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Press Release -- July 19th, 2011
Source: Infinera
Tags: 100G, 40G, Earnings, Equipment, Exchange

Infinera Corporation Reports Second Quarter 2011 Financial Results

SUNNYVALE, CA, Jul 19, 2011 (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 25, 2011.

--  GAAP revenues for the second quarter of 2011 were $96.0 million
    compared to $92.9 million in the first quarter of 2011 and $111.4
    million in the second quarter of 2010.

--  GAAP gross margin for the quarter was 39% compared to 46% in the first
    quarter of 2011 and 42% in the second quarter of 2010. GAAP net loss
    for the quarter was $24.2 million, or $(0.23) per share, compared to
    net loss of $16.4 million, or $(0.16) per share, in the first quarter
    of 2011 and net loss of $9.6 million, or $(0.10) per share, in the
    second quarter of 2010.

--  Non-GAAP gross margin for the second quarter of 2011 was 41% compared
    to 48% in the first quarter of 2011 and 44% in the second quarter of
    2010, excluding restructuring and other related costs and non-cash
    stock-based compensation expenses. Non-GAAP net loss for the second
    quarter of 2011 was $11.7 million, or $(0.11) per share, compared to
    net loss of $4.0 million, or $(0.04) per share, in the first quarter
    of 2011 and net income of $3.0 million, or $0.03 per diluted share, in
    the second quarter of 2010.

Management Commentary

"We are encouraged by our second quarter performance, including an improvement in bookings momentum," said Tom Fallon, president and chief executive officer. "We saw a continuation of healthy tributary adapter module purchases by a broad base of customers looking to meet their current bandwidth growth needs. The MSO space -- which we placed a strategic focus on several years ago -- was especially strong with two customers from that category in our top 5 customer count. In addition, we saw growth in new optical capacity deployments by our customers, establishing a base for future TAM purchases.

"On the new product front, we made excellent progress in the development of our next-generation 500Gbs/s PIC solution which will support 100G transmissions and on our 40G product with FlexCoherent technology. During this period of significant product development investment and transition to new products, we remain focused on delivering on our PIC-based digital optical strategy and product roadmap in order to generate the revenue growth necessary to achieve our long-term business model objectives."

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 1-800-262-4947. International parties can access the replay at 1-402-220-9707.

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 future TAM purchases, prospects for our next-generation 500Gbs/s PIC solution, and our ability to generate the revenue growth necessary to achieve our long-term business model objectives. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs and develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; our ability to operate profitably; aggressive business tactics by our competitors; our reliance on single-source suppliers; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; and general political, economic and market conditions and events. Further information about these risks and uncertainties, and other risks and uncertainties that affect our business, are contained in the risk factors section and other sections of our annual report on Form 10-K filed with the Securities Exchange Commission on March 1, 2011, as well 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 2011 that excludes non-cash stock-based compensation expenses.

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

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

---------------------------------------------------------------------------
Infinera Corporation
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                  Three Months Ended     Six Months Ended
                                 --------------------  --------------------
                                  June 25,   June 26,   June 25,   June 26,
                                    2011       2010       2011       2010
                                 --------------------  --------------------
                                                                          Revenue:
  Product                        $  84,361  $  98,035  $ 166,889  $ 184,202
  Ratable product and related
   support and services                814      1,664      1,736      3,278
  Services                          10,781     11,699     20,221     19,678
                                 ---------  ---------  ---------  ---------
    Total revenue                   95,956    111,398    188,846    207,158

Cost of revenue (1):
  Cost of product                   54,540     57,668    101,158    113,108
  Cost of ratable product and
   related support and services        294        929        679      1,684
  Cost of services                   3,708      5,520      6,851      8,062
  Restructuring credit related
   to cost of revenue                    -        (29)         -       (122)
                                 ---------  ---------  ---------  ---------
    Total cost of revenue           58,542     64,088    108,688    122,732

Gross profit                        37,414     47,310     80,158     84,426

Operating expenses (1):
  Research and development          32,899     28,923     64,208     57,406
  Sales and marketing               14,957     13,682     28,892     26,719
  General and administrative        13,635     14,448     27,144     30,185
  Restructuring and other costs
   (credit)                              -         (2)         -        159
                                 ---------  ---------  ---------  ---------
    Total operating expenses        61,491     57,051    120,244    114,469

Loss from operations               (24,077)    (9,741)   (40,086)   (30,043)

Other income (expense), net:
  Interest income                      225        325        537        810
  Other gain (loss), net                20       (208)      (391)      (524)
                                 ---------  ---------  ---------  ---------
    Total other income
     (expense), net                    245        117        146        286

