SOURCE: Infinera

Infinera

July 22, 2015 16:15 ET

Infinera Corporation Reports Second Quarter 2015 Financial Results

SUNNYVALE, CA--(Marketwired - Jul 22, 2015) - Infinera Corporation (NASDAQ: INFN), provider of Intelligent Transport Networks, today released financial results for the second quarter of 2015 ended June 27, 2015.

Revenue for the quarter was $207.3 million compared to $186.9 million in the first quarter of 2015 and $165.4 million in the second quarter of 2014.

GAAP gross margin for the quarter was 46.7% compared to 47.2% in the first quarter of 2015 and 42.5% in the second quarter of 2014. GAAP operating margin for the quarter was 8.0% compared to an operating margin of 8.1% in the first quarter of 2015 and an operating margin of 4.9% in the second quarter of 2014.

GAAP net income for the quarter was $17.9 million, or $0.13 per diluted share, compared to $12.4 million, or $0.09 per diluted share, in the first quarter of 2015, and $4.8 million, or $0.04 per diluted share, in the second quarter of 2014.

Non-GAAP gross margin for the quarter was 47.4% compared to 47.8% in the first quarter of 2015 and 43.3% in the second quarter of 2014. Non-GAAP operating margin for the quarter was 13.0% compared to 12.2% in the first quarter of 2015 and 9.0% in the second quarter of 2014.

Non-GAAP net income for the quarter was $25.7 million, or $0.18 per diluted share, compared to $22.1 million, or $0.16 per diluted share, in the first quarter of 2015, and $13.5 million, or $0.11 per diluted share, in the second quarter of 2014.

The above non-GAAP measures exclude non-cash stock-based compensation expenses, acquisition-related costs, acquisition-related forward contract gains 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.

"Our outstanding second quarter results were driven by robust demand across multiple verticals, as customers continued to build next generation networks with Infinera. Differentiated products, exceptional customer experience and a vertical business model enable us to continue to grow our top line rapidly and our bottom line even faster," said Tom Fallon, Infinera's Chief Executive Officer. "With the emergence of new cloud architectures, the strategic importance of optical transport has never been higher. Our technology leadership and superior service experience, puts Infinera in a particularly favorable position to benefit from this ongoing evolution in optical networking."

Conference Call Information
Infinera will host a conference call for analysts and investors to discuss its second quarter of 2015 results and its outlook for the third quarter of 2015 today at 5:30 p.m. Eastern Time (2:30 p.m. Pacific Time). Interested parties may join the conference call by dialing 1-800-593-9940 (toll free) or 1-630-395-0029 (international), pass-code PIC. 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 1-800-677-1310. International parties can access the replay at 1-203-369-3644.

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 Infinera's 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 ability to continue to grow its top line rapidly and its bottom line even faster; Infinera's belief that the strategic importance of optical transport has never been higher; and Infinera's ability to remain in a particularly favorable position to benefit from this ongoing evolution in optical networking. 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 March 28, 2015 as filed with the SEC on May 4, 2015, 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, acquisition-related costs, acquisition-related forward contract gains 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, basic and diluted net income per share, gross margin or operating 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 second quarter 2015 results, including an estimate of non-GAAP earnings for the third quarter of 2015 that excludes non-cash stock-based compensation expenses, acquisition-related costs, acquisition-related forward contract gains or losses, 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     Six Months Ended  
    June 27,     June 28,     June 27,     June 28,  
    2015     2014     2015     2014  
Revenue:                                
  Product   $ 178,982     $ 142,364     $ 339,825     $ 266,606  
  Services     28,364       23,035       54,383       41,608  
    Total revenue     207,346       165,399       394,208       308,214  
                                 
Cost of revenue:                                
   Cost of product     99,491       85,906       188,997       164,344  
   Cost of services     11,059       9,240       20,303       15,211  
    Total cost of revenue     110,550       95,146       209,300       179,555  
                                 
Gross profit     96,796       70,253       184,908       128,659  
                                 
Operating expenses:                                
  Research and development     43,421       31,738       82,678       61,084  
  Sales and marketing     21,535       18,082       42,577       35,944  
  General and administrative     15,310       12,381       27,966       24,635  
    Total operating expenses     80,266       62,201       153,221       121,663  
                                 
