SUNNYVALE, Calif., Aug. 03, 2017 (GLOBE NEWSWIRE) -- Infinera Corporation (Nasdaq:INFN), provider of Intelligent Transport Networks, today released financial results for its second quarter ended July 1, 2017.

GAAP revenue for the quarter was $176.8 million compared to $175.5 million in the first quarter of 2017 and $258.8 million in the second quarter of 2016.

GAAP gross margin for the quarter was 36.7% compared to 36.5% in the first quarter of 2017 and 47.8% in the second quarter of 2016. GAAP operating margin for the quarter was (22.9)% compared to (21.6)% in the first quarter of 2017 and 6.2% in the second quarter of 2016.

GAAP net loss for the quarter was $(42.8) million, or $(0.29) per share, compared to a net loss of $(40.5) million, or $(0.28) per share, in the first quarter of 2017, and net income of $11.5 million, or $0.08 per diluted share, in the second quarter of 2016.

Non-GAAP gross margin for the quarter was 40.7% compared to 40.3% in the first quarter of 2017 and 50.4% in the second quarter of 2016. Non-GAAP operating margin for the quarter was (12.2)% compared to (11.4)% in the first quarter of 2017 and 13.2% in the second quarter of 2016.

Non-GAAP net loss for the quarter was $(22.8) million, or $(0.15) per share, compared to a net loss of $(21.7) million, or $(0.15) per share, in the first quarter of 2017, and net income of $30.9 million, or $0.21 per diluted share, in the second quarter of 2016. 

A further explanation of the use of non-GAAP financial information and a reconciliation of the non-GAAP financial measures to the GAAP equivalents can be found at the end of this release.

“Highlighted by delivery of ICE4 products to market, I was pleased with our performance in the second quarter,” said Tom Fallon, Infinera's Chief Executive Officer. “We delivered the Cloud Xpress 2 to three customers and had early deployments of the XT-3300. As we continue to deliver on a suite of new products over the upcoming quarters, I believe we are well positioned to grow market share and to gradually improve our financial performance.”

Conference Call Information

Infinera will host a conference call for analysts and investors to discuss its second quarter 2017 results and its outlook for the third quarter of 2017 today at 5:30 p.m. Eastern Time (2:30 p.m. Pacific Time). Interested parties may join the conference call by dialing 1-866-373-6878 (toll free) or 1-412-317-5101 (international). A live webcast of the conference call will also be accessible from the Events & Webcasts section of Infinera’s website at investors.infinera.com. Replay of the audio webcast will be available at investors.infinera.com approximately two hours after the end of the live call.

About Infinera

Infinera provides Intelligent Transport Networks, enabling carriers, cloud operators, governments and enterprises to scale network bandwidth, accelerate service innovation and automate optical network operations. Infinera’s end-to-end packet-optical portfolio is designed for long-haul, subsea, data center interconnect and metro applications. Infinera’s unique large scale photonic integrated circuits enable innovative optical networking solutions for the most demanding networks. To learn more about Infinera visit www.infinera.com, follow us on Twitter @Infinera and read our latest blog posts at www.infinera.com/blog.

Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. Such forward-looking statements include, without limitation, Infinera's ability to continue to deliver on a suite of new products over the upcoming quarters; Infinera's belief that it is well positioned to grow market share; and Infinera's ability to gradually improve its financial performance. Forward-looking statements can also be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. These statements are based on information available to Infinera as of the date hereof and actual results could differ materially from those stated or implied due to risks and uncertainties. The risks and uncertainties that could cause Infinera’s results to differ materially from those expressed or implied by such forward-looking statements include, delays in the development and introduction of new products or updates to existing products and market acceptance of these products; the effects of increased customer consolidation; fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures, as well as the timing of purchases by our key customers; the effect that changes in product pricing or mix, and/or increases in component costs could have on Infinera’s gross margin; Infinera’s ability to respond to rapid technological changes; aggressive business tactics by Infinera’s competitors; Infinera's reliance on single and limited source suppliers; Infinera’s ability to protect Infinera’s intellectual property; claims by others that Infinera infringes their intellectual property; the effect of global macroeconomic conditions on Infinera's business; war, terrorism, public health issues, natural disasters and other circumstances that could disrupt the supply, delivery or demand of Infinera's products; and other risks and uncertainties detailed in Infinera’s SEC filings from time to time. More information on potential factors that may impact Infinera’s business are set forth in its Quarterly Report on Form 10-Q for the quarter ended on April 1, 2017 as filed with the SEC on May 10, 2017, as well as subsequent reports filed with or furnished to the SEC from time to time. These reports are available on Infinera’s website at www.infinera.com and the SEC’s website at www.sec.gov. Infinera assumes no obligation to, and does not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses, amortization of debt discount on Infinera’s convertible senior notes, amortization and impairment of acquired intangible assets, acquisition-related costs, and certain purchase accounting adjustments related to Infinera's acquisition of Transmode AB, which closed during the third quarter of 2015, along with related tax effects. Infinera believes these adjustments are appropriate to enhance an overall understanding of its underlying financial performance and also its 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 its 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, gross margin or operating 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.” Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its second quarter 2017 results, including an estimate of certain non-GAAP financial measures for the third quarter of 2017 that excludes non-cash stock-based compensation expenses, amortization of acquired intangible assets and related tax effects, and amortization of debt discount on Infinera’s convertible senior notes.

