Infinera Corporation Reports Second Quarter 2013 Financial Results

Marketwired

SUNNYVALE, CA--(Marketwired - Jul 24, 2013) - Infinera Corporation (NASDAQ: INFN), a leader in Intelligent Transport Networks™, today released financial results for the second quarter ended June 29, 2013.

GAAP revenues for the second quarter of 2013 were $138.4 million compared to $124.6 million in the first quarter of 2013 and $93.5 million in the second quarter of 2012.

GAAP gross margin for the second quarter of 2013 was 37% compared to 34% in the first quarter of 2013 and 35% in the second quarter of 2012. GAAP net loss for the quarter was $(10.0) million, or $(0.09) per share, compared to net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013 and net loss of $(29.5) million, or $(0.27) per share, in the second quarter of 2012.

Non-GAAP gross margin for the second quarter of 2013 was 39% compared to 36% in the first quarter of 2013 and 37% in the second quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2013 was $(1.2) million, or $(0.01) per share excluding non-cash stock-based compensation expenses and the amortization of debt discount on our convertible senior notes. This compared to a non-GAAP net loss of $(7.3) million, or $(0.06) per share, in the first quarter of 2013 and a non-GAAP net loss of $(18.6) million, or $(0.16) per share, in the second quarter of 2012.

Management Commentary

"We continued to increase momentum in the second quarter, delivering strong revenue growth, improved gross margin, and positive cash flow from operations," said Tom Fallon, chief executive officer. "Customer acceptance of the DTN-X platform also continues to grow. During the quarter, we received seven new purchase commitments, including three from customers new to Infinera, bringing the total number of commitments to 34 since the platform was introduced a year ago.

"Our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services. Infinera's recently announced Intelligent Transport Network offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition.

"We remain focused on winning new network deployments and expanding our market presence to generate sustainable revenue growth and profitability in the future while we help our customers prepare for the Terabit Era."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results and its outlook for the third 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 1-800-846-1910. International parties can access the replay at 1-402-280-9953.

About Infinera

Infinera is a leader in Intelligent Transport Networks. Intelligent Transport Networks 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 regarding the future including statements that customer acceptance of the DTN-X platform continues to grow; that our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services; and that Infinera's recently announced Intelligent Transport Network™ offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition. 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 reports 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 second quarter results, including an estimate of non-GAAP earnings for the third quarter of 2013 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     Six Months Ended  
    June 29,     June 30,     June 29,     June 30,  
    2013     2012     2013     2012  
Revenue:                                
  Product   $ 120,153     $ 77,843     $ 227,962     $ 170,234  
  Ratable product and related support and services     494       523       1,028       1,054  
  Services     17,738       15,092       34,020       26,871  
    Total revenue     138,385       93,458       263,010       198,159  
                                 
Cost of revenue (1):                                
  Cost of product     80,129       56,017       155,481       115,341  
  Cost of ratable product and related support and services     69       166       164       357  
  Cost of services     6,533       4,901       13,009       9,660  
    Total cost of revenue     86,731       61,084       168,654       125,358  
                                 
Gross profit     51,654       32,374       94,356       72,801  
                                 
Operating expenses (1):                                
  Research and development     31,681       31,676       61,407       62,661  
  Sales and marketing     17,155       17,777       35,201       36,019  
  General and administrative     11,426       12,320       21,298       23,404  
    Total operating expenses     60,262       61,773       117,906       122,084  
                                 
Loss from operations     (8,608 )     (29,399 )     (23,550 )     (49,283 )
                                 
Other income (expense), net:                                
  Interest income     207       228       404       503  
  Interest expense     (849 )     -       (849 )     -  
  Other gain (loss), net:     (158 )     149       (361 )     (275 )
    Total other income (expense), net     (800 )     377       (806 )     228  
                                 
Loss before income taxes     (9,408 )     (29,022 )     (24,356 )     (49,055 )
Provision for income taxes     601       527       932       1,106  
Net loss   $ (10,009 )   $ (29,549 )   $ (25,288 )   $ (50,161 )
                                 
