Infinera Corporation Reports First Quarter 2016 Financial Results
SUNNYVALE, CA -- (Marketwired) -- 04/27/16 -- Infinera Corporation (NASDAQ: INFN), provider of Intelligent Transport Networks, today released financial results for the first quarter of 2016 ended March 26, 2016.
GAAP revenue for the quarter was $244.8 million compared to $260.0 million in the fourth quarter of 2015 and $186.9 million in the first quarter of 2015.
GAAP gross margin for the quarter was 47.5% compared to 44.5% in the fourth quarter of 2015 and 47.2% in the first quarter of 2015. GAAP operating margin for the quarter was 6.1% compared to 5.3% in the fourth quarter of 2015 and 8.1% in the first quarter of 2015.
GAAP net income for the quarter was $12.0 million, or $0.08 per diluted share, compared to $12.6 million, or $0.08 per diluted share, in the fourth quarter of 2015, and $12.4 million, or $0.09 per diluted share, in the first quarter of 2015.
Non-GAAP revenue for the quarter was $245.0 million compared to $260.6 million in the fourth quarter of 2015 and $186.9 million in the first quarter of 2015.
Non-GAAP gross margin for the quarter was 50.2% compared to 48.3% in the fourth quarter of 2015 and 47.8% in the first quarter of 2015. Non-GAAP operating margin for the quarter was 12.3% compared to 12.7% in the fourth quarter of 2015 and 12.2% in the first quarter of 2015.
Non-GAAP net income for the quarter was $28.0 million, or $0.19 per diluted share, compared to $32.0 million, or $0.21 per diluted share, in the fourth quarter of 2015, and $22.1 million, or $0.16 per diluted share, in the first quarter of 2015.
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.
"We continued to execute well in the first quarter, winning deals across our product portfolio and delivering strong financial results," said Tom Fallon, Infinera's Chief Executive Officer. "Responding to ongoing growth in bandwidth demand, customers are increasingly turning to Infinera to address the advanced scalability and efficiency required to operate their networks. By continuing to deliver the most innovative solutions and the Infinera Experience to our customers, I am confident that we will continue to gain market share across the end-to-end optical transport market and generate outstanding bottom line results."
Conference Call Information
Infinera will host a conference call for analysts and investors to discuss its first quarter 2016 results and its outlook for the second quarter of 2016 today at 5:00 p.m. Eastern Time (2:00 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 simplify 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 blog.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. Such forward-looking statements include, without limitation, Infinera's ability to continue to address the advanced scalability and efficiency required to operate its customer's networks; and Infinera's ability to continue to gain market share across the end-to-end optical transport market and generate outstanding bottom line results. 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; Infinera's ability to successfully integrate the Infinera and Transmode businesses; 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; Infinera's reliance on single-source suppliers; aggressive business tactics by Infinera's competitors; Infinera's ability to protect Infinera's intellectual property; claims by others that Infinera infringes their intellectual property; global macroeconomic conditions; 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 Annual Report on Form 10-K for the year ended on December 26, 2015 as filed with the SEC on February 23, 2016, 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, acquisition-related costs, certain purchase accounting adjustments related to Infinera's acquisition of Transmode AB, which closed during the third quarter of 2015, 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, basic and diluted net income 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 first quarter 2016 results, including an estimate of certain non-GAAP financial measures for the second quarter of 2016 that excludes non-cash stock-based compensation expenses, acquisition-related costs, certain purchase accounting adjustments related to Infinera's acquisition of Transmode 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 26, March 28,
