SOURCE: Infinera

October 24, 2012 16:15 ET

# Infinera Corporation Reports Third Quarter 2012 Financial Results

SUNNYVALE, CA--(Marketwire - Oct 24, 2012) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical networks, today released financial results for the third quarter ended September 29, 2012.

GAAP revenues for the third quarter of 2012 were $112.2 million compared to$93.5 million in the second quarter of 2012 and $104.0 million in the third quarter of 2011. GAAP gross margin for the third quarter of 2012 was 37% compared to 35% in the second quarter of 2012 and 39% in the third quarter of 2011. GAAP net loss for the 2012 third quarter was$(19.1) million, or $(0.17) per share, compared to net loss of$(29.5) million, or $(0.27) per share, in the second quarter of 2012 and net loss of$(21.8) million, or $(0.21) per share, in the third quarter of 2011. Non-GAAP gross margin, which excludes non-cash stock-based compensation expenses, for the third quarter of 2012 was 39% compared to 37% in the second quarter of 2012 and 41% in the third quarter of 2011. Non-GAAP net loss for the third quarter of 2012 was$(7.8) million, or $(0.07) per share, compared to net loss of$(18.6) million, or $(0.16) per share, in the second quarter of 2012 and net loss of$(9.2) million, or $(0.09) per share, in the third quarter of 2011. Management Commentary "The DTN-X is experiencing strong traction around the world," said Tom Fallon, president and chief executive officer. "We now have 16 purchase commitments, representing five new customers and 11 existing customers. These commitments come from customers in North America, Europe and Asia Pacific and include commitments from all of our vertical markets. The DTN-X is in full deployment across the globe and, as forecasted, we began recognizing revenue from this platform in the third quarter. "We are at the beginning of what we believe will be an expansive market opportunity for 100G that will extend over many years. We are pleased with the very strong initial support for the DTN-X, reaffirming the value proposition of this unique and market-changing 100G converged WDM/OTN switching platform. We believe that customers appreciate the superior scale, efficiency, reliability, simplicity and lower total cost of ownership offered by the DTN-X and we are very optimistic about the outlook for its continued adoption. "We are also seeing continued wins with our DTN platform with three new DTN customers in the quarter. Our Digital Optical Network portfolio now delivers the same ease-of-use and quality across multiple applications in multiple markets." Conference Call Information: Infinera will host a conference call for analysts and investors to discuss its third quarter results and its outlook for the fourth 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 1-800-891-8251. International parties can access the replay at 1-203-369-3377. 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 market opportunity for 100G to be expansive and to continue for a significant period of time. 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. 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 third quarter results, including an estimate of non-GAAP earnings for the fourth 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 share amounts) (Unaudited) Three Months Ended Nine Months Ended September 29, 2012 September 24, 2011 September 29, 2012 September 24, 2011 Revenue: Product$ 98,853 $89,554$ 269,087 $256,443 Ratable product and related support and services 450 847 1,504 2,583 Services 12,911 13,621 39,782 33,842 Total revenue 112,214 104,022 310,373 292,868 Cost of revenue (1): Cost of product 66,510 57,449 181,851 158,607 Cost of ratable product and related support and services 102 167 459 846 Cost of services 4,102 5,757 13,762 12,608 Total cost of revenue 70,714 63,373 196,072 172,061 Gross profit 41,500 40,649 114,301 120,807 Operating expenses (1): Research and development 27,912 31,694 90,573 95,902 Sales and marketing 19,285 17,545 55,304 46,437 General and administrative 12,508 13,112 35,912 40,256 Total operating expenses 59,705 62,351 181,789 182,595 Loss from operations (18,205 ) (21,702 ) (67,488 ) (61,788 ) Other income (expense), net: Interest income 175 205 678 742 Other gain (loss), net (617 ) 188 (892 ) (203 ) Total other income (expense), net (442 ) 393 (214 ) 539 Loss before income taxes (18,647 ) (21,309 ) (67,702 ) (61,249 ) Provision for income taxes 434 497 1,540 1,145 Net loss$ (19,081 ) $(21,806 )$ (69,242 ) $(62,394 ) Net loss per common share, basic and diluted$ (0.17 ) $(0.21 )$ (0.63 ) $(0.59 ) Weighted average shares used in computing basic and diluted net loss per common share 111,579 106,264 110,216 104,936 (1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and nine months ended September 29, 2012 and September 24, 2011: Three Months Ended Nine Months Ended September 29, 2012 September 24, 2011 September 29, 2012 September 24, 2011 Cost of revenue$ 683 $722$ 1,975 $2,213 Research and development 3,439 3,745 10,454 11,075 Sales and marketing 2,685 2,216 7,648 6,501 General and administration 2,804 4,410 7,732 14,021 9,611 11,093 27,809 33,810 Cost of revenue - amortization from balance sheet* 1,706 1,487 3,875 3,617 Total stock-based compensation expense$ 11,317 $12,580$ 31,684 $37,427 * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.  Infinera Corporation GAAP to Non-GAAP Reconciliations (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 29, 2012 June 30, 2012 September 24, 2011 September 29, 2012 September 24, 2011 Reconciliation of Gross Profit: U.S. GAAP as reported$ 41,500 $32,374$ 40,649 $114,301$ 120,807 Stock-based compensation(1) 2,389 1,786 2,209 5,850 5,830 Non-GAAP as adjusted $43,889$ 34,160 $42,858$ 120,151 $126,637 Reconciliation of Gross Margin: U.S. GAAP as reported 37 % 35 % 39 % 37 % 41 % Stock-based compensation(1) 2 % 2 % 2 % 2 % 2 % Non-GAAP as adjusted 39 % 37 % 41 % 39 % 43 % Reconciliation of Loss from Operations: U.S. GAAP as reported$ (18,205 ) $(29,399 )$ (21,702 ) $(67,488 )$ (61,788 ) Stock-based compensation(1) 11,317 10,930 12,580 31,684 37,427 Non-GAAP as adjusted $(6,888 )$ (18,469 ) $(9,122 )$ (35,804 ) $(24,361 ) Reconciliation of Net Loss: U.S. GAAP as reported$ (19,081 ) $(29,549 )$ (21,806 ) $(69,242 )$ (62,394 ) Stock-based compensation(1) 11,317 10,930 12,580 31,684 37,427 Non-GAAP as adjusted $(7,764 )$ (18,619 ) $(9,226 )$ (37,558 ) $(24,967 ) Net Loss per Common Share - Basic: U.S. GAAP as reported$ (0.17 ) $(0.27 )$ (0.21 ) $(0.63 )$ (0.59 ) Non-GAAP as adjusted $(0.07 )$ (0.17 ) $(0.09 )$ (0.34 ) $(0.24 ) Net Loss per Common Share - Diluted: U.S. GAAP as reported$ (0.17 ) $(0.27 )$ (0.21 ) $(0.63 )$ (0.59 ) Non-GAAP as adjusted(2) $(0.07 )$ (0.16 ) $(0.09 )$ (0.34 ) $(0.24 ) Weighted average shares used in computing net loss per common share - U.S. GAAP: Basic 111,579 110,403 106,264 110,216 104,936 Diluted 111,579 110,403 106,264 109,534 104,936 Weighted average shares used in computing net loss per common share - Non-GAAP: Basic 111,579 110,403 106,264 110,216 104,936 Diluted(2) 113,443 112,931 108,885 112,113 108,345 (1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, Compensation-Stock Compensation effective January 1, 2006. The following table summarizes the effects of stock-based compensation related to employees and non-employees:  Three Months Ended Nine Months Ended September 29, 2012 June 30, 2012 September 24, 2011 September 29, 2012 September 24, 2011 Cost of revenue$ 683 $686$ 722 $1,975$ 2,213 Research and development 3,439 3,695 3,745 10,454 11,075 Sales and marketing 2,685 2,744 2,216 7,648 6,501 General and administration 2,804 2,705 4,410 7,732 14,021 9,611 9,830 11,093 27,809 33,810 Cost of revenue - amortization from balance sheet* 1,706 1,100 1,487 3,875 3,617 Total stock-based compensation expense $11,317$ 10,930 $12,580$ 31,684 $37,427 * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. (2) Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only.  Infinera Corporation Condensed Consolidated Balance Sheets (In thousands, except par values) (Unaudited) September 29, 2012 December 31, 2011 ASSETS Cash Current assets:and cash equivalents$ 76,600 $94,458 Short-term investments 92,258 101,296 Accounts receivable, net of allowance for doubtful accounts of$94 in 2012 and $0 in 2011 91,544 80,616 Other receivables 3,245 1,346 Inventory 118,463 88,996 Deferred inventory costs 1,891 5,987 Prepaid expenses and other current assets 12,094 10,532 Total current assets 396,095 383,231 Property, plant and equipment, net 79,140 76,753 Deferred inventory costs, non-current 134 1,020 Long-term investments 10,361 54,315 Cost-method investment 9,000 9,000 Long-term restricted cash 3,615 3,047 Deferred tax asset 822 822 Other non-current assets 1,854 3,516 