SOURCE: Infinera

Infinera

January 26, 2010 16:10 ET

Infinera Corporation Reports Fourth Quarter and Fiscal Year 2009 Financial Results

Q4 Revenues of $90.2 Million, Including Record Bookings and Higher TAM Shipments

SUNNYVALE, CA--(Marketwire - January 26, 2010) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the fourth quarter and fiscal year ended December 26, 2009.

Results for Q4 2009:

--  GAAP revenues for the fourth quarter of 2009 were $90.2 million compared
    to $83.4 million in the third quarter of 2009 and $86.2 million on an
    adjusted GAAP basis in the fourth quarter of 2008.
--  GAAP gross margins for the quarter were 38%. Excluding restructuring and
    other related costs and non-cash stock-based compensation, non-GAAP gross
    margins were 40% compared to 38% in the third quarter of 2009 and 36% on an
    adjusted GAAP basis in the fourth quarter of 2008.
--  GAAP net loss for the quarter was $18.7 million, or $0.19 per share.
    Excluding restructuring and other related costs and non-cash stock-based
    compensation, the net loss on a non-GAAP basis was $6.5 million, or $0.07
    per share, compared to net loss of $3.1 million, or $0.03 per share in the
    third quarter of 2009 and net loss on an adjusted GAAP basis of $9.0
    million, or $0.10 per share, in the fourth quarter of 2008.
    

Results for Fiscal 2009:

--  GAAP revenues for the year ended December 26, 2009 were $309.1
    million compared to $353.4 million on an adjusted GAAP basis in 2008.
--  GAAP gross margins for the year were 33%. Excluding restructuring and
    other related costs and non-cash stock-based compensation, gross margins
    were 36% in 2009 compared to 43% on an adjusted GAAP basis in 2008.
--  GAAP net loss for the year was $86.6 million, or $0.91 per share.
    Excluding restructuring and other related costs and non-cash stock-based
    compensation, the net loss on a non-GAAP basis was $45.4 million or $0.48
    per share in 2009, compared to net income on an adjusted GAAP basis of
    $14.3 million or $0.15 per diluted share in 2008.
    

Management Commentary

"We are pleased with the continuation of our sequential growth in revenues and gross margins in the fourth quarter as well as our record bookings for the quarter and year, reflecting our success in expanding our customer footprint throughout fiscal year 2009, " said Tom Fallon, president and chief executive officer. "In the fourth quarter, we invoiced our highest level of tributary adapter modules (TAMs) in six quarters and saw continued strength in our common equipment sales."

"We are seeing good opportunities with both current and prospective customers across all served markets," said Fallon. "The market continues to embrace Infinera's disruptive PIC-based approach of providing the best, most cost-effective and most flexible optical networks to address their bandwidth needs -- both with our existing products and the new products on our roadmap. To meet these needs, we are committed to continuing to invest in technologies and products that will advance Infinera's technology leadership position across our expanded addressable markets of submarine, ultra long haul, long haul, metro core, and metro edge."

The company noted the following additional developments:

--  The addition of three new customers bringing the company's total
    customer count to 69.
--  Among the new customers was Tiscali, one of the leading
    telecommunications companies in Italy, which selected both the Infinera DTN
    and ATN for its nationwide Italian backbone and metro networks.
--  Shipment of Infinera equipment for a nationwide build-out for an
    unnamed leading internet content provider in the fourth quarter -- for a
    win that was achieved and for which initial orders were received in Q3. As
    a result of this rapid deployment, the customer finished as Infinera's top
    customer for the first time in Q4.
--  The other large Q4 customer was Level 3, which contributed 12% of
    revenues vs. slightly less than 10% in Q3.
--  The top 5 customers for the quarter included two of the largest
    internet content providers in the world, two established European
    customers, as well as Level 3.
--  In addition to previously announced submarine network wins in the
    Americas with Global Crossing and Telefonica, the company recently won a
    6,000 kilometer Trans-Atlantic submarine route with an existing customer.
    

----------------------------------------------------

Note: For an explanation of our use of Non-GAAP and Adjusted GAAP measures and a full reconciliation of these measures to our GAAP results, please see the section of the accompanying tables titled "GAAP to Non-GAAP and Adjusted GAAP Reconciliations." We have not shown comparisons to our fourth quarter and fiscal 2008 GAAP results in the body of this press release because those results were significantly affected by the recognition of ratable product and related support and services revenue from shipments made prior to the fourth quarter of 2008, which we believe makes those comparisons less useful for investors. See our GAAP Condensed Consolidated Statements of Operations attached to this release for these GAAP to GAAP comparisons.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its fourth quarter results and first 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 30 days. To hear the replay, parties in the United States and Canada should call 1-866-416-4355. International parties can access the replay at 1-203-369-0719.

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 we are seeing good opportunities with both current and prospective customers across all served markets, our belief that our PIC-based approach of providing the best, most cost-effective and most flexible optical networks to address our customer's bandwidth needs, our commitment to continuing to invest in technologies and products that will advance Infinera's technology leadership position. 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 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 February 17, 2009, 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.

