Infinera Corporation Reports Third Quarter 2011 Financial Results

SUNNYVALE, CA--(Marketwire - Oct 18, 2011) - Infinera Corporation (NASDAQ: INFN), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 24, 2011.

GAAP revenues for the third quarter of 2011 were $104.0 million compared to $96.0 million in the second quarter of 2011 and $130.1 million in the third quarter of 2010.

GAAP gross margin for the third quarter of 2011 was 39% compared to 39% in the second quarter of 2011 and 50% in the third quarter of 2010. GAAP net loss for the quarter was $21.8 million, or $(0.21) per share, compared to net loss of $24.2 million, or $(0.23) per share, in the second quarter of 2011 and net income of $4.4 million, or $0.04 per diluted share, in the third quarter of 2010.

Non-GAAP gross margin for the third quarter of 2011 was 41% compared to 41% in the second quarter of 2011 and 51% in the third quarter of 2010, excluding restructuring and other related costs and non-cash stock-based compensation expenses. Non-GAAP net loss for the third quarter of 2011 was $9.2 million, or $(0.09) per share, compared to net loss of $11.7 million, or $(0.11) per share, in the second quarter of 2011 and net income of $18.7 million, or $0.18 per diluted share, in the third quarter of 2010.

Management Commentary

"We remain encouraged by our recent revenue performance and the momentum in booking activity as customers continue to address their increased bandwidth needs with Infinera-based networks," said Tom Fallon, president and chief executive officer. "Several factors are contributing to these trends -- our significant installed base, the broader application of our product line, our expanded sales force and a stronger focus at Infinera on key vertical markets and across geographies."

Fallon noted that the company's top customer for the third quarter was one of North America's leading cable companies and that the company's pipeline remains active with opportunities in the submarine space and with wholesale carriers in North America and Europe. One of the company's Tier 1 customers was among its top five customers in Q3.

"We were also pleased with the recent launch of the DTN-X, our new multi-terabit packet optical network platform based on our third generation 500 Gb/s PICs, a pair of chips that integrate more than 600 optical functions and will deliver the world's first 500 Gb/s FlexCoherent super-channels," said Fallon. "Customer response to the value proposition of the DTN-X -- as well to the newly enhanced features of the DTN -- has been very positive. The DTN-X reinforces Infinera's position at the forefront of the innovation curve in the optical transport industry at a time when the industry requires the next step function in capability."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results and fourth quarter outlook 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 1-800-813-5525. International parties can access the replay at 1-203-369-3346.

About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide. Infinera's systems are unique in their use of a breakthrough semiconductor technology: the photonic integrated circuit (PIC). Infinera's systems and PIC technology are designed to provide customers with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit www.infinera.com.

Forward-Looking Statements

This press release contains forward-looking statements, including statements regarding the key factors driving our revenue performance and bookings momentum; our sales pipeline and potential sales opportunities; and expectations for the continued success of our DTN-X product. 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 and 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 reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; our ability to operate profitably; aggressive business tactics by our competitors; our reliance on single-source suppliers; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; and general, political, economic and market conditions and events. Further information about these risks and uncertainties, and other risks and uncertainties that affect our business, are contained in the risk factors section and other sections of our annual report on Form 10-K filed with the Securities Exchange Commission on March 1, 2011, 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. We assume no obligation to, and do 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 non-recurring restructuring and other related costs. 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 2011 that excludes non-cash stock-based compensation expenses.

