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Press Release -- April 21st, 2015
Source: Infinera
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Infinera Corporation Reports First Quarter 2015 Financial Results

SUNNYVALE, CA -- (Marketwired) -- 04/21/15 -- Infinera Corporation (NASDAQ:INFN, news, filings), provider of Intelligent Transport Networks, today released financial results for the first quarter of 2015 ended March 28, 2015.

Revenue for the quarter was $186.9 million compared to $186.3 million in the fourth quarter of 2014 and $142.8 million in the first quarter of 2014.

GAAP gross margin for the quarter was 47.2% compared to 45.3% in the fourth quarter of 2014 and 40.9% in the first quarter of 2014. GAAP operating margin for the quarter was 8.1% compared to an operating margin of 6.9% in the fourth quarter of 2014 and an operating loss of 0.7% in the first quarter of 2014.

GAAP net income for the quarter was $12.4 million, or $0.09 per diluted share, compared to net income of $8.4 million, or $0.06 per diluted share, in the fourth quarter of 2014, and a net loss of $4.4 million, or $0.04 per share, in the first quarter of 2014.

Non-GAAP gross margin for the quarter was 47.8% compared to 46.1% in the fourth quarter of 2014 and 41.8% in the first quarter of 2014. Non-GAAP operating margin for the quarter was 12.2% compared to 11.0% in the fourth quarter of 2014 and 3.9% in the first quarter of 2014.

Non-GAAP net income for the quarter was $22.1 million, or $0.16 per diluted share, compared to $18.0 million, or $0.13 per diluted share, in the fourth quarter of 2014, and $4.2 million, or $0.03 per diluted share, in the first quarter of 2014.

The above non-GAAP measures exclude non-cash stock-based compensation expenses, acquisition-related costs and the amortization of debt discount on Infinera's convertible senior notes. A further explanation of the use of non-GAAP financial information and a reconciliation of the non-GAAP financial measures to the GAAP equivalents can be found at the end of this release.

"Our excellent first quarter performance reflects a continuation of the momentum we have built over the past few years. We continue to grow profitability as our broad customer base experiences the value of our differentiated products and superior service," said Tom Fallon, Infinera's Chief Executive Officer. "I believe we are in an optimal position with customers that are building the largest networks the fastest. In 2015 and beyond, we intend to continue growing our business profitably, as we expand our total available market across optical transport."

Conference Call Information

Infinera will host a conference call for analysts and investors to discuss its first quarter of 2015 results and its outlook for the second quarter of 2015 today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the Investor Relations section of Infinera's website at www.infinera.com. Following the webcast, an archived version will be available on the website for 90 days. To hear the replay, parties in the United States and Canada should call 1-800-945-3032. International parties can access the replay at 1-203-369-3499.

About Infinera

Infinera provides Intelligent Transport Networks for network operators, enabling reliable, easy to operate, high-capacity optical networks. Infineraleverages its unique large scale photonic integrated circuits to deliver innovative optical networking solutions for the most demanding network environments. Intelligent Transport Networks enable carriers, Cloud network operators, governments and enterprises to automate, converge and scale their data center, metro, long-haul and subsea optical networks. To learn more about Infinera visit www.infinera.com, follow us on Twitter @Infinera and read our latest blog posts at blog.infinera.com.

Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties, including Infinera's ability to remain in an optimal position with customers that are building the largest networks the fastest; and Infinera'sability to continue to grow profitably and expand our total available market across optical transport. These statements are based on information available to Infinera as of the date hereof and actual results could differ materially from those stated or implied due to risks and uncertainties. Such forward-looking statements can be identified by forward-looking words such as "anticipated," "believed," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. The risks and uncertainties that could cause Infinera's results to differ materially from those expressed or implied by such forward-looking statements include delays in the development and introduction of Infinera's products and market acceptance of these products; the effect of changes in product pricing or mix, and/or increases in component costs could have on Infinera's gross margin; Infinera's reliance on single-source suppliers; aggressive business tactics by Infinera's competitors; Infinera's ability to protect Infinera's intellectual property; claims by others that Infinera infringes their intellectual property; war, terrorism, public health issues, natural disasters, and other circumstances that could disrupt supply, delivery or demand of products; Infinera's ability to respond to rapid technological changes; and other risks detailed in Infinera's SEC filings from time to time. More information on potential factors that may impact Infinera's business are set forth in its Annual Report on Form 10-K for the year ended on December 27, 2014 as filed with the SEC on February 18, 2015, as well as subsequent reports filed with or furnished to the SEC from time to time. These reports are available on Infinera's website at www.infinera.com and the SEC's website at www.sec.gov. Infinera assumes no obligation to, and does not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses, acquisition-related costs and amortization of debt discount on Infinera's convertible senior notes. Infinera believes these adjustments are appropriate to enhance an overall understanding of its underlying financial performance and also its prospects for the future and are considered by management for the purpose of making operational decisions. In addition, these results are the primary indicators management uses as a basis for its planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), basic and diluted net income (loss) per share, gross margin or operating margin prepared in accordance with GAAP. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations. For a description of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, "GAAP to Non-GAAP Reconciliations."Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its first quarter 2015 results, including an estimate of non-GAAP earnings for the second quarter of 2015 that excludes non-cash stock-based compensation expenses, acquisition-related costs and amortization of debt discount on Infinera's convertible senior notes.

