 million of cash from operations for the
    quarter.

--  The top 5 customers for the quarter included Level 3, two additional
    established carriers, and two of the world's largest internet content
    providers. Level 3 and one of the leading internet content providers
    were 10% or greater customers at 22% and 16% of revenue, respectively.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its first quarter results and second quarter outlook 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 1-866-395-9179. International parties can access the replay at 1-203-369-0503.

About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide. Infinera's systems are unique in their use of a breakthrough semiconductor technology: the Photonic Integrated Circuit (PIC). Infinera's systems and PIC technology are designed to provide optical networks with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about our belief that the market demand for our solutions and systems remain strong, our belief that our PIC-based network provides the optical industry's most cost-effective solution and most advanced intelligent bandwidth management capabilities, our belief that we are seeing an improvement in the technology spending environment, our belief that business activity is healthy across all our major markets and customer segments, and our belief that we are continuing to grow our footprint across an expanded set of market opportunities. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs and develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the U.S. Securities and Exchange Commission (SEC). More information about these and other risks that may impact Infinera's business are set forth in our annual report on Form 10-K, which was filed with the SEC on March 1, 2010, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these 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 non-recurring restructuring and other related costs. 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 or basic and diluted net income per share 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 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 first quarter 2010 results, including an estimate of non-GAAP earnings for the second quarter of 2010 that excludes non-cash stock-based compensation expenses.

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
                                               ---------------------------
                                                 March 27,      March 28,
                                                   2010           2009
                                               ------------   ------------
Revenue:
  Product                                      $     86,167   $     59,148
  Ratable product and related support
   and services                                       1,614          1,469
  Services                                            7,979          5,963
                                               ------------   ------------
     Total revenue                                   95,760         66,580

Cost of revenue (1):
  Cost of product                                    55,440         43,865
  Cost of ratable product and related
   support and services                                 755            730
  Cost of services                                    2,542          2,015
  Restructuring credit related to cost
   of revenue                                           (93)             -
                                               ------------   ------------
     Total cost of revenue                           58,644         46,610

Gross profit                                         37,116         19,970

Operating expenses (1):
  Research and development                           28,483         22,034
  Sales and marketing                                13,037         11,123
  General and administrative                         15,737         10,127
  Restructuring and other costs                         161              -
                                               ------------   ------------
     Total operating expenses                        57,418         43,284

Loss from operations                                (20,302)       (23,314)

Other income (expense), net:
  Interest income                                       485            918
  Other gain (loss), net:                              (316)        (1,814)
                                               ------------   ------------
     Total other income (expense), net                  169           (896)

Loss before provision of income taxes               (20,133)       (24,210)
Provision for (benefit from) income taxes              (142)           118
                                               ------------   ------------
Net loss                                       $    (19,991)  $    (24,328)
                                               ============   ============
Net loss per common share, basic and diluted   $      (0.21)  $      (0.26)
                                               ============   ============

Weighted average shares used in computing
 basic and diluted net loss per common share         97,276         94,275
                                               ============   ============

(1) The following table summarizes the effects of stock-based compensation
    related to employees and non-employees for the three months ended
    March 27, 2010 and March 28, 2009:

                                                   Three Months Ended
                                               ---------------------------
                                                 March 27,      March 28,
                                                   2010           2009
                                               ------------   ------------
  Cost of revenue                              $        569   $        379
  Research and development                            3,423          1,732
  Sales and marketing                                 1,847          1,414
  General and administration                          5,709          2,645
                                               ------------   ------------
                                                     11,548          6,170
  Cost of revenue - amortization from
   balance sheet*                                     1,362            566
                                               ------------   ------------
  Total stock-based compensation expense       $     12,910   $      6,736
                                               ============   ============

* 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 share data)
(Unaudited)

                                             Three Months Ended
                                  ----------------------------------------
                                    March 27,   December 26,    March 28,
                                      2010          2009          2009
                                  ------------  ------------  ------------
Reconciliation of Gross Profit:
U.S. GAAP as reported             $     37,116  $     34,167  $     19,970
Restructuring and other related
 costs (1)                                 (93)          302             -
Stock-based compensation (2)             1,931         1,704           945
                                  ------------  ------------  ------------
Non-GAAP as adjusted              $     38,954  $     36,173  $     20,915
                                  ============  ============  ============

Reconciliation of Gross Margin:
U.S. GAAP as reported                       39%           38%           30%
Restructuring and other related
 costs (1)                                   -%            -%            -%
Stock-based compensation (2)                 2%            2%            1%
                                  ------------  ------------  ------------
Non-GAAP as adjusted                        41%           40%           31%
                                  ============  ============  ============

Reconciliation of Net Loss:
U.S. GAAP as reported             $    (19,991) $    (18,651) $    (24,328)
Restructuring and other related
 costs (1)                                  68           515             -
Stock-based compensation (2)            12,910        11,641         6,736
                                  ------------  ------------  ------------
Non-GAAP as adjusted              $     (7,013) $     (6,495) $    (17,592)
                                  ============  ============  ============

