Infinera Corporation Reports Second Quarter 2007 Financial Results


SUNNYVALE, Calif., July 31, 2007 (PRIME NEWSWIRE) -- Infinera Corporation. (Nasdaq:INFN), a leading provider of digital optical communications systems, today released financial results for the second quarter ended June 30, 2007.

In a separate press release today, the company also announced that Cox Communications has selected Infinera to build its national transport network.

GAAP Results:



  * Revenues for the second quarter of 2007 were $58.4 million
    compared to $49.2 million in the first quarter of 2007.
  * Gross margins were 28% in the second quarter of 2007 compared to
    24% in the first quarter of 2007.
  * Including non-cash stock-based compensation and warrant
    revaluation expenses, the net loss was $26.1 million, or $1.10 per
    share, for the second quarter of 2007 compared to a net loss of
    $19.8 million, or $2.62 per share, in the first quarter of 2007.

Non-GAAP Invoiced Shipment Results:



  * Invoiced shipments for the second quarter of 2007 were
    $69.0 million compared to $66.7 million in the first quarter of
    2007.
  * Gross margins were 37% in the second quarter of 2007 compared to
    35% in the first quarter of 2007.
  * Excluding non-cash stock-based compensation and warrant
    revaluation expenses, the net income was $2.7 million, or
    $0.04 per diluted share, for the second quarter of 2007 compared
    to a net loss of $5.4 million, or $0.71 per diluted share, in the
    first quarter of 2007.

Comments from Management:

"We are pleased with Infinera's second quarter performance -- our first quarter as a public company -- as it reflects our continued success in establishing ourselves as a leading systems company in the optical networking industry," said Jagdeep Singh, chief executive officer of Infinera. "As service providers build out their networks to accommodate growing internet traffic, they continue to embrace Infinera's highly-differentiated and highly-flexible Digital Optical Network architecture as a compelling solution for long-haul and metro optical networks."

Singh also noted that Infinera added five new customers in the second quarter, bringing its total customer roster to 31, and that the company introduced the new Infinera 40G Tributary Adapter Module, which the company believes is the industry's most flexible and economical means of deploying 40G services in the optical network.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its second quarter results 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 websiteat www.infinera.com. Following the webcast, an archived version will be available on the website for 30 days. To hear the replay, parties in the United States and Canada should call 866-457-5509. International parties can access the replay at 203-369-1283.

About Infinera

Infinera provides Digital Optical Networking systems (the DTN System) to telecommunications carriers, cable operators and other service providers worldwide. Infinera's large-scale photonic integrated circuit (PIC) incorporates 100 Gigabits per second of transmit and receive capacity and the functionality of more than 60 discrete optical components into a pair of indium phosphide chips. Infinera's DTN system and PIC technology are designed to provide optical networks that provide operating simplicity, enhanced revenue generation, faster time-to-service and capital cost savings. For more information, please visit www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements relating to Infinera's ability to change the economics of optical communications networks and design products that are flexible and economical for its customers. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs or develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to compete in our industry; fluctuations indemand, sales cycles and prices for our products and services; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Infinera's business are set forth in our final Prospectus which was filed with the SEC on June 6, 2007, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Non-GAAP and other Financial Measures

In addition to disclosing financial measures prepared in accordance with United States Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain non-GAAP financial measures reported on an invoiced shipment basis. For a description of these non-GAAP financial measures, including the reasons why management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "GAAP to Non-GAAP Invoiced Shipment Reconciliation" as well as the accompanying notes on the use of non-GAAP invoiced shipment information. We anticipate disclosing forward-looking non-GAAP and other financial information in our conference call to discuss our second quarter results, including an estimate of non-GAAP invoiced shipment earnings for the third quarter of 2007 that includes the impact of invoiced shipments in the period and excludes non-cash stock-based compensation expenses related to our equity awards and the right to purchase common stock under our Employee Stock Purchase Plan.

