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Press Release -- July 22nd, 2010
Source: Infinera
Tags: DWDM, Earnings, Equipment, Exchange

Infinera Corporation Reports Second Quarter 2010 Financial Results

Record Revenue of $111.4 Million, Representing 62% Year-Over-Year Revenue Growth; Non-GAAP Profit of $0.03 per Diluted Share; Non-GAAP Gross Margin at 44 Percent

SUNNYVALE, CA, Jul 22, 2010 (MARKETWIRE via COMTEX) -- Infinera Corporation (NASDAQ:INFN, news, filings), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 26, 2010.

  • GAAP revenues for the quarter were $111.4 million compared to $95.8 million in the first quarter of 2010 and $68.9 million in the second quarter of 2009.
  • GAAP gross margins for the quarter were 42% compared to 39% in the first quarter of 2010 and 29% in the second quarter of 2009. GAAP net loss for the quarter was $9.6 million, or $(0.10) per share, compared to $20.0 million, or $(0.21) per share, in the first quarter of 2010 and $27.1 million, or $(0.28) per share, in the second quarter of 2009.
  • Non-GAAP gross margins for the quarter were 44% compared to 41% in the first quarter of 2010 and 31% in the second quarter of 2009, excluding restructuring and other related costs and non-cash stock-based compensation. Non-GAAP net income for the quarter was $3.0 million, or $0.03 per diluted share, compared to net loss of $7.0 million, or $(0.07) per share in the first quarter of 2010 and net loss of $18.2 million, or $(0.19) per share, in the second quarter of 2009.

Management Commentary

"I am delighted with the performance delivered by the Infinera team in the second quarter -- one of the strongest in the company's history," said Tom Fallon, president and chief executive officer. "We achieved new records for overall quarterly revenue and bookings, including increased shipments of tributary adapter modules, and we posted higher gross margins, achieved positive cash flow, and earned a profit on a non-GAAP basis.

"The second quarter represents the company's fifth consecutive quarter of improving revenue, our third straight quarter of increasing bookings and our fourth quarter of sequentially improving gross margins," Fallon noted. "Demand remains robust for our PIC-based networks, which we believe provide the most efficient, flexible and cost-effective way to manage Internet bandwidth growth. Furthermore, we have been pleased with the broad-based positive customer reception that we have received to our recently announced plans to accelerate our PIC-based, 100-G transmission system development with planned volume production in 2012.

"Our financial results and industry data provide clear evidence that Infinera is gaining share in both North America and on a worldwide basis and doing so in a rapidly growing market for long-haul DWDM networks," said Fallon.

The company also noted the following developments in the second quarter:

  • Positive cash from operations of $11.2 million;
  • TAM Shipments of 2,400 units;
  • Strengthened DWDM market share positions in North America (#1 at 39%) and worldwide (#2 at 15%) based on Dell'Oro market data as of end of Q1 CY2010; and
  • Four greater than 10 percent customers including one of the world's leading internet content providers as the top customer, two wholesale carriers, Level 3 and Global Crossing, and one of the largest cable companies in North America.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results and third 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 1-866-435-5408. International parties can access the replay at 1-203-369-1028.

