SOURCE: Infinera

Infinera

January 22, 2015 16:15 ET

Infinera Corporation Reports Fourth Quarter and Fiscal Year 2014 Financial Results

SUNNYVALE, CA--(Marketwired - Jan 22, 2015) - Infinera Corporation (NASDAQ: INFN), provider of Intelligent Transport Networks, today released financial results for the fourth quarter and fiscal year ended December 27, 2014.

Revenue for the quarter was $186.3 million compared to $173.6 million in the third quarter of 2014 and $139.1 million in the fourth quarter of 2013.

GAAP gross margin for the quarter was 45.3% compared to 43.4% in the third quarter of 2014 and 40.2% in the fourth quarter of 2013. GAAP operating margin was 6.9% in the fourth quarter of 2014 compared to 4.3% in the third quarter of 2014 and an operating loss of 5.1% in the fourth quarter of 2013.

GAAP net income for the quarter was $8.4 million, or $0.06 per diluted share, compared to net income of $4.8 million, or $0.04 per diluted share, in the third quarter of 2014 and a net loss of $10.2 million, or $0.08 per share, in the fourth quarter of 2013.

Non-GAAP gross margin for the quarter was 46.1% compared to 44.2% in the third quarter of 2014 and 41.4% in the fourth quarter of 2013. Non-GAAP operating margin for the fourth quarter of 2014 was 11.0% compared to 8.6% in the third quarter of 2014 and 0.8% in the fourth quarter of 2013.

Non-GAAP net income for the quarter was $18.0 million, or $0.13 per diluted share, compared to net income of $14.2 million, or $0.11 per diluted share, in the third quarter of 2014 and a net loss of $0.2 million, or breakeven on an earnings per share basis, in the fourth quarter of 2013.

Revenue for the year was $668.1 million compared to $544.1 million in 2013.

GAAP gross margin for the year was 43.2% compared to 40.2% in 2013. GAAP operating margin for the year was 4.1% compared to an operating loss of 4.5% in 2013. GAAP net income for the year was $13.7 million or $0.11 per diluted share, compared to a net loss of $32.1 million or $0.27 per share in 2013.

Non-GAAP gross margin for the year was 44.0% compared to 41.6% in 2013. Non-GAAP operating margin for the year was 8.3% compared to 1.4% in 2013. Non-GAAP net income for the year was $49.8 million or $0.39 per diluted share, compared to net income of $4.0 million or $0.03 per diluted share in 2013.

The above 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.

"The fourth quarter capped off an exceptional year of winning footprint, taking care of customers and increasing profitability. Growing greater than 20% for a second consecutive year demonstrates the market's acceptance of our differentiated products and the overall Infinera experience," said Tom Fallon, Infinera's Chief Executive Officer. "As we evolve from a single-threaded product company to an end-to-end optical solutions company, I believe Infinera is better positioned than ever to serve more customers and address more opportunities."

Conference Call Information:
Infinera will host a conference call for analysts and investors to discuss its fourth quarter and fiscal year 2014 results and its outlook for the first quarter of 2015 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 1-888-568-0148. International parties can access the replay at 1-203-369-3900.

About Infinera
Infinera provides Intelligent Transport Networks for network operators, enabling reliable, easy to operate, high-capacity optical networks. Infinera leverages its unique large scale photonic integrated circuits to deliver innovative optical networking solutions for the most demanding network environments. Intelligent Transport Networks enable carriers, Cloud network operators, governments and enterprises to automate, converge and scale their data center, metro, long-haul and subsea optical networks. To learn more about Infinera visit www.infinera.com, follow us on Twitter @Infinera and read our latest blog posts at blog.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, including Infinera's continued expectations of the market's acceptance of our differentiated products and the overall Infinera experience; and Infinera's belief that it is better positioned than ever to serve more customers and address more opportunities. 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. 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 delays in the development and introduction of Infinera's products and market acceptance of these products; the effect of changes in product pricing or mix, and/or increases in component costs could have on Infinera's gross margin; Infinera's reliance on single-source suppliers; aggressive business tactics by Infinera's competitors; Infinera's ability to protect Infinera's intellectual property; claims by others that Infinera infringes their intellectual property; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery or demand of products; Infinera's ability to respond to rapid technological changes; and other risks detailed in Infinera's SEC filings from time to time. More information on potential factors that may impact Infinera's business are set forth in its Quarterly Report on Form 10-Q for the quarter ended on September 27, 2014 as filed with the SEC on October 29, 2014, as well as subsequent reports filed with or furnished to the SEC from time to time. 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 fourth quarter and fiscal year 2014 results, including an estimate of non-GAAP earnings for the first quarter of 2015 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     Twelve Months Ended  
    December 27,     December 28,     December 27,     December 28,  
    2014     2013     2014     2013  
Revenue:                                
  Product   $ 158,492     $ 115,102     $ 572,276     $ 465,424  
  Services     27,814       23,990       95,803       78,698  
    Total revenue     186,306       139,092       668,079       544,122  
                                 