Non-GAAP and other Financial Measures

In addition to disclosing financial measures prepared in accordance with United States Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP and other financial measures that reflect adjusted GAAP revenue and exclude non-cash stock-based compensation expenses and non-recurring restructuring and other related costs. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "GAAP to Non-GAAP and Adjusted GAAP Reconciliations" as well as the accompanying notes on the use of certain non-GAAP measures. We anticipate disclosing forward-looking non-GAAP and other financial information in our conference call to discuss our fourth quarter 2009 results, including an estimate of non-GAAP earnings for the first 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 per share data)
(Unaudited)

                                 Three Months Ended   Twelve Months Ended
                                --------------------  --------------------
                                December   December   December   December
                                   26,        27,        26,        27,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------

Revenue:
  Product                       $  82,100  $  80,045  $ 276,012  $ 306,808
  Ratable product and related
   support and services             1,025     12,243      4,231    193,705
  Services                          7,056      7,056     28,858     18,699
                                ---------  ---------  ---------  ---------
    Total revenue                  90,181     99,344    309,101    519,212
Cost of revenue (1):
  Cost of product                  52,686     52,306    189,723    184,234
  Cost of ratable product and
   related support and services       399      5,088      1,931     91,625
   Cost of services                 2,627      3,984     12,308      9,798
  Restructuring and other costs
   related to cost of revenue         302          -      3,038          -
                                ---------  ---------  ---------  ---------
    Total cost of revenue          56,014     61,378    207,000    285,657

Gross profit                       34,167     37,966    102,101    233,555

Operating expenses (1):
  Sales and marketing              13,446     10,985     48,391     43,262
  Research and development         26,829     23,256     97,178     80,428
  General and administrative       13,291     10,650     45,269     36,282
  Restructuring and other costs       213          -        814          -
  Amortization of intangible
   assets                              14         39        110        150
                                ---------  ---------  ---------  ---------
    Total operating expenses       53,793     44,930    191,762    160,122

Income (loss) from operations     (19,626)    (6,964)   (89,661)    73,433

Other income (expense), net:
  Interest income                     732      1,313      2,688      8,549
  Interest expense                      -          -          -         (3)
  Net impairment losses
   recognized in earnings (2)           -          -     (1,094)         -
  Other gain (loss), net             (288)    (1,741)      (426)      (528)
                                ---------  ---------  ---------  ---------
    Total other income
     (expense), net                   444       (428)     1,168      8,018

Income (loss) before income
 taxes                            (19,182)    (7,392)   (88,493)    81,451
Provision for (benefit from)
 income taxes                        (531)      (704)    (1,871)     2,723
                                ---------  ---------  ---------  ---------
Net income (loss)               $ (18,651) $  (6,688) $ (86,622) $  78,728
                                =========  =========  =========  =========

Net income (loss) per common
 share:
  Basic                         $   (0.19) $   (0.07) $   (0.91) $    0.85
                                =========  =========  =========  =========
  Diluted                       $   (0.19) $   (0.07) $   (0.91) $    0.81
                                =========  =========  =========  =========

Weighted average shares used
 in computing net income
 (loss) per common share:
   Basic                           96,573     93,449     95,468     92,427
                                =========  =========  =========  =========
   Diluted                         96,573     93,449     95,468     97,088
                                =========  =========  =========  =========


(1) The following table summarizes the effects of stock-based compensation
    related to employees and non-employees for the three and twelve months
    ended December 26, 2009 and December 27, 2008:


                                 Three Months Ended   Twelve Months Ended
                                --------------------  --------------------
                                December   December   December   December
                                   26,        27,        26,        27,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------

  Cost of revenue               $     515  $     308  $   1,861  $   1,086
  Sales and marketing               1,782      1,176      6,505      4,440
  Research and development          3,236      1,821     10,302      6,543
  General and administration        4,919      1,933     15,061      7,463
                                ---------  ---------  ---------  ---------
                                   10,452      5,238     33,729     19,532
  Cost of revenue - amortization
   from balance sheet*              1,189        738      3,646      4,287
                                ---------  ---------  ---------  ---------
  Total stock-based
   compensation expense         $  11,641  $   5,976  $  37,375  $  23,819
                                =========  =========  =========  =========


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


(2) The following table summarizes the components of net impairment losses
    recognized in earnings:

                                 Three Months Ended   Twelve Months Ended
                                --------------------  --------------------
                                December   December   December   December
                                   26,        27,        26,        27,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
  Total other-than-temporary
   impairment loss              $       -  $       -  $  (2,747) $       -
  Portion of gain (loss)
   recognized in other
   comprehensive loss                   -          -      1,653          -
                                ---------  ---------  ---------  ---------
  Net impairment losses
   recognized in earnings       $       -  $       -  $  (1,094) $       -
                                =========  =========  =========  =========




Infinera Corporation
GAAP to Non-GAAP and Adjusted GAAP Reconciliations:
---------------------------------------------------------------------------

