-- GAAP revenues for the quarter were $130.1 million compared to $111.4
million in the second quarter of 2010 and $83.4 million in the third
quarter of 2009, representing year-over-year growth of 56%.
-- GAAP gross margins for the quarter were 50% compared to 42% in the
second quarter of 2010 and 33% in the third quarter of 2009. GAAP net
income for the quarter was $4.4 million, or $0.04 per basic and diluted
share, compared to a net loss of $9.6 million, or $(0.10) per share, in
the second quarter of 2010 and a net loss of $16.5 million, or $(0.17)
per share, in the third quarter of 2009.
-- Non-GAAP gross margins for the quarter were 51% compared to 44% in the
second quarter of 2010 and 38% in the third quarter of 2009, which
excludes restructuring and other related costs and non-cash stock-based
compensation. Non-GAAP net income for the quarter was $18.7 million,
or $0.18 per diluted share, compared to net income of $3.0 million, or
$0.03 per diluted share in the second quarter of 2010 and a net loss of
$3.1 million, or $(0.03) per share, in the third quarter of 2009.
Management Commentary
"I am pleased with the outstanding financial performance delivered by the
Infinera team in the third quarter," said Tom Fallon, president and chief
executive officer. "We achieved new records for quarterly revenue, gross
margin and tributary adapter module shipments. The stronger revenue,
higher profit margins and ongoing operating expense control resulted in
significant income leverage, with a non-GAAP operating income contribution
of $18.5 million for the quarter. We believe this operating income
contribution, combined with our achievement of 51% gross margin, validates
our long-term business model and demonstrates the leverage that is
achievable."
"We believe that our continued solid financial performance stems from our
customers' confidence in Infinera's unique and differentiated PIC-based
networks and our expanded product portfolio that provides the end-to-end
solutions that they are demanding," continued Fallon.
The company also noted the following developments in the third quarter and
more recently:
-- Positive cash from operations of $10.0 million;
-- TAM shipments of more than 3,000 units;
-- The addition of two new invoiced customers bringing its customer roster
to 77;
-- The addition of six new ATN metro customers, bringing total ATN
customers to 15;
-- The launch of new hardware and software products for the company's DTN
and ATN platforms that enable a new end-to-end "Digital OTN" solution;
and
-- Two important technical demonstrations, including:
-- PIC-based 100 Gigabit per second (100G) coherent transmission and
reception over a 1,348 kilometer route on an XO Communications
nationwide network on a production Infinera line system, and
-- 100 Gigabit Ethernet services over Colt's existing London to
Frankfurt Infinera network.
Conference Call Information:
Infinera will host a conference call for analysts and investors to discuss
its third quarter results and fourth 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 1-866-380-8126.
International parties can access the replay at 1-203-369-0357.
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 about our belief in the power and achievement of our long-term business model, our belief in our customers' confidence in our PIC-based networks and expanded product portfolio, and our belief that the quarterly results validates our long-term business model and demonstrates the leverage that is achievable. 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; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the U.S. Securities and Exchange Commission (SEC). More information about these and other risks that may impact Infinera's business are set forth in our annual report on Form 10-K, which was filed with the SEC on March 1, 2010, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these 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 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 third quarter 2010 results, including an estimate of non-GAAP earnings for the fourth quarter of 2010 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 Nine Months Ended
-------------------- --------------------
September September September September
25, 2010 26, 2009 25, 2010 26, 2009
--------- --------- --------- ---------
Revenue:
Product $ 115,121 $ 73,690 $ 299,323 $ 193,912
Ratable product and related
support and services 1,460 892 4,738 3,206
Services 13,480 8,826 33,158 21,802
--------- --------- --------- ---------
Total revenue 130,061 83,408 337,219 218,920
Cost of revenue (1):
Cost of product 58,552 47,473 171,660 137,037
