SOURCE: Infinera

Infinera

April 23, 2014 16:15 ET

Infinera Corporation Reports First Quarter 2014 Financial Results

SUNNYVALE, CA--(Marketwired - Apr 23, 2014) - Infinera Corporation (NASDAQ: INFN), a provider of Intelligent Transport Networks™, today released financial results for the first quarter of 2014 ended March 29, 2014.

GAAP revenue for the quarter was $142.8 million compared to $139.1 million in the fourth quarter of 2013 and $124.6 million in the first quarter of 2013.

GAAP gross margins for the quarter were 40.9% compared to 40.2% in the fourth quarter of 2013 and 34.2% in the first quarter of 2013.

GAAP net loss for the quarter was $(4.4) million, or $(0.04) per share, compared to net loss of $(10.2) million, or $(0.08) per share, in the fourth quarter of 2013, and a net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013.

Non-GAAP gross margins for the quarter were 41.8% compared to 41.4% in the fourth quarter of 2013 and 35.9% in the first quarter of 2013. 

Non-GAAP net income for the quarter was $4.2 million, or $0.03 per share, compared to net loss of $(0.2) million, or break even on an earnings per share basis in the fourth quarter of 2013, and net loss of $(7.3) million, or $(0.06) per share, in the first quarter of 2013. 

These non-GAAP measures exclude non-cash stock-based compensation expenses and the amortization of debt discount on Infinera's convertible senior notes. A further explanation of the use of non-GAAP financial information and a reconciliation of the non-GAAP financial measures to the GAAP equivalents can be found at the end of this release.

Management Commentary:

"Our first quarter performance was exceptionally strong in what is typically a soft quarter for our industry. We are benefitting from the continued investment cycle in 100G and network convergence. The favorable economics of our PIC-based architectures and the operational benefits of super-channels positions us as the industry recognized leader in the optical market," said Tom Fallon, Chief Executive Officer. "I remain optimistic about our short-, intermediate- and long-term opportunity. Our focus this year remains on winning footprint, gaining market share, and servicing customers. We believe the continued growth of our business in long-haul, combined with product investments in adjacent markets, is the best way for us to provide long-term shareholder value."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its first quarter of 2014 results and its outlook for the second quarter of 2014 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 Infinera'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 1-888-566-0689. International parties can access the replay at 1-402-998-0823.

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

Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to Infinera as of the date hereof and actual results could differ materially from those stated or implied due to risks and uncertainties. Forward-looking statements include statements regarding Infinera's expectations, beliefs, intentions or strategies including statements regarding Infinera's opportunity in the short-, intermediate- and long-term; Infinera's ability to win footprint and gain market share; and Infinera's belief that continued growth of its business in long haul, combined with product investments, is the best way for Infinera to provide long-term shareholder value. Such forward-looking statements can be identified by forward-looking words such as "anticipated," "believed," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. The risks and uncertainties that could cause Infinera's results to differ materially from those expressed or implied by such forward-looking statements include aggressive business tactics by Infinera's competitors, Infinera's reliance on single-source suppliers, Infinera's ability to protect Infinera's intellectual property, claims by others that Infinera infringes their intellectual property, and Infinera's ability to respond to rapid technological changes, and other risks that may impact Infinera's business are set forth in its annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 21, 2014, as well as subsequent reports filed with or furnished to the SEC. These reports are available on Infinera's website at www.infinera.com and the SEC's website at www.sec.gov. Infinera assumes no obligation to, and does not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses and amortization of debt discount on Infinera's convertible senior notes. Infinera believes these adjustments are appropriate to enhance an overall understanding of its underlying financial performance and also its 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 its 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." Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its first quarter results, including an estimate of non-GAAP earnings for the second quarter of 2014 that excludes non-cash stock-based compensation expenses and amortization of debt discount on Infinera's convertible senior notes. 

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

Infinera 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  
  March 29,   March 30,  
  2014   2013  
Revenue:        
  Product $ 124,242   $ 108,343  
  Services   18,573     16,282  
    Total revenue   142,815     124,625  
               
Cost of revenue (1):            
  Cost of product   78,438     75,447  
  Cost of services   5,971     6,476  
    Total cost of revenue   84,409     81,923  
               
Gross profit   58,406     42,702  
               
Operating expenses (1):            
  Research and development   29,346     29,726  
  Sales and marketing   17,862     18,046  
  General and administrative   12,254     9,872  
    Total operating expenses   59,462     57,644  
               
Loss from operations   (1,056 )   (14,942 )
               
Other income (expense), net:            
  Interest income   336     197  
  Interest expense   (2,677 )   -  
  Other gain (loss), net:   (729 )   (203 )
    Total other income (expense), net   (3,070 )   (6 )
               
Loss before income taxes   (4,126 )   (14,948 )
Provision for income taxes   248     331  
Net loss $ (4,374 ) $ (15,279 )
               
Net loss per common share, basic and diluted $ (0.04 ) $ (0.13 )
               