Infinera Corporation
GAAP to Non-GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                         Three Months Ended December 26, 2009
              -----------------------------------------------------------
                                        Non-GAAP
                         Restruct-     excluding
                          uring        Restruct-    Stock
                GAAP     Charges(1)      uring     Comp(2)      Non-GAAP
              --------   ---------     --------   --------     ----------
Revenue
  Product and
   ratable
   revenue    $ 83,125   $       -     $ 83,125   $      -     $   83,125
  Services
   revenue       7,056           -        7,056          -          7,056
              --------   ---------     --------   --------     ----------
Total revenue   90,181           -       90,181          -         90,181
Cost of
 revenue        56,014        (302)(a)   55,712     (1,704)        54,008
              --------   ---------     --------   --------     ----------
Gross profit    34,167         302       34,469      1,704         36,173
Gross margin        38%                                                40%
Operating
 expenses       53,793        (213)(a)   53,580     (9,937)        43,643
              --------   ---------     --------   --------     ----------
Loss from
 operations    (19,626)        515      (19,111)    11,641         (7,470)
Other income
 (expense),
 net               444           -          444          -            444
              --------   ---------     --------   --------     ----------
Loss before
 income taxes  (19,182)        515      (18,667)    11,641         (7,026)
Benefit from
 income taxes     (531)         -         (531)         -           (531)
              --------   ---------     --------   --------     ----------
Net loss      $(18,651)  $     515     $(18,136)  $ 11,641     $   (6,495)
              ========   =========     ========   ========     ==========
Net loss per
 common share:
    Basic     $  (0.19)                                        $    (0.07)
              ========                                         ==========
    Diluted   $  (0.19)                                        $    (0.06)*
              ========                                         ==========
Weighted
 average
 shares used
 in computing
 net loss per
 common share:
    Basic       96,573                                             96,573
              ========                                         ==========
    Diluted     96,573                                            100,297*
              ========                                         ==========


(1) In the fourth quarter of 2009, we recorded restructuring and other
    related costs of $0.5 million pursuant to our plan announced on
    July 21, 2009, involving the closure of our Maryland based
    semi-conductor fabrication plant ("FAB") and the consolidation of
    these activities into our primary FAB location in Sunnyvale,
    California.

(2) See footnote to the Condensed Consolidated Statements of Operations
    for a summary of the effects of stock-based compensation related to
    employees and non-employees for the three months ended December 26,
    2009.

 *  Diluted shares used to calculate net loss per share on a non-GAAP
    basis provided for informational purposes only.


Infinera Corporation
GAAP to Non-GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                         Three Months Ended September 26, 2009
              -----------------------------------------------------------
                                        Non-GAAP
                         Restruct-     excluding
                          uring        Restruct-    Stock
                GAAP     Charges(1)      uring      Comp        Non-GAAP
              --------   ---------     --------   --------     ----------
Revenue
  Product and
   ratable
   revenue    $ 74,582   $       -     $ 74,582   $      -     $   74,582
  Services
   revenue       8,826           -        8,826          -          8,826
              --------   ---------     --------   --------     ----------
Total revenue   83,408           -       83,408          -         83,408
Cost of
 revenue        55,702      (2,736)(b)   52,966     (1,477)(c)     51,489
              --------   ---------     --------   --------     ----------
Gross profit    27,706       2,736       30,442      1,477         31,919
Gross margin        33%                                                38%
Operating
 expenses       46,949        (601)(b)   46,348     (8,609)(c)     37,739
              --------   ---------     --------   --------     ----------
Loss from
 operations    (19,243)      3,337      (15,906)    10,086         (5,820)
Other income
 (expense),
 net             1,150           -        1,150          -          1,150
              --------   ---------     --------   --------     ----------
Loss before
 income taxes  (18,093)      3,337      (14,756)    10,086         (4,670)
Benefit from
 income taxes   (1,561)          -       (1,561)         -         (1,561)
              --------   ---------     --------   --------     ----------
Net loss      $(16,532)  $   3,337     $(13,195)  $ 10,086     $   (3,109)
              ========   =========     ========   ========     ==========
Net loss per
 common share:
    Basic     $  (0.17)                                        $    (0.03)
              ========                                         ==========
    Diluted   $  (0.17)                                        $    (0.03)*
              ========                                         ==========
Weighted
 average
 shares used
 in computing
 net loss per
 common share:
    Basic       95,864                                             95,864
              ========                                         ==========
    Diluted     95,864                                             99,293*
              ========                                         ==========


(1) In the third quarter of 2009, we recorded restructuring and other
    related costs of $3.3 million pursuant to our plan announced on
    July 21, 2009,  involving the closure of our Maryland based
    semi-conductor fabrication plant ("FAB") and the consolidation of
    these activities into our primary FAB location in Sunnyvale,
    California.

 *  Diluted shares used to calculate net loss per share on a non-GAAP
    basis provided for informational purposes only.