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 amounts)
 (Unaudited)

                              Three Months Ended   Six Months Ended
                                  June 30,             June 30,
                              ------------------  ------------------
                                2007      2006      2007      2006
                              --------  --------  --------  --------
 Revenue:
  Ratable product and related
   support and services       $ 54,411  $  4,054  $100,358  $  6,707
  Product                        4,005        --     7,250        --
                              --------  --------  --------  --------
   Total revenue                58,416     4,054   107,608     6,707

 Cost of revenue(a):
  Cost of ratable product and
   related support and
   services                     37,529     4,488    72,372     9,973
  Lower of cost or market
   adjustment                    2,219     3,657     3,286     7,982

  Cost of product                2,488        --     3,851        --
                              --------  --------  --------  --------
   Total cost of revenue        42,236     8,145    79,509    17,955

 Gross profit (loss)            16,180    (4,091)   28,099   (11,248)

 Operating expenses(a):
  Sales and marketing            6,401     4,162    14,037     6,863
  Research and development      14,079     7,272    30,137    13,718
  General and administrative     5,358     2,286    10,915     3,664

  Amortization of intangible
   assets                           37        --        74        --
                              --------  --------  --------  --------
   Total operating expenses     25,875    13,720    55,163    24,245
                              --------  --------  --------  --------

 Loss from operations           (9,695)  (17,811)  (27,064)  (35,493)

 Other income (expense), net:

  Interest income                  729       569       914       795
  Interest expense              (1,119)   (1,399)   (2,182)   (2,389)
  Other gain (loss), net(b)    (15,978)      460   (17,515)      728
                              --------  --------  --------  --------
   Total income (expense), net (16,368)     (370)  (18,783)     (866)

 Loss before provision of
  income taxes                 (26,063)  (18,181)  (45,847)  (36,359)

 Provision for income taxes         33        15        62        30
                              --------  --------  --------  --------
 Net loss                     $(26,096) $(18,196) $(45,909) $(36,389)
                              ========  ========  ========  ========
 Net loss per common share,
  basic and diluted           $  (1.10) $  (3.23) $  (2.94) $  (6.84)
                              ========  ========  ========  ========
 Shares used in computing
  basic and diluted net loss
  per common share              23,678     5,630    15,620     5,320
                              ========  ========  ========  ========

 -----------------------

 (a) The following table summarizes the effects of stock-based 
     compensation related to employees, non-recourse notes and 
     non-employees for the three and six months ended June 30, 2007 
     and 2006:

                              Three Months Ended   Six Months Ended
                                  June 30,             June 30,
                              ------------------  ------------------
                                2007      2006      2007      2006
                              --------  --------  --------  --------
 Cost of revenue              $     94  $      2  $    111  $      4
 Research and development        1,014        30     1,323        58
 Sales and marketing               346        16       433        28
 General and administration        685        21       903        40
                              --------  --------  --------  --------
                                 2,139        69     2,770       130

 Cost of revenue -   
  amortization from balance 
  sheet*                            27        --        40        --
                              --------  --------  --------  --------
                                  
 Total stock-based 
  compensation expense        $  2,166  $     69  $  2,810  $    130
                              ========  ========  ========  ========

 * Stock-based compensation expense deferred to inventory and 
   deferred inventory costs in prior periods and recognized in the 
   current period.

 (b) The following table summarizes the remeasurement of our 
     freestanding preferred stock warrants under FAS 150:

                              Three Months Ended   Six Months Ended
                                  June 30,             June 30,
                              ------------------  ------------------
                                2007      2006      2007      2006
                              --------  --------  --------  --------
     Other gain  (loss)       $ 17,261  $   (442) $ 19,761  $   (581)

 Infinera Corporation
 GAAP to Non-GAAP Invoiced Shipment Reconciliation
 (In thousands, except for share amounts)
 (Unaudited)

                            Three Months Ended June 30, 2007
               -------------------------------------------------------
                                                             
                                                              Non-GAAP
                                                              Invoiced
                                                             Shipments
                                                             Excluding
                                      Non-GAAP  Stock Comp  Stock Comp
                         Deferral     Invoiced  /Warrant     /Warrant
                 GAAP   Adjustments  Shipments  Valuation    Valuation
               --------  --------     --------  --------     --------