2016 2015
----------- -----------
Revenue:
Product $ 216,082 $ 160,843
Services 28,736 26,019
----------- -----------
Total revenue 244,818 186,862
Cost of revenue:
Cost of product 118,062 89,506
Cost of services 10,418 9,244
----------- -----------
Total cost of revenue 128,480 98,750
Gross profit 116,338 88,112
Operating expenses:
Research and development 54,145 39,257
Sales and marketing 30,009 21,042
General and administrative 17,313 12,656
----------- -----------
Total operating expenses 101,467 72,955
Income from operations 14,871 15,157
Other income (expense), net:
Interest income 522 414
Interest expense (3,155) (2,890)
Other gain (loss), net: (214) 301
----------- -----------
Total other income (expense), net (2,847) (2,175)
Income before income taxes 12,024 12,982
Provision for income taxes 216 616
----------- -----------
Net income 11,808 12,366
Less: Net loss attributable to noncontrolling
interest (207) -
----------- -----------
Net income attributable to Infinera Corporation $ 12,015 $ 12,366
=========== ===========
Net income per common share attributable to
Infinera Corporation:
Basic $ 0.09 $ 0.10
=========== ===========
Diluted $ 0.08 $ 0.09
=========== ===========
Weighted average shares used in computing net
income per common share:
Basic 140,805 127,840
=========== ===========
Diluted 146,880 137,304
=========== ===========
Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited)
Three Months Ended
----------------------------------------------------
March 26, December 26, March 28,
2016 2015 2015
--------- ------------- ---------
Reconciliation of
Revenue:
U.S. GAAP as reported $ 244,818 $ 260,034 $ 186,862
Acquisition-related
deferred revenue
adjustment(1) 226 605 -
--------- ------------- ---------
Non-GAAP as adjusted $ 245,044 $ 260,639 $ 186,862
========= ============= =========
Reconciliation of
Gross Profit:
U.S. GAAP as reported $ 116,338 47.5% $ 115,764 44.5% $ 88,112 47.2%
Stock-based
compensation(2) 1,532 1,733 1,243
Acquisition-related
deferred revenue
adjustment(1) 226 605 -
Amortization of
acquired intangible
assets(3) 4,870 4,640 -
Acquisition-related
inventory step-up
expense(4) - 3,090 -
Acquisition-related
costs(5) 39 39 -
--------- ---- ------------- ---- --------- ----
Non-GAAP as adjusted $ 123,005 50.2% $ 125,871 48.3% $ 89,355 47.8%
========= ==== ============= ==== ========= ====
Reconciliation of
Operating Expenses:
U.S. GAAP as reported $ 101,467 $ 101,975 $ 72,955
Stock-based
compensation(2) 6,455 6,979 5,965
Amortization of
acquired intangible
assets(3) 1,632 1,656 -
Acquisition-related
costs(5) 488 565 462
--------- ------------- ---------
Non-GAAP as adjusted $ 92,892 $ 92,775 $ 66,528
========= ============= =========
Reconciliation of
Income from
Operations:
U.S. GAAP as reported $ 14,871 6.1% $ 13,789 5.3% $ 15,157 8.1%
Stock-based
compensation(2) 7,987 8,712 7,208
Acquisition-related
deferred revenue
adjustment(1) 226 605 -
Amortization of
acquired intangible
assets(3) 6,502 6,296 -
Acquisition-related
inventory step-up
expense(4) - 3,090 -
Acquisition-related
costs(5) 527 604 462
--------- ---- ------------- ---- --------- ----
Non-GAAP as adjusted $ 30,113 12.3% $ 33,096 12.7% $ 22,827 12.2%
========= ==== ============= ==== ========= ====
Reconciliation of Net
Income Attributable
to Infinera
Corporation:
U.S. GAAP as reported $ 12,015 $ 12,631 $ 12,366
Stock-based
compensation(2) 7,987 8,712 7,208
Acquisition-related
deferred revenue
adjustment(1) 226 605 -
Amortization of
acquired intangible
assets(3) 6,502 6,296 -
Acquisition-related
inventory step-up
expense(4) - 3,090 -
Acquisition-related
costs(5) 527 604 462
Amortization of debt
discount(6) 2,274 2,217 2,057
Income tax effects(7) (1,502) (2,197) -
--------- ------------- ---------
Non-GAAP as adjusted $ 28,029 $ 31,958 $ 22,093
