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Press Release -- January 22nd, 2015
Source: Infinera
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Infinera Corporation Reports Fourth Quarter and Fiscal Year 2014 Financial Results

SUNNYVALE, CA -- (Marketwired) -- 01/22/15 -- Infinera Corporation (NASDAQ:INFN, news, filings), provider of Intelligent Transport Networks, today released financial results for the fourth quarter and fiscal year ended December 27, 2014.

Revenue for the quarter was $186.3 million compared to $173.6 million in the third quarter of 2014 and $139.1 million in the fourth quarter of 2013.

GAAP gross margin for the quarter was 45.3% compared to 43.4% in the third quarter of 2014 and 40.2% in the fourth quarter of 2013. GAAP operating margin was 6.9% in the fourth quarter of 2014 compared to 4.3% in the third quarter of 2014 and an operating loss of 5.1% in the fourth quarter of 2013.

GAAP net income for the quarter was $8.4 million, or $0.06 per diluted share, compared to net income of $4.8 million, or $0.04 per diluted share, in the third quarter of 2014 and a net loss of $10.2 million, or $0.08 per share, in the fourth quarter of 2013.

Non-GAAP gross margin for the quarter was 46.1% compared to 44.2% in the third quarter of 2014 and 41.4% in the fourth quarter of 2013. Non-GAAP operating margin for the fourth quarter of 2014 was 11.0% compared to 8.6% in the third quarter of 2014 and 0.8% in the fourth quarter of 2013.

Non-GAAP net income for the quarter was $18.0 million, or $0.13 per diluted share, compared to net income of $14.2 million, or $0.11 per diluted share, in the third quarter of 2014 and a net loss of $0.2 million, or breakeven on an earnings per share basis, in the fourth quarter of 2013.

Revenue for the year was $668.1 million compared to $544.1 million in 2013.

GAAP gross margin for the year was 43.2% compared to 40.2% in 2013. GAAP operating margin for the year was 4.1% compared to an operating loss of 4.5% in 2013. GAAP net income for the year was $13.7 million or $0.11 per diluted share, compared to a net loss of $32.1 million or $0.27 per share in 2013.

Non-GAAP gross margin for the year was 44.0% compared to 41.6% in 2013. Non-GAAP operating margin for the year was 8.3% compared to 1.4% in 2013. Non-GAAP net income for the year was $49.8 million or $0.39 per diluted share, compared to net income of $4.0 million or$0.03 per diluted share in 2013.

The above non-GAAP measures exclude non-cash stock-based compensation expenses and the amortization of debt discount on Infinera'sconvertible 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.

"The fourth quarter capped off an exceptional year of winning footprint, taking care of customers and increasing profitability. Growing greater than 20% for a second consecutive year demonstrates the market's acceptance of our differentiated products and the overall Infineraexperience," said Tom Fallon, Infinera's Chief Executive Officer. "As we evolve from a single-threaded product company to an end-to-end optical solutions company, I believe Infinera is better positioned than ever to serve more customers and address more opportunities."

Conference Call Information:
Infinera will host a conference call for analysts and investors to discuss its fourth quarter and fiscal year 2014 results and its outlook for the first quarter of 2015 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 Infinera'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 1-888-568-0148. International parties can access the replay at 1-203-369-3900.