Cost of revenue:                                
  Cost of product     89,809       73,385       340,856       295,715  
  Cost of services     12,154       9,795       38,919       29,768  
    Total cost of revenue     101,963       83,180       379,775       325,483  
                                 
Gross profit     84,343       55,912       288,304       218,639  
                                 
Operating expenses:                                
  Research and development     37,349       30,859       133,484       124,794  
  Sales and marketing     22,288       19,857       79,026       72,778  
  General and administrative     11,840       12,277       48,452       45,253  
    Total operating expenses     71,477       62,993       260,962       242,825  
                                 
Income (loss) from operations     12,866       (7,081 )     27,342       (24,186 )
                                 
Other income (expense), net:                                
  Interest income     410       287       1,456       923  
  Interest expense     (2,835 )     (2,634 )     (11,021 )     (6,061 )
  Other gain (loss), net     (348 )     (336 )     (1,365 )     (1,141 )
    Total other income (expense), net     (2,773 )     (2,683 )     (10,930 )     (6,279 )
                                 
Income (loss) before income taxes     10,093       (9,764 )     16,412       (30,465 )
Provision for income taxes     1,683       414       2,753       1,654  
Net income (loss)   $ 8,410     $ (10,178 )   $ 13,659     $ (32,119 )
                                 
Net income (loss) per common share:                                
  Basic   $ 0.07     $ (0.08 )   $ 0.11     $ (0.27 )
  Diluted   $ 0.06     $ (0.08 )   $ 0.11     $ (0.27 )
                                 
Weighted average shares used in computing net income (loss) per common share:                                
  Basic     125,830       119,743       123,672       117,425  
  Diluted     133,072       119,743       128,565       117,425  
                                   
                                   
   
   
Infinera Corporation  
GAAP to Non-GAAP Reconciliations  
(In thousands, except percentages and per share data)  
(Unaudited)  
   
    Three Months Ended     Twelve Months Ended  
    December 27,     September 27,     December 28,     December 27,     December 28,  
    2014     2014     2013     2014     2013  
Reconciliation of Gross Profit:                                        
U.S. GAAP as reported   $ 84,343     $ 75,302     $ 55,912     $ 288,304     $ 218,639  
Stock-based compensation(1)     1,472       1,491       1,695       5,607       7,496  
Non-GAAP as adjusted   $ 85,815     $ 76,793     $ 57,607     $ 293,911     $ 226,135  
                                         
Reconciliation of Gross Margin:                                        
U.S. GAAP as reported     45.3 %     43.4 %     40.2 %     43.2 %     40.2 %
Stock-based compensation(1)     0.8 %     0.8 %     1.2 %     0.8 %     1.4 %
Non-GAAP as adjusted     46.1 %     44.2 %     41.4 %     44.0 %     41.6 %
                                         
Reconciliation of Income (Loss) from Operations:                                        
U.S. GAAP as reported   $ 12,866     $ 7,480     $ (7,081 )   $ 27,342     $ (24,186 )
Stock-based compensation(1)     7,547       7,371       8,174       28,394       31,976  
Non-GAAP as adjusted   $ 20,413     $ 14,851     $ 1,093     $ 55,736     $ 7,790  
                                         
Reconciliation of Operating Margin:                                        
U.S. GAAP as reported     6.9 %     4.3 %     (5.1 )%     4.1 %     (4.5 )%
Stock-based compensation(1)     4.1 %     4.3 %     5.9 %     4.2 %     5.9 %
Non-GAAP as adjusted     11.0 %     8.6 %     0.8 %     8.3 %     1.4 %
                                         
