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Infinera Corporation Reports First Quarter 2012 Financial Results

APR 25, 2012 - 16:15 ET

FOR: INFINERA

SUNNYVALE, CA--(Marketwire - April 25, 2012) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the first quarter ended March 31, 2012.

GAAP revenues for the first quarter of 2012 were $104.7 million compared to $112.0 million in the fourth quarter of 2011 and $92.9 million in the first quarter of 2011.

GAAP gross margin for the first quarter of 2012 was 39% compared to 40% in the fourth quarter of 2011 and 46% in the first quarter of 2011. GAAP net loss for the quarter was $(20.6) million, or $(0.19) per share, compared to net loss of $(19.4) million, or $(0.18) per share, in the fourth quarter of 2011 and net loss of $(16.4) million, or $(0.16) per share, in the first quarter of 2011.

Non-GAAP gross margin for the first quarter of 2012 was 40% compared to 42% in the fourth quarter of 2011 and 48% in the first quarter of 2011, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the first quarter of 2012 was $(11.2) million, or $(0.10) per share, compared to net loss of $(6.7) million, or $(0.06) per share, in the fourth quarter of 2011 and net loss of $(4.0) million, or $(0.04) per share, in the first quarter of 2011.

Management Commentary

"Activity in our first quarter reflected demand from our customers for both our existing and next generation platforms," said Tom Fallon, president and chief executive officer. "Our new 500G PIC-based DTN-X platform, with super-channels and integrated OTN switching, is generating strong interest among potential and existing customers who now have a choice between our DTN and DTN-X. As planned, we are on track to ship the new platform by the end of the June quarter and to begin revenue recognition in the second half of this calendar year.

"We are pleased to have announced our first DTN-X win, with Cable&Wireless Worldwide, a new Tier 1 UK-based customer. In total, we have received DTN-X purchase orders from four customers, including Cable&Wireless and three existing customers. We are very pleased with the early traction with this new product as we believe this is the first step toward our ushering in a new era in network optical infrastructure."

The company reported these first quarter highlights and developments:

The addition of four new DTN customers;
An internet content provider as its one greater than 10% customer;
Three wholesale carriers and one cable company rounding out its top five customers;
Telstra International as the company's first announced DTN 40G customer; and
Commencement of the Telcordia OSMINE certification process to satisfy a North American Tier 1 carrier request.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its first quarter results and to discuss its outlook for the second 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 1-800-294-0997. International parties can access the replay at 1-203-369-3226.

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 development, production and availability of, the expected revenue from, the customer interest in, and the integration and functionality 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 unexpected delays in the development, production or availability of the DTN-X product, decisions by customers to delay orders of the product, changes in the marketplace that would affect customer demand for the product, as well as our general 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 6, 2012, 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 first quarter results, including an estimate of non-GAAP earnings for the second quarter of 2012 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 share amounts)
(Unaudited)
			Three Months Ended
			March 31,			March 26,
			2012			2011
Revenue:
	Product		$	92,391		$	82,528
	Ratable product and related support and services			531			922
	Services			11,779			9,440
		Total revenue		104,701			92,890

Cost of revenue ⁽¹⁾:
	Cost of product			59,324			46,618
	Cost of ratable product and related support and services			191			385
	Cost of services			4,759			3,143
		Total cost of revenue		64,274			50,146

Gross profit				40,427			42,744

Operating expenses ⁽¹⁾:
	Research and development			30,985			31,309
	Sales and marketing			18,242			13,935
	General and administrative			11,084			13,509
		Total operating expenses		60,311			58,753

Loss from operations				(19,884	)		(16,009	)

Other income (expense), net:
	Interest income			275			312
	Other gain (loss), net:			(424	)		(411	)
		Total other income (expense), net		(149	)		(99	)

Loss before income taxes				(20,033	)		(16,108	)
Provision for income taxes				579			286
Net loss			$	(20,612	)	$	(16,394	)

Net loss per common share, basic and diluted			$	(0.19	)	$	(0.16	)

Weighted average shares used in computing basic and diluted net loss per common share				108,666			103,426


⁽¹⁾ The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended March 31, 2012 and March 26, 2011:

			Three Months Ended
			March 31,			March 26,
			2012			2011
	Cost of revenue		$	606		$	731
	Research and development			3,320			3,826
	Sales and marketing			2,219			2,060
	General and administration			2,223			4,783
				8,368			11,400
	Cost of revenue - amortization from balance sheet*			1,069			965
	Total stock-based compensation expense		$	9,437		$	12,365

