Infinera Corporation Reports Third Quarter 2013 Financial Results

Marketwired

SUNNYVALE, CA--(Marketwired - Oct 23, 2013) - Infinera Corporation (NASDAQ: INFN), a leader in Intelligent Transport Networks™, today released financial results for the third quarter ended September 28, 2013.

GAAP revenues for the third quarter of 2013 were $142.0 million compared to $138.4 million in the second quarter of 2013 and $112.2 million in the third quarter of 2012.

GAAP gross margin for the third quarter of 2013 was 48% compared to 37% in the second quarter of 2013 and 37% in the third quarter of 2012. GAAP net income for the quarter was $3.3 million, or $0.03 per diluted share, compared to a net loss of $(10.0) million, or $(0.09) per share, in the second quarter of 2013 and a net loss of $(19.1) million, or $(0.17) per share, in the third quarter of 2012.

Non-GAAP gross margin for the third quarter of 2013 was 49% compared to 39% in the second quarter of 2013 and 39% in the third quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net income for the third quarter of 2013 was $12.8 million, or $0.10 per diluted 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 $(1.2) million, or $(0.01) per share, in the second quarter of 2013 and a non-GAAP net loss of $(7.8) million, or $(0.07) per share, in the third quarter of 2012.

Management Commentary

"DTN-X adoption continued to drive strong financial results in the third quarter. We generated solid revenue growth and achieved positive cash flow from operations, with both gross margin and profitability exceeding our expectations," said Tom Fallon, chief executive officer. "During the quarter, we received purchase commitments from five additional customers, including two new to Infinera, bringing our total DTN-X customer count to 39.

"We are seeing growing global demand for Infinera's Intelligent Transport Network and the DTN-X, the only platform available in the market today that offers super-channel scale, converged OTN switching and GMPLS network automation. This interest is across industry segments, including domestic and international Tier 1 carriers, bandwidth wholesalers, cable, and Internet content providers.

"We remain committed to growing our market share and are increasingly confident that over the next 12 to 18 months we will add new strategic accounts while expanding our deployments with existing customers."

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 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 1-800-756-6991. International parties can access the replay at 1-203-369-3017.

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 we are seeing growing global demand for Infinera's Intelligent Transport Network and the DTN-X platform; that the interest in our products is across industry segments, including domestic and international Tier 1 carriers, bandwidth wholesalers, cable, and Internet content providers; and that we remain committed to growing our market share and are increasingly confident that over the next 12 to 18 months we will add new strategic accounts while expanding our deployments with existing customers. 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 third quarter results, including an estimate of non-GAAP earnings for the fourth 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 per share data)                
(Unaudited)                
    Three Months Ended     Nine Months Ended  
 
 
 
 
September 28, 2013  
 
 
 
September 29, 2012  
 
 
 
September 28, 2013  
 
 
 
September 29, 2012  
 
Revenue:                                
  Product   $ 120,807     $ 98,853     $ 348,769     $ 269,087  
  Ratable product and related support and services     525       450       1,553       1,504  
  Services     20,688       12,911       54,708       39,782  
    Total revenue     142,020       112,214       405,030       310,373  
                                 
Cost of revenue (1):                                
  Cost of product     66,645       66,510       222,126       181,851  
  Cost of ratable product and related supportand services    
40
     
102
     
204
     
459
 
  Cost of services     6,964       4,102       19,973       13,762  
    Total cost of revenue     73,649       70,714       242,303       196,072  
                                 
Gross profit     68,371       41,500       162,727       114,301  
                                 
Operating expenses (1):                                
  Research and development     32,528       27,912       93,935       90,573  
  Sales and marketing     17,720       19,285       52,921       55,304  
  General and administrative     11,678       12,508       32,976       35,912  
    Total operating expenses     61,926       59,705       179,832       181,789  
                                 
Income (loss) from operations     6,445       (18,205 )     (17,105 )     (67,488 )
                                 
