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Press Release -- July 24th, 2012
Source: Infinera
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Infinera Corporation Reports Second Quarter 2012 Financial Results

SUNNYVALE, CA–(Marketwire -07/24/12)- Infinera Corporation (INFN), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 30, 2012.

GAAP revenues for the second quarter of 2012 were $93.5 million compared to $104.7 million in the first quarter of 2012 and $96.0 million in the second quarter of 2011.

GAAP gross margin for the second quarter of 2012 was 35% compared to 39% in the first quarter of 2012 and 39% in the second quarter of 2011. GAAP net loss for the 2012 second quarter was $(29.5) million, or $(0.27) per share, compared to net loss of $(20.6) million, or $(0.19) per share, in the first quarter of 2012 and net loss of $(24.2) million, or $(0.23) per share, in the second quarter of 2011.

Non-GAAP gross margin for the second quarter of 2012 was 37% compared to 40% in the first quarter of 2012 and 41% in the second quarter of 2011, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2012 was $(18.6) million, or $(0.16) per share, compared to net loss of $(11.2) million, or $(0.10) per share, in the first quarter of 2012 and net loss of $(11.7) million, or $(0.11) per share, in the second quarter of 2011.

Management Commentary

“We executed well on our commitment to deliver the DTN-X to the market in the second quarter, completing critical customer trials and shipping the platform to customers for deployment as promised,” said Tom Fallon, president and chief executive officer. “Reception to the DTN-X, featuring 500 Gb/s long haul super-channels along with WDM and integrated OTN switching, has been very positive and broad-based.

“To date, we have received purchase commitments for the DTN-X from ten customers, including three customers new to Infinera. These customers represent a cross section of our markets, including cable, subsea, internet content, research & education, and Tier 1 providers. Adoption of the DTN-X demonstrates customers’ recognition of the unique differentiation of our leading next-generation platform which provides unparalleled scale, efficiency, simplicity and reliability at a reduced total cost of ownership. We remain on track to recognize revenues from DTN-X sales beginning in the third quarter. While we are growing more cautious regarding the macro-economic environment and the outlook for capex spending in the second half of 2012, we are pleased with the market acceptance of the DTN-X.”

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 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 1-800-570-8795. International parties can access the replay at 1-402-220-2264.

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 our expectations for customer interest in and adoption of our DTN-X product, and expectations for the timing of revenue recognition related to 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 second quarter results, including an estimate of non-GAAP earnings for the third 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 atwww.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         Six Months Ended
                         ------------------------  ------------------------
                           June 30,     June 25,     June 30,     June 25,
                             2012         2011         2012         2011
                         -----------  -----------  -----------  -----------
Revenue:
  Product                $    77,843  $    84,361  $   170,234  $   166,889
  Ratable product and
   related support and
   services                      523          814        1,054        1,736
  Services                    15,092       10,781       26,871       20,221
                         -----------  -----------  -----------  -----------
    Total revenue             93,458       95,956      198,159      188,846

Cost of revenue (1):
  Cost of product             56,017       54,540      115,341      101,158
  Cost of ratable
   product and related
   support and services          166          294          357          679
  Cost of services             4,901        3,708        9,660        6,851
                         -----------  -----------  -----------  -----------
    Total cost of
     revenue                  61,084       58,542      125,358      108,688

Gross profit                  32,374       37,414       72,801       80,158

Operating expenses (1):
  Research and
   development                31,676       32,899       62,661       64,208
  Sales and marketing         17,777       14,957       36,019       28,892
  General and
   administrative             12,320       13,635       23,404       27,144
                         -----------  -----------  -----------  -----------
    Total operating
     expenses                 61,773       61,491      122,084      120,244

Loss from operations         (29,399)     (24,077)     (49,283)     (40,086)

Other income (expense),
 net:
  Interest income                228          225          503          537
  Other gain (loss), net         149           20         (275)        (391)
                         -----------  -----------  -----------  -----------
    Total other income
     (expense), net              377          245          228          146