* 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
	March 31,			December 31,			March 26,
	2012			2011			2011
Reconciliation of Gross Profit:
U.S. GAAP as reported	$	40,427		$	44,684		$	42,744
Stock-based compensation⁽¹⁾		1,675			2,017			1,696
Non-GAAP as adjusted	$	42,102		$	46,701		$	44,440

Reconciliation of Gross Margin:
U.S. GAAP as reported		39	%		40	%		46	%
Stock-based compensation⁽¹⁾		1	%		2	%		2	%
Non-GAAP as adjusted		40	%		42	%		48	%

Reconciliation of Loss from Operations:
U.S. GAAP as reported	$	(19,884	)	$	(18,860	)	$	(16,009	)
Restructuring and other related credit⁽²⁾		-			(129	)		-
Stock-based compensation⁽¹⁾		9,437			12,730			12,365
Non-GAAP as adjusted	$	(10,447	)	$	(6,259	)	$	(3,644	)

Reconciliation of Net Loss:
U.S. GAAP as reported	$	(20,612	)	$	(19,350	)	$	(16,394	)
Restructuring and other related credit⁽²⁾		-			(129	)		-
Stock-based compensation⁽¹⁾		9,437			12,730			12,365
Non-GAAP as adjusted	$	(11,175	)	$	(6,749	)	$	(4,029	)

Net Loss per Common Share - Basic:
U.S. GAAP as reported	$	(0.19	)	$	(0.18	)	$	(0.16	)
Stock-based compensation⁽¹⁾		0.09			0.12			0.12
Non-GAAP as adjusted	$	(0.10	)	$	(0.06	)	$	(0.04	)

Net Loss per Common Share - Diluted:
U.S. GAAP as reported	$	(0.19	)	$	(0.18	)	$	(0.16	)
Stock-based compensation⁽¹⁾		0.09			0.12			0.12
Non-GAAP as adjusted⁽³⁾	$	(0.10	)	$	(0.06	)	$	(0.04	)

Weighted average shares used in computing net loss per common share - U.S. GAAP:
Basic		108,666			106,893			103,426
Diluted		108,666			106,893			103,426

Weighted average shares used in computing net loss per common share - Non-GAAP:
Basic		108,666			106,893			103,426
Diluted⁽³⁾		112,007			110,018			107,868


⁽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
		March 31,		December 31,		March 26,
		2012		2011		2011
	Cost of revenue	$	606	$	710	$	731
	Research and development		3,320		3,915		3,826
	Sales and marketing		2,219		2,317		2,060
	General and administration		2,223		4,481		4,783
			8,368		11,423		11,400
	Cost of revenue - amortization from balance sheet*		1,069		1,307		965
	Total stock-based compensation expense	$	9,437	$	12,730	$	12,365

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

⁽²⁾ Adjustment amount represents restructuring and other related credit recorded in relation to the closure of our Maryland FAB announced on July 21, 2009. This amount has 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.

⁽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)

				March 31,			December 31,
				2012			2011
ASSETS

Current assets:
	Cash and cash equivalents			$	96,709		$	94,458
	Short-term investments				107,169			101,296
	Accounts receivable				65,444			80,616
	Other receivables				594			1,346
	Inventory				101,612			88,996
	Deferred inventory costs				5,407			5,987
	Prepaid expenses and other current assets				9,469			10,532
			Total current assets		386,404			383,231

Property, plant and equipment, net					82,056			76,753
Deferred inventory costs, non-current					397			1,020
Long-term investments					32,672			54,315
Cost-method investment					9,000			9,000
Long-term restricted cash					3,254			3,047
Deferred tax asset					822			822
Other non-current assets					2,467			3,516
			Total assets	$	517,072		$	531,704

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
	Accounts payable			$	39,198		$	48,838
	Accrued expenses				19,106			22,421
	Accrued compensation and related benefits				20,067			18,966
	Accrued warranty				5,666			5,692
	Deferred revenue				23,418			22,781
	Deferred tax liability				767			767
			Total current liabilities		108,222			119,465

	Accrued warranty, non-current				7,320			7,173
	Deferred revenue, non-current				3,397			3,410
	Other long-term liabilities				14,265			13,853

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 March 31, 2012 and December 31, 2011
		Issued and outstanding shares - 109,508 as of March 31, 2012 and 106,976 as of December 31, 2011			110			107
	Additional paid-in capital				893,131			876,927
	Accumulated other comprehensive loss				(1,725	)		(2,195	)
	Accumulated deficit				(507,648	)		(487,036	)
	Total stockholders' equity				383,868			387,803
			Total liabilities and stockholders' equity	$	517,072		$	531,704


Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

				Three Months Ended
				March 31, 2012			March 26, 2011
Cash Flows from Operating Activities:
Net loss				$	(20,612	)	$	(16,394	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization				5,528			4,215
	Amortization of premium on investments				618			987
	Stock-based compensation expense				9,437			12,365
	Non-cash tax benefit				(59	)		(78	)
	Gain on disposal of assets				-			(104	)
	Other gain				(22	)		(19	)
	Changes in assets and liabilities:
		Accounts receivable			15,172			15,008
		Other receivables			422			3,889
		Inventory			(12,050	)		3,986
		Prepaid expenses and other assets			2,173			1,125
		Deferred inventory costs			1,167			(278	)
		Accounts payable			(7,266	)		(8,750	)
		Accrued liabilities and other expenses			(1,010	)		(15,528	)
		Deferred revenue			624			(16	)
		Accrued warranty			121			(1,262	)
			Net cash used in operating activities		(5,757	)		(854	)

Cash Flows from Investing Activities:
	Purchase of available-for-sale investments				(21,907	)		(107,049	)
	Proceeds from sale of available-for-sale investments				5,194			3,035
	Proceeds from maturities and calls of investments				32,034			109,416
	Proceeds from disposal of assets				-			104
	Purchase of property and equipment				(13,649	)		(10,602	)
	Advance to secure manufacturing capacity				-			(1,500	)
	Reimbursement of manufacturing capacity advance				50			75
	Change in restricted cash				(193	)		68
			Net cash provided by (used in) investing activities		1,529			(6,453	)

Cash Flows from Financing Activities:
	Proceeds from issuance of common stock				7,005			4,909
	Repurchase of common stock				(832	)		-
	Payments for purchase of assets under financing arrangement				-			(87	)
			Net cash provided by financing activities		6,173			4,822

Effect of exchange rate changes on cash					306			188

Net change in cash and cash equivalents					2,251			(2,297	)
Cash and cash equivalents at beginning of period					94,458			113,649
Cash and cash equivalents at end of period				$	96,709		$	111,352

Supplemental disclosures of cash flow information:
	Cash paid for income taxes			$	329		$	442
Supplemental schedule of non-cash financing activities:
	Non-cash settlement for manufacturing capacity advance			$	275		$	-


Infinera Corporation
Supplemental Financial Information
(Unaudited)

	Q2'10	Q3'10	Q4'10	Q1'11	Q2'11	Q3'11	Q4'11	Q1'12
Revenue ($ Mil)	$111.4	$130.1	$117.1	$92.9	$96.0	$104.0	$112.0	$104.7
Gross Margin % ⁽¹⁾	44%	51%	51%	48%	41%	41%	42%	40%
Invoiced Shipment Composition:
Domestic %	81%	73%	70%	74%	72%	65%	70%	71%
International %	19%	27%	30%	26%	28%	35%	30%	29%
Largest Customer %	13%	19%	10%	14%	10%	< 10%	14%	13%
Cash Related Information:
Cash from Operations ($ Mil)	$11.2	$10.0	$7.0	$(0.9)	$(0.1)	$4.1	$(5.1)	$(5.8)
Capital Expenditures ($ Mil)	$5.0	$5.9	$5.0	$10.6	$6.7	$5.9	$16.1	$13.6
Depreciation & Amortization ($ Mil)	$3.7	$3.9	$4.0	$4.2	$4.2	$4.9	$4.5	$5.5
DSO's	45	45	59	60	70	60	65	57
Inventory Metrics:
Raw Materials ($ Mil)	$9.1	$11.0	$23.1	$20.1	$7.3	$7.0	$12.1	$15.3
Work in Process ($ Mil)	$29.2	$36.5	$14.8	$17.2	$27.7	$26.9	$37.0	$41.6
Finished Goods ($ Mil)	$45.9	$41.2	$44.0	$41.0	$34.4	$36.4	$39.9	$44.7
Total Inventory ($ Mil)	$84.2	$88.7	$81.9	$78.3	$69.4	$70.3	$89.0	$101.6
Inventory Turns ⁽¹⁾	3.0	2.9	2.8	2.5	3.3	3.5	2.9	2.5
Worldwide Headcount	1,028	1,040	1,072	1,118	1,136	1,151	1,181	1,210


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

Contacts:

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

Investors/Analysts:
Bob Blair
bblair@infinera.com
Infinera Corporation
408-716-4879