Other income (expense), net:                                
  Interest income     232       175       636       678  
  Interest expense     (2,578 )     -       (3,427 )     -  
  Other gain (loss), net:     (444 )     (617 )     (805 )     (892 )
    Total other income (expense), net     (2,790 )     (442 )     (3,596 )     (214 )
                                 
Income (loss) before income taxes     3,655       (18,647 )     (20,701 )     (67,702 )
Provision for income taxes     308       434       1,240       1,540  
Net income (loss)   $ 3,347     $ (19,081 )   $ (21,941 )   $ (69,242 )
                                 
Net income (loss) per common share                                
  Basic   $ 0.03     $ (0.17 )   $ (0.19 )   $ (0.63 )
  Diluted   $ 0.03     $ (0.17 )   $ (0.19 )   $ (0.63 )
                                 
Weighted average shares used in computing net                                
income (loss) per common share                                
  Basic     118,740       111,579       116,653       110,216  
  Diluted     124,679       111,579       116,653       110,216  
     
     
(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 28, 2013 and September 29, 2012:
     
     
     
                 
    Three Months Ended   Nine Months Ended
 
 
 
 
September 28, 2013  
 
September 29, 2012  
 
September 28, 2013  
 
September 29, 2012
Cost of revenue   $ 422   $ 683   $ 1,382   $ 1,975
Research and development     2,434     3,439     8,175     10,454
Sales and marketing     1,853     2,685     5,659     7,648
General and administration     1,807     2,804     4,167     7,732
      6,516     9,611     19,383     27,809
Cost of revenue - amortization from balance sheet*     1,127     1,706     4,419     3,875
Total stock-based compensation expense   $ 7,643   $ 11,317   $ 23,802   $ 31,684
     
*   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 28, 2013  
 
 
 
June 29,
2013
 
 
 
 
September 29, 2012  
 
 
 
September 28, 2013  
 
 
 
September 29, 2012  
 
Reconciliation of Gross Profit:                                        
U.S. GAAP as reported   $ 68,371     $ 51,654     $ 41,500     $ 162,727     $ 114,301  
Stock-based compensation(1)     1,549       2,164       2,389       5,801       5,850  
Non-GAAP as adjusted   $ 69,920     $ 53,818     $ 43,889     $ 168,528     $ 120,151  
                                         
Reconciliation of Gross Margin:                                        
U.S. GAAP as reported     48 %     37 %     37 %     40 %     37 %
Stock-based compensation(1)     1 %     2 %     2 %     2 %     2 %
Non-GAAP as adjusted     49 %     39 %     39 %     42 %     39 %
                                         
Reconciliation of Income (Loss)from Operations:                                        
U.S. GAAP as reported   $ 6,445     $ (8,608 )   $ (18,205 )   $ (17,105 )   $ (67,488 )
Stock-based compensation(1)     7,643       8,184       11,317       23,802       31,684  
Non-GAAP as adjusted   $ 14,088     $ (424 )   $ (6,888 )   $ 6,697     $ (35,804 )
                                         
Reconciliation of Net Income (Loss):                                        
U.S. GAAP as reported   $ 3,347     $ (10,009 )   $ (19,081 )   $ (21,941 )   $ (69,242 )
Stock-based compensation(1)     7,643       8,184       11,317       23,802       31,684  
Amortization of debt discount(2)     1,770       580       -       2,350       -  
Non-GAAP as adjusted   $ 12,760     $ (1,245 )   $ (7,764 )   $ 4,211     $ (37,558 )
                                         
Net Income (Loss) per CommonShare - Basic:                                        
U.S. GAAP as reported   $ 0.03     $ (0.09 )   $ (0.17 )   $ (0.19 )   $ (0.63 )
Non-GAAP as adjusted   $ 0.11     $ (0.01 )   $ (0.07 )   $ 0.04     $ (0.34 )
                                         
Net Income (Loss) per CommonShare - Diluted:                                        
U.S. GAAP as reported   $ 0.03     $ (0.09 )   $ (0.17 )   $ (0.19 )   $ (0.63 )
Non-GAAP as adjusted(3)   $ 0.10     $ (0.01 )   $ (0.07 )   $ 0.03     $ (0.34 )
                                         
