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Infinera: Infinera Corporation Reports Third Quarter 2009 Financial Results

^{Published on 2009-10-20 13:29:10 - Market Wire}
 

SUNNYVALE, CA--(Marketwire - October 20, 2009) - Infinera Corporation (NASDAQ: [ INFN ]), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 26, 2009.

 -- GAAP revenues for the third quarter of 2009 were $83.4 million compared to $68.9 million for the second quarter of 2009 and $80.9 million on an adjusted GAAP basis in the third quarter of 2008. -- GAAP gross margins for the quarter were 33%. Excluding restructuring and other related costs and non-cash stock-based compensation expense, non- GAAP gross margins were 38% in the third quarter of 2009 compared to 31% in the second quarter of 2009 and 42% on an adjusted GAAP basis in the third quarter of 2008. -- GAAP net loss for the quarter was $16.5 million, or $0.17 per share. Excluding restructuring and other related costs and non-cash stock-based compensation expense, net loss on a non-GAAP basis was $3.1 million, or $0.03 per share, in the third quarter of 2009 compared to a net loss of $18.2 million, or $0.19 per share, on a non-GAAP basis in the second quarter of 2009 and net income of $0.0 million, or $0.00 per diluted share, on an adjusted GAAP basis, for the third quarter of 2008. 

Management Commentary

"In the third quarter, we continued our positive revenue growth trajectory and our new customer win momentum with the addition of four customers to our roster, while diversifying our customer base and reducing our reliance on any single account," said Jagdeep Singh, president and chief executive officer at Infinera. "Our ability to grow our revenue and expand our customer base in the current environment validates that customers are investing in the optical network again and that Infinera is winning its fair share of this spending.

"We have expanded our total addressable market with the addition of submarine and metro edge products, and believe that our differentiated, PIC-based disruptive technology continues to resonate with customers and prospects alike as the industry's best, most cost-effective solution to solve their business challenges," said Singh.

The company noted the following Q3 highlights:

 -- The addition of four new customers this quarter brings the company's total customer count to 66. With the addition of incumbent service providers Telefonica and Teliasonera, Infinera's Tier-1 carrier customer count is now six, of which three -- NTT Communications, Deutsche Telecom and Telefonica -- are among the top five players in the world. -- The company achieved greater customer diversification as three customers accounted for 10% or more of revenue this quarter and the largest customer for the quarter was an existing, but unannounced, cable MSO customer. Level 3 was slightly less than 10 percent of revenue. -- International revenue grew for the fourth quarter in a row, reaching 37 percent of revenue in Q3. -- The company won a new eight-figure opportunity with another major internet content provider. -- With the introduction of its recently announced ATN metro edge product, the company now addresses all major categories within the $8 billion dollar DWDM space including submarine, ultra-long haul, long-haul, regional, metro core and metro access. To date the company has six wins for its new ATN platform, including the recently announced ATN deployment at Deltacomm. -- The company significantly strengthened its technology resources with the addition of an experienced engineering team in its new Ottawa development center. This team has deep expertise in signal processing and complex modulation schemes, important building blocks for the next generation of optical transport products. 

Note: For an explanation of our use of Non-GAAP and Adjusted GAAP measures and a full reconciliation of these measures to our GAAP results, please see the section of the accompanying tables titled "GAAP to Non-GAAP and Adjusted GAAP Reconciliations." We have not shown comparisons to our third quarter 2008 GAAP results in the body of this press release because those results were significantly affected by the recognition of ratable product and related support and services revenue from shipments made prior to the third quarter of 2008, which we believe makes those comparisons less useful for investors. See our GAAP Condensed Consolidated Statements of Operations attached to this release for these GAAP to GAAP comparisons.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results and fourth quarter outlook today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the "Investor Relations" section of the company's website at [ www.infinera.com ]. Following the webcast, an archived version will be available on the website for 30 days. To hear the replay, parties in the United States and Canada should call 1-800-685-9501. International parties can access the replay at 1-203-369-3318.

About Infinera

Infinera provides Digital Optical Networking systems to telecommunications carriers worldwide. Infinera's systems are unique in their use of a breakthrough semiconductor technology: the Photonic Integrated Circuit (PIC). Infinera's systems and PIC technology are designed to provide optical networks with simpler and more flexible engineering and operations, faster time-to-service, and the ability to rapidly deliver differentiated services without reengineering their optical infrastructure. For more information, please visit [ www.infinera.com ].