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 24,				September 25,				September 24,				September 25,
				2011				2010				2011				2010
Revenue:
	Product			$	89,554			$	115,121			$	256,443			$	299,323
	Ratable product and related support and services				847				1,460				2,583				4,738
	Services				13,621				13,480				33,842				33,158
		Total revenue			104,022				130,061				292,868				337,219
Cost of revenue (1):
	Cost of product				57,449				58,552				158,607				171,660
	Cost of ratable product and related support and services				167				874				846				2,558
	Cost of services				5,757				6,223				12,608				14,285
	Restructuring credit related to cost of revenue				-				(60	)			-				(182	)
		Total cost of revenue			63,373				65,589				172,061				188,321
Gross profit					40,649				64,472				120,807				148,898
Operating expenses (1):
	Research and development				31,694				29,886				95,902				87,292
	Sales and marketing				17,545				14,847				46,437				41,566
	General and administrative				13,112				15,609				40,256				45,794
	Restructuring and other costs				-				-				-				159
		Total operating expenses			62,351				60,342				182,595				174,811
Income (loss) from operations					(21,702	)			4,130				(61,788	)			(25,913	)
Other income (expense), net:
	Interest income				205				283				742				1,093
	Other gain (loss), net				188				172				(203	)			(352	)
		Total other income (expense), net			393				455				539				741
Income (loss) before provision of income taxes					(21,309	)			4,585				(61,249	)			(25,172	)
Provision for income taxes					497				225				1,145				20
Net income (loss)				$	(21,806	)		$	4,360			$	(62,394	)		$	(25,192	)
Net income (loss) per common share
	Basic			$	(0.21	)		$	0.04			$	(0.59	)		$	(0.26	)
	Diluted			$	(0.21	)		$	0.04			$	(0.59	)		$	(0.26	)
Weighted average shares used in computing net income (loss) per common share
	Basic				106,264				99,976				104,936				98,647
	Diluted				106,264				105,159				104,936				98,647
(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 24, 2011 and September 25, 2010:

		Three Months Ended						Nine Months Ended
		September 24,			September 25,			September 24,			September 25,
		2011			2010			2011			2010
Cost of revenue		$	722		$	725		$	2,213		$	1,858
Research and development			3,745			3,773			11,075			10,546
Sales and marketing			2,216			2,148			6,501			6,187
General and administration			4,410			6,281			14,021			17,188
			11,093			12,927			33,810			35,779
Cost of revenue - amortization from balance sheet*			1,487			1,517			3,617			4,182
Total stock-based compensation expense		$	12,580		$	14,444		$	37,427		$	39,961
* 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 24,				June 25,				September 25,				September 24,				September 25,
		2011				2011				2010				2011				2010
Reconciliation of Gross Profit:
U.S. GAAP as reported		$	40,649			$	37,414			$	64,471			$	120,807			$	148,898
Restructuring and other related credit(1)			-				-				(60	)			-				(182	)
Stock-based compensation(2)			2,209				1,925				2,242				5,830				6,040
Non-GAAP as adjusted		$	42,858			$	39,339			$	66,653			$	126,637			$	154,756
Reconciliation of Gross Margin:
U.S. GAAP as reported			39	%			39	%			50	%			41	%			44	%
Restructuring and other related credit(1)			-	%			-	%			-	%			-	%			-	%
Stock-based compensation(2)			2	%			2	%			1	%			2	%			2	%
Non-GAAP as adjusted			41	%			41	%			51	%			43	%			46	%
Reconciliation of Income (Loss) from Operations:
U.S. GAAP as reported		$	(21,702	)		$	(24,077	)		$	4,130			$	(61,788	)		$	(25,913	)
Restructuring and other related costs (credit)(1)			-				-				(60	)			-				(23	)
Stock-based compensation(2)			12,580				12,482				14,444				37,427				39,961
Non-GAAP as adjusted		$	(9,122	)		$	(11,595	)		$	18,514			$	(24,361	)		$	14,025
Reconciliation of Net Income (Loss):
U.S. GAAP as reported		$	(21,806	)		$	(24,194	)		$	4,360			$	(62,394	)		$	(25,192	)
Restructuring and other related costs (credit)(1)			-				-				(60	)			-				(23	)
Stock-based compensation(2)			12,580				12,482				14,444				37,427				39,961
Non-GAAP as adjusted		$	(9,226	)		$	(11,712	)		$	18,744			$	(24,967	)		$	14,746
Net Income (Loss) per Common Share - Basic:
U.S. GAAP		$	(0.21	)		$	(0.23	)		$	0.04			$	(0.59	)		$	(0.26	)
Non-GAAP		$	(0.09	)		$	(0.11	)		$	0.19			$	(0.24	)		$	0.15
Net Income (Loss) per Common Share - Diluted:
U.S. GAAP		$	(0.21	)		$	(0.23	)		$	0.04			$	(0.59	)		$	(0.26	)
Non-GAAP		$	(0.09	)		$	(0.11	)		$	0.18			$	(0.24	)		$	0.14
Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:
Basic			106,264				105,165				99,976				104,936				98,647
Diluted			106,264				105,165				105,159				104,936				98,647
Weighted average shares used in computing net income (loss) per common share - Non-GAAP:
Basic			106,264				105,165				99,976				104,936				98,647
Diluted			106,264				105,165				105,159				104,936				103,389
(1) Adjustment amount represents restructuring and other related costs (credit) recorded in relation to the closure of our Maryland FAB announced on July 21, 2009. These amounts have been adjusted in arriving at our non-GAAP results as they are non-recurring in nature and the adjusted numbers provide a better indication of our underlying business performance.