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

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

Infinera Corporation
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 28, March 29,
2015 2014
Revenue:
Product $ 160,843 $ 124,242
Services 26,019 18,573
Total revenue 186,862 142,815
Cost of revenue:
Cost of product 89,506 78,438
Cost of services 9,244 5,971
Total cost of revenue 98,750 84,409
Gross profit 88,112 58,406
Operating expenses:
Research and development 39,257 29,346
Sales and marketing 21,042 17,862
General and administrative 12,656 12,254
Total operating expenses 72,955 59,462
Income (loss) from operations 15,157 (1,056 )
Other income (expense), net:
Interest income 414 336
Interest expense (2,890 ) (2,677 )
Other gain (loss), net 301 (729 )
Total other income (expense), net (2,175 ) (3,070 )
Income (loss) before income taxes 12,982 (4,126 )
Provision for income taxes 616 248
Net income (loss) $ 12,366 $ (4,374 )
Net income (loss) per common share:
Basic $ 0.10 $ (0.04 )
Diluted $ 0.09 $ (0.04 )
Weighted average shares used in computing net income (loss) per common share:
Basic 127,840 121,352
Diluted 137,304 121,352
Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited)
Three Months Ended
March 28, December 27, March 29,
2015 2014 2014
Reconciliation of Gross Profit:
U.S. GAAP as reported $ 88,112 $ 84,343 $ 58,406
Stock-based compensation(1) 1,243 1,472 1,284
Non-GAAP as adjusted $ 89,355 $ 85,815 $ 59,690
Reconciliation of Gross Margin:
U.S. GAAP as reported 47.2 % 45.3 % 40.9 %
Stock-based compensation(1) 0.6 % 0.8 % 0.9 %
Non-GAAP as adjusted 47.8 % 46.1 % 41.8 %
Reconciliation of Income (Loss)
from Operations:
U.S. GAAP as reported $ 15,157 $ 12,866 $ (1,056 )
Stock-based compensation(1) 7,208 7,547 6,672
Acquisition-related costs(2) 462 - -
Non-GAAP as adjusted $ 22,827 $ 20,413 $ 5,616
Reconciliation of Operating Margin:
U.S. GAAP as reported 8.1 % 6.9 % (0.7 )%
Stock-based compensation(1) 3.9 % 4.1 % 4.6 %
Acquisition-related costs(2) 0.2 % - -
Non-GAAP as adjusted 12.2 % 11.0 % 3.9 %
Reconciliation of Net Income (Loss):
U.S. GAAP as reported $ 12,366 $ 8,410 $ (4,374 )
Stock-based compensation(1) 7,208 7,547 6,672
Acquisition-related costs(2) 462 - -
Amortization of debt discount(3) 2,057 2,006 1,860
Non-GAAP as adjusted $ 22,093 $ 17,963 $ 4,158
Net Income (Loss) per Common Share - Basic:
U.S. GAAP as reported $ 0.10 $ 0.07 $ (0.04 )
Non-GAAP as adjusted $ 0.17 $ 0.14 $ 0.03
Net Income (Loss) per Common Share - Diluted:
U.S. GAAP as reported $ 0.09 $ 0.06 $ (0.04 )
Non-GAAP as adjusted $ 0.16 $ 0.13 $ 0.03
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share - U.S. GAAP:
Basic 127,840 125,830 121,352
Diluted 137,304 133,072 121,352
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share - Non-GAAP:
Basic 127,840 125,830 121,352
Diluted 137,304 133,072 125,435
(1) Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation-Stock Compensation effective January 1, 2006. The following table summarizes the effects of stock-based compensation related to employees and non-employees (in thousands):
Three Months Ended
March 28, December 27, March 29,
2015 2014 2014
Cost of revenue $ 482 $ 500 $ 452
Research and development 2,578 2,439 2,138
Sales and marketing 1,721 1,960 1,720
General and administration 1,666 1,676 1,530
6,447 6,575 5,840
Cost of revenue - amortization from balance sheet* 761 972 832
Total stock-based compensation expense $ 7,208 $ 7,547 $ 6,672
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.
(2) In April 2015, Infinera announced its offer to acquire Transmode AB, a leader in metro packet-optical networking. Acquisition-related costs include legal and other professional fees and have been adjusted in arriving at Infinera's non-GAAP results because management believes that these expenses are not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.
(3) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, Infinera is required to amortize as a debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on its $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.
Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)
March 28, December 27,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 118,623 $ 86,495
Short-term investments 215,080 239,628
Accounts receivable, net of allowance for doubtful accounts of $20 in 2015 and $38 in 2014 131,224 154,596
Inventory 157,195 146,500