Weighted average shares used in computing basicand diluted net loss per common share  
121,352
   
114,308
 
               
               
 (1)   The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended March 29, 2014 and March 30, 2013:
                 
                 
        Three Months Ended  
        March 29,     March 30,  
        2014     2013  
  Cost of revenue   $ 452   $ 486  
  Research and development     2,138     3,119  
  Sales and marketing     1,720     1,999  
  General and administration     1,530     769  
        5,840     6,373  
  Cost of revenue - amortization from balance sheet*     832     1,602  
  Total stock-based compensation expense   $ 6,672   $ 7,975  
                 
  * 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 percentages and per share data)  
(Unaudited)  
                   
  Three Months Ended  
  March 29,       December 28,     March 30,  
  2014       2013     2013  
Reconciliation of Gross Profit:                        
U.S. GAAP as reported $ 58,406       $ 55,912     $ 42,702  
Stock-based compensation(1)   1,284         1,695       2,088  
Non-GAAP as adjusted $ 59,690       $ 57,607     $ 44,790  
                         
Reconciliation of Gross Margin:                        
U.S. GAAP as reported   40.9 %       40.2 %     34.2 %
Stock-based compensation(1)   0.9 %       1.2 %     1.7 %
Non-GAAP as adjusted   41.8 %       41.4 %     35.9 %
                         
Reconciliation of Income (Loss) from Operations:                        
U.S. GAAP as reported $ (1,056 )     $ (7,081 )   $ (14,942 )
Stock-based compensation(1)   6,672         8,174       7,975  
Non-GAAP as adjusted $ 5,616       $ 1,093     $ (6,967 )
                         
Reconciliation of Net Income (Loss):                        
U.S. GAAP as reported $ (4,374 )     $ (10,178 )   $ (15,279 )
Stock-based compensation(1)   6,672         8,174       7,975  
Amortization of debt discount(2)   1,860         1,814       -  
Non-GAAP as adjusted $ 4,158       $ (190 )   $ (7,304 )
                         
Net Income (Loss) per Common Share - Basic:                        
U.S. GAAP as reported $ (0.04 )     $ (0.08 )   $ (0.13 )
Non-GAAP as adjusted $ 0.03       $ -     $ (0.06 )
                         
Net Income (Loss) per Common Share - Diluted:                        
U.S. GAAP as reported $ (0.04 )     $ (0.08 )   $ (0.13 )
Non-GAAP as adjusted(3) $ 0.03       $ -     $ (0.06 )
                         
Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:                        
Basic   121,352         119,743       114,308  
Diluted   121,352         119,743       114,308  
                         
Weighted average shares used in computing net income (loss) per common share - Non-GAAP:                        
Basic   121,352         119,743       114,308  
Diluted(3)   125,435         125,134       117,602  
                         
                           
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, Compensation-Stock Compensation effective January 1, 2006. The following table summarizes the effects of stock-based compensation related to employees and non-employees (in thousands):  
               
      Three Months Ended
      March 29,   December 28,   March 30,
      2014   2013   2013
  Cost of revenue   $ 452   $ 489   $ 486
  Research and development     2,138     2,725     3,119
  Sales and marketing     1,720     1,965     1,999
  General and administration     1,530     1,789     769
        5,840     6,968     6,373
  Cost of revenue - amortization from balance sheet*     832     1,206     1,602
  Total stock-based compensation expense   $ 6,672   $ 8,174   $ 7,975
                     
  * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
                     
(2) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, Infinera is required to amortize as a debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on its $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.
                     
(3) Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only.
   
   
   
Infinera Corporation            
Condensed Consolidated Balance Sheets            
(In thousands, except par values)            
(Unaudited)            
             
    March 29,     December 28,  
    2014     2013  
ASSETS            
             
Current assets:            
  Cash and cash equivalents   $ 85,249     $ 124,330  
  Short-term investments     226,705       172,660  
  Accounts receivable, net of allowance for doubtful accounts                
  of $41 in 2014 and $43 in 2013     107,405       100,643  
  Inventory     126,465       123,685  
  Prepaid expenses and other current assets     20,537       17,752  
    Total current assets     566,361       539,070  
                   
Property, plant and equipment, net     78,801       79,668  
Long-term investments     32,756       64,419  
Cost-method investment     9,000       9,000  
Long-term restricted cash     4,392       3,904  
Other non-current assets     5,776       4,865  
     Total assets   $ 697,086     $ 700,926  
                   
LIABILITIES AND STOCKHOLDERS' EQUITY                
                   
Current liabilities:                
  Accounts payable   $ 37,843     $ 39,843  
  Accrued expenses     20,244       22,431  
  Accrued compensation and related benefits     21,377       33,899  
  Accrued warranty     14,351       12,374  
  Deferred revenue     31,496       32,402  
    Total current liabilities     125,311       140,949  
                   
  Long-term debt, net     111,024       109,164  
  Accrued warranty, non-current     12,034       10,534  
  Deferred revenue, non-current     4,886       4,888  
  Other long-term liabilities     17,563       17,581  
                 