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 about demand remains robust for our PIC-based networks, which we believe provide the most efficient, flexible and cost-effective way to manage Internet bandwidth growth; our belief that customer reception has been broad-based and positive for our recently announced plans to accelerate our PIC-based, 100-G transmission system development with planned volume production in 2012; and our belief that our financial results and industry data provide clear evidence that we are gaining share in both North America and on a worldwide basis and doing so in a rapidly growing market for long-haul DWDM networks. 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; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the U.S. Securities and Exchange Commission (SEC). More information about these and other risks that may impact Infinera's business are set forth in our annual report on Form 10-K, which was filed with the SEC on March 1, 2010, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these 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 or basic and diluted net income per share 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 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 2010 results, including an estimate of non-GAAP earnings for the third quarter of 2010 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     Six Months Ended
                                --------------------  --------------------
                                 June 26,   June 27,   June 26,   June 27,
                                   2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Revenue:
  Product                       $  98,035  $  61,074  $ 184,202  $ 120,222
  Ratable product and related
   support and services             1,664        845      3,278      2,314
  Services                         11,699      7,013     19,678     12,976
                                ---------  ---------  ---------  ---------
      Total revenue               111,398     68,932    207,158    135,512
Cost of revenue (1):
  Cost of product                  57,668     45,699    113,108     89,564
  Cost of ratable product and
   related support and services       929        358      1,684      1,088
  Cost of services                  5,520      2,617      8,062      4,632
  Restructuring credit related
   to cost of revenue                 (29)         -       (122)         -
                                ---------  ---------  ---------  ---------
      Total cost of revenue        64,088     48,674    122,732     95,284
Gross profit                       47,310     20,258     84,426     40,228
Operating expenses (1):
  Research and development         28,923     24,800     57,406     46,834
  Sales and marketing              13,682     11,458     26,719     22,581
  General and administrative       14,448     11,478     30,185     21,605
  Restructuring and other
   costs (credit)                      (2)         -        159          -
                                ---------  ---------  ---------  ---------
      Total operating expenses     57,051     47,736    114,469     91,020
Loss from operations               (9,741)   (27,478)   (30,043)   (50,792)
Other income (expense), net:
  Interest income                     325        597        810      1,515
    Total other-than-temporary
     impairment losses                  -     (2,747)         -     (2,747)
    Portion of loss recognized
     in other comprehensive loss        -      1,814          -      1,814
                                ---------  ---------  ---------  ---------
  Net credit impairment losses
   recognized in earnings               -       (933)         -       (933)
  Other gain (loss), net             (208)       806       (524)    (1,008)
                                ---------  ---------  ---------  ---------
      Total other income
       (expense), net                 117        470        286       (426)
Loss before provision of income
 taxes                             (9,624)   (27,008)   (29,757)   (51,218)
Provision for (benefit from)
 income taxes                         (63)       103       (205)       221
                                ---------  ---------  ---------  ---------
Net loss                        $  (9,561) $ (27,111) $ (29,552) $ (51,439)
                                =========  =========  =========  =========
Net loss per common share,
 basic and diluted              $   (0.10) $   (0.28) $   (0.30) $   (0.54)
                                =========  =========  =========  =========
Weighted average shares used in
 computing basic and diluted
 net loss per common share         98,777     95,161     98,026     94,718
                                =========  =========  =========  =========
(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 26, 2010 and June 27, 2009:
                                 Three Months Ended     Six Months Ended
                                --------------------  --------------------
                                 June 26,   June 27,   June 26,   June 27,
                                   2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
    Cost of revenue             $     564  $     477  $   1,133  $     856
    Research and development        3,350      2,419      6,773      4,151
