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Infinera Corporation Reports First Quarter 2014 Financial Results

Companies mentioned in this article: Infinera

SUNNYVALE, CA -- (Marketwired) -- 04/23/14 -- Infinera Corporation (NASDAQ: INFN), a provider of Intelligent Transport Networks™, today released financial results for the first quarter of 2014 ended March 29, 2014.

GAAP revenue for the quarter was $142.8 million compared to $139.1 million in the fourth quarter of 2013 and $124.6 million in the first quarter of 2013.

GAAP gross margins for the quarter were 40.9% compared to 40.2% in the fourth quarter of 2013 and 34.2% in the first quarter of 2013.

GAAP net loss for the quarter was $(4.4) million, or $(0.04) per share, compared to net loss of $(10.2) million, or $(0.08) per share, in the fourth quarter of 2013, and a net loss of $(15.3) million, or $(0.13) per share, in the first quarter of 2013.

Non-GAAP gross margins for the quarter were 41.8% compared to 41.4% in the fourth quarter of 2013 and 35.9% in the first quarter of 2013.

Non-GAAP net income for the quarter was $4.2 million, or $0.03 per share, compared to net loss of $(0.2) million, or break even on an earnings per share basis in the fourth quarter of 2013, and net loss of $(7.3) million, or $(0.06) per share, in the first quarter of 2013.

These non-GAAP measures exclude non-cash stock-based compensation expenses and the amortization of debt discount on Infinera's convertible senior notes. 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.

Management Commentary:

"Our first quarter performance was exceptionally strong in what is typically a soft quarter for our industry. We are benefitting from the continued investment cycle in 100G and network convergence. The favorable economics of our PIC-based architectures and the operational benefits of super-channels positions us as the industry recognized leader in the optical market," said Tom Fallon, Chief Executive Officer. "I remain optimistic about our short-, intermediate- and long-term opportunity. Our focus this year remains on winning footprint, gaining market share, and servicing customers. We believe the continued growth of our business in long-haul, combined with product investments in adjacent markets, is the best way for us to provide long-term shareholder value."

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its first quarter of 2014 results and its outlook for the second quarter of 2014 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 Infinera'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 1-888-566-0689. International parties can access the replay at 1-402-998-0823.

About Infinera
Infinera provides Intelligent Transport Networks to help carriers exploit the increasing demand for cloud-based services and data center connectivity as they advance into the Terabit Era. Infinera is unique in its use of breakthrough semiconductor technology to deliver large scale Photonic Integrated Circuit (PICs) and the application of PICs to vertically integrated optical networking solutions that deliver the industry's only commercially available 500 Gb/s FlexCoherent super-channels. Infinera Intelligent Transport Network solutions include the DTN-X, DTN and ATN platforms. Find more at www.infinera.com.

Forward-Looking Statements

This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. 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. Forward-looking statements include statements regarding Infinera's expectations, beliefs, intentions or strategies including statements regarding Infinera's opportunity in the short-, intermediate- and long-term; Infinera's ability to win footprint and gain market share; and Infinera's belief that continued growth of its business in long haul, combined with product investments, is the best way for Infinera to provide long-term shareholder value. Such forward-looking statements can be identified by forward-looking words such as "anticipated," "believed," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. The risks and uncertainties that could cause Infinera's results to differ materially from those expressed or implied by such forward-looking statements include aggressive business tactics by Infinera's competitors, Infinera's reliance on single-source suppliers, Infinera's ability to protect Infinera's intellectual property, claims by others that Infinera infringes their intellectual property, and Infinera's ability to respond to rapid technological changes, and other risks that may impact Infinera's business are set forth in its annual report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 21, 2014, as well as subsequent reports filed with or furnished to the SEC. 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 and amortization of debt discount on Infinera's convertible senior notes. 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, 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." Infinera anticipates disclosing forward-looking non-GAAP information in its conference call to discuss its first quarter results, including an estimate of non-GAAP earnings for the second quarter of 2014 that excludes non-cash stock-based compensation expenses 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
GAAP Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                                 Three Months Ended
                                        -----------------------------------
                                            March 29,         March 30,
                                               2014              2013
                                        ----------------- -----------------
Revenue:
  Product                               $         124,242 $         108,343
  Services                                         18,573            16,282
                                        ----------------- -----------------
    Total revenue                                 142,815           124,625

