Delaware | 001-33486 | 77-0560433 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
140 Caspian Court | ||||
Sunnyvale, CA | 94089 | |||
(Address of principal executive offices) | (Zip Code) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | |
INFINERA CORPORATION | ||||
Date: November 6, 2018 | By: | /s/ BRAD D. FELLER | ||
Brad D. Feller Chief Financial Officer |
• | Revenue is expected to be $325 million +/- $10 million. |
• | GAAP gross margin is expected to be 28% +/- 200 bps. Non-GAAP gross margin is expected to be 30% +/- 200 bps. |
• | GAAP operating expenses are expected to be $160 million +/- $5 million. Non-GAAP operating expenses are expected to be $140 million +/- $5 million. |
• | GAAP operating margin is expected to be approximately (21)%. Non-GAAP operating margin is expected to be approximately (13)%. |
• | GAAP EPS is expected to be $(0.43) +/- $0.02. Non-GAAP EPS is expected to be $(0.28) +/- $0.02. |
Contacts: | ||
Media: Anna Vue | Investors: Jeff Hustis | |
Tel. +1 (916) 595-8157 | Tel. +1 (408) 213-7150 | |
avue@infinera.com | jhustis@infinera.com |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 29, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | |||||||||||||
Revenue: | ||||||||||||||||
Product | $ | 167,030 | $ | 159,579 | $ | 513,947 | $ | 449,992 | ||||||||
Services | 33,383 | 33,001 | 97,374 | 94,931 | ||||||||||||
Total revenue | 200,413 | 192,580 | 611,321 | 544,923 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of product | 117,152 | 111,803 | 335,674 | 311,437 | ||||||||||||
Cost of services | 13,075 | 12,951 | 38,945 | 36,772 | ||||||||||||
Restructuring and related | 7 | — | 50 | — | ||||||||||||
Total cost of revenue | 130,234 | 124,754 | 374,669 | 348,209 | ||||||||||||
Gross profit | 70,179 | 67,826 | 236,652 | 196,714 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 50,658 | 56,616 | 165,497 | 169,076 | ||||||||||||
Sales and marketing | 26,073 | 27,824 | 86,286 | 86,662 | ||||||||||||
General and administrative | 18,415 | 17,634 | 54,616 | 53,556 | ||||||||||||
Restructuring and related | 191 | — | 1,708 | — | ||||||||||||
Total operating expenses | 95,337 | 102,074 | 308,107 | 309,294 | ||||||||||||
Loss from operations | (25,158 | ) | (34,248 | ) | (71,455 | ) | (112,580 | ) | ||||||||
Other income (expense), net: | ||||||||||||||||
Interest income | 292 | 857 | 1,818 | 2,470 | ||||||||||||
Interest expense | (2,160 | ) | (3,549 | ) | (8,344 | ) | (10,408 | ) | ||||||||
Other gain (loss), net: | (5,449 | ) | (80 | ) | (3,514 | ) | (462 | ) | ||||||||
Total other income (expense), net | (7,317 | ) | (2,772 | ) | (10,040 | ) | (8,400 | ) | ||||||||
Loss before income taxes | (32,475 | ) | (37,020 | ) | (81,495 | ) | (120,980 | ) | ||||||||
Provision for (benefit from) income taxes | 135 | 211 | (667 | ) | (459 | ) | ||||||||||
Net loss | (32,610 | ) | (37,231 | ) | (80,828 | ) | (120,521 | ) | ||||||||
Net loss per common share - basic and diluted: | $ | (0.21 | ) | $ | (0.25 | ) | $ | (0.53 | ) | $ | (0.82 | ) | ||||
Weighted average shares used in computing net loss | ||||||||||||||||
per common share - basic and diluted: | 153,492 | 148,777 | 152,028 | 147,367 |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||||||||||||||||||||
Reconciliation of Gross Profit: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 70,179 | 35.0 | % | $ | 84,305 | 40.5 | % | $ | 67,826 | 35.2 | % | $ | 236,652 | 38.7 | % | $ | 196,714 | 36.1 | % | ||||||||||||||
Stock-based compensation(1) | 1,968 | 2,039 | 2,063 | 5,001 | 5,965 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 4,876 | 4,943 | 5,390 | 15,160 | 15,305 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | — | — | — | — | 46 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 7 | 26 | — | 50 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 77,030 | 38.4 | % | $ | 91,313 | 43.9 | % | $ | 75,279 | 39.1 | % | $ | 256,863 | 42.0 | % | $ | 218,030 | 40.0 | % | ||||||||||||||
Reconciliation of Operating Expenses: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 95,337 | $ | 105,924 | $ | 102,074 | $ | 308,107 | $ | 309,294 | ||||||||||||||||||||||||
