Infinera Corporation Reports Fourth Quarter and Fiscal Year 2013 Financial Results

Marketwired

SUNNYVALE, CA--(Marketwired - Jan 29, 2014) - Infinera Corporation ( NASDAQ : INFN ), provider of Intelligent Transport Networks", today released financial results for the fourth quarter and fiscal year ended December 28, 2013.

GAAP revenues for the quarter were $139.1 million compared to $142.0 million in the third quarter of 2013 and $128.1 million in the fourth quarter of 2012. 

GAAP gross margins for the quarter were 40% compared to 48% in the third quarter of 2013 and 34% in the fourth quarter of 2012. GAAP net loss for the quarter was $(10.2) million, or $(0.08) per share, compared to net income of $3.3 million, or $0.03 per diluted share, in the third quarter of 2013 and a net loss of $(16.1) million, or $(0.14) per share, in the fourth quarter of 2012.

Non-GAAP gross margins for the quarter were 41% compared to 49% in the third quarter of 2013 and 36% in the fourth quarter of 2012. Non-GAAP net loss for the quarter was $(0.2) million, or breakeven on an earnings per share basis, compared to net income of $12.8 million, or $0.10 per diluted share in the third quarter of 2013 and net loss of $(6.0) million, or $(0.05) per share, in the fourth quarter of 2012. These Non-GAAP measures exclude non-cash stock-based compensation expenses and the amortization of debt discount on our convertible senior notes.

GAAP revenues for the year were $544.1 million compared to $438.4 million in 2012.

GAAP gross margins for the year were 40% compared to 36% in 2012. GAAP net loss for the year was $(32.1) million, or $(0.27) per share compared to $(85.3) million, or $(0.77) per share in 2012. 

Non-GAAP gross margins for the year were 42% compared to 38% in 2012. Non-GAAP net income for the year was $4.0 million or $0.03 per diluted share in 2013, compared to net loss of $(43.5) million or $(0.38) per diluted share in 2012. These Non-GAAP measures exclude non-cash stock-based compensation expenses and the amortization of debt discount on our 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. 

Management Commentary

"The fourth quarter was a solid finish to a very good year for Infinera, driven by continued acceptance of the DTN-X," said Tom Fallon, chief executive officer. "We received purchase commitments from three additional customers in the quarter, including one new to Infinera, and we set another quarterly record for 100G port shipments.

"Our financial results for 2013 demonstrate the strong potential of the DTN-X. Revenues grew 24%, at least double the long haul DWDM market growth estimated by industry analysts; gross margins expanded significantly; we achieved $4 million Non-GAAP net income compared with $43.5 million Non-GAAP net loss in 2012; and we generated $12 million in net free cash flow for the year. Since its introduction in mid 2012, we have received purchase commitments for the DTN-X from a total of 42 customers, representing a cross section of industries including Tier 1 carriers, cable operators, Internet content providers and bandwidth wholesalers. Of these, 15 are new customers to Infinera. These achievements met or exceeded the targets that we provided at our Analyst Day in December of 2012.

"As we look ahead, we believe the opportunity for the DTN-X remains wide open with the 100G cycle still in its early stages. Infinera's Intelligent Transport Network and the DTN-X offers important differentiated features, including its super-channel scale, converged OTN switching and GMPLS network automation. For 2014, we plan to continue our focus on winning new deployments and gaining market share, while driving enhanced profitability, and we remain optimistic about our outlook over the short, intermediate and long-term." 

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its fourth quarter results and its outlook for the first quarter 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 1-866-379-4236 . International parties can access the replay at 1-203-369-0338 .

About Infinera

Infinera provides Intelligent Transport Networks to help carriers exploit the increasing demand for cloud-based services and data center connectivity as they advance into the Terabit Era. Infinera is unique in its use of breakthrough semiconductor technology to deliver large scale Photonic Integrated Circuit (PICs) and the application of PICs to vertically integrated optical networking solutions that deliver the industry's only commercially available 500 Gb/s FlexCoherent super-channels. Infinera Intelligent Transport Network solutions include the DTN-X, DTN and ATN platforms. Find more at www.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. 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. Forward-looking statements include statements regarding Infinera's expectations, beliefs, intentions or strategies including statements regarding the opportunity for DTN-X and the Company's plans for 2014. 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 our results to differ materially from those expressed or implied by such forward-looking statements include aggressive business tactics by our competitors, our reliance on single-source suppliers, our ability to protect our intellectual property, claims by others that we infringe their intellectual property, and our ability to respond to rapid technological changes, and other risks that may impact our business are set forth in our annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2013, 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 . 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 and amortization of debt discount on our convertible senior notes. 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 fourth quarter results, including an estimate of non-GAAP earnings for the first quarter of 2014 that excludes non-cash stock-based compensation expenses and amortization of debt discount on our 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 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 data)
(Unaudited)
 