Loss before provision of income
 taxes                             (23,832)    (9,624)   (39,940)   (29,757)
Provision for (benefit from)
 income taxes                          362        (63)       648       (205)
                                 ---------  ---------  ---------  ---------
Net loss                         $ (24,194) $  (9,561) $ (40,588) $ (29,552)
                                 =========  =========  =========  =========

Net loss per common share, basic
 and diluted                     $   (0.23) $   (0.10) $   (0.39) $   (0.30)
                                 =========  =========  =========  =========

Weighted average shares used in
 computing basic and diluted net
 loss per common share             105,165     98,777    104,272     98,026
                                 =========  =========  =========  =========

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

(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 25, 2011 and June 26, 2010:

                                  Three Months Ended     Six Months Ended
                                 --------------------  --------------------
                                  June 25,   June 26,   June 25,   June 26,
                                    2011       2010       2011       2010
                                 --------------------  --------------------
Cost of revenue                  $     760  $     564  $   1,491  $   1,133
Research and development             3,504      3,350      7,330      6,773
Sales and marketing                  2,225      2,192      4,285      4,039
General and administration           4,828      5,198      9,611     10,907
                                 ---------  ---------  ---------  ---------
                                    11,317     11,304     22,717     22,852
Cost of revenue - amortization
 from balance sheet*                 1,165      1,303      2,130      2,665
                                 ---------  ---------  ---------  ---------
Total stock-based compensation
 expense                         $  12,482  $  12,607  $  24,847  $  25,517
                                 =========  =========  =========  =========

* 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 25,  March 26,   June 26,   June 25,   June 26,
                         2011       2011       2010       2011       2010
                      ---------  ---------  ---------  ---------  ---------
Reconciliation of
 Gross Profit:
U.S. GAAP as reported $  37,414  $  42,744  $  47,310  $  80,158  $  84,426
Restructuring and
 other related
 credit(1)                    -          -        (29)         -       (122)
Stock-based
 compensation(2)          1,925      1,696      1,867      3,621      3,798
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $  39,339  $  44,440  $  49,148  $  83,779  $  88,102
                      =========  =========  =========  =========  =========

Reconciliation of
 Gross Margin:
U.S. GAAP as reported        39%        46%        42%        42%        41%
Restructuring and
 other related
 credit(1)                    -%         -%         -%         -%         -%
Stock-based
 compensation(2)              2%         2%         2%         2%         2%
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted         41%        48%        44%        44%        43%
                      =========  =========  =========  =========  =========

Reconciliation of
 Income (Loss)
from Operations:
U.S. GAAP as reported $ (24,077) $ (16,009) $  (9,741) $ (40,086) $ (30,043)
Restructuring and
 other related costs
 (credit)(1)                  -          -        (31)         -         37
Stock-based
 compensation(2)         12,482     12,365     12,607     24,847     25,517
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $ (11,595) $  (3,644) $   2,835  $ (15,239) $  (4,489)
                      =========  =========  =========  =========  =========

Reconciliation of Net
 Income (Loss):
U.S. GAAP as reported $ (24,194) $ (16,394) $  (9,561) $ (40,588) $ (29,552)
Restructuring and
 other related costs
 (credit)(1)                  -          -        (31)         -         37
Stock-based
 compensation(2)         12,482     12,365     12,607     24,847     25,517
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $ (11,712) $  (4,029) $   3,015  $ (15,741) $  (3,998)
                      =========  =========  =========  =========  =========

Net Income (Loss) per
 Common
Share - Basic:
U.S. GAAP             $   (0.23) $   (0.16) $   (0.10) $   (0.39) $   (0.30)
                      =========  =========  =========  =========  =========
Non-GAAP              $   (0.11) $   (0.04) $    0.03  $   (0.15) $   (0.04)
                      =========  =========  =========  =========  =========

Net Income (Loss) per
 Common
Share - Diluted:
U.S. GAAP             $   (0.23) $   (0.16) $   (0.10) $   (0.39) $   (0.30)
                      =========  =========  =========  =========  =========
Non-GAAP              $   (0.11) $   (0.04) $    0.03  $   (0.15) $   (0.04)
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net income
 (loss) per common
 share - U.S. GAAP:
Basic                   105,165    103,426     98,777    104,272     98,026
                      =========  =========  =========  =========  =========
Diluted                 105,165    103,426     98,777    104,272     98,026
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net income
 (loss) per common
 share - Non-GAAP:
Basic                   105,165    103,426     98,777    104,272     98,026
                      =========  =========  =========  =========  =========
Diluted                 105,165    103,426    103,945    104,272     98,026
                      =========  =========  =========  =========  =========