Stock-based compensation(1) | 9,399 | 10,005 | 10,104 | 29,393 | 29,458 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 1,467 | 1,487 | 1,622 | 4,561 | 4,605 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 2,067 | — | — | 2,067 | 322 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 191 | 1,680 | — | 1,708 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 82,213 | $ | 92,752 | $ | 90,348 | $ | 270,378 | $ | 274,657 | ||||||||||||||||||||||||
Reconciliation of Loss from Operations: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (25,158 | ) | (12.6 | )% | $ | (21,619 | ) | (10.4 | )% | $ | (34,248 | ) | (17.8 | )% | $ | (71,455 | ) | (11.7 | )% | $ | (112,580 | ) | (20.7 | )% | |||||||||
Stock-based compensation(1) | 11,367 | 12,044 | 12,167 | 34,394 | 35,423 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 6,343 | 6,430 | 7,012 | 19,721 | 19,910 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 2,067 | — | — | 2,067 | 368 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 198 | 1,706 | — | 1,758 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (5,183 | ) | (2.6 | )% | $ | (1,439 | ) | (0.7 | )% | $ | (15,069 | ) | (7.8 | )% | $ | (13,515 | ) | (2.2 | )% | $ | (56,627 | ) | (10.4 | )% | |||||||||
Reconciliation of Net Loss: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (32,610 | ) | $ | (21,938 | ) | $ | (37,231 | ) | $ | (80,828 | ) | $ | (120,521 | ) | |||||||||||||||||||
Stock-based compensation(1) | 11,367 | 12,044 | 12,167 | 34,394 | 35,423 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 6,343 | 6,430 | 7,012 | 19,721 | 19,910 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 4,567 | — | — | 4,567 | 257 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 198 | 1,706 | — | 1,758 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Amortization of debt discount(6) | 1,578 | 1,892 | 2,643 | 6,249 | 7,734 | |||||||||||||||||||||||||||||
Gain on non-marketable equity investment(7) | (1,050 | ) | — | — | (1,050 | ) | — | |||||||||||||||||||||||||||
Impairment of non-marketable equity investment(7) | 4,260 | — | — | 4,260 | — | |||||||||||||||||||||||||||||
Income tax effects(8) | (1,395 | ) | (1,415 | ) | (1,543 | ) | (4,339 | ) | (4,467 | ) | ||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (6,742 | ) | $ | (1,281 | ) | $ | (16,952 | ) | $ | (15,268 | ) | $ | (61,412 | ) | |||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | |||||||||||||||||||||||||
Net Loss per Common Share - Basic and Diluted: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (0.21 | ) | $ | (0.14 | ) | $ | (0.25 | ) | $ | (0.53 | ) | $ | (0.82 | ) | ||||||||||||||
Non-GAAP as adjusted | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.10 | ) | $ | (0.42 | ) | ||||||||||||||
Weighted Average Shares Used in Computing Net Loss per Common Share - Basic and Diluted: | 153,492 | 152,259 | 148,777 | 152,028 | 147,367 |
(1) | 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 | Nine Months Ended | |||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||||||
Cost of revenue | $ | 590 | $ | 624 | $ | 779 | $ | 1,092 | $ | 2,337 | ||||||||||
Research and development | 4,077 | 4,192 | 4,040 | 12,593 | 12,004 | |||||||||||||||
Sales and marketing | 2,744 | 3,046 | 3,025 | 8,688 | 9,024 | |||||||||||||||
General and administration | 2,578 | 2,767 | 3,039 | 8,112 | 8,431 | |||||||||||||||
9,989 | 10,629 | 10,883 | 30,485 | 31,796 | ||||||||||||||||
Cost of revenue - amortization from balance sheet* | 1,378 | 1,415 | 1,284 | 3,909 | 3,628 | |||||||||||||||
Total stock-based compensation expense | $ | 11,367 | $ | 12,044 | $ | 12,167 | $ | 34,394 | $ | 35,424 |
* | Stock-based compensation expense deferred to inventory in prior periods and recognized in the current period. |
(2) | Amortization of acquired 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. |
(3) | Acquisition and integration costs consist of legal, financial, employee-related costs and other professional fees incurred in connection with Infinera's recent acquisition of Coriant, which closed in October 2018, and the acquisition of Transmode AB, which closed during the third quarter of 2015. 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. |
