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Press Release -- October 18th, 2011
Source: Infinera
Tags: Earnings, Equipment, Exchange

Infinera Corporation Reports Third Quarter 2011 Financial Results

Sunnyvale, CA, October 18, 2011 – Infinera Corporation (NASDAQ:INFN, news, filings), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 24, 2011.

GAAP revenues for the third quarter of 2011 were $104.0 million compared to $96.0 million in the second quarter of 2011 and $130.1 million in the third quarter of 2010.

GAAP gross margin for the third quarter of 2011 was 39% compared to 39% in the second quarter of 2011 and 50% in the third quarter of 2010.  GAAP net loss for the quarter was $21.8 million, or $(0.21) per share, compared to net loss of $24.2 million, or $(0.23) per share, in the second quarter of 2011 and net income of $4.4 million, or $0.04 per diluted share, in the third quarter of 2010.

Non-GAAP gross margin for the third quarter of 2011 was 41% compared to 41% in the second quarter of 2011 and 51% in the third quarter of 2010, excluding restructuring and other related costs and non-cash stock-based compensation expenses.  Non-GAAP net loss for the third quarter of 2011 was $9.2 million, or $(0.09) per share, compared to net loss of $11.7 million, or $(0.11) per share, in the second quarter of 2011 and net income of $18.7 million, or $0.18 per diluted share, in the third quarter of 2010.

Management Commentary

“We remain encouraged by our recent revenue performance and the momentum in booking activity as customers continue to address their increased bandwidth needs with Infinera-based networks,” said Tom Fallon, president and chief executive officer. “Several factors are contributing to these trends-- our significant installed base, the broader application of our product line, our expanded sales force and a stronger focus at Infinera on key vertical markets and across geographies.”

Fallon noted that the company’s top customer for the third quarter was one of North America’s leading cable companies and that the company’s pipeline remains active with opportunities in the submarine space and with wholesale carriers in North America and Europe. One of the company’s Tier 1 customers was among its top five customers in Q3.

“We were also pleased with the recent launch of the DTN-X, our new multi-terabit packet optical network  platform based on our third generation 500 Gb/s PICs, a pair of chips that integrate more than 600 optical functions and will deliver the world’s first 500 Gb/s FlexCoherent super-channels,” said Fallon. “Customer response to the value proposition of the DTN-X—as well to the newly enhanced features of the DTN—has been very positive. The DTN-X reinforces Infinera’s position at the forefront of the innovation curve in the optical transport industry at a time when the industry requires the next step function in capability.”

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results and fourth 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 1-800-813-5525.  International parties can access the replay at 1-203-369-3346.


About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide.  Infinera’s systems are unique in their use of a breakthrough semiconductor technology: the photonic integrated circuit (PIC). Infinera’s systems and PIC technology are designed to provide customers with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding the key factors driving our revenue performance and bookings momentum; our sales pipeline and potential sales opportunities; and expectations for the continued success of our DTN-X product. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include 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 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 third quarter results, including an estimate of non-GAAP earnings for the fourth 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
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                            Three Months Ended         Nine Months Ended
                         ------------------------  ------------------------
                          September    September    September    September
                             24,          25,          24,          25,
                             2011         2010         2011         2010
                         -----------  -----------  -----------  -----------
Revenue:
 Product                 $    89,554  $   115,121  $   256,443  $   299,323
 Ratable product and
  related support and
  services                       847        1,460        2,583        4,738
 Services                     13,621       13,480       33,842       33,158
                         -----------  -----------  -----------  -----------
  Total revenue              104,022      130,061      292,868      337,219

Cost of revenue (1):
 Cost of product              57,449       58,552      158,607      171,660
 Cost of ratable product
  and related support
  and services                   167          874          846        2,558
 Cost of services              5,757        6,223       12,608       14,285
 Restructuring credit
  related to cost of
  revenue                          -          (60)           -         (182)
                         -----------  -----------  -----------  -----------
  Total cost of revenue       63,373       65,589      172,061      188,321

Gross profit                  40,649       64,472      120,807      148,898

Operating expenses (1):
 Research and
  development                 31,694       29,886       95,902       87,292
 Sales and marketing          17,545       14,847       46,437       41,566
 General and
  administrative              13,112       15,609       40,256       45,794
 Restructuring and other
  costs                            -            -            -          159
                         -----------  -----------  -----------  -----------
  Total operating
   expenses                   62,351       60,342      182,595      174,811

Income (loss) from
 operations                  (21,702)       4,130      (61,788)     (25,913)

Other income (expense),
 net:
 Interest income                 205          283          742        1,093
 Other gain (loss), net          188          172         (203)        (352)
                         -----------  -----------  -----------  -----------
  Total other income
   (expense), net                393          455          539          741

