Infinera Corp - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - Infinera Corp	d243822d8k.htm

Exhibit 99.1


Contacts:

Media: Anna Vue		Investors/Analysts: Bob Blair
avue@infinera.com		bblair@infinera.com
Infinera Corporation		Infinera Corporation
916-595-8157		408-716-4879

Infinera Corporation Reports Third Quarter 2011 Financial Results

Sunnyvale, CA, October 18, 2011 – Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 24, 2011.

GAAP revenues for the third quarter of 2011 were $104.0 million compared to $96.0 million in the second quarter of 2011 and $130.1 million in the third quarter of 2010.

GAAP gross margin for the third quarter of 2011 was 39% compared to 39% in the second quarter of 2011 and 50% in the third quarter of 2010. GAAP net loss for the quarter was $21.8 million, or $(0.21) per share, compared to net loss of $24.2 million, or $(0.23) per share, in the second quarter of 2011 and net income of $4.4 million, or $0.04 per diluted share, in the third quarter of 2010.

Non-GAAP gross margin for the third quarter of 2011 was 41% compared to 41% in the second quarter of 2011 and 51% in the third quarter of 2010, excluding restructuring and other related costs and non-cash stock-based compensation expenses. Non-GAAP net loss for the third quarter of 2011 was $9.2 million, or $(0.09) per share, compared to net loss of $11.7 million, or $(0.11) per share, in the second quarter of 2011 and net income of $18.7 million, or $0.18 per diluted share, in the third quarter of 2010.

Management Commentary

“We remain encouraged by our recent revenue performance and the momentum in booking activity as customers continue to address their increased bandwidth needs with Infinera-based networks,” said Tom Fallon, president and chief executive officer. “Several factors are contributing to these trends—our significant installed base, the broader application of our product line, our expanded sales force and a stronger focus at Infinera on key vertical markets and across geographies.”

Fallon noted that the company’s top customer for the third quarter was one of North America’s leading cable companies and that the company’s pipeline remains active with opportunities in the submarine space and with wholesale carriers in North America and Europe. One of the company’s Tier 1 customers was among its top five customers in Q3.

“We were also pleased with the recent launch of the DTN-X, our new multi-terabit packet optical network platform based on our third generation 500 Gb/s PICs, a pair of chips that integrate more than 600 optical functions and will deliver the world’s first 500 Gb/s FlexCoherent super-channels,” said Fallon. “Customer response to the value proposition of the DTN-X—as well to the newly enhanced features of the DTN—has been very positive. The DTN-X reinforces Infinera’s position at the forefront of the innovation curve in the optical transport industry at a time when the industry requires the next step function in capability.”

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results and fourth quarter outlook 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 1-800-813-5525. International parties can access the replay at 1-203-369-3346.

About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide. Infinera’s systems are unique in their use of a breakthrough semiconductor technology: the photonic integrated circuit (PIC). Infinera’s systems and PIC technology are designed to provide customers with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding the key factors driving our revenue performance and bookings momentum; our sales pipeline and potential sales opportunities; and expectations for the continued success of our DTN-X product. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs and develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; our ability to operate profitably; aggressive business tactics by our competitors; our reliance on single-source suppliers; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; and general, political, economic and market conditions and events. Further information about these risks and uncertainties, and other risks and uncertainties that affect our business, are contained in the risk factors section and other sections of our annual report on Form 10-K filed with the Securities Exchange Commission on March 1, 2011, as well as subsequent reports filed with or furnished to the SEC. These reports are available on our website at www.infinera.com and the SEC’s website at www.sec.gov. We assume no obligation to, and do not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses and non-recurring restructuring and other related costs. 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 2011 that excludes non-cash stock-based compensation expenses.

A copy of this press release can be found on the investor relations page of Infinera’s website at www.infinera.com.

Infinera Corporation and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners.

