SUNNYVALE, Calif., Oct. 23, 2007 (PRIME NEWSWIRE) -- Infinera Corporation (Nasdaq:INFN), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 29, 2007.
GAAP Results: ------------- * GAAP revenues for the third quarter of 2007 were $62.2 million compared to $58.4 million in the second quarter of 2007. * GAAP gross margins were 34% in the third quarter of 2007 compared to 28% in the second quarter of 2007. * Including non-cash stock-based compensation and warrant revaluation expenses, the GAAP net loss was $5.5 million, or $0.07 per share, for the third quarter of 2007 compared to a GAAP net loss of $26.1 million, or $1.10 per share, in the second quarter of 2007. Invoiced Shipments: ------------------- * Invoiced shipments for the third quarter of 2007 were $80.4 million compared to $69.0 million in the second quarter of 2007 and $42.0 million in the third quarter of 2006. * Invoiced shipments increased 17% from the prior quarter and 91% from the third quarter of 2006. Non-GAAP Invoiced Shipment Results: ----------------------------------- * Gross margins on an invoiced shipments basis, excluding non-cash stock-based compensation, were 43% in the third quarter of 2007 compared to 37% in the second quarter of 2007 and 21% in the third quarter of 2006. * Excluding non-cash stock-based compensation and warrant revaluation expenses, the net income on an invoiced shipments basis was $10.9 million, or $0.12 per diluted share, for the third quarter of 2007 compared to $2.7 million, or $0.04 per diluted share, in the second quarter of 2007.
Management Commentary and Other Highlights
"We are pleased with the third quarter results as they demonstrate growing customer acceptance of Infinera's innovative approach to building optical networks," said Jagdeep Singh, chief executive officer of Infinera. "In the third quarter, we made significant strides in reducing our customer concentration and further penetrating other markets. In addition, our gross margin and net income results represent progress toward achieving our long-term target business model.
"Increasingly, we believe that innovative companies are embracing Infinera's vision of bandwidth virtualization-converting their optical network traffic digitally into a pool of bandwidth that can be cost-effectively and flexibly utilized for whatever services their customers require.
"Against a backdrop of customer expansion and significant revenue growth, we believe that Infinera's product quality and customer satisfaction are both at high levels," said Singh.
Other highlights of the third quarter include:
* Reduced customer concentration: The company had three 10% or greater customers in the third quarter with the largest accounting for 28% of revenue on an invoiced shipment basis. In the second quarter, its largest customer accounted for 48% of revenue on an invoiced shipment basis; a year ago, that customer accounted for 55% of revenue on an invoiced shipment basis. * Customer growth: Seven new customers were added in the third quarter of 2007, expanding the customer roster to 38, versus 31 in the second quarter of 2007. * Market diversification: Announced customer wins in the third quarter included deployment of the company's equipment in the cable market (Cox Communications) and the internet content provider market (OVH), demonstrating a continued broadening of markets served by Infinera, and building on the company's continued growth in the bandwidth wholesaler market (360 Networks, XO Communications). * Market leadership in North America: The company was number one in North America in multi-reach DWDM, according to industry analysts Ovum RHK, based on the company's invoiced shipments for the trailing four quarters through the second quarter of 2007.
Conference Call Information:
Infinera will host a conference call for analysts and investors to discuss its third 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 website at 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 866-431-5844. International parties can access the replay at +1-203-369-0959.
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 our customers, our belief that our gross margin and net income results for the third quarter of 2007 represent progress toward achieving our long-term target business model, our belief regarding market acceptance of our products and vision, our belief that our product quality and customer satisfaction are both at high levels and the financial and other benefits of our system for our 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 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; 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 quarterly report on Form 10-Q, which was filed with the SEC on August 1, 2007, the Registration Statement on Form S-1which was filed with the SEC on October 12, 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 certain non-GAAP and other financial measures that include invoiced shipments and exclude non-GAAP non-cash stock-based compensation and warrant valuation expenses. 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 certain non-GAAP measures. We anticipate disclosing forward-looking non-GAAP and other financial information in our conference call to discuss our third quarter of 2007 results, including an estimate of non-GAAP invoiced shipment earnings for the fourth quarter of 2007 that excludes non-GAAP non-cash stock-based compensation expenses related to our equity awards and the right to purchase common stock under our Employee Stock Purchase Plan in the period.