========= ============= =========
Net Income per Common
Share Attributable to
Infinera Corporation
- Basic:
U.S. GAAP as reported $ 0.09 $ 0.09 $ 0.10
========= ============= =========
Non-GAAP as adjusted $ 0.20 $ 0.23 $ 0.17
========= ============= =========
Net Income per Common
Share Attributable to
Infinera Corporation
- Diluted:
U.S. GAAP as reported $ 0.08 $ 0.08 $ 0.09
========= ============= =========
Non-GAAP as adjusted $ 0.19 $ 0.21 $ 0.16
========= ============= =========
Weighted Average
Shares Used in
Computing Net Income
per Common Share:
Basic 140,805 140,015 127,840
========= ============= =========
Diluted 146,880 149,439 137,304
========= ============= =========
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 stock-based compensation related to employees and non-employees (in thousands):
Three Months Ended
------------------------------------
March 26, December 26, March 28,
2016 2015 2015
----------- ------------ -----------
Cost of revenue $ 673 $ 665 $ 482
Research and development 2,321 2,872 2,578
Sales and marketing 2,235 2,159 1,721
General and administration 1,899 1,948 1,666
----------- ------------ -----------
7,128 7,644 6,447
Cost of revenue - amortization from
balance sheet* 859 1,068 761
----------- ------------ -----------
Total stock-based compensation expense $ 7,987 $ 8,712 $ 7,208
=========== ============ ===========
* 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 Business combination accounting principles require Infinera to measure acquired inventory at fair value as of the date of the acquisition. The fair value of inventory reflects the acquired company's cost of manufacturing plus a portion of the expected profit margin. The non-GAAP adjustment to Infinera's cost of sales excludes the amortization of the step-up in carrying value for units sold in the quarter. Management believes the adjustment is useful to investors as an additional means to reflect cost of sales and gross margin trends of Infinera's business.
5 Acquisition-related costs related to Transmode acquisition include legal, financial, employee retention costs and other professional fees incurred in connection with the transaction. 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.
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 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 and acquisition related costs related to the Transmode acquisition.
Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)
March 26, December 26,
2016 2015
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 179,974 $ 149,101
Short-term investments 95,116 125,561
Accounts receivable, net of allowance for
doubtful accounts of $630 in 2016 and $630
in 2015 184,309 186,243
Inventory 189,744 174,699
Prepaid expenses and other current assets 29,689 29,511
------------- -------------
Total current assets 678,832 665,115
Property, plant and equipment, net 115,372 110,861
Intangible assets, net 151,311 156,319
Goodwill 193,498 191,560
Long-term investments 80,488 76,507
Cost-method investment 14,500 14,500
Long-term restricted cash 5,331 5,310
Other non-current assets 4,032 4,009
------------- -------------
Total assets $ 1,243,364 $ 1,224,181
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 83,035 $ 92,554
Accrued expenses 33,319 33,736
Accrued compensation and related benefits 34,572 49,887
Accrued warranty 17,663 17,889
Deferred revenue 48,285 42,977
------------- -------------
Total current liabilities 216,874 237,043
Long-term debt 125,796 123,327
Accrued warranty, non-current 22,336 20,955
Deferred revenue, non-current 18,391 13,881
Deferred tax liability 35,436 35,731
Other long-term liabilities 18,528 16,183
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
26, 2016 and December 26, 2015
Issued and outstanding shares - 141,425 as
of March 26, 2016 and 140,197 as of
December 26, 2015 141 140
Additional paid-in capital 1,313,783 1,300,301
Accumulated other comprehensive income 4,774 1,123
Accumulated deficit (527,398) (539,413)
------------- -------------
Total Infinera Corporation stockholders'
equity 791,300 762,151