A copy of this press release can be found on the Investor Relations page of Infinera’s website at www.infinera.com.

Infinera 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
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited) 

  Three Months Ended Six Months Ended
  July 1, 2017 June 25, 2016 July 1, 2017 June 25, 2016
Revenue:        
Product $143,360  $227,532  $290,413  $443,614 
Services 33,461  31,290  61,930  60,026 
Total revenue 176,821  258,822  352,343  503,640 
Cost of revenue:        
Cost of product 100,302  122,438  199,634  240,500 
Cost of services 11,687  12,638  23,821  23,056 
Total cost of revenue 111,989  135,076  223,455  263,556 
Gross profit 64,832  123,746  128,888  240,084 
Operating expenses:        
Research and development 57,377  59,541  112,460  113,686 
Sales and marketing 29,397  30,465  58,838  60,474 
General and administrative 18,563  17,658  35,922  34,971 
Total operating expenses 105,337  107,664  207,220  209,131 
Income (loss) from operations (40,505) 16,082  (78,332) 30,953 
Other income (expense), net:        
Interest income 862  595  1,613  1,117 
Interest expense (3,456) (3,176) (6,859) (6,331)
Other gain (loss), net: (252) (714) (382) (928)
Total other income (expense), net (2,846) (3,295) (5,628) (6,142)
Income (loss) before income taxes (43,351) 12,787  (83,960) 24,811 
Provision for (benefit from) income taxes (512) 1,475  (670) 1,691 
Net income (loss) (42,839) 11,312  (83,290) 23,120 
Less: Net loss attributable to noncontrolling interest —  (171) —  (378)
Net income (loss) attributable to Infinera Corporation $(42,839) $11,483  $(83,290) $23,498 
Net income (loss) per common share attributable to Infinera Corporation:        
Basic $(0.29) $0.08  $(0.57) $0.17 
Diluted $(0.29) $0.08  $(0.57) $0.16 
Weighted average shares used in computing net income (loss) per common share:              
Basic 147,538  142,396  146,662  141,600 
Diluted 147,538  145,891  146,662  146,385 


Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited) 

 Three Months Ended Six Months Ended
 July 1, 2017   April 1, 2017   June 25, 2016   July 1, 2017   June 25, 2016  
Reconciliation of Revenue:                   
U.S. GAAP as reported$176,821    $175,522    $258,822    $352,343    $503,640   
Acquisition-related deferred revenue adjustment(1)—    —    174    —    400   
Non-GAAP as adjusted$176,821    $175,522    $258,996    $352,343    $504,040   
                    
Reconciliation of Gross Profit:                   
U.S. GAAP as reported$64,832  36.7 % $64,056  36.5 % $123,746  47.8 % $128,888  36.6 % $240,084  47.7 %
Acquisition-related deferred revenue adjustment(1)—    —    174    —    400   
Stock-based compensation(2)2,071    1,831    1,658    3,902    3,190   
Amortization of acquired intangible assets(3)5,035    4,880    4,998    9,915    9,868   
Acquisition-related costs(4)6    40    40    46    79   
Non-GAAP as adjusted$71,944  40.7 % $70,807  40.3 % $130,616  50.4 % $142,751  40.5 % $253,621  50.3 %
                    