Loss before income taxes     (29,022)     (23,832)     (49,055)     (39,940)
Provision for income
 taxes                           527          362        1,106          648
                         -----------  -----------  -----------  -----------
Net loss                 $   (29,549) $   (24,194) $   (50,161) $   (40,588)
                         ===========  ===========  ===========  ===========

Net loss per common
 share, basic and
 diluted                 $     (0.27) $     (0.23) $     (0.46) $     (0.39)
                         ===========  ===========  ===========  ===========

Weighted average shares
 used in computing basic
 and diluted net loss
 per common share            110,403      105,165      109,534      104,272
                         ===========  ===========  ===========  ===========

------------------------

(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 30, 2012 and June 25, 2011:

                            Three Months Ended         Six Months Ended
                         ------------------------  ------------------------
                           June 30,     June 25,     June 30,     June 25,
                             2012         2011         2012         2011
                         -----------  -----------  -----------  -----------
  Cost of revenue        $       686  $       760  $     1,292  $     1,491
  Research and
   development                 3,695        3,504        7,015        7,330
  Sales and marketing          2,744        2,225        4,963        4,285
  General and
   administration              2,705        4,828        4,928        9,611
                         -----------  -----------  -----------  -----------
                               9,830       11,317       18,198       22,717
  Cost of revenue -
   amortization from
   balance sheet*              1,100        1,165        2,169        2,130
                         -----------  -----------  -----------  -----------
  Total stock-based
   compensation expense  $    10,930  $    12,482  $    20,367  $    24,847
                         ===========  ===========  ===========  ===========

* 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 30,  March 31,   June 25,   June 30,   June 25,
                         2012       2012       2011       2012       2011
                      ---------  ---------  ---------  ---------  ---------
Reconciliation of
 Gross Profit:
U.S. GAAP as reported $  32,374  $  40,427  $  37,414  $  72,801  $  80,158
Stock-based
 compensation(1)          1,786      1,675      1,925      3,461      3,621
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $  34,160  $  42,102  $  39,339  $  76,262  $  83,779
                      =========  =========  =========  =========  =========

Reconciliation of
 Gross Margin:
U.S. GAAP as reported        35%        39%        39%        37%        42%
Stock-based
 compensation(1)              2%         1%         2%         2%         2%
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted         37%        40%        41%        39%        44%
                      =========  =========  =========  =========  =========

Reconciliation of
 Loss from
 Operations:
U.S. GAAP as reported $ (29,399) $ (19,884) $ (24,077) $ (49,283) $ (40,086)
Stock-based
 compensation(1)         10,930      9,437     12,482     20,367     24,847
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $ (18,469) $ (10,447) $ (11,595) $ (28,916) $ (15,239)
                      =========  =========  =========  =========  =========

Reconciliation of Net
 Loss:
U.S. GAAP as reported $ (29,549) $ (20,612) $ (24,194) $ (50,161) $ (40,588)
Stock-based
 compensation(1)         10,930      9,437     12,482     20,367     24,847
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $ (18,619) $ (11,175) $ (11,712) $ (29,794) $ (15,741)
                      =========  =========  =========  =========  =========

Net Loss per Common
 Share - Basic:
U.S. GAAP as reported $   (0.27) $   (0.19) $   (0.23) $   (0.46) $   (0.39)
                      =========  =========  =========  =========  =========
Non-GAAP as adjusted  $   (0.17) $   (0.10) $   (0.11) $   (0.27) $   (0.15)
                      =========  =========  =========  =========  =========

Net Loss per Common
 Share - Diluted:
U.S. GAAP as reported $   (0.27) $   (0.19) $   (0.23) $   (0.46) $   (0.39)
                      =========  =========  =========  =========  =========
Non-GAAP as
 adjusted(2)          $   (0.16) $   (0.10) $   (0.11) $   (0.26) $   (0.15)
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net loss
 per common share -
 U.S. GAAP:
Basic                   110,403    108,666    105,165    109,534    104,272
                      =========  =========  =========  =========  =========
Diluted                 110,403    108,666    105,165    109,534    104,272
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net loss
 per common share -
 Non-GAAP:
Basic                   110,403    108,666    105,165    109,534    104,272
                      =========  =========  =========  =========  =========
Diluted(2)              112,931    112,007    108,330    112,469    108,076
                      =========  =========  =========  =========  =========