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

                    Three Months Ended               Six Months Ended
              ------------------------------  -----------------------------
                       June 26, 2010                  June 26, 2010
              ------------------------------  -----------------------------
               Cost of  Operating              Cost of  Operating
               Revenue   Expenses    Total     Revenue   Expenses    Total
              --------  ---------  ---------  --------  ---------  --------
Severance and
 related
 expenses
 (credits)    $   (129) $       -  $    (129) $   (144) $      55  $    (89)
Equipment and
 facility-
 related
 costs
 (credits)         100          -        100        22          -        22
Lease
 termination         -         (2)        (2)        -        104       104
              --------  ---------  ---------  --------  ---------  --------
Total         $    (29) $      (2) $     (31) $   (122) $     159  $     37
              ========  =========  =========  ========  =========  ========

(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 25,  March 26,  June 26,   June 25,  June 26,
                           2011       2011      2010       2011      2010
                        ---------  ---------  --------  ---------  --------
Cost of
 revenue                $     760  $     731  $    564  $   1,491  $  1,133
Research and
 development                3,504      3,826     3,350      7,330     6,773
Sales and
 marketing                  2,225      2,060     2,192      4,285     4,039
General and
 administrati
 on                         4,828      4,783     5,198      9,611    10,907
                        ---------  ---------  --------  ---------  --------
                           11,317     11,400    11,304     22,717    22,852
Cost of revenue -
 amortization from
 balance sheet*             1,165        965     1,303      2,130     2,665
                        ---------  ---------  --------  ---------  --------
Total stock-
 based
 compensation
 expense                $  12,482  $  12,365  $ 12,607  $  24,847  $ 25,517
                        =========  =========  ========  =========  ========

* 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 25,     December 25,
                                                   2011           2010
                                               ------------ ---------------
ASSETS

Current assets:
  Cash and cash equivalents                    $    100,926 $       113,649
  Short-term investments                            167,667         168,013
  Short-term restricted cash                            157           1,856
  Accounts receivable                                73,684          75,931
  Other receivables                                   1,739           4,420
  Inventories, net                                   69,377          81,893
  Deferred inventory costs                            6,540           6,715
  Prepaid expenses and other current assets          14,451           9,118
                                               ------------ ---------------
      Total current assets                          434,541         461,595

Property, plant and equipment, net                   58,298          51,740
Deferred inventory costs, non-current                 3,165           2,512
Long-term investments                                 7,903           9,953
Cost-method investment                                4,500           4,500
Long-term restricted cash                             2,361           2,235
Deferred tax asset                                    6,082          11,882
Other non-current assets                              8,049           7,108
                                               ------------ ---------------
      Total assets                             $    524,899 $       551,525
                                               ============ ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                             $     28,645 $        35,658
  Accrued expenses                                   24,518          19,790
  Accrued compensation and related benefits          18,054          25,098
  Accrued warranty                                    5,049           5,696
  Deferred revenue                                   22,444          21,958
  Deferred tax liability                              6,082          11,882
                                               ------------ ---------------
      Total current liabilities                     104,792         120,082

  Accrued warranty, non-current                       5,645           5,726
  Deferred revenue, non-current                       3,454           4,633
  Other long-term liabilities                        10,659          10,335

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $0.001 par value
    Authorized shares - 25,000 and no shares
     issued and outstanding                               -               -
  Common stock, $0.001 par value
    Authorized shares - 500,000 as of June 25,
     2011 and December 25, 2010
    Issued and outstanding shares - 105,702 as
     of June 25, 2011 and 102,492 as of
     December 25, 2010                                  106             102
  Additional paid-in capital                        847,051         817,200
  Accumulated other comprehensive loss                 (928)         (1,261)
  Accumulated deficit                              (445,880)       (405,292)
                                               ------------ ---------------
  Total stockholders' equity                        400,349         410,749
                                               ------------ ---------------
      Total liabilities and stockholders'
       equity                                  $    524,899 $       551,525
                                               ============ ===============

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

                                                       Six Months Ended
                                                   ------------------------
                                                     June 25,     June 26,
                                                       2011         2010
                                                   -----------  -----------