Weighted average sharesused in computing net income (loss)per common share - U.S. GAAP:                                        
Basic     118,740       116,911       111,579       116,653       110,216  
Diluted     124,679       116,911       111,579       116,653       110,216  
                                         
Weighted average sharesused in computing net income (loss)per common share - Non-GAAP:                                        
Basic     118,740       116,911       111,579       116,653       110,216  
Diluted(3)     124,679       121,254       113,443       121,178       112,113  
                                         
     
(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 28, 2013  
 
June 29,
2013
 
 
September 29, 2012  
 
September 28, 2013  
 
September 29, 2012
Cost of revenue   $ 422   $ 474   $ 683   $ 1,382   $ 1,975
Research and development     2,434     2,622     3,439     8,175     10,454
Sales and marketing     1,853     1,807     2,685     5,659     7,648
General and administration     1,807     1,591     2,804     4,167     7,732
      6,516     6,494     9,611     19,383     27,809
Cost of revenue - amortization from balance sheet*     1,127     1,690     1,706     4,419     3,875
Total stock-based compensation expense   $ 7,643   $ 8,184   $ 11,317   $ 23,802   $ 31,684
     
 *   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)        
             
 
 
 
 
September 28,
2013
 
 
 
 
December 29,
2012
 
 
ASSETS            
             
Current assets:                
  Cash and cash equivalents   $ 137,629     $ 104,666  
  Short-term investments     151,821       76,146  
  Accounts receivable, net of allowance for doubtful accounts of $147 in 2013 and $94 in 2012     87,180       107,039  
  Other receivables     616       2,909  
  Inventory     123,505       127,809  
  Deferred inventory costs     1,244       1,029  
  Prepaid expenses and other current assets     18,924       9,899  
    Total current assets     520,919       429,497  
                 
Property, plant and equipment, net     79,062       80,343  
Deferred inventory costs, non-current     19       100  
Long-term investments     52,871       2,874  
Cost-method investment     9,000       9,000  
Long-term restricted cash     3,724       3,868  
Deferred tax asset     -       805  
Other non-current assets     5,238       1,683  
    Total assets   $ 670,833     $ 528,170  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 29,218     $ 61,428  
  Accrued expenses     21,290       25,483  
  Accrued compensation and related benefits     24,621       22,325  
  Accrued warranty     12,854       7,262  
  Deferred revenue     25,202       26,744  
  Deferred tax liability     -       805  
    Total current liabilities     113,185       144,047  
                 
  Long-term debt     107,350       -  
  Accrued warranty, non-current     10,308       9,220  
  Deferred revenue, non-current     3,097       3,210  
  Other long-term liabilities     18,158       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 September 28, 2013 and December 29, 2012                
    Issued and outstanding shares - 119,491 as of September 28, 2013 and 112,461as of December 29, 2012    
119
     
112
 
  Additional paid-in capital     1,016,397       930,618  
  Accumulated other comprehensive loss     (3,474 )     (2,228 )
  Accumulated deficit     (594,307 )     (572,366 )
  Total stockholders' equity     418,735       356,136  
    Total liabilities and stockholders' equity   $ 670,833     $ 528,170  
                     
                     
             
Infinera Corporation        
Condensed Consolidated Statements of Cash Flows        
(In thousands)        
(Unaudited)        
     
    Nine Months Ended  
 
 
 
 
September 28,
2013
 
 
 
 
September 29,
2012
 
 
Cash Flows from Operating Activities:                
Net loss   $ (21,941 )   $ (69,242 )
Adjustments to reconcile net loss to net cashused in operating activities:                
  Depreciation and amortization     18,574       17,274  
  (Recovery of) provision for other receivables     (88 )     -  
  Provision for doubtful accounts     53       94  
  Amotization of debt discount and issuance costs     2,552       -  
  Amortization of premium on investments     870       1,610  
  Stock-based compensation expense     23,802       31,684  
  Non-cash tax benefit     -       (18 )
  Other gain     (243 )     (479 )
  Changes in assets and liabilities:                
    Accounts receivable     19,805       (11,021 )
    Other receivables     2,131       (2,228 )
    Inventory     (3,603 )     (28,774 )
    Prepaid expenses and other assets     (8,398 )     33  
    Deferred inventory costs     (160 )     4,877  
    Accounts payable     (30,624 )     (1,048 )
    Accrued liabilities and other expenses     1,640       3,690  
    Deferred revenue     (1,655 )     (6,683 )
    Accrued warranty     6,680       2,434  
      Net cash provided by (used in) operating activities     9,395       (57,797 )
                 