(4) | Restructuring and related costs are related to Infinera's plan to restructure its worldwide operations, which was implemented during the fourth quarter of 2017. Management has excluded the impact of these charges in arriving at Infinera's non-GAAP results as they are non-recurring in nature and its 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 the $402.5 million in aggregate principal amount of its 2.125% convertible debt issuance in September 2018 due September 2024, and the $150 million in aggregate principal amount of its 1.75% convertible debt issuance in May 2013 due June 2018, over the term of the respective 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) | Management has excluded the impairment charge and the gain on the sale related to non-marketable equity investments 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. |
(8) | 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. |
September 29, 2018 | December 30, 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 416,406 | $ | 116,345 | ||||
Short-term investments | 30,480 | 147,596 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $866 in 2018 and $892 in 2017 | 153,901 | 126,152 | ||||||
Inventory | 211,945 | 214,704 | ||||||
Prepaid expenses and other current assets | 43,756 | 43,140 | ||||||
Total current assets | 856,488 | 647,937 | ||||||
Property, plant and equipment, net | 131,923 | 135,942 | ||||||
Intangible assets | 66,144 | 92,188 | ||||||
Goodwill | 180,986 | 195,615 | ||||||
Long-term investments | 850 | 36,129 | ||||||
Other non-current assets | 11,007 | 9,859 | ||||||
Total assets | $ | 1,247,398 | $ | 1,117,670 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 83,249 | $ | 58,124 | ||||
Accrued expenses | 43,324 | 39,782 | ||||||
Accrued compensation and related benefits | 35,738 | 45,751 | ||||||
Short-term debt | — | 144,928 | ||||||
Accrued warranty | 13,475 | 13,670 | ||||||
Deferred revenue | 42,724 | 72,421 | ||||||
Total current liabilities | 218,510 | 374,676 | ||||||
Long-term debt | 262,580 | — | ||||||
Accrued warranty, non-current | 17,007 | 17,239 | ||||||
Deferred revenue, non-current | 15,790 | 22,502 | ||||||
Deferred tax liability | 14,977 | 21,609 | ||||||
Other long-term liabilities | 14,217 | 16,279 | ||||||
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 29, 2018 and December 30, 2017 | ||||||||
Issued and outstanding shares - 153,988 as of September 29, 2018 and 149,471 as of December 30, 2017 | 154 | 149 | ||||||
Additional paid-in capital | 1,547,451 | 1,417,043 | ||||||
Accumulated other comprehensive income (loss) | (19,785 | ) | 6,254 | |||||
Accumulated deficit | (823,503 | ) | (758,081 | ) | ||||
Total stockholders’ equity | 704,317 | 665,365 | ||||||
Total liabilities and stockholders’ equity | $ | 1,247,398 | $ | 1,117,670 |
Nine Months Ended | ||||||||
September 29, 2018 | September 30, 2017 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (80,828 | ) | $ | (120,521 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 50,339 | 49,391 | ||||||
Non-cash restructuring and related credits | (81 | ) | — | |||||
Amortization of debt discount and issuance costs | 6,752 | 8,399 | ||||||
Realized gain on sale of non-marketable equity investment | (1,050 | ) | — | |||||
Impairment on non-marketable equity investment | 4,260 | — | ||||||
Stock-based compensation expense | 34,394 | 35,424 | ||||||
Other loss | 214 | 622 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (27,728 | ) | 15,078 | |||||
Inventory | (926 | ) | (9,601 | ) | ||||
Prepaid expenses and other assets | 294 | (15,366 | ) | |||||
Accounts payable | 26,254 | 25,840 | ||||||
Accrued liabilities and other expenses | (30,754 | ) | (18,757 | ) | ||||
Deferred revenue | (8,669 | ) | 8,575 | |||||
Net cash used in operating activities | (27,529 | ) | (20,916 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of available-for-sale investments | (2,986 | ) | (122,249 | ) | ||||
Proceeds from sales of available-for-sale investments | 53,039 | 10,531 | ||||||
Proceeds from maturities of investments | 98,112 | 111,970 | ||||||
Proceeds from sale of non-marketable equity investment | 1,050 | — | ||||||
Purchase of property and equipment | (27,027 | ) | (50,247 | ) | ||||
Net cash provided by (used in) investing activities | 122,188 | (49,995 | ) | |||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of debt, net | 391,431 | — | ||||||
Purchase of capped call transactions | (48,880 | ) | — | |||||
Repayment of debt | (150,000 | ) | — | |||||
