Infinera Corporation Reports Second Quarter 2011 Financial Results

| Source: Infinera Infinera

SUNNYVALE, CA--(Marketwire - Jul 19, 2011) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 25, 2011.

  • GAAP revenues for the second quarter of 2011 were $96.0 million compared to $92.9 million in the first quarter of 2011 and $111.4 million in the second quarter of 2010.

  • GAAP gross margin for the quarter was 39% compared to 46% in the first quarter of 2011 and 42% in the second quarter of 2010. GAAP net loss for the quarter was $24.2 million, or $(0.23) per share, compared to net loss of $16.4 million, or $(0.16) per share, in the first quarter of 2011 and net loss of $9.6 million, or $(0.10) per share, in the second quarter of 2010.

  • Non-GAAP gross margin for the second quarter of 2011 was 41% compared to 48% in the first quarter of 2011 and 44% in the second quarter of 2010, excluding restructuring and other related costs and non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2011 was $11.7 million, or $(0.11) per share, compared to net loss of $4.0 million, or $(0.04) per share, in the first quarter of 2011 and net income of $3.0 million, or $0.03 per diluted share, in the second quarter of 2010.

Management Commentary

"We are encouraged by our second quarter performance, including an improvement in bookings momentum," said Tom Fallon, president and chief executive officer. "We saw a continuation of healthy tributary adapter module purchases by a broad base of customers looking to meet their current bandwidth growth needs. The MSO space -- which we placed a strategic focus on several years ago -- was especially strong with two customers from that category in our top 5 customer count. In addition, we saw growth in new optical capacity deployments by our customers, establishing a base for future TAM purchases.

"On the new product front, we made excellent progress in the development of our next-generation 500Gbs/s PIC solution which will support 100G transmissions and on our 40G product with FlexCoherent technology. During this period of significant product development investment and transition to new products, we remain focused on delivering on our PIC-based digital optical strategy and product roadmap in order to generate the revenue growth necessary to achieve our long-term business model objectives."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results and third 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 1-800-262-4947. International parties can access the replay at 1-402-220-9707.

