Infinera Corporation Reports First Quarter 2011 Financial

SUNNYVALE, CA--(Marketwire - Apr 28, 2011) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the first quarter ended March 26, 2011.

GAAP revenues for the first quarter of 2011 were $92.9 million compared to $117.1 million in the fourth quarter of 2010 and $95.8 million in the first quarter of 2010.
GAAP gross margins for the quarter were 46% compared to 49% in the fourth quarter of 2010 and 39% in the first quarter of 2010. GAAP net loss for the quarter was $16.4 million, or $(0.16) per share, compared to net loss of $2.7 million, or $(0.03) per share, in the fourth quarter of 2010 and net loss of $20.0 million, or $(0.21) per share, in the first quarter of 2010.
Non-GAAP gross margins for the first quarter of 2011 were 48% compared to 51% in the fourth quarter of 2010 and 41% in the first quarter of 2010, excluding restructuring and other related costs and non-cash stock-based compensation expenses. Non-GAAP net loss for the first quarter of 2011 was $4.0 million, or $(0.04) per share, compared to net income of $7.6 million, or $0.07 per diluted share, in the fourth quarter of 2010 and net loss of $7.0 million, or $(0.07) per share, in the first quarter of 2010.

Management Commentary

"Our first quarter results were achieved based on continuing demand for our product portfolio from our existing customers, which reflects continuing steady growth in end-user demand for bandwidth, but we saw slower new footprint activity in Q1 versus a year ago," said Tom Fallon, president and chief executive officer. Customers continue to show strong interest in our Photonic Integrated Circuit technology and in the field trial demonstrations of the differentiated features of our upcoming new products -- our 40G transmission solution with FlexCoherent technology and our next-generation 500Gb/s PIC solution, which will support 100G transmission applications.

"It is also important to note that we are growing the number of customers who are buying a multi-product Infinera solution. This includes customers buying either a combination of long-haul and metro solutions or a combination of terrestrial and subsea solutions. At the end of Q1, we had 26 multi-platform customers out of a total of 86 customers worldwide. This is an important trend as these customers have made a more significant architectural commitment to Infinera.

"Finally, we continue to build additional features and capabilities into our ATN metro platform, and in the second quarter we will add Ethernet aggregation functionality."

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 1-866-395-9177. International parties can access the replay at 1-203-369-0501.

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 customers 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 http://www.infinera.com /.

Forward-Looking Statements

This press release contains forward-looking statements, including statements about the interest in our PIC-based technology and differentiated features of our products, the timing of the introduction of the Ethernet aggregation functionality of our ATN System, and the growth in and commitment made by customers. 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, 2011, 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 (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 first quarter results, including an estimate of non-GAAP earnings for the second quarter of 2011 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 amounts)
(Unaudited)
			Three Months Ended
			March 26,			March 27,
			2011			2010
Revenue:
	Product		$	82,528		$	86,167
	Ratable product and related support and services			922			1,614
	Services			9,440			7,979
		Total revenue		92,890			95,760

Cost of revenue ⁽¹⁾:
	Cost of product			46,618			55,440
	Cost of ratable product and related support and services			385			755
	Cost of services			3,143			2,542
	Restructuring credit related to cost of revenue			-			(93	)
		Total cost of revenue		50,146			58,644

Gross profit				42,744			37,116

Operating expenses ⁽¹⁾:
	Research and development			31,309			28,483
	Sales and marketing			13,935			13,037
	General and administrative			13,509			15,737
	Restructuring and other costs			-			161
		Total operating expenses		58,753			57,418

Loss from operations				(16,009	)		(20,302	)

Other income (expense), net:
	Interest income			312			485
	Other gain (loss), net:			(411	)		(316	)
		Total other income (expense), net		(99	)		169

Loss before income taxes				(16,108	)		(20,133	)
Provision for (benefit from) income taxes				286			(142	)
Net loss			$	(16,394	)	$	(19,991	)
Net loss per common share, basic and diluted			$	(0.16	)	$	(0.21	)


Weighted average shares used in computing basic and diluted net loss per common share				103,426			97,276


⁽¹⁾	^{The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended March 26, 2011 and March 27, 2010:}



		Three Months Ended
		March 26,		March 27,
		2011		2010
Cost of revenue	$	731	$	569
Research and development		3,826		3,423
Sales and marketing		2,060		1,847
General and administration		4,783		5,709
		11,400		11,548
Cost of revenue - amortization from balance sheet*		965		1,362
Total stock-based compensation expense	$	12,365	$	12,910