Infinera Corporation
GAAP to Non-GAAP and Adjusted GAAP Reconciliations (Continued):
---------------------------------------------------------------------------

Infinera Corporation
GAAP to Adjusted GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                         Three Months Ended December 27, 2008
              -----------------------------------------------------------
                                                  Adjusted      Adjusted
                          Deferral     Adjusted    GAAP           GAAP
                          Adjust-        GAAP      Stock        Excluding
                GAAP       ments       Results     Comp(1)     Stock Comp
              --------   ---------     --------   --------     ----------
Revenue
  Product and
   ratable
   revenue    $ 92,288   $ (13,102)(d) $ 79,186   $      -     $   79,186
  Services
   revenue       7,056           -        7,056          -          7,056
              --------   ---------     --------   --------     ----------
Total revenue   99,344     (13,102)      86,242          -         86,242
Cost of
 revenue        61,378      (4,951)(e)   56,427       (904)(f)     55,523
              --------   ---------     --------   --------     ----------
Gross profit    37,966      (8,151)      29,815        904         30,719
Gross margin        38%                                                36%
Operating
 expenses       44,930           -       44,930     (4,930)        40,000
              --------   ---------     --------   --------     ----------
Loss from
 operations     (6,964)     (8,151)     (15,115)     5,834         (9,281)
Other income
 (expense),
 net              (428)          -         (428)         -           (428)
              --------   ---------     --------   --------     ----------
Loss before
 income taxes   (7,392)     (8,151)     (15,543)     5,834         (9,709)
Benefit from
 income taxes     (704)          -         (704)         -           (704)
              --------   ---------     --------   --------     ----------
Net loss      $ (6,688)  $  (8,151)    $(14,839)  $  5,834     $   (9,005)
              ========   =========     ========   ========     ==========
Net loss per
 common share:
    Basic     $  (0.07)                                        $    (0.10)
              ========                                         ==========
    Diluted   $  (0.07)                                        $    (0.09)*
              ========                                         ==========
Weighted
 average
 shares used
 in computing
 net loss per
 common share:
    Basic       93,449                                             93,449
              ========                                         ==========
    Diluted     93,449                                             97,167*
              ========                                         ==========


(1) See footnote to the Condensed Consolidated Statements of Operations
    for a summary of the effects of stock-based compensation related to
    employees and non-employees for the three months ended December 27,
    2008.

 *  Diluted shares used to calculate net loss per share on an Adjusted
    GAAP basis provided for informational purposes only.


Infinera Corporation
GAAP to Non-GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                         Twelve Months Ended December 26, 2009
              -----------------------------------------------------------
                                        Non-GAAP
                         Restruct-     excluding
                           uring       Restruct-   Stock
                GAAP      Charges       uring      Comp(1)      Non-GAAP
              --------   ---------     --------   --------     ----------

Revenue
  Product and
   ratable
   revenue    $280,243   $       -     $280,243   $      -     $  280,243
  Services
   revenue      28,858           -       28,858          -         28,858
              --------   ---------     --------   --------     ----------
Total revenue  309,101           -      309,101          -        309,101
Cost of
 revenue       207,000      (3,038)(g)  203,962     (5,507)       198,455
              --------   ---------     --------   --------     ----------
Gross profit   102,101       3,038      105,139      5,507        110,646
Gross margin        33%                                                36%
Operating
 expenses      191,762        (814)(g)  190,948    (31,868)       159,080
              --------   ---------     --------   --------     ----------
Loss from
 operations    (89,661)      3,852      (85,809)    37,375        (48,434)
Other income
 (expense),
 net             1,168           -        1,168          -          1,168
              --------   ---------     --------   --------     ----------
Loss before
 income taxes  (88,493)      3,852      (84,641)    37,375        (47,266)
Benefit from
 income taxes   (1,871)          -       (1,871)         -         (1,871)
              --------   ---------     --------   --------     ----------
Net loss      $(86,622)  $   3,852     $(82,770)  $ 37,375     $  (45,395)
              ========   =========     ========   ========     ==========
Net loss per
 common share:
    Basic     $  (0.91)                                        $    (0.48)
              ========                                         ==========
    Diluted   $  (0.91)                                        $    (0.46)*
              ========                                         ==========
Weighted
 average
 shares used
 in computing
 net loss per
 common share:
    Basic       95,468                                             95,468
              ========                                         ==========
    Diluted     95,468                                             99,036*
              ========                                         ==========


(1) See footnote to the Condensed Consolidated Statements of Operations
    for a summary of the effects of stock-based compensation related to
    employees and non-employees for the twelve months ended December 26,
    2009.

 *  Diluted shares used to calculate net loss per share on an Adjusted
    GAAP basis provided for informational purposes only.