Forward-Looking Statements

This press release contains forward-looking statements, including statements about our products, business, customer reaction to our products and our view on customer spending. 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 (SEC). More information about these and other risks that may impact Infinera's business are set forth in our annual report on Form 10-K, which was filed with the SEC on February 17, 2009, 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 reflect adjusted GAAP revenue and exclude non-cash stock-based compensation expenses and non-recurring restructuring and other related costs. 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 and Adjusted GAAP Reconciliations" 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 2009 results, including an estimate of non-GAAP earnings for the fourth quarter of 2009 that excludes non-cash stock-based compensation expenses and non-recurring restructuring and other related costs.

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 per share data) (Unaudited) Three Months Ended Nine Months Ended ---------------------- ---------------------- September September September September 26, 27, 26, 27, 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Revenue: Product $ 73,690 $ 76,130 $ 193,912 $ 226,763 Ratable product and related support and services 892 39,495 3,206 181,462 Services 8,826 4,881 21,802 11,643 ---------- ---------- ---------- ---------- Total revenue 83,408 120,506 218,920 419,868 Cost of revenue (1): Cost of product 47,473 45,139 137,037 131,928 Cost of ratable product and related support and services 444 18,537 1,532 86,537 Cost of services 5,049 2,592 9,681 5,814 Restructuring and other costs related to cost of revenue 2,736 - 2,736 - ---------- ---------- ---------- ---------- Total cost of revenue 55,702 66,268 150,986 224,279 Gross profit 27,706 54,238 67,934 195,589 Operating expenses (1): Sales and marketing 12,364 11,171 34,945 32,277 Research and development 23,589 21,092 70,349 57,172 General and administrative 10,373 8,713 31,978 25,632 Restructuring and other costs 601 - 601 - Amortization of intangible assets 22 37 96 111 ---------- ---------- ---------- ---------- Total operating expenses 46,949 41,013 137,969 115,192 Income (loss) from operations (19,243) 13,225 (70,035) 80,397 Other income (expense), net: Interest income 441 1,675 1,956 7,236 Interest expense - - - (3) Net impairment losses recognized in earnings (2) (161) - (1,094) - Other gain (loss), net 870 37 (138) 1,213 ---------- ---------- ---------- ---------- Total other income (expense), net 1,150 1,712 724 8,446 Income (loss) before income taxes (18,093) 14,937 (69,311) 88,843 Provision for (benefit from) income taxes (1,561) - (1,340) 3,427 ---------- ---------- ---------- ---------- Net income (loss) $ (16,532) $ 14,937 $ (67,971) $ 85,416 ========== ========== ========== ========== Net income (loss) per common share: Basic $ (0.17) $ 0.16 $ (0.71) $ 0.93 ========== ========== ========== ========== Diluted $ (0.17) $ 0.15 $ (0.71) $ 0.88 ========== ========== ========== ========== Weighted average shares used in computing net income (loss) per common share: Basic 95,864 92,888 95,100 92,087 ========== ========== ========== ========== Diluted 95,864 97,208 95,100 97,061 ========== ========== ========== ========== (1) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and nine months ended September 26, 2009 and September 27, 2008: Three Months Ended Nine Months Ended ---------------------- ---------------------- September September September September 26, 27, 26, 27, 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Cost of revenue $ 490 $ 299 $ 1,346 $ 778 Sales and marketing 1,710 1,250 4,723 3,264 Research and development 2,915 1,870 7,066 4,722 General and administration 3,984 1,956 10,142 5,530 ---------- ---------- ---------- ---------- 9,099 5,375 23,277 14,294 Cost of revenue - amortization from balance sheet* 987 1,180 2,457 3,549 ---------- ---------- ---------- ---------- Total stock-based compensation expense $ 10,086 $ 6,555 $ 25,734 $ 17,843 ========== ========== ========== ========== * Stock-based compensation expense deferred to inventory and to deferred inventory costs in prior periods and recognized in the current period. (2) The following table summarizes the components of net impairment losses recognized in earnings: Three Months Ended Nine Months Ended ---------------------- ---------------------- September September September September 26, 