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Infinera Corporation Reports Third Quarter 2014 Financial Results(Marketwire Via Acquire Media NewsEdge) SUNNYVALE, CA -- (Marketwired) -- 10/22/14 -- Infinera Corporation (NASDAQ: INFN), provider of Intelligent Transport Networks, today released financial results for the third quarter of 2014 ended September 27, 2014. GAAP revenue for the quarter was $173.6 million compared to $165.4 million in the second quarter of 2014 and $142.0 million in the third quarter of 2013. GAAP gross margin for the quarter was 43.4% compared to 42.5% in the second quarter of 2014 and 48.1% in the third quarter of 2013. GAAP operating margin for the quarter was 4.3% compared to 4.9% in the second quarter of 2014 and 4.5% in the third quarter of 2013. GAAP net income for the quarter was $4.8 million, or $0.04 per diluted share, compared to net income of $4.8 million, or $0.04 per diluted share, in the second quarter of 2014, and net income of $3.3 million, or $0.03 per diluted share, in the third quarter of 2013. Non-GAAP gross margin for the quarter was 44.2% compared to 43.3% in the second quarter of 2014 and 49.2% in the third quarter of 2013. Non-GAAP operating margin for the quarter was 8.6% compared to 9.0% in the second quarter of 2014 and 9.9% in the third quarter of 2013. Non-GAAP net income for the quarter was $14.2 million, or $0.11 per diluted share, compared to net income of $13.5 million, or $0.11 per diluted share, in the second quarter of 2014, and net income of $12.8 million, or $0.10 per diluted share, in the third quarter of 2013. These non-GAAP measures exclude non-cash stock-based compensation expenses 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. "I'm pleased that we continue to achieve significant revenue growth while expanding our gross margin and profit levels," said Tom Fallon, Infinera's Chief Executive Officer. "Our business outlook remains positive as we've strengthened our product portfolio with the introduction of the Cloud Xpress while enhancing our market leading DTN-X. I believe Infinera has never been better positioned as we continue to deliver what we believe are the right products at the right time." Conference Call InformationInfinera will host a conference call for analysts and investors to discuss its third quarter of 2014 results and its outlook for the fourth quarter of 2014 today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the Investor Relations' section of Infinera's website at www.infinera.com. Following the webcast, an archived version will be available on the website for 90 days. To hear the replay, parties in the United States and Canada should call 1-888-562-5415. International parties can access the replay at 1-203-369-3763. About InfineraInfinera provides Intelligent Transport Networks to help carriers exploit the increasing demand for cloud-based services and data center connectivity as they advance into the Terabit Era. With solutions from Infinera, network operators may easily deploy high-capacity transport networks across the metro and around the world. Infinera is unique in its use of breakthrough semiconductor technology to deliver large scale Photonic Integrated Circuit (PICs) and the application of PICs to vertically integrated optical networking solutions. www.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. 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. Forward-looking statements include statements regarding Infinera's expectations, beliefs, intentions or strategies including statements regarding Infinera's expectations for its business outlook; belief that Infinera has never been better positioned; and ability to deliver the right products at the right time. 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 aggressive business tactics by Infinera's competitors; 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; 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 Quarterly Report on Form 10-Q for the quarter ended June 28, 2014 and filed with the SEC on August 1, 2014, as well as subsequent reports filed with or furnished to the SEC from time to time. These reports are available on Infinera's website at www.infinera.com and 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 InformationIn addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses and amortization of debt discount on Infinera's convertible senior notes. Infinera believes these adjustments are appropriate to enhance an overall understanding of its underlying financial performance and also its prospects for the future and are considered by management for the purpose of making operational decisions. In addition, these results are the primary indicators management uses as a basis for its planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), basic and diluted net income (loss) per share, or gross margin prepared in accordance with GAAP. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations. For a description of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, "GAAP to Non-GAAP Reconciliations." Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its third quarter results, including an estimate of non-GAAP earnings for the fourth quarter of 2014 that excludes non-cash stock-based compensation expenses and amortization of debt discount on Infinera's convertible senior notes. A copy of this press release can be found on the Investor Relations' page of Infinera's website at www.infinera.com. Infinera and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners. ---------------------------------------------------------------------------- Infinera Corporation GAAP Condensed Consolidated Statements of Operations (In thousands, except share data) (Unaudited) Three Months Ended Nine Months Ended --------------------------- --------------------------- September 27, September 28, September 27, September 28, 2014 2013 2014 2013 ------------- ------------- ------------- ------------- Revenue: Product $ 147,178 $ 121,332 $ 413,784 $ 350,322 Services 26,381 20,688 67,989 54,708 ------------- ------------- ------------- ------------- Total revenue 173,559 142,020 481,773 405,030 Cost of revenue: Cost of product 86,703 66,685 251,047 222,330 Cost of services 11,554 6,964 26,765 19,973 ------------- ------------- ------------- ------------- Total cost of revenue 98,257 73,649 277,812 242,303 Gross profit 75,302 68,371 203,961 162,727 Operating expenses: Research and development 35,051 32,528 96,135 93,935 Sales and marketing 20,794 17,720 56,738 52,921 General and administrative 11,977 11,678 36,612 32,976 ------------- ------------- ------------- ------------- Total operating expenses 67,822 61,926 189,485 179,832 Income (loss) from operations 7,480 6,445 14,476 (17,105) Other income (expense), net: Interest income 373 232 1,046 636 Interest expense (2,781) (2,578) (8,186) (3,427) Other gain (loss), net (24) (444) (1,017) (805) ------------- ------------- ------------- ------------- Total other income (expense), net (2,432) (2,790) (8,157) (3,596) Income (loss) before income taxes 5,048 3,655 6,319 (20,701) Provision for income taxes 205 308 1,070 1,240 ------------- ------------- ------------- ------------- Net income (loss) $ 4,843 $ 3,347 $ 5,249 $ (21,941) ============= ============= ============= ============= Net income (loss) per common share: Basic $ 0.04 $ 0.03 $ 0.04 $ (0.19) ============= ============= ============= ============= Diluted $ 0.04 $ 0.03 $ 0.04 $ (0.19) ============= ============= ============= ============= Weighted average shares used in computing net income (loss) per common share: Basic 124,378 118,740 122,953 116,653 ============= ============= ============= ============= Diluted 128,964 124,679 127,062 116,653 ============= ============= ============= ============= ---------------------------------------------------------------------------- Infinera Corporation GAAP to Non-GAAP Reconciliations (In thousands, except percentages and per share data) (Unaudited) Three Months Ended Nine Months Ended ------------------------------- -------------------- September September September September 27, June 28, 28, 27, 28, 2014 2014 2013 2014 2013 --------- --------- --------- --------- --------- Reconciliation of Gross Profit: U.S. GAAP as reported $ 75,302 $ 70,253 $ 68,371 $ 203,961 $ 162,727 Stock-based compensation(1) 1,491 1,360 1,549 4,135 5,801 --------- --------- --------- --------- --------- Non-GAAP as adjusted $ 76,793 $ 71,613 $ 69,920 $ 208,096 $ 168,528 ========= ========= ========= ========= ========= Reconciliation of Gross Margin: U.S. GAAP as reported 43.4% 42.5% 48.1% 42.3% 40.2% Stock-based compensation(1) 0.8% 0.8% 1.1% 0.9% 1.4% --------- --------- --------- --------- --------- Non-GAAP as adjusted 44.2% 43.3% 49.2% 43.2% 41.6% ========= ========= ========= ========= ========= Reconciliation of Income (Loss) from Operations: U.S. GAAP as reported $ 7,480 $ 8,052 $ 6,445 $ 14,476 $ (17,105) Stock-based compensation(1) 7,371 6,804 7,643 20,847 23,802 --------- --------- --------- --------- --------- Non-GAAP as adjusted $ 14,851 $ 14,856 $ 14,088 $ 35,323 $ 6,697 ========= ========= ========= ========= ========= Reconciliation