Income (loss) before
 provision of income
 taxes                       (21,309)       4,585      (61,249)     (25,172)
Provision for income
 taxes                           497          225        1,145           20
                         -----------  -----------  -----------  -----------
Net income (loss)        $   (21,806) $     4,360  $   (62,394) $   (25,192)
                         ===========  ===========  ===========  ===========

Net income (loss) per
 common share
 Basic                   $     (0.21) $      0.04  $     (0.59) $     (0.26)
                         ===========  ===========  ===========  ===========
 Diluted                 $     (0.21) $      0.04  $     (0.59) $     (0.26)
                         ===========  ===========  ===========  ===========

Weighted average shares
 used in computing net
 income (loss) per
 common share
 Basic                       106,264       99,976      104,936       98,647
                         ===========  ===========  ===========  ===========
 Diluted                     106,264      105,159      104,936       98,647
                         ===========  ===========  ===========  ===========

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

(1) The following table summarizes the effects of stock-based compensation
 related to employees and non-employees for the three and nine months ended
 September 24, 2011 and September 25, 2010:
 
                          Three Months Ended          Nine Months Ended
                     --------------------------- ---------------------------
                     September 24, September 25, September 24, September 25,
                          2011          2010          2011          2010
                     ------------- ------------- ------------- -------------
Cost of revenue      $         722 $         725 $       2,213 $       1,858
Research and
 development                 3,745         3,773        11,075        10,546
Sales and marketing          2,216         2,148         6,501         6,187
General and
 administration              4,410         6,281        14,021        17,188
                     ------------- ------------- ------------- -------------
                            11,093        12,927        33,810        35,779
Cost of revenue -
 amortization from
 balance sheet*              1,487         1,517         3,617         4,182
                     ------------- ------------- ------------- -------------
Total stock-based
 compensation
 expense             $      12,580 $      14,444 $      37,427 $      39,961
                     ============= ============= ============= =============

* 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          Nine Months Ended
                      -------------------------------  --------------------
                      September             September  September  September
                         24,      June 25,     25,        24,        25,
                         2011       2011       2010       2011       2010
                      ---------  ---------  ---------  ---------  ---------
Reconciliation of
 Gross Profit:
U.S. GAAP as reported $  40,649  $  37,414  $  64,471  $ 120,807  $ 148,898
Restructuring and
 other related
 credit(1)                    -          -        (60)         -       (182)
Stock-based
 compensation(2)          2,209      1,925      2,242      5,830      6,040
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $  42,858  $  39,339  $  66,653  $ 126,637  $ 154,756
                      =========  =========  =========  =========  =========

Reconciliation of
 Gross Margin:
U.S. GAAP as reported        39%        39%        50%        41%        44%
Restructuring and
 other related
 credit(1)                    -%         -%         -%         -%         -%
Stock-based
 compensation(2)              2%         2%         1%         2%         2%
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted         41%        41%        51%        43%        46%
                      =========  =========  =========  =========  =========

Reconciliation of
 Income (Loss) from
 Operations:
U.S. GAAP as reported $ (21,702) $ (24,077) $   4,130  $ (61,788) $ (25,913)
Restructuring and
 other related costs
 (credit)(1)                  -          -        (60)         -        (23)
Stock-based
 compensation(2)         12,580     12,482     14,444     37,427     39,961
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $  (9,122) $ (11,595) $  18,514  $ (24,361) $  14,025
                      =========  =========  =========  =========  =========

Reconciliation of Net
 Income (Loss):
U.S. GAAP as reported $ (21,806) $ (24,194) $   4,360  $ (62,394) $ (25,192)
Restructuring and
 other related costs
 (credit)(1)                  -          -        (60)         -        (23)
Stock-based
 compensation(2)         12,580     12,482     14,444     37,427     39,961
                      ---------  ---------  ---------  ---------  ---------
Non-GAAP as adjusted  $  (9,226) $ (11,712) $  18,744  $ (24,967) $  14,746
                      =========  =========  =========  =========  =========

Net Income (Loss) per
 Common Share -
 Basic:
U.S. GAAP             $   (0.21) $   (0.23) $    0.04  $   (0.59) $   (0.26)
                      =========  =========  =========  =========  =========
Non-GAAP              $   (0.09) $   (0.11) $    0.19  $   (0.24) $    0.15
                      =========  =========  =========  =========  =========

Net Income (Loss) per
 Common Share -
 Diluted:
U.S. GAAP             $   (0.21) $   (0.23) $    0.04  $   (0.59) $   (0.26)
                      =========  =========  =========  =========  =========
Non-GAAP              $   (0.09) $   (0.11) $    0.18  $   (0.24) $    0.14
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net income
 (loss) per common
 share - U.S. GAAP:
Basic                   106,264    105,165     99,976    104,936     98,647
                      =========  =========  =========  =========  =========
Diluted                 106,264    105,165    105,159    104,936     98,647
                      =========  =========  =========  =========  =========