 Revenue       $ 58,416  $ 10,535 (a) $ 68,951  $     --     $ 68,951
 Cost of
  revenue        42,236     1,248 (b)   43,484      (169) (c)  43,315
               --------  --------     --------  --------     --------
 Gross profit    16,180     9,287       25,467       169       25,636
 Gross margin        28%                                           37%
 Operating
  expenses       25,875        --       25,875    (2,045) (c)  23,830
               --------  --------     --------  --------     --------
 Income (Loss)
  from
  operations     (9,695)    9,287         (408)    2,214        1,806
 Other income
  (expense),
  net           (16,368)       --      (16,368)   17,261  (d)     893
               --------  --------     --------  --------     --------
 Income (Loss)
  before
  provision
  for income
  taxes         (26,063)    9,287      (16,776)   19,475        2,699
 Provision for
  income taxes       33        --           33        --           33
               --------  --------     --------  --------     --------
 Net income
  (loss)       $(26,096) $  9,287     $(16,809) $ 19,475     $  2,666
               ========  ========     ========  ========     ========
 Net income
  (loss) per
  common share:

 Basic         $  (1.10)                                     $   0.11
               ========                                      ========
 Diluted       $  (1.10)                                     $   0.04
               ========                                      ========
 Shares used in
  computing net
  income (loss)
  per common
  share:
 Basic           23,678                                        23,678
               ========                                      ========
 Diluted         23,678                                        59,284
               ========                                      ========

                            Three Months Ended March 31, 2007
               -------------------------------------------------------
                                                             
                                                              Non-GAAP
                                                              Invoiced
                                                             Shipments
                                                             Excluding
                                      Non-GAAP  Stock Comp  Stock Comp
                         Deferral     Invoiced  /Warrant     /Warrant
                 GAAP   Adjustments  Shipments  Valuation    Valuation
               --------  --------     --------  --------     --------

 Revenue       $ 49,192  $ 17,467 (a) $ 66,659  $     --     $ 66,659
 Cost of 
  revenue        37,273     6,205 (b)   43,478       (57) (c)  43,421
               --------  --------     --------  --------     --------
 Gross profit    11,919    11,262       23,181        57       23,238
 Gross margin        24%                                           35%
 Operating 
  expenses       29,288        --       29,288      (614) (c)  28,674
               --------  --------     --------  --------     --------
 Income (Loss) 
  from 
  operations    (17,369)   11,262       (6,107)      671       (5,436)
 Other income 
  (expense), net (2,415)       --       (2,415)    2,500  (d)      85
               --------  --------     --------  --------     --------
 Income (Loss) 
  before 
  provision for
  income taxes  (19,784)   11,262       (8,522)    3,171       (5,351)
 Provision for 
  income taxes       29        --           29        --           29
               --------  --------     --------  --------     --------
 Net income 
  (loss)       $(19,813) $ 11,262     $ (8,551) $  3,171     $ (5,380)
               ========  ========     ========  ========     ========
 Net income 
  (loss) per 
  common share:
 Basic         $  (2.62)                                     $  (0.71)
               ========                                      ========
 Diluted       $  (2.62)                                     $  (0.71)
               ========                                      ========
 Shares used in 
  computing 
  net income
  (loss) per 
  common share:
 Basic            7,560                                         7,560
               ========                                      ========
 Diluted          7,560                                         7,560
               ========                                      ========

 Infinera Corporation 
 GAAP to Non-GAAP Invoiced Shipment Reconciliation
 (In thousands)

Use of Non-GAAP Invoiced Shipments Information:

To supplement our condensed consolidated financial statements presented on a U.S. GAAP basis, Infinera uses non-GAAP Invoiced Shipment measures of operating results, net income and net income per share, which are adjusted to exclude stock-based compensation expense and warrant valuation expense and include changes in deferred revenue and deferred cost of inventory. We believe these adjustments are appropriate to enhance an overall understanding of our past financial performance and also our prospects for the future. These adjustments to our current period GAAP results are made with the intent of providing both management and investors a more complete understanding of Infinera's underlying operating results and trends and our marketplace performance. The non-GAAP Invoiced Shipments results are an indication of our baseline performance that 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 or basic and diluted net income per share prepared in accordance with U.S. GAAP. Non-GAAP Invoiced Shipments financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations.



