Revenue of $130.1 Million on Year-Over-Year Growth of 56%; Non-GAAP Profit of $0.18 per Diluted Share; Non-GAAP Gross Margin at 51%
-- GAAP revenues for the quarter were $130.1 million compared to $111.4 million in the second quarter of 2010 and $83.4 million in the third quarter of 2009, representing year-over-year growth of 56%. -- GAAP gross margins for the quarter were 50% compared to 42% in the second quarter of 2010 and 33% in the third quarter of 2009. GAAP net income for the quarter was $4.4 million, or $0.04 per basic and diluted share, compared to a net loss of $9.6 million, or $(0.10) per share, in the second quarter of 2010 and a net loss of $16.5 million, or $(0.17) per share, in the third quarter of 2009. -- Non-GAAP gross margins for the quarter were 51% compared to 44% in the second quarter of 2010 and 38% in the third quarter of 2009, which excludes restructuring and other related costs and non-cash stock-based compensation. Non-GAAP net income for the quarter was $18.7 million, or $0.18 per diluted share, compared to net income of $3.0 million, or $0.03 per diluted share in the second quarter of 2010 and a net loss of $3.1 million, or $(0.03) per share, in the third quarter of 2009.Management Commentary "I am pleased with the outstanding financial performance delivered by the Infinera team in the third quarter," said Tom Fallon, president and chief executive officer. "We achieved new records for quarterly revenue, gross margin and tributary adapter module shipments. The stronger revenue, higher profit margins and ongoing operating expense control resulted in significant income leverage, with a non-GAAP operating income contribution of $18.5 million for the quarter. We believe this operating income contribution, combined with our achievement of 51% gross margin, validates our long-term business model and demonstrates the leverage that is achievable." "We believe that our continued solid financial performance stems from our customers' confidence in Infinera's unique and differentiated PIC-based networks and our expanded product portfolio that provides the end-to-end solutions that they are demanding," continued Fallon. The company also noted the following developments in the third quarter and more recently:
-- Positive cash from operations of $10.0 million; -- TAM shipments of more than 3,000 units; -- The addition of two new invoiced customers bringing its customer roster to 77; -- The addition of six new ATN metro customers, bringing total ATN customers to 15; -- The launch of new hardware and software products for the company's DTN and ATN platforms that enable a new end-to-end "Digital OTN" solution; and -- Two important technical demonstrations, including: -- PIC-based 100 Gigabit per second (100G) coherent transmission and reception over a 1,348 kilometer route on an XO Communications nationwide network on a production Infinera line system, and -- 100 Gigabit Ethernet services over Colt's existing London to Frankfurt Infinera network.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 1-866-380-8126. International parties can access the replay at 1-203-369-0357.
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 25, 2010 26, 2009 25, 2010 26, 2009 --------- --------- --------- --------- Revenue: Product $ 115,121 $ 73,690 $ 299,323 $ 193,912 Ratable product and related support and services 1,460 892 4,738 3,206 Services 13,480 8,826 33,158 21,802 --------- --------- --------- --------- Total revenue 130,061 83,408 337,219 218,920 Cost of revenue (1): Cost of product 58,552 47,473 171,660 137,037 Cost of ratable product and related support and services 874 444 2,558 1,532 Cost of services 6,224 5,049 14,286 9,681 Restructuring costs (credit) related to cost of revenue (60) 2,736 (182) 2,736 --------- --------- --------- --------- Total cost of revenue 65,590 55,702 188,322 150,986 Gross profit 64,471 27,706 148,897 67,934 Operating expenses (1): Research and development 29,886 23,611 87,292 70,445 Sales and marketing 14,847 12,364 41,566 34,945 General and administrative 15,609 10,373 45,794 31,978 Restructuring and other costs - 601 159 601 --------- --------- --------- --------- Total operating expenses 60,342 46,949 174,811 137,969 Income (loss) from operations 4,129 (19,243) (25,914) (70,035) Other income (expense), net: Interest income 284 441 1,094 1,956 