*	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
	March 26,			December 25,			March 27,
	2011			2010			2010
Reconciliation of Gross Profit:
U.S. GAAP as reported	$	42,744		$	57,292		$	37,116
Restructuring and other related costs⁽¹⁾		-			-			(93	)
Stock-based compensation⁽²⁾		1,696			2,195			1,931
Non-GAAP as adjusted	$	44,440		$	59,487		$	38,954

Reconciliation of Gross Margin:
U.S. GAAP as reported		46	%		49	%		39	%
Restructuring and other related costs⁽¹⁾		-	%		-	%		-	%
Stock-based compensation⁽²⁾		2	%		2	%		2	%
Non-GAAP as adjusted		48	%		51	%		41	%

Reconciliation of Income (Loss) from Operations:
U.S. GAAP as reported	$	(16,009	)	$	(2,775	)	$	(20,302	)
Restructuring and other related costs⁽¹⁾		-			-			68
Stock-based compensation⁽²⁾		12,365			10,374			12,910
Non-GAAP as adjusted	$	(3,644	)	$	7,599		$	(7,324	)

Reconciliation of Net Income (Loss):
U.S. GAAP as reported	$	(16,394	)	$	(2,740	)	$	(19,991	)
Restructuring and other related costs⁽¹⁾		-			-			68
Stock-based compensation⁽²⁾		12,365			10,374			12,910
Non-GAAP as adjusted	$	(4,029	)	$	7,634		$	(7,013	)

Net Income (Loss) per Common Share - Basic:
U.S. GAAP	$	(0.16	)	$	(0.03	)	$	(0.21	)
Non-GAAP	$	(0.04	)	$	0.08		$	(0.07	)

Net Income (Loss) per Common Share - Diluted:
U.S. GAAP	$	(0.16	)	$	(0.03	)	$	(0.21	)
Non-GAAP	$	(0.04	)	$	0.07		$	(0.07	)

Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:
Basic		103,426			101,654			92,276
Diluted		103,426			101,654			92,276

Weighted average shares used in computing net income (loss) per common share - Non-GAAP:
Basic		103,426			101,654			92,276
Diluted		103,426			108,393			92,276

⁽¹⁾

^{Adjustment amount represents restructuring and other related costs (credit) 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
		Cost of Revenue			Operating Expenses		Total
Severance and related expenses	$	(15	)	$	55	$	40
Equipment and facility-related costs		(78	)		-		(78	)
Lease termination		-			106		106
Total	$	(93	)	$	161	$	68

⁽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 26,		December 25,		March 27,
		2011		2010		2010
Cost of revenue	$	731	$	740	$	569
Research and development		3,826		3,755		3,423
Sales and marketing		2,060		1,709		1,847
General and administration		4,783		2,715		5,709
		11,400		8,919		11,548
Cost of revenue - amortization from balance sheet*		965		1,455		1,362
Total stock-based compensation expense	$	12,365	$	10,374	$	12,910


^*	^{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 26,			December 25,
			2011			2010
ASSETS

Current assets:
	Cash and cash equivalents		$	111,352		$	113,649
	Short-term investments			163,850			168,013
	Short-term restricted cash			1,690			1,856
	Accounts receivable			60,923			75,931
	Other receivables			1,829			4,420
	Inventories, net			78,331			81,893
	Deferred inventory costs			5,737			6,715
	Prepaid expenses and other current assets			12,959			9,118
		Total current assets		436,671			461,595

Property, plant and equipment, net				56,431			51,740
Deferred inventory costs, non-current				3,686			2,512
Long-term investments				7,897			9,953
Cost-method investment				4,500			4,500
Long-term restricted cash				2,334			2,235
Deferred tax asset				8,982			11,882
Other non-current assets				5,831			7,108
		Total assets	$	526,332		$	551,525

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable		$	28,015		$	35,658
	Accrued expenses			18,352			19,790
	Accrued compensation and related benefits			11,969			25,098
	Accrued warranty			4,677			5,696
	Deferred revenue			22,536			21,958
	Deferred tax liability			8,982			11,882
		Total current liabilities		94,531			120,082

	Accrued warranty, non-current			5,483			5,726
	Deferred revenue, non-current			4,040			4,633
	Other long-term liabilities			10,138			10,335

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 26, 2011 and December 25, 2010
		Issued and outstanding shares – 104,042 as of March 26, 2011 and 102,492 as of December 25, 2010		104			102
	Additional paid-in capital			834,684			817,200
	Accumulated other comprehensive loss			(962	)		(1,261	)
	Accumulated deficit			(421,686	)		(405,292	)
	Total stockholders' equity			412,140			410,749
		Total liabilities and stockholders' equity	$	526,332		$	551,525





