GAAP revenues for the third quarter of 2013 were $142.0 million compared to $138.4 million in the second quarter of 2013 and $112.2 million in the third quarter of 2012.
GAAP gross margin for the third quarter of 2013 was 48% compared to 37% in the second quarter of 2013 and 37% in the third quarter of 2012. GAAP net income for the quarter was $3.3 million, or $0.03 per diluted share, compared to a net loss of $(10.0) million, or $(0.09) per share, in the second quarter of 2013 and a net loss of $(19.1) million, or $(0.17) per share, in the third quarter of 2012.
Non-GAAP gross margin for the third quarter of 2013 was 49% compared to 39% in the second quarter of 2013 and 39% in the third quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net income for the third quarter of 2013 was $12.8 million, or $0.10 per diluted 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 $(1.2) million, or $(0.01) per share, in the second quarter of 2013 and a non-GAAP net loss of $(7.8) million, or $(0.07) per share, in the third quarter of 2012.
Management Commentary
"DTN-X adoption continued to drive strong financial results in the third quarter. We generated solid revenue growth and achieved positive cash flow from operations, with both gross margin and profitability exceeding our expectations," said Tom Fallon, chief executive officer. "During the quarter, we received purchase commitments from five additional customers, including two new to Infinera, bringing our total DTN-X customer count to 39.
"We are seeing growing global demand for Infinera's Intelligent Transport Network and the DTN-X, the only platform available in the market today that offers super-channel scale, converged OTN switching and GMPLS network automation. This interest is across industry segments, including domestic and international Tier 1 carriers, bandwidth wholesalers, cable, and Internet content providers.
"We remain committed to growing our market share and are increasingly confident that over the next 12 to 18 months we will add new strategic accounts while expanding our deployments with existing customers."
Conference Call Information:
Infinera will host a conference call for analysts and investors to discuss its third quarter results and its outlook for the fourth 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 1-800-756-6991. International parties can access the replay at 1-203-369-3017.
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 we are seeing growing global demand for Infinera's Intelligent Transport Network and the DTN-X platform; that the interest in our products is across industry segments, including domestic and international Tier 1 carriers, bandwidth wholesalers, cable, and Internet content providers; and that we remain committed to growing our market share and are increasingly confident that over the next 12 to 18 months we will add new strategic accounts while expanding our deployments with existing customers. 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 third quarter results, including an estimate of non-GAAP earnings for the fourth 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 per share data)
(Unaudited)
Three Months Ended Nine Months Ended
-------------------- --------------------
September September September September
28, 2013 29, 2012 28, 2013 29, 2012
--------- --------- --------- ---------
Revenue:
Product $ 120,807 $ 98,853 $ 348,769 $ 269,087
Ratable product and related
support and services 525 450 1,553 1,504
Services 20,688 12,911 54,708 39,782
--------- --------- --------- ---------
Total revenue 142,020 112,214 405,030 310,373
Cost of revenue (1):
Cost of product 66,645 66,510 222,126 181,851
Cost of ratable product and
related supportand services 40 102 204 459
Cost of services 6,964 4,102 19,973 13,762
--------- --------- --------- ---------
Total cost of revenue 73,649 70,714 242,303 196,072