(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 31,  March 31,   June 25,   June 30,   June 25,
                         2012       2012       2011       2012       2011
                      ---------  ---------  ---------  ---------  ---------
Cost of revenue       $     686  $     606  $     760  $   1,292  $   1,491
Research and
 development              3,695      3,320      3,504      7,015      7,330
Sales and marketing       2,744      2,219      2,225      4,963      4,285
General and
 administration           2,705      2,223      4,828      4,928      9,611
                      ---------  ---------  ---------  ---------  ---------
                          9,830      8,368     11,317     18,198     22,717
Cost of revenue -
 amortization from
 balance sheet*           1,100      1,069      1,165      2,169      2,130
                      ---------  ---------  ---------  ---------  ---------
Total stock-based
 compensation expense $  10,930  $   9,437  $  12,482  $  20,367  $  24,847
                      =========  =========  =========  =========  =========

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

(2) 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 30,    December 31,
                                                     2012          2011
                                                 ------------  ------------
ASSETS

Current assets:
  Cash and cash equivalents                      $     84,988  $     94,458
  Short-term investments                              105,046       101,296
  Accounts receivable                                  56,200        80,616
  Other receivables                                     1,492         1,346
  Inventory                                           115,117        88,996
  Deferred inventory costs                              2,853         5,987
  Prepaid expenses and other current assets            10,217        10,532
                                                 ------------  ------------
    Total current assets                              375,913       383,231

Property, plant and equipment, net                     82,396        76,753
Deferred inventory costs, non-current                     173         1,020
Long-term investments                                  17,057        54,315
Cost-method investment                                  9,000         9,000
Long-term restricted cash                               3,263         3,047
Deferred tax asset                                        822           822
Other non-current assets                                2,137         3,516
                                                 ------------  ------------
    Total assets                                 $    490,761  $    531,704
                                                 ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                               $     37,679  $     48,838
  Accrued expenses                                     17,666        22,421
  Accrued compensation and related benefits            19,391        18,966
  Accrued warranty                                      5,929         5,692
  Deferred revenue                                     18,507        22,781
  Deferred tax liability                                  767           767
                                                 ------------  ------------
    Total current liabilities                          99,939       119,465

  Accrued warranty, non-current                         7,773         7,173
  Deferred revenue, non-current                         2,732         3,410
  Other long-term liabilities                          15,004        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 June 30,
     2012 and December 31, 2011
    Issued and outstanding shares - 110,836 as of
     June 30, 2012 and 106,976 as of December 31,
     2011                                                 111           107
  Additional paid-in capital                          904,963       876,927
  Accumulated other comprehensive loss                 (2,564)       (2,195)
  Accumulated deficit                                (537,197)     (487,036)
                                                 ------------  ------------
  Total stockholders' equity                          365,313       387,803
                                                 ------------  ------------
    Total liabilities and stockholders' equity   $    490,761  $    531,704
                                                 ============  ============

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

                                                      Six Months Ended
                                                 --------------------------
                                                   June 30,      June 25,
                                                     2012          2011
                                                 ------------  ------------
Cash Flows from Operating Activities:
Net loss                                         $    (50,161) $    (40,588)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                        11,224         8,434
  Amortization of premium on investments                1,098         2,218
  Stock-based compensation expense                     20,367        24,847
  Non-cash tax benefit                                      -          (121)
  Other gain                                             (501)         (293)
  Changes in assets and liabilities:
    Accounts receivable                                24,416         2,247
    Other receivables                                    (477)        3,830
    Inventory                                         (24,770)       13,269
    Prepaid expenses and other assets                   1,533          (536)
    Deferred inventory costs                            3,910          (604)
    Accounts payable                                   (8,753)       (7,772)
    Accrued liabilities and other expenses             (2,272)       (4,500)
    Deferred revenue                                   (4,952)         (693)
    Accrued warranty                                      837          (727)
                                                 ------------  ------------
      Net cash used in operating activities           (28,501)         (989)