Total other-than-temporary impairment losses - - - (2,747) Portion of loss recognized in other comprehensive loss - (161) - 1,653 --------- --------- --------- --------- Net credit impairment losses recognized in earnings - (161) - (1,094) Other gain (loss), net 172 870 (352) (138) --------- --------- --------- --------- Total other income (expense), net 456 1,150 742 724 Income (loss) before income taxes 4,585 (18,093) (25,172) (69,311) Provision for (benefit from) income taxes 225 (1,561) 20 (1,340) --------- --------- --------- --------- Net income (loss) $ 4,360 $ (16,532) $ (25,192) $ (67,971) ========= ========= ========= ========= Net income (loss) per common share Basic $ 0.04 $ (0.17) $ (0.26) $ (0.71) ========= ========= ========= ========= Diluted $ 0.04 $ (0.17) $ (0.26) $ (0.71) ========= ========= ========= ========= Weighted average shares used in computing net income (loss) per common share Basic 99,976 95,864 98,647 95,100 ========= ========= ========= ========= Diluted 105,159 95,864 98,647 95,100 ========= ========= ========= ========= (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 25, 2010 and September 26, 2009: Three Months Ended Nine Months Ended --------------------- --------------------- September September September September 25, 2010 26, 2009 25, 2010 26, 2009 ---------- ---------- ---------- ---------- Cost of revenue $ 725 $ 490 $ 1,858 $ 1,346 Research and development 3,773 2,915 10,546 7,066 Sales and marketing 2,148 1,710 6,187 4,723 General and administration 6,281 3,984 17,188 10,142 ---------- ---------- ---------- ---------- 12,927 9,099 35,779 23,277 Cost of revenue - amortization from balance sheet* 1,517 987 4,182 2,457 ---------- ---------- ---------- ---------- Total stock-based compensation expense $ 14,444 $ 10,086 $ 39,961 $ 25,734 ========== ========== ========== ========== * 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 26, September September September 25, 2010 2010 26, 2009 25, 2010 26, 2009 ---------- ---------- ---------- ---------- ---------- Reconciliation of Gross Profit: U.S. GAAP as reported $ 64,471 $ 47,310 $ 27,706 $ 148,897 $ 67,934 Restructuring and other related costs(1) (60) (29) 2,736 (182) 2,736 Stock-based compensation (2) 2,242 1,867 1,477 6,040 3,803 ---------- ---------- ---------- ---------- ---------- Non-GAAP as adjusted $ 66,653 $ 49,148 $ 31,919 $ 154,755 $ 74,473 ========== ========== ========== ========== ========== Reconciliation of Gross Margin: U.S. GAAP as reported 50% 42% 33% 44% 31% Restructuring and other related costs(1) - % - % 3% -% 1% Stock-based compensation (2) 1% 2% 2% 2% 2% ---------- ---------- ---------- ---------- ---------- Non-GAAP as adjusted 51% 44% 38% 46% 34% ========== ========== ========== ========== ========== Reconciliation of Income (Loss) from Operations: U.S. GAAP as reported $ 4,129 $ (9,741) $ (19,243) $ (25,914) $ (70,035) Restructuring and other related costs(1) (60) (31) 3,337 (23) 3,337 Stock-based compensation (2) 14,444 12,607 10,086 39,961 25,734 ---------- ---------- ---------- ---------- ---------- Non-GAAP as adjusted $ 18,513 $ 2,835 $ (5,820) $ 14,024 $ (40,964) ========== ========== ========== ========== ========== Reconciliation of Net Income (Loss): U.S. GAAP as reported $ 4,360 $ (9,561) $ (16,532) $ (25,192) $ (67,971) Restructuring and other related costs(1) (60) (31) 3,337 (23) 3,337 Stock-based compensation (2) 14,444 12,607 10,086 39,961 25,734 ---------- ---------- ---------- ---------- ---------- Non-GAAP as adjusted $ 18,744 $ 3,015 $ (3,109) $ 14,746 $ (38,900) ========== ========== ========== ========== ========== Net Income (Loss) per Common Share - Basic: U.S. GAAP $ 0.04 $ (0.10) $ (0.17) $ (0.26) $ (0.71) ========== ========== ========== ========== ========== Non-GAAP $ 0.19 $ 0.03 $ (0.03) $ 0.15 $ (0.41) ========== ========== ========== ========== ========== Net Income (Loss) per Common Share - Diluted: U.S. GAAP $ 0.04 $ (0.10) $ (0.17) $ (0.26) $ (0.71) ========== ========== ========== ========== ========== Non-GAAP $ 0.18 $ 0.03 $ (0.03) $ 0.14 $ (0.41) ========== ========== ========== ========== ========== Weighted average shares used in computing net income (loss) per common share - U.S. GAAP: Basic 99,976 98,777 95,864 98,647 95,100 ========== ========== ========== ========== ========== Diluted 105,159 98,777 95,864 98,647 