Acquisition of noncontrolling interest | — | (471 | ) | |||||
Proceeds from issuance of common stock | 17,693 | 17,991 | ||||||
Minimum tax withholding paid on behalf of employees for net share settlement | (1,093 | ) | (963 | ) | ||||
Net cash provided by financing activities | 209,151 | 16,557 | ||||||
Effect of exchange rate changes on cash and restricted cash | (3,054 | ) | 3,855 | |||||
Net change in cash, cash equivalents and restricted cash | 300,756 | (50,499 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 121,486 | 177,580 | ||||||
Cash, cash equivalents and restricted cash at end of period(1) | $ | 422,242 | $ | 127,081 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | 3,320 | $ | 4,159 | ||||
Cash paid for interest | $ | 1,332 | $ | 1,317 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Transfer of inventory to fixed assets | $ | 1,165 | $ | 3,110 |
September 29, 2018 | September 30, 2017 | ||||||
(In thousands) | |||||||
Cash and cash equivalents | $ | 416,406 | $ | 122,042 | |||
Short-term restricted cash | 402 | 740 | |||||
Long-term restricted cash | 5,434 | 4,299 | |||||
Total cash, cash equivalents and restricted cash | $ | 422,242 | $ | 127,081 |
Q4'16 | Q1'17 | Q2'17 | Q3'17 | Q4'17 | Q1'18 | Q2'18 | Q3'18 | |||||||||||||||||||||||||
GAAP Revenue ($ Mil) | $181.0 | $175.5 | $176.8 | $192.6 | $195.8 | $202.7 | $208.2 | $200.4 | ||||||||||||||||||||||||
GAAP Gross Margin % | 38.1 | % | 36.5 | % | 36.7 | % | 35.2 | % | 24.1 | % | 40.5 | % | 40.5 | % | 35.0 | % | ||||||||||||||||
Non-GAAP Gross Margin %(1) | 41.8 | % | 40.3 | % | 40.7 | % | 39.1 | % | 37.5 | % | 43.7 | % | 43.9 | % | 38.4 | % | ||||||||||||||||
Revenue Composition: | ||||||||||||||||||||||||||||||||
Domestic % | 53 | % | 57 | % | 63 | % | 59 | % | 53 | % | 64 | % | 58 | % | 49 | % | ||||||||||||||||
International % | 47 | % | 43 | % | 37 | % | 41 | % | 47 | % | 36 | % | 42 | % | 51 | % | ||||||||||||||||
Customers >10% of Revenue | 2 | 1 | 3 | 2 | 1 | 2 | 2 | 2 | ||||||||||||||||||||||||
Cash Related Information: | ||||||||||||||||||||||||||||||||
Cash from Operations ($ Mil) | ($5.0 | ) | $3.0 | ($3.0 | ) | ($20.9 | ) | ($1.0 | ) | ($14.1 | ) | $7.0 | ($20.4 | ) | ||||||||||||||||||
Capital Expenditures ($ Mil) | $10.4 | $14.7 | $24.5 | $11.0 | $7.8 | $8.0 | $13.5 | $5.5 | ||||||||||||||||||||||||
Depreciation & Amortization ($ Mil) | $15.7 | $16.0 | $16.6 | $16.8 | $16.6 | $17.0 | $16.3 | $17.1 | ||||||||||||||||||||||||
DSOs | 81 | 64 | 64 | 65 | 59 | 73 | 65 | 70 | ||||||||||||||||||||||||
Inventory Metrics: | ||||||||||||||||||||||||||||||||
Raw Materials ($ Mil) | $33.2 | $34.8 | $36.7 | $35.8 | $27.4 | $30.3 | $30.5 | $33.6 | ||||||||||||||||||||||||
Work in Process ($ Mil) | $74.5 | $81.1 | $91.6 | $84.3 | $59.6 | $66.5 | $61.6 | $56.4 | ||||||||||||||||||||||||
Finished Goods ($ Mil) | $125.3 | $118.0 | $117.7 | $122.7 | $127.7 | $119.1 | $127.2 | $121.9 | ||||||||||||||||||||||||
Total Inventory ($ Mil) | $233.0 | $233.9 | $246.0 | $242.8 | $214.7 | $215.9 | $219.3 | $211.9 | ||||||||||||||||||||||||
Inventory Turns(2) | 1.8 | 1.8 | 1.7 | 1.9 | 2.3 | 2.1 | 2.1 | 2.3 | ||||||||||||||||||||||||
Worldwide Headcount | 2,240 | 2,245 | 2,272 | 2,296 | 2,145 | 2,084 | 2,070 | 2,079 | ||||||||||||||||||||||||
Weighted Average Shares Outstanding (in thousands): | ||||||||||||||||||||||||||||||||
Basic | 144,770 | 145,786 | 147,538 | 148,777 | 149,412 | 150,333 | 152,259 | 153,492 | ||||||||||||||||||||||||
Diluted | 145,497 | 147,017 | 148,662 | 149,714 | 150,098 | 151,633 | 154,777 | 154,228 |
(1) | Non-GAAP adjustments include restructuring and related costs, 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 restructuring and related costs, non-cash stock-based compensation expense, and certain purchase accounting adjustments, divided by the average inventory for the quarter. |
Q4'18 | ||||
Outlook | ||||
Reconciliation of Gross Margin: | ||||
U.S. GAAP | 28 | % | ||
Stock-based compensation | 1 | % | ||
Amortization of acquired intangible assets | 1 | % | ||
Non-GAAP | 30 | % | ||
Reconciliation of Operating Expenses: | ||||
U.S. GAAP | $ | 160 | ||
Stock-based compensation | (9 | ) | ||
Acquisition and integration costs | (2 | ) | ||
Amortization of acquired intangible assets | (9 | ) | ||
Non-GAAP | $ | 140 | ||