Infinera Corporation
GAAP to Non-GAAP and Adjusted GAAP Reconciliations (Continued):
---------------------------------------------------------------------------

Infinera Corporation
GAAP to Adjusted GAAP Reconciliation
(In thousands, except per share data)
(Unaudited)

                         Twelve Months Ended December 27, 2008
              -----------------------------------------------------------
                                                  Adjusted      Adjusted
                          Deferral     Adjusted     GAAP          GAAP
                          Adjust-        GAAP      Stock        Excluding
                GAAP       ments       Results     Comp(1)     Stock Comp
              --------   ---------     --------   --------     ----------

Revenue
  Product and
   ratable
   revenue    $500,513   $(165,787)(h) $334,726   $      -     $  334,726
  Services
   revenue      18,699           -       18,699          -         18,699
              --------   ---------     --------   --------     ----------
Total revenue  519,212    (165,787)     353,425          -        353,425
Cost of
 revenue       285,657     (78,401)(i)  207,256     (4,491)(f)    202,765
              --------   ---------     --------   --------     ----------
Gross profit   233,555     (87,386)     146,169      4,491        150,660
Gross margin        45%                                                43%
Operating
 expenses      160,122           -      160,122    (18,446)       141,676
              --------   ---------     --------   --------     ----------
Income from
 operations     73,433     (87,386)     (13,953)    22,937          8,984
Other income
 (expense),
 net             8,018           -        8,018          -          8,018
              --------   ---------     --------   --------     ----------
Income before
 provision
 for
 income taxes   81,451     (87,386)      (5,935)    22,937         17,002
Provision for
 income taxes    2,723           -        2,723          -          2,723
              --------   ---------     --------   --------     ----------
Net income    $ 78,728   $ (87,386)    $ (8,658)  $ 22,937     $   14,279
              ========   =========     ========   ========     ==========
Net income per
 common share:
    Basic     $   0.85                                         $     0.15
              ========                                         ==========
    Diluted   $   0.81                                         $     0.15
              ========                                         ==========
Weighted
 average
 shares used
 in computing
 net income
 per common
 share:
    Basic       92,427                                             92,427
              ========                                         ==========
    Diluted     97,088                                             97,088
              ========                                         ==========


(1) See footnote to the Condensed Consolidated Statements of Operations
    for a summary of the effects of stock-based compensation related to
    employees and non-employees for the twelve months ended December 27,
    2008.


Use of Non-GAAP and Adjusted GAAP Information:

As described below, Infinera uses various non-GAAP and adjusted GAAP financial measures to supplement our condensed consolidated financial statements presented on a GAAP basis. 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.

Our usage of these non-GAAP and adjusted GAAP measures are further explained below:

--  Effective April 2008, we had established VSOE of fair value for most
    of our service offerings. From the second quarter of 2008 to the fourth
    quarter of 2008, we used adjusted GAAP measures of operating results, net
    income and net income per share.  Adjusted GAAP results reflected 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.  Deferred services
    and deferred ratable and product revenue and cost amounts recorded after
    March 29, 2008 were not adjusted and were recognized on a GAAP basis in
    arriving at the adjusted GAAP results.  We presented these non-GAAP
    measures of operating results, net income and net income per share, which
    included adjusted GAAP results and excluded non-GAAP stock-based
    compensation expense for these periods.
    
--  In the first quarter of 2009, we began using more traditional non-
    GAAP financial measures, which reflect our GAAP results and exclude non-
    recurring restructuring and other related costs and stock-based
    compensation related expenses.  All material deferred revenue and deferred
    cost of inventory balances recorded prior to the second quarter of 2008 and
    previously reported in our invoiced shipment results were recognized in our
    GAAP results prior to December 27, 2008. Therefore, no further adjustments,
    other than the exclusion of non-recurring restructuring and other related
    costs and stock-based compensation expense will be made to our GAAP results
    on a go-forward basis.
    

(a) Adjustment amount represents restructuring and other related costs recorded in the fourth quarter of 2009 related 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
                                                  December 26, 2009
                                           -------------------------------
                                            Cost of   Operating
                                            Revenue   Expenses     Total
                                           ---------  ---------  ---------
(In thousands)
Severance and related expenses             $    (157) $      57  $    (100)
Equipment and facility-related costs             459       (255)       204
Lease termination                                  -        411        411
Other                                              -          -          -
                                           ---------  ---------  ---------
Total                                      $     302  $     213  $     515
                                           =========  =========  =========

Restructuring and other related costs in the fourth quarter of 2009 include
non-cash charges of $0.6 million.

(b) Adjustment amount represents restructuring and other related costs recorded in the third quarter of 2009 related 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
                                                 September 26, 2009
                                           --------------------------------
                                            Cost of   Operating
                                            Revenue   Expenses     Total
                                           ---------- ---------- ----------
(In thousands)
Severance and related expenses             $      804 $       97 $      901
Equipment and facility-related costs            1,900        415      2,315
Other                                              32         89        121
                                           ---------- ---------- ----------
Total                                      $    2,736 $      601 $    3,337
                                           ========== ========== ==========

Restructuring and other related costs in the third quarter of 2009 include
non-cash charges of $2.4 million.