Cost of revenue (1):
  Cost of product                                  78,438            75,447
  Cost of services                                  5,971             6,476
                                        ----------------- -----------------
    Total cost of revenue                          84,409            81,923

Gross profit                                       58,406            42,702

Operating expenses (1):
  Research and development                         29,346            29,726
  Sales and marketing                              17,862            18,046
  General and administrative                       12,254             9,872
                                        ----------------- -----------------
    Total operating expenses                       59,462            57,644

Loss from operations                               (1,056)          (14,942)

Other income (expense), net:
  Interest income                                     336               197
  Interest expense                                 (2,677)                -
  Other gain (loss), net:                            (729)             (203)
                                        ----------------- -----------------
    Total other income (expense), net              (3,070)               (6)

Loss before income taxes                           (4,126)          (14,948)
Provision for income taxes                            248               331
                                        ----------------- -----------------
Net loss                                $          (4,374)$         (15,279)
                                        ================= =================

Net loss per common share, basic and
 diluted                                $           (0.04)$           (0.13)
                                        ================= =================

Weighted average shares used in
 computing basicand diluted net loss per
 common share                                     121,352           114,308
                                        ================= =================


----------------------------------------
 (1) The following table summarizes the effects of stock-based
     compensation related to employees and non-employees for the three
     months ended March 29, 2014 and March 30, 2013:


                                                 Three Months Ended
                                        -----------------------------------
                                             March 29,         March 30,
                                               2014              2013
                                        ----------------- -----------------
  Cost of revenue                       $             452 $             486
  Research and development                          2,138             3,119
  Sales and marketing                               1,720             1,999
  General and administration                        1,530               769
                                        ----------------- -----------------
                                                    5,840             6,373
  Cost of revenue - amortization from
   balance sheet*                                     832             1,602
                                        ----------------- -----------------
  Total stock-based compensation
   expense                              $           6,672 $           7,975
                                        ================= =================

  * 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 percentages and per share data)
(Unaudited)

                                              Three Months Ended
                                  -----------------------------------------
                                    March 29,    December 28,    March 30,
                                      2014           2013          2013
                                  ------------   ------------  ------------
Reconciliation of Gross Profit:
U.S. GAAP as reported             $     58,406   $     55,912  $     42,702
Stock-based compensation(1)              1,284          1,695         2,088
                                  ------------   ------------  ------------
Non-GAAP as adjusted              $     59,690   $     57,607  $     44,790
                                  ============   ============  ============

Reconciliation of Gross Margin:
U.S. GAAP as reported                     40.9%          40.2%         34.2%
Stock-based compensation(1)                0.9%           1.2%          1.7%
                                  ------------   ------------  ------------
Non-GAAP as adjusted                      41.8%          41.4%         35.9%
                                  ============   ============  ============

Reconciliation of Income (Loss)
 from Operations:
U.S. GAAP as reported             $     (1,056)  $     (7,081) $    (14,942)
Stock-based compensation(1)              6,672          8,174         7,975
                                  ------------   ------------  ------------
Non-GAAP as adjusted              $      5,616   $      1,093  $     (6,967)
                                  ============   ============  ============

Reconciliation of Net Income
 (Loss):
U.S. GAAP as reported             $     (4,374)  $    (10,178) $    (15,279)
Stock-based compensation(1)              6,672          8,174         7,975
Amortization of debt discount(2)         1,860          1,814             -
                                  ------------   ------------  ------------
Non-GAAP as adjusted              $      4,158   $       (190) $     (7,304)
                                  ============   ============  ============

Net Income (Loss) per Common Share
 - Basic:
U.S. GAAP as reported             $      (0.04)  $      (0.08) $      (0.13)
                                  ============   ============  ============
Non-GAAP as adjusted              $       0.03   $          -  $      (0.06)
                                  ============   ============  ============

Net Income (Loss) per Common Share
 - Diluted:
U.S. GAAP as reported             $      (0.04)  $      (0.08) $      (0.13)
                                  ============   ============  ============
Non-GAAP as adjusted(3)           $       0.03   $          -  $      (0.06)
                                  ============   ============  ============