Reconciliation of Operating Margin: | ||||
U.S. GAAP | (21 | )% | ||
Stock-based compensation | 3 | % | ||
Acquisition and integration costs | 2 | % | ||
Amortization of acquired intangible assets | 3 | % | ||
Non-GAAP | (13 | )% | ||
Reconciliation of Net Loss per Common Share: | ||||
U.S. GAAP | $ | (0.43 | ) | |
Stock-based compensation | 0.06 | |||
Acquisition and integration costs | 0.04 | |||
Amortization of acquired intangible assets | 0.05 | |||
Non-GAAP | $ | (0.28 | ) | |
(In millions, except per share amounts and percentages) | Q3'18 | Q2'18 | Q3'17 | Q/Q Change | Y/Y Change | |||||||||||||||
Revenue | $ | 200.4 | $ | 208.2 | $ | 192.6 | (4 | )% | 4 | % | ||||||||||
Product | 167.0 | 175.3 | 159.6 | (5 | )% | 5 | % | |||||||||||||
Service | 33.4 | 32.9 | 33.0 | 2 | % | 1 | % | |||||||||||||
Gross margin % | 35.0 | % | 40.5 | % | 35.2 | % | (5.5)pts | (0.2)pts | ||||||||||||
Research and development | 50.6 | 56.1 | 56.6 | (10 | )% | (11 | )% | |||||||||||||
Sales and marketing | 26.1 | 29.7 | 27.8 | (12 | )% | (6 | )% | |||||||||||||
General and administrative | 18.4 | 18.4 | 17.6 | — | % | 5 | % | |||||||||||||
Restructuring and related | 0.2 | 1.7 | — | (88 | )% | NMF* | ||||||||||||||
Total operating expenses | $ | 95.3 | $ | 105.9 | $ | 102.0 | (10 | )% | (7 | )% | ||||||||||
Operating margin % | (12.6 | )% | (10.4 | )% | (17.8 | )% | (2.2)pts | 5.2pts | ||||||||||||
Net loss | $ | (32.6 | ) | $ | (21.9 | ) | $ | (37.2 | ) | (49 | )% | 12 | % | |||||||
EPS | $ | (0.21 | ) | $ | (0.14 | ) | $ | (0.25 | ) | $ | (0.07 | ) | $ | 0.04 |
(In millions, except per share amounts and percentages) | Q3'18 | Q2'18 | Q3'17 | Q/Q Change | Y/Y Change | |||||||||||||||
Revenue | $ | 200.4 | $ | 208.2 | $ | 192.6 | (4 | )% | 4 | % | ||||||||||
Product | 167.0 | 175.3 | 159.6 | (5 | )% | 5 | % | |||||||||||||
Service | 33.4 | 32.9 | 33.0 | 2 | % | 1 | % | |||||||||||||
Gross margin % | 38.4 | % | 43.9 | % | 39.1 | % | (5.5)pts | (0.7)pts | ||||||||||||
Research and development | 46.6 | 52.0 | 52.6 | (10 | )% | (11 | )% | |||||||||||||
Sales and marketing | 21.7 | 25.2 | 23.1 | (14 | )% | (6 | )% | |||||||||||||
General and administrative | 13.9 | 15.6 | 14.6 | (11 | )% | (5 | )% | |||||||||||||
Total operating expenses | $ | 82.2 | $ | 92.8 | $ | 90.3 | (11 | )% | (9 | )% | ||||||||||
Operating margin % | (2.6 | )% | (0.7 | )% | (7.8 | )% | (1.9)pts | 5.2pts | ||||||||||||
Net loss | $ | (6.7 | ) | $ | (1.3 | ) | $ | (17.0 | ) | (415 | )% | 61 | % | |||||||
EPS | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | $ | 0.07 |
• | Revenue grew 12% |
• | GAAP gross profit grew 20%; non-GAAP gross profit grew 18% |
• | GAAP operating expenses were flat; non-GAAP operating expenses decreased 2% |
• | North America revenue in the third quarter of 2018 declined 14% year-over-year and 19% sequentially. Key year-over-year drivers were weaker spending from our largest Tier-1 customer in the region and lower revenue within the ICP vertical as key customers shifted their builds to international regions. Sequentially, the biggest driver was the anticipated decline in our cable business after a strong first half. |
• | EMEA (30% of total revenue): In the third quarter of 2018, revenue in EMEA grew 1% year-over-year but declined 4% on a sequential basis. In the quarter, year-over-year growth was driven by the continued trend of one of our largest ICP customers continuing to invest in data center expansion in the region. We also enjoyed growth from certain Tier-2 customers and wholesalers, who invested in ICE4 and XTM II platforms despite weak seasonal spending patterns of our European customer base. On a sequential basis, the decline was largely driven by a weak seasonal spending pattern during the third quarter. |
• | APAC (18% of total revenue): APAC continued to be our strongest growth region in the third quarter of 2018, up more than 100% year-over-year and more than 80% sequentially. Spending from our largest historical customer in the region remained strong. In addition, we started to generate revenue from a new large Tier-1 customer in Southeast Asia and visibility on potentially winning additional multi-year opportunities, particularly in subsea and long-haul. Our two largest customers in the region are investing substantially in ICE4-based products and our Instant Bandwidth capabilities. |