Income from operations     16,530       8,052       31,687       6,996  
                                 
Other income (expense), net:                                
  Interest income     551       337       965       673  
  Interest expense     (2,947 )     (2,728 )     (5,837 )     (5,405 )
  Other gain (loss), net     4,780       (264 )     5,081       (993 )
    Total other income (expense), net     2,384       (2,655 )     209       (5,725 )
                                 
Income before income taxes     18,914       5,397       31,896       1,271  
Provision for income taxes     1,008       617       1,624       865  
Net income   $ 17,906     $ 4,780     $ 30,272     $ 406  
                                 
Net income per common share:                                
  Basic   $ 0.14     $ 0.04     $ 0.23     $ 0.00  
  Diluted   $ 0.13     $ 0.04     $ 0.22     $ 0.00  
                                 
Weighted average shares used in computing                                
net income per common share:                                
  Basic     130,349       123,128       129,094       122,240  
  Diluted     140,642       126,758       138,973       126,112  
 
 
Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited) 
 
  Three Months Ended   Six Months Ended  
  June 27,   March 28,   June 28,   June 27,   June 28,  
  2015   2015   2014   2015   2014  
Reconciliation of Gross Profit:                              
U.S. GAAP as reported $ 96,796   $ 88,112   $ 70,253   $ 184,908   $ 128,659  
Stock-based compensation1   1,493     1,243     1,360     2,736     2,644  
Non-GAAP as adjusted $ 98,289   $ 89,355   $ 71,613   $ 187,644   $ 131,303  
                               
Reconciliation of Gross Margin:                              
U.S. GAAP as reported   46.7 %   47.2 %   42.5 %   46.9 %   41.7 %
Stock-based compensation1   0.7 %   0.6 %   0.8 %   0.7 %   0.9 %
Non-GAAP as adjusted   47.4 %   47.8 %   43.3 %   47.6 %   42.6 %
                               
Reconciliation of Income                              
from Operations:                              
U.S. GAAP as reported $ 16,530   $ 15,157   $ 8,052   $ 31,687   $ 6,996  
Stock-based compensation1   8,209     7,208     6,804     15,417     13,476  
Acquisition-related costs2   2,264     462     -     2,726     -  
Non-GAAP as adjusted $ 27,003   $ 22,827   $ 14,856   $ 49,830   $ 20,472  
                               
Reconciliation of Operating Margin:                              
U.S. GAAP as reported   8.0 %   8.1 %   4.9 %   8.0 %   2.3 %
Stock-based compensation1   3.9 %   3.9 %   4.1 %   3.9 %   4.3 %
Acquisition-related costs2   1.1 %   0.2 %   0.0 %   0.7 %   0.0 %
Non-GAAP as adjusted   13.0 %   12.2 %   9.0 %   12.6 %   6.6 %
                               
Reconciliation of Net Income:                              
U.S. GAAP as reported $ 17,906   $ 12,366   $ 4,780   $ 30,272   $ 406  
Stock-based compensation1   8,209     7,208     6,804     15,417     13,476  
Acquisition-related costs2   2,264     462     -     2,726     -  
Acquisition-related forward contract gain3   (4,782 )   -     -     (4,782 )   -  
Amortization of debt discount4   2,109     2,057     1,908     4,166     3,768  
Non-GAAP as adjusted $ 25,706   $ 22,093   $ 13,492   $ 47,799   $ 17,650  
                               
Net Income per Common                              
Share - Basic:                              
U.S. GAAP as reported $ 0.14   $ 0.10   $ 0.04   $ 0.23   $ 0.00  
Non-GAAP as adjusted $ 0.20   $ 0.17   $ 0.11   $ 0.37   $ 0.14  
                               
Net Income per Common                              
Share - Diluted:                              
U.S. GAAP as reported $ 0.13   $ 0.09   $ 0.04   $ 0.22   $ 0.00  
Non-GAAP as adjusted $ 0.18   $ 0.16   $ 0.11   $ 0.34   $ 0.14  
                               