Reconciliation of Operating Expenses:                   
U.S. GAAP as reported$105,337    $101,883    $107,664    $207,220    $209,131   
Stock-based compensation(2)10,309    9,046    9,335    19,355    15,790   
Amortization of acquired intangible assets(3)1,515    1,468    1,584    2,983    3,216   
Acquisition-related costs(4)16    306    402    322    890   
Intangible asset impairment(5)—    252    —    252    —   
Non-GAAP as adjusted$93,497    $90,811    $96,343    $184,308    $189,235   
                    
Reconciliation of Income (Loss) from Operations:                   
U.S. GAAP as reported$(40,505) (22.9)% $(37,827) (21.6)% $16,082  6.2 % $(78,332) (22.2)% $30,953  6.1 %
Acquisition-related deferred revenue adjustment(1)—    —    174    —    400   
Stock-based compensation(2)12,380    10,877    10,993    23,257    18,980   
Amortization of acquired intangible assets(3)6,550    6,348    6,582    12,898    13,084   
Acquisition-related costs(4)22    346    442    368    969   
Intangible asset impairment(5)—    252    —    252    —   
Non-GAAP as adjusted$(21,553) (12.2)% $(20,004) (11.4)% $34,273  13.2 % $(41,557) (11.8)% $64,386  12.8 %
                    
                    
 Three Months Ended Six Months Ended
 July 1,
2017		   April 1,
2017		   June 25,
2016		   July 1, 2017   June 25, 2016  
Reconciliation of Net Income (Loss) Attributable to Infinera Corporation:                   
U.S. GAAP as reported$(42,839)   $(40,451)   $11,483    $(83,290)   $23,498   
Acquisition-related deferred revenue adjustment(1)—    —    174    —    400   
Stock-based compensation(2)12,380    10,877    10,993    23,257    18,980   
Amortization of acquired intangible assets(3)6,550    6,348    6,582    12,898    13,084   
Acquisition-related costs(4)(4)   261    862    257    1,389   
Intangible asset impairment(5)—    252    —    252    —   
Amortization of debt discount(6)2,577    2,514    2,331    5,091    4,605   
Income tax effects(7)(1,450)   (1,474)   (1,510)   (2,924)   (3,012)  
Non-GAAP as adjusted$(22,786)   $(21,673)   $30,915    $(44,459)   $58,944   
                    
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Basic:                    
U.S. GAAP as reported$(0.29)   $(0.28)   $0.08    $(0.57)   $0.17   
Non-GAAP as adjusted$(0.15)   $(0.15)   $0.22    $(0.30)   $0.42   
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Diluted:                   
U.S. GAAP as reported$(0.29)   $(0.28)   $0.08    $(0.57)   $0.16   
Non-GAAP as adjusted$(0.15)   $(0.15)   $0.21    $(0.30)   $0.40   
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share:                   
Basic147,538    145,786    142,396    146,662    141,600   
Diluted147,538    145,786    145,891    146,662    146,385   

____________________________

(1)          Business combination accounting principles require Infinera to write down to fair value its maintenance support contracts assumed in the Transmode acquisition. The revenue for these support contracts is deferred and typically recognized over a one year period, so Infinera's GAAP revenue for the one year period after the acquisition will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustment eliminates the effect of the deferred revenue write-down. Management believes these adjustments to the revenue from these support contracts are useful to investors as an additional means to reflect revenue trends of Infinera's business.

(2)          Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation – Stock Compensation effective January 1, 2006. The following table summarizes the effects of non-cash stock-based compensation related to employees and non-employees (in thousands):

  Three Months Ended Six Months Ended
   July 1, 2017   April 1, 2017   June 25, 2016   July 1, 2017   June 25, 2016 
Cost of revenue $834  $724  $746  $1,558  $1,419 
Research and development 4,184  3,780  3,904  7,964  6,225 
Sales and marketing 3,273  2,726  2,945  5,999  5,180 
General and administration 2,852  2,540  2,486  5,392  4,385 
  11,143  9,770  10,081  20,913  17,209 
Cost of revenue - amortization from balance sheet*       1,237  1,107  912  2,344  1,771 
Total stock-based compensation expense $12,380  $10,877  $10,993  $23,257  $18,980 

_____________________________

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

(3)          Amortization of acquisition-related intangible assets consists of amortization of developed technology, trade names, and customer relationships acquired in connection with the Transmode acquisition. U.S. GAAP accounting requires that acquired intangible assets are recorded at fair value and amortized over their useful lives. As this amortization is non-cash, Infinera has excluded it from its non-GAAP operating expenses, gross margin and net income measures. Management believes the amortization of acquired intangible assets is not indicative of ongoing operating performance and its exclusion provides a better indication of Infinera's underlying business performance.