    Sales and marketing             2,192      1,599      4,039      3,013
    General and administration      5,198      3,513     10,907      6,158
                                ---------  ---------  ---------  ---------
                                   11,304      8,008     22,852     14,178
    Cost of revenue -
     amortization from balance
     sheet*                         1,303        904      2,665      1,470
                                ---------  ---------  ---------  ---------
    Total stock-based
     compensation expense       $  12,607  $   8,912  $  25,517  $  15,648
                                =========  =========  =========  =========
    * 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 26,   March 27,    June 27,    June 26,    June 27,
                   2010        2010        2009        2010        2009
                ----------  ----------  ----------  ----------  ----------
Reconciliation
 of Gross Profit:
U.S. GAAP as
 reported       $   47,310  $   37,116  $   20,258  $   84,426  $   40,228
Restructuring
 and other
 related costs(1)      (29)        (93)          -        (122)          -
Stock-based
 compensation(2)     1,867       1,931       1,381       3,798       2,326
                ----------  ----------  ----------  ----------  ----------
Non-GAAP as
 adjusted       $   49,148  $   38,954  $   21,639  $   88,102  $   42,554
                ==========  ==========  ==========  ==========  ==========
Reconciliation
 of Gross Margin:
U.S. GAAP as
 reported               42%         39%         29%         41%         30%
Restructuring
 and other
 related costs(1)        -%          -%          -%          -%          -%
Stock-based
 compensation(2)         2%          2%          2%          2%          1%
                ----------  ----------  ----------  ----------  ----------
Non-GAAP as
 adjusted               44%         41%         31%         43%         31%
                ==========  ==========  ==========  ==========  ==========
Reconciliation of
 Net Income
 (Loss):
U.S. GAAP as
 reported       $   (9,561) $  (19,991) $  (27,111) $  (29,552) $  (51,439)
Restructuring
 and other
 related costs(1)      (31)         68           -          37           -
Stock-based
 compensation(2)    12,607      12,910       8,912      25,517      15,648
                ----------  ----------  ----------  ----------  ----------
Non-GAAP as
 adjusted       $    3,015  $   (7,013) $  (18,199) $   (3,998) $  (35,791)
                ==========  ==========  ==========  ==========  ==========
Reconciliation of
Net Income (Loss)
 per Common Share
 - Basic:
U.S. GAAP as
 reported       $    (0.10) $    (0.21) $    (0.28) $    (0.30) $    (0.54)
Restructuring
 and other
 related costs(1)        -           -           -           -           -
Stock-based
 compensation(2)      0.13        0.14        0.09        0.26        0.16
                ----------  ----------  ----------  ----------  ----------
Non-GAAP as
 adjusted       $     0.03  $    (0.07) $    (0.19) $    (0.04) $    (0.38)
                ==========  ==========  ==========  ==========  ==========
Weighted
 average shares
 used in
 computing net
 income (loss)
 per common
 share - basic      98,777      97,276      95,161      98,026      94,718
                ==========  ==========  ==========  ==========  ==========
For information purpose only, for the three months ended June 26, 2010, the
diluted Non-GAAP net income per common share was $0.03 calculated based on
weighted average shares outstanding of 103.9 million.
(1) Adjustment amount represents restructuring and other related costs
    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
                     ---------------------------------------------------
                           June 26, 2010             March 27, 2010
                     -------------------------  ------------------------
                     Cost of Operating          Cost of  Operating
                     Revenue Expenses   Total   Revenue  Expenses   Total
                     -------  -------  -------  -------  -------- ------
     Severance and
      related
      expenses       $  (129) $     -  $  (129) $   (15) $     55 $   40
     Equipment and
      facility-
      related costs      100        -      100      (78)        -    (78)
     Lease
      termination          -       (2)      (2)       -       106    106
                     -------  -------  -------  -------  -------- ------
     Total           $   (29) $    (2) $   (31) $   (93) $    161 $   68
                     =======  =======  =======  =======  ======== ======
(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           Six Months Ended
                     -------------------------------- ---------------------
                     June 26,   March 27,    June 27,   June 26,  June 27,
                        2010      2010        2009        2010      2009
                     ---------- ---------- ---------- ---------- ----------
     Cost of revenue $      564 $      569 $      477 $    1,133 $      856
     Research and
      development         3,350      3,423      2,419      6,773      4,151
     Sales and
      marketing           2,192      1,847      1,599      4,039      3,013
     General and
      administration      5,198      5,709      3,513     10,907      6,158