Prepaid expenses and other current assets 23,112 24,636
Total current assets 645,234 651,855
Property, plant and equipment, net 82,661 81,566
Long-term investments 69,835 59,233
Cost-method investment 14,500 14,500
Long-term restricted cash 5,108 5,460
Other non-current assets 5,692 5,402
Total assets $ 823,030 $ 818,016
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 50,183 $ 61,533
Accrued expenses 28,061 26,441
Accrued compensation and related benefits 24,406 38,795
Accrued warranty 11,453 12,241
Deferred revenue 36,757 35,321
Total current liabilities 150,860 174,331
Long-term debt, net 118,951 116,894
Accrued warranty, non-current 14,086 14,799
Deferred revenue, non-current 12,119 10,758
Other long-term liabilities 19,179 19,327
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 March 28, 2015 and December 27, 2014
Issued and outstanding shares - 129,094 as of March 28, 2015 and 126,160
as of December 27, 2014 129 126
Additional paid-in capital 1,090,676 1,077,225
Accumulated other comprehensive loss (4,510 ) (4,618 )
Accumulated deficit (578,460 ) (590,826 )
Total stockholders' equity 507,835 481,907
Total liabilities and stockholders' equity $ 823,030 $ 818,016
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 28, March 29,
2015 2014
Cash Flows from Operating Activities:
Net income (loss) $ 12,366 $ (4,374 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 6,586 6,314
Amortization of debt discount and issuance costs 2,234 2,020
Amortization of premium on investments 954 828
Stock-based compensation expense 7,208 6,672
Other gain (19 ) (20 )
Changes in assets and liabilities:
Accounts receivable 23,391 (6,762 )
Inventory (12,103 ) (3,354 )
Prepaid expenses and other assets 1,141 (3,797 )
Accounts payable (10,317 ) (2,080 )
Accrued liabilities and other expenses (12,895 ) (13,448 )
Deferred revenue 2,797 (909 )
Accrued warranty (1,501 ) 3,477
Net cash provided by (used in) operating activities 19,842 (15,433 )
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (80,022 ) (80,223 )
Proceeds from sale of available-for-sale investments 2,001 -
Proceeds from maturities of investments 91,280 57,063
Purchase of property and equipment (7,367 ) (5,608 )
Change in restricted cash 352 (479 )
Net cash provided by (used in) investing activities 6,244 (29,247 )
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 10,131 7,054
Minimum tax withholding paid on behalf of employees for net share settlement (3,950 ) (1,619 )
Net cash provided by financing activities 6,181 5,435
Effect of exchange rate changes on cash (139 ) 164
Net change in cash and cash equivalents 32,128 (39,081 )
Cash and cash equivalents at beginning of period 86,495 124,330
Cash and cash equivalents at end of period $ 118,623 $ 85,249
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds $ 897 $ 303
Supplemental schedule of non-cash financing activities:
Transfer of inventory to fixed assets $ 1,403 $ 603
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15
Revenue ($ Mil) $138.4 $142.0 $139.1 $142.8 $165.4 $173.6 $186.3 $186.9
Gross Margin % (1) 38.9% 49.2% 41.4% 41.8% 43.3% 44.2% 46.1% 47.8%
Revenue Composition:
Domestic % 64% 73% 54% 78% 82% 70% 58% 68%
International % 36% 27% 46% 22% 18% 30% 42% 32%
Customers >10% of Revenue - 3 1 2 2 1 1 2
Cash Related Information:
Cash from (Used in) Operations ($ Mil) $17.9 $12.8 $25.8 $(15.4) $10.3 $22.3 $18.7 $19.8
Capital Expenditures ($ Mil) $4.5 $4.2 $7.5 $5.6 $4.4 $4.4 $8.8 $7.4
Depreciation & Amortization ($ Mil) $6.3 $5.9 $6.0 $6.3 $6.5 $6.5 $6.6 $6.6
DSO's 64 56 66 68 66 71 76 64
Inventory Metrics:
Raw Materials ($ Mil) $9.8 $12.1 $14.3 $13.2 $11.2 $11.6 $15.2 $22.4
Work in Process ($ Mil) $41.0 $45.7 $49.2 $47.8 $40.6 $44.4 $50.0 $45.9
Finished Goods ($ Mil) $70.5 $65.7 $60.2 $65.5 $79.1 $74.8 $81.3 $88.9
Total Inventory ($ Mil) $121.3 $123.5 $123.7 $126.5 $130.9 $130.8 $146.5 $157.2
Inventory Turns (2) 2.8 2.3 2.6 2.6 2.9 3.0 2.7 2.5
Worldwide Headcount 1,238 1,296 1,318 1,346 1,396 1,456 1,495 1,530
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.
(2) Infinera calculates non-GAAP inventory turns as annualized non-GAAP cost of revenue before adjustments for non-cash stock-based compensation expense divided by the average inventory for the quarter.

Contacts:

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

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

Source: Infinera

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