• | Other Americas (LATAM) (3% of total revenue): Our LATAM business had a solid quarter with double digit percentage growth, both year-over-year and sequentially. This growth was driven by multiple ICE4 deployments for long-haul and subsea. |
• | Cable revenue was lower sequentially in the third quarter as expected given typical historic buying patterns within North American cable. In the quarter, we had one customer that accounted for 14% of our overall revenue and continued its investment in ICE4 solutions with ongoing deployments of AOFX-1200 after significant XT-3300 deployments in the first half of 2018. In addition, we enjoyed sequential revenue growth from a cable operator in Europe who is the largest customer for our XTM metro solutions. Additionally, our second largest cable customer in North America was one of the first adopters of our new XT-3600 solution. On a year-over-year basis, cable revenue declined slightly. |
• | Service Providers overall was our strongest performing vertical in the third quarter of 2018, accounting for approximately 60% of our overall revenue, with increases both year-over-year and sequentially. Strength in APAC was the primary driver of these results. AOFX-1200 is already seeing strong adoption from Service Providers and there is good interest in the recently released XT-3600. |
• | ICP results declined in the third quarter of 2018 year-over-year and sequentially. The year-over-year decline is driven by several customers who have still not refreshed their networks with our ICE4 solutions. The sequential decline was due to our largest customer completing an ICE4 European build out as well as the impact of the delay in certain customers upgrading to ICE4. |
• | Our gross margin on a GAAP basis in the third quarter of 2018 was, as expected, lower on a sequential basis due to customer mix and a continued product mix skewed towards new footprint builds, many of which included Instant Bandwidth (“IBW”) enabled hardware with only minimal bandwidth actually turned up. New builds typically carry lower margins initially, especially those with IBW enabled hardware. As customers grow their networks utilizing IBW licenses, this contributes to both higher in period but also cumulative gross margins. |
• | Our gross margin on a non-GAAP basis in the third quarter of 2018 was at the higher end of our guidance range of 36% to 40%, due to a higher volume of follow on IBW licenses from previously deployed gear sold in the quarter. The reason for the sequential decline in non-GAAP gross margin is consistent with the GAAP gross margin discussion above. |
• | Our GAAP operating expenses in the third quarter of 2018 declined approximately 12% on a sequential basis as we continued to tightly control our spending in anticipation of the closure of the Coriant acquisition. Additionally, we had a one-time benefit from adjusting down our incentive compensation accruals for the year based on our revised financial forecast. The overall decline was partially offset by acquisition and integration costs incurred in the quarter. |
• | Our non-GAAP operating expenses in the third quarter of 2018 came in lower relative to our guidance range of $84 million to $88 million. This was primarily due to the one-time benefit from adjusting down our incentive compensation accruals for the year. |
• | Our operating margin for the third quarter of 2018 on a GAAP basis declined sequentially primarily due to lower revenue and acquisition and integration costs. |
• | Our operating margin for the third quarter of 2018 on a non-GAAP basis was roughly in line with our guidance of (3)%. |
• | EPS for the third quarter of 2018 on a GAAP basis declined sequentially due to lower revenue and gross margin, along with an impairment of a non-marketable equity investment, and charges related to acquisition and integration costs. Having had lower interest expense since the maturity of our $150 million convertible senior notes on June 1, 2018, we issued new convertible senior notes in the third quarter of 2018 that resulted in interest expense being higher. |
• | EPS for the third quarter of 2018 on a non-GAAP basis was slightly better than the midpoint of our guidance of ($0.05). |