Infinera Corporation

GAAP Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 24, 2011			September 25, 2010			September 24, 2011			September 25, 2010
Revenue:
Product	$	89,554		$	115,121		$	256,443		$	299,323
Ratable product and related support and services		847			1,460			2,583			4,738
Services		13,621			13,480			33,842			33,158

Total revenue		104,022			130,061			292,868			337,219
Cost of revenue⁽¹⁾:
Cost of product		57,449			58,552			158,607			171,660
Cost of ratable product and related support and services		167			874			846			2,558
Cost of services		5,757			6,223			12,608			14,285
Restructuring credit related to cost of revenue		—			(60	)		—			(182	)

Total cost of revenue		63,373			65,589			172,061			188,321
Gross profit		40,649			64,472			120,807			148,898
Operating expenses⁽¹⁾:
Research and development		31,694			29,886			95,902			87,292
Sales and marketing		17,545			14,847			46,437			41,566
General and administrative		13,112			15,609			40,256			45,794
Restructuring and other costs		—			—			—			159

Total operating expenses		62,351			60,342			182,595			174,811
Income (loss) from operations		(21,702	)		4,130			(61,788	)		(25,913	)
Other income (expense), net:
Interest income		205			283			742			1,093
Other gain (loss), net		188			172			(203	)		(352	)

Total other income (expense), net		393			455			539			741
Income (loss) before provision of income taxes		(21,309	)		4,585			(61,249	)		(25,172	)
Provision for income taxes		497			225			1,145			20

Net income (loss)	$	(21,806	)	$	4,360		$	(62,394	)	$	(25,192	)

Net income (loss) per common share
Basic	$	(0.21	)	$	0.04		$	(0.59	)	$	(0.26	)

Diluted	$	(0.21	)	$	0.04		$	(0.59	)	$	(0.26	)

Weighted average shares used in computing net income (loss) per common share
Basic		106,264			99,976			104,936			98,647

Diluted		106,264			105,159			104,936			98,647

⁽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 24, 2011 and September 25, 2010:


	Three Months Ended				Nine Months Ended
	September 24, 2011		September 25, 2010		September 24, 2011		September 25, 2010
Cost of revenue	$	722	$	725	$	2,213	$	1,858
Research and development		3,745		3,773		11,075		10,546
Sales and marketing		2,216		2,148		6,501		6,187
General and administration		4,410		6,281		14,021		17,188

		11,093		12,927		33,810		35,779
Cost of revenue—amortization from balance sheet*		1,487		1,517		3,617		4,182

Total stock-based compensation expense	$	12,580	$	14,444	$	37,427	$	39,961

*	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 24, 2011			June 25, 2011			September 25, 2010			September 24, 2011			September 25, 2010
Reconciliation of Gross Profit:
U.S. GAAP as reported	$	40,649		$	37,414		$	64,471		$	120,807		$	148,898
Restructuring and other related credit⁽¹⁾		—			—			(60	)		—			(182	)
Stock-based compensation⁽²⁾		2,209			1,925			2,242			5,830			6,040

Non-GAAP as adjusted	$	42,858		$	39,339		$	66,653		$	126,637		$	154,756

Reconciliation of Gross Margin:
U.S. GAAP as reported		39	%		39	%		50	%		41	%		44	%
Restructuring and other related credit⁽¹⁾		—	%		—	%		—	%		—	%		—	%
Stock-based compensation⁽²⁾		2	%		2	%		1	%		2	%		2	%

Non-GAAP as adjusted		41	%		41	%		51	%		43	%		46	%

Reconciliation of Income (Loss) from Operations:
U.S. GAAP as reported	$	(21,702	)	$	(24,077	)	$	4,130		$	(61,788	)	$	(25,913	)
Restructuring and other related costs (credit)⁽¹⁾		—			—			(60	)		—			(23	)
Stock-based compensation⁽²⁾		12,580			12,482			14,444			37,427			39,961

Non-GAAP as adjusted	$	(9,122	)	$	(11,595	)	$	18,514		$	(24,361	)	$	14,025

Reconciliation of Net Income (Loss):
U.S. GAAP as reported	$	(21,806	)	$	(24,194	)	$	4,360		$	(62,394	)	$	(25,192	)
Restructuring and other related costs (credit)⁽¹⁾		—			—			(60	)		—			(23	)
Stock-based compensation⁽²⁾		12,580			12,482			14,444			37,427			39,961

Non-GAAP as adjusted	$	(9,226	)	$	(11,712	)	$	18,744		$	(24,967	)	$	14,746

Net Income (Loss) per Common Share - Basic:
U.S. GAAP	$	(0.21	)	$	(0.23	)	$	0.04		$	(0.59	)	$	(0.26	)