Cash Flows from Operating Activities:
Net loss                                           $   (40,588) $   (29,552)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
  Depreciation and amortization                          8,434        7,719
  Non-cash restructuring and other costs                     -          100
  Amortization of premium on investments                 2,218        1,521
  Stock-based compensation expense                      24,847       25,517
  Unrealized loss on Put Rights                              -        1,696
  Unrealized holding gain for trading securities             -       (1,696)
  Non-cash tax benefit                                    (121)        (364)
  Other gain                                              (293)         (81)
  Changes in assets and liabilities:
    Accounts receivable                                  6,077       14,791
    Inventories, net                                    13,269      (15,034)
    Prepaid expenses and other assets                     (536)       3,616
    Deferred inventory costs                              (604)      (2,049)
    Accounts payable                                    (7,772)       5,037
    Accrued liabilities and other expenses              (4,500)      (3,161)
    Deferred revenue                                      (693)       5,265
    Accrued warranty                                      (727)         182
                                                   -----------  -----------
      Net cash provided by (used in) operating
       activities                                         (989)      13,507

Cash Flows from Investing Activities:
  Purchase of available-for-sale investments          (153,034)    (120,235)
  Purchase of cost-method investment                         -       (4,500)
  Proceeds from sale of available-for-sale
   investments                                           3,035            -
  Proceeds from maturities and calls of
   investments                                         150,511      108,483
  Proceeds from disposal of assets                         262          176
  Purchase of property and equipment                   (17,322)      (9,697)
  Advance to secure manufacturing capacity              (1,500)           -
  Reimbursement of manufacturing capacity advance          225            -
  Change in restricted cash                              1,573           47
                                                   -----------  -----------
      Net cash used in investing activities            (16,250)     (25,726)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock                 5,712        6,718
  Repurchase of common stock                            (1,200)          (2)
  Payments for purchase of assets under financing
   arrangement                                            (174)        (175)
                                                   -----------  -----------
      Net cash provided by financing activities          4,338        6,541

Effect of exchange rate changes on cash                    178         (113)

Net change in cash and cash equivalents                (12,723)      (5,791)
Cash and cash equivalents at beginning of period       113,649      109,859
                                                   -----------  -----------
Cash and cash equivalents at end of period         $   100,926  $   104,068
                                                   ===========  ===========

Supplemental disclosures of cash flow information:
  Cash paid for income taxes                       $       565  $       447

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

----------------------------------------------------------------------------
                     Q3'09  Q4'09  Q1'10  Q2'10  Q3'10  Q4'10  Q1'11  Q2'11
----------------------------------------------------------------------------
Revenue ($ Mil)      $83.4  $90.2  $95.8  $111.4 $130.1 $117.1 $92.9  $96.0
Gross Margin % (1)    38%    40%    41%    44%    51%    51%    48%    41%
----------------------------------------------------------------------------
Invoiced Shipment
 Composition:
Domestic %            63%    74%    79%    81%    73%    70%    74%    72%
International %       37%    26%    21%    19%    27%    30%    26%    28%
Largest Customer %    15%    17%    22%    13%    19%    10%    14%    10%
----------------------------------------------------------------------------
Cash Related
 Information:
Cash from Operations
 ($ Mil)             ($8.3) ($2.7)  $2.3  $11.2  $10.0   $7.0  ($0.9) ($0.1)
Capital Expenditures
 ($ Mil)              $2.8   $4.4   $4.7   $5.0   $5.9   $5.0  $10.6   $6.7
Depreciation &
 Amortization ($
 Mil)                 $4.2   $4.5   $4.0   $3.7   $3.9   $4.0   $4.2   $4.2
DSO's                  61     71     56     45     45     59     60     70
----------------------------------------------------------------------------
Inventory Metrics:
Raw Materials ($
 Mil)                 $7.4   $6.9   $7.5   $9.1  $11.0  $23.1  $20.1   $7.3
Work in Process ($
 Mil)                $36.2  $32.1  $31.5  $29.2  $36.5  $14.8  $17.2  $27.7
Finished Goods ($
 Mil)                $29.3  $29.9  $33.0  $45.9  $41.2  $44.0  $41.0  $34.4
----------------------------------------------------------------------------
Total Inventory ($
 Mil)                $72.9  $68.9  $72.0  $84.2  $88.7  $81.9  $78.3  $69.4
Inventory Turns (1)   3.0    3.2    3.2    3.0    2.9    2.8    2.5    3.3
----------------------------------------------------------------------------
Worldwide Headcount   970    974    999   1,028  1,040  1,072  1,118  1,136
----------------------------------------------------------------------------

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

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

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

SOURCE: Infinera

mailto:avue@infinera.com
mailto:bblair@infinera.com

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