Cost of ratable product and
related support and
services 874 444 2,558 1,532
Cost of services 6,224 5,049 14,286 9,681
Restructuring costs (credit)
related to cost of revenue (60) 2,736 (182) 2,736
--------- --------- --------- ---------
Total cost of revenue 65,590 55,702 188,322 150,986
Gross profit 64,471 27,706 148,897 67,934
Operating expenses (1):
Research and development 29,886 23,611 87,292 70,445
Sales and marketing 14,847 12,364 41,566 34,945
General and administrative 15,609 10,373 45,794 31,978
Restructuring and other costs - 601 159 601
--------- --------- --------- ---------
Total operating expenses 60,342 46,949 174,811 137,969
Income (loss) from operations 4,129 (19,243) (25,914) (70,035)
Other income (expense), net:
Interest income 284 441 1,094 1,956
Total other-than-temporary
impairment losses - - - (2,747)
Portion of loss recognized
in other comprehensive
loss - (161) - 1,653
--------- --------- --------- ---------
Net credit impairment losses
recognized in earnings - (161) - (1,094)
Other gain (loss), net 172 870 (352) (138)
--------- --------- --------- ---------
Total other income
(expense), net 456 1,150 742 724
Income (loss) before income
taxes 4,585 (18,093) (25,172) (69,311)
Provision for (benefit from)
income taxes 225 (1,561) 20 (1,340)
--------- --------- --------- ---------
Net income (loss) $ 4,360 $ (16,532) $ (25,192) $ (67,971)
========= ========= ========= =========
Net income (loss) per common
share
Basic $ 0.04 $ (0.17) $ (0.26) $ (0.71)
========= ========= ========= =========
Diluted $ 0.04 $ (0.17) $ (0.26) $ (0.71)
========= ========= ========= =========
Weighted average shares used in
computing net income (loss)
per common share
Basic 99,976 95,864 98,647 95,100
========= ========= ========= =========
Diluted 105,159 95,864 98,647 95,100
========= ========= ========= =========
(1) The following table summarizes the effects of stock-based compensation
related to employees and non-employees for the three and nine months
ended September 25, 2010 and September 26, 2009:
Three Months Ended Nine Months Ended
--------------------- ---------------------
September September September September
25, 2010 26, 2009 25, 2010 26, 2009
---------- ---------- ---------- ----------
Cost of revenue $ 725 $ 490 $ 1,858 $ 1,346
Research and development 3,773 2,915 10,546 7,066
Sales and marketing 2,148 1,710 6,187 4,723
General and administration 6,281 3,984 17,188 10,142
---------- ---------- ---------- ----------
12,927 9,099 35,779 23,277
Cost of revenue -
amortization from balance
sheet* 1,517 987 4,182 2,457
---------- ---------- ---------- ----------
Total stock-based
compensation expense $ 14,444 $ 10,086 $ 39,961 $ 25,734
========== ========== ========== ==========
* 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 Nine Months Ended
---------------------------------- ----------------------
September June 26, September September September
25, 2010 2010 26, 2009 25, 2010 26, 2009
---------- ---------- ---------- ---------- ----------
Reconciliation
of Gross
Profit:
U.S. GAAP as
reported $ 64,471 $ 47,310 $ 27,706 $ 148,897 $ 67,934
Restructuring
and other
related
costs(1) (60) (29) 2,736 (182) 2,736
Stock-based
compensation
(2) 2,242 1,867 1,477 6,040 3,803
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 66,653 $ 49,148 $ 31,919 $ 154,755 $ 74,473
========== ========== ========== ========== ==========
Reconciliation
of Gross
Margin:
U.S. GAAP as
reported 50% 42% 33% 44% 31%
Restructuring
and other
related
costs(1) - % - % 3% -% 1%
Stock-based
compensation
(2) 1% 2% 2% 2% 2%
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted 51% 44% 38% 46% 34%
========== ========== ========== ========== ==========
Reconciliation
of Income
(Loss) from
Operations:
U.S. GAAP as
reported $ 4,129 $ (9,741) $ (19,243) $ (25,914) $ (70,035)
Restructuring
and other
related
costs(1) (60) (31) 3,337 (23) 3,337
Stock-based
compensation
(2) 14,444 12,607 10,086 39,961 25,734
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 18,513 $ 2,835 $ (5,820) $ 14,024 $ (40,964)
========== ========== ========== ========== ==========
Reconciliation
of Net Income
(Loss):
U.S. GAAP as
reported $ 4,360 $ (9,561) $ (16,532) $ (25,192) $ (67,971)
Restructuring
and other
related
costs(1) (60) (31) 3,337 (23) 3,337
Stock-based
compensation
(2) 14,444 12,607 10,086 39,961 25,734
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 18,744 $ 3,015 $ (3,109) $ 14,746 $ (38,900)
========== ========== ========== ========== ==========
Net Income
(Loss) per
Common
Share - Basic:
U.S. GAAP $ 0.04 $ (0.10) $ (0.17) $ (0.26) $ (0.71)
========== ========== ========== ========== ==========