Cash Flows from Investing Activities:
  Purchase of available-for-sale investments          (42,853)     (153,034)
  Proceeds from sale of available-for-sale
   investments                                          5,194         3,035
  Proceeds from maturities and calls of
   investments                                         70,464       150,511
  Proceeds from disposal of assets                          -           262
  Purchase of property and equipment                  (19,770)      (17,322)
  Advance to secure manufacturing capacity                  -        (1,500)
  Reimbursement of manufacturing capacity
   advance                                                 50           225
  Change in restricted cash                              (230)        1,573
                                                 ------------  ------------
      Net cash provided by (used in) investing
       activities                                      12,855       (16,250)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock                7,093         5,712
  Repurchase of common stock                             (839)       (1,200)
  Payments for purchase of assets under
   financing arrangement                                    -          (174)
                                                 ------------  ------------
      Net cash provided by financing activities         6,254         4,338

Effect of exchange rate changes on cash                   (78)          178

Net change in cash and cash equivalents                (9,470)      (12,723)
Cash and cash equivalents at beginning of period       94,458       113,649
                                                 ------------  ------------
Cash and cash equivalents at end of period       $     84,988  $    100,926
                                                 ============  ============

Supplemental disclosures of cash flow
 information:
  Cash paid for income taxes                     $        595  $        565
Supplemental schedule of non-cash financing
 activities:
  Non-cash settlement for manufacturing capacity
   advance                                       $        275  $          -

----------------------------------------------------------------------------
Infinera Corporation
Supplemental Financial Information
(Unaudited)

                     Q3'10  Q4'10  Q1'11  Q2'11  Q3'11  Q4'11  Q1'12  Q2'12
                    --------------------------------------------------------
Revenue ($ Mil)      $130.1 $117.1 $92.9  $96.0  $104.0 $112.0 $104.7 $93.5
Gross Margin % (1)    51%    51%    48%    41%    41%    42%    40%    37%
                    --------------------------------------------------------
Invoiced Shipment
 Composition:
Domestic %            73%    70%    74%    72%    65%    70%    71%    70%
International %       27%    30%    26%    28%    35%    30%    29%    30%
Largest Customer %    19%    10%    14%    10%  < 10%    14%    13%    15%
                    --------------------------------------------------------
Cash Related
 Information:
Cash from Operations
 ($ Mil)             $10.0   $7.0  ($0.9) ($0.1)  $4.1  ($5.1) ($5.8)($22.7)
Capital Expenditures
 ($ Mil)              $5.9   $5.0  $10.6   $6.7   $5.9  $16.1  $13.6   $6.1
Depreciation &
 Amortization ($
 Mil)                 $3.9   $4.0   $4.2   $4.2   $4.9   $4.5   $5.5   $5.7
DSO's                  45     59     60     70     60     65     57     55
                    --------------------------------------------------------
Inventory Metrics:
Raw Materials ($
 Mil)                $11.0  $23.1  $20.1   $7.3   $7.0  $12.1  $15.3  $14.8
Work in Process ($
 Mil)                $36.5  $14.8  $17.2  $27.7  $26.9  $37.0  $41.6  $49.4
Finished Goods ($
 Mil)                $41.2  $44.0  $41.0  $34.4  $36.4  $39.9  $44.7  $50.9
                    --------------------------------------------------------
Total Inventory ($
 Mil)                $88.7  $81.9  $78.3  $69.4  $70.3  $89.0  $101.6 $115.1
Inventory Turns (1)   2.9    2.8    2.5    3.3    3.5    2.9    2.5    2.1
                    --------------------------------------------------------
Worldwide Headcount  1,040  1,072  1,118  1,136  1,151  1,181  1,210  1,228
                    --------------------------------------------------------

--------------------
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include
 restructuring and other related costs and 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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