Non-GAAP	$	(0.09	)	$	(0.11	)	$	0.19		$	(0.24	)	$	0.15

Net Income (Loss) per Common Share - Diluted:
U.S. GAAP	$	(0.21	)	$	(0.23	)	$	0.04		$	(0.59	)	$	(0.26	)

Non-GAAP	$	(0.09	)	$	(0.11	)	$	0.18		$	(0.24	)	$	0.14

Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:
Basic		106,264			105,165			99,976			104,936			98,647

Diluted		106,264			105,165			105,159			104,936			98,647

Weighted average shares used in computing net income (loss) per common share - Non-GAAP:
Basic		106,264			105,165			99,976			104,936			98,647

Diluted		106,264			105,165			105,159			104,936			103,389

⁽¹⁾

Adjustment amount represents restructuring and other related costs (credit) recorded in relation to the closure of our Maryland FAB announced on July 21, 2009. These amounts have been adjusted in arriving at our non-GAAP results as they are non-recurring in nature and the adjusted numbers provide a better indication of our underlying business performance.


	Three Months Ended September 25, 2010								Nine Months Ended September 25, 2010
	Cost of Revenue			Operating Expenses		Total			Cost of Revenue			Operating Expenses		Total
Severance and related expenses (credits)	$	—		$	—	$	—		$	(144	)	$	55	$	(89	)
Equipment and facility-related costs (credits)		(60	)		—		(60	)		(38	)		—		(38	)
Lease termination		—			—		—			—			104		104

Total	$	(60	)	$	—	$	(60	)	$	(182	)	$	159	$	(23	)

⁽²⁾

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 24, 2011		June 25, 2011		September 25, 2010		September 24, 2011		September 25, 2010
Cost of revenue	$	722	$	760	$	725	$	2,213	$	1,858
Research and development		3,745		3,504		3,773		11,075		10,546
Sales and marketing		2,216		2,225		2,148		6,501		6,187
General and administration		4,410		4,828		6,281		14,021		17,188

		11,093		11,317		12,927		33,810		35,779
Cost of revenue - amortization from balance sheet *		1,487		1,165		1,517		3,617		4,182

Total stock-based compensation expense	$	12,580	$	12,482	$	14,444	$	37,427	$	39,961

*	Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

Infinera Corporation

Condensed Consolidated Balance Sheets

(In thousands, except par values)

(Unaudited)


	September 24,			December 25,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	112,641		$	113,649
Short-term investments		132,616			168,013
Short-term restricted cash		157			1,856
Accounts receivable		68,954			75,931
Other receivables		1,259			4,420
Inventories, net		70,295			81,893
Deferred inventory costs		6,468			6,715
Prepaid expenses and other current assets		15,699			9,118

Total current assets		408,089			461,595
Property, plant and equipment, net		63,703			51,740
Deferred inventory costs, non-current		2,023			2,512
Long-term investments		27,524			9,953
Cost-method investment		9,000			4,500
Long-term restricted cash		2,637			2,235
Deferred tax asset		3,182			11,882
Other non-current assets		3,429			7,108

Total assets	$	519,587		$	551,525

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,636		$	35,658
Accrued expenses		23,373			19,790
Accrued compensation and related benefits		14,923			25,098
Accrued warranty		5,054			5,696
Deferred revenue		19,927			21,958
Deferred tax liability		3,182			11,882

Total current liabilities		104,095			120,082
Accrued warranty, non-current		6,050			5,726
Deferred revenue, non-current		3,206			4,633
Other long-term liabilities		11,607			10,335
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 24, 2011 and December 25, 2010
Issued and outstanding shares – 106,747 as of September 24, 2011 and 102,492 as of December 25, 2010		107			102
Additional paid-in capital		863,805			817,200
Accumulated other comprehensive loss		(1,597	)		(1,261	)
Accumulated deficit		(467,686	)		(405,292	)

