Infinera Corporation Reports Second Quarter 2012 Financial Results

SUNNYVALE, CA--(Marketwire - Jul 24, 2012) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 30, 2012. 

GAAP revenues for the second quarter of 2012 were $93.5 million compared to $104.7 million in the first quarter of 2012 and $96.0 million in the second quarter of 2011. 

GAAP gross margin for the second quarter of 2012 was 35% compared to 39% in the first quarter of 2012 and 39% in the second quarter of 2011. GAAP net loss for the 2012 second quarter was $(29.5) million, or $(0.27) per share, compared to net loss of $(20.6) million, or $(0.19) per share, in the first quarter of 2012 and net loss of $(24.2) million, or $(0.23) per share, in the second quarter of 2011.

Non-GAAP gross margin for the second quarter of 2012 was 37% compared to 40% in the first quarter of 2012 and 41% in the second quarter of 2011, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2012 was $(18.6) million, or $(0.16) per share, compared to net loss of $(11.2) million, or $(0.10) per share, in the first quarter of 2012 and net loss of $(11.7) million, or $(0.11) per share, in the second quarter of 2011.

Management Commentary

"We executed well on our commitment to deliver the DTN-X to the market in the second quarter, completing critical customer trials and shipping the platform to customers for deployment as promised," said Tom Fallon, president and chief executive officer. "Reception to the DTN-X, featuring 500 Gb/s long haul super-channels along with WDM and integrated OTN switching, has been very positive and broad-based. 

"To date, we have received purchase commitments for the DTN-X from ten customers, including three customers new to Infinera. These customers represent a cross section of our markets, including cable, subsea, internet content, research & education, and Tier 1 providers. Adoption of the DTN-X demonstrates customers' recognition of the unique differentiation of our leading next-generation platform which provides unparalleled scale, efficiency, simplicity and reliability at a reduced total cost of ownership. We remain on track to recognize revenues from DTN-X sales beginning in the third quarter. While we are growing more cautious regarding the macro-economic environment and the outlook for capex spending in the second half of 2012, we are pleased with the market acceptance of the DTN-X."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results and its outlook for the third quarter today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will 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 1-800-570-8795. International parties can access the replay at 1-402-220-2264.