Weighted Average Shares                              
Used in Computing Net Income                              
per Common Share - U.S. GAAP:                              
Basic   130,349     127,840     123,128     129,094     122,240  
Diluted   140,642     137,304     126,758     138,973     126,112  
                               
Weighted Average Shares                              
Used in Computing Net Income                              
per Common Share - Non-GAAP:                              
Basic   130,349     127,840     123,128     129,094     122,240  
Diluted   140,642     137,304     126,758     138,973     126,112  
                               
                               
                               
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   Six Months Ended
  June 27,   March 28,   June 28,   June 27,   June 28,
  2015   2015   2014   2015   2014
Cost of revenue $ 613   $ 482   $ 477   $ 1,095   $ 929
Research and development   2,817     2,578     2,080     5,395     4,218
Sales and marketing   2,070     1,721     1,815     3,791     3,535
General and administration   1,829     1,666     1,549     3,495     3,079
    7,329     6,447     5,921     13,776     11,761
Cost of revenue - amortization from balance sheet*   880     761     883     1,641     1,715
Total stock-based compensation expense $ 8,209   $ 7,208   $ 6,804   $ 15,417   $ 13,476
                             
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.      
                             
2 In April 2015, Infinera announced its offer to acquire Transmode, a leader in metro packet-optical networking. Acquisition-related costs include legal and other professional fees and have been adjusted in arriving at Infinera's non-GAAP results because management believes that these expenses are not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.
                             
3 In April 2015, Infinera entered into a foreign currency forward contract with a notional amount of SEK 831 million ($95.3 million) at an exchange rate of 8.7210 to hedge currency exposures associated with the cash portion of the offer to acquire Transmode. Changes in the fair value of this forward contract will impact Infinera's financial statements for the interim reporting periods prior to the close of the offer. As a result, these gains have been adjusted in arriving at Infinera's non-GAAP results because management believes that these gains are not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.
                             
4 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.
Infinera Corporation        
Condensed Consolidated Balance Sheets        
(In thousands, except par values)        
(Unaudited)        
         
  June 27,   December 27,  
  2015   2014  
ASSETS            
             
Current assets:            
  Cash and cash equivalents $ 198,018   $ 86,495  
  Short-term investments   199,204     239,628  
  Accounts receivable, net of allowance for doubtful accounts            
  of $47 in 2015 and $38 in 2014   109,448     154,596  
  Inventory   157,181     146,500  
  Prepaid expenses and other current assets   29,368     24,636  
    Total current assets   693,219     651,855  
             
Property, plant and equipment, net   86,981     81,566  
Long-term investments   57,519     59,233  
Cost-method investment   14,500     14,500  
Long-term restricted cash   5,171     5,460  
Other non-current assets   6,150     5,402  
    Total assets $ 863,540   $ 818,016  
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Current liabilities:            
  Accounts payable $ 38,807   $ 61,533  
  Accrued expenses   30,114     26,441  
  Accrued compensation and related benefits   33,856     38,795  
  Accrued warranty   12,576     12,241  
  Deferred revenue   37,261     35,321  
    Total current liabilities   152,614     174,331  
             
  Long-term debt, net   121,059     116,894  
  Accrued warranty, non-current   15,863     14,799  
  Deferred revenue, non-current   13,035     10,758  
  Other long-term liabilities   21,179     19,327  
             
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 27, 2015 and December 27, 2014            
    Issued and outstanding shares - 131,164 as of June 27, 2015 and 126,160 as of December 27, 2014   131     126  
  Additional paid-in capital   1,104,672     1,077,225  
  Accumulated other comprehensive loss   (4,459 )   (4,618 )
  Accumulated deficit   (560,554 )   (590,826 )
  Total stockholders' equity   539,790     481,907  
      Total liabilities and stockholders' equity $ 863,540   $ 818,016  
 