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 www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding future TAM purchases, prospects for our next-generation 500Gbs/s PIC solution, and our ability to generate the revenue growth necessary to achieve our long-term business model objectives. 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; our ability to operate profitably; aggressive business tactics by our competitors; our reliance on single-source suppliers; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; and general political, economic and market conditions and events. Further information about these risks and uncertainties, and other risks and uncertainties that affect our business, are contained in the risk factors section and other sections of our annual report on Form 10-K filed with the Securities Exchange Commission on March 1, 2011, as well subsequent reports filed with or furnished to the SEC. These reports are available on our website at www.infinera.com and the SEC's website at www.sec.gov. We assume no obligation to, and do 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 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 second quarter results, including an estimate of non-GAAP earnings for the third 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 per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 25,
2011		 June 26,
2010		 June 25,
2011		 June 26,
2010
Revenue:
Product $ 84,361 $ 98,035 $ 166,889 $ 184,202
Ratable product and related support and services 814 1,664 1,736 3,278
Services 10,781 11,699 20,221 19,678
Total revenue 95,956 111,398 188,846 207,158
Cost of revenue (1):
Cost of product 54,540 57,668 101,158 113,108
Cost of ratable product and related support and services 294 929 679 1,684
Cost of services 3,708 5,520 6,851 8,062
Restructuring credit related to cost of revenue - (29 ) - (122 )
Total cost of revenue 58,542 64,088 108,688 122,732
Gross profit 37,414 47,310 80,158 84,426
Operating expenses (1):
Research and development 32,899 28,923 64,208 57,406
Sales and marketing 14,957 13,682 28,892 26,719
General and administrative 13,635 14,448 27,144 30,185
Restructuring and other costs (credit) - (2 ) - 159
Total operating expenses 61,491 57,051 120,244 114,469
Loss from operations (24,077 ) (9,741 ) (40,086 ) (30,043 )
Other income (expense), net:
Interest income 225 325 537 810
Other gain (loss), net 20 (208 ) (391 ) (524 )
Total other income (expense), net 245 117 146 286
Loss before provision of income taxes (23,832 ) (9,624 ) (39,940 ) (29,757 )
Provision for (benefit from) income taxes 362 (63 ) 648 (205 )
Net loss $ (24,194 ) $ (9,561 ) $ (40,588 ) $ (29,552 )
Net loss per common share, basic and diluted $ (0.23 ) $ (0.10 ) $ (0.39 ) $ (0.30 )
Weighted average shares used in computing basic and diluted net loss per common share
105,165
98,777		 104,272 98,026
(1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and six months ended June 25, 2011 and June 26, 2010:
Three Months Ended Six Months Ended
June 25,
2011		 June 26,
2010		 June 25,
2011		 June 26,
2010
Cost of revenue $ 760 $ 564 $ 1,491 $ 1,133
Research and development 3,504 3,350 7,330 6,773
Sales and marketing 2,225 2,192 4,285 4,039
General and administration 4,828 5,198 9,611 10,907
11,317 11,304 22,717 22,852
Cost of revenue - amortization from balance sheet* 1,165 1,303 2,130 2,665
Total stock-based compensation expense $ 12,482 $ 12,607 $ 24,847 $ 25,517
* 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 Six Months Ended
June 25,
2011		 March 26,
2011		 June 26,
2010		 June 25,
2011		 June 26,
2010
Reconciliation of Gross Profit:
U.S. GAAP as reported $ 37,414 $ 42,744 $ 47,310 $ 80,158 $ 84,426
Restructuring and other related credit(1) - - (29 ) - (122 )
Stock-based compensation(2) 1,925 1,696 1,867 3,621 3,798
Non-GAAP as adjusted $ 39,339 $ 44,440 $ 49,148 $ 83,779 $ 88,102
Reconciliation of Gross Margin:
U.S. GAAP as reported 39 % 46 % 42 % 42 % 41 %
Restructuring and other related credit(1) - % - % - % - % - %
Stock-based compensation(2) 2 % 2 % 2 % 2 % 2 %
Non-GAAP as adjusted 41 % 48 % 44 % 44 % 43 %
Reconciliation of Income (Loss)
from Operations:
U.S. GAAP as reported $ (24,077 ) $ (16,009 ) $ (9,741 ) $ (40,086 ) $ (30,043 )
Restructuring and other related costs (credit)(1) - - (31 ) - 37
Stock-based compensation(2) 12,482 12,365 12,607 24,847 25,517
Non-GAAP as adjusted $ (11,595 ) $ (3,644 ) $ 2,835 $ (15,239 ) $ (4,489 )
Reconciliation of Net Income (Loss):
U.S. GAAP as reported $ (24,194 ) $ (16,394 ) $ (9,561 ) $ (40,588 ) $ (29,552 )
Restructuring and other related costs (credit)(1) - - (31 ) - 37
Stock-based compensation(2) 12,482 12,365 12,607 24,847 25,517
Non-GAAP as adjusted $ (11,712 ) $ (4,029 ) $ 3,015 $ (15,741 ) $ (3,998 )
Net Income (Loss) per Common
Share - Basic:
U.S. GAAP $ (0.23 ) $ (0.16 ) $ (0.10 ) $ (0.39 ) $ (0.30 )
Non-GAAP $ (0.11 ) $ (0.04 ) $ 0.03 $ (0.15 ) $ (0.04 )
Net Income (Loss) per Common
Share - Diluted:
U.S. GAAP $ (0.23 ) $ (0.16 ) $ (0.10 ) $ (0.39 ) $ (0.30 )
Non-GAAP $ (0.11 ) $ (0.04 ) $ 0.03 $ (0.15 ) $ (0.04 )
Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:
Basic 105,165 103,426 98,777 104,272 98,026
Diluted 105,165 103,426 98,777 104,272 98,026
Weighted average shares used in computing net income (loss) per common share - Non-GAAP:
Basic 105,165 103,426 98,777 104,272 98,026
Diluted 105,165 103,426 103,945 104,272 98,026
(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 Six Months Ended
June 26, 2010 June 26, 2010
Cost of Revenue Operating Expenses Total Cost of Revenue Operating Expenses Total