About Infinera
Infinera provides Intelligent Transport Networks for network operators, enabling reliable, easy to operate, high-capacity optical networks.Infinera leverages its unique large scale photonic integrated circuits to deliver innovative optical networking solutions for the most demanding network environments. Intelligent Transport Networks enable carriers, Cloud network operators, governments and enterprises to automate, converge and scale their data center, metro, long-haul and subsea optical networks. To learn more about Infinera visitwww.infinera.com, follow us on Twitter @Infinera and read our latest blog posts at blog.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, including Infinera's continued expectations of the market's acceptance of our differentiated products and the overallInfinera experience; and Infinera's belief that it is better positioned than ever to serve more customers and address more opportunities. 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. 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 Infinera's results to differ materially from those expressed or implied by such forward-looking statements include delays in the development and introduction of Infinera's products and market acceptance of these products; the effect of changes in product pricing or mix, and/or increases in component costs could have on Infinera's gross margin; Infinera's reliance on single-source suppliers; aggressive business tactics by Infinera's competitors; Infinera's ability to protect Infinera's intellectual property; claims by others that Infinera infringes their intellectual property; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery or demand of products; Infinera's ability to respond to rapid technological changes; and other risks detailed inInfinera's SEC filings from time to time. More information on potential factors that may impact Infinera's business are set forth in its Quarterly Report on Form 10-Q for the quarter ended on September 27, 2014 as filed with the SEC on October 29, 2014, as well as subsequent reports filed with or furnished to the SEC from time to time. These reports are available on Infinera's website at www.infinera.com and theSEC'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 Infinera's convertible senior notes. Infinera believes these adjustments are appropriate to enhance an overall understanding of its underlying financial performance and also its 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 its 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." Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its fourth quarter and fiscal year 2014 results, including an estimate of non-GAAP earnings for the first quarter of 2015 that excludes non-cash stock-based compensation expenses and amortization of debt discount on Infinera's 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 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 Twelve Months Ended
December 27, December 28, December 27, December 28,
2014 2013 2014 2013
Revenue:
Product $ 158,492 $ 115,102 $ 572,276 $ 465,424
Services 27,814 23,990 95,803 78,698
Total revenue 186,306 139,092 668,079 544,122
Cost of revenue:
Cost of product 89,809 73,385 340,856 295,715
Cost of services 12,154 9,795 38,919 29,768
Total cost of revenue 101,963 83,180 379,775 325,483
Gross profit 84,343 55,912 288,304 218,639
Operating expenses:
Research and development 37,349 30,859 133,484 124,794
Sales and marketing 22,288 19,857 79,026 72,778
General and administrative 11,840 12,277 48,452 45,253
Total operating expenses 71,477 62,993 260,962 242,825
Income (loss) from operations 12,866 (7,081 ) 27,342 (24,186 )
Other income (expense), net:
Interest income 410 287 1,456 923
Interest expense (2,835 ) (2,634 ) (11,021 ) (6,061 )
Other gain (loss), net (348 ) (336 ) (1,365 ) (1,141 )
Total other income (expense), net (2,773 ) (2,683 ) (10,930 ) (6,279 )
Income (loss) before income taxes 10,093 (9,764 ) 16,412 (30,465 )
Provision for income taxes 1,683 414 2,753 1,654