Weighted average shares used in
 computing net income (loss) per
 common share - U.S. GAAP:
Basic                                  121,352        119,743       114,308
                                  ============   ============  ============
Diluted                                121,352        119,743       114,308
                                  ============   ============  ============

Weighted average shares used in
 computing net income (loss) per
 common share - Non-GAAP:
Basic                                  121,352        119,743       114,308
                                  ============   ============  ============
Diluted(3)                             125,435        125,134       117,602
                                  ============   ============  ============


    ------------------------------
(1) 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 (in thousands):

                                                Three Months Ended
                                      --------------------------------------
                                        March 29,  December 28,   March 30,
                                          2014         2013         2013
                                      ------------ ------------ ------------
    Cost of revenue                   $        452 $        489 $        486
    Research and development                 2,138        2,725        3,119
    Sales and marketing                      1,720        1,965        1,999
    General and administration               1,530        1,789          769
                                      ------------ ------------ ------------
                                             5,840        6,968        6,373
    Cost of revenue - amortization
     from balance sheet*                       832        1,206        1,602
                                      ------------ ------------ ------------
    Total stock-based compensation
     expense                          $      6,672 $      8,174 $      7,975
                                      ============ ============ ============

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

(2) 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 a 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 1.75% convertible debt issuance in May 2013 over the
     term of the notes. These amounts have been adjusted in arriving at
     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.

(3) Diluted shares used to calculate net loss per share on a non-GAAP basis
     provided for informational purposes only.



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

                                                 March 29,     December 28,
                                                    2014           2013
                                               -------------  -------------
ASSETS

Current assets:
  Cash and cash equivalents                    $      85,249  $     124,330
  Short-term investments                             226,705        172,660
  Accounts receivable, net of allowance for
   doubtful accounts
  of $41 in 2014 and $43 in 2013                     107,405        100,643
  Inventory                                          126,465        123,685
  Prepaid expenses and other current assets           20,537         17,752
                                               -------------  -------------
    Total current assets                             566,361        539,070

Property, plant and equipment, net                    78,801         79,668
Long-term investments                                 32,756         64,419
Cost-method investment                                 9,000          9,000
Long-term restricted cash                              4,392          3,904
Other non-current assets                               5,776          4,865
                                               -------------  -------------
     Total assets                              $     697,086  $     700,926
                                               =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                             $      37,843  $      39,843
  Accrued expenses                                    20,244         22,431
  Accrued compensation and related benefits           21,377         33,899
  Accrued warranty                                    14,351         12,374
  Deferred revenue                                    31,496         32,402
                                               -------------  -------------
    Total current liabilities                        125,311        140,949

  Long-term debt, net                                111,024        109,164
  Accrued warranty, non-current                       12,034         10,534
  Deferred revenue, non-current                        4,886          4,888
  Other long-term liabilities                         17,563         17,581

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 March 29,
   2014 and December 28, 2013
  Issued and outstanding shares - 122,485 as
   of March 29, 2014 and 119,887
  as of December 28, 2013                                123            120
  Additional paid-in capital                       1,038,216      1,025,661
  Accumulated other comprehensive loss                (3,212)        (3,486)
  Accumulated deficit                               (608,859)      (604,485)
                                               -------------  -------------
  Total stockholders' equity                         426,268        417,810
                                               -------------  -------------
    Total liabilities and stockholders' equity $     697,086  $     700,926
                                               =============  =============


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

                                                    Three Months Ended
                                               ----------------------------
                                                 March 29,      March 30,
                                                    2014           2013
                                               -------------  -------------
Cash Flows from Operating Activities:
Net loss                                       $      (4,374) $     (15,279)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                        6,314          6,334
  (Recovery of) provision for other
   receivables                                             -            (88)
  Amotization of debt discount and issuance
   costs                                               2,020              -
  Amortization of premium on investments                 828            314
  Stock-based compensation expense                     6,672          7,975
  Other gain                                             (20)          (243)
  Changes in assets and liabilities:
    Accounts receivable                               (6,762)        (5,094)
    Inventory                                         (3,354)        (5,041)
    Prepaid expenses and other assets                 (3,797)          (361)
    Accounts payable                                  (2,080)        (8,045)
    Accrued liabilities and other expenses           (13,448)        (6,301)
    Deferred revenue                                    (909)         4,340
    Accrued warranty                                   3,477            190
                                               -------------  -------------
      Net cash used in operating activities          (15,433)       (21,299)