Net loss per common share, basic and diluted   $ (0.09 )   $ (0.27 )   $ (0.22 )   $ (0.46 )
                                 
Weighted average shares used in computing basic and diluted net loss per common share     116,911       110,403       115,609       109,534  
     
(1)   The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and six months ended June 29, 2013 and June 30, 2012:
     
                 
    Three Months Ended   Six Months Ended
    June 29,   June 30,   June 29,   June 30,
    2013   2012   2013   2012
    Cost of revenue   $ 474   $ 686   $ 960   $ 1,292
    Research and development     2,622     3,695     5,741     7,015
    Sales and marketing     1,807     2,744     3,806     4,963
    General and administration     1,591     2,705     2,360     4,928
        6,494     9,830     12,867     18,198
    Cost of revenue - amortization from balance sheet*     1,690     1,100     3,292     2,169
    Total stock-based compensation expense   $ 8,184   $ 10,930   $ 16,159   $ 20,367
                             
     * 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     Six Months Ended  
    June 29,     March 30,     June 30,     June 29,     June 30,  
    2013     2013     2012     2013     2012  
Reconciliation of Gross Profit:                                        
U.S. GAAP as reported   $ 51,654     $ 42,702     $ 32,374     $ 94,356     $ 72,801  
Stock-based compensation(1)     2,164       2,088       1,786       4,252       3,461  
Non-GAAP as adjusted   $ 53,818     $ 44,790     $ 34,160     $ 98,608     $ 76,262  
                                         
Reconciliation of Gross Margin:                                        
U.S. GAAP as reported     37 %     34 %     35 %     36 %     37 %
Stock-based compensation(1)     2 %     2 %     2 %     1 %     2 %
Non-GAAP as adjusted     39 %     36 %     37 %     37 %     39 %
                                         
Reconciliation of Lossfrom Operations:                                        
U.S. GAAP as reported   $ (8,608 )   $ (14,942 )   $ (29,399 )   $ (23,550 )   $ (49,283 )
Stock-based compensation(1)     8,184       7,975       10,930       16,159       20,367  
Non-GAAP as adjusted   $ (424 )   $ (6,967 )   $ (18,469 )   $ (7,391 )   $ (28,916 )
                                         
Reconciliation of Net Loss:                                        
U.S. GAAP as reported   $ (10,009 )   $ (15,279 )   $ (29,549 )   $ (25,288 )   $ (50,161 )
Stock-based compensation(1)     8,184       7,975       10,930       16,159       20,367  
Amortization of debt discount(2)     580       -       -       580       -  
Non-GAAP as adjusted   $ (1,245 )   $ (7,304 )   $ (18,619 )   $ (8,549 )   $ (29,794 )
                                         
                                         
Net Loss per Common Share - Basic:                                        
U.S. GAAP as reported   $ (0.09 )   $ (0.13 )   $ (0.27 )   $ (0.22 )   $ (0.46 )
Non-GAAP as adjusted   $ (0.01 )   $ (0.06 )   $ (0.17 )   $ (0.07 )   $ (0.27 )
                                         
                                         
Net Loss per CommonShare - Diluted:                                        
U.S. GAAP as reported   $ (0.09 )   $ (0.13 )   $ (0.27 )   $ (0.22 )   $ (0.46 )
Non-GAAP as adjusted(3)   $ (0.01 )   $ (0.06 )   $ (0.16 )   $ (0.07 )   $ (0.26 )
                                         
Weighted average sharesused in computing net lossper common share - U.S. GAAP:                                        
Basic     116,911       114,308       110,403       115,609       109,534  
Diluted     116,911       114,308       110,403       115,609       109,534  
                                         
                                         
                                         
Weighted average sharesused in computing net lossper common share - Non-GAAP:                                        
Basic     116,911       114,308       110,403       115,609       109,534  
Diluted(3)     121,254       117,602       112,931       119,428       112,469  
                                         