95,100 ========== ========== ========== ========== ========== Weighted average shares used in computing net income (loss) per common share - Non-GAAP: Basic 99,976 98,777 95,864 98,647 95,100 ========== ========== ========== ========== ========== Diluted 105,159 103,945 95,864 103,389 95,100 ========== ========== ========== ========== ========== (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 Operating Cost of Operating Revenue Expenses Total Revenue Expenses Total ------- ----------- ------ ------- ------------ ----- Severance and related expenses $ - $ - $ - $ (144) $ 55 $ (89) Equipment and facility- related costs (60) - (60) (38) - (38) Lease termination - - - - 104 104 ------- ----------- ------ ------- ------------ ----- Total $ (60) $ - $ (60) $ (182) $ 159 $ (23) ======= =========== ====== ======= ============ ===== Three Months Ended June 26, 2010 ---------------------------- Cost of Operating Revenue Expenses Total ------- ----------- ------ Severance and related expenses $ (129) $ - $ (129) Equipment and facility- related costs 100 - 100 Lease termination - (2) (2) ------- ----------- ------ Total $ (29) $ (2) $ (31) ======= =========== ====== Three and Nine Months Ended September 26, 2009 ---------------------------- Cost of Operating Revenue Expenses Total ------- ----------- ------ Severance and related expenses $ 804 $ 97 $ 901 Equipment and facility- related costs 1,900 415 2,315 Lease termination 32 89 121 ------- ----------- ------ Total $ 2,736 $ 601 $3,337 ======= =========== ====== (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 June 26, September September September 25, 2010 2010 26, 2009 25, 2010 26, 2009 ---------- ---------- ---------- ---------- ---------- Cost of revenue $ 725 $ 564 $ 490 $ 1,858 $ 1,346 Research and development 3,773 3,350 2,915 10,546 7,066 Sales and marketing 2,148 2,192 1,710 6,187 4,723 General and administration 6,281 5,198 3,984 17,188 10,142 ---------- ---------- ---------- ---------- ---------- 12,927 11,304 9,099 35,779 23,277 Cost of revenue - amortization from balance sheet* 1,517 1,303 987 4,182 2,457 ---------- ---------- ---------- ---------- ---------- Total stock-based compensation expense $ 14,444 $ 12,607 $ 10,086 $ 39,961 $ 25,734 ========== ========== ========== ========== ========== * 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 25, December 26, 2010 2009 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 97,976 $ 109,859 Short-term investments 174,940 143,350 Short-term restricted cash 1,856 1,533 Accounts receivable 64,058 69,483 Other receivables 3,221 927 Inventories, net 88,694 68,872 Deferred inventory costs 6,940 5,891 Prepaid expenses and other current assets 11,068 8,313 ----------- ----------- Total current assets 448,753 408,228 Property, plant and equipment, net 47,134 43,656 Deferred inventory costs, non-current 3,141 4,438 Long-term investments 11,118 18,255 Cost-method investment 4,500 - Long-term restricted cash 2,219 2,480 Deferred tax asset 7,649 12,449 Other non-current assets 2,215 2,439 ----------- ----------- Total assets $ 526,729 $ 491,945 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 45,880 $ 31,129 Accrued expenses 17,088 13,929 Accrued compensation and related benefits 18,031 19,248 Accrued warranty 5,560 6,091 Deferred revenue 18,386 18,295 Deferred tax liability 7,649 12,649 ----------- ----------- Total current liabilities 112,594 101,341 Accrued warranty, non-current 5,364 5,049 Deferred revenue, non-current 4,714 8,080 Other long-term liabilities 5,749 8,968 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 25, 2010 and December 26, 2009 Issued and outstanding shares - 100,960 as of September 25, 2010 and 96,874 as of December 26, 2009 101 97 Additional paid-in capital 801,766 747,580 Accumulated other comprehensive loss (1,007) (1,810) Accumulated deficit (402,552) (377,360) ----------- ----------- Total stockholders' equity 398,308 368,507 ----------- ----------- Total liabilities and stockholders' equity $ 526,729 $ 491,945 =========== =========== Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended ------------------------ September 25, September 26, 2010 2009 ----------- ----------- Cash Flows from Operating Activities: Net loss $ (25,192) $ (67,971) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 11,594 12,064 Non-cash restructuring