    Three Months Ended     Twelve Months Ended  
    December 28,     December 29,     December 28,     December 29,  
    2013     2012     2013     2012  
Revenue:                                
  Product   $ 115,102     $ 109,444     $ 465,424     $ 380,035  
  Services     23,990       18,620       78,698       58,402  
    Total revenue     139,092       128,064       544,122       438,437  
                                 
Cost of revenue (1) :                                
  Cost of product     73,385       77,127       295,715       259,437  
  Cost of services     9,795       7,669       29,768       21,431  
    Total cost of revenue     83,180       84,796       325,483       280,868  
                                 
Gross profit     55,912       43,268       218,639       157,569  
                                 
Operating expenses (1) :                                
  Research and development     30,859       26,660       124,794       117,233  
  Sales and marketing     19,857       20,558       72,778       75,862  
  General and administrative     12,277       11,563       45,253       47,475  
    Total operating expenses     62,993       58,781      
242,825       240,570                                     Loss from operations     (7,081 )     (15,513 )     (24,186 )     (83,001 )                                   Other income (expense), net:                                   Interest income     287       233       923       911     Interest expense     (2,634 )     -       (6,061 )     -     Other gain (loss), net:     (336 )     (158 )     (1,141 )     (1,050 )     Total other income (expense), net     (2,683 )     75       (6,279 )     (139 )                                   Loss before income taxes     (9,764 )     (15,438 )     (30,465 )     (83,140 ) Provision for income taxes     414       650       1,654       2,190   Net loss   $ (10,178 )   $ (16,088 )   $ (32,119 )   $ (85,330 )                                   Net loss per common share, basic and diluted   $ (0.08 )   $ (0.14 )   $ (0.27 )   $ (0.77 )                                   Weighted average shares used in computing basic
and diluted net loss per common share  
   
   
119,743  
   
   
   
112,311  
   
   
   
117,425  
   
   
   
110,739  
                                                                      (1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and twelve months ended December 28, 2013 and December 29, 2012:                                           Three Months Ended       Twelve Months Ended         December 28,       December 29,       December 28,       December 29,         2013       2012       2013       2012     Cost of revenue   $ 489     $ 735     $ 1,871     $ 2,710     Research and development     2,725       2,852       10,900       13,306     Sales and marketing     1,965       2,802       7,624       10,450     General and administration     1,789       1,797       5,956       9,529           6,968       8,186       26,351       35,995     Cost of revenue - amortization from balance sheet*     1,206       1,949       5,625       5,824     Total stock-based compensation expense   $ 8,174     $ 10,135     $ 31,976     $ 41,819                                        * 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     Twelve Months Ended  
    December 28,     September 28,     December 29,     December 28,     December 29,  
    2013     2013     2012     2013     2012  
Reconciliation of Gross Profit:                                        
U.S. GAAP as reported   $ 55,912     $ 68,371     $ 43,268     $ 218,639     $ 157,569  
Stock-based compensation(1)     1,695       1,549       2,684       7,496       8,534  
Non-GAAP as adjusted   $ 57,607     $ 69,920     $ 45,952     $ 226,135     $ 166,103  
                                         
Reconciliation of Gross Margin:                                        
U.S. GAAP as reported     40 %     48 %     34 %     40 %     36 %
Stock-based compensation(1)     1 %     1 %     2 %     2 %     2 %
Non-GAAP as adjusted     41 %     49 %     36 %     42 %     38 %
                                         
Reconciliation of Income (Loss)                                        
from Operations:                                        
U.S. GAAP as reported   $ (7,081 )   $ 6,445     $ (15,513 )   $ (24,186 )   $ (83,001 )
Stock-based compensation(1)     8,174       7,643       10,135       31,976       41,819  
Non-GAAP as adjusted   $ 1,093     $ 14,088     $ (5,378 )   $ 7,790     $ (41,182 )
                                         
Reconciliation of Net Income (Loss):                                        
U.S. GAAP as reported   $ (10,178 )   $ 3,347     $ (16,088 )   $ (32,119 )   $ (85,330 )
Stock-based compensation(1)     8,174       7,643       10,135       31,976       41,819  
Amortization of debt discount(2)     1,814       1,770       -       4,164       -  
Non-GAAP as adjusted   $ (190 )   $ 12,760     $ (5,953 )   $ 4,021     $ (43,511 )
                                         