 (a) Included amount represents the change in the deferred revenue 
     balance for the period as reported on the company's balance 
     sheet.  We believe investors want to see the income statement 
     with the change in deferral balance included in order to 
     understand the gross margin profile of the underlying invoiced 
     shipments.
 
 (b) Included amount represents the change in the deferred cost of 
     inventory balance for the period as reported on the company's 
     balance sheet.  We believe investors want to see the income 
     statement with the change in the deferral balance included in 
     order to understand the gross margin profile of the underlying 
     invoiced shipments.

 (c) Excluded amount represents stock-based compensation expense. 
     Stock-based compensation is a non-cash expense accounted for in 
     accordance with the fair value recognition provisions of 
     Statement of Financial Accounting Standards No. 123(R). While a 
     large component of our expense, we believe investors want to 
     evaluate our financial results  both including and excluding the 
     effects of stock-based compensation expense in order to compare 
     our financial performance with that of other companies and 
     between time periods.

 (d) Excluded amount represents the adjustment to revalue our 
     convertible preferred warrants to fair value as required by FAS 
     150.  Subsequent to our IPO, we are no longer required to revalue 
     these warrants and, therefore, we believe investors want to 
     evaluate our financial results both including and excluding the 
     effect of this revaluation expense in order to compare our 
     financial performance with that of other companies and between 
     periods. 

 Infinera Corporation
 Condensed Consolidated Balance Sheets
 (In thousands)
                                               June 30,   December 31,
                                                2007         2006
                                              ---------    ---------
                                             (Unaudited)

 ASSETS
 Current assets:
  Cash and cash equivalents                   $ 197,419    $  28,884
  Short-term investments                            696          688
  Accounts receivable                            27,584       42,148
  Inventory                                      58,511       58,269
  Deferred inventory costs                       70,299       62,936
  Prepaid expenses and other current              3,074        3,115
                                              ---------    ---------
   Total current assets                         357,583      196,040

 Property, plant and equipment, net              30,746       26,665
 Intangible assets                                1,673        1,806
 Deferred inventory costs, non-current            4,407        4,317
 Other non-current assets                           444        1,638
                                              ---------    ---------
   Total assets                               $ 394,853    $ 230,466
                                              =========    =========

  LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' 
   EQUITY (DEFICIT)

 Current liabilities:
  Accounts payable                            $  28,963    $  41,767
  Accrued expenses                                8,853       16,574
  Accrued compensation and related benefits       9,080        7,628
  Accrued warranty                                4,324        1,339
  Deferred revenue                              129,605      101,080
  Preferred stock warrant liability                  --        5,409
  Current portion of debt                         4,500       20,025
                                              ---------    ---------
   Total current liabilities                    185,325      193,822

 Long-term portion of debt                           --        8,357
 Accrued warranty, non-current                    5,712        1,378
 Deferred revenue, non-current                    9,350        9,873
 Long-term exercised unvested options             1,298          996
 Other long-term liabilities                      3,021        1,811

 Convertible preferred stock                         --      320,550

 Stockholders' equity
 (deficit):
  Common stock                                       85            9
  Additional paid-in capital                    550,188        7,911
  Accumulated other comprehensive loss             (129)        (153)
  Accumulated deficit                          (359,997)    (314,088)
                                              ---------    ---------
  Total stockholders' equity (deficit)          190,147     (306,321)
                                              ---------    ---------
  Total liabilities, convertible preferred
   stock and stockholders' equity (deficit)   $ 394,853    $ 230,466
                                              =========    =========