Gross profit 68,371 41,500 162,727 114,301
Operating expenses (1):
Research and development 32,528 27,912 93,935 90,573
Sales and marketing 17,720 19,285 52,921 55,304
General and administrative 11,678 12,508 32,976 35,912
--------- --------- --------- ---------
Total operating expenses 61,926 59,705 179,832 181,789
Income (loss) from operations 6,445 (18,205) (17,105) (67,488)
Other income (expense), net:
Interest income 232 175 636 678
Interest expense (2,578) - (3,427) -
Other gain (loss), net: (444) (617) (805) (892)
--------- --------- --------- ---------
Total other income
(expense), net (2,790) (442) (3,596) (214)
Income (loss) before income
taxes 3,655 (18,647) (20,701) (67,702)
Provision for income taxes 308 434 1,240 1,540
--------- --------- --------- ---------
Net income (loss) $ 3,347 $ (19,081) $ (21,941) $ (69,242)
========= ========= ========= =========
Net income (loss) per common
share
Basic $ 0.03 $ (0.17) $ (0.19) $ (0.63)
========= ========= ========= =========
Diluted $ 0.03 $ (0.17) $ (0.19) $ (0.63)
========= ========= ========= =========
Weighted average shares used in
computing net
income (loss) per common share
Basic 118,740 111,579 116,653 110,216
========= ========= ========= =========
Diluted 124,679 111,579 116,653 110,216
========= ========= ========= =========
(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 28, 2013 and September 29, 2012:
Three Months Ended Nine Months Ended
--------------------- ---------------------
September September September September
28, 2013 29, 2012 28, 2013 29, 2012
---------- ---------- ---------- ----------
Cost of revenue $ 422 $ 683 $ 1,382 $ 1,975
Research and development 2,434 3,439 8,175 10,454
Sales and marketing 1,853 2,685 5,659 7,648
General and administration 1,807 2,804 4,167 7,732
---------- ---------- ---------- ----------
6,516 9,611 19,383 27,809
Cost of revenue - amortization
from balance sheet* 1,127 1,706 4,419 3,875
---------- ---------- ---------- ----------
Total stock-based compensation
expense $ 7,643 $ 11,317 $ 23,802 $ 31,684
========== ========== ========== ==========
* 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 June 29, September September September
28, 2013 2013 29, 2012 28, 2013 29, 2012
---------- ---------- ---------- ---------- ----------
Reconciliation
of Gross
Profit:
U.S. GAAP as
reported $ 68,371 $ 51,654 $ 41,500 $ 162,727 $ 114,301
Stock-based
compensation(1) 1,549 2,164 2,389 5,801 5,850
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 69,920 $ 53,818 $ 43,889 $ 168,528 $ 120,151
========== ========== ========== ========== ==========
Reconciliation
of Gross
Margin:
U.S. GAAP as
reported 48% 37% 37% 40% 37%
Stock-based
compensation(1) 1% 2% 2% 2% 2%
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted 49% 39% 39% 42% 39%
========== ========== ========== ========== ==========
Reconciliation
of Income
(Loss)from
Operations:
U.S. GAAP as
reported $ 6,445 $ (8,608) $ (18,205) $ (17,105) $ (67,488)
Stock-based
compensation(1) 7,643 8,184 11,317 23,802 31,684
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 14,088 $ (424) $ (6,888) $ 6,697 $ (35,804)
========== ========== ========== ========== ==========
Reconciliation
of Net Income
(Loss):
U.S. GAAP as
reported $ 3,347 $ (10,009) $ (19,081) $ (21,941) $ (69,242)
Stock-based
compensation(1) 7,643 8,184 11,317 23,802 31,684
Amortization of
debt
discount(2) 1,770 580 - 2,350 -
---------- ---------- ---------- ---------- ----------
Non-GAAP as
adjusted $ 12,760 $ (1,245) $ (7,764) $ 4,211 $ (37,558)
========== ========== ========== ========== ==========
Net Income
(Loss) per
CommonShare -
Basic:
U.S. GAAP as
reported $ 0.03 $ (0.09) $ (0.17) $ (0.19) $ (0.63)
========== ========== ========== ========== ==========
Non-GAAP as
adjusted $ 0.11 $ (0.01) $ (0.07) $ 0.04 $ (0.34)