Net Income (Loss) per Common                                        
Share - Basic:                                        
U.S. GAAP as reported   $ (0.08 )   $ 0.03     $ (0.14 )   $ (0.27 )   $ (0.77 )
Non-GAAP as adjusted   $ -     $ 0.11     $ (0.05 )   $ 0.03     $ (0.39 )
                                         
Net Income (Loss) per Common                                        
Share - Diluted:                                        
U.S. GAAP as reported   $ (0.08 )   $ 0.03     $ (0.14 )   $ (0.27 )   $ (0.77 )
Non-GAAP as adjusted(3)   $ -     $ 0.10     $ (0.05 )   $ 0.03     $ (0.38 )
                                         
Weighted average shares                                        
used in computing net income (loss)                                        
per common share - U.S. GAAP:                                        
Basic     119,743       118,740       112,311       117,425       110,739  
Diluted     119,743       124,679       112,311       117,425       110,739  
                                         
Weighted average shares                                        
used in computing net income (loss)                                        
per common share - Non-GAAP:                                        
Basic     119,743       118,740       112,311       117,425       110,739  
Diluted(3)     125,134       124,679       114,115       122,167       113,124  
                     
(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   Twelve Months Ended
    December 28,   September 28,   December 29,   December 28,   December 29,
    2013   2013   2012   2013   2012
Cost of revenue   $ 489   $ 422   $ 735   $ 1,871   $ 2,710
Research and development     2,725     2,434     2,852     10,900     13,306
Sales and marketing     1,965     1,853     2,802     7,624     10,450
General and administration     1,789     1,807     1,797     5,956     9,529
      6,968     6,516     8,186     26,351     35,995
Cost of revenue - amortization from balance sheet*     1,206     1,127     1,949     5,625     5,824
Total stock-based compensation expense   $ 8,174   $ 7,643   $ 10,135   $ 31,976   $ 41,819
         
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
         
(2) 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, we are 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 our $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at our non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of our underlying business performance.
         
(3) 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)  
             
    December 28,     December 29,  
    2013     2012  
ASSETS                
                 
Current assets:                
  Cash and cash equivalents   $ 124,330     $ 104,666  
  Short-term investments     172,660       76,146  
  Accounts receivable, net of allowance for doubtful accounts of $43 in 2013 and $147 in 2012    
100,643
     
107,039
 
  Other receivables     1,313       2,909  
  Inventory     123,685       127,809  
  Deferred inventory costs     705       1,029  
  Deferred tax asset     1,322       155  
  Prepaid expenses and other current assets     14,412       9,744  
    Total current assets     539,070       429,497  
                 
Property, plant and equipment, net     79,668       80,343  
Deferred inventory costs, non-current     2       100  
Long-term investments     64,419       2,874  
Cost-method investment     9,000       9,000  
Long-term restricted cash     3,904       3,868  
Other non-current assets     4,863       2,488  
    Total assets   $ 700,926     $ 528,170  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 39,843     $ 61,428  
  Accrued expenses     22,431       26,288  
  Accrued compensation and related benefits     33,899       22,325  
  Accrued warranty     12,374       7,262  
  Deferred revenue     32,402       26,744  
    Total current liabilities     140,949       144,047  
                 
  Long-term debt     109,164       -  
  Accrued warranty, non-current     10,534       9,220  
  Deferred revenue, non-current     4,888       3,210  
  Deferred tax liability     1,364       117  
  Other long-term liabilities     16,217       15,440  
                 
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 December 28, 2013 and December 29, 2012                 
    Issued and outstanding shares - 119,887 as of December 28, 2013 and 112,461 as of December 29, 2012       120        112  
  Additional paid-in capital     1,025,661       930,618  
  Accumulated other comprehensive loss     (3,486 )     (2,228 )
  Accumulated deficit     (604,485 )     (572,366 )
  Total stockholders' equity     417,810       356,136  
    Total liabilities and stockholders' equity   $ 700,926     $ 528,170  
   
   
   