Non-GAAP $ 0.19 $ 0.03 $ (0.03) $ 0.15 $ (0.41)
========== ========== ========== ========== ==========
Net Income
(Loss) per
Common
Share -
Diluted:
U.S. GAAP $ 0.04 $ (0.10) $ (0.17) $ (0.26) $ (0.71)
========== ========== ========== ========== ==========
Non-GAAP $ 0.18 $ 0.03 $ (0.03) $ 0.14 $ (0.41)
========== ========== ========== ========== ==========
Weighted
average shares
used in
computing net
income (loss)
per common
share -
U.S. GAAP:
Basic 99,976 98,777 95,864 98,647 95,100
========== ========== ========== ========== ==========
Diluted 105,159 98,777 95,864 98,647 95,100
========== ========== ========== ========== ==========
Weighted
average shares
used in
computing net
income (loss)
per common
share -
Non-GAAP:
Basic 99,976 98,777 95,864 98,647 95,100
========== ========== ========== ========== ==========
Diluted 105,159 103,945 95,864 103,389 95,100
========== ========== ========== ========== ==========
(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 Nine Months Ended
September 25, 2010 September 25, 2010
---------------------------- ---------------------------
Cost of Operating Cost of Operating
Revenue Expenses Total Revenue Expenses Total
------- ----------- ------ ------- ------------ -----
Severance and
related
expenses $ - $ - $ - $ (144) $ 55 $ (89)
Equipment and
facility-
related costs (60) - (60) (38) - (38)
Lease
termination - - - - 104 104
------- ----------- ------ ------- ------------ -----
Total $ (60) $ - $ (60) $ (182) $ 159 $ (23)
======= =========== ====== ======= ============ =====
Three Months Ended
June 26, 2010
----------------------------
Cost of Operating
Revenue Expenses Total
------- ----------- ------
Severance and
related
expenses $ (129) $ - $ (129)
Equipment and
facility-
related costs 100 - 100
Lease
termination - (2) (2)
------- ----------- ------
Total $ (29) $ (2) $ (31)
======= =========== ======
Three and Nine Months Ended
September 26, 2009
----------------------------
Cost of Operating
Revenue Expenses Total
------- ----------- ------
Severance and
related
expenses $ 804 $ 97 $ 901
Equipment and
facility-
related costs 1,900 415 2,315
Lease
termination 32 89 121
------- ----------- ------
Total $ 2,736 $ 601 $3,337
======= =========== ======
(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 Nine Months Ended
-------------------------------- ---------------------
September June 26, September September September
25, 2010 2010 26, 2009 25, 2010 26, 2009
---------- ---------- ---------- ---------- ----------
Cost of revenue $ 725 $ 564 $ 490 $ 1,858 $ 1,346
Research and
development 3,773 3,350 2,915 10,546 7,066
Sales and
marketing 2,148 2,192 1,710 6,187 4,723
General and
administration 6,281 5,198 3,984 17,188 10,142
---------- ---------- ---------- ---------- ----------
12,927 11,304 9,099 35,779 23,277
Cost of revenue -
amortization from
balance sheet* 1,517 1,303 987 4,182 2,457
---------- ---------- ---------- ---------- ----------
Total stock-based
compensation
expense $ 14,444 $ 12,607 $ 10,086 $ 39,961 $ 25,734
========== ========== ========== ========== ==========
* 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)
September 25, December 26,
2010 2009
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 97,976 $ 109,859
Short-term investments 174,940 143,350
Short-term restricted cash 1,856 1,533
Accounts receivable 64,058 69,483
Other receivables 3,221 927
Inventories, net 88,694 68,872
Deferred inventory costs 6,940 5,891
Prepaid expenses and other current assets 11,068 8,313
----------- -----------
Total current assets 448,753 408,228
Property, plant and equipment, net 47,134 43,656
Deferred inventory costs, non-current 3,141 4,438
Long-term investments 11,118 18,255
Cost-method investment 4,500 -
Long-term restricted cash 2,219 2,480
Deferred tax asset 7,649 12,449
Other non-current assets 2,215 2,439
----------- -----------
Total assets $ 526,729 $ 491,945
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,880 $ 31,129
Accrued expenses 17,088 13,929
Accrued compensation and related benefits 18,031 19,248
Accrued warranty 5,560 6,091
Deferred revenue 18,386 18,295
Deferred tax liability 7,649 12,649
----------- -----------
Total current liabilities 112,594 101,341
Accrued warranty, non-current 5,364 5,049
Deferred revenue, non-current 4,714 8,080
Other long-term liabilities 5,749 8,968
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 September 25,
2010 and December 26, 2009
Issued and outstanding shares - 100,960 as of
September 25, 2010 and 96,874
as of December 26, 2009 101 97
Additional paid-in capital 801,766 747,580
Accumulated other comprehensive loss (1,007) (1,810)
Accumulated deficit (402,552) (377,360)
----------- -----------