Severance and related expenses (credits) $ (129 ) $ - $ (129 ) $ (144 ) $ 55 $ (89 )
Equipment and facility-related costs (credits) 100 - 100 22 - 22
Lease termination - (2 ) (2 ) - 104 104
Total $ (29 ) $ (2 ) $ (31 ) $ (122 ) $ 159 $ 37
(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 Six Months Ended
June 25,
2011		 March 26,
2011		 June 26,
2010		 June 25,
2011		 June 26,
2010
Cost of revenue $ 760 $ 731 $ 564 $ 1,491 $ 1,133
Research and development 3,504 3,826 3,350 7,330 6,773
Sales and marketing 2,225 2,060 2,192 4,285 4,039
General and administration 4,828 4,783 5,198 9,611 10,907
11,317 11,400 11,304 22,717 22,852
Cost of revenue - amortization from balance sheet* 1,165 965 1,303 2,130 2,665
Total stock-based compensation expense $ 12,482 $ 12,365 $ 12,607 $ 24,847 $ 25,517
* 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)
June 25, December 25,
2011 2010
ASSETS
Current assets:
Cash and cash equivalents $ 100,926 $ 113,649
Short-term investments 167,667 168,013
Short-term restricted cash 157 1,856
Accounts receivable 73,684 75,931
Other receivables 1,739 4,420
Inventories, net 69,377 81,893
Deferred inventory costs 6,540 6,715
Prepaid expenses and other current assets 14,451 9,118
Total current assets 434,541 461,595
Property, plant and equipment, net 58,298 51,740
Deferred inventory costs, non-current 3,165 2,512
Long-term investments 7,903 9,953
Cost-method investment 4,500 4,500
Long-term restricted cash 2,361 2,235
Deferred tax asset 6,082 11,882
Other non-current assets 8,049 7,108
Total assets $ 524,899 $ 551,525
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,645 $ 35,658
Accrued expenses 24,518 19,790
Accrued compensation and related benefits 18,054 25,098
Accrued warranty 5,049 5,696
Deferred revenue 22,444 21,958
Deferred tax liability 6,082 11,882
Total current liabilities 104,792 120,082
Accrued warranty, non-current 5,645 5,726
Deferred revenue, non-current 3,454 4,633
Other long-term liabilities 10,659 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 June 25, 2011 and December 25, 2010
Issued and outstanding shares - 105,702 as of June 25, 2011 and 102,492 as of December 25, 2010
106
102
Additional paid-in capital 847,051 817,200
Accumulated other comprehensive loss (928 ) (1,261 )
Accumulated deficit (445,880 ) (405,292 )
Total stockholders' equity 400,349 410,749
Total liabilities and stockholders' equity $ 524,899 $ 551,525
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 25,
2011		 June 26,
2010
Cash Flows from Operating Activities:
Net loss $ (40,588 ) $ (29,552 )
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,434 7,719
Non-cash restructuring and other costs - 100
Amortization of premium on investments 2,218 1,521
Stock-based compensation expense 24,847 25,517
Unrealized loss on Put Rights - 1,696
Unrealized holding gain for trading securities - (1,696 )
Non-cash tax benefit (121 ) (364 )
Other gain (293 ) (81 )
Changes in assets and liabilities:
Accounts receivable 6,077 14,791
Inventories, net 13,269 (15,034 )
Prepaid expenses and other assets (536 ) 3,616
Deferred inventory costs (604 ) (2,049 )
Accounts payable (7,772 ) 5,037
Accrued liabilities and other expenses (4,500 ) (3,161 )
Deferred revenue (693 ) 5,265
Accrued warranty (727 ) 182
Net cash provided by (used in) operating activities (989 ) 13,507
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (153,034 ) (120,235 )
Purchase of cost-method investment - (4,500 )
Proceeds from sale of available-for-sale investments 3,035 -
Proceeds from maturities and calls of investments 150,511 108,483
Proceeds from disposal of assets 262 176
Purchase of property and equipment (17,322 ) (9,697 )
Advance to secure manufacturing capacity (1,500 ) -
Reimbursement of manufacturing capacity advance 225 -
Change in restricted cash 1,573 47
Net cash used in investing activities (16,250 ) (25,726 )
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 5,712 6,718
Repurchase of common stock (1,200 ) (2 )
Payments for purchase of assets under financing arrangement (174 ) (175 )
Net cash provided by financing activities 4,338 6,541
Effect of exchange rate changes on cash 178 (113 )
Net change in cash and cash equivalents (12,723 ) (5,791 )
Cash and cash equivalents at beginning of period 113,649 109,859
Cash and cash equivalents at end of period $ 100,926 $ 104,068
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 565 $ 447
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11
Revenue ($ Mil) $83.4 $90.2 $95.8 $111.4 $130.1 $117.1 $92.9 $96.0
Gross Margin % (1) 38% 40% 41% 44% 51% 51% 48% 41%
Invoiced Shipment Composition:
Domestic % 63% 74% 79% 81% 73% 70% 74% 72%
International % 37% 26% 21% 19% 27% 30% 26% 28%
Largest Customer % 15% 17% 22% 13% 19% 10% 14% 10%
Cash Related Information:
Cash from Operations ($ Mil) ($8.3) ($2.7) $2.3 $11.2 $10.0 $7.0 ($0.9) ($0.1)
Capital Expenditures ($ Mil) $2.8 $4.4 $4.7 $5.0 $5.9 $5.0 $10.6 $6.7
Depreciation & Amortization ($ Mil) $4.2 $4.5 $4.0 $3.7 $3.9 $4.0 $4.2 $4.2
DSO's 61 71 56 45 45 59 60 70
Inventory Metrics:
Raw Materials ($ Mil) $7.4 $6.9 $7.5 $9.1 $11.0 $23.1 $20.1 $7.3
Work in Process ($ Mil) $36.2 $32.1 $31.5 $29.2 $36.5 $14.8 $17.2 $27.7
Finished Goods ($ Mil) $29.3 $29.9 $33.0 $45.9 $41.2 $44.0 $41.0 $34.4
Total Inventory ($ Mil) $72.9 $68.9 $72.0 $84.2 $88.7 $81.9 $78.3 $69.4
Inventory Turns (1) 3.0 3.2 3.2 3.0 2.9 2.8 2.5 3.3
Worldwide Headcount 970 974 999 1,028 1,040 1,072 1,118 1,136
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation.

Contact Information:

Contacts:

Media:
Anna Vue
avue@infinera.com
Infinera Corporation
916-595-8157

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