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Infinera Corporation Reports First Quarter 2014 Financial Results(Marketwire Via Acquire Media NewsEdge) SUNNYVALE, CA -- (Marketwired) -- 04/23/14 -- Infinera Corporation (NASDAQ: INFN), a provider of Intelligent Transport Networks™, today released financial results for the first quarter of 2014 ended March 29, 2014. GAAP revenue for the quarter was $142.8 million compared to $139.1 million in the fourth quarter of 2013 and $124.6 million in the first quarter of 2013. GAAP gross margins for the quarter were 40.9% compared to 40.2% in the fourth quarter of 2013 and 34.2% in the first quarter of 2013. GAAP net loss for the quarter was $(4.4) million, or $(0.04) per share, compared to net loss of $(10.2) million, or $(0.08) per share, in the fourth quarter of 2013, and a net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013. Non-GAAP gross margins for the quarter were 41.8% compared to 41.4% in the fourth quarter of 2013 and 35.9% in the first quarter of 2013. Non-GAAP net income for the quarter was $4.2 million, or $0.03 per share, compared to net loss of $(0.2) million, or break even on an earnings per share basis in the fourth quarter of 2013, and net loss of $(7.3) million, or $(0.06) per share, in the first 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. Management Commentary: "Our first quarter performance was exceptionally strong in what is typically a soft quarter for our industry. We are benefitting from the continued investment cycle in 100G and network convergence. The favorable economics of our PIC-based architectures and the operational benefits of super-channels positions us as the industry recognized leader in the optical market," said Tom Fallon, Chief Executive Officer. "I remain optimistic about our short-, intermediate- and long-term opportunity. Our focus this year remains on winning footprint, gaining market share, and servicing customers. We believe the continued growth of our business in long-haul, combined with product investments in adjacent markets, is the best way for us to provide long-term shareholder value." Conference Call Information: Infinera will host a conference call for analysts and investors to discuss its first quarter of 2014 results and its outlook for the second 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 1-888-566-0689. International parties can access the replay at 1-402-998-0823. 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. 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 that deliver the industry's only commercially available 500 Gb/s FlexCoherent super-channels. Infinera Intelligent Transport Network solutions include the DTN-X, DTN and ATN platforms. Find more at 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 opportunity in the short-, intermediate- and long-term; Infinera's ability to win footprint and gain market share; and Infinera's belief that continued growth of its business in long haul, combined with product investments, is the best way for Infinera to provide long-term shareholder value. 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, 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, and Infinera's ability to respond to rapid technological changes, and other risks that may impact Infinera's business are set forth in its annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 21, 2014, as well as subsequent reports filed with or furnished to the SEC. 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 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 first quarter results, including an estimate of non-GAAP earnings for the second 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 per share data) (Unaudited) Three Months Ended ----------------------------------- March 29, March 30, 2014 2013 ----------------- ----------------- Revenue: Product $ 124,242 $ 108,343 Services 18,573 16,282 ----------------- ----------------- Total revenue 142,815 124,625 Cost of revenue (1): Cost of product 78,438 75,447 Cost of services 5,971 6,476 ----------------- ----------------- Total cost of revenue 84,409 81,923 Gross profit 58,406 42,702 Operating expenses (1): Research and development 29,346 29,726 Sales and marketing 17,862 18,046 General and administrative 12,254 9,872 ----------------- ----------------- Total operating expenses 59,462 57,644 Loss from operations (1,056) (14,942) Other income (expense), net: Interest income 336 197 Interest expense (2,677) - Other gain (loss), net: (729) (203) ----------------- ----------------- Total other income (expense), net (3,070) (6) Loss before income taxes (4,126) (14,948) Provision for income taxes 248 331 ----------------- ----------------- Net loss $ (4,374)$ (15,279) ================= ================= Net loss per