Weighted average
 shares used in
 computing net income
 (loss) per common
 share - Non-GAAP:
Basic                   106,264    105,165     99,976    104,936     98,647
                      =========  =========  =========  =========  =========
Diluted                 106,264    105,165    105,159    104,936    103,389
                      =========  =========  =========  =========  =========

(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           Nine Months Ended
                   ---------------------------  ---------------------------
                        September 25, 2010           September 25, 2010
                   ---------------------------  ---------------------------
                    Cost of  Operating           Cost of  Operating
                    Revenue   Expenses  Total    Revenue   Expenses  Total
                   --------  --------- -------  --------  --------- -------
Severance and
 related expenses
 (credits)         $      -  $       - $     -  $   (144) $      55 $   (89)
Equipment and
 facility-related
 costs (credits)        (60)         -     (60)      (38)         -     (38)
Lease termination         -          -       -         -        104     104
                   --------  --------- -------  --------  --------- -------
Total              $    (60) $       - $   (60) $   (182) $     159 $   (23)
                   ========  ========= =======  ========  ========= =======

(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          Nine Months Ended
                      -------------------------------- ---------------------
                       September             September  September  September
                          24,     June 25,      25,        24,        25,
                         2011       2011       2010       2011       2010
                      ---------- ---------- ---------- ---------- ----------
Cost of revenue       $      722 $      760 $      725 $    2,213 $    1,858
Research and
 development               3,745      3,504      3,773     11,075     10,546
Sales and marketing        2,216      2,225      2,148      6,501      6,187
General and
 administration            4,410      4,828      6,281     14,021     17,188
                      ---------- ---------- ---------- ---------- ----------
                          11,093     11,317     12,927     33,810     35,779
Cost of revenue -
 amortization from
 balance sheet*            1,487      1,165      1,517      3,617      4,182
                      ---------- ---------- ---------- ---------- ----------
Total stock-based
 compensation expense $   12,580 $   12,482 $   14,444 $   37,427 $   39,961
                      ========== ========== ========== ========== ==========

* 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)

                                               September 24,   December 25,
                                                    2011           2010
                                               -------------  -------------
ASSETS

Current assets:
  Cash and cash equivalents                    $     112,641  $     113,649
  Short-term investments                             132,616        168,013
  Short-term restricted cash                             157          1,856
  Accounts receivable                                 68,954         75,931
  Other receivables                                    1,259          4,420
  Inventories, net                                    70,295         81,893
  Deferred inventory costs                             6,468          6,715
  Prepaid expenses and other current assets           15,699          9,118
                                               -------------  -------------
    Total current assets                             408,089        461,595

Property, plant and equipment, net                    63,703         51,740
Deferred inventory costs, non-current                  2,023          2,512
Long-term investments                                 27,524          9,953
Cost-method investment                                 9,000          4,500
Long-term restricted cash                              2,637          2,235
Deferred tax asset                                     3,182         11,882
Other non-current assets                               3,429          7,108
                                               -------------  -------------
    Total assets                               $     519,587  $     551,525
                                               =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                             $      37,636  $      35,658
  Accrued expenses                                    23,373         19,790
  Accrued compensation and related benefits           14,923         25,098
  Accrued warranty                                     5,054          5,696
  Deferred revenue                                    19,927         21,958
  Deferred tax liability                               3,182         11,882
                                               -------------  -------------
    Total current liabilities                        104,095        120,082

  Accrued warranty, non-current                        6,050          5,726
  Deferred revenue, non-current                        3,206          4,633
  Other long-term liabilities                         11,607         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 September
   24, 2011 and December 25, 2010
  Issued and outstanding shares - 106,747 as
   of September 24, 2011 and 102,492 as of
   December 25, 2010                                     107            102
  Additional paid-in capital                         863,805        817,200
  Accumulated other comprehensive loss                (1,597)        (1,261)
  Accumulated deficit                               (467,686)      (405,292)
                                               -------------  -------------
  Total stockholders' equity                         394,629        410,749
                                               -------------  -------------
    Total liabilities and stockholders' equity $     519,587  $     551,525
                                               =============  =============
 
Infinera Corporation
Condensed Consolidated Statements of Cash
 Flows
(In thousands)
(Unaudited)