27, 26, 27, 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Total other-than-temporary impairment loss $ - $ - $ (2,747) $ - Portion of gain (loss) recognized in other comprehensive loss (161) - 1,653 - ---------- ---------- ---------- ---------- Net impairment losses recognized in earnings $ (161) $ - $ (1,094) $ - ========== ========== ========== ========== Infinera Corporation GAAP to Non-GAAP and Adjusted GAAP Reconciliations: Infinera Corporation GAAP to Non-GAAP Reconciliation (In thousands, except per share data) (Unaudited) Three Months Ended September 26, 2009 ---------------------------------------------------------- Non-GAAP Restruc- excluding turing Restruc- Stock GAAP Charges(1) turing Comp(2) Non-GAAP --------- --------- --------- --------- --------- Revenue Product and ratable revenue $ 74,582 $ - $ 74,582 $ - $ 74,582 Services revenue 8,826 - 8,826 - 8,826 --------- --------- --------- --------- --------- Total revenue 83,408 - 83,408 - 83,408 Cost of revenue 55,702 (2,736) (a) 52,966 (1,477) 51,489 --------- --------- --------- --------- --------- Gross profit 27,706 2,736 30,442 1,477 31,919 Gross margin 33% 38% Operating expenses 46,949 (601) (a) 46,348 (8,609) 37,739 --------- --------- --------- --------- --------- Loss from operations (19,243) 3,337 (15,906) 10,086 (5,820) Other income (expense), net 1,150 - 1,150 - 1,150 --------- --------- --------- --------- --------- Loss before provision for income taxes (18,093) 3,337 (14,756) 10,086 (4,670) Benefit from income taxes (1,561) - (1,561) - (1,561) --------- --------- --------- --------- --------- Net loss $ (16,532) $ 3,337 $ (13,195) $ 10,086 $ (3,109) ========= ========= ========= ========= ========= Net loss per common share: Basic $ (0.17) $ (0.03) ========= ========= Diluted $ (0.17) $ (0.03)* ========= ========= Weighted average shares used in computing net loss per common share: Basic 95,864 95,864 ========= ========= Diluted 95,864 99,293* ========= ========= (1) In the third quarter of 2009, we recorded restructuring and other related costs of $3.3 million pursuant to our plan announced on July 21, 2009, involving the closure of our Maryland based semi-conductor fabrication plant ("FAB") and the consolidation of these activities into our primary FAB location in Sunnyvale, California. (2) See footnote to the Condensed Consolidated Statements of Operations for a summary of the effects of stock-based compensation related to employees and non-employees for the three months ended September 26, 2009. * Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only. Infinera Corporation GAAP to Non-GAAP Reconciliation (In thousands, except per share data) (Unaudited) Three Months Ended June 27, 2009 --------------------------------------- GAAP Stock Comp Non-GAAP ---------- ---------- ---------- Revenue Product and ratable revenue $ 61,919 $ - $ 61,919 Services revenue 7,013 - 7,013 ---------- ---------- ---------- Total revenue 68,932 - 68,932 Cost of revenue 48,674 (1,381) (b) 47,293 ---------- ---------- ---------- Gross profit 20,258 1,381 21,639 Gross margin 29% 31% Operating expenses 47,736 (7,531) (b) 40,205 ---------- ---------- ---------- Loss from operations (27,478) 8,912 (18,566) Other income (expense), net 470 - 470 ---------- ---------- ---------- Loss before provision for income taxes (27,008) 8,912 (18,096) Provision for income taxes 103 - 103 ---------- ---------- ---------- Net loss $ (27,111) $ 8,912 $ (18,199) ========== ========== ========== Net loss per common share: Basic $ (0.28) $ (0.19) ========== ========== Diluted $ (0.28) $ (0.18)* ========== ========== Weighted average shares used in computing net loss per common share: Basic 95,161 95,161 ========== ========== Diluted 95,161 98,960* ========== ========== * Diluted shares used to calculate net loss per share on a non-GAAP basis provided for informational purposes only. Infinera Corporation GAAP to Adjusted GAAP Reconciliation (In thousands, except per share data) (Unaudited) Three Months Ended September 27, 2008 ------------------------------------------------------------- Adjusted Adjusted GAAP Deferral Adjusted GAAP Excluding Adjust- GAAP Stock Stock GAAP ments Results Comp Comp --------- --------- --------- --------- --------- Revenue Product and ratable revenue $ 115,625 $ (39,588) (c) $ 76,037 $ - $ 76,037 Services revenue 4,881 - 4,881 - 4,881 --------- --------- --------- --------- --------- Total revenue 120,506 (39,588) 80,918 - 80,918 Cost of revenue 66,268 (18,338) (d) 47,930 (1,270) (e) 