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)) |
Common shares, par value $0.001 per share | INFN | The Nasdaq Global Select Market | ||
(Title of each class) | (Trading symbol) | (Name of exchange on which registered) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits. |
Exhibit No. | Description | |
INFINERA CORPORATION | ||||
Date: August 7, 2019 | By: | /s/ BRAD D. FELLER | ||
Brad D. Feller Chief Financial Officer |
• | GAAP revenue is expected to be $328 million +/- $10 million. Non-GAAP revenue is expected to be $330 million +/- $10 million. |
• | GAAP gross margin is expected to be 27% +/- 200 bps. Non-GAAP gross margin is expected to be 32% +/- 200 bps. |
• | GAAP operating expenses are expected to be $150 million +/- $3 million. Non-GAAP operating expenses are expected to be $130 million +/- $3 million. |
• | GAAP operating margin is expected to be approximately (19)%. Non-GAAP operating margin is expected to be approximately (7)%. |
• | GAAP EPS is expected to be $(0.40) +/- $0.02. Non-GAAP EPS is expected to be $(0.17) +/- $0.02. |
Contacts: | ||
Media: Anna Vue | Investors: Ted Moreau | |
Tel. +1 (916) 595-8157 | Tel. +1 (408) 542-6205 | |
avue@infinera.com | tmoreau@infinera.com |
Three Months Ended | Six Months Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Product | $ | 226,866 | $ | 175,288 | $ | 449,873 | $ | 346,917 | ||||||||
Services | 69,384 | 32,939 | 139,084 | 63,991 | ||||||||||||
Total revenue | 296,250 | 208,227 | 588,957 | 410,908 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Cost of product | 177,501 | 105,914 | 335,318 | 208,238 | ||||||||||||
Cost of services | 36,831 | 13,039 | 73,507 | 25,870 | ||||||||||||
Amortization of intangible assets | 8,098 | 4,943 | 16,350 | 10,284 | ||||||||||||
Acquisition and integration costs | 10,700 | — | 12,764 | — | ||||||||||||
Restructuring and related | 1,864 | 26 | 23,330 | 43 | ||||||||||||
Total cost of revenue | 234,994 | 123,922 | 461,269 | 244,435 | ||||||||||||
Gross profit | 61,256 | 84,305 | 127,688 | 166,473 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 73,937 | 56,158 | 147,597 | 114,839 | ||||||||||||
Sales and marketing | 37,651 | 28,234 | 77,688 | 57,119 | ||||||||||||
General and administrative | 35,672 | 18,365 | 68,716 | 36,201 | ||||||||||||
Amortization of intangible assets | 6,745 | 1,487 | 13,802 | 3,094 | ||||||||||||
Acquisition and integration costs | 12,164 | — | 19,298 | — | ||||||||||||
Restructuring and related | 3,471 | 1,680 | 20,659 | 1,517 | ||||||||||||
Total operating expenses | 169,640 | 105,924 | 347,760 | 212,770 | ||||||||||||
Loss from operations | (108,384 | ) | (21,619 | ) | (220,072 | ) | (46,297 | ) | ||||||||
Other income (expense), net: | ||||||||||||||||
Interest income | 183 | 629 | 949 | 1,526 | ||||||||||||
Interest expense | (7,280 | ) | (2,501 | ) | (14,843 | ) | (6,184 | ) | ||||||||
Other gain (loss), net: | 3,210 | 1,429 | 287 | 1,935 | ||||||||||||
Total other income (expense), net | (3,887 | ) | (443 | ) | (13,607 | ) | (2,723 | ) | ||||||||
Loss before income taxes | (112,271 | ) | (22,062 | ) | (233,679 | ) | (49,020 | ) | ||||||||
Provision for (benefit from) income taxes | 1,385 | (124 | ) | 1,578 | (802 | ) | ||||||||||
Net loss | (113,656 | ) | (21,938 | ) | (235,257 | ) | (48,218 | ) | ||||||||
Net loss per common share - basic and diluted: | $ | (0.64 | ) | $ | (0.14 | ) | $ | (1.33 | ) | $ | (0.32 | ) | ||||
Weighted average shares used in computing net loss per common share - basic and diluted: | 178,677 | 152,259 | 177,542 | 151,296 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||||||||||||||||||||
Reconciliation of Revenue: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 296,250 | $ | 292,707 | $ | 208,227 | $ | 588,957 | $ | 410,908 | ||||||||||||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 306,880 | $ | 295,612 | $ | 208,227 | $ | 602,492 | $ | 410,908 | ||||||||||||||||||||||||
Reconciliation of Gross Profit: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 61,256 | 20.7 | % | $ | 66,432 | 22.7 | % | $ | 84,305 | 40.5 | % | $ | 127,688 | 21.7 | % | $ | 166,473 | 40.5 | % | ||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Stock-based compensation(3) | 1,591 | 1,328 | 2,039 | 2,919 | 3,033 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 8,098 | 8,252 | 4,943 | 16,350 | 10,284 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 10,700 | 2,064 | — | 12,764 | — | |||||||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 1,864 | 21,466 | 26 | 23,330 | 43 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 94,139 | 30.7 | % | $ | 104,225 | 35.3 | % | $ | 91,313 | 43.9 | % | $ | 198,364 | 32.9 | % | $ | 179,833 | 43.8 | % | ||||||||||||||