Net income (loss) $ 8,410 $ (10,178 ) $ 13,659 $ (32,119 )
Net income (loss) per common share:
Basic $ 0.07 $ (0.08 ) $ 0.11 $ (0.27 )
Diluted $ 0.06 $ (0.08 ) $ 0.11 $ (0.27 )
Weighted average shares used in computing net income (loss) per common share:
Basic 125,830 119,743 123,672 117,425
Diluted 133,072 119,743 128,565 117,425
Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 27, September 27, December 28, December 27, December 28,
2014 2014 2013 2014 2013
Reconciliation of Gross Profit:
U.S. GAAP as reported $ 84,343 $ 75,302 $ 55,912 $ 288,304 $ 218,639
Stock-based compensation(1) 1,472 1,491 1,695 5,607 7,496
Non-GAAP as adjusted $ 85,815 $ 76,793 $ 57,607 $ 293,911 $ 226,135
Reconciliation of Gross Margin:
U.S. GAAP as reported 45.3 % 43.4 % 40.2 % 43.2 % 40.2 %
Stock-based compensation(1) 0.8 % 0.8 % 1.2 % 0.8 % 1.4 %
Non-GAAP as adjusted 46.1 % 44.2 % 41.4 % 44.0 % 41.6 %
Reconciliation of Income (Loss) from Operations:
U.S. GAAP as reported $ 12,866 $ 7,480 $ (7,081 ) $ 27,342 $ (24,186 )
Stock-based compensation(1) 7,547 7,371 8,174 28,394 31,976
Non-GAAP as adjusted $ 20,413 $ 14,851 $ 1,093 $ 55,736 $ 7,790
Reconciliation of Operating Margin:
U.S. GAAP as reported 6.9 % 4.3 % (5.1 )% 4.1 % (4.5 )%
Stock-based compensation(1) 4.1 % 4.3 % 5.9 % 4.2 % 5.9 %
Non-GAAP as adjusted 11.0 % 8.6 % 0.8 % 8.3 % 1.4 %
Reconciliation of Net Income (Loss):
U.S. GAAP as reported $ 8,410 $ 4,843 $ (10,178 ) $ 13,659 $ (32,119 )
Stock-based compensation(1) 7,547 7,371 8,174 28,394 31,976
Amortization of debt discount(2) 2,006 1,956 1,814 7,730 4,164
Non-GAAP as adjusted $ 17,963 $ 14,170 $ (190 ) $ 49,783 $ 4,021
Net Income (Loss) per Common Share - Basic:
U.S. GAAP as reported $ 0.07 $ 0.04 $ (0.08 ) $ 0.11 $ (0.27 )
Non-GAAP as adjusted $ 0.14 $ 0.11 $ - $ 0.40 $ 0.03
Net Income (Loss) per Common Share - Diluted:
U.S. GAAP as reported $ 0.06 $ 0.04 $ (0.08 ) $ 0.11 $ (0.27 )
Non-GAAP as adjusted(3) $ 0.13 $ 0.11 $ - $ 0.39 $ 0.03
Weighted Average SharesUsed in Computing Net Income (Loss) per Common Share - U.S. GAAP:
Basic 125,830 124,378 119,743 123,672 117,425
Diluted 133,072 128,964 119,743 128,565 117,425
Weighted Average SharesUsed in Computing Net Income (Loss) per Common Share - Non-GAAP:
Basic 125,830 124,378 119,743 123,672 117,425
Diluted(3) 133,072 128,964 125,134 128,565 122,167
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification 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 (in thousands):
Three Months Ended Twelve Months Ended
December 27, September 27, December 28, December 27, December 28,
2014 2014 2013 2014 2013
Cost of revenue $ 500 $ 492 $ 489 $ 1,921 $ 1,871
Research and development 2,439 2,270 2,725 8,927 10,900
Sales and marketing 1,960 1,982 1,965 7,477 7,624
General and administration 1,676 1,628 1,789 6,383 5,956
6,575 6,372 6,968 24,708 26,351
Cost of revenue - amortization from balance sheet* 972 999 1,206 3,686 5,625
Total stock-based compensation expense $ 7,547 $ 7,371 $ 8,174 $ 28,394 $ 31,976
* 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, Infinera is 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 its $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's 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 27, December 28,
2014 2013
ASSETS
Current assets:
Cash and cash equivalents $ 86,495 $ 124,330
Short-term investments 239,628 172,660
Accounts receivable, net of allowance for doubtful accounts of $38 in 2014 and $43 in 2013 154,596 100,643
Inventory 146,500 123,685
Prepaid expenses and other current assets 24,636 17,752
Total current assets 651,855 539,070
Property, plant and equipment, net 81,566 79,668
Long-term investments 59,233 64,419
Cost-method investment 14,500 9,000
Long-term restricted cash 5,460 3,904
Other non-current assets 5,402 4,865
Total assets $ 818,016 $ 700,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,533 $ 39,843
Accrued expenses 26,441 22,431
Accrued compensation and related benefits 38,795 33,899
Accrued warranty 12,241 12,374
Deferred revenue 35,321 32,402
Total current liabilities 174,331 140,949
Long-term debt 116,894 109,164