                                                     Nine Months Ended
                                               ----------------------------
                                               September 24,  September 25,
                                                    2011           2010
                                               -------------  -------------
Cash Flows from Operating Activities:
Net loss                                       $     (62,394) $     (25,192)
Adjustments to reconcile net loss to net cash
 provided by operating activities:
  Depreciation and amortization                       13,355         11,594
  Provision for other receivables                        563              -
  Non-cash restructuring and other costs                   -            100
  Amortization of premium on investments               3,290          2,753
  Stock-based compensation expense                    37,427         39,961
  Unrealized loss on Put Rights                            -          1,696
  Unrealized holding gain for trading
   securities                                              -         (1,696)
  Non-cash tax benefit                                  (130)          (411)
  Other gain                                            (337)          (210)
  Changes in assets and liabilities:
    Accounts receivable                                6,976          5,425
    Other receivables                                  3,622           (430)
    Inventories, net                                  12,333        (19,787)
    Prepaid expenses and other assets                  5,471          4,932
    Deferred inventory costs                             549            114
    Accounts payable                                  (2,888)        15,024
    Accrued liabilities and other expenses           (10,946)        (6,856)
    Deferred revenue                                  (3,459)        (3,275)
    Accrued warranty                                    (316)          (215)
                                               -------------  -------------
      Net cash provided by operating
       activities                                      3,116         23,527

Cash Flows from Investing Activities:
  Purchase of available-for-sale investments        (206,829)      (212,307)
  Purchase of cost-method investment                  (4,500)        (4,500)
  Proceeds from sale of available-for-sale
   investments                                         3,035              -
  Proceeds from maturities and calls of
   investments                                       218,798        184,662
  Proceeds from disposal of assets                       262            284
  Purchase of property and equipment                 (23,236)       (15,639)
  Advance to secure manufacturing capacity            (1,500)             -
  Reimbursement of manufacturing capacity
   advance                                               375              -
  Change in restricted cash                            1,262            (61)
                                               -------------  -------------
    Net cash used in investing activities            (12,333)       (47,561)

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock               9,964         12,341
  Repurchase of common stock                          (1,239)           (14)
  Payments for purchase of assets under
   financing arrangement                                (262)          (262)
                                               -------------  -------------
    Net cash provided by financing activities          8,463         12,065

Effect of exchange rate changes on cash                 (254)            86

Net change in cash and cash equivalents               (1,008)       (11,883)
Cash and cash equivalents at beginning of
 period                                              113,649        109,859
                                               -------------  -------------
Cash and cash equivalents at end of period     $     112,641  $      97,976
                                               =============  =============

Supplemental disclosures of cash flow
 information:
  Cash paid for income taxes                   $         852  $         882
 
Infinera Corporation
Supplemental Financial Information
(Unaudited)

----------------------------------------------------------------------------
                      Q4'09  Q1'10  Q2'10  Q3'10  Q4'10  Q1'11  Q2'11  Q3'11
----------------------------------------------------------------------------
Revenue ($ Mil)       $90.2  $95.8 $111.4 $130.1 $117.1  $92.9  $96.0 $104.0
Gross Margin % (1)     40%    41%    44%    51%    51%    48%    41%    41%
----------------------------------------------------------------------------
Invoiced Shipment
 Composition:
Domestic %             74%    79%    81%    73%    70%    74%    72%    65%
International %        26%    21%    19%    27%    30%    26%    28%    35%
Largest Customer %     17%    22%    13%    19%    10%    14%    10%  < 10%
----------------------------------------------------------------------------
Cash Related
 Information:
Cash from Operations
 ($ Mil)             ($2.7)  $2.3   $11.2  $10.0  $7.0  ($0.9) ($0.1)  $4.1
Capital Expenditures
 ($ Mil)              $4.4   $4.7   $5.0   $5.9   $5.0   $10.6  $6.7   $5.9
Depreciation &
 Amortization ($
 Mil)                 $4.5   $4.0   $3.7   $3.9   $4.0   $4.2   $4.2   $4.9
DSO's                  71     56     45     45     59     60     70     60
----------------------------------------------------------------------------
Inventory Metrics:
Raw Materials ($
 Mil)                 $6.9   $7.5   $9.1   $11.0  $23.1  $20.1  $7.3   $7.0
Work in Process ($
 Mil)                 $32.1  $31.5  $29.2  $36.5  $14.8  $17.2  $27.7  $26.9
Finished Goods ($
 Mil)                 $29.9  $33.0  $45.9  $41.2  $44.0  $41.0  $34.4  $36.4
----------------------------------------------------------------------------
Total Inventory ($
 Mil)                 $68.9  $72.0  $84.2  $88.7  $81.9  $78.3  $69.4  $70.3
Inventory Turns (1)    3.2    3.2    3.0    2.9    2.8    2.5    3.3    3.5
----------------------------------------------------------------------------
Worldwide Headcount    974    999   1,028  1,040  1,072  1,118  1,136  1,151
----------------------------------------------------------------------------

(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:
Bob Blair
bblair@infinera.com
Infinera Corporation
408-716-4879

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