(4)          Acquisition-related costs associated with the Transmode acquisition include legal, financial, employee retention costs and other professional fees incurred in connection with the transaction, including squeeze-out proceedings. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that these expenses are non-recurring, not indicative of ongoing operating performance and their exclusion provides a better indication of Infinera's underlying business performance.

(5)          Intangible asset impairment is associated with previously acquired intangibles, which Infinera has determined that the carrying value will not be recoverable. Management has excluded the impact of this charge in arriving at Infinera's non-GAAP results because it is non-recurring and management believes that these expenses are not indicative of ongoing operating performance.

(6)          Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, Infinera is required to amortize as debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on its $150 million in aggregate principal amount of 1.75% convertible debt issuance in May 2013 over the term of the notes. Interest expense has been excluded from Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.

(7)          The difference between the GAAP and non-GAAP tax is due to the net tax effects of the purchase accounting adjustments, acquisition-related costs and amortization of acquired intangible assets.


Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)

  July 1, 2017 December 31, 2016
ASSETS    
Current assets:    
Cash and cash equivalents $119,820  $162,641 
Short-term investments 137,929  141,697 
Short-term restricted cash 1,423  8,490 
Accounts receivable, net of allowance for doubtful accounts of $918 in 2017 and $772 in 2016 123,903  150,370 
Inventory 245,976  232,955 
Prepaid expenses and other current assets 42,885  34,270 
Total current assets 671,936  730,423 
Property, plant and equipment, net 142,424  124,800 
Intangible assets 102,933  108,475 
Goodwill 189,989  176,760 
Long-term investments 69,105  40,779 
Cost-method investment 7,000  7,000 
Long-term restricted cash 5,030  6,449 
Other non-current assets 4,201  3,897 
Total assets $1,192,618  $1,198,583 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $80,684  $62,486 
Accrued expenses 32,018  31,580 
Accrued compensation and related benefits 43,625  46,637 
Short-term debt, net 139,115  — 
Accrued warranty 14,078  16,930 
Deferred revenue 64,723  58,900 
Total current liabilities 374,243  216,533 
Long-term debt, net —  133,586 
Accrued warranty, non-current 18,322  23,412 
Deferred revenue, non-current 23,723  19,362 
Deferred tax liability 24,185  25,327 
Other long-term liabilities 14,558  18,035 
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 July 1, 2017 and December 31, 2016    
Issued and outstanding shares - 148,189 as of July 1, 2017 and 145,021 as of December 31, 2016   148  145 
Additional paid-in capital 1,388,045  1,354,082 
Accumulated other comprehensive loss (3,741) (28,324)
Accumulated deficit (646,865) (563,575)
Total stockholders’ equity 737,587  762,328 
Total liabilities and stockholders’ equity $1,192,618  $1,198,583 


Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

  Six Months Ended
  July 1, 2017 June 25, 2016
Cash Flows from Operating Activities:    
Net income (loss) $(83,290) $23,120 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Depreciation and amortization 32,623  29,891 
Amortization of debt discount and issuance costs 5,529  5,001 
Amortization of premium on investments 234  733 
Impairment of intangible assets 252  — 
Stock-based compensation expense 23,257  18,980 
Other loss 86  84 
Changes in assets and liabilities:    
Accounts receivable 27,629  (7,404)
Inventory (12,700) (31,304)
Prepaid expenses and other assets (8,127) (328)
Accounts payable 16,927  (7,339)
Accrued liabilities and other expenses (4,392) (5,528)
Deferred revenue 10,065  10,129 
Accrued warranty (8,111) 2,165 
Net cash provided by (used in) operating activities (18) 38,200 
Cash Flows from Investing Activities:    
Purchase of available-for-sale investments (107,854) (97,051)
Proceeds from sales of available-for-sale investments 3,998  — 
Proceeds from maturities of investments 79,003  91,714 
Purchase of property and equipment (39,200) (23,278)
Change in restricted cash 2,974  (60)
Net cash used in investing activities (61,079) (28,675)
Cash Flows from Financing Activities:    
Security pledge to acquire noncontrolling interest 5,596  (24,942)
Acquisition of noncontrolling interest (471) — 
Proceeds from issuance of common stock 11,115  8,586 
Minimum tax withholding paid on behalf of employees for net share settlement (823) (3,082)
Net cash provided by (used in) financing activities 15,417  (19,438)
Effect of exchange rate changes on cash 2,859  (808)
Net change in cash and cash equivalents (42,821) (10,721)
Cash and cash equivalents at beginning of period 162,641  149,101 
Cash and cash equivalents at end of period $119,820  $138,380 
Supplemental disclosures of cash flow information:    
Cash paid for income taxes, net of refunds $2,683  $3,237 
Cash paid for interest $1,316  $1,410 
Supplemental schedule of non-cash investing activities:    
Transfer of inventory to fixed assets $2,087  $4,009 


Infinera Corporation
Supplemental Financial Information
(Unaudited)

  Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17
GAAP Revenue ($ Mil) $232.5  $260.0  $244.8  $258.8  $185.5  $181.0  $175.5  $176.8 
GAAP Gross Margin %  44.2%  44.5%  47.5%  47.8%  45.6%  38.1%  36.5%  36.7%
Non-GAAP Gross Margin %(1)  47.5%  48.3%  50.2%  50.4%  49.2%  41.8%  40.3%  40.7%
Revenue Composition:                                
Domestic %  68%  62%  71%  64%  56%  53%  57%  63%
International %  32%  38%  29%  36%  44%  47%  43%  37%
Customers >10% of Revenue  2   2   3   2   2   2   1   3 
Cash Related Information:                                
Cash from Operations ($ Mil) $32.5  $25.8  $10.0  $28.2  $5.2  $(5.0) $3.0  $(3.0)
Capital Expenditures ($ Mil) $10.6  $15.3  $10.8  $12.5  $9.6  $10.4  $14.7  $24.5 
Depreciation & Amortization ($ Mil) $9.2  $13.7  $14.7  $15.2  $15.9  $15.7  $16.0  $16.6 
DSOs  55   65   69   68   75   81   64   64 
Inventory Metrics:                                
Raw Materials ($ Mil) $24.2  $27.9  $33.1  $39.1  $37.2  $33.2  $34.8  $36.7 
Work in Process ($ Mil) $48.5  $52.6  $59.4  $61.0  $65.5  $74.5  $81.1  $91.6 
Finished Goods ($ Mil) $97.2  $94.2  $97.2  $102.2  $128.8  $125.3  $118.0  $117.7 
Total Inventory ($ Mil) $169.9  $174.7  $189.7  $202.3  $231.5  $233.0  $233.9  $246.0 
Inventory Turns(2)  2.9   3.1   2.6   2.5   1.6   1.8   1.8   1.7 
Worldwide Headcount  1,978   2,056   2,128   2,218   2,262   2,240   2,245   2,272 
Weighted Average Shares Outstanding (in thousands):                                
Basic  134,834   140,015   140,805   142,396   143,850   144,770   145,786   147,538 
Diluted  145,300   149,439   146,880   145,891   144,993   145,497   147,017   148,662 

_____________________________

(1)          Non-GAAP adjustments include non-cash stock-based compensation expense, certain purchase accounting adjustments related to Infinera's acquisition of Transmode and amortization of acquired intangible assets. For a description of this non-GAAP financial measure, please see the section titled, “GAAP to Non-GAAP Reconciliations” of this press release for a reconciliation to the most directly comparable GAAP financial measures.

(2)          Infinera calculates non-GAAP inventory turns as annualized non-GAAP cost of revenue before adjustments for non-cash stock-based compensation expense and certain purchase accounting adjustments, divided by the average inventory for the quarter.

 

Contacts:
Media:
Anna Vue
Tel. +1 (916) 595-8157
avue@infinera.com

Investors:
Jeff Hustis
Tel. +1 (408) 213-7150
jhustis@infinera.com

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