		Three Months Ended											Nine Months Ended
		September 25, 2010											September 25, 2010
		Cost of Revenue				Operating Expenses			Total				Cost of Revenue				Operating Expenses			Total
Severance and related expenses (credits)		$	-			$	-		$	-			$	(144	)		$	55		$	(89	)
Equipment and facility-related costs (credits)			(60	)			-			(60	)			(38	)			-			(38	)
Lease termination			-				-			-				-				104			104
Total		$	(60	)		$	-		$	(60	)		$	(182	)		$	159		$	(23	)
(2) 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 24,			June 25,			September 25,			September 24,			September 25,
		2011			2011			2010			2011			2010
Cost of revenue		$	722		$	760		$	725		$	2,213		$	1,858
Research and development			3,745			3,504			3,773			11,075			10,546
Sales and marketing			2,216			2,225			2,148			6,501			6,187
General and administration			4,410			4,828			6,281			14,021			17,188
			11,093			11,317			12,927			33,810			35,779
Cost of revenue - amortization from balance sheet*			1,487			1,165			1,517			3,617			4,182
Total stock-based compensation expense		$	12,580		$	12,482		$	14,444		$	37,427		$	39,961
* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)
				September 24,				December 25,
				2011				2010
ASSETS
Current assets:
	Cash and cash equivalents			$	112,641			$	113,649
	Short-term investments				132,616				168,013
	Short-term restricted cash				157				1,856
	Accounts receivable				68,954				75,931
	Other receivables				1,259				4,420
	Inventories, net				70,295				81,893
	Deferred inventory costs				6,468				6,715
	Prepaid expenses and other current assets				15,699				9,118
		Total current assets			408,089				461,595
Property, plant and equipment, net					63,703				51,740
Deferred inventory costs, non-current					2,023				2,512
Long-term investments					27,524				9,953
Cost-method investment					9,000				4,500
Long-term restricted cash					2,637				2,235
Deferred tax asset					3,182				11,882
Other non-current assets					3,429				7,108
		Total assets		$	519,587			$	551,525
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable			$	37,636			$	35,658
	Accrued expenses				23,373				19,790
	Accrued compensation and related benefits				14,923				25,098
	Accrued warranty				5,054				5,696
	Deferred revenue				19,927				21,958
	Deferred tax liability				3,182				11,882
		Total current liabilities			104,095				120,082
	Accrued warranty, non-current				6,050				5,726
	Deferred revenue, non-current				3,206				4,633
	Other long-term liabilities				11,607				10,335
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 24, 2011 and December 25, 2010
	Issued and outstanding shares – 106,747 as of September 24, 2011 and 102,492 as of December 25, 2010				107				102
	Additional paid-in capital				863,805				817,200
	Accumulated other comprehensive loss				(1,597	)			(1,261	)
	Accumulated deficit				(467,686	)			(405,292	)
	Total stockholders' equity				394,629				410,749
		Total liabilities and stockholders' equity		$	519,587			$	551,525

Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
					Nine Months Ended
					September 24,				September 25,
					2011				2010
Cash Flows from Operating Activities:
Net loss					$	(62,394	)		$	(25,192	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization					13,355				11,594
	Provision for other receivables					563				-
	Non-cash restructuring and other costs					-				100
	Amortization of premium on investments					3,290				2,753
	Stock-based compensation expense					37,427				39,961
	Unrealized loss on Put Rights					-				1,696
	Unrealized holding gain for trading securities					-				(1,696	)
	Non-cash tax benefit					(130	)			(411	)
	Other gain					(337	)			(210	)
	Changes in assets and liabilities:
		Accounts receivable				6,976				5,425
		Other receivables				3,622				(430	)
		Inventories, net				12,333				(19,787	)
		Prepaid expenses and other assets				5,471				4,932
		Deferred inventory costs				549				114
		Accounts payable				(2,888	)			15,024
		Accrued liabilities and other expenses				(10,946	)			(6,856	)
		Deferred revenue				(3,459	)			(3,275	)
		Accrued warranty				(316	)			(215	)
			Net cash provided by operating activities			3,116				23,527
Cash Flows from Investing Activities:
	Purchase of available-for-sale investments					(206,829	)			(212,307	)
	Purchase of cost-method investment					(4,500	)			(4,500	)
	Proceeds from sale of available-for-sale investments					3,035				-
	Proceeds from maturities and calls of investments					218,798				184,662
	Proceeds from disposal of assets					262				284
	Purchase of property and equipment					(23,236	)			(15,639	)
	Advance to secure manufacturing capacity					(1,500	)			-
	Reimbursement of manufacturing capacity advance					375				-
	Change in restricted cash					1,262				(61	)
		Net cash used in investing activities				(12,333	)			(47,561	)
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock					9,964				12,341
	Repurchase of common stock					(1,239	)			(14	)
	Payments for purchase of assets under financing arrangement					(262	)			(262	)
		Net cash provided by financing activities				8,463				12,065
Effect of exchange rate changes on cash						(254	)			86
Net change in cash and cash equivalents						(1,008	)			(11,883	)
Cash and cash equivalents at beginning of period						113,649				109,859
Cash and cash equivalents at end of period					$	112,641			$	97,976
Supplemental disclosures of cash flow information:
	Cash paid for income taxes				$	852			$	882

Infinera Corporation
Supplemental Financial Information
(Unaudited)
		Q4'09		Q1'10		Q2'10		Q3'10		Q4'10		Q1'11		Q2'11		Q3'11
Revenue ($ Mil)		$90.2		$95.8		$111.4		$130.1		$117.1		$92.9		$96.0		$104.0
Gross Margin % (1)		40%		41%		44%		51%		51%		48%		41%		41%
Invoiced Shipment Composition:
Domestic %		74%		79%		81%		73%		70%		74%		72%		65%
International %		26%		21%		19%		27%		30%		26%		28%		35%
Largest Customer %		17%		22%		13%		19%		10%		14%		10%		< 10%
Cash Related Information:
Cash from Operations ($ Mil)		($2.7)		$2.3		$11.2		$10.0		$7.0		($0.9)		($0.1)		$4.1
Capital Expenditures ($ Mil)		$4.4		$4.7		$5.0		$5.9		$5.0		$10.6		$6.7		$5.9
Depreciation & Amortization ($ Mil)		$4.5		$4.0		$3.7		$3.9		$4.0		$4.2		$4.2		$4.9
DSO's		71		56		45		45		59		60		70		60
Inventory Metrics:
Raw Materials ($ Mil)		$6.9		$7.5		$9.1		$11.0		$23.1		$20.1		$7.3		$7.0
Work in Process ($ Mil)		$32.1		$31.5		$29.2		$36.5		$14.8		$17.2		$27.7		$26.9
Finished Goods ($ Mil)		$29.9		$33.0		$45.9		$41.2		$44.0		$41.0		$34.4		$36.4
Total Inventory ($ Mil)		$68.9		$72.0		$84.2		$88.7		$81.9		$78.3		$69.4		$70.3
Inventory Turns (1)		3.2		3.2		3.0		2.9		2.8		2.5		3.3		3.5
Worldwide Headcount		974		999		1,028		1,040		1,072		1,118		1,136		1,151
(1) Amounts reflect non-GAAP results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation expense.