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Infinera Corporation Reports Fourth Quarter and Fiscal Year 2013 Financial Results

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%

< 10%

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.