                     ---------- ---------- ---------- ---------- ----------
                         11,304     11,548      8,008     22,852     14,178
     Cost of
      revenue -
      amortization
      from balance
      sheet*              1,303      1,362        904      2,665      1,470
                     ---------- ---------- ---------- ---------- ----------
     Total stock-
      based
      compensation
      expense        $   12,607 $   12,910 $    8,912 $   25,517 $   15,648
                     ========== ========== ========== ========== ==========
    * 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)
                                                 June 26,     December 26,
                                                   2010           2009
                                               ------------   ------------
ASSETS
Current assets:
  Cash and cash equivalents                    $    104,068   $    109,859
  Short-term investments                            163,876        143,350
  Short-term restricted cash                          1,690          1,533
  Accounts receivable                                55,619         70,410
  Inventories, net                                   84,183         68,872
  Deferred inventory costs                            6,778          5,891
  Prepaid expenses and other current assets          10,305          8,313
                                               ------------   ------------
      Total current assets                          426,519        408,228
Property, plant and equipment, net                   45,061         43,656
Deferred inventory costs, non-current                 5,502          4,438
Long-term investments                                 7,709         18,255
Cost-method investment                                4,500              -
Long-term restricted cash                             2,277          2,480
Deferred tax asset                                    9,249         12,449
Other non-current assets                              2,454          2,439
                                               ------------   ------------
      Total assets                             $    503,271   $    491,945
                                               ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $     36,007   $     31,129
  Accrued expenses                                   14,609         13,929
  Accrued compensation and related benefits          20,077         19,248
  Accrued warranty                                    6,071          6,091
  Deferred revenue                                   23,314         18,295
  Deferred tax liability                              9,249         12,649
                                               ------------   ------------
      Total current liabilities                     109,327        101,341
  Accrued warranty, non-current                       5,251          5,049
  Deferred revenue, non-current                       8,327          8,080
  Other long-term liabilities                         8,366          8,968
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 26, 2010 and December 26, 2009
    Issued and outstanding shares -
     99,234 as of June 26, 2010 and
     96,874 as of December 26, 2009                      99             97
  Additional paid-in capital                        780,115        747,580
  Accumulated other comprehensive loss               (1,302)        (1,810)
  Accumulated deficit                              (406,912)      (377,360)
                                               ------------   ------------
  Total stockholders' equity                        372,000        368,507
                                               ------------   ------------
      Total liabilities and stockholders'
       equity                                  $    503,271   $    491,945
                                               ============   ============
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                     Six Months Ended
                                               ---------------------------
                                                 June 26,       June 27,
                                                   2010           2009
                                               ------------   ------------
Cash Flows from Operating Activities:
Net loss                                       $    (29,552)  $    (51,439)
Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
   Depreciation and amortization                      7,719          7,898
   Non-cash restructuring and other costs               100              -
   Net credit impairment losses in earnings               -            933
   Amortization of premium on investments             1,521             95
   Stock-based compensation expense                  25,517         15,648
   Unrealized loss on Put Rights                      1,696          1,549
   Unrealized holding gain for trading
    securities                                       (1,696)        (1,522)
   Non-cash tax benefit                                (364)             -
   Gain on disposal of assets                           (31)           (46)
   Other gain                                           (50)             -
   Changes in assets and liabilities:
     Accounts receivable                             14,791         15,770