Reconciliation of Operating Expenses: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 169,640 | $ | 178,120 | $ | 105,924 | $ | 347,760 | $ | 212,770 | ||||||||||||||||||||||||
Stock-based compensation(3) | 11,456 | 7,385 | 10,005 | 18,841 | 19,994 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 6,745 | 7,057 | 1,487 | 13,802 | 3,094 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 12,164 | 7,134 | — | 19,298 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 3,471 | 17,188 | 1,680 | 20,659 | 1,517 | |||||||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 131,754 | $ | 139,356 | $ | 92,752 | $ | 271,110 | $ | 188,165 | ||||||||||||||||||||||||
Reconciliation of Loss from Operations: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (108,384 | ) | (36.6 | )% | $ | (111,688 | ) | (38.2 | )% | $ | (21,619 | ) | (10.4 | )% | $ | (220,072 | ) | (37.4 | )% | $ | (46,297 | ) | (11.3 | )% | |||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Stock-based compensation(3) | 13,047 | 8,713 | 12,044 | 21,760 | 23,027 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 14,843 | 15,309 | 6,430 | 30,152 | 13,378 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 22,864 | 9,198 | — | 32,062 | — | |||||||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 5,335 | 38,654 | 1,706 | 43,989 | 1,560 | |||||||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (37,615 | ) | (12.3 | )% | $ | (35,131 | ) | (11.9 | )% | $ | (1,439 | ) | (0.7 | )% | $ | (72,746 | ) | (12.1 | )% | $ | (8,332 | ) | (2.0 | )% |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||||||||||||||
Reconciliation of Net Loss: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (113,656 | ) | $ | (121,601 | ) | $ | (21,938 | ) | $ | (235,257 | ) | (48,218 | ) | |||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | ||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | ||||||||||||||||||||||||
Stock-based compensation(3) | 13,047 | 8,713 | 12,044 | 21,760 | 23,027 | ||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 14,843 | 15,309 | 6,430 | 30,152 | 13,378 | ||||||||||||||||||||||||
Acquisition and integration costs(5) | 22,864 | 9,198 | — | 32,062 | — | ||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | ||||||||||||||||||||||||
Restructuring and related(7) | 5,335 | 38,654 | 1,706 | 43,989 | 1,560 | ||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | ||||||||||||||||||||||||
Amortization of debt discount(9) | 4,348 | 4,241 | 1,892 | 8,589 | 4,671 | ||||||||||||||||||||||||
Gain/Loss on non-marketable equity investment(10) | (1,009 | ) | — | — | (1,009 | ) | — | ||||||||||||||||||||||
Income tax effects(11) | (2,470 | ) | (426 | ) | (1,415 | ) | (2,896 | ) | (2,944 | ) | |||||||||||||||||||
Non-GAAP as adjusted | $ | (42,018 | ) | $ | (41,229 | ) | $ | (1,281 | ) | $ | (83,247 | ) | $ | (8,526 | ) | ||||||||||||||
Net Loss per Common Share - Basic and Diluted: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (0.64 | ) | $ | (0.69 | ) | $ | (0.14 | ) | $ | (1.33 | ) | $ | (0.32 | ) | ||||||||||||||
Non-GAAP as adjusted | $ | (0.24 | ) | $ | (0.23 | ) | $ | (0.01 | ) | $ | (0.47 | ) | $ | (0.06 | ) | ||||||||||||||
Weighted Average Shares Used in Computing Net Loss per Common Share - Basic and Diluted: | 178,677 | 176,406 | 152,259 | 177,542 | 151,296 |
(1) | Business combination accounting principles require Infinera to write down to fair value its maintenance support |
(2) | Other customer related charges include one-time benefits and charges that are not directly related to Infinera’s ongoing or core business results. During the quarter, Infinera agreed to reimburse a customer for certain expenses incurred by them in connection with a network service outage that occurred during the fourth quarter of fiscal 2018. 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 this reimbursement is not indicative of ongoing operating performance. |
(3) | 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 | Six Months Ended | |||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||||||
Cost of revenue | $ | 663 | $ | 538 | $ | 624 | $ | 1,201 | $ | 502 | ||||||||||
Research and development | 6,127 | 3,603 | 4,192 | 9,730 | 8,516 | |||||||||||||||
Sales and marketing | 2,099 | 1,547 | 3,046 | 3,646 | 5,944 | |||||||||||||||
General and administration | 3,230 | 2,235 | 2,767 | 5,465 | 5,534 | |||||||||||||||
12,119 | 7,923 | 10,629 | 20,042 | 20,496 | ||||||||||||||||
Cost of revenue - amortization from balance sheet* | 928 | 790 | 1,415 | 1,718 | 2,531 | |||||||||||||||
Total stock-based compensation expense | $ | 13,047 | $ | 8,713 | $ | 12,044 | $ | 21,760 | $ | 23,027 |
* | Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods recognized in the current period. |
(4) | Amortization of acquired intangible assets consists of developed technology, trade names, customer relationships and backlog acquired in connection with the Coriant acquisition, which closed during the fourth quarter of 2018. Amortization of acquired intangible assets also consists of amortization of developed technology, trade names and customer relationships acquired in connection with the Transmode AB 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 gross profit, operating expenses 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. |
(5) | Acquisition and integration costs consist of legal, financial, IT, manufacturing-related costs, employee-related costs and professional fees incurred in connection with Infinera's acquisition of Coriant. 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) | Business combination accounting principles require Infinera to measure acquired inventory at fair value. 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 acquisition-related step-up in carrying value for units sold in the quarter. Additionally, in connection with the Coriant acquisition, cost of sales excludes a one-time adjustment in inventory as a result of renegotiated supplier agreements that contained unusually higher than market pricing. Management believes these adjustments are useful to investors as an additional means to reflect ongoing cost of sales and gross margin trends of Infinera's business. |
(7) | Restructuring and related costs are associated with Infinera's two restructuring initiatives implemented during the fourth quarter of 2018 and during the fourth quarter of 2017, the planned closure of the Company's Berlin, Germany manufacturing facility and Coriant's historical restructuring plan associated with their early retirement plan. In addition, management included accelerated amortization on operating lease right-of-use assets due to the cease use of certain facilities. 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. |
(9) | 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 |
(10) | Management has excluded 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 this income is not indicative of ongoing operating performance |
(11) | The difference between the GAAP and non-GAAP tax provision is due to the net tax effects of the purchase accounting adjustments, acquisition-related costs and amortization of acquired intangible assets. |
June 29, 2019 | December 29, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 109,034 | $ | 202,954 | |||
Short-term investments | 1,497 | 26,511 | |||||
Short-term restricted cash | 2,742 | 13,229 | |||||
Accounts receivable, net of allowance for doubtful accounts of $4,129 in 2019 and $3,680 in 2018 | 260,352 | 317,115 | |||||
Inventory | 338,793 | 311,888 | |||||
Prepaid expenses and other current assets | 109,817 | 85,400 | |||||
Total current assets | 822,235 | 957,097 | |||||
Property, plant and equipment, net | 159,210 | 342,820 | |||||
Operating lease right-of-use assets | 64,740 | — | |||||
Intangible assets | 200,991 | 233,119 | |||||
Goodwill | 229,281 | 227,231 | |||||
Long-term restricted cash | 26,745 | 26,154 | |||||
Other non-current assets | 10,817 | 14,849 | |||||
Total assets | $ | 1,514,019 | $ | 1,801,270 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 194,882 | $ | 191,187 | |||
Accrued expenses and other current liabilities | 158,617 | 131,891 | |||||
Accrued compensation and related benefits | 77,152 | 71,152 | |||||
Accrued warranty | 23,364 | 20,103 | |||||
Deferred revenue | 78,417 | 88,534 | |||||
Total current liabilities | 532,432 | 502,867 | |||||
Long-term debt, net | 284,270 | 266,929 | |||||
Long-term financing lease obligation | 1,413 | 193,538 | |||||
Accrued warranty, non-current | 20,782 | 20,918 | |||||
Deferred revenue, non-current | 28,510 | 31,768 | |||||
Deferred tax liability | 10,094 | 13,347 | |||||
Operating lease liabilities | 58,631 | — | |||||
Other long-term liabilities | 62,817 | 68,082 | |||||
Commitments and contingencies (Note 19) | |||||||
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 June 29, 2019 and December 29, 2018 | |||||||
Issued and outstanding shares – 179,339 as of June 29, 2019 and 175,452 as of December 29, 2018 | 179 | 175 | |||||
Additional paid-in capital | 1,715,657 | 1,685,916 | |||||
Accumulated other comprehensive loss | (32,236 | ) | (25,300 | ) | |||
Accumulated deficit | (1,168,530 | ) | (956,970 | ) | |||
Total stockholders' equity | 515,070 | 703,821 | |||||
Total liabilities and stockholders’ equity | $ | 1,514,019 | $ | 1,801,270 |
Six Months Ended | ||||||||