of Operating Margin: U.S. GAAP as reported 4.3% 4.9% 4.5% 3.0% (4.2)% Stock-based compensation(1) 4.3% 4.1% 5.4% 4.3% 5.9% --------- --------- --------- --------- --------- Non-GAAP as adjusted 8.6% 9.0% 9.9% 7.3% 1.7% ========= ========= ========= ========= ========= Reconciliation of Net Income (Loss): U.S. GAAP as reported $ 4,843 $ 4,780 $ 3,347 $ 5,249 $ (21,941) Stock-based compensation(1) 7,371 6,804 7,643 20,847 23,802 Amortization of debt discount(2) 1,956 1,908 1,770 5,724 2,350 --------- --------- --------- --------- --------- Non-GAAP as adjusted $ 14,170 $ 13,492 $ 12,760 $ 31,820 $ 4,211 ========= ========= ========= ========= ========= Net Income (Loss) per Common Share - Basic: U.S. GAAP as reported $ 0.04 $ 0.04 $ 0.03 $ 0.04 $ (0.19) ========= ========= ========= ========= ========= Non-GAAP as adjusted $ 0.11 $ 0.11 $ 0.11 $ 0.26 $ 0.04 ========= ========= ========= ========= ========= Net Income (Loss) per Common Share - Diluted: U.S. GAAP as reported $ 0.04 $ 0.04 $ 0.03 $ 0.04 $ (0.19) ========= ========= ========= ========= ========= Non-GAAP as adjusted $ 0.11 $ 0.11 $ 0.10 $ 0.25 $ 0.03 ========= ========= ========= ========= ========= Weighted average shares used in computing net income (loss) per common share - U.S. GAAP: Basic 124,378 123,128 118,740 122,953 116,653 ========= ========= ========= ========= ========= Diluted 128,964 126,758 124,679 127,062 116,653 ========= ========= ========= ========= ========= Weighted average shares used in computing net income (loss) per common share - Non- GAAP: Basic 124,378 123,128 118,740 122,953 116,653 ========= ========= ========= ========= ========= Diluted 128,964 126,758 124,679 127,062 121,178 ========= ========= ========= ========= ========= -------------------- (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 Nine Months Ended ------------------------------- -------------------- September September September September 27, June 28, 28, 27, 28, 2014 2014 2013 2014 2013 --------- --------- --------- --------- --------- Cost of revenue $ 492 $ 477 $ 422 $ 1,421 $ 1,382 Research and development 2,270 2,080 2,434 6,488 8,175 Sales and marketing 1,982 1,815 1,853 5,517 5,659 General and administration 1,628 1,549 1,807 4,707 4,167 --------- --------- --------- --------- --------- 6,372 5,921 6,516 18,133 19,383 Cost of revenue - amortization from balance sheet* 999 883 1,127 2,714 4,419 --------- --------- --------- --------- --------- Total stock-based compensation expense $ 7,371 $ 6,804 $ 7,643 $ 20,847 $ 23,802 ========= ========= ========= ========= ========= -------------------- * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. (2) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, Infinera is required to amortize as a debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on its $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance. ---------------------------------------------------------------------------- Infinera Corporation Condensed Consolidated Balance Sheets (In thousands, except par values) (Unaudited) September 27, December 28, 2014 2013 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 110,864 $ 124,330 Short-term investments 206,713 172,660 Accounts receivable, net of allowance for doubtful accounts of $20 in 2014 and $43 in 2013 136,085 100,643 Inventory 130,833 123,685 Prepaid expenses and other current assets 21,714 17,752 ---------------- ---------------- Total current assets 606,209 539,070 Property, plant and equipment, net 74,964 79,668 Long-term investments 55,886 64,419 Cost-method investment 14,500 9,000 Long-term restricted cash 4,224 3,904 Other non-current assets 5,309 4,865 ---------------- ---------------- Total assets $ 761,092 $ 700,926 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 51,456 $ 39,843 Accrued expenses 23,593 22,431 Accrued compensation and related benefits 29,632 33,899 Accrued warranty 12,736 12,374 Deferred revenue 24,386 32,402 ---------------- ---------------- Total current liabilities 141,803 140,949 Long-term debt, net 114,888 109,164 Accrued warranty, non-current 15,070 10,534 Deferred revenue, non-current 8,633 4,888 Other long-term liabilities 18,741 17,581 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value Authorized shares - 25,000 and no shares issued and outstanding - - Common stock, $0.001 par value Authorized shares - 500,000 as of September 27, 2014 and December 28, 2013 Issued and outstanding shares - 125,267 as of September 27, 2014 and 119,887 as of December 28, 2013 125 120 Additional paid-in capital 1,064,723 