     Inventories, net                               (15,034)       (12,563)
     Prepaid expenses and other current assets          515         (1,088)
     Deferred inventory costs                        (2,049)        (1,172)
     Other non-current assets                         3,101            241
     Accounts payable                                 5,037            (81)
     Accrued liabilities and other expenses          (3,161)         2,983
     Deferred revenue                                 5,265            636
     Accrued warranty                                   182            430
                                               ------------   ------------
       Net cash provided by (used in)
        operating activities                         13,507        (21,728)
Cash Flows from Investing Activities:
   Purchase of available-for-sale investments      (120,235)       (83,937)
   Purchase of cost-method investment                (4,500)             -
   Proceeds from maturities and calls of
    investments                                     108,483         38,007
   Proceeds from disposal of assets                     176            103
   Purchase of property and equipment                (9,697)        (8,759)
   Change in restricted cash                             47         (1,168)
                                               ------------   ------------
       Net cash used in investing activities        (25,726)       (55,754)
Cash Flows from Financing Activities:
   Proceeds from issuance of common stock             6,718          4,762
   Repurchase of common stock                            (2)           (15)
   Payments for purchase of assets under
    financing arrangement                              (175)             -
                                               ------------   ------------
       Net cash provided by financing
        activities                                    6,541          4,747
Effect of exchange rate changes on cash                (113)           116
Net change in cash and cash equivalents              (5,791)       (72,619)
Cash and cash equivalents at beginning of
 period                                             109,859        166,770
                                               ------------   ------------
Cash and cash equivalents at end of period     $    104,068   $     94,151
                                               ============   ============
Supplemental disclosures of cash flow
 information:
   Cash paid for income taxes                  $        447   $      1,113
Infinera Corporation
Supplemental Financial Information
(Unaudited)
              Q3'08   Q4'08   Q1'09   Q2'09   Q3'09   Q4'09   Q1'10   Q2'10
              -----   -----   -----   -----   -----   -----   -----  ------
Revenue
 ($ Mil) (1)  $80.9   $86.2   $66.6   $68.9   $83.4   $90.2   $95.8  $111.4
Gross
 Margin % (1)   42%     36%     31%     31%     38%     40%     41%     44%
              -----   -----   -----   -----   -----   -----   -----  ------
Invoiced
 Shipment
 Composition:
Domestic %      81%     73%     74%     64%     63%     74%     79%     81%
Inter-
 national %     19%     27%     26%     36%     37%     26%     21%     19%
Largest
 Customer %     27%     23%     30%     20%     15%     17%     22%     13%
              -----   -----   -----   -----   -----   -----   -----   -----
Cash Related
 Information:
Cash from
 Operations
 ($ Mil)      $ 9.9  ($ 5.4) ($ 2.9) ($18.8) ($ 8.3) ($ 2.7)  $ 2.3   $11.2
Capital
 Expenditures
 ($ Mil)      $ 5.9   $ 7.8   $ 6.0   $ 2.8   $ 2.8   $ 4.4   $ 4.7   $ 5.0
Depreciation
 & Amortiz-
 ation
 ($ Mil)      $ 3.4   $ 4.1   $ 3.9   $ 4.0   $ 4.2   $ 4.5   $ 4.0   $ 3.7
DSO's            55      74      61      72      61      71      56      45
              -----   -----   -----   -----   -----   -----   -----   -----
Inventory
 Metrics:
Raw
 Materials
 ($ Mil)      $10.0   $ 9.1   $ 7.7   $10.1   $ 7.4   $ 6.9   $ 7.5   $ 9.1
Work in
 Process
 ($ Mil)      $35.8   $37.9   $43.2   $40.1   $36.2   $32.1   $31.5   $29.2
Finished
 Goods
 ($ Mil)      $12.8   $12.0   $13.6   $22.3   $29.3   $29.9   $33.0   $45.9
              -----   -----   -----   -----   -----   -----   -----   -----
Total
 Inventory
 ($ Mil)      $58.6   $59.0   $64.5   $72.5   $72.9   $68.9   $72.0   $84.2
Inventory
 Turns (1)      3.2     3.8     2.8     2.6     3.0     3.2     3.2     3.0
              -----   -----   -----   -----   -----   -----   -----   -----
Worldwide
 Headcount      889     937     962     973     970     974     999   1,028
              -----   -----   -----   -----   -----   -----   -----   -----
(1) Periods Q3'08 and Q4'08 reflect Adjusted GAAP results and non-GAAP
    adjustments. Periods Q1'09 and going forward reflect non-GAAP results.
    Adjusted GAAP results reflect our GAAP results reduced for amounts
    released from deferred revenue and deferred cost of inventory balances
    recorded prior to the second quarter of 2008 and previously reported
    in our invoiced shipment results. Non-GAAP adjustments include
    restructuring and other related costs and non-cash stock-based
    compensation.

Contacts:

Press:
Jeff Ferry
jferry@infinera.com
Infinera Corporation
408-572-5213

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

SOURCE: Infinera



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