June 29, 2019 | June 30, 2018 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (235,257 | ) | $ | (48,218 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 62,143 | 33,250 | ||||||
Non-cash restructuring charges and related (credits) | 18,172 | (81 | ) | |||||
Amortization of debt discount and issuance costs | 9,245 | 5,072 | ||||||
Operating lease amortization, net of accretion | 23,355 | — | ||||||
Stock-based compensation expense | 21,760 | 23,027 | ||||||
Other loss | 10 | 167 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | 55,216 | (22,015 | ) | |||||
Inventory | (30,640 | ) | (8,703 | ) | ||||
Prepaid expenses and other assets | (30,958 | ) | (1,809 | ) | ||||
Accounts payable | 4,726 | 24,458 | ||||||
Accrued liabilities and other expenses | (5,472 | ) | (14,617 | ) | ||||
Deferred revenue | (12,267 | ) | 2,351 | |||||
Net cash used in operating activities | (119,967 | ) | (7,118 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Purchase of available-for-sale investments | — | (2,986 | ) | |||||
Proceeds from sales of available-for-sale investments | — | 23,114 | ||||||
Proceeds from sale of non-marketable equity investments | 1,009 | — | ||||||
Proceeds from maturities of investments | 25,085 | 98,112 | ||||||
Acquisition of business, net of cash acquired | (10,000 | ) | — | |||||
Purchase of property and equipment | (15,784 | ) | (21,503 | ) | ||||
Net cash provided by (used in) investing activities | 310 | 96,737 | ||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from issuance of debt, net | 8,584 | — | ||||||
Repayment of debt | (96 | ) | (150,000 | ) | ||||
Proceeds from issuance of common stock | 7,740 | 11,066 | ||||||
Minimum tax withholding paid on behalf of employees for net share settlement | (354 | ) | (964 | ) | ||||
Net cash provided by (used in) financing activities | 15,874 | (139,898 | ) | |||||
Effect of exchange rate changes on cash and restricted cash | (33 | ) | (2,218 | ) | ||||
Net change in cash, cash equivalents and restricted cash | (103,816 | ) | (52,497 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 242,337 | 121,486 | ||||||
Cash, cash equivalents and restricted cash at end of period(1) | $ | 138,521 | $ | 68,989 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for income taxes, net of refunds | $ | 13,606 | $ | 2,210 | ||||
Cash paid for interest | $ | 4,687 | $ | 1,328 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Third-party manufacturer funding for transfer expenses incurred | $ | 3,327 | $ | — | ||||
Transfer of inventory to fixed assets | $ | 2,195 | $ | 1,684 |
June 29, 2019 | June 30, 2018 | ||||||
(In thousands) | |||||||
Cash and cash equivalents | $ | 109,034 | $ | 63,308 | |||
Short-term restricted cash | 2,742 | 308 | |||||
Long-term restricted cash | 26,745 | 5,373 | |||||
Total cash, cash equivalents and restricted cash | $ | 138,521 | $ | 68,989 |
Q3'17 | Q4'17 | Q1'18 | Q2'18 | Q3'18 | Q4'18 | Q1'19 | Q2'19 | |||||||||||||||||||||||||
GAAP Revenue ($ Mil) | $192.6 | $195.8 | $202.7 | $208.2 | $200.4 | $332.1 | $292.7 | $296.3 | ||||||||||||||||||||||||
GAAP Gross Margin % | 35.2 | % | 24.1 | % | 40.5 | % | 40.5 | % | 35.0 | % | 25.4 | % | 22.7 | % | 20.7 | % | ||||||||||||||||
Non-GAAP Gross Margin %(1) | 39.1 | % | 37.5 | % | 43.7 | % | 43.9 | % | 38.4 | % | 31.8 | % | 35.3 | % | 30.7 | % | ||||||||||||||||
Revenue Composition: | ||||||||||||||||||||||||||||||||
Domestic % | 59 | % | 53 | % | 64 | % | 58 | % | 49 | % | 39 | % | 45 | % | 45 | % | ||||||||||||||||
International % | 41 | % | 47 | % | 36 | % | 42 | % | 51 | % | 61 | % | 55 | % | 55 | % | ||||||||||||||||
Customers >10% of Revenue | 2 | 1 | 2 | 2 | 2 | 2 | 1 | 1 | ||||||||||||||||||||||||
Cash Related Information: | ||||||||||||||||||||||||||||||||
Cash from Operations ($ Mil) | ($20.9 | ) | ($1.0 | ) | ($14.1 | ) | $7.0 | ($20.4 | ) | ($71.6 | ) | ($56.2 | ) | ($63.8 | ) | |||||||||||||||||
Capital Expenditures ($ Mil) | $11.0 | $7.8 | $8.0 | $13.5 | $5.5 | $10.7 | $6.6 | $9.2 | ||||||||||||||||||||||||
Depreciation & Amortization ($ Mil) | $16.8 | $16.6 | $17.0 | $16.3 | $17.1 | $50.2 | $31.0 | $31.2 | ||||||||||||||||||||||||
DSOs | 65 | 59 | 73 | 65 | 70 | 87 | 83 | 80 | ||||||||||||||||||||||||
Inventory Metrics: | ||||||||||||||||||||||||||||||||
Raw Materials ($ Mil) | $35.8 | $27.4 | $30.3 | $30.5 | $33.6 | $74.5 | $82.5 | $70.4 | ||||||||||||||||||||||||
Work in Process ($ Mil) | $84.3 | $59.6 | $66.5 | $61.6 | $56.4 | $57.2 | $63.0 | $59.5 | ||||||||||||||||||||||||
Finished Goods ($ Mil) | $122.7 | $127.7 | $119.1 | $127.2 | $121.9 | $180.2 | $187.0 | $208.9 | ||||||||||||||||||||||||
Total Inventory ($ Mil) | $242.8 | $214.7 | $215.9 | $219.3 | $211.9 | $311.9 | $332.5 | $338.8 | ||||||||||||||||||||||||
