Infinera Corporation Reports Second Quarter 2013 Financial

SUNNYVALE, CA--(Marketwired - Jul 24, 2013) - Infinera Corporation ( NASDAQ : INFN ), a leader in Intelligent Transport Networks™, today released financial results for the second quarter ended June 29, 2013.

GAAP revenues for the second quarter of 2013 were $138.4 million compared to $124.6 million in the first quarter of 2013 and $93.5 million in the second quarter of 2012.

GAAP gross margin for the second quarter of 2013 was 37% compared to 34% in the first quarter of 2013 and 35% in the second quarter of 2012. GAAP net loss for the quarter was $(10.0) million, or $(0.09) per share, compared to net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013 and net loss of $(29.5) million, or $(0.27) per share, in the second quarter of 2012.

Non-GAAP gross margin for the second quarter of 2013 was 39% compared to 36% in the first quarter of 2013 and 37% in the second quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net loss for the second quarter of 2013 was $(1.2) million, or $(0.01) per share excluding non-cash stock-based compensation expenses and the amortization of debt discount on our convertible senior notes. This compared to a non-GAAP net loss of $(7.3) million, or $(0.06) per share, in the first quarter of 2013 and a non-GAAP net loss of $(18.6) million, or $(0.16) per share, in the second quarter of 2012.

Management Commentary

"We continued to increase momentum in the second quarter, delivering strong revenue growth, improved gross margin, and positive cash flow from operations," said Tom Fallon, chief executive officer. "Customer acceptance of the DTN-X platform also continues to grow. During the quarter, we received seven new purchase commitments, including three from customers new to Infinera, bringing the total number of commitments to 34 since the platform was introduced a year ago.

"Our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services. Infinera's recently announced Intelligent Transport Network offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition.

"We remain focused on winning new network deployments and expanding our market presence to generate sustainable revenue growth and profitability in the future while we help our customers prepare for the Terabit Era."

Conference Call Information :

Infinera will host a conference call for analysts and investors to discuss its second quarter results and its outlook for the third quarter 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 1-800-846-1910. International parties can access the replay at 1-402-280-9953.

About Infinera

Infinera is a leader in Intelligent Transport Networks. Intelligent Transport Networks 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 regarding the future including statements that customer acceptance of the DTN-X platform continues to grow; that our success reflects the strategic commitment of our customers to a new architecture as they face massive traffic growth, operational complexity and increasing demand for instant delivery of services; and that Infinera's recently announced Intelligent Transport Network™ offers a clear path for service providers to address these challenges, while providing a compelling economic value proposition. 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 our results to differ materially from those expressed or implied by such forward-looking statements include aggressive business tactics by our competitors, our reliance on single-source suppliers, our ability to protect our intellectual property, claims by others that we infringe their intellectual property, and our ability to respond to rapid technological changes, and other risks that may impact our business are set forth in our annual reports on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2013, 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 . 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 our convertible senior notes. We believe these adjustments are appropriate to enhance an overall understanding of our underlying financial performance and also our prospects for the future and are considered by management for the purpose of making operational decisions. In addition, these results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), basic and diluted net income (loss) per share, or gross margin prepared in accordance with GAAP. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations. For a description of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, "GAAP to Non-GAAP Reconciliations." We anticipate disclosing forward-looking non-GAAP information in our conference call to discuss our second quarter results, including an estimate of non-GAAP earnings for the third quarter of 2013 that excludes non-cash stock-based compensation expenses and amortization of debt discount on our 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 Corporation and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners.