 
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
    Six Months Ended  
    June 27,   June 28,  
    2015   2014  
Cash Flows from Operating Activities:              
Net income   $ 30,272   $ 406  
Adjustments to reconcile net income to net cash              
provided by (used in) operating activities:              
  Depreciation and amortization     12,850     12,813  
  Amortization of debt discount and issuance costs     4,524     4,092  
  Amortization of premium on investments     1,792     1,747  
  Unrealized gain from forward contract     (4,782 )   -  
  Stock-based compensation expense     15,417     13,476  
  Other loss (gain)     2     (22 )
  Changes in assets and liabilities:              
    Accounts receivable     45,140     (20,043 )
    Inventory     (12,774 )   (8,107 )
    Prepaid expenses and other assets     (1,080 )   (3,389 )
    Accounts payable     (23,597 )   (6,428 )
    Accrued liabilities and other expenses     1,491     (3,318 )
    Deferred revenue     4,216     (1,448 )
    Accrued warranty     1,399     5,040  
      Net cash provided by (used in) operating activities     74,870     (5,181 )
               
Cash Flows from Investing Activities:              
  Purchase of available-for-sale investments     (112,940 )   (158,496 )
  Proceeds from sale of available-for-sale investments     9,998     9,824  
  Proceeds from maturities and calls of investments     143,483     116,290  
  Purchase of property and equipment     (16,098 )   (9,985 )
  Change in restricted cash     290     (491 )
      Net cash provided by (used in) investing activities     24,733     (42,858 )
               
Cash Flows from Financing Activities:              
  Proceeds from issuance of common stock     16,488     8,401  
  Minimum tax withholding paid on behalf of              
    employees for net share settlement     (4,561 )   (1,619 )
      Net cash provided by financing activities     11,927     6,782  
               
Effect of exchange rate changes on cash     (7 )   234  
               
Net change in cash and cash equivalents     111,523     (41,023 )
Cash and cash equivalents at beginning of period     86,495     124,330  
Cash and cash equivalents at end of period   $ 198,018   $ 83,307  
               
Supplemental disclosures of cash flow information:              
  Cash paid for income taxes, net of refunds   $ 1,481   $ 482  
  Cash paid for interest   $ 1,313   $ 1,313  
Supplemental schedule of non-cash financing activities:              
  Transfer of inventory to fixed assets   $ 2,205   $ 978  
                 
                 
Infinera Corporation
Supplemental Financial Information
(Unaudited)
                               
  Q3'13   Q4'13   Q1'14   Q2'14   Q3'14   Q4'14   Q1'15   Q2'15
Revenue ($ Mil) $142.0   $139.1   $142.8   $165.4   $173.6   $186.3   $186.9   $207.3
Gross Margin % 1 49.2%   41.4%   41.8%   43.3%   44.2%   46.1%   47.8%   47.4%
Revenue Composition:                              
  Domestic % 73%   54%   78%   82%   70%   58%   68%   75%
  International % 27%   46%   22%   18%   30%   42%   32%   25%
  Customers >10% of Revenue 3   1   2   2   1   1   2   3
Cash Related Information:                              
  Cash from (Used in) Operations ($ Mil) $12.8   $25.8   $(15.4)   $10.3   $22.3   $18.7   $19.8   $55.0
  Capital Expenditures ($ Mil) $4.2   $7.5   $5.6   $4.4   $4.4   $8.8   $7.4   $8.7
  Depreciation & Amortization ($ Mil) $5.9   $6.0   $6.3   $6.5   $6.5   $6.6   $6.6   $6.3
  DSO's 56   66   68   66   71   76   64   48
Inventory Metrics:                              
  Raw Materials ($ Mil) $12.1   $14.3   $13.2   $11.2   $11.6   $15.2   $22.4   $30.2
  Work in Process ($ Mil) $45.7   $49.2   $47.8   $40.6   $44.4   $50.0   $45.9   $43.9
  Finished Goods ($ Mil) $65.7   $60.2   $65.5   $79.1   $74.8   $81.3   $88.9   $83.1
Total Inventory ($ Mil) $123.5   $123.7   $126.5   $130.9   $130.8   $146.5   $157.2   $157.2
Inventory Turns 2 2.3   2.6   2.6   2.9   3.0   2.7   2.5   2.8
Worldwide Headcount 1,296   1,318   1,346   1,396   1,456   1,495   1,530   1,598
                               
                               
                               
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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