Inventory Turns(2) | 1.9 | 2.3 | 2.1 | 2.1 | 2.3 | 2.9 | 2.3 | 2.5 | ||||||||||||||||||||||||
Worldwide Headcount | 2,296 | 2,145 | 2,084 | 2,070 | 2,079 | 3,876 | 3,708 | 3,632 | ||||||||||||||||||||||||
Weighted Average Shares Outstanding (in thousands): | ||||||||||||||||||||||||||||||||
Basic | 148,777 | 149,412 | 150,333 | 152,259 | 153,492 | 174,908 | 176,406 | 178,677 | ||||||||||||||||||||||||
Diluted(3) | 149,714 | 150,098 | 151,633 | 154,777 | 154,228 | 175,629 | 176,602 | 179,343 |
(1) | Non-GAAP adjustments include restructuring and related costs (credit), non-cash stock-based compensation expense, certain purchase accounting adjustments related to Infinera's acquisitions, amortization of acquired intangible assets, other customer related charges and certain other one-time charges. 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. |
(3) | Diluted shares presented for information only. |
Q3'19 | ||||
Outlook | ||||
Reconciliation of Revenue: | ||||
U.S. GAAP | $ | 328 | ||
Acquisition-related deferred revenue adjustment | 2 | |||
Non-GAAP | $ | 330 | ||
Reconciliation of Gross Margin: | ||||
U.S. GAAP | 27 | % | ||
Acquisition-related deferred revenue adjustment | 1 | % | ||
Stock-based compensation | 1 | % | ||
Amortization of acquired intangible assets | 2 | % | ||
Restructuring and related | 1 | % | ||
Non-GAAP | 32 | % | ||
Reconciliation of Operating Expenses: | ||||
U.S. GAAP | $ | 150 | ||
Stock-based compensation | (9 | ) | ||
Amortization of acquired intangible assets | (5 | ) | ||
Acquisition and integration costs | (5 | ) | ||
Restructuring and related | (1 | ) | ||
Non-GAAP | $ | 130 | ||
Reconciliation of Operating Margin: | ||||
U.S. GAAP | (19 | )% | ||
Acquisition-related deferred revenue adjustment | 1 | % | ||
Stock-based compensation | 3 | % | ||
Amortization of acquired intangible assets | 4 | % | ||
Acquisition and integration costs | 3 | % | ||
Restructuring and related | 1 | % | ||
Non-GAAP | (7 | )% | ||
Reconciliation of Net Loss per Common Share: | ||||
U.S. GAAP | $ | (0.40 | ) | |
Acquisition-related deferred revenue adjustment | 0.01 | |||
Stock-based compensation | 0.06 | |||
Amortization of acquired intangible assets | 0.07 | |||
Acquisition and integration costs | 0.06 | |||
Restructuring and related | 0.01 | |||
Amortization of debt discount | 0.02 | |||
Non-GAAP | $ | (0.17 | ) |
(In millions, except per share amounts and percentages) | Q2'19 | Q1'19 | Q2'18 | Q/Q Change | Y/Y Change | |||||||||||||||
Revenue | $ | 296.3 | $ | 292.7 | $ | 208.2 | 1 | % | 42 | % | ||||||||||
Product | 226.9 | 223.0 | 175.3 | 2 | % | 29 | % | |||||||||||||
Service | 69.4 | 69.7 | 32.9 | — | % | 111 | % | |||||||||||||
Gross margin % | 20.7 | % | 22.7 | % | 40.5 | % | (200)pts | (1980)pts | ||||||||||||
Research and development | 73.9 | 73.7 | 56.1 | — | % | 32 | % | |||||||||||||
Sales and marketing | 37.7 | 40.0 | 28.2 | (6 | )% | 34 | % | |||||||||||||
General and administrative | 35.6 | 33.0 | 18.4 | 8 | % | 93 | % | |||||||||||||
Amortization of intangible assets | 6.7 | 7.1 | 1.5 | (6 | )% | 347 | % | |||||||||||||
Acquisition and integration costs | 12.2 | 7.1 | — | 72 | % | NMF* | ||||||||||||||
Restructuring and related | 3.5 | 17.2 | 1.7 | (80 | )% | 106 | % | |||||||||||||
Total operating expenses | $ | 169.6 | $ | 178.1 | $ | 105.9 | (5 | )% | 60 | % | ||||||||||
Operating margin % | (36.6 | )% | (38.2 | )% | (10.4 | )% | (160)pts | (2620)pts | ||||||||||||
Net loss | $ | (113.7 | ) | $ | (121.6 | ) | $ | (21.9 | ) | 6 | % | (419 | )% | |||||||
EPS | $ | (0.64 | ) | $ | (0.69 | ) | $ | (0.14 | ) | $ | 0.05 | $ | (0.50 | ) |
(In millions, except per share amounts and percentages) | Q2'19 | Q1'19 | Q2'18 | Q/Q Change | Y/Y Change | |||||||||||||||
Revenue | $ | 306.9 | $ | 295.6 | $ | 208.2 | 4 | % | 47 | % | ||||||||||
Product | 235.0 | 223.0 | 175.3 | 5 | % | 34 | % | |||||||||||||
Service | 71.9 | 72.6 | 32.9 | (1 | )% | 119 | % | |||||||||||||
Gross margin % | 30.7 | % | 35.3 | % | 43.9 | % | (4.6)pts | (13.2)pts | ||||||||||||
Research and development | 67.8 | 70.1 | 52.0 | (3 | )% | 30 | % | |||||||||||||
Sales and marketing | 35.5 | 38.5 | 25.2 | (8 | )% | 41 | % | |||||||||||||
General and administrative | 28.5 | 30.8 | 15.6 | (7 | )% | 83 | % | |||||||||||||
Total operating expenses | $ | 131.8 | $ | 139.4 | $ | 92.8 | (6 | )% | 42 | % | ||||||||||
Operating margin % | (12.3 | )% | (11.9 | )% | (0.7 | )% | (40)pts | (1160)pts | ||||||||||||
Net loss | $ | (42.0 | ) | $ | (41.2 | ) | $ | (1.3 | ) | (2 | )% | NMF* | ||||||||
EPS | $ | (0.24 | ) | $ | (0.23 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.23 | ) |