Infinera Corporation
GAAP Condensed Consolidated Statements of Operations
(In thousands, except share data)
(Unaudited)
				Three Months Ended								Six Months Ended
				June 29,				June 30,				June 29,				June 30,
				2013				2012				2013				2012
Revenue:
	Product			$	120,153			$	77,843			$	227,962			$	170,234
	Ratable product and related support and services				494				523				1,028				1,054
	Services				17,738				15,092				34,020				26,871
		Total revenue			138,385				93,458				263,010				198,159
Cost of revenue (1) :
	Cost of product				80,129				56,017				155,481				115,341
	Cost of ratable product and related support and services				69				166				164				357
	Cost of services				6,533				4,901				13,009				9,660
		Total cost of revenue			86,731				61,084				168,654				125,358
Gross profit					51,654				32,374				94,356				72,801
Operating expenses (1) :
	Research and development				31,681				31,676				61,407				62,661
	Sales and marketing				17,155				17,777				35,201				36,019
	General and administrative				11,426				12,320				21,298				23,404
		Total operating expenses			60,262				61,773				117,906				122,084
Loss from operations					(8,608	)			(29,399	)			(23,550	)			(49,283	)
Other income (expense), net:
	Interest income				207				228				404				503
	Interest expense				(849	)			-				(849	)			-
	Other gain (loss), net:				(158	)			149				(361	)			(275	)
		Total other income (expense), net			(800	)			377				(806	)			228
Loss before income taxes					(9,408	)			(29,022	)			(24,356	)			(49,055	)
Provision for income taxes					601				527				932				1,106
Net loss				$	(10,009	)		$	(29,549	)		$	(25,288	)		$	(50,161	)
Net loss per common share, basic and diluted				$	(0.09	)		$	(0.27	)		$	(0.22	)		$	(0.46	)
Weighted average shares used in computing basic and diluted net loss per common share					116,911				110,403				115,609				109,534

(1)		The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and six months ended June 29, 2013 and June 30, 2012:

				Three Months Ended						Six Months Ended
				June 29,			June 30,			June 29,			June 30,
				2013			2012			2013			2012
		Cost of revenue		$	474		$	686		$	960		$	1,292
		Research and development			2,622			3,695			5,741			7,015
		Sales and marketing			1,807			2,744			3,806			4,963
		General and administration			1,591			2,705			2,360			4,928
					6,494			9,830			12,867			18,198
		Cost of revenue - amortization from balance sheet*			1,690			1,100			3,292			2,169
		Total stock-based compensation expense		$	8,184		$	10,930		$	16,159		$	20,367
		* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except per share data)
(Unaudited)
		Three Months Ended												Six Months Ended
		June 29,				March 30,				June 30,				June 29,				June 30,
		2013				2013				2012				2013				2012
Reconciliation of Gross Profit:
U.S. GAAP as reported		$	51,654			$	42,702			$	32,374			$	94,356			$	72,801
Stock-based compensation (1)			2,164				2,088				1,786				4,252				3,461
Non-GAAP as adjusted		$	53,818			$	44,790			$	34,160			$	98,608			$	76,262
Reconciliation of Gross Margin:
U.S. GAAP as reported			37	%			34	%			35	%			36	%			37	%
Stock-based compensation (1)			2	%			2	%			2	%			1	%			2	%
Non-GAAP as adjusted			39	%			36	%			37	%			37	%			39	%
Reconciliation of Loss from Operations:
U.S. GAAP as reported		$	(8,608	)		$	(14,942	)		$	(29,399	)		$	(23,550	)		$	(49,283	)
Stock-based compensation (1)			8,184				7,975				10,930				16,159				20,367
Non-GAAP as adjusted		$	(424	)		$	(6,967	)		$	(18,469	)		$	(7,391	)		$	(28,916	)
Reconciliation of Net Loss:
U.S. GAAP as reported		$	(10,009	)		$	(15,279	)		$	(29,549	)		$	(25,288	)		$	(50,161	)
Stock-based compensation (1)			8,184				7,975				10,930				16,159				20,367
Amortization of debt discount (2)			580				-				-				580				-
Non-GAAP as adjusted		$	(1,245	)		$	(7,304	)		$	(18,619	)		$	(8,549	)		$	(29,794	)
Net Loss per Common  Share - Basic:
U.S. GAAP as reported		$	(0.09	)		$	(0.13	)		$	(0.27	)		$	(0.22	)		$	(0.46	)
Non-GAAP as adjusted		$	(0.01	)		$	(0.06	)		$	(0.17	)		$	(0.07	)		$	(0.27	)
Net Loss per Common Share - Diluted:
U.S. GAAP as reported		$	(0.09	)		$	(0.13	)		$	(0.27	)		$	(0.22	)		$	(0.46	)
Non-GAAP as adjusted (3)		$	(0.01	)		$	(0.06	)		$	(0.16	)		$	(0.07	)		$	(0.26	)
Weighted average shares used in computing net loss per common share - U.S. GAAP:
Basic			116,911				114,308				110,403				115,609				109,534
Diluted			116,911				114,308				110,403				115,609				109,534
Weighted average shares used in computing net loss per common share - Non-GAAP:
Basic			116,911				114,308				110,403				115,609				109,534
Diluted (3)			121,254				117,602				112,931				119,428				112,469