Total assets$ 501,021 $531,704 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable$ 45,292 $48,838 Accrued expenses 23,669 22,421 Accrued compensation and related benefits 18,280 18,966 Accrued warranty 6,911 5,692 Deferred revenue 17,267 22,781 Deferred tax liability 767 767 Total current liabilities 112,186 119,465 Accrued warranty, non-current 8,388 7,173 Deferred revenue, non-current 2,241 3,410 Other long-term liabilities 15,706 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, $0.001 par value Authorized shares - 500,000 as of September 29, 2012 and December 31, 2011 Issued and outstanding shares - 112,119 as of September 29, 2012 and 106,976 as of December 31, 2011 112 107 Additional paid-in capital 920,482 876,927 Accumulated other comprehensive loss (1,816 ) (2,195 ) Accumulated deficit (556,278 ) (487,036 ) Total stockholders' equity 362,500 387,803 Total liabilities and stockholders' equity$ 501,021 $531,704  Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended September 29, 2012 September 24, 2011 Cash Flows from Operating Activities: Net loss$ (69,242 ) $(62,394 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 17,274 13,355 Provision for doubtful accounts 94 - Provision for other receivables - 563 Amortization of premium on investments 1,610 3,290 Stock-based compensation expense 31,684 37,427 Non-cash tax benefit (18 ) (130 ) Other gain (479 ) (337 ) Changes in assets and liabilities: Accounts receivable (11,021 ) 6,976 Other receivables (2,228 ) 3,622 Inventories, net (28,774 ) 12,333 Prepaid expenses and other assets 33 5,471 Deferred inventory costs 4,877 549 Accounts payable (1,048 ) (2,888 ) Accrued liabilities and other expenses 3,690 (10,946 ) Deferred revenue (6,683 ) (3,459 ) Accrued warranty 2,434 (316 ) Net cash provided by (used in) operating activities (57,797 ) 3,116 Cash Flows from Investing Activities: Purchase of available-for-sale investments (50,134 ) (206,829 ) Purchase of cost-method investment - (4,500 ) Proceeds from sale of available-for-sale investments 6,694 3,035 Proceeds from maturities and calls of investments 95,368 218,798 Proceeds from disposal of assets - 262 Purchase of property and equipment (22,238 ) (23,236 ) Advance to secure manufacturing capacity - (1,500 ) Reimbursement of manufacturing capacity advance 50 375 Change in restricted cash (564 ) 1,262 Net cash provided by (used in) investing activities 29,176 (12,333 ) Cash Flows from Financing Activities: Proceeds from issuance of common stock 11,280 9,964 Repurchase of common stock (875 ) (1,239 ) Payments for purchase of assets under financing arrangement - (262 ) Net cash provided by financing activities 10,405 8,463 Effect of exchange rate changes on cash 358 (254 ) Net change in cash and cash equivalents (17,858 ) (1,008 ) Cash and cash equivalents at beginning of period 94,458 113,649 Cash and cash equivalents at end of period$ 76,600 $112,641 Supplemental disclosures of cash flow information: Cash paid for income taxes$ 755 $852 Supplemental schedule of non-cash investing and financing activities: Transfer of inventory to fixed assets$ 738 $- Non-cash settlement for manufacturing capacity advance$ 275 $-  Infinera Corporation Supplemental Financial Information (Unaudited) Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Revenue ($ Mil) $117.1$ 92.9 $96.0$ 104.0 $112.0$ 104.7 $93.5$ 112.2 Gross Margin % (1) 51 % 48 % 41 % 41 % 42 % 40 % 37 % 39 % Invoiced Shipment Composition: Domestic % 70 % 74 % 72 % 65 % 70 % 71 % 70 % 70 % International % 30 % 26 % 28 % 35 % 30 % 29 % 30 % 30 % Largest Customer % 10 % 14 % 10 % < 10 % 14 % 13 % 15 % 13 % Cash Related Information: Cash from (used in) Operations ($Mil)$ 7.0 $(0.9 )$ (0.1 ) $4.1$ (5.1 ) $(5.8 )$ (22.7 ) $(29.3 ) Capital Expenditures ($ Mil) $5.0$ 10.6 $6.7$ 5.9 $16.1$ 13.6 $6.1$ 2.5 Depreciation & Amortization ($Mil)$ 4.0 $4.2$ 4.2 $4.9$ 4.5 $5.5$ 5.7 $6.1 DSO's 59 60 70 60 65 57 55 74 Inventory Metrics: Raw Materials ($ Mil) $23.1$ 20.1 $7.3$ 7.0 $12.1$ 15.3 $14.8$ 12.4 Work in Process ($Mil)$ 14.8 $17.2$ 27.7 $26.9$ 37.0 $41.6$ 49.4 $59.8 Finished Goods ($ Mil) $44.0$ 41.0 $34.4$ 36.4 $39.9$ 44.7 $50.9$ 46.3 Total Inventory ($Mil)$ 81.9 $78.3$ 69.4 $70.3$ 89.0 $101.6$ 115.1 \$ 118.5 Inventory Turns (1) 2.8 2.5 3.3 3.5 2.9 2.5 2.1 2.3 Worldwide Headcount 1,072 1,118 1,136 1,151 1,181 1,210 1,228 1,235 (1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.