SOURCE: Infinera

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.  
   

Contact Information