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 Nine Months Ended Sept. 29, Sept. 30, Sept. 29, Sept. 30, ------------------- ------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Revenue: Ratable product and related support and services $ 62,130 $ 6,118 $162,488 $ 12,825 Product 25 1,578 7,275 1,578 -------- -------- -------- -------- Total revenue 62,155 7,696 169,763 14,403 Cost of revenue(1): Cost of ratable product and related support and services 37,620 7,967 109,992 17,940 Lower of cost or market adjustment 3,184 4,172 6,470 12,154 Cost of product 18 311 3,869 311 -------- -------- -------- -------- Total cost of revenue 40,822 12,450 120,331 30,405 Gross profit (loss) 21,333 (4,754) 49,432 (16,002) Operating expenses(1): Sales and marketing 7,995 4,914 22,032 11,777 Research and development 14,621 14,034 44,758 27,752 General and administrative 7,069 3,960 17,984 7,624 Amortization of intangible assets 37 19 111 19 -------- -------- -------- -------- Total operating expenses 29,722 22,927 84,885 47,172 -------- -------- -------- -------- Loss from operations (8,389) (27,681) (35,453) (63,174) Other income (expense), net: Interest income 2,459 849 3,373 1,644 Interest expense (67) (1,152) (2,249) (3,541) Other gain (loss), net(2) 533 (589) (16,982) 139 -------- -------- -------- -------- Total income (expense), net 2,925 (892) (15,858) (1,758) Loss before provision of income taxes (5,464) (28,573) (51,311) (64,932) Provision for income taxes 62 23 124 53 -------- -------- -------- -------- Net loss $ (5,526) $(28,596) $(51,435) $(64,985) ======== ======== ======== ======== Net loss per common share, basic and diluted $ (0.07) $ (4.42) $ (1.34) $ (11.40) ======== ======== ======== ======== Weighted average shares used in computing basic and diluted net loss per common share 84,017 6,465 38,419 5,701 ======== ======== ======== ======== ----------------------------- (1) The following table summarizes the effects of stock-based compensation related to employees, non-recourse notes and non-employees for the three and nine months ended September 29, 2007 and September 30, 2006: Three Months Ended Nine Months Ended Sept. 29, Sept. 30, Sept. 29, Sept. 30, ------------------- ------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Cost of revenue $ 143 $ 12 $ 254 $ 16 Research and development 1,113 226 2,436 284 Sales and marketing 689 119 1,122 147 General and administration 1,129 138 2,032 178 -------- -------- -------- -------- 3,074 495 5,844 625 Cost of revenue - amortization from balance sheet* 89 -- 129 -- -------- -------- -------- -------- Total stock-based compensation expense $ 3,163 $ 495 $ 5,973 $ 625 ======== ======== ======== ======== * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. (2) The following table summarizes the remeasurement of our freestanding preferred stock warrants under FAS 150: Three Months Ended Nine Months Ended Sept. 29, Sept. 30, Sept. 29, Sept. 30, ------------------- ------------------- 2007 2006 2007 2006 -------- -------- -------- -------- Other gain (loss) $ -- $ (729) $(19,761) $ (147) Infinera Corporation GAAP to Non-GAAP Invoiced Shipment Reconciliation (In thousands, except per share amounts) (Unaudited) Three Months Ended September 29, 2007 ------------------------------------------------------- Non-GAAP Invoiced Shipments Deferral Invoiced Non-GAAP Excluding GAAP Adjustments Shipments Stock Comp Stock Comp ------- -------- -------- -------- -------- Revenue $62,155 $ 18,195(a) $ 80,350 $ -- $ 80,350 Cost of revenue 40,822 5,181(b) 46,003 (470)(c) 45,533 ------- -------- -------- -------- -------- Gross profit 21,333 13,014 34,347 470 34,817 Gross margin 34% 43% Operating expenses 29,722 -- 29,722 (2,931)(c) 26,791 ------- -------- -------- -------- -------- Income (loss) from operations (8,389) 13,014 4,625 3,401 8,026 Other income (expense), net 2,925 -- 2,925 -- 2,925 ------- -------- -------- -------- -------- Income (loss) before pro- vision for income taxes (5,464) 13,014 7,550 3,401 10,951 Provision for income taxes 62 -- 62 -- 62 ------- -------- -------- -------- -------- Net income (loss) $(5,526) $ 13,014 $ 7,488 $ 3,401 $ 10,889 ======= ======== ======== ======== ======== Net income (loss) per common share: Basic $ (0.07) $ 0.13 ======== ======== Diluted $ (0.07) $ 0.12 ======== ======== Weighted shares used in computing net income (loss) per common share: Basic 84,017 84,017 ======== ======== Diluted 84,017 92,007 ======== ======== Three Months Ended June 30, 2007 ------------------------------------------------------- Non-GAAP Invoiced Shipments Non-GAAP Excluding 