• | In the second quarter of 2019, our business in North America grew approximately 1% on a sequential basis. Revenue was distributed across the major verticals with three Tier-1s representing over 40% of the region’s revenue, followed by an ICP and a Tier-2 operator. The top 10 customers in this region accounted for over 70% of the region's total revenue. During the quarter, we experienced strong growth in our ICP business, including initial revenue from an ICP customer deploying our Groove platform. We also had growth in our Other Service Providers vertical due to a large deal with the Federal government. The growth in the two noted verticals was partially offset by another challenging quarter in Cable as the spend environment with our largest customer continues to be soft. |
• | EMEA (30% of total revenue): Revenue in the second quarter of 2019 in the EMEA region decreased by approximately 9% sequentially as several large customers completed builds during 2018. The top 10 customers represented approximately 45% of the total revenue in the region during the quarter. Across the customer end market verticals, we continued to see growth from Tier-1 customers, ICP was relatively flat and we saw a drop off in demand within the Cable and Other Service Provider verticals. With over 50% of our revenue from a wide base of customers within the Other Service Provider vertical, there can be large swings from quarter to quarter dependent on the timing of customer builds. As we continue to expand our relationships with the large Tier-1 customers in EMEA it should help stabilize the revenue stream. |
• | APAC (15% of total revenue): The APAC region continues to be a strong region for us. During the quarter, we had revenue from several Tier-1 service providers in the region. We remain optimistic about our growth prospects in the region, with upcoming opportunities to add capacity to recently deployed networks and build new networks for new and existing customers. The top 10 customers represented approximately 75% of our total revenue in the region during the quarter. |
• | Other Americas (LATAM) (10% of total revenue): LATAM now represents a greater portion of global revenue than it has historically. During the quarter, we saw revenue nearly double sequentially driven by investments from Tier-1 and Other Service Provider customers. The top 10 customers accounted for over 80% of our total revenue in the region. In the quarter, we saw solid demand from both regional Tier-1s and large multi-national Tier-1s building in the region. Also of note, we saw the first signs of renewed demand from our Tier-1 customer in Mexico, which began ordering again in the quarter. |
• | Tier-1s represented nearly 50% of global revenue during the quarter as our relationships with Tier-1 customers continued to expand. One of the key attributes of the Coriant acquisition was their strong base of global Tier-1s. Those relationships taken together with improved scale and our strong technology can pay significant dividends for years to come. Many of these customers represent a strong revenue stream and a large opportunity for growth. As many of these customers represent mobile carriers, we believe the emergence of 5G technology will drive significant opportunities for us over the next several years. Overall, revenue in the quarter grew from a number of larger customers, including significant footprint expansion deployments. North American based Tier-1s represented over 40% of our global Tier-1 revenue as we now have relationships with all the major Tier-1s in this region. EMEA represented nearly 25% of global Tier-1 revenue with APAC at just over 20% and LATAM the remaining 10%. |
• | Other Service Providers represented over 35% of our total revenue in the quarter. Customers in this vertical predominantly represent Tier-2 operators, bandwidth wholesalers and governmental organizations. Revenue among these customers was widespread, with two customers, a Federal government customer and a Tier-2 carrier in the overall top 10 customer list during the quarter. Three quarters of our revenue in this vertical was evenly split between EMEA and North America, with the remainder coming from LATAM and APAC. |
• | ICPs represented nearly 10% of our total revenue during the quarter, growing over 40% sequentially driven by the initial ramp of a new large ICP customer. We now serve substantially all of the top global ICPs. With a current product portfolio including the Cloud Xpress, the XT Series and the Groove, significant opportunities to address ICP subsea demand, and a roadmap of future products combining the strengths of both platforms, we believe we are well positioned to grow this vertical. In line with the largest ICPs in the world being headquartered in North America, this region represented nearly 80% of our ICP revenue. |