Cash Flows from Investing Activities:
  Purchase of available-for-sale investments         (80,223)       (20,023)
  Proceeds from sale of available-for-sale
   investments                                             -          2,850
  Proceeds from maturities and calls of
   investments                                        57,063         33,835
  Purchase of property and equipment                  (5,608)        (4,936)
  Change in restricted cash                             (479)            44
                                               -------------  -------------
    Net cash provided by (used in) investing
     activities                                      (29,247)        11,770

Cash Flows from Financing Activities:
  Proceeds from issuance of common stock               7,054          5,560
  Minimum tax withholding paid on behalf of
   employees for net share settlement                 (1,619)        (1,493)
                                               -------------  -------------
    Net cash provided by financing activities          5,435          4,067

Effect of exchange rate changes on cash                  164           (206)

Net change in cash and cash equivalents              (39,081)        (5,668)
Cash and cash equivalents at beginning of
 period                                              124,330        104,666
                                               -------------  -------------
Cash and cash equivalents at end of period     $      85,249  $      98,998
                                               =============  =============

Supplemental disclosures of cash flow
 information:
  Cash paid for income taxes, net of refunds   $         303  $         210
Supplemental schedule of non-cash financing
 activities:
  Transfer of inventory to fixed assets        $         603  $       1,522




Infinera Corporation
Supplemental Financial Information
(Unaudited)

----------------------------------------------------------------------------
                     Q2'12  Q3'12  Q4'12  Q1'13  Q2'13  Q3'13  Q4'13  Q1'14
----------------------------------------------------------------------------
Revenue ($ Mil)       $93.5 $112.2 $128.1 $124.6 $138.4 $142.0 $139.1 $142.8
Gross Margin % (1)    36.6%  39.1%  35.9%  35.9%  38.9%  49.2%  41.4%  41.8%
----------------------------------------------------------------------------
Invoiced Shipment
 Composition:
Domestic %              70%    70%    63%    63%    64%    73%    54%    78%
International %         30%    30%    37%    37%    36%    27%    46%    22%
Largest Customer %      15%    13%    13%    14% < 10%    17%    11%    21%
----------------------------------------------------------------------------
Cash Related
 Information:
Cash from (used in)
 Operations ($ Mil) $(22.7)$(29.3)   $8.3$(21.3)  $17.9  $12.8  $25.8$(15.4)
Capital Expenditures
 ($ Mil)               $6.1   $2.5   $3.2   $4.9   $4.5   $4.2   $7.5   $5.6
Depreciation &
 Amortization ($
 Mil)                  $5.7   $6.1   $6.4   $6.3   $6.3   $5.9   $6.0   $6.3
DSO's                    55     74     76     82     64     56     66     68
----------------------------------------------------------------------------
Inventory Metrics:
Raw Materials ($
 Mil)                 $14.8  $12.4  $13.0  $12.2   $9.8  $12.1  $14.3  $13.2
Work in Process ($
 Mil)                 $49.4  $59.8  $57.3  $53.1  $41.0  $45.7  $49.2  $47.8
Finished Goods ($
 Mil)                 $50.9  $46.3  $57.5  $65.7  $70.5  $65.7  $60.2  $65.5
----------------------------------------------------------------------------
Total Inventory ($
 Mil)                $115.1 $118.5 $127.8 $131.0 $121.3 $123.5 $123.7 $126.5
Inventory Turns (2)     2.1    2.3    2.6    2.4    2.8    2.3    2.6    2.6
----------------------------------------------------------------------------
Worldwide Headcount   1,228  1,235  1,242  1,219  1,238  1,296  1,318  1,346
----------------------------------------------------------------------------

----------------------------------------------------------------------------
 (1) Amounts reflect non-GAAP results. Non-GAAP adjustments include non-cash
     stock-based compensation expense.
 (2) Infinera calculates non-GAAP inventory turns as annualized non-GAAP
     cost of revenue before adjustments for non-cash stock-based
     compensation expense divided by the average inventory for the quarter.

Contact:

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

Investors:
Leigh Salvo
Tel. +1 (408) 543-8139
lsalvo@infinera.com