(c) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended September 26, 2009:

                                                               Three Months
                                                                  Ended
                                                               ------------
                                                                September
                                                                    26,
                                                                   2009
                                                               ------------
(In thousands)
Cost of revenue                                                $        490
Sales and marketing                                                   1,710
Research and development                                              2,915
General and administration                                            3,984
                                                               ------------
                                                                      9,099
Cost of revenue - amortization from balance sheet*                      987
                                                               ------------
Total stock-based compensation expense                         $     10,086
                                                               ============

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

(d) Adjustment amount represents the release of ratable and product deferred revenue amounts related to periods prior to March 29, 2008 as these amounts have been previously reported as invoiced shipments. No adjustment has been made for changes in deferred services revenue as these amounts relate to future service deliverables and are appropriately deferred. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results.

The deferred revenue adjustments recorded above are reconciled to the deferred revenue balance on our balance sheet in the table below:

                               Three Months Ended December 27, 2008
                        --------------------------------------------------
                        Pre Mar 29,    Post Mar
                            2008       29, 2008
                        Ratable and  Ratable and
                          Product      Product
Deferred Revenue          Revenue      Revenue      Services      Total
                        -----------  -----------  -----------  -----------
(In thousands)
Beginning balance       $    21,752  $     4,296  $     6,408  $    32,456
Additions to deferred
 revenue                          -        1,086        7,577        8,663
Amortization to
 revenue                    (13,102)      (1,205)      (4,405)     (18,712)
                        -----------  -----------  -----------  -----------
Ending balance          $     8,650  $     4,177  $     9,580  $    22,407
                        ===========  ===========  ===========  ===========
Change in deferred
 revenue balance        $   (13,102) $      (119) $     3,172  $   (10,049)
                        ===========  ===========  ===========  ===========

(e) Adjustment amount represents the release of ratable and deferred product cost amounts related to periods prior to March 29, 2008 as these amounts were previously included as invoiced shipments. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results.

The deferred cost of inventory adjustments recorded above are reconciled to the deferred cost of inventory balance on our balance sheet in the table below:

                                    Three Months Ended December 27, 2008
                                    -------------------------------------
                                    Pre Mar       Post Mar
                                    29, 2008     29, 2008
                                    Ratable and  Ratable and
                                    Product      Product
Deferred Inventory Cost             Cost         Cost            Total
                                    -----------  -----------  -----------
(In thousands)
Beginning balance                   $     8,172  $     1,120  $     9,292
Additions to deferred cost of
 revenue                                      -           32           32
Amortized to cost of revenue             (4,951)        (136)      (5,087)
                                    -----------  -----------  -----------
Ending balance                      $     3,221  $     1,016  $     4,237
                                    ===========  ===========  ===========
Change in deferred inventory
 cost balance                       $    (4,951) $      (104) $    (5,055)
                                    ===========  ===========  ===========

(f) Excluded amount represents stock-based compensation expense on a non-GAAP basis. Stock-based compensation is a non-cash expense accounted for in accordance with the fair value recognition provisions of the fair value provisions of the Equity Topic of the Accounting Standards Codification. While this is a large component of our expense, we believe investors want to evaluate our financial results both including and excluding the effects of stock-based compensation expense in order to compare our financial performance with that of other companies and between time periods.

The stock-based compensation expense excluded from cost of revenue is a non-GAAP financial measure and is reconciled to the corresponding GAAP amount in the table below:

                                                     Three       Twelve
                                                    Months       Months
                                                     Ended        Ended
                                                  -----------  -----------
                                                        December 27,
                                                            2008
                                                  ------------------------
(In thousands)
GAAP stock-based compensation in cost of
 revenue                                          $       308  $     1,086
GAAP stock-based compensation in cost of
 revenue - amortization from balance sheet                738        4,287
  Stock-based compensation not deferred to
   deferred inventory cost                                  -          215
  Stock-based compensation previously
   recognized on invoiced shipment basis                 (142)      (1,097)
                                                  -----------  -----------
Non-GAAP stock-based compensation in cost of
 revenue                                          $       904  $     4,491
                                                  ===========  ===========

(g) Adjustment amount represents restructuring and other related costs recorded in the twelve months ended December 26, 2009 related 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.

                                                 Twelve Months Ended
                                                  December 26, 2009
                                           --------------------------------
                                            Cost of   Operating
                                            Revenue   Expenses     Total
                                           ---------- ---------- ----------
(In thousands)
Severance and related expenses             $      647 $      154 $      801
Equipment and facility-related costs            2,359        160      2,519
Lease termination                                   -        411        411
Other                                              32         89        121
                                           ---------- ---------- ----------
Total                                      $    3,038 $      814 $    3,852
                                           ========== ========== ==========

Restructuring and other related costs in the twelve months ended December 26, 2009 include non-cash charges of $3.0 million.

(h) Adjustment amount represents the release of ratable and product deferred revenue amounts related to periods prior to March 29, 2008 as these amounts have been previously reported as invoiced shipments. No adjustment has been made for changes in deferred services revenue as these amounts relate to future service deliverables and are appropriately deferred. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results.