Reconciliation of Net Income (Loss):                                        
U.S. GAAP as reported   $ 8,410     $ 4,843     $ (10,178 )   $ 13,659     $ (32,119 )
Stock-based compensation(1)     7,547       7,371       8,174       28,394       31,976  
Amortization of debt discount(2)     2,006       1,956       1,814       7,730       4,164  
Non-GAAP as adjusted   $ 17,963     $ 14,170     $ (190 )   $ 49,783     $ 4,021  
                                         
Net Income (Loss) per Common Share - Basic:                                        
U.S. GAAP as reported   $ 0.07     $ 0.04     $ (0.08 )   $ 0.11     $ (0.27 )
Non-GAAP as adjusted   $ 0.14     $ 0.11     $ -     $ 0.40     $ 0.03  
                                         
Net Income (Loss) per Common Share - Diluted:                                        
U.S. GAAP as reported   $ 0.06     $ 0.04     $ (0.08 )   $ 0.11     $ (0.27 )
Non-GAAP as adjusted(3)   $ 0.13     $ 0.11     $ -     $ 0.39     $ 0.03  
                                         
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share - U.S. GAAP:                                        
Basic     125,830       124,378       119,743       123,672       117,425  
Diluted     133,072       128,964       119,743       128,565       117,425  
                                         
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share - Non-GAAP:                                        
Basic     125,830       124,378       119,743       123,672       117,425  
Diluted(3)     133,072       128,964       125,134       128,565       122,167  
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 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   Twelve Months Ended
    December 27,   September 27,   December 28,   December 27,   December 28,
    2014   2014   2013   2014   2013
Cost of revenue   $ 500   $ 492   $ 489   $ 1,921   $ 1,871
Research and development     2,439     2,270     2,725     8,927     10,900
Sales and marketing     1,960     1,982     1,965     7,477     7,624
General and administration     1,676     1,628     1,789     6,383     5,956
      6,575     6,372     6,968     24,708     26,351
Cost of revenue - amortization from balance sheet*     972     999     1,206     3,686     5,625
Total stock-based compensation expense   $ 7,547   $ 7,371   $ 8,174   $ 28,394   $ 31,976
  * 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)  
             
    December 27,     December 28,  
    2014     2013  
ASSETS                
                 
Current assets:                
  Cash and cash equivalents   $ 86,495     $ 124,330  
  Short-term investments     239,628       172,660  
  Accounts receivable, net of allowance for doubtful accounts of $38 in 2014 and $43 in 2013    
154,596
     
100,643
 
  Inventory     146,500       123,685  
  Prepaid expenses and other current assets     24,636       17,752  
    Total current assets     651,855       539,070  
                 
Property, plant and equipment, net     81,566       79,668  
Long-term investments     59,233       64,419  
Cost-method investment     14,500       9,000  
Long-term restricted cash     5,460       3,904  
Other non-current assets     5,402       4,865  
    Total assets   $ 818,016     $ 700,926  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 61,533     $ 39,843  
  Accrued expenses     26,441       22,431  
  Accrued compensation and related benefits     38,795       33,899  
  Accrued warranty     12,241       12,374  
  Deferred revenue     35,321       32,402  
    Total current liabilities     174,331       140,949  
                 
  Long-term debt     116,894       109,164  
  Accrued warranty, non-current     14,799       10,534  
  Deferred revenue, non-current     10,758       4,888  
  Other long-term liabilities     19,327       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 December 27, 2014 and December 28, 2013
Issued and outstanding shares - 126,160 as of December 27, 2014 and 119,887 as of December 28, 2013
    126       120  
  Additional paid-in capital     1,077,225       1,025,661  
  Accumulated other comprehensive loss     (4,618 )     (3,486 )
  Accumulated deficit     (590,826 )     (604,485 )
  Total stockholders' equity     481,907       417,810  
      Total liabilities and stockholders' equity   $ 818,016     $ 700,926  
                     
                     
   
