SOURCE: Infinera

Infinera

July 24, 2012 16:15 ET

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.
 

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