common share, basic and diluted $ (0.04)$ (0.13) ================= ================= Weighted average shares used in computing basicand diluted net loss per common share 121,352 114,308 ================= ================= ---------------------------------------- (1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended March 29, 2014 and March 30, 2013: Three Months Ended ----------------------------------- March 29, March 30, 2014 2013 ----------------- ----------------- Cost of revenue $ 452 $ 486 Research and development 2,138 3,119 Sales and marketing 1,720 1,999 General and administration 1,530 769 ----------------- ----------------- 5,840 6,373 Cost of revenue - amortization from balance sheet* 832 1,602 ----------------- ----------------- Total stock-based compensation expense $ 6,672 $ 7,975 ================= ================= * 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 percentages and per share data) (Unaudited) Three Months Ended ----------------------------------------- March 29, December 28, March 30, 2014 2013 2013 ------------ ------------ ------------ Reconciliation of Gross Profit: U.S. GAAP as reported $ 58,406 $ 55,912 $ 42,702 Stock-based compensation(1) 1,284 1,695 2,088 ------------ ------------ ------------ Non-GAAP as adjusted $ 59,690 $ 57,607 $ 44,790 ============ ============ ============ Reconciliation of Gross Margin: U.S. GAAP as reported 40.9% 40.2% 34.2% Stock-based compensation(1) 0.9% 1.2% 1.7% ------------ ------------ ------------ Non-GAAP as adjusted 41.8% 41.4% 35.9% ============ ============ ============ Reconciliation of Income (Loss) from Operations: U.S. GAAP as reported $ (1,056) $ (7,081) $ (14,942) Stock-based compensation(1) 6,672 8,174 7,975 ------------ ------------ ------------ Non-GAAP as adjusted $ 5,616 $ 1,093 $ (6,967) ============ ============ ============ Reconciliation of Net Income (Loss): U.S. GAAP as reported $ (4,374) $ (10,178) $ (15,279) Stock-based compensation(1) 6,672 8,174 7,975 Amortization of debt discount(2) 1,860 1,814 - ------------ ------------ ------------ Non-GAAP as adjusted $ 4,158 $ (190) $ (7,304) ============ ============ ============ Net Income (Loss) per Common Share - Basic: U.S. GAAP as reported $ (0.04) $ (0.08) $ (0.13) ============ ============ ============ Non-GAAP as adjusted $ 0.03 $ - $ (0.06) ============ ============ ============ Net Income (Loss) per Common Share - Diluted: U.S. GAAP as reported $ (0.04) $ (0.08) $ (0.13) ============ ============ ============ Non-GAAP as adjusted(3) $ 0.03 $ - $ (0.06) ============ ============ ============ Weighted average shares used in computing net income (loss) per common share - U.S. GAAP: Basic 121,352 119,743 114,308 ============ ============ ============ Diluted 121,352 119,743 114,308 ============ ============ ============ Weighted average shares used in computing net income (loss) per common share - Non-GAAP: Basic 121,352 119,743 114,308 ============ ============ ============ Diluted(3) 125,435 125,134 117,602 ============ ============ ============ ------------------------------ (1) 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 (in thousands): Three Months Ended -------------------------------------- March 29, December 28, March 30, 2014 2013 2013 ------------ ------------ ------------ Cost of revenue $ 452 $ 489 $ 486 Research and development 2,138 2,725 3,119 Sales and marketing 1,720 1,965 1,999 General and administration 1,530 1,789 769 ------------ ------------ ------------ 5,840 6,968 6,373 Cost of revenue - amortization from balance sheet* 832 1,206 1,602 ------------ ------------ ------------ Total stock-based compensation expense $ 6,672 $ 8,174 $ 7,975 ============ ============ ============ --------------------------------- * 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. (3) Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only. --------------------------------------------------------------------------- Infinera Corporation Condensed Consolidated Balance Sheets (In thousands, except par values) (Unaudited) March 29, December 28, 2014 2013 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 85,249 $ 124,330 Short-term investments 226,705 172,660 Accounts receivable, net of allowance for doubtful accounts of $41 in 2014 and $43 in 2013 107,405 100,643 Inventory 126,465 123,685 Prepaid expenses and other current assets 20,537 17,752 ------------- ------------- Total current assets 566,361 539,070 Property, plant and equipment, net 78,801 79,668 Long-term investments 32,756 64,419 Cost-method investment 9,000 9,000 Long-term restricted cash 4,392 3,904 Other non-current assets 5,776 4,865 ------------- ------------- Total assets $ 697,086 $ 700,926 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 37,843 $ 39,843 Accrued expenses 20,244 