Total stockholders' equity 398,308 368,507
----------- -----------
Total liabilities and stockholders' equity $ 526,729 $ 491,945
=========== ===========
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
------------------------
September 25, September 26,
2010 2009
----------- -----------
Cash Flows from Operating Activities:
Net loss $ (25,192) $ (67,971)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,594 12,064
Non-cash restructuring and other costs 100 2,404
Net credit impairment losses in earnings - 1,094
Amortization of premium on investments 2,753 289
Stock-based compensation expense 39,961 25,733
Unrealized loss on Put Rights 1,696 2,540
Unrealized holding gain for trading securities (1,696) (3,141)
Non-cash tax benefit (411) -
Tax benefit (reversal) from stock option
transactions - (593)
Reduction of tax benefit from stock option
transactions - 248
Gain on disposal of assets (139) (117)
Other gain (71) (113)
Changes in assets and liabilities:
Accounts receivable 5,425 15,324
Other receivables (430) (1,105)
Inventories, net (19,787) (12,728)
Prepaid expenses and other current assets 21 (2,331)
Deferred inventory costs 114 21
Other non-current assets 4,911 (4,795)
Accounts payable 15,024 (1,875)
Accrued liabilities and other expenses (6,856) 8,749
Deferred revenue (3,275) (3,922)
Accrued warranty (215) 197
----------- -----------
Net cash provided by (used in) operating
activities 23,527 (30,028)
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (212,307) (136,338)
Purchase of cost-method investment (4,500) -
Proceeds from sale of available-for-sale
investments - 1,536
Proceeds from maturities and calls of
investments, and exercise of Put Rights 184,662 93,157
Proceeds from disposal of assets 284 206
Purchase of property and equipment (15,639) (11,599)
Change in restricted cash (61) (1,148)
----------- -----------
Net cash used in investing activities (47,561) (54,186)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 12,341 8,545
Excess (reduction of) tax benefit from stock
option transactions - (248)
Repurchase of common stock (14) (19)
Payments for purchase of assets under financing
arrangement (262) -
----------- -----------
Net cash provided by financing activities 12,065 8,278
Effect of exchange rate changes on cash 86 111
Net change in cash and cash equivalents (11,883) (75,825)
Cash and cash equivalents at beginning of period 109,859 166,770
----------- -----------
Cash and cash equivalents at end of period $ 97,976 $ 90,945
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid for income taxes $ 882 $ 1,245
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10
----- ----- ----- ----- ----- ----- ------ ------
Revenue ($ Mil)
(1) $86.2 $66.6 $68.9 $83.4 $90.2 $95.8 $111.4 $130.1
Gross Margin
% (1) 36% 31% 31% 38% 40% 41% 44% 51%
----- ----- ----- ----- ----- ----- ------ ------
Invoiced
Shipment
Composition:
Domestic % 73% 74% 64% 63% 74% 79% 81% 73%
International % 27% 26% 36% 37% 26% 21% 19% 27%
Largest
Customer % 23% 30% 20% 15% 17% 22% 13% 19%
----- ----- ----- ----- ----- ----- ------ ------
Cash
Related
Information:
Cash from
Operations
($ Mil) ($ 5.4)($2.9) ($18.8)($ 8.3)($ 2.7) $ 2.3 $11.2 $ 10.0
Capital
Expenditures
($ Mil) $ 7.8 $ 6.0 $ 2.8 $ 2.8 $ 4.4 $ 4.7 $ 5.0 $ 5.9
Depreciation &
Amortization
($ Mil) $ 4.1 $ 3.9 $ 4.0 $ 4.2 $ 4.5 $ 4.0 $ 3.7 $ 3.9
DSO's 74 61 72 61 71 56 45 45
----- ----- ----- ----- ----- ----- ------ ------
Inventory
Metrics:
Raw
Materials
($ Mil) $ 9.1 $ 7.7 $10.1 $ 7.4 $ 6.9 $ 7.5 $ 9.1 $ 11.0
Work in
Process ($
Mil) $37.9 $43.2 $40.1 $36.2 $32.1 $31.5 $ 29.2 $ 36.5
Finished
Goods
($ Mil) $12.0 $13.6 $22.3 $29.3 $29.9 $33.0 $ 45.9 $ 41.2
----- ----- ----- ----- ----- ----- ------ ------
Total
Inventory
($ Mil) $59.0 $64.5 $72.5 $72.9 $68.9 $72.0 $84.2 $ 88.7
Inventory
Turns (1) 3.8 2.8 2.6 3.0 3.2 3.2 3.0 2.9
----- ----- ----- ----- ----- ----- ------ ------
Worldwide
Headcount 937 962 973 970 974 999 1,028 1,040
----- ----- ----- ----- ----- ----- ------ ------
(1) Q4'08 reflects Adjusted GAAP results and non-GAAP adjustments. Periods
Q1'09 and going forward reflect non-GAAP results. Adjusted GAAP results
reflect our GAAP results reduced for amounts released from deferred
revenue and deferred cost of inventory balances recorded prior to the
second quarter of 2008 and previously reported in our invoiced shipment
results. Non-GAAP adjustments include restructuring and other related
costs and non-cash stock-based compensation.
Contact Information: Contacts: Press: Jeff Ferry jferry@infinera.com Infinera Corporation 408-572-5213 Investors/Analysts: Bob Blair bblair@infinera.com Infinera Corporation 408-716-4879