Noncontrolling interest 14,703 14,910
------------- -------------
Total stockholders' equity 806,003 777,061
------------- -------------
Total liabilities and stockholders' equity $ 1,243,364 $ 1,224,181
============= =============
Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
----------------------------
March 26, March 28,
2016 2015
------------- -------------
Cash Flows from Operating Activities:
Net income $ 11,808 $ 12,366
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,666 6,586
Amortization of debt discount and issuance
costs 2,469 2,234
Amortization of premium on investments 481 954
Stock-based compensation expense 7,987 7,208
Other gain - (19)
Changes in assets and liabilities:
Accounts receivable 2,165 23,391
Inventory (16,155) (12,103)
Prepaid expenses and other assets (274) 1,141
Accounts payable (9,041) (10,317)
Accrued liabilities and other expenses (15,036) (12,895)
Deferred revenue 9,776 2,797
Accrued warranty 1,133 (1,501)
------------- -------------
Net cash provided by operating
activities 9,979 19,842
Cash Flows from Investing Activities:
Purchase of available-for-sale investments (37,393) (80,022)
Proceeds from sales of available-for-sale
investments - 2,001
Proceeds from maturities of investments 63,759 91,280
Purchase of property and equipment (10,844) (7,367)
Change in restricted cash (30) 352
------------- -------------
Net cash provided by investing
activities 15,492 6,244
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 7,787 10,131
Minimum tax withholding paid on behalf of
employees for net share settlement (2,444) (3,950)
------------- -------------
Net cash provided by financing
activities 5,343 6,181
Effect of exchange rate changes on cash 59 (139)
Net change in cash and cash equivalents 30,873 32,128
Cash and cash equivalents at beginning of
period 149,101 86,495
------------- -------------
Cash and cash equivalents at end of period $ 179,974 $ 118,623
============= =============
Supplemental disclosures of cash flow
information:
Cash paid for income taxes, net of refunds $ 1,554 $ 897
Cash paid for interest $ 37 $ -
Supplemental schedule of non-cash investing
activities:
Transfer of inventory to fixed assets $ 1,409 $ 1,403
Infinera Corporation
Supplemental Financial Information
(Unaudited)
Q2'14 Q3'14 Q4'14 Q1'15
------ ------ ------ ------
Revenue ($ Mil) $165.4 $173.6 $186.3 $186.9
GAAP Gross Margin % 42.5% 43.4% 45.3% 47.2%
Non-GAAP Gross Margin %(1) 43.3% 44.2% 46.1% 47.8%
Revenue Composition:
Domestic % 82% 70% 58% 68%
International % 18% 30% 42% 32%
Customers >10% of Revenue 2 1 1 2
Cash Related Information:
Cash from Operations ($ Mil) $ 10.3 $ 22.3 $ 18.7 $ 19.8
Capital Expenditures ($ Mil) $ 4.4 $ 4.4 $ 8.8 $ 7.4
Depreciation & Amortization ($ Mil) $ 6.5 $ 6.5 $ 6.6 $ 6.6
DSO's 66 71 76 64
Inventory Metrics:
Raw Materials ($ Mil) $ 11.2 $ 11.6 $ 15.2 $ 22.4
Work in Process ($ Mil) $ 40.6 $ 44.4 $ 50.0 $ 45.9
Finished Goods ($ Mil) $ 79.1 $ 74.8 $ 81.3 $ 88.9
------ ------ ------ ------
Total Inventory ($ Mil) $130.9 $130.8 $146.5 $157.2
Inventory Turns(2) 2.9 3.0 2.7 2.5
Worldwide Headcount 1,396 1,456 1,495 1,530
Q2'15 Q3'15 Q4'15 Q1'16
------ ------ ------ ------
Revenue ($ Mil) $207.3 $232.5 $260.0 $244.8
GAAP Gross Margin % 46.7% 44.2% 44.5% 47.5%
Non-GAAP Gross Margin %(1) 47.4% 47.5% 48.3% 50.2%
Revenue Composition:
Domestic % 75% 68% 62% 71%
International % 25% 32% 38% 29%
Customers >10% of Revenue 3 2 2 3
Cash Related Information:
Cash from Operations ($ Mil) $ 55.0 $ 32.5 $ 25.8 $ 10.0
Capital Expenditures ($ Mil) $ 8.7 $ 10.6 $ 15.3 $ 10.8
Depreciation & Amortization ($ Mil) $ 6.3 $ 9.2 $ 13.7 $ 14.7
DSO's 48 55 65 69
Inventory Metrics:
Raw Materials ($ Mil) $ 30.2 $ 24.2 $ 27.9 $ 33.1
Work in Process ($ Mil) $ 43.9 $ 48.5 $ 52.6 $ 59.4
Finished Goods ($ Mil) $ 83.1 $ 97.2 $ 94.2 $ 97.2
------ ------ ------ ------
Total Inventory ($ Mil) $157.2 $169.9 $174.7 $189.7
Inventory Turns(2) 2.8 2.9 3.1 2.6
Worldwide Headcount 1,598 1,978 2,056 2,128
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 [email protected]:Jeff HustisTel. +1 (408) [email protected]
Source: Infinera