   
Infinera Corporation  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
   
    Twelve Months Ended  
    December 27,     December 28,  
    2014     2013  
Cash Flows from Operating Activities:                
Net income (loss)   $ 13,659     $ (32,119 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
  Depreciation and amortization     25,917       24,562  
  Amotization of debt discount and issuance costs     8,395       4,522  
  Amortization of premium on investments     3,772       1,539  
  Stock-based compensation expense     28,394       31,976  
  Other gain     (9 )     (276 )
  Changes in assets and liabilities:                
    Accounts receivable     (53,951 )     6,341  
    Inventory     (25,486 )     (3,036 )
    Prepaid expenses and other assets     (8,324 )     (3,162 )
    Accounts payable     18,810       (20,202 )
    Accrued liabilities and other expenses     11,866       11,272  
    Deferred revenue     8,788       7,337  
    Accrued warranty     4,132       6,426  
      Net cash provided by operating activities     35,963       35,180  
                 
Cash Flows from Investing Activities:                
  Purchase of available-for-sale investments     (302,398 )     (288,140 )
  Purchase of cost-method investment     (5,500 )     -  
  Proceeds from sale of available-for-sale investments     28,481       2,850  
  Proceeds from maturities and calls of investments     208,051       125,624  
  Purchase of property and equipment     (23,122 )     (21,065 )
  Change in restricted cash     (1,571 )     (69 )
      Net cash used in investing activities     (96,059 )     (180,800 )
                 
Cash Flows from Financing Activities:                
  Proceeds from issuance of debt, net     -       144,469  
  Proceeds from issuance of common stock     24,707       23,185  
  Minimum tax withholding paid on behalf of employees for net share settlement     (1,846 )     (1,544 )
      Net cash provided by financing activities     22,861       166,110  
                 
Effect of exchange rate changes on cash     (600 )     (826 )
                 
Net change in cash and cash equivalents     (37,835 )     19,664  
Cash and cash equivalents at beginning of period     124,330       104,666  
Cash and cash equivalents at end of period   $ 86,495     $ 124,330  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for income taxes, net of refunds   $ 1,697     $ 2,135  
  Cash paid for interest   $ 2,625     $ 1,320  
Supplemental schedule of non-cash financing activities:                
  Transfer of inventory to fixed assets   $ 2,569     $ 5,458  
  Warrant exercise   $ -     $ 500  
                   
                   
 
 
Infinera Corporation
Supplemental Financial Information
(Unaudited)
                           
  Q1'13 Q2'13 Q3'13   Q4'13   Q1'14   Q2'14   Q3'14   Q4'14
Revenue ($ Mil) $124.6 $138.4 $142.0   $139.1   $142.8   $165.4   $173.6   $186.3
Gross Margin %(1) 35.9% 38.9% 49.2%   41.4%   41.8%   43.3%   44.2%   46.1%
Revenue Composition:                          
  Domestic % 63% 64% 73%   54%   78%   82%   70%   58%
  International % 37% 36% 27%   46%   22%   18%   30%   42%
  Customers >10% of Revenue 1 - 3   1   2   2   1   1
Cash Related Information:                          
  Cash from (Used in) Operations ($ Mil) $(21.3) $17.9 $12.8   $25.8   $(15.4)   $10.3   $22.3   $18.7
  Capital Expenditures ($ Mil) $4.9 $4.5 $4.2   $7.5   $5.6   $4.4   $4.4   $8.8
  Depreciation & Amortization ($ Mil) $6.3 $6.3 $5.9   $6.0   $6.3   $6.5   $6.5   $6.6
  DSO's 82 64 56   66   68   66   71   76
Inventory Metrics:                          
  Raw Materials ($ Mil) $12.2 $9.8 $12.1   $14.3   $13.2   $11.2   $11.6   $15.2
  Work in Process ($ Mil) $53.1 $41.0 $45.7   $49.2   $47.8   $40.6   $44.4   $50.0
  Finished Goods ($ Mil) $65.7 $70.5 $65.7   $60.2   $65.5   $79.1   $74.8   $81.3
Total Inventory ($ Mil) $131.0 $121.3 $123.5   $123.7   $126.5   $130.9   $130.8   $146.5
Inventory Turns(2) 2.4 2.8 2.3   2.6   2.6   2.9   3.0   2.7
Worldwide Headcount 1,219 1,238 1,296   1,318   1,346   1,396   1,456   1,495
                           
(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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