Reconciliation of Net Loss
 per Common Share:
U.S. GAAP as reported             $      (0.21) $      (0.19) $      (0.26)
Restructuring and other related
 costs (1)                                   -          0.01             -
Stock-based compensation (2)              0.14          0.11          0.07
                                  ------------  ------------  ------------
Non-GAAP as adjusted              $      (0.07) $      (0.07) $      (0.19)
                                  ============  ============  ============

Weighted average shares used in
 computing basic and diluted net
 loss per common share:                 97,276        96,573        94,275
                                  ============  ============  ============

(1) Adjustment amount represents restructuring and other related costs
    recorded in relation to the closure of our Maryland FAB announced on
    July 21, 2009. These amounts have been adjusted in arriving at our
    non-GAAP results as they are non-recurring in nature and the adjusted
    numbers provide a better indication of our underlying business
    performance.

                                    Three Months Ended
                ----------------------------------------------------------
                       March 27, 2010              December 26, 2009
                ----------------------------  ----------------------------
                Cost of   Operating           Cost of   Operating
                Revenue   Expenses   Total    Revenue   Expenses   Total
                --------  --------  --------  --------  --------  --------
Severance and
 related
 expenses       $    (15) $     55  $     40  $   (157) $     57  $   (100)
Equipment and
 facility-related
 costs               (78)        -       (78)      459      (255)      204
Lease
 termination           -       106       106         -       411       411
                --------  --------  --------  --------  --------  --------
Total           $    (93) $    161  $     68  $    302  $    213  $    515
                ========  ========  ========  ========  ========  ========

(2) 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
                                  -----------------------------------------
                                    March 27,   December 26,    March 28,
                                      2010          2009          2009
                                  ------------  ------------  ------------
Cost of revenue                   $        569  $        515  $        379
Research and development                 3,423         3,236         1,732
Sales and marketing                      1,847         1,782         1,414
General and administration               5,709         4,919         2,645
                                  ------------  ------------  ------------
                                        11,548        10,452         6,170
Cost of revenue - amortization
 from balance sheet*                     1,362         1,189           566
                                  ------------  ------------  ------------
Total stock-based compensation
 expense                          $     12,910  $     11,641  $      6,736
                                  ============  ============  ============

* Stock-based compensation expense deferred to inventory and deferred
  inventory costs in prior periods and recognized in the current period.





Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)

                                                 March 27,    December 26,
                                                   2010           2009
                                               ------------   ------------
ASSETS

Current assets:
  Cash and cash equivalents                    $    104,817   $    109,859
  Short-term investments                            160,239        143,350
  Short-term restricted cash                          1,533          1,533
  Accounts receivable                                59,382         70,410
  Inventories, net                                   72,016         68,872
  Deferred inventory costs                            5,830          5,891
  Prepaid expenses and other current assets           9,415          8,313
                                               ------------   ------------
     Total current assets                           413,232        408,228

Property, plant and equipment, net                   44,060         43,656
Deferred inventory costs, non-current                 6,024          4,438
Long-term investments                                 8,261         18,255
Long-term restricted cash                             2,383          2,480
Deferred tax asset                                   10,849         12,449
Other non-current assets                              2,385          2,439
                                               ------------   ------------
     Total assets                              $    487,194   $    491,945
                                               ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                             $     33,545   $     31,129
  Accrued expenses                                   15,797         13,929
  Accrued compensation and related benefits          12,629         19,248
  Accrued warranty                                    5,853          6,091
  Deferred revenue                                   20,277         18,295
  Deferred tax liability                             11,049         12,649
                                               ------------   ------------
     Total current liabilities                       99,150        101,341

  Accrued warranty, non-current                       4,797          5,049
  Deferred revenue, non-current                       8,352          8,080
  Other long-term liabilities                         8,625          8,968

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
   March 27, 2010 and December 26, 2009
   Issued and outstanding shares - 97,794
   as of March 27, 2010 and 96,874 as of
   December 26, 2009                                     98             97
  Additional paid-in capital                        764,846        747,580
  Accumulated other comprehensive loss               (1,323)        (1,810)
  Accumulated deficit                              (397,351)      (377,360)
                                               ------------   ------------
  Total stockholders' equity                        366,270        368,507
                                               ------------   ------------
     Total liabilities and stockholders'
      equity                                   $    487,194   $    491,945
                                               ============   ============





Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

                                                   Three Months Ended
                                               ---------------------------
                                                 March 27,      March 28,
                                                   2010           2009
                                               ------------   ------------
Cash Flows from Operating Activities:
Net loss                                       $    (19,991)  $    (24,328)
Adjustments to reconcile net loss to net
 cash provided by (used in) operating
 activities:
   Depreciation and amortization                      3,983          3,878
   Amortization of premium on investments               540             14
   Stock-based compensation expense                  12,910          6,736
   Unrealized loss on Put Rights                      2,104          1,967
   Unrealized holding gain for trading
    securities                                       (2,104)          (972)
   Non-cash tax benefit                                (270)             -
   Loss (gain) on disposal of assets                     60            (15)
   Other gain                                           (25)             -
   Changes in assets and liabilities:
      Accounts receivable                            11,028         24,659
      Inventories, net                               (3,209)        (4,880)
      Prepaid expenses and other current
       assets                                          (708)          (491)
      Deferred inventory costs                       (1,555)           668
      Other non-current assets                        1,627             59
      Accounts payable                                2,624         (5,276)
      Accrued liabilities and other expenses         (6,502)        (2,899)
      Deferred revenue                                2,254         (1,813)
      Accrued warranty                                 (489)          (238)
                                               ------------   ------------
         Net cash provided by (used in)
          operating activities                        2,277         (2,931)

Cash Flows from Investing Activities:
   Purchase of available-for-sale investments       (75,656)       (32,013)
   Proceeds from maturities and calls of
    investments                                      68,598         22,804
   Proceeds from disposal of assets                      85             49
   Purchase of property and equipment                (4,692)        (5,960)
   Change in restricted cash                             99            384
                                               ------------   ------------
         Net cash used in investing
          activities                                (11,566)       (14,736)

Cash Flows from Financing Activities:
   Proceeds from issuance of common stock             4,397          4,335
   Repurchase of common stock                            (2)            (8)
   Payments for purchase of assets under
    financing arrangement                               (87)             -
                                               ------------   ------------
         Net cash provided by financing
          activities                                  4,308          4,327

Effect of exchange rate changes on cash                 (61)           (59)

Net change in cash and cash equivalents              (5,042)       (13,399)
Cash and cash equivalents at beginning of
 period                                             109,859        166,770
                                               ------------   ------------
Cash and cash equivalents at end of period     $    104,817   $    153,371
                                               ============   ============

Supplemental disclosures of cash flow
 information:
   Cash paid for income taxes                  $        335   $        942





Infinera Corporation
Supplemental Financial Information


                Q2'08  Q3'08   Q4'08   Q1'09   Q2'09   Q3'09   Q4'09  Q1'10
                -----  -----   -----   -----   -----   -----   -----  -----
Revenue (1)     $90.8  $80.9   $86.2   $66.6   $68.9   $83.4   $90.2  $95.8
Gross
 Margin % (1)     47%    42%     36%     31%     31%     38%     40%    41%
                -----  -----   -----   -----   -----   -----   -----  -----
Invoiced
 Shipment
 Composition:
Domestic %        78%    81%     73%     74%     64%     63%     74%    79%
International %   22%    19%     27%     26%     36%     37%     26%    21%
Largest
 Customer %       21%    27%     23%     30%     20%     15%     17%    22%
                -----  -----   -----   -----   -----   -----   -----  -----
Cash Related
 Information:
Cash from
 Operations     $ 5.6  $ 9.9   $(5.4)  $(2.9)  $(18.8) $(8.3)  $(2.7) $ 2.3
Capital
 Expenditures   $ 4.8  $ 5.9   $ 7.8   $ 6.0   $ 2.8   $ 2.8   $ 4.4  $ 4.7
Depreciation &
 Amortization   $ 2.9  $ 3.4   $ 4.1   $ 3.9   $ 4.0   $ 4.2   $ 4.5  $ 4.0
DSO's              57     55      74      61      72      61      71     56
                -----  -----   -----   -----   -----   -----   -----  -----
Inventory
 Metrics:
Raw Materials   $ 9.2  $10.0   $ 9.1   $ 7.7   $10.1   $ 7.4   $ 6.9  $ 7.5
Work in
 Process        $34.6  $35.8   $37.9   $43.2   $40.1   $36.2   $32.1  $31.5
Finished
 Goods          $13.8  $12.8   $12.0   $13.6   $22.3   $29.3   $29.9  $33.0
                -----  -----   -----   -----   -----   -----   -----  -----
Total
 Inventory      $57.6  $58.6   $59.0   $64.5   $72.5   $72.9   $68.9  $72.0
Inventory
 Turns (1)        3.3    3.2     3.8     2.8     2.6     3.0     3.2    3.2
                -----  -----   -----   -----   -----   -----   -----  -----
 Worldwide
  Headcount       853    889     937     962     973     970     974    999
                -----  -----   -----   -----   -----   -----   -----  -----

(1) Periods from Q2'08 through Q4'08 reflect Adjusted GAAP results and
    non-GAAP adjustments. Periods Q1'09 and going forward reflect non-GAAP
    results. Adjusted GAAP results reflect our GAAP results reduced for
    amounts released from deferred revenue and deferred cost of inventory
    balances recorded prior to the second quarter of 2008 and previously
    reported in our invoiced shipment results. Non-GAAP adjustments include
    restructuring and other related costs and non-cash stock-based
    compensation.


Contact Information