22,431 Accrued compensation and related benefits 21,377 33,899 Accrued warranty 14,351 12,374 Deferred revenue 31,496 32,402 ------------- ------------- Total current liabilities 125,311 140,949 Long-term debt, net 111,024 109,164 Accrued warranty, non-current 12,034 10,534 Deferred revenue, non-current 4,886 4,888 Other long-term liabilities 17,563 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 March 29, 2014 and December 28, 2013 Issued and outstanding shares - 122,485 as of March 29, 2014 and 119,887 as of December 28, 2013 123 120 Additional paid-in capital 1,038,216 1,025,661 Accumulated other comprehensive loss (3,212) (3,486) Accumulated deficit (608,859) (604,485) ------------- ------------- Total stockholders' equity 426,268 417,810 ------------- ------------- Total liabilities and stockholders' equity $ 697,086 $ 700,926 ============= ============= Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Three Months Ended ---------------------------- March 29, March 30, 2014 2013 ------------- ------------- Cash Flows from Operating Activities: Net loss $ (4,374) $ (15,279) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6,314 6,334 (Recovery of) provision for other receivables - (88) Amotization of debt discount and issuance costs 2,020 - Amortization of premium on investments 828 314 Stock-based compensation expense 6,672 7,975 Other gain (20) (243) Changes in assets and liabilities: Accounts receivable (6,762) (5,094) Inventory (3,354) (5,041) Prepaid expenses and other assets (3,797) (361) Accounts payable (2,080) (8,045) Accrued liabilities and other expenses (13,448) (6,301) Deferred revenue (909) 4,340 Accrued warranty 3,477 190 ------------- ------------- Net cash used in operating activities (15,433) (21,299) Cash Flows from Investing Activities: Purchase of available-for-sale investments (80,223) (20,023) Proceeds from sale of available-for-sale investments - 2,850 Proceeds from maturities and calls of investments 57,063 33,835 Purchase of property and equipment (5,608) (4,936) Change in restricted cash (479) 44 ------------- ------------- Net cash provided by (used in) investing activities (29,247) 11,770 Cash Flows from Financing Activities: Proceeds from issuance of common stock 7,054 5,560 Minimum tax withholding paid on behalf of employees for net share settlement (1,619) (1,493) ------------- ------------- Net cash provided by financing activities 5,435 4,067 Effect of exchange rate changes on cash 164 (206) Net change in cash and cash equivalents (39,081) (5,668) Cash and cash equivalents at beginning of period 124,330 104,666 ------------- ------------- Cash and cash equivalents at end of period $ 85,249 $ 98,998 ============= ============= Supplemental disclosures of cash flow information: Cash paid for income taxes, net of refunds $ 303 $ 210 Supplemental schedule of non-cash financing activities: Transfer of inventory to fixed assets $ 603 $ 1,522 Infinera Corporation Supplemental Financial Information (Unaudited) ---------------------------------------------------------------------------- Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 ---------------------------------------------------------------------------- Revenue ($ Mil) $93.5 $112.2 $128.1 $124.6 $138.4 $142.0 $139.1 $142.8 Gross Margin % (1) 36.6% 39.1% 35.9% 35.9% 38.9% 49.2% 41.4% 41.8% ---------------------------------------------------------------------------- Invoiced Shipment Composition: Domestic % 70% 70% 63% 63% 64% 73% 54% 78% International % 30% 30% 37% 37% 36% 27% 46% 22% Largest Customer % 15% 13% 13% 14% < 10% 17% 11% 21% ---------------------------------------------------------------------------- Cash Related Information: Cash from (used in) Operations ($ Mil) $(22.7)$(29.3) $8.3$(21.3) $17.9 $12.8 $25.8$(15.4) Capital Expenditures ($ Mil) $6.1 $2.5 $3.2 $4.9 $4.5 $4.2 $7.5 $5.6 Depreciation & Amortization ($ Mil) $5.7 $6.1 $6.4 $6.3 $6.3 $5.9 $6.0 $6.3 DSO's 55 74 76 82 64 56 66 68 ---------------------------------------------------------------------------- Inventory Metrics: Raw Materials ($ Mil) $14.8 $12.4 $13.0 $12.2 $9.8 $12.1 $14.3 $13.2 Work in Process ($ Mil) $49.4 $59.8 $57.3 $53.1 $41.0 $45.7 $49.2 $47.8 Finished Goods ($ Mil) $50.9 $46.3 $57.5 $65.7 $70.5 $65.7 $60.2 $65.5 ---------------------------------------------------------------------------- Total Inventory ($ Mil) $115.1 $118.5 $127.8 $131.0 $121.3 $123.5 $123.7 $126.5 Inventory Turns (2) 2.1 2.3 2.6 2.4 2.8 2.3 2.6 2.6 ---------------------------------------------------------------------------- Worldwide Headcount 1,228 1,235 1,242 1,219 1,238 1,296 1,318 1,346 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (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: Leigh Salvo Tel. +1 (408) 543-8139 [email protected] Source: Infinera |