(In millions) | Q3'18 | Q2'18 | Q3'17 | |||||||||
Cash, investments & restricted cash | $ | 453.6 | $ | 134.4 | $ | 316.0 | ||||||
Accounts receivable | $ | 153.9 | $ | 148.0 | $ | 137.1 | ||||||
Inventory | $ | 211.9 | $ | 219.3 | $ | 242.8 | ||||||
Cash provided by (used in) operations | $ | (20.4 | ) | $ | 7.0 | $ | (20.9 | ) | ||||
Capital expenditures | $ | 5.5 | $ | 13.5 | $ | 11.0 |
• | Cash, investments and restricted cash, increased $319.2 million in the third quarter of 2018 on a sequential basis. This increase was largely driven by net proceeds of $342.6 million from our convertible senior notes offering, net of capped call payments completed in the quarter. This increase was partially offset by $20.4 million of cash used in operations due to our lower financial results. |
• | Net accounts receivable in the third quarter of 2018 increased $5.9 million from the prior quarter primarily driven by a higher volume of shipments towards the end of the quarter. |
• | Net inventory decreased $7.4 million in the third quarter of 2018 on a sequential basis primarily due to reductions in inventory levels of previous generation products as customers continue to transition to our ICE4 products. |
• | Cash used in operations in the third quarter of 2018 was $20.4 million, stemming from an operating loss and negative changes in working capital. |
• | Capital Expenditures were $5.5 million, significantly lower versus prior periods in an effort to actively manage cash and rationalize capital investments. |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||||||||||||||||||||
Reconciliation of Gross Profit: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 70,179 | 35.0 | % | $ | 84,305 | 40.5 | % | $ | 67,826 | 35.2 | % | $ | 236,652 | 38.7 | % | $ | 196,714 | 36.1 | % | ||||||||||||||
Stock-based compensation(1) | 1,968 | 2,039 | 2,063 | 5,001 | 5,965 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 4,876 | 4,943 | 5,390 | 15,160 | 15,305 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | — | — | — | — | 46 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 7 | 26 | — | 50 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 77,030 | 38.4 | % | $ | 91,313 | 43.9 | % | $ | 75,279 | 39.1 | % | $ | 256,863 | 42.0 | % | $ | 218,030 | 40.0 | % | ||||||||||||||
Reconciliation of Operating Expenses: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 95,337 | $ | 105,924 | $ | 102,074 | $ | 308,107 | $ | 309,294 | ||||||||||||||||||||||||
Stock-based compensation(1) | 9,399 | 10,005 | 10,104 | 29,393 | 29,458 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 1,467 | 1,487 | 1,622 | 4,561 | 4,605 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 2,067 | — | — | 2,067 | 322 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 191 | 1,680 | — | 1,708 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 82,213 | $ | 92,752 | $ | 90,348 | $ | 270,378 | $ | 274,657 | ||||||||||||||||||||||||
Reconciliation of Loss from Operations: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (25,158 | ) | (12.6 | )% | $ | (21,619 | ) | (10.4 | )% | $ | (34,248 | ) | (17.8 | )% | $ | (71,455 | ) | (11.7 | )% | $ | (112,580 | ) | (20.7 | )% | |||||||||
Stock-based compensation(1) | 11,367 | 12,044 | 12,167 | 34,394 | 35,423 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 6,343 | 6,430 | 7,012 | 19,721 | 19,910 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 2,067 | — | — | 2,067 | 368 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 198 | 1,706 | — | 1,758 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (5,183 | ) | (2.6 | )% | $ | (1,439 | ) | (0.7 | )% | $ | (15,069 | ) | (7.8 | )% | $ | (13,515 | ) | (2.2 | )% | $ | (56,627 | ) | (10.4 | )% | |||||||||
Reconciliation of Net Loss: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (32,610 | ) | $ | (21,938 | ) | $ | (37,231 | ) | $ | (80,828 | ) | $ | (120,521 | ) | |||||||||||||||||||
Stock-based compensation(1) | 11,367 | 12,044 | 12,167 | 34,394 | 35,423 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(2) | 6,343 | 6,430 | 7,012 | 19,721 | 19,910 | |||||||||||||||||||||||||||||
Acquisition and integration costs(3) | 4,567 | — | — | 4,567 | 257 | |||||||||||||||||||||||||||||
Restructuring and related(4) | 198 | 1,706 | — | 1,758 | — | |||||||||||||||||||||||||||||