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

				Three Months Ended
				March 26,			March 27,
				2011			2010
Cash Flows from Operating Activities:
Net loss				$	(16,394	)	$	(19,991	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation and amortization				4,215			3,983
	Amortization of premium on investments				987			540
	Stock-based compensation expense				12,365			12,910
	Unrealized loss on Put Rights				-			2,104
	Unrealized holding gain for trading securities				-			(2,104	)
	Non-cash tax benefit				(78	)		(270	)
	Loss (gain) on disposal of assets				(104	)		60
	Other gain				(19	)		(25	)
	Changes in assets and liabilities:
		Accounts receivable			18,897			11,028
		Inventories, net			3,986			(3,209	)
		Prepaid expenses and other current assets			(3,357	)		(708	)
		Deferred inventory costs			(278	)		(1,555	)
		Other non-current assets			4,482			1,627
		Accounts payable			(8,750	)		2,624
		Accrued liabilities and other expenses			(15,528	)		(6,502	)
		Deferred revenue			(16	)		2,254
		Accrued warranty			(1,262	)		(489	)
			Net cash provided by (used in) operating activities		(854	)		2,277

Cash Flows from Investing Activities:
	Purchase of available-for-sale investments				(107,049	)		(75,656	)
	Proceeds from sale of available-for-sale investments				3,035			-
	Proceeds from maturities and calls of investments				109,416			68,598
	Proceeds from disposal of assets				104			85
	Purchase of property and equipment				(10,602	)		(4,692	)
	Advance to secure manufacturing capacity				(1,500	)		-
	Reimbursement of manufacturing capacity advance				75			-
	Change in restricted cash				68			99
			Net cash used in investing activities		(6,453	)		(11,566	)

Cash Flows from Financing Activities:
	Proceeds from issuance of common stock				4,909			4,397
	Repurchase of common stock				-			(2	)
	Payments for purchase of assets under financing arrangement				(87	)		(87	)
			Net cash provided by financing activities		4,822			4,308

Effect of exchange rate changes on cash					188			(61	)

Net change in cash and cash equivalents					(2,297	)		(5,042	)
Cash and cash equivalents at beginning of period					113,649			109,859
Cash and cash equivalents at end of period				$	111,352		$	104,817

Supplemental disclosures of cash flow information:
	Cash paid for income taxes			$	442		$	335





Infinera Corporation
Supplemental Financial Information
(Unaudited)

	Q2'09	Q3'09	Q4'09	Q1'10	Q2'10	Q3'10	Q4'10	Q1'11
Revenue ($ Mil)	$68.9	$83.4	$90.2	$95.8	$111.4	$130.1	$117.1	$92.9
Gross Margin % ⁽¹⁾	31%	38%	40%	41%	44%	51%	51%	48%
Invoiced Shipment Composition:
Domestic %	64%	63%	74%	79%	81%	73%	70%	74%
International %	36%	37%	26%	21%	19%	27%	30%	26%
Largest Customer %	20%	15%	17%	22%	13%	19%	10%	14%
Cash Related Information:
Cash from Operations ($ Mil)	$(18.8)	$(8.3)	$(2.7)	$2.3	$11.2	$10.0	$7.0	$(0.9)
Capital Expenditures ($ Mil)	$2.8	$2.8	$4.4	$4.7	$5.0	$5.9	$5.0	$10.6
Depreciation & Amortization ($ Mil)	$4.0	$4.2	$4.5	$4.0	$3.7	$3.9	$4.0	$4.2
DSO's	72	61	71	56	45	45	59	60
Inventory Metrics:
Raw Materials ($ Mil)	$10.1	$7.4	$6.9	$7.5	$9.1	$11.0	$23.1	$20.1
Work in Process ($ Mil)	$40.1	$36.2	$32.1	$31.5	$29.2	$36.5	$14.8	$17.2
Finished Goods ($ Mil)	$22.3	$29.3	$29.9	$33.0	$45.9	$41.2	$44.0	$41.0
Total Inventory ($ Mil)	$72.5	$72.9	$68.9	$72.0	$84.2	$88.7	$81.9	$78.3
Inventory Turns ⁽¹⁾	2.6	3.0	3.2	3.2	3.0	2.9	2.8	2.5
Worldwide Headcount	973	970	974	999	1,028	1,040	1,072	1,118


	⁽¹⁾	Amounts reflect non-GAAP results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation.

Contact Information:

Contacts:

Press:
Jeff Ferry
jferry@infinera.com
Infinera Corporation
408-572-5213

Investors/Analysts:
Bob Blair
bblair@infinera.com
Infinera Corporation
408-716-4879

Infinera Corporation Reports First Quarter 2011 Financial Results