 Infinera Corporation
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)                                     Six Months Ended
                                                     June 30,
                                              ----------------------
                                                 2007         2006
                                              ---------    ---------
 Cash Flows from Operating Activities:
 Net loss                                     $ (45,909)   $ (36,389)
 Adjustments to reconcile net loss to net
  cash used in operating
 activities:
  Depreciation and amortization                   4,423        3,480
  Amortization of debt discount                     282          128
  Asset impairment charges                          393           --
  Stock-based compensation expense                2,810          130
  Revaluation of warrant liablities              19,761           91
  Gain on disposal of fixed assets                  (20)          --
  Gain on sale of assets held for sale           (2,001)          --
  Unrealized loss on investments                    (25)          --
  Changes in assets and liabilities:
   Accounts receivable                           14,732       (7,052)
   Inventory                                      1,661      (13,653)
   Prepaid expenses and other current assets         39         (206)
   Deferred inventory costs                      (7,493)     (18,351)
   Other non-current assets                         599         (337)
   Accounts payable                             (12,761)       3,334
   Accrued liabilities and other expenses        (5,603)       7,491
   Deferred revenue                              28,002       26,777
   Accrued warranty                               7,318          645
                                              ---------    ---------
    Net cash provided by (used in) operating
     activities                                   6,208      (33,912)

 Cash Flows from Investing Activities:
  Purchase of short-term investments                 --            4
  Proceeds from sale of short-term
   investments                                       --        1,098
  Proceeds from disposition of acquired
   assets                                            --        1,450
  Proceeds from disposal of fixed assets             30           --
  Proceeds from sale of assets held for sale      2,507           --
  Purchase of property and equipment             (8,723)      (4,937)
    Net cash used in investing activities
                                                 (6,186)      (2,385)

 Cash Flows from Financing Activities:
  Principal payments on loan obligation         (30,901)     (11,012)
  Proceeds from loans                             7,119       13,652
  Proceeds from initial public offering,
   net of issuance costs                        190,245           --
  Proceeds from issuance of common stock          2,050        2,591
  Proceeds from issuance of convertible
   preferred stock, net of issuance costs            --       52,640
  Proceeds from non-recourse notes                   --           18
  Repurchase of common stock                        (50)          --
                                              ---------    ---------
    Net cash provided by financing activities   168,463       57,889
 Effect of exchange rate changes                     49          (62)
                                              ---------    ---------
 Net change in cash and cash equivalents        168,534       21,530
 Cash and cash equivalents at beginning of
  period                                         28,884       36,013
                                              ---------    ---------
 Cash and cash equivalents at end of period   $ 197,418    $  57,543
                                              =========    =========
 Supplemental disclosures of cash flow
  information:
    Cash paid for interest                    $   2,203    $   1,369
    Cash paid for income taxes                $      81    $      21

 Infinera Corporation
 Supplemental Financial Information

 ---------------------------------------------------------------------
                         Q1'06   Q2'06   Q3'06   Q4'06   Q1'07  Q2'07
 ---------------------------------------------------------------------
 Invoiced Shipments      $13.8   $19.7   $42.0   $70.5   $66.7   $69.0
 Gross Margin %          -43%     16%     21%     25%     35%     37%
 ---------------------------------------------------------------------
 Invoiced Shipment 
  Composition:
 Domestic %               76%     89%     78%     72%     89%     84%
 International %          24%     11%     22%     28%     11%     16%
 Largest Customer%        64%     58%     55%     47%     57%     48%
 ---------------------------------------------------------------------
 Cash Related Information:

 Cash from Operations   ($21.6) ($12.3) ($18.8) ($15.0)  $6.9   ($0.8)
 Capital Expenditures    $2.1    $2.9    $6.2     $4.1   $5.2    $3.6
 Depreciation & 
  Amortization           $1.6    $1.7    $1.9     $1.8   $2.1    $2.0
 DSO's                    54      48      49       54     27      36
 ---------------------------------------------------------------------
 Inventory Metrics:

 Raw Materials           $4.0    $5.1    $7.8     $6.7   $7.4    $8.8
 Work in Process         $16.7   $21.2   $30.9   $38.1   $31.6   $36.0
 Finished Goods          $5.7    $12.0   $11.8   $13.5   $18.4   $13.7
 ---------------------------------------------------------------------
 Total Inventory         $26.5   $38.3   $50.5   $58.3   $57.3   $58.5
 Inventory Turns          3.0     1.7     2.6     3.6     3.0     3.0
 ---------------------------------------------------------------------
 Worldwide Headcount      363     470     576     605     617     646
 ---------------------------------------------------------------------


            

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