Intangible asset impairment(5) | — | — | — | — | 252 | |||||||||||||||||||||||||||||
Amortization of debt discount(6) | 1,578 | 1,892 | 2,643 | 6,249 | 7,734 | |||||||||||||||||||||||||||||
Gain on non-marketable equity investment(7) | (1,050 | ) | — | — | (1,050 | ) | — | |||||||||||||||||||||||||||
Impairment of non-marketable equity investment(7) | 4,260 | — | — | 4,260 | — | |||||||||||||||||||||||||||||
Income tax effects(8) | (1,395 | ) | (1,415 | ) | (1,543 | ) | (4,339 | ) | (4,467 | ) | ||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (6,742 | ) | $ | (1,281 | ) | $ | (16,952 | ) | $ | (15,268 | ) | $ | (61,412 | ) | |||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | |||||||||||||||||||||||||
Net Loss per Common Share - Basic and Diluted: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (0.21 | ) | $ | (0.14 | ) | $ | (0.25 | ) | $ | (0.53 | ) | $ | (0.82 | ) | ||||||||||||||
Non-GAAP as adjusted | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.10 | ) | $ | (0.42 | ) | ||||||||||||||
Weighted Average Shares Used in Computing Net Loss per Common Share - Basic and Diluted: | 153,492 | 152,259 | 148,777 | 152,028 | 147,367 |
(1) | 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 | Nine Months Ended | |||||||||||||||||||
September 29, 2018 | June 30, 2018 | September 30, 2017 | September 29, 2018 | September 30, 2017 | ||||||||||||||||
Cost of revenue | $ | 590 | $ | 624 | $ | 779 | $ | 1,092 | $ | 2,337 | ||||||||||
Research and development | 4,077 | 4,192 | 4,040 | 12,593 | 12,004 | |||||||||||||||
Sales and marketing | 2,744 | 3,046 | 3,025 | 8,688 | 9,024 | |||||||||||||||
General and administration | 2,578 | 2,767 | 3,039 | 8,112 | 8,431 | |||||||||||||||
9,989 | 10,629 | 10,883 | 30,485 | 31,796 | ||||||||||||||||
Cost of revenue - amortization from balance sheet* | 1,378 | 1,415 | 1,284 | 3,909 | 3,628 | |||||||||||||||
Total stock-based compensation expense | $ | 11,367 | $ | 12,044 | $ | 12,167 | $ | 34,394 | $ | 35,424 |
* | Stock-based compensation expense deferred to inventory in prior periods and recognized in the current period. |
(2) | Amortization of acquired 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, we have 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 our underlying business performance. |
(3) | Acquisition and integration costs consist of legal, financial, employee-related costs and other professional fees incurred in connection with our recent acquisition of Coriant, which closed in October 2018, and the acquisition of Transmode AB, which closed during the third quarter of 2015. These amounts have been adjusted in arriving at our 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 our underlying business performance. |
(4) | Restructuring and related costs are related to our plan to restructure our worldwide operations, which was implemented during the fourth quarter of 2017. Management has excluded the impact of these charges in arriving at our non-GAAP results as they are non-recurring in nature and its exclusion provides a better indication of our underlying business performance. |
(5) | Intangible asset impairment is associated with previously acquired intangibles, which we have determined that the carrying value will not be recoverable. Management has excluded the impact of this charge in arriving at our 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, we are 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 the $402.5 million in aggregate principal amount of our 2.125% convertible debt issuance in September 2018 due September 2024, and the $150 million in aggregate principal amount of our 1.75% convertible debt issuance in May 2013 due in June 2018, over the term of the respective notes. Interest expense has been excluded from our non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of our underlying business performance. |
(7) | Management has excluded the impairment charge and the gain on the sale related to non-marketable equity investments in arriving at our non-GAAP results because it is non-recurring, and management believes that these expenses are not indicative of ongoing operating performance. |
(8) | 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. |
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