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 pro- vision 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 ======== ======== Weighted shares used in computing net income (loss) per common share: Basic 23,678 23,678 ======== ======== Diluted 23,678 59,284 ======== ======== Three Months Ended September 30, 2006 ------------------------------------------------------- Non-GAAP Invoiced Shipments Non-GAAP Excluding Stock Comp/ Stock Comp/ Deferral Invoiced Warrant Warrant GAAP Adjustments Shipments Valuation Valuation -------- -------- -------- -------- -------- Revenue $ 7,696 $ 34,307(a) $ 42,003 $ -- $ 42,003 Cost of revenue 12,450 20,574(b) 33,024 (12)(c) 33,012 -------- -------- -------- -------- -------- Gross profit (4,754) 13,733 8,979 12 8,991 Gross margin -62% 21% Operating expenses 22,927 -- 22,927 (483)(c) 22,444 -------- -------- -------- -------- -------- Income (loss) from operations (27,681) 13,733 (13,948) 495 (13,453) Other income (expense), net (892) -- (892) 729(d) (163) -------- -------- -------- -------- -------- Income (loss) before pro- vision for income taxes (28,573) 13,733 (14,840) 1,224 (13,616) Provision for income taxes 23 -- 23 -- 23 -------- -------- -------- -------- -------- Net income (loss) $(28,596) $ 13,733 $(14,863) $ 1,224 $(13,639) ======== ======== ======== ======== ======== Net income (loss) per common share: Basic $ (4.42) $ (2.11) ======== ======== Diluted $ (4.42) $ (2.11) ======== ======== Weighted shares used in computing net income (loss) per common share: Basic 6,465 6,465 ======== ======== Diluted 6,465 6,465 ======== ========
Use of Non-GAAP Information:
To supplement our condensed consolidated financial statements presented on a GAAP basis, Infinera uses invoiced shipment measures of operating results and net income, which include changes in our deferred revenue and deferred cost of inventory balances from the prior period. We also present non-GAAP measures of operating results, net income and net income per share, which are adjusted to include invoiced shipments and exclude non-GAAP stock-based compensation expense and warrant valuation expense. 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 results are an indication of our baseline performance 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 or basic and diluted net income per share 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.
a) Included amount represents the change in the deferred revenue balance for the period as reported on our balance sheet. We believe investors want to see the income statement with the change in deferred revenue 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 our 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 and in order to compare our financial performance with that of other companies and between periods.
c) Excluded amount represents stock-based compensation expense on a non-GAAP basis. 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.
The stock-based compensation expense excluded from cost of revenue is a non-GAAP financial measure and is reconciled to the corresponding GAAP amount in the table below:
Three Months Ended Sept. 29, June 30, Sept. 30, -------- ------- -------- 2007 2007 2006 ----- ----- ----- GAAP stock-based compensation in cost of revenue $ 143 $ 94 $ 12 GAAP stock-based compensation in cost of revenue - amortization from balance sheet 89 $ 27 -- Stock-based compensation not deferred to deferred inventory cost 308 71 -- Stock-based compensation previously recognized on invoiced shipment basis (70) (23) -- ----- ----- ----- Non-GAAP stock-based compensation in cost of revenue $ 470 $ 169 $ 12 ===== ===== =====
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) Sept. 29, Dec. 31, 2007 2006 --------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 88,823 $ 28,884 Short-term investments 86,003 688 Short-term restricted cash 410 -- Accounts receivable 38,608 41,635 Other receivables 2,635 513 Inventory 57,116 58,269 Deferred inventory costs 76,052 62,936 Prepaid expenses and other current assets 3,715 3,115 --------- --------- Total current assets 353,362 196,040 Property, plant and equipment, net 31,216 26,665 Intangible assets 1,607 1,806 Deferred inventory costs, non-current 3,835 4,317 Long-term investments 14,247 -- Long-term restricted cash 1,871 -- Other non-current assets 431 1,638 --------- --------- Total assets $ 406,569 $ 230,466 ========= ========= LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 27,032 $ 41,767 Accrued expenses 5,712 16,574 Accrued compensation and related benefits 13,327 7,628 Accrued warranty 4,283 1,339 Deferred revenue 148,752 101,080 