========== ========== ========== ========== ==========
Net Income
(Loss) per
CommonShare -
Diluted:
U.S. GAAP as
reported $ 0.03 $ (0.09) $ (0.17) $ (0.19) $ (0.63)
========== ========== ========== ========== ==========
Non-GAAP as
adjusted(3) $ 0.10 $ (0.01) $ (0.07) $ 0.03 $ (0.34)
========== ========== ========== ========== ==========
Weighted average
sharesused in
computing net
income
(loss)per
common share -
U.S. GAAP:
Basic 118,740 116,911 111,579 116,653 110,216
========== ========== ========== ========== ==========
Diluted 124,679 116,911 111,579 116,653 110,216
========== ========== ========== ========== ==========
Weighted average
sharesused in
computing net
income
(loss)per
common share -
Non-GAAP:
Basic 118,740 116,911 111,579 116,653 110,216
========== ========== ========== ========== ==========
Diluted(3) 124,679 121,254 113,443 121,178 112,113
========== ========== ========== ========== ==========
(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 Nine Months Ended
-------------------------------- ---------------------
September June 29, September September September
28, 2013 2013 29, 2012 28, 2013 29, 2012
---------- ---------- ---------- ---------- ----------
Cost of revenue $ 422 $ 474 $ 683 $ 1,382 $ 1,975
Research and
development 2,434 2,622 3,439 8,175 10,454
Sales and marketing 1,853 1,807 2,685 5,659 7,648
General and
administration 1,807 1,591 2,804 4,167 7,732
---------- ---------- ---------- ---------- ----------
6,516 6,494 9,611 19,383 27,809
Cost of revenue -
amortization from
balance sheet* 1,127 1,690 1,706 4,419 3,875
---------- ---------- ---------- ---------- ----------
Total stock-based
compensation expense $ 7,643 $ 8,184 $ 11,317 $ 23,802 $ 31,684
========== ========== ========== ========== ==========
* 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)
September 28, December 29,
2013 2012
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 137,629 $ 104,666
Short-term investments 151,821 76,146
Accounts receivable, net of allowance for
doubtful accounts of $147 in 2013 and $94
in 2012 87,180 107,039
Other receivables 616 2,909
Inventory 123,505 127,809
Deferred inventory costs 1,244 1,029
Prepaid expenses and other current assets 18,924 9,899
------------- -------------
Total current assets 520,919 429,497
Property, plant and equipment, net 79,062 80,343
Deferred inventory costs, non-current 19 100
Long-term investments 52,871 2,874
Cost-method investment 9,000 9,000
Long-term restricted cash 3,724 3,868
Deferred tax asset - 805
Other non-current assets 5,238 1,683
------------- -------------
Total assets $ 670,833 $ 528,170
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 29,218 $ 61,428
Accrued expenses 21,290 25,483
Accrued compensation and related benefits 24,621 22,325
Accrued warranty 12,854 7,262
Deferred revenue 25,202 26,744
Deferred tax liability - 805
------------- -------------
Total current liabilities 113,185 144,047
Long-term debt 107,350 -
Accrued warranty, non-current 10,308 9,220
Deferred revenue, non-current 3,097 3,210
Other long-term liabilities 18,158 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
September 28, 2013 and December 29, 2012
Issued and outstanding shares - 119,491 as
of September 28, 2013 and 112,461as of
December 29, 2012 119 112
Additional paid-in capital 1,016,397 930,618
Accumulated other comprehensive loss (3,474) (2,228)
Accumulated deficit (594,307) (572,366)
------------- -------------
Total stockholders' equity 418,735 356,136
------------- -------------
Total liabilities and stockholders' equity $ 670,833 $ 528,170
============= =============
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
----------------------------
September 28, September 29,
2013 2012
------------- -------------
Cash Flows from Operating Activities:
Net loss $ (21,941) $ (69,242)
Adjustments to reconcile net loss to net
cashused in operating activities:
Depreciation and amortization 18,574 17,274
(Recovery of) provision for other
receivables (88) -
Provision for doubtful accounts 53 94
Amotization of debt discount and issuance
costs 2,552 -
Amortization of premium on investments 870 1,610
Stock-based compensation expense 23,802 31,684
Non-cash tax benefit - (18)
Other gain (243) (479)
Changes in assets and liabilities:
Accounts receivable 19,805 (11,021)
Other receivables 2,131 (2,228)
Inventory (3,603) (28,774)
Prepaid expenses and other assets (8,398) 33
Deferred inventory costs (160) 4,877
Accounts payable (30,624) (1,048)
Accrued liabilities and other expenses 1,640 3,690
Deferred revenue (1,655) (6,683)
Accrued warranty 6,680 2,434
------------- -------------
Net cash provided by (used in) operating
activities 9,395 (57,797)
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (206,528) (50,134)
Proceeds from sale of available-for-sale
investments 2,850 6,694
Proceeds from maturities and calls of
investments 77,143 95,368
Purchase of property and equipment (13,605) (22,238)
Reimbursement of manufacturing capacity
advance - 50
Change in restricted cash 110 (564)
------------- -------------
Net cash provided by (used in) investing
activities (140,030) 29,176
Cash Flows from Financing Activities:
Proceeds from issuance of debt, net 144,469 -
Proceeds from issuance of common stock 21,551 11,280
Repurchase of common stock (1,541) (875)
------------- -------------
Net cash provided by financing activities 164,479 10,405
Effect of exchange rate changes on cash (881) 358
Net change in cash and cash equivalents 32,963 (17,858)
Cash and cash equivalents at beginning of
period 104,666 94,458
------------- -------------
Cash and cash equivalents at end of period $ 137,629 $ 76,600
============= =============
Supplemental disclosures of cash flow
information:
Cash paid for income taxes $ 1,536 $ 755
Supplemental schedule of non-cash financing
activities:
Non-cash settlement for manufacturing
capacity advance $ - $ 275
Transfer of inventory to fixed assets $ 6,672 $ 738
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13
------ ------ ------- ------- ------- ------- ------ ------
Revenue ($ Mil) $112.0 $104.7 $93.5 $112.2 $128.1 $124.6 $138.4 $142.0
Gross Margin %
(1) 42% 40% 37% 39% 36% 36% 39% 49%
------ ------ ------- ------- ------- ------- ------ ------
Invoiced
Shipment
Composition:
Domestic % 70% 71% 70% 70% 63% 63% 64% 73%
International % 30% 29% 30% 30% 37% 37% 36% 27%
Largest Customer
% 14% 13% 15% 13% 13% 14% < 10% 17%
------ ------ ------- ------- ------- ------- ------ ------
Cash Related
Information:
Cash from (used
in) Operations
($ Mil) ($5.1) ($5.8) ($22.7) ($29.3) $8.3 ($21.3) $17.9 $12.8
Capital
Expenditures ($
Mil) $16.1 $13.6 $6.1 $2.5 $3.2 $4.9 $4.5 $4.2
Depreciation &
Amortization ($
Mil) $4.5 $5.5 $5.7 $6.1 $6.4 $6.3 $6.3 $5.9
DSO's 65 57 55 74 76 82 64 56
------ ------ ------- ------- ------- ------- ------ ------
Inventory
Metrics:
Raw Materials ($
Mil) $12.1 $15.3 $14.8 $12.4 $13.0 $12.2 $9.8 $12.1
Work in Process
($ Mil) $37.0 $41.6 $49.4 $59.8 $57.3 $53.1 $41.0 $45.7
Finished Goods
($ Mil) $39.9 $44.7 $50.9 $46.3 $57.5 $65.7 $70.5 $65.7
------ ------ ------- ------- ------- ------- ------ ------
Total Inventory
($ Mil) $89.0 $101.6 $115.1 $118.5 $127.8 $131.0 $121.3 $123.5
Inventory Turns
(1) 2.9 2.5 2.1 2.3 2.6 2.4 2.8 2.3
------ ------ ------- ------- ------- ------- ------ ------
Worldwide
Headcount 1,181 1,210 1,228 1,235 1,242 1,219 1,238 1,296
------ ------ ------- ------- ------- ------- ------ ------
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash
stock-based compensation expense.
Contacts: Media: Anna Vue avue@infinera.com Infinera Corporation 916-595-8157 Investors/Analysts: Jenifer Kirtland/Bob Jones jkirtland@infinera.com / bjones@infinera.com Infinera Corporation 408-543-8139/408-543-8140