46,660 --------- --------- --------- --------- --------- Gross profit 54,238 (21,250) 32,988 1,270 34,258 Gross margin 45% 42% Operating expenses 41,013 - 41,013 (5,076) (e) 35,937 --------- --------- --------- --------- --------- Income from operations 13,225 (21,250) (8,025) 6,346 (1,679) Other income (expense), net 1,712 - 1,712 - 1,712 --------- --------- --------- --------- --------- Income before provision for income taxes 14,937 (21,250) (6,313) 6,346 33 Provision for income taxes - - - - - --------- --------- --------- --------- --------- Net income $ 14,937 $ (21,250) $ (6,313) $ 6,346 $ 33 ========= ========= ========= ========= ========= Net income per common share: Basic $ 0.16 $ 0.00 ========= ========= Diluted $ 0.15 $ 0.00 ========= ========= Weighted average shares used in computing net income per common share: Basic 92,888 92,888 ========= ========= Diluted 97,208 97,208 ========= ========= Use of Non-GAAP and Adjusted GAAP Information: As described below, Infinera uses various non-GAAP and adjusted GAAP financial measures to supplement our condensed consolidated financial statements presented on a GAAP basis. We believe these adjustments are appropriate to enhance an overall understanding of our underlying financial performance and also our 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 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. Our usage of these non-GAAP and adjusted GAAP measures are further explained below: -- Effective April 2008, we had established VSOE of fair value for most of our service offerings. From the second quarter of 2008 to the fourth quarter of 2008, we have used adjusted GAAP measures of operating results, net income and net income per share. Adjusted GAAP results reflected our GAAP results reduced for amounts released from deferred revenue and deferred cost of inventory balances recorded prior to the second quarter of 2008 and previously reported in our invoiced shipment results. Deferred services and deferred ratable and product revenue and cost amounts recorded after March 29, 2008 were not adjusted and were recognized on a GAAP basis in arriving at the adjusted GAAP results. We presented these non-GAAP measures of operating results, net income and net income per share, which included adjusted GAAP results and excluded non-GAAP stock-based compensation expense for these periods. -- In the first quarter of 2009, we began using more traditional non-GAAP financial measures, which reflect our GAAP results and exclude non-recurring restructuring and other related costs and stock-based compensation related expenses. All material deferred revenue and deferred cost of inventory balances recorded prior to the second quarter of 2008 and previously reported in our invoiced shipment results have been recognized in our GAAP results prior to December 27, 2008. Therefore, no further adjustments, other than the exclusion of non-recurring restructuring and other related costs and stock-based compensation expense will be made to our GAAP results on a go-forward basis. (a) Adjustment amount represents restructuring and other related costs recorded in the third quarter of 2009 related to the closure of our Maryland FAB announced on July 21, 2009. These amounts have been adjusted in arriving at our non-GAAP results as they are non-recurring in nature and the adjusted numbers provide a better indication of our underlying business performance. Three Months Ended September 26, 2009 -------------------------------- Cost of Operating Revenue Expenses Total ---------- ---------- ---------- (In thousands) Severance and related expenses $ 804 $ 97 $ 901 Equipment and facility-related costs 1,900 415 2,315 Other 32 89 121 ---------- ---------- ---------- Total $ 2,736 $ 601 $ 3,337 ========== ========== ========== Restructuring and other related costs include non-cash charges of $2.4 million. (b) The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three months ended June 27, 2009: Three Months Ended ------------- June 27, 2009 ------------- (In thousands) Cost of revenue $ 477 Sales and marketing 1,599 Research and development 2,419 General and administration 3,513 ------------- 8,008 Cost of revenue - amortization from balance sheet* 904 ------------- Total stock-based compensation expense $ 8,912 ============= * Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period. (c) Adjustment amount represents the release of ratable and product deferred revenue amounts related to periods prior to March 29, 2008 as these amounts have been previously reported as invoiced shipments. No adjustment has been made for changes in deferred services revenue as these amounts relate to future service deliverables and are appropriately deferred. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results. The deferred revenue adjustments recorded above are reconciled to the deferred revenue balance on our balance sheet in the table below: Three Months Ended September 27, 2008 ------------------------------------------------------ Pre Mar 29, Post Mar 29, 2008 Ratable 2008 Ratable Deferred and Product and Product Revenue Revenue Revenue Services Total ------------ ------------ ------------ ------------ (In thousands) Beginning balance $ 61,340 $ 3,113 $ 5,456 $ 69,909 Additions to deferred revenue - 2,075 3,567 5,642 Amortization to revenue (39,588) (891) (2,616) (43,095) ------------ ------------ ------------ ------------ Ending balance $ 21,752 $ 4,297 $ 6,407 $ 32,456 ============ ============ ============ ============ ------------ ------------ ------------ ------------ Change in deferred revenue balance $ (39,588) $ 1,184 $ 951 $ (37,453) ============ ============ ============ ============ (d) Adjustment amount represents the release of ratable and deferred product cost amounts related to periods prior to March 29, 2008 as these amounts have been previously included as invoiced shipments. Deferred ratable and product amounts recorded after March 29, 2008 have not been adjusted as these amounts are recognized on a GAAP basis in arriving at the adjusted GAAP results. The deferred cost of inventory adjustments recorded above are reconciled to the deferred cost of inventory balance on our balance sheet in the table below: Three Months Ended September 27, 2008 ---------------------------------------- Pre Mar 29, Post Mar 29, 2008 Ratable 2008 Ratable and Product and Product Deferred Inventory Cost Cost Cost Total ------------ ------------ ------------ (In thousands) Beginning balance $ 26,510 $ 450 $ 26,960 Additions to deferred cost of revenue - 710 710 Amortized to cost of revenue (18,338) (40) (18,378) ------------ ------------ ------------ Ending balance $ 8,172 $ 1,120 $ 9,292 ============ ============ ============ ------------ ------------ ------------ Change in deferred inventory cost balance $ (18,338) $ 670 $ (17,668) ============ ============ ============ (e) 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 the Equity Topic of the Accounting Standards Codification. While this is 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 ------------- September 27, 2008 ------------- (In thousands) GAAP stock-based compensation in cost of revenue $ 299 GAAP stock-based compensation in cost of revenue - amortization from balance sheet 1,180 Stock-based compensation not deferred to deferred inventory cost - Stock-based compensation previously recognized on invoiced shipment basis (209) ------------- Non-GAAP stock-based compensation in cost of revenue $ 1,270 ============= Infinera Corporation Condensed Consolidated Balance Sheets (In thousands, except par values) (Unaudited) September 26, December 27, 2009 2008 ------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 90,945 $ 166,770 Short-term investments 178,107 68,232 Short-term restricted cash 1,533 720 Accounts receivable, net of allowance for doubtful accounts of $606 as of September 26, 2009 and $1,700 as of December 27, 2008 54,030 69,354 Other receivables 2,199 1,085 Inventories, net 72,915 58,986 Deferred inventory costs 2,376 1,744 Prepaid expenses and other current assets 8,417 6,311 ------------- ------------- Total current assets 410,522 373,202 Property, plant and equipment, net 44,363 46,820 Intangible assets 1,004 1,276 Deferred inventory costs, non-current 1,768 2,493 Long-term investments 7,423 74,684 Long-term restricted cash 2,514 2,179 Other non-current assets 11,213 6,413 ------------- ------------- Total assets $ 478,807 $ 507,067 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 31,617 $ 34,048 Accrued expenses 23,822 16,092 Accrued compensation and related benefits 13,050 13,472 Accrued warranty 5,612 5,205 Deferred revenue 11,681 14,683 ------------- ------------- Total current liabilities 85,782 83,500 Accrued warranty, non-current 4,526 4,735 Deferred revenue, non-current 6,805 7,724 Other long-term liabilities 7,119 5,645 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value Authorized shares -- 25,000 and no shares issued and outstanding - - Common stock, $0.001 par value Authorized shares -- 500,000 as of September 26, 2009 and December 27, 2008 Issued and outstanding shares -- 96,436 as of September 26, 2009 and 94,163 as of December 27, 2008 96 94 Additional paid-in capital 735,031 699,705 Accumulated other comprehensive loss (1,843) (3,598) Accumulated deficit (358,709) (290,738) ------------- ------------- Total stockholders' equity 374,575 405,463 ------------- ------------- Total liabilities and stockholders' equity $ 478,807 $ 507,067 ============= ============= Infinera Corporation Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended ----------------------------- September 26, September 27, 2009 2008 ------------- ------------- Cash Flows from Operating Activities: Net income (loss) $ (67,971) $ 85,416 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 12,064 8,877 Non-cash restructuring and other costs 2,404 - Net credit impairment losses in earnings 1,094 - Accretion of investment discount 289 (881) Stock-based compensation expense 25,733 17,843 Put Rights 2,540 - Unrealized holding gains for trading securities (3,141) - Tax benefit (reversal) from stock option transactions (593) 2,588 (Excess) reduction of tax benefit from stock option transactions 248 (2,588) Gain on disposal of assets (117) (1,006) Other (gain) loss (113) 7 Changes in assets and liabilities: Accounts receivable 14,219 (8,478) Inventories, net (12,728) (701) Prepaid expenses and other current assets (2,331) (3,142) Deferred inventory costs 21 71,626 Other non-current assets (4,795) (1,964) Accounts payable (1,875) 7,777 Accrued liabilities and other expenses 8,749 (8,723) Deferred revenue (3,922) (141,981) Accrued warranty 197 684 ------------- ------------- Net cash provided by (used in) operating activities (30,028) 25,354 Cash Flows from Investing Activities: Purchase of available-for-sale investments (136,338) (172,875) Proceeds from sale of available-for-sale investments 1,536 103,190 Proceeds from maturities and call of investments and restricted cash 92,009 122,899 Proceeds from disposal of assets 206 1,080 Purchase of property and equipment (11,599) (15,152) ------------- ------------- Net cash provided by (used in) investing activities (54,186) 39,142 Cash Flows from Financing Activities: Proceeds from issuance of common stock 8,545 11,242 Excess (reduction of) tax benefit from stock option transactions (248) 2,588 Repurchase of common stock (19) (30) ------------- ------------- Net cash provided by financing activities 8,278 13,800 ------------- ------------- Effect of exchange rate changes on cash 111 (66) Net change in cash and cash equivalents (75,825) 78,230 Cash and cash equivalents at beginning of period 166,770 91,209 ------------- ------------- Cash and cash equivalents at end of period $ 90,945 $ 169,439 ============= ============= Supplemental disclosures of cash flow information: Cash paid for interest $ - $ 3 Cash paid for income taxes $ 1,245 $ 858 Infinera Corporation Supplemental Financial Information Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 ------ ------ ------ ------ ------ ------ ------ Revenue $ 95.5 $ 90.8 $ 80.9 $ 86.2 $ 66.6 $ 68.9 $ 83.4 Gross Margin % 45% 47% 42% 36% 31% 31% 38% ------ ------ ------ ------ ------ ------ ------ Invoiced Shipment Composition: Domestic % 82% 78% 81% 73% 74% 64% 63% International % 18% 22% 19% 27% 26% 36% 37% Largest Customer % 31% 21% 27% 23% 30% 20% 15% ------ ------ ------ ------ ------ ------ ------ Cash Related Information: Cash from Operations $ 9.8 $ 5.6 $ 9.9 $ (5.4) $ (2.9) $(18.8) $ (8.3) Capital Expenditures $ 4.5 $ 4.8 $ 5.9 $ 7.8 $ 6.0 $ 2.8 $ 2.8 Depreciation & Amortization $ 2.6 $ 2.9 $ 3.4 $ 4.1 $ 3.9 $ 4.0 $ 4.2 DSO's 42 57 55 74 61 72 61 ------ ------ ------ ------ ------ ------ ------ Inventory Metrics: Raw Materials $ 7.9 $ 9.2 $ 10.0 $ 9.1 $ 7.7 $ 10.1 $ 7.4 Work in Process $ 40.6 $ 34.6 $ 35.8 $ 37.9 $ 43.2 $ 40.1 $ 36.2 Finished Goods $ 10.7 $ 13.8 $ 12.8 $ 12.0 $ 13.6 $ 22.3 $ 29.3 ------ ------ ------ ------ ------ ------ ------ Total Inventory $ 59.2 $ 57.6 $ 58.6 $ 59.0 $ 64.5 $ 72.5 $ 72.9 Inventory Turns 3.5 3.3 3.2 3.8 2.8 2.6 3.0 ------ ------ ------ ------ ------ ------ ------ Worldwide Headcount 799 853 889 937 962 973 970 ------ ------ ------ ------ ------ ------ ------ Periods prior to Q2'08 reflect invoiced shipments results; periods from Q2'08 through Q4'08 reflect adjusted GAAP results; and Q1'09 going forward reflects non-GAAP results. Non-GAAP results exclude restructuring and other related costs and non-cash stock-based compensation.