Total stockholders’ equity		394,629			410,749

Total liabilities and stockholders’ equity	$	519,587		$	551,525

Infinera Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended
	September 24, 2011			September 25, 2010
Cash Flows from Operating Activities:
Net loss	$	(62,394	)	$	(25,192	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		13,355			11,594
Provision for other receivables		563			—
Non-cash restructuring and other costs		—			100
Amortization of premium on investments		3,290			2,753
Stock-based compensation expense		37,427			39,961
Unrealized loss on Put Rights		—			1,696
Unrealized holding gain for trading securities		—			(1,696	)
Non-cash tax benefit		(130	)		(411	)
Other gain		(337	)		(210	)
Changes in assets and liabilities:
Accounts receivable		6,976			5,425
Other receivables		3,622			(430	)
Inventories, net		12,333			(19,787	)
Prepaid expenses and other assets		5,471			4,932
Deferred inventory costs		549			114
Accounts payable		(2,888	)		15,024
Accrued liabilities and other expenses		(10,946	)		(6,856	)
Deferred revenue		(3,459	)		(3,275	)
Accrued warranty		(316	)		(215	)

Net cash provided by operating activities		3,116			23,527
Cash Flows from Investing Activities:
Purchase of available-for-sale investments		(206,829	)		(212,307	)
Purchase of cost-method investment		(4,500	)		(4,500	)
Proceeds from sale of available-for-sale investments		3,035			—
Proceeds from maturities and calls of investments		218,798			184,662
Proceeds from disposal of assets		262			284
Purchase of property and equipment		(23,236	)		(15,639	)
Advance to secure manufacturing capacity		(1,500	)		—
Reimbursement of manufacturing capacity advance		375			—
Change in restricted cash		1,262			(61	)

Net cash used in investing activities		(12,333	)		(47,561	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock		9,964			12,341
Repurchase of common stock		(1,239	)		(14	)
Payments for purchase of assets under financing arrangement		(262	)		(262	)

Net cash provided by financing activities		8,463			12,065
Effect of exchange rate changes on cash		(254	)		86
Net change in cash and cash equivalents		(1,008	)		(11,883	)
Cash and cash equivalents at beginning of period		113,649			109,859

Cash and cash equivalents at end of period	$	112,641		$	97,976

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	852		$	882

Infinera Corporation

Supplemental Financial Information

(Unaudited)


	Q4’09			Q1’10			Q2’10			Q3’10			Q4’10			Q1’11			Q2’11			Q3’11
Revenue ($ Mil)	$	90.2		$	95.8		$	111.4		$	130.1		$	117.1		$	92.9		$	96.0		$	104.0
Gross Margin %⁽¹⁾		40	%		41	%		44	%		51	%		51	%		48	%		41	%		41	%
Invoiced Shipment Composition:
Domestic %		74	%		79	%		81	%		73	%		70	%		74	%		72	%		65	%
International %		26	%		21	%		19	%		27	%		30	%		26	%		28	%		35	%
Largest Customer %		17	%		22	%		13	%		19	%		10	%		14	%		10	%		<10	%
Cash Related Information:
Cash from Operations ($ Mil)	$	(2.7	)	$	2.3		$	11.2		$	10.0		$	7.0		$	(0.9	)	$	(0.1	)	$	4.1
Capital Expenditures ($ Mil)	$	4.4		$	4.7		$	5.0		$	5.9		$	5.0		$	10.6		$	6.7		$	5.9
Depreciation & Amortization ($ Mil)	$	4.5		$	4.0		$	3.7		$	3.9		$	4.0		$	4.2		$	4.2		$	4.9
DSO’s		71			56			45			45			59			60			70			60
Inventory Metrics:
Raw Materials ($ Mil)	$	6.9		$	7.5		$	9.1		$	11.0		$	23.1		$	20.1		$	7.3		$	7.0
Work in Process ($ Mil)	$	32.1		$	31.5		$	29.2		$	36.5		$	14.8		$	17.2		$	27.7		$	26.9
Finished Goods ($ Mil)	$	29.9		$	33.0		$	45.9		$	41.2		$	44.0		$	41.0		$	34.4		$	36.4

Total Inventory ($ Mil)	$	68.9		$	72.0		$	84.2		$	88.7		$	81.9		$	78.3		$	69.4		$	70.3
Inventory Turns⁽¹⁾		3.2			3.2			3.0			2.9			2.8			2.5			3.3			3.5

Worldwide Headcount		974			999			1,028			1,040			1,072			1,118			1,136			1,151

⁽¹⁾	Amounts reflect non-GAAP results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation expense.

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