Accrued warranty, non-current 14,799 10,534
Deferred revenue, non-current 10,758 4,888
Other long-term liabilities 19,327 17,581
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 27, 2014 and December 28, 2013
Issued and outstanding shares - 126,160 as of December 27, 2014 and 119,887 as of December 28, 2013
126 120
Additional paid-in capital 1,077,225 1,025,661
Accumulated other comprehensive loss (4,618 ) (3,486 )
Accumulated deficit (590,826 ) (604,485 )
Total stockholders' equity 481,907 417,810
Total liabilities and stockholders' equity $ 818,016 $ 700,926
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twelve Months Ended
December 27, December 28,
2014 2013
Cash Flows from Operating Activities:
Net income (loss) $ 13,659 $ (32,119 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 25,917 24,562
Amotization of debt discount and issuance costs 8,395 4,522
Amortization of premium on investments 3,772 1,539
Stock-based compensation expense 28,394 31,976
Other gain (9 ) (276 )
Changes in assets and liabilities:
Accounts receivable (53,951 ) 6,341
Inventory (25,486 ) (3,036 )
Prepaid expenses and other assets (8,324 ) (3,162 )
Accounts payable 18,810 (20,202 )
Accrued liabilities and other expenses 11,866 11,272
Deferred revenue 8,788 7,337
Accrued warranty 4,132 6,426
Net cash provided by operating activities 35,963 35,180
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (302,398 ) (288,140 )
Purchase of cost-method investment (5,500 ) -
Proceeds from sale of available-for-sale investments 28,481 2,850
Proceeds from maturities and calls of investments 208,051 125,624
Purchase of property and equipment (23,122 ) (21,065 )
Change in restricted cash (1,571 ) (69 )
Net cash used in investing activities (96,059 ) (180,800 )
Cash Flows from Financing Activities:
Proceeds from issuance of debt, net - 144,469
Proceeds from issuance of common stock 24,707 23,185
Minimum tax withholding paid on behalf of employees for net share settlement (1,846 ) (1,544 )
Net cash provided by financing activities 22,861 166,110
Effect of exchange rate changes on cash (600 ) (826 )
Net change in cash and cash equivalents (37,835 ) 19,664
Cash and cash equivalents at beginning of period 124,330 104,666
Cash and cash equivalents at end of period $ 86,495 $ 124,330
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds $ 1,697 $ 2,135
Cash paid for interest $ 2,625 $ 1,320
Supplemental schedule of non-cash financing activities:
Transfer of inventory to fixed assets $ 2,569 $ 5,458
Warrant exercise $ - $ 500
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14
Revenue ($ Mil) $124.6 $138.4 $142.0 $139.1 $142.8 $165.4 $173.6 $186.3
Gross Margin %(1) 35.9% 38.9% 49.2% 41.4% 41.8% 43.3% 44.2% 46.1%
Revenue Composition:
Domestic % 63% 64% 73% 54% 78% 82% 70% 58%
International % 37% 36% 27% 46% 22% 18% 30% 42%
Customers >10% of Revenue 1 - 3 1 2 2 1 1
Cash Related Information:
Cash from (Used in) Operations ($ Mil) $(21.3) $17.9 $12.8 $25.8 $(15.4) $10.3 $22.3 $18.7
Capital Expenditures ($ Mil) $4.9 $4.5 $4.2 $7.5 $5.6 $4.4 $4.4 $8.8
Depreciation & Amortization ($ Mil) $6.3 $6.3 $5.9 $6.0 $6.3 $6.5 $6.5 $6.6
DSO's 82 64 56 66 68 66 71 76
Inventory Metrics:
Raw Materials ($ Mil) $12.2 $9.8 $12.1 $14.3 $13.2 $11.2 $11.6 $15.2
Work in Process ($ Mil) $53.1 $41.0 $45.7 $49.2 $47.8 $40.6 $44.4 $50.0
Finished Goods ($ Mil) $65.7 $70.5 $65.7 $60.2 $65.5 $79.1 $74.8 $81.3
Total Inventory ($ Mil) $131.0 $121.3 $123.5 $123.7 $126.5 $130.9 $130.8 $146.5
Inventory Turns(2) 2.4 2.8 2.3 2.6 2.6 2.9 3.0 2.7
Worldwide Headcount 1,219 1,238 1,296 1,318 1,346 1,396 1,456 1,495
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.
(2) Infinera calculates non-GAAP inventory turns as annualized non-GAAP cost of revenue before adjustments for non-cash stock-based compensation expense divided by the average inventory for the quarter.

Contacts:

Media:
Anna Vue
Tel. +1 (916) 595-8157
avue@infinera.com

Investors:
Jeff Hustis
Tel. +1 (408) 213-7150
jhustis@infinera.com

Source: Infinera

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