     
(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   Six Months Ended
    June 29,   March 30,   June 30,   June 29,   June 30,
    2013   2013   2012   2013   2012
    Cost of revenue   $ 474   $ 486   $ 686   $ 960   $ 1,292
    Research and development     2,622     3,119     3,695     5,741     7,015
    Sales and marketing     1,807     1,999     2,744     3,806     4,963
    General and administration     1,591     769     2,705     2,360     4,928
      6,494     6,373     9,830     12,867     18,198
    Cost of revenue - amortization from balance sheet*     1,690     1,602     1,100     3,292     2,169
    Total stock-based compensation expense   $ 8,184   $ 7,975   $ 10,930   $ 16,159   $ 20,367
                                   
    * 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)  
             
    June 29,     December 29,  
    2013     2012  
ASSETS                
                 
Current assets:                
  Cash and cash equivalents   $ 181,211     $ 104,666  
  Short-term investments     120,437       76,146  
  Accounts receivable, net of allowance for doubtful accounts of $133 in 2013 and $94 in 2012     96,668       107,039  
  Other receivables     1,112       2,909  
  Inventory     121,317       127,809  
  Deferred inventory costs     850       1,029  
  Prepaid expenses and other current assets     14,495       9,899  
    Total current assets     536,090       429,497  
                 
Property, plant and equipment, net     78,391       80,343  
Deferred inventory costs, non-current     38       100  
Long-term investments     23,427       2,874  
Cost-method investment     9,000       9,000  
Long-term restricted cash     3,850       3,868  
Deferred tax asset     -       805  
Other non-current assets     5,564       1,683  
    Total assets   $ 656,360     $ 528,170  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 35,977     $ 61,428  
  Accrued expenses     18,221       25,483  
  Accrued compensation and related benefits     24,997       22,325  
  Accrued warranty     8,332       7,262  
  Deferred revenue     31,429       26,744  
  Deferred tax liability     -       805  
    Total current liabilities     118,956       144,047  
                   
  Long-term debt     105,580       -  
  Accrued warranty, non-current     11,369       9,220  
  Deferred revenue, non-current     2,964       3,210  
  Other long-term liabilities     18,341       15,557  
                 
Commitments and contingencies                
                 
Stockholders' equity:                
  Preferred stock, $0.001 par value                
  Authorized shares - 25,000 and no shares issued and outstanding     -       -  
  Common stock, $0.001 par value                
  Authorized shares - 500,000 as of June 29, 2013 and December 29, 2012                
  Issued and outstanding shares - 117,947 as of June 29, 2013 and 112,461 as of December 29, 2012     118       112  
  Additional paid-in capital     1,000,106       930,618  
  Accumulated other comprehensive loss     (3,420 )     (2,228 )
  Accumulated deficit     (597,654 )     (572,366 )
  Total stockholders' equity     399,150       356,136  
    Total liabilities and stockholders' equity   $ 656,360     $ 528,170  
                 
                 
             
             
Infinera Corporation  
Condensed Consolidated Statements of Cash Flows  
(In thousands)  
(Unaudited)  
               
      Six Months Ended  
      June 29,     June 30,  
      2013     2012  
Cash Flows from Operating Activities:                
Net loss   $ (25,288 )   $ (50,161 )
Adjustments to reconcile net loss to net cash used in operating activities:                
  Depreciation and amortization     12,621       11,224  
  (Recovery of) provision for other receivables     (88 )     -  
  Provision for doubtful accounts     40       -  
  Amortization of debt discount and issuance costs     630       -  
  Amortization of premium on investments     450       1,098  
  Stock-based compensation expense     16,159       20,367  
  Other gain     (243 )     (501 )
  Changes in assets and liabilities:                
    Accounts receivable     10,332       24,416  
    Other receivables     1,629       (477 )
    Inventory     791       (24,770 )
    Prepaid expenses and other assets     (4,083 )     1,533  
    Deferred inventory costs     216       3,910  
    Accounts payable     (23,980 )     (8,753 )
    Accrued liabilities and other expenses     (220 )     (2,272 )
    Deferred revenue     4,440       (4,952 )
    Accrued warranty     3,219       837  
      Net cash used in operating activities     (3,375 )     (28,501 )
                 