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 our expectations for customer interest in and adoption of our DTN-X product, and expectations for the timing of revenue recognition related to our DTN-X product. 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 unexpected delays in the development, production or availability of the DTN-X product, decisions by customers to delay orders of the product, changes in the marketplace that would affect customer demand for the product, as well as our general 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 6, 2012, as well as 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 2012 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 30,				June 25,				June 30,				June 25,
				2012				2011				2012				2011
Revenue:
	Product			$	77,843			$	84,361			$	170,234			$	166,889
	Ratable product and related support and services				523				814				1,054				1,736
	Services				15,092				10,781				26,871				20,221
		Total revenue			93,458				95,956				198,159				188,846
Cost of revenue (1):
	Cost of product				56,017				54,540				115,341				101,158
	Cost of ratable product and related support and services				166				294				357				679
	Cost of services				4,901				3,708				9,660				6,851
		Total cost of revenue			61,084				58,542				125,358				108,688
Gross profit					32,374				37,414				72,801				80,158
Operating expenses (1):
	Research and development				31,676				32,899				62,661				64,208
	Sales and marketing				17,777				14,957				36,019				28,892
	General and administrative				12,320				13,635				23,404				27,144
		Total operating expenses			61,773				61,491				122,084				120,244
Loss from operations					(29,399	)			(24,077	)			(49,283	)			(40,086	)
Other income (expense), net:
	Interest income				228				225				503				537
	Other gain (loss), net				149				20				(275	)			(391	)
		Total other income (expense), net			377				245				228				146
Loss before income taxes					(29,022	)			(23,832	)			(49,055	)			(39,940	)
Provision for income taxes					527				362				1,106				648
Net loss				$	(29,549	)		$	(24,194	)		$	(50,161	)		$	(40,588	)
Net loss per common share, basic and diluted				$	(0.27	)		$	(0.23	)		$	(0.46	)		$	(0.39	)
Weighted average shares used in computing basic and diluted net loss per common share					110,403				105,165				109,534				104,272
(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 30, 2012 and June 25, 2011:
				Three Months Ended								Six Months Ended
				June 30,				June 25,				June 30,				June 25,
				2012				2011				2012				2011
	Cost of revenue			$	686			$	760			$	1,292			$	1,491
	Research and development				3,695				3,504				7,015				7,330
	Sales and marketing				2,744				2,225				4,963				4,285
	General and administration				2,705				4,828				4,928				9,611
					9,830				11,317				18,198				22,717
	Cost of revenue - amortization from balance sheet*				1,100				1,165				2,169				2,130
	Total stock-based compensation expense			$	10,930			$	12,482			$	20,367			$	24,847
* 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 30,				March 31,				June 25,				June 30,				June 25,
		2012				2012				2011				2012				2011
Reconciliation of Gross Profit:
U.S. GAAP as reported		$	32,374			$	40,427			$	37,414			$	72,801			$	80,158
Stock-based compensation(1)			1,786				1,675				1,925				3,461				3,621
Non-GAAP as adjusted		$	34,160			$	42,102			$	39,339			$	76,262			$	83,779
Reconciliation of Gross Margin:
U.S. GAAP as reported			35	%			39	%			39	%			37	%			42	%
Stock-based compensation(1)			2	%			1	%			2	%			2	%			2	%
Non-GAAP as adjusted			37	%			40	%			41	%			39	%			44	%
Reconciliation of Loss from Operations:
U.S. GAAP as reported		$	(29,399	)		$	(19,884	)		$	(24,077	)		$	(49,283	)		$	(40,086	)
Stock-based compensation(1)			10,930				9,437				12,482				20,367				24,847
Non-GAAP as adjusted		$	(18,469	)		$	(10,447	)		$	(11,595	)		$	(28,916	)		$	(15,239	)
Reconciliation of Net Loss:
U.S. GAAP as reported		$	(29,549	)		$	(20,612	)		$	(24,194	)		$	(50,161	)		$	(40,588	)
Stock-based compensation(1)			10,930				9,437				12,482				20,367				24,847
Non-GAAP as adjusted		$	(18,619	)		$	(11,175	)		$	(11,712	)		$	(29,794	)		$	(15,741	)
Net Loss per Common Share - Basic:
U.S. GAAP as reported		$	(0.27	)		$	(0.19	)		$	(0.23	)		$	(0.46	)		$	(0.39	)
Non-GAAP as adjusted		$	(0.17	)		$	(0.10	)		$	(0.11	)		$	(0.27	)		$	(0.15	)
Net Loss per Common Share - Diluted:
U.S. GAAP as reported		$	(0.27	)		$	(0.19	)		$	(0.23	)		$	(0.46	)		$	(0.39	)
Non-GAAP as adjusted(2)		$	(0.16	)		$	(0.10	)		$	(0.11	)		$	(0.26	)		$	(0.15	)
Weighted average shares used in computing net loss per common share - U.S. GAAP:
Basic			110,403				108,666				105,165				109,534				104,272
Diluted			110,403				108,666				105,165				109,534				104,272
Weighted average shares used in computing net loss per common share - Non-GAAP:
Basic			110,403				108,666				105,165				109,534				104,272
Diluted(2)			112,931				112,007				108,330				112,469				108,076
(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:
		Three Months Ended												Six Months Ended
		June 31,				March 31,				June 25,				June 30,				June 25,
		2012				2012				2011				2012				2011
Cost of revenue		$	686			$	606			$	760			$	1,292			$	1,491
Research and development			3,695				3,320				3,504				7,015				7,330
Sales and marketing			2,744				2,219				2,225				4,963				4,285
General and administration			2,705				2,223				4,828				4,928				9,611
			9,830				8,368				11,317				18,198				22,717
Cost of revenue - amortization from balance sheet*			1,100				1,069				1,165				2,169				2,130
Total stock-based compensation expense		$	10,930			$	9,437			$	12,482			$	20,367			$	24,847
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
(2) 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)
			June 30,				December 31,
			2012				2011
ASSETS
Current assets:
	Cash and cash equivalents		$	84,988			$	94,458
	Short-term investments			105,046				101,296
	Accounts receivable			56,200				80,616
	Other receivables			1,492				1,346
	Inventory			115,117				88,996
	Deferred inventory costs			2,853				5,987
	Prepaid expenses and other current assets			10,217				10,532
		Total current assets		375,913				383,231
Property, plant and equipment, net				82,396				76,753
Deferred inventory costs, non-current				173				1,020
Long-term investments				17,057				54,315
Cost-method investment				9,000				9,000
Long-term restricted cash				3,263				3,047
Deferred tax asset				822				822
Other non-current assets				2,137				3,516
		Total assets	$	490,761			$	531,704
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	37,679			$	48,838
	Accrued expenses			17,666				22,421
	Accrued compensation and related benefits			19,391				18,966
	Accrued warranty			5,929				5,692
	Deferred revenue			18,507				22,781
	Deferred tax liability			767				767
		Total current liabilities		99,939				119,465
	Accrued warranty, non-current			7,773				7,173
	Deferred revenue, non-current			2,732				3,410
	Other long-term liabilities			15,004				13,853
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 30, 2012 and December 31, 2011
		Issued and outstanding shares - 110,836 as of June 30, 2012 and 106,976 as of December 31, 2011		111				107
	Additional paid-in capital			904,963				876,927
	Accumulated other comprehensive loss			(2,564	)			(2,195	)
	Accumulated deficit			(537,197	)			(487,036	)
	Total stockholders' equity			365,313				387,803
		Total liabilities and stockholders' equity	$	490,761			$	531,704

Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
					Six Months Ended
					June 30,				June 25,
					2012				2011
Cash Flows from Operating Activities:
Net loss					$	(50,161	)		$	(40,588	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization					11,224				8,434
	Amortization of premium on investments					1,098				2,218
	Stock-based compensation expense					20,367				24,847
	Non-cash tax benefit					-				(121	)
	Other gain					(501	)			(293	)
	Changes in assets and liabilities:
		Accounts receivable				24,416				2,247
		Other receivables				(477	)			3,830
		Inventory				(24,770	)			13,269
		Prepaid expenses and other assets				1,533				(536	)
		Deferred inventory costs				3,910				(604	)
		Accounts payable				(8,753	)			(7,772	)
		Accrued liabilities and other expenses				(2,272	)			(4,500	)
		Deferred revenue				(4,952	)			(693	)
		Accrued warranty				837				(727	)
			Net cash used in operating activities			(28,501	)			(989	)
Cash Flows from Investing Activities:
	Purchase of available-for-sale investments					(42,853	)			(153,034	)
	Proceeds from sale of available-for-sale investments					5,194				3,035
	Proceeds from maturities and calls of investments					70,464				150,511
	Proceeds from disposal of assets					-				262
	Purchase of property and equipment					(19,770	)			(17,322	)
	Advance to secure manufacturing capacity					-				(1,500	)
	Reimbursement of manufacturing capacity advance					50				225
	Change in restricted cash					(230	)			1,573
			Net cash provided by (used in) investing activities			12,855				(16,250	)
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock					7,093				5,712
	Repurchase of common stock					(839	)			(1,200	)
	Payments for purchase of assets under financing arrangement					-				(174	)
			Net cash provided by financing activities			6,254				4,338
Effect of exchange rate changes on cash						(78	)			178
Net change in cash and cash equivalents						(9,470	)			(12,723	)
Cash and cash equivalents at beginning of period						94,458				113,649
Cash and cash equivalents at end of period					$	84,988			$	100,926
Supplemental disclosures of cash flow information:
	Cash paid for income taxes				$	595			$	565
Supplemental schedule of non-cash financing activities:
	Non-cash settlement for manufacturing capacity advance				$	275			$	-

Infinera Corporation
Supplemental Financial Information
(Unaudited)
	Q3'10	Q4'10	Q1'11	Q2'11	Q3'11	Q4'11	Q1'12	Q2'12
Revenue ($ Mil)	$130.1	$117.1	$92.9	$96.0	$104.0	$112.0	$104.7	$93.5
Gross Margin % (1)	51%	51%	48%	41%	41%	42%	40%	37%
Invoiced Shipment Composition:
Domestic %	73%	70%	74%	72%	65%	70%	71%	70%
International %	27%	30%	26%	28%	35%	30%	29%	30%
Largest Customer %	19%	10%	14%	10%	< 10%	14%	13%	15%
Cash Related Information:
Cash from Operations ($ Mil)	$10.0	$7.0	($0.9)	($0.1)	$4.1	($5.1)	($5.8)	($22.7)
Capital Expenditures ($ Mil)	$5.9	$5.0	$10.6	$6.7	$5.9	$16.1	$13.6	$6.1
Depreciation & Amortization ($ Mil)	$3.9	$4.0	$4.2	$4.2	$4.9	$4.5	$5.5	$5.7
DSO's	45	59	60	70	60	65	57	55
Inventory Metrics:
Raw Materials ($ Mil)	$11.0	$23.1	$20.1	$7.3	$7.0	$12.1	$15.3	$14.8
Work in Process ($ Mil)	$36.5	$14.8	$17.2	$27.7	$26.9	$37.0	$41.6	$49.4
Finished Goods ($ Mil)	$41.2	$44.0	$41.0	$34.4	$36.4	$39.9	$44.7	$50.9
Total Inventory ($ Mil)	$88.7	$81.9	$78.3	$69.4	$70.3	$89.0	$101.6	$115.1
Inventory Turns (1)	2.9	2.8	2.5	3.3	3.5	2.9	2.5	2.1
Worldwide Headcount	1,040	1,072	1,118	1,136	1,151	1,181	1,210	1,228
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation expense.