Infinera Corporation  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
             
    Twelve Months Ended  
    December 28,     December 29,  
    2013     2012  
Cash Flows from Operating Activities:                
Net loss   $ (32,119 )   $ (85,330 )
Adjustments to reconcile net loss to net cashused in operating activities:                
  Depreciation and amortization     24,562       23,661  
  (Recovery of) provision for other receivables     (88 )     -  
  Provision for doubtful accounts     55       94  
  Amotization of debt discount and issuance costs     4,522       -  
  Amortization of premium on investments     1,539       2,068  
  Stock-based compensation expense     31,976       41,819  
  Non-cash tax benefit     -       (7 )
  Other gain     (243 )     (475 )
  Changes in assets and liabilities:                
    Accounts receivable     6,341       (26,517 )
    Other receivables     1,435       (1,894 )
    Inventory     (3,036 )     (40,623 )
    Prepaid expenses and other assets     (4,992 )     2,293  
    Deferred inventory costs     395       5,741  
    Accounts payable     (20,202 )     15,410  
    Accrued liabilities and other expenses     11,272       6,915  
    Deferred revenue     7,337       3,763  
    Accrued warranty     6,426       3,616  
      Net cash provided by (used in) operating activities     35,180       (49,466 )
                 
Cash Flows from Investing Activities:                
  Purchase of available-for-sale investments     (288,140 )     (54,150 )
  Proceeds from sale of available-for-sale investments     2,850       11,584  
  Proceeds from maturities and calls of investments     125,624       117,605  
  Proceeds from disposal of assets     3       1  
  Purchase of property and equipment     (21,068 )     (25,395 )
  Reimbursement of manufacturing capacity advance     -       50  
  Change in restricted cash     (69 )     (827 )
      Net cash provided by (used in) investing activities     (180,800 )     48,868  
                 
Cash Flows from Financing Activities:                
  Proceeds from issuance of debt, net     144,469       -  
  Proceeds from issuance of common stock     23,185       11,580  
  Repurchase of common stock     (1,544 )     (882 )
    Net cash provided by financing activities     166,110       10,698  
                 
Effect of exchange rate changes on cash     (826 )     108  
                 
Net change in cash and cash equivalents     19,664       10,208  
Cash and cash equivalents at beginning of period     104,666       94,458  
Cash and cash equivalents at end of period   $ 124,330     $ 104,666  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for income taxes   $ 2,135     $ 923  
  Cash paid for interest   $ 1,320     $ -  
Supplemental schedule of non-cash financing activities:                
  Non-cash settlement for manufacturing capacity advance   $ -     $ 275  
  Transfer of inventory to fixed assets   $ 5,458     $ 3,222  
                 
                 
                 
                 
Infinera Corporation                
Supplemental Financial Information                
(Unaudited)                
                 
  Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13
Revenue ($ Mil) $104.7 $93.5 $112.2 $128.1 $124.6 $138.4 $142.0 $139.1
Gross Margin % (1) 40% 37% 39% 36% 36% 39% 49% 41%
Invoiced Shipment Composition:                
Domestic % 71% 70% 70% 63% 63% 64% 73% 54%
International % 29% 30% 30% 37% 37% 36% 27% 46%
Largest Customer % 13% 15% 13% 13% 14% 17% 11%
Cash Related Information:                
Cash from (used in) Operations ($ Mil)  ($5.8) ($22.7) ($29.3) $8.3 ($21.3) $17.9 $12.8 $25.8
Capital Expenditures ($ Mil) $13.6 $6.1 $2.5 $3.2 $4.9 $4.5 $4.2 $7.5
Depreciation & Amortization ($ Mil)  $5.5 $5.7 $6.1 $6.4 $6.3 $6.3 $5.9 $6.0
DSO's 57 55 74 76 82 64 56 66
Inventory Metrics:                
Raw Materials ($ Mil)  $15.3 $14.8 $12.4 $13.0 $12.2 $9.8 $12.1 $14.3
Work in Process ($ Mil) $41.6 $49.4 $59.8 $57.3 $53.1 $41.0 $45.7 $49.2
Finished Goods ($ Mil) $44.7 $50.9 $46.3 $57.5 $65.7 $70.5 $65.7 $60.2
Total Inventory ($ Mil) $101.6 $115.1 $118.5 $127.8 $131.0 $121.3 $123.5 $123.7
Inventory Turns (1) 2.5 2.1 2.3 2.6 2.4 2.8 2.3 2.6
Worldwide Headcount 1,210 1,228 1,235 1,242 1,219 1,238 1,296 1,318
                 
                 
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.
 
 
 
Contact:

Media:
Anna Vue
avue@infinera.com
Infinera Corporation
916-595-8157

Investors/Analysts:
Jenifer Kirtland/Bob Jones
jkirtland@infinera.com / bjones@infinera.com
Infinera Corporation
408-543-8139/408-543-8140
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