Cash Flows from Investing Activities:                
  Purchase of available-for-sale investments     (130,828 )     (42,853 )
  Proceeds from sale of available-for-sale investments     2,850       5,194  
  Proceeds from maturities and calls of investments     62,647       70,464  
  Purchase of property and equipment     (9,431 )     (19,770 )
  Reimbursement of manufacturing capacity advance     -       50  
  Change in restricted cash     (6 )     (230 )
      Net cash provided by (used in) investing activities     (74,768 )     12,855  
                 
Cash Flows from Financing Activities:                
  Proceeds from issuance of debt, net     144,469       -  
  Proceeds from issuance of common stock     12,496       7,093  
  Repurchase of common stock     (1,499 )     (839 )
      Net cash provided by financing activities     155,466       6,254  
                 
Effect of exchange rate changes on cash     (778 )     (78 )
                 
Net change in cash and cash equivalents     76,545       (9,470 )
Cash and cash equivalents at beginning of period     104,666       94,458  
Cash and cash equivalents at end of period   $ 181,211     $ 84,988  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for income taxes   $ 1,148     $ 595  
Supplemental schedule of non-cash financing activities:                
  Non-cash settlement for manufacturing capacity advance   $ -     $ 275  
  Transfer of inventory to fixed assets   $ 4,684     $ -  
                   
                   
                                 
                                 
Infinera Corporation
Supplemental Financial Information
(Unaudited)
                                 
    Q3'11   Q4'11   Q1'12   Q2'12   Q3'12   Q4'12   Q1'13   Q2'13
Revenue ($ Mil)   $ 104.0     $ 112.0     $ 104.7     $ 93.5     $ 112.2     $ 128.1     $ 124.6     $ 138.4  
Gross Margin % (1)     41 %     42 %     40 %     37 %     39 %     36 %     36 %     39 %
  Invoiced Shipment Composition:                                                                
  Domestic %     65 %     70 %     71 %     70 %     70 %     63 %     63 %     64 %
  International %     35 %     30 %     29 %     30 %     30 %     37 %     37 %     36 %
  Largest Customer %     %     14 %     13 %     15 %     13 %     13 %     14 %     %
  Cash Related Information:                                                                
  Cash from (used in) Operations ($ Mil)   $ 4.1     $ (5.1 )   $ (5.8 )   $ (22.7 )   $ (29.3 )   $ 8.3     $ (21.3 )   $ 17.9  
  Capital Expenditures ($ Mil)   $ 5.9     $ 16.1     $ 13.6     $ 6.1     $ 2.5     $ 3.2     $ 4.9     $ 4.5  
  Depreciation & Amortization ($ Mil)   $ 4.9     $ 4.5     $ 5.5     $ 5.7     $ 6.1     $ 6.4     $ 6.3     $ 6.3  
  DSO's     60       65       57       55       74       76       82       64  
  Inventory Metrics:                                                                
  Raw Materials ($ Mil)   $ 7.0     $ 12.1     $ 15.3     $ 14.8     $ 12.4     $ 13.0     $ 12.2     $ 9.8  
  Work in Process ($ Mil)   $ 26.9     $ 37.0     $ 41.6     $ 49.4     $ 59.8     $ 57.3     $ 53.1     $ 41.0  
  Finished Goods ($ Mil)   $ 36.4     $ 39.9     $ 44.7     $ 50.9     $ 46.3     $ 57.5     $ 65.7     $ 70.5  
  Total Inventory ($ Mil)   $ 70.3     $ 89.0     $ 101.6     $ 115.1     $ 118.5     $ 127.8     $ 131.0     $ 121.3  
Inventory Turns (1)     3.5       2.9       2.5       2.1       2.3       2.6       2.4       2.8  
  Worldwide Headcount     1,151       1,181       1,210       1,228       1,235       1,242       1,219       1,238  
                                                                 
     
(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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