• | Cable represented just over 5% of our total revenue in the quarter as spending with our largest customer continued to be depressed and customers in other regions followed similar trends. We anticipate these conditions to persist for the remainder of 2019. Despite these issues we believe our longstanding relationships with Cable operators should benefit us as they roll out their DAA architectures over the next several years. We are optimistic about our positioning with our disaggregated solutions for these architectures and anticipate decisions in the coming quarters. Geographically, revenue within this vertical was split roughly 50/50 between North America and EMEA in the quarter. |
• | The largest driver of the difference between GAAP and non-GAAP gross margin results was non-recurring acquisition and integration costs, primarily related to the transition of our Berlin manufacturing to a manufacturing partner and the modification of a royalty arrangement with a development partner. In addition, given the non-recurring nature of the customer outage charge to revenue that was excluded in our the non-GAAP results. |
• | Non-GAAP gross margin was ahead of the mid-point of our 28% to 32% guidance range primarily due to continued cost improvement efforts post-acquisition. We continue to demonstrate improvements on the Coriant side of the business as we drive more cost discipline in our decision-making and have significantly improved third-party materials pricing. We are also benefitting from headcount reductions from our restructuring actions. The sequential gross margin decline was the result of a strong mix shift towards footprint expansion projects, which we expect to persist for at least another quarter. |
• | Our GAAP operating expenses included $12 million associated with acquisition and integration costs primarily consisting of legal, financial, IT, manufacturing-related costs, employee-related costs and professional fees incurred in connection with the integration of the Coriant business. In addition, we had higher stock compensation costs as well as a preliminary litigation settlement in the quarter. Management believes that these expenses are non-recurring, not indicative of ongoing operating performance and that their exclusions provide a better indication of Infinera's underlying business performance. |
• | Our non-GAAP operating expenses came in slightly below our guidance range of $132 million to $138 million. This was mainly due to continued efforts to drive synergies in connection with the integration of Coriant. |
• | Our operating margin on a GAAP basis improved slightly sequentially primarily due to higher revenue and an improved cost structure. |
• | Our operating margin on a non-GAAP basis was better than the implied midpoint of our guidance of (15)% due to higher revenue relative to growth and strong progress in operational synergies. |
• | EPS on a GAAP basis improved sequentially due to higher revenue levels and an improved cost structure. |
• | EPS on a non-GAAP basis was better than the midpoint of our guidance of $(0.28) due to higher than expected revenue and an improved cost structure. |
(In millions) | Q2'19 | Q1'19 | Q2'18 | |||||||||
Cash, investments & restricted cash | $ | 140.0 | $ | 211.3 | $ | 134.4 | ||||||
Accounts receivable | $ | 260.4 | $ | 267.1 | $ | 148.0 | ||||||
Inventory | $ | 338.8 | $ | 332.5 | $ | 219.3 | ||||||
Accounts payable | $ | 194.9 | $ | 163.8 | $ | 80.3 |
• | Cash, investments and restricted cash, decreased by $71.3 million in the second quarter of 2019 on a sequential basis due to the operating loss in the quarter, severance and integration costs and working capital changes. We anticipate the reduction in cash in the third quarter to decrease significantly as the financial results improve and our integration and restructuring costs begin to wane. We continue to expect to begin generating cash again during the fourth quarter of 2019. |
• | Net accounts receivable in the second quarter of 2019 declined $6.7 million due to improved collections focus across the board and particularly from addressing certain longer payment term deals inherited from the Coriant business. |
• | Net inventory increased by $6.3 million in the second quarter of 2019 on a sequential basis as we built up inventory to ensure sufficient capacity to meet strengthening demand in the second half of 2019. |
• | Accounts payable increased by $31.1 million in the second quarter, largely due to the build-up of inventory associated with the demand in the second half of 2019 and the timing of payments. |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||||||||||||||||||||