Preferred stock warrant liability -- 5,409 Current portion of debt -- 20,025 --------- --------- Total current liabilities 199,106 193,822 Long-term portion of debt -- 8,357 Accrued warranty, non-current 5,088 1,378 Deferred revenue, non-current 8,398 9,873 Long-term exercised unvested options 1,041 996 Other long-term liabilities 4,710 1,811 Convertible preferred stock -- 320,550 Stockholders' equity (deficit): Common stock 86 9 Additional paid-in capital 553,714 7,911 Accumulated other comprehensive loss (51) (153) Accumulated deficit (365,523) (314,088) --------- --------- Total stockholders' equity (deficit) 188,226 (306,321) --------- --------- Total liabilities, convertible preferred stock and stockholders' equity (deficit) $ 406,569 $ 230,466 ========= ========= Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended Sept. 29, Sept. 30, ------------------------ 2007 2006 --------- --------- Cash Flows from Operating Activities: Net loss $ (51,435) $ (64,985) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 7,150 5,482 Amortization of debt discount 282 156 Issuance of warrants -- 189 In-process research and development -- 4,474 Asset impairment charges 393 -- Stock-based compensation expense 5,973 625 Revaluation of warrant liabilities 19,761 147 Gain on disposal of fixed assets (46) -- Gain on sale of assets held for sale (2,363) -- Other gain (73) -- Changes in assets and liabilities: Accounts receivable 3,196 (18,250) Other receivables (2,049) (1,001) Inventory 3,215 (25,511) Prepaid expenses and other current assets (1,234) (849) Deferred inventory costs (12,764) (38,926) Other non-current assets (1,266) (411) Accounts payable (14,692) 14,459 Accrued liabilities and other expenses (2,694) 9,710 Deferred revenue 46,197 61,084 Accrued warranty 6,653 855 --------- --------- Net cash provided by (used in) operating activities 4,204 (52,752) Cash Flows from Investing Activities: Net purchase of investments (111,294) (5,762) Net proceeds from sale of investments 12,000 1,099 Proceeds from disposition of acquired assets -- 1,450 Proceeds from disposal of fixed assets 60 -- Proceeds from sale of assets held for sale 2,721 -- Purchase of property and equipment (11,710) (11,171) Acquisition of certain assets, net -- (4,675) --------- --------- Net cash used in investing activities (108,223) (19,059) Cash Flows from Financing Activities: Principal payments on loan obligation (35,401) (12,313) Proceeds from loans 7,119 13,652 Proceeds from initial public offering, net of issuance costs 190,078 -- Proceeds from issuance of common stock 2,097 2,994 Proceeds from issuance of preferred stock, net of issuance costs -- 73,574 Proceeds from exercise of warrants 45 -- Proceeds from non-recourse notes -- 126 Repurchase of common stock (50) -- --------- --------- Net cash provided by financing activities 163,888 78,033 Effect of exchange rate changes 70 (72) Net change in cash and cash equivalents 59,939 6,150 Cash and cash equivalents at beginning of period 28,884 36,013 --------- --------- Cash and cash equivalents at end of period $ 88,823 $ 42,163 ========= ========= Supplemental disclosures of cash flow information: Cash paid for interest $ 2,473 $ 2,467 Cash paid for income taxes $ 62 $ 28 Infinera Corporation Supplemental Financial Information Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 ------ ------ ------ ------ ------ ------ ------ Invoiced Shipments $ 13.8 $ 19.7 $ 42.0 $ 70.5 $ 66.7 $ 69.0 $ 80.4 Gross Margin % -43% 16% 21% 25% 35% 37% 43% ------ ------ ------ ------ ------ ------ ------ Invoiced Shipment Composition: ----------------- Domestic % 76% 89% 78% 72% 89% 84% 81% International % 24% 11% 22% 28% 11% 16% 19% Largest Customer % 64% 58% 55% 47% 57% 48% 28% ------ ------ ------ ------ ------ ------ ------ Cash Related Information: ------------- Cash from Operations ($21.6) ($12.3) ($18.8) ($15.0) $ 6.9 ($ 0.8) ($ 2.0) Capital Expenditures $ 2.1 $ 2.9 $ 6.2 $ 4.1 $ 5.2 $ 3.6 $ 3.0 Depreciation & Amortization $ 1.6 $ 1.7 $ 1.9 $ 1.8 $ 2.1 $ 2.0 $ 2.7 DSOs 54 48 49 54 27 36 47 ------ ------ ------ ------ ------ ------ ------ Inventory Metrics: ------------------ Raw Materials $ 4.0 $ 5.1 $ 7.8 $ 6.7 $ 7.4 $ 8.8 $ 7.5 Work in Process $ 16.7 $ 21.2 $ 30.9 $ 38.1 $ 31.6 $ 36.0 $ 34.8 Finished Goods $ 5.7 $ 12.0 $ 11.8 $ 13.5 $ 18.4 $ 13.7 $ 14.8 ------ ------ ------ ------ ------ ------ ------ Total Inventory $ 26.5 $ 38.3 $ 50.5 $ 58.3 $ 57.3 $ 58.5 $ 57.1 Inventory Turns 3.0 1.7 2.6 3.6 3.0 3.0 3.2 ------ ------ ------ ------ ------ ------ ------ Worldwide Headcount 363 470 576 605 617 646 668 ------ ------ ------ ------ ------ ------ ------