Cash Flows from Investing Activities:                
  Purchase of available-for-sale investments     (206,528 )     (50,134 )
  Proceeds from sale of available-for-sale investments     2,850       6,694  
  Proceeds from maturities and calls of investments     77,143       95,368  
  Purchase of property and equipment     (13,605 )     (22,238 )
  Reimbursement of manufacturing capacity advance     -       50  
  Change in restricted cash     110       (564 )
    Net cash provided by (used in) investing activities     (140,030 )     29,176  
                 
Cash Flows from Financing Activities:                
  Proceeds from issuance of debt, net     144,469       -  
  Proceeds from issuance of common stock     21,551       11,280  
  Repurchase of common stock     (1,541 )     (875 )
    Net cash provided by financing activities     164,479       10,405  
                 
Effect of exchange rate changes on cash     (881 )     358  
                 
Net change in cash and cash equivalents     32,963       (17,858 )
Cash and cash equivalents at beginning of period     104,666       94,458  
Cash and cash equivalents at end of period   $ 137,629     $ 76,600  
                 
Supplemental disclosures of cash flow information:                
  Cash paid for income taxes   $ 1,536     $ 755  
Supplemental schedule of non-cash financing activities:                
  Non-cash settlement for manufacturing capacity advance   $ -     $ 275  
  Transfer of inventory to fixed assets   $ 6,672     $ 738  
                   
                   
                                 
Infinera Corporation                     
Supplemental Financial Information                     
(Unaudited)                     
                                 
    Q4'11   Q1'12   Q2'12   Q3'12   Q4'12   Q1'13   Q2'13   Q3'13
Revenue ($ Mil)   $112.0   $104.7   $93.5   $112.2   $128.1   $124.6   $138.4   $142.0
Gross Margin % (1)   42%   40%   37%   39%   36%   36%   39%   49%
Invoiced Shipment Composition:                                
Domestic %   70%   71%   70%   70%   63%   63%   64%   73%
International %   30%   29%   30%   30%   37%   37%   36%   27%
Largest Customer %   14%   13%   15%   13%   13%   14%     17%
Cash Related Information:                                
Cash from (used in) Operations ($ Mil)   ($5.1)   ($5.8)   ($22.7)   ($29.3)   $8.3   ($21.3)   $17.9   $12.8
Capital Expenditures ($ Mil)   $16.1   $13.6   $6.1   $2.5   $3.2   $4.9   $4.5   $4.2
Depreciation & Amortization ($ Mil)   $4.5   $5.5   $5.7   $6.1   $6.4   $6.3   $6.3   $5.9
DSO's   65   57   55   74   76   82   64   56
Inventory Metrics:                                
Raw Materials ($ Mil)   $12.1   $15.3   $14.8   $12.4   $13.0   $12.2   $9.8   $12.1
Work in Process ($ Mil)   $37.0   $41.6   $49.4   $59.8   $57.3   $53.1   $41.0   $45.7
Finished Goods ($ Mil)   $39.9   $44.7   $50.9   $46.3   $57.5   $65.7   $70.5   $65.7
Total Inventory ($ Mil)   $89.0   $101.6   $115.1   $118.5   $127.8   $131.0   $121.3   $123.5
Inventory Turns (1)   2.9   2.5   2.1   2.3   2.6   2.4   2.8   2.3
Worldwide Headcount   1,181   1,210   1,228   1,235   1,242   1,219   1,238   1,296
                                 
                                 
(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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