The deferred revenue adjustments recorded above are reconciled to the deferred revenue balance on our balance sheet in the table below:

                                Twelve Months Ended December 27, 2008
                            ----------------------------------------------
                              Pre Mar    Post Mar
                             29, 2008    29, 2008
                              Ratable     Ratable
                                and         and
                              Product     Product
Deferred Revenue              Revenue     Revenue    Services     Total
                            ----------  ----------  ----------  ----------
(In thousands)
Beginning balance           $  174,437  $        -  $        -  $  174,437
Additions to deferred
 revenue                        29,639       8,140      19,356      57,135
Amortization to revenue       (195,426)     (3,963)     (9,776)   (209,165)
                            ----------  ----------  ----------  ----------
Ending balance              $    8,650  $    4,177  $    9,580  $   22,407
                            ==========  ==========  ==========  ==========
Change in deferred
 revenue balance            $ (165,787) $    4,177  $    9,580  $ (152,030)
                            ==========  ==========  ==========  ==========

(i) Adjustment amount represents the release of ratable and deferred product cost amounts related to periods prior to March 29, 2008 as these amounts have been previously included as invoiced shipments. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results.

The deferred cost of inventory adjustments recorded above are reconciled to the deferred cost of inventory balance on our balance sheet in the table below:

                                     Twelve Months Ended December 27, 2008
                                     -------------------------------------
                                     Pre Mar      Post Mar
                                     29, 2008     29, 2008
                                     Ratable and  Ratable and
                                     Product      Product
Deferred Inventory Cost              Cost         Cost           Total
                                     -----------  -----------  -----------
(In thousands)
Beginning balance                    $    81,622  $         -  $    81,622
Additions to deferred cost of
 revenue                                  11,162        1,202       12,364
Amortized to cost of revenue             (89,563)        (186)     (89,749)
                                     -----------  -----------  -----------
Ending balance                       $     3,221  $     1,016  $     4,237
                                     ===========  ===========  ===========
Change in deferred inventory
 cost balance                        $   (78,401) $     1,016  $   (77,385)
                                     ===========  ===========  ===========



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

                                                December 26,  December 27,
                                                    2009          2008
                                                ------------  ------------
ASSETS

Current assets:
  Cash and cash equivalents                     $    109,859  $    166,770
  Short-term investments                             143,350        68,232
  Short-term restricted cash                           1,533           720
  Accounts receivable, net of allowance
   for doubtful accounts of $0 in 2009
   and $1,700 in 2008                                 69,483        69,354
  Other receivables                                      927         1,085
  Inventories, net                                    68,872        58,986
  Deferred inventory costs                             5,891         1,744
  Prepaid expenses and other current assets            8,313         6,311
                                                ------------  ------------
    Total current assets                             408,228       373,202

Property, plant and equipment, net                    43,656        46,820
Intangible assets                                        961         1,276
Deferred inventory costs, non-current                  4,438         2,493
Long-term investments                                 18,255        74,684
Long-term restricted cash                              2,480         2,179
Deferred tax asset                                    12,449         5,743
Other non-current assets                               1,478           670
                                                ------------  ------------
    Total assets                                $    491,945  $    507,067
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                              $     31,129  $     34,048
  Accrued expenses                                    13,929        10,349
  Accrued compensation and related benefits           19,248        13,472
  Accrued warranty                                     6,091         5,205
  Deferred revenue                                    18,295        14,683
  Deferred tax liability                              12,649         5,743
                                                ------------  ------------
    Total current liabilities                        101,341        83,500

  Accrued warranty, non-current                        5,049         4,735
  Deferred revenue, non-current                        8,080         7,724
  Other long-term liabilities                          8,968         5,645

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 in 2009 and 2008
    Issued and outstanding shares - 96,874
     in 2009 and 94,163 in 2008                           97            94
  Additional paid-in capital                         747,580       699,705
  Accumulated other comprehensive loss                (1,810)       (3,598)
  Accumulated deficit                               (377,360)     (290,738)
                                                ------------  ------------
  Total stockholders' equity                         368,507       405,463
                                                ------------  ------------
  Total liabilities and stockholders' equity    $    491,945  $    507,067
                                                ============  ============