(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:

				Three Months Ended									Six Months Ended
				June 29,			March 30,			June 30,			June 29,			June 30,
				2013			2013			2012			2013			2012
		Cost of revenue		$	474		$	486		$	686		$	960		$	1,292
		Research and development			2,622			3,119			3,695			5,741			7,015
		Sales and marketing			1,807			1,999			2,744			3,806			4,963
		General and administration			1,591			769			2,705			2,360			4,928
					6,494			6,373			9,830			12,867			18,198
		Cost of revenue - amortization from balance sheet*			1,690			1,602			1,100			3,292			2,169
		Total stock-based compensation expense		$	8,184		$	7,975		$	10,930		$	16,159		$	20,367
		* 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, we are 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 our $150 million 1.75% convertible debt issuance in May 2013 over the term of the notes. These amounts have been adjusted in arriving at our non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of our 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)
				June 29,				December 29,
				2013				2012
ASSETS
Current assets:
	Cash and cash equivalents			$	181,211			$	104,666
	Short-term investments				120,437				76,146
	Accounts receivable, net of allowance for doubtful accounts of $133 in 2013 and $94 in 2012				96,668				107,039
	Other receivables				1,112				2,909
	Inventory				121,317				127,809
	Deferred inventory costs				850				1,029
	Prepaid expenses and other current assets				14,495				9,899
		Total current assets			536,090				429,497
Property, plant and equipment, net					78,391				80,343
Deferred inventory costs, non-current					38				100
Long-term investments					23,427				2,874
Cost-method investment					9,000				9,000
Long-term restricted cash					3,850				3,868
Deferred tax asset					-				805
Other non-current assets					5,564				1,683
		Total assets		$	656,360			$	528,170
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	35,977			$	61,428
	Accrued expenses				18,221				25,483
	Accrued compensation and related benefits				24,997				22,325
	Accrued warranty				8,332				7,262
	Deferred revenue				31,429				26,744
	Deferred tax liability				-				805
		Total current liabilities			118,956				144,047
	Long-term debt				105,580				-
	Accrued warranty, non-current				11,369				9,220
	Deferred revenue, non-current				2,964				3,210
	Other long-term liabilities				18,341				15,557
Commitments and contingencies
Stockholders' equity:
	Preferred stock, $0.001 par value
	Authorized shares - 25,000 and no shares issued and outstanding				-				-
	Common stock, $0.001 par value
	Authorized shares - 500,000 as of June 29, 2013 and December 29, 2012
	Issued and outstanding shares - 117,947 as of June 29, 2013 and 112,461 as of December 29, 2012				118				112
	Additional paid-in capital				1,000,106				930,618
	Accumulated other comprehensive loss				(3,420	)			(2,228	)
	Accumulated deficit				(597,654	)			(572,366	)
	Total stockholders' equity				399,150				356,136
		Total liabilities and stockholders' equity		$	656,360			$	528,170

Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
					Six Months Ended
					June 29,				June 30,
					2013				2012
Cash Flows from Operating Activities:
Net loss					$	(25,288	)		$	(50,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization					12,621				11,224
	(Recovery of) provision for other receivables					(88	)			-
	Provision for doubtful accounts					40				-
	Amortization of debt discount and issuance costs					630				-
	Amortization of premium on investments					450				1,098
	Stock-based compensation expense					16,159				20,367
	Other gain					(243	)			(501	)
	Changes in assets and liabilities:
		Accounts receivable				10,332				24,416
		Other receivables				1,629				(477	)
		Inventory				791				(24,770	)
		Prepaid expenses and other assets				(4,083	)			1,533
		Deferred inventory costs				216				3,910
		Accounts payable				(23,980	)			(8,753	)
		Accrued liabilities and other expenses				(220	)			(2,272	)
		Deferred revenue				4,440				(4,952	)
		Accrued warranty				3,219				837
			Net cash used in operating activities			(3,375	)			(28,501	)
Cash Flows from Investing Activities:
	Purchase of available-for-sale investments					(130,828	)			(42,853	)
	Proceeds from sale of available-for-sale investments					2,850				5,194
	Proceeds from maturities and calls of investments					62,647				70,464
	Purchase of property and equipment					(9,431	)			(19,770	)
	Reimbursement of manufacturing capacity advance					-				50
	Change in restricted cash					(6	)			(230	)
			Net cash provided by (used in) investing activities			(74,768	)			12,855
Cash Flows from Financing Activities:
	Proceeds from issuance of debt, net					144,469				-
	Proceeds from issuance of common stock					12,496				7,093
	Repurchase of common stock					(1,499	)			(839	)
			Net cash provided by financing activities			155,466				6,254
Effect of exchange rate changes on cash						(778	)			(78	)
Net change in cash and cash equivalents						76,545				(9,470	)
Cash and cash equivalents at beginning of period						104,666				94,458
Cash and cash equivalents at end of period					$	181,211			$	84,988
Supplemental disclosures of cash flow information:
	Cash paid for income taxes				$	1,148			$	595
Supplemental schedule of non-cash financing activities:
	Non-cash settlement for manufacturing capacity advance				$	-			$	275
	Transfer of inventory to fixed assets				$	4,684			$	-

Infinera Corporation
Supplemental Financial Information
(Unaudited)
			Q3'11				Q4'11				Q1'12				Q2'12				Q3'12				Q4'12				Q1'13				Q2'13
Revenue ($ Mil)			$	104.0			$	112.0			$	104.7			$	93.5			$	112.2			$	128.1			$	124.6			$	138.4
Gross Margin % (1)				41	%			42	%			40	%			37	%			39	%			36	%			36	%			39	%
	Invoiced Shipment Composition:
	Domestic %			65	%			70	%			71	%			70	%			70	%			63	%			63	%			64	%
	International %			35	%			30	%			29	%			30	%			30	%			37	%			37	%			36	%
	Largest Customer %			<  10	%			14	%			13	%			15	%			13	%			13	%			14	%			<  10	%
	Cash Related Information:
	Cash from (used in) Operations ($ Mil)		$	4.1			$	(5.1	)		$	(5.8	)		$	(22.7	)		$	(29.3	)		$	8.3			$	(21.3	)		$	17.9
	Capital Expenditures ($ Mil)		$	5.9			$	16.1			$	13.6			$	6.1			$	2.5			$	3.2			$	4.9			$	4.5
	Depreciation & Amortization ($ Mil)		$	4.9			$	4.5			$	5.5			$	5.7			$	6.1			$	6.4			$	6.3			$	6.3
	DSO's			60				65				57				55				74				76				82				64
	Inventory Metrics:
	Raw Materials ($ Mil)		$	7.0			$	12.1			$	15.3			$	14.8			$	12.4			$	13.0			$	12.2			$	9.8
	Work in Process ($ Mil)		$	26.9			$	37.0			$	41.6			$	49.4			$	59.8			$	57.3			$	53.1			$	41.0
	Finished Goods ($ Mil)		$	36.4			$	39.9			$	44.7			$	50.9			$	46.3			$	57.5			$	65.7			$	70.5
	Total Inventory ($ Mil)		$	70.3			$	89.0			$	101.6			$	115.1			$	118.5			$	127.8			$	131.0			$	121.3
Inventory Turns (1)				3.5				2.9				2.5				2.1				2.3				2.6				2.4				2.8
	Worldwide Headcount			1,151				1,181				1,210				1,228				1,235				1,242				1,219				1,238

(1)		Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash stock-based compensation expense.