Reconciliation of Revenue: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 296,250 | $ | 292,707 | $ | 208,227 | $ | 588,957 | $ | 410,908 | ||||||||||||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 306,880 | $ | 295,612 | $ | 208,227 | $ | 602,492 | $ | 410,908 | ||||||||||||||||||||||||
Reconciliation of Gross Profit: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 61,256 | 20.7 | % | $ | 66,432 | 22.7 | % | $ | 84,305 | 40.5 | % | $ | 127,688 | 21.7 | % | $ | 166,473 | 40.5 | % | ||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Stock-based compensation(3) | 1,591 | 1,328 | 2,039 | 2,919 | 3,033 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 8,098 | 8,252 | 4,943 | 16,350 | 10,284 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 10,700 | 2,064 | — | 12,764 | — | |||||||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 1,864 | 21,466 | 26 | 23,330 | 43 | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 94,139 | 30.7 | % | $ | 104,225 | 35.3 | % | $ | 91,313 | 43.9 | % | $ | 198,364 | 32.9 | % | $ | 179,833 | 43.8 | % | ||||||||||||||
Reconciliation of Operating Expenses: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | 169,640 | $ | 178,120 | $ | 105,924 | $ | 347,760 | $ | 212,770 | ||||||||||||||||||||||||
Stock-based compensation(3) | 11,456 | 7,385 | 10,005 | 18,841 | 19,994 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 6,745 | 7,057 | 1,487 | 13,802 | 3,094 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 12,164 | 7,134 | — | 19,298 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 3,471 | 17,188 | 1,680 | 20,659 | 1,517 | |||||||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | 131,754 | $ | 139,356 | $ | 92,752 | $ | 271,110 | $ | 188,165 | ||||||||||||||||||||||||
Reconciliation of Loss from Operations: | ||||||||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (108,384 | ) | (36.6 | )% | $ | (111,688 | ) | (38.2 | )% | $ | (21,619 | ) | (10.4 | )% | $ | (220,072 | ) | (37.4 | )% | $ | (46,297 | ) | (11.3 | )% | |||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | |||||||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | |||||||||||||||||||||||||||||
Stock-based compensation(3) | 13,047 | 8,713 | 12,044 | 21,760 | 23,027 | |||||||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 14,843 | 15,309 | 6,430 | 30,152 | 13,378 | |||||||||||||||||||||||||||||
Acquisition and integration costs(5) | 22,864 | 9,198 | — | 32,062 | — | |||||||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | |||||||||||||||||||||||||||||
Restructuring and related(7) | 5,335 | 38,654 | 1,706 | 43,989 | 1,560 | |||||||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | |||||||||||||||||||||||||||||
Non-GAAP as adjusted | $ | (37,615 | ) | (12.3 | )% | $ | (35,131 | ) | (11.9 | )% | $ | (1,439 | ) | (0.7 | )% | $ | (72,746 | ) | (12.1 | )% | $ | (8,332 | ) | (2.0 | )% |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||||||||||||||
Reconciliation of Net Loss: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (113,656 | ) | $ | (121,601 | ) | $ | (21,938 | ) | $ | (235,257 | ) | (48,218 | ) | |||||||||||||||
Acquisition-related deferred revenue adjustment(1) | 2,530 | 2,905 | — | 5,435 | — | ||||||||||||||||||||||||
Other customer related charges(2) | 8,100 | — | — | 8,100 | — | ||||||||||||||||||||||||
Stock-based compensation(3) | 13,047 | 8,713 | 12,044 | 21,760 | 23,027 | ||||||||||||||||||||||||
Amortization of acquired intangible assets(4) | 14,843 | 15,309 | 6,430 | 30,152 | 13,378 | ||||||||||||||||||||||||
Acquisition and integration costs(5) | 22,864 | 9,198 | — | 32,062 | — | ||||||||||||||||||||||||
Acquisition-related inventory adjustments(6) | — | 1,778 | — | 1,778 | — | ||||||||||||||||||||||||
Restructuring and related(7) | 5,335 | 38,654 | 1,706 | 43,989 | 1,560 | ||||||||||||||||||||||||
Litigation charges(8) | 4,050 | — | — | 4,050 | — | ||||||||||||||||||||||||
Amortization of debt discount(9) | 4,348 | 4,241 | 1,892 | 8,589 | 4,671 | ||||||||||||||||||||||||
Gain/Loss on non-marketable equity investment(10) | (1,009 | ) | — | — | (1,009 | ) | — | ||||||||||||||||||||||
Income tax effects(11) | (2,470 | ) | (426 | ) | (1,415 | ) | (2,896 | ) | (2,944 | ) | |||||||||||||||||||
Non-GAAP as adjusted | $ | (42,018 | ) | $ | (41,229 | ) | $ | (1,281 | ) | $ | (83,247 | ) | $ | (8,526 | ) | ||||||||||||||
Net Loss per Common Share - Basic and Diluted: | |||||||||||||||||||||||||||||
U.S. GAAP as reported | $ | (0.64 | ) | $ | (0.69 | ) | $ | (0.14 | ) | $ | (1.33 | ) | $ | (0.32 | ) | ||||||||||||||
Non-GAAP as adjusted | $ | (0.24 | ) | $ | (0.23 