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 29, 2014 and December 28, 2013                
  Issued and outstanding shares - 122,485 as of March 29, 2014 and 119,887                
  as of December 28, 2013     123       120  
  Additional paid-in capital     1,038,216       1,025,661  
  Accumulated other comprehensive loss     (3,212 )     (3,486 )
  Accumulated deficit     (608,859 )     (604,485 )
  Total stockholders' equity     426,268       417,810  
    Total liabilities and stockholders' equity   $ 697,086     $ 700,926  
                   
                   
Infinera Corporation  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
               
      Three Months Ended  
      March 29,     March 30,  
      2014     2013  
Cash Flows from Operating Activities:            
Net loss   $ (4,374 )   $ (15,279 )
Adjustments to reconcile net loss to net cash used in operating activities:                
  Depreciation and amortization     6,314       6,334  
  (Recovery of) provision for other receivables     -       (88 )
  Amotization of debt discount and issuance costs     2,020       -  
  Amortization of premium on investments     828       314  
  Stock-based compensation expense     6,672       7,975  
  Other gain     (20 )     (243 )
  Changes in assets and liabilities:                
    Accounts receivable     (6,762 )     (5,094 )
    Inventory     (3,354 )     (5,041 )
    Prepaid expenses and other assets     (3,797 )     (361 )
    Accounts payable     (2,080 )     (8,045 )
    Accrued liabilities and other expenses     (13,448 )     (6,301 )
    Deferred revenue     (909 )     4,340  
    Accrued warranty     3,477       190  
      Net cash used in operating activities     (15,433 )     (21,299 )
                   
Cash Flows from Investing Activities:                
  Purchase of available-for-sale investments     (80,223 )     (20,023 )
  Proceeds from sale of available-for-sale investments     -       2,850  
  Proceeds from maturities and calls of investments     57,063       33,835  
  Purchase of property and equipment     (5,608 )     (4,936 )
  Change in restricted cash     (479 )     44  
    Net cash provided by (used in) investing activities     (29,247 )     11,770  
                   
Cash Flows from Financing Activities:                
  Proceeds from issuance of common stock     7,054       5,560  
  Minimum tax withholding paid on behalf of employees for net share settlement     (1,619 )     (1,493 )
    Net cash provided by financing activities     5,435       4,067  
                   
Effect of exchange rate changes on cash     164       (206 )
                   
Net change in cash and cash equivalents     (39,081 )     (5,668 )
Cash and cash equivalents at beginning of period     124,330       104,666  
Cash and cash equivalents at end of period   $ 85,249     $ 98,998  
                   
Supplemental disclosures of cash flow information:                
  Cash paid for income taxes, net of refunds   $ 303     $ 210  
Supplemental schedule of non-cash financing activities:                
  Transfer of inventory to fixed assets   $ 603     $ 1,522  
                   
                   
                   
 
Infinera Corporation
Supplemental Financial Information
(Unaudited)
                 
  Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14
Revenue ($ Mil) $93.5 $112.2 $128.1 $124.6 $138.4 $142.0 $139.1 $142.8
Gross Margin % (1) 36.6% 39.1% 35.9% 35.9% 38.9% 49.2% 41.4% 41.8%
Invoiced Shipment Composition:                
Domestic % 70% 70% 63% 63% 64% 73% 54% 78%
International % 30% 30% 37% 37% 36% 27% 46% 22%
Largest Customer % 15% 13% 13% 14% < 10% 17% 11% 21%
Cash Related Information:                
Cash from (used in) Operations ($ Mil) $(22.7) $(29.3) $8.3 $(21.3) $17.9 $12.8 $25.8 $(15.4)
Capital Expenditures ($ Mil) $6.1 $2.5 $3.2 $4.9 $4.5 $4.2 $7.5 $5.6
Depreciation & Amortization ($ Mil) $5.7 $6.1 $6.4 $6.3 $6.3 $5.9 $6.0 $6.3
DSO's 55 74 76 82 64 56 66 68
Inventory Metrics:                
Raw Materials ($ Mil) $14.8 $12.4 $13.0 $12.2 $9.8 $12.1 $14.3 $13.2
Work in Process ($ Mil) $49.4 $59.8 $57.3 $53.1 $41.0 $45.7 $49.2 $47.8
Finished Goods ($ Mil) $50.9 $46.3 $57.5 $65.7 $70.5 $65.7 $60.2 $65.5
Total Inventory ($ Mil) $115.1 $118.5 $127.8 $131.0 $121.3 $123.5 $123.7 $126.5
Inventory Turns (2) 2.1 2.3 2.6 2.4 2.8 2.3 2.6 2.6
Worldwide Headcount 1,228 1,235 1,242 1,219 1,238 1,296 1,318 1,346
 
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.
(2) Infinera calculates non-GAAP inventory turns as annualized non-GAAP cost of revenue before adjustments for non-cash stock-based compensation expense divided by the average inventory for the quarter.

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