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

                                                    Twelve Months Ended
                                                --------------------------
                                                December 26,  December 27,
                                                    2009          2008
                                                ------------  ------------
Cash Flows from Operating Activities:
Net income (loss)                               $    (86,622) $     78,728
Adjustments to reconcile net income (loss)
 to net cash provided by (used in) operating
 activities:
  Depreciation and amortization                       16,547        12,975
  Provision for (recovery of) doubtful accounts       (1,700)        1,700
  Non-cash restructuring and other costs               2,973             -
  Net credit impairment losses in earnings             1,094             -
  Amoritization of premium (accretion of
   discount) on investments                              604          (893)
  Stock-based compensation expense                    37,375        23,819
  Unrealized (gain) loss on Put Rights                 3,761       (15,866)
  Unrealized holding (gain) loss for trading
   securities                                         (4,584)       16,762
  Tax benefit (reversal) from stock option
   transactions                                         (593)          593
  (Excess) reduction of tax benefit from stock
   option transactions                                   248          (248)
  Non-cash tax benefit                                  (315)            -
  Gain on disposal of assets                            (284)       (1,107)
  Other (gain) loss                                     (134)            7
  Changes in assets and liabilities:
    Accounts receivable                                1,834       (31,796)
    Inventories, net                                  (8,618)         (821)
    Prepaid expenses and other current assets         (2,244)       (2,463)
    Deferred inventory costs                          (6,180)       76,538
    Other non-current assets                          (7,345)       (6,081)
    Accounts payable                                  (2,594)       16,767
    Accrued liabilities and other expenses            18,874         3,387
    Deferred revenue                                   3,968      (152,030)
    Accrued warranty                                   1,199           (53)
                                                ------------  ------------
      Net cash provided by (used in)
       operating activities                          (32,736)       19,918

Cash Flows from Investing Activities:
  Purchase of available-for-sale investments        (163,870)     (226,014)
  Proceeds from sale of available-for-sale
   investments                                         1,536       108,190
  Proceeds from maturities and call of
   investments and restricted cash                   143,682       183,778
  Proceeds from disposal of assets                       699         1,192
  Purchase of property and equipment                 (15,961)      (22,941)
                                                ------------  ------------
      Net cash provided by (used in)
       investing activities                          (33,914)       44,205

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock               9,310        11,482
  Excess (reduction of) tax benefit from stock
   option transactions                                  (248)          248
  Repurchase of common stock                             (31)          (29)
  Proceeds from purchase of assets under
   financing arrangement                                 657             -
  Payments for purchase of assets under
   financing arrangement                                 (87)            -
                                                ------------  ------------
      Net cash provided by financing
       activities                                      9,601        11,701
                                                ------------  ------------
Effect of exchange rate changes on cash                  138          (263)
Net change in cash and cash equivalents              (56,911)       75,561
Cash and cash equivalents at beginning of
 period                                              166,770        91,209
                                                ------------  ------------
Cash and cash equivalents at end of period      $    109,859  $    166,770
                                                ============  ============

Supplemental disclosures of cash flow
 information:
  Cash paid for interest                        $          5  $          3
  Cash paid (received) for income taxes         $       (316) $      1,036





Infinera Corporation
Supplemental Financial Information

                 Q1'08  Q2'08  Q3'08  Q4'08  Q1'09   Q2'09   Q3'09   Q4'09
                 -----  -----  -----  -----  -----   -----   -----   -----
Revenue          $95.5  $90.8  $80.9  $86.2  $66.6   $68.9   $83.4   $90.2
Gross Margin %     45%    47%    42%    36%    31%     31%     38%     40%
                 -----  -----  -----  -----  -----   -----   -----   -----
Invoiced Shipment
 Composition:
Domestic %         82%    78%    81%    73%    74%     64%     63%     74%
International %    18%    22%    19%    27%    26%     36%     37%     26%
Largest
 Customer %        31%    21%    27%    23%    30%     20%     15%     17%
                 -----  -----  -----  -----  -----   -----   -----   -----
Cash Related
 Information:
Cash from
 Operations      $ 9.8  $ 5.6  $ 9.9  $(5.4) $(2.9) ($18.8)  $(8.3)  $(2.7)
Capital
 Expenditures    $ 4.5  $ 4.8  $ 5.9  $ 7.8  $ 6.0   $ 2.8   $ 2.8   $ 4.4
Depreciation &
 Amortization    $ 2.6  $ 2.9  $ 3.4  $ 4.1  $ 3.9   $ 4.0   $ 4.2   $ 4.5
DSO's               42     57     55     74     61      72      61      71
                 -----  -----  -----  -----  -----   -----   -----   -----
Inventory
 Metrics:

Raw Materials    $ 7.9  $ 9.2  $10.0  $ 9.1  $ 7.7   $10.1   $ 7.4   $ 6.9
Work in Process  $40.6  $34.6  $35.8  $37.9  $43.2   $40.1   $36.2   $32.1
Finished Goods   $10.7  $13.8  $12.8  $12.0  $13.6   $22.3   $29.3   $29.9
                 -----  -----  -----  -----  -----   -----   -----   -----
Total Inventory  $59.2  $57.6  $58.6  $59.0  $64.5   $72.5   $72.9   $68.9
Inventory Turns    3.5    3.3    3.2    3.8    2.8     2.6     3.0     3.2
                 -----  -----  -----  -----  -----   -----   -----   -----
Worldwide
 Headcount         799    853    889    937    962     973     970     974
                 -----  -----  -----  -----  -----   -----   -----   -----

Periods prior to Q2'08 reflect invoiced shipments results; periods from
Q2'08 through Q4'08 reflect adjusted GAAP results; and Q1'09 going forward
reflects non-GAAP results.

Non-GAAP results exclude restructuring and other related costs and non-cash
stock-based compensation.

Contact Information