1,025,661 Accumulated other comprehensive loss (3,655) (3,486) Accumulated deficit (599,236) (604,485) ---------------- ---------------- Total stockholders' equity 461,957 417,810 ---------------- ---------------- Total liabilities and stockholders' equity $ 761,092 $ 700,926 ================ ================ ---------------------------------------------------------------------------- Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended ------------------------------ September 27, September 28, 2014 2013 -------------- -------------- Cash Flows from Operating Activities: Net income (loss) $ 5,249 $ (21,941) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 19,340 18,574 Amotization of debt discount and issuance costs 6,217 2,552 Amortization of premium on investments 2,720 870 Stock-based compensation expense 20,847 23,802 Other loss (gain) 15 (278) Changes in assets and liabilities: Accounts receivable (35,463) 19,805 Inventory (9,015) (3,603) Prepaid expenses and other assets (4,965) (6,427) Accounts payable 11,009 (30,624) Accrued liabilities and other expenses 657 1,640 Deferred revenue (4,272) (1,655) Accrued warranty 4,898 6,680 -------------- -------------- Net cash provided by operating activities 17,237 9,395 Cash Flows from Investing Activities: Purchase of available-for-sale investments (214,272) (206,528) Purchase of cost-method investment (5,500) - Proceeds from sale of available-for-sale investments 17,876 2,850 Proceeds from maturities and calls of investments 168,137 77,143 Purchase of property and equipment (14,364) (13,605) Change in restricted cash (320) 110 -------------- -------------- Net cash used in investing activities (48,443) (140,030) Cash Flows from Financing Activities: Proceeds from issuance of debt, net - 144,469 Proceeds from issuance of common stock 19,683 21,551 Minimum tax withholding paid on behalf of employees for net share settlement (1,846) (1,541) -------------- -------------- Net cash provided by financing activities 17,837 164,479 Effect of exchange rate changes on cash (97) (881) Net change in cash and cash equivalents (13,466) 32,963 Cash and cash equivalents at beginning of period 124,330 104,666 -------------- -------------- Cash and cash equivalents at end of period $ 110,864 $ 137,629 ============== ============== Supplemental disclosures of cash flow information: Cash paid for income taxes, net of refunds $ 1,056 $ 1,536 Cash paid for interest $ 1,313 $ - Supplemental schedule of non-cash financing activities: Transfer of inventory to fixed assets $ 1,838 $ 6,672 ---------------------------------------------------------------------------- Infinera Corporation Supplemental Financial Information (Unaudited) ---------------------------------------------------------------------------- Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 ---------------------------------------------------------------------------- Revenue ($Mil) $128.1 $124.6 $138.4 $142.0 $139.1 $142.8 $165.4 $173.6 Gross Margin% (1) 35.9% 35.9% 38.9% 49.2% 41.4% 41.8% 43.3% 44.2% ---------------------------------------------------------------------------- Revenue Composition: Domestic% 63% 63% 64% 73% 54% 78% 82% 70% International% 37% 37% 36% 27% 46% 22% 18% 30% Customers >10% of Revenue 1 1 - 3 1 2 2 1 ---------------------------------------------------------------------------- Cash Related Information: Cash from (Used in) Operations ($Mil) $8.3$(21.3) $17.9 $12.8 $25.8$(15.4) $10.3 $22.3 Capital Expenditures ($Mil) $3.2 $4.9 $4.5 $4.2 $7.5 $5.6 $4.4 $4.4 Depreciation & Amortization ($Mil) $6.4 $6.3 $6.3 $5.9 $6.0 $6.3 $6.5 $6.5 DSO's 76 82 64 56 66 68 66 71 ---------------------------------------------------------------------------- Inventory Metrics: Raw Materials ($Mil) $13.0 $12.2 $9.8 $12.1 $14.3 $13.2 $11.2 $11.6 Work in Process ($Mil) $57.3 $53.1 $41.0 $45.7 $49.2 $47.8 $40.6 $44.4 Finished Goods ($Mil) $57.5 $65.7 $70.5 $65.7 $60.2 $65.5 $79.1 $74.8 ---------------------------------------------------------------------------- Total Inventory ($Mil) $127.8 $131.0 $121.3 $123.5 $123.7 $126.5 $130.9 $130.8 Inventory Turns (2) 2.6 2.4 2.8 2.3 2.6 2.6 2.9 3.0 ---------------------------------------------------------------------------- Worldwide Headcount 1,242 1,219 1,238 1,296 1,318 1,346 1,396 1,456 ---------------------------------------------------------------------------- -------------------- (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 and analysts: Anna Vue Tel. +1 (916) 595-8157 [email protected] Investors: Bob Jones Tel. +1 (408) 543-8140 [email protected] Source: Infinera |