and other costs 100 2,404 Net credit impairment losses in earnings - 1,094 Amortization of premium on investments 2,753 289 Stock-based compensation expense 39,961 25,733 Unrealized loss on Put Rights 1,696 2,540 Unrealized holding gain for trading securities (1,696) (3,141) Non-cash tax benefit (411) - Tax benefit (reversal) from stock option transactions - (593) Reduction of tax benefit from stock option transactions - 248 Gain on disposal of assets (139) (117) Other gain (71) (113) Changes in assets and liabilities: Accounts receivable 5,425 15,324 Other receivables (430) (1,105) Inventories, net (19,787) (12,728) Prepaid expenses and other current assets 21 (2,331) Deferred inventory costs 114 21 Other non-current assets 4,911 (4,795) Accounts payable 15,024 (1,875) Accrued liabilities and other expenses (6,856) 8,749 Deferred revenue (3,275) (3,922) Accrued warranty (215) 197 ----------- ----------- Net cash provided by (used in) operating activities 23,527 (30,028) Cash Flows from Investing Activities: Purchase of available-for-sale investments (212,307) (136,338) Purchase of cost-method investment (4,500) - Proceeds from sale of available-for-sale investments - 1,536 Proceeds from maturities and calls of investments, and exercise of Put Rights 184,662 93,157 Proceeds from disposal of assets 284 206 Purchase of property and equipment (15,639) (11,599) Change in restricted cash (61) (1,148) ----------- ----------- Net cash used in investing activities (47,561) (54,186) Cash Flows from Financing Activities: Proceeds from issuance of common stock 12,341 8,545 Excess (reduction of) tax benefit from stock option transactions - (248) Repurchase of common stock (14) (19) Payments for purchase of assets under financing arrangement (262) - ----------- ----------- Net cash provided by financing activities 12,065 8,278 Effect of exchange rate changes on cash 86 111 Net change in cash and cash equivalents (11,883) (75,825) Cash and cash equivalents at beginning of period 109,859 166,770 ----------- ----------- Cash and cash equivalents at end of period $ 97,976 $ 90,945 =========== =========== Supplemental disclosures of cash flow information: Cash paid for income taxes $ 882 $ 1,245 Infinera Corporation Supplemental Financial Information (Unaudited) Q4'08 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 ----- ----- ----- ----- ----- ----- ------ ------ Revenue ($ Mil) (1) $86.2 $66.6 $68.9 $83.4 $90.2 $95.8 $111.4 $130.1 Gross Margin % (1) 36% 31% 31% 38% 40% 41% 44% 51% ----- ----- ----- ----- ----- ----- ------ ------ Invoiced Shipment Composition: Domestic % 73% 74% 64% 63% 74% 79% 81% 73% International % 27% 26% 36% 37% 26% 21% 19% 27% Largest Customer % 23% 30% 20% 15% 17% 22% 13% 19% ----- ----- ----- ----- ----- ----- ------ ------ Cash Related Information: Cash from Operations ($ Mil) ($ 5.4)($2.9) ($18.8)($ 8.3)($ 2.7) $ 2.3 $11.2 $ 10.0 Capital Expenditures ($ Mil) $ 7.8 $ 6.0 $ 2.8 $ 2.8 $ 4.4 $ 4.7 $ 5.0 $ 5.9 Depreciation & Amortization ($ Mil) $ 4.1 $ 3.9 $ 4.0 $ 4.2 $ 4.5 $ 4.0 $ 3.7 $ 3.9 DSO's 74 61 72 61 71 56 45 45 ----- ----- ----- ----- ----- ----- ------ ------ Inventory Metrics: Raw Materials ($ Mil) $ 9.1 $ 7.7 $10.1 $ 7.4 $ 6.9 $ 7.5 $ 9.1 $ 11.0 Work in Process ($ Mil) $37.9 $43.2 $40.1 $36.2 $32.1 $31.5 $ 29.2 $ 36.5 Finished Goods ($ Mil) $12.0 $13.6 $22.3 $29.3 $29.9 $33.0 $ 45.9 $ 41.2 ----- ----- ----- ----- ----- ----- ------ ------ Total Inventory ($ Mil) $59.0 $64.5 $72.5 $72.9 $68.9 $72.0 $84.2 $ 88.7 Inventory Turns (1) 3.8 2.8 2.6 3.0 3.2 3.2 3.0 2.9 ----- ----- ----- ----- ----- ----- ------ ------ Worldwide Headcount 937 962 973 970 974 999 1,028 1,040 ----- ----- ----- ----- ----- ----- ------ ------ (1) Q4'08 reflects Adjusted GAAP results and non-GAAP adjustments. Periods Q1'09 and going forward reflect non-GAAP results. Adjusted GAAP results reflect our GAAP results reduced for amounts released from deferred revenue and deferred cost of inventory balances recorded prior to the second quarter of 2008 and previously reported in our invoiced shipment results. Non-GAAP adjustments include restructuring and other related costs and non-cash stock-based compensation.
Contact Information: Contacts: Press: Jeff Ferry jferry@infinera.com Infinera Corporation 408-572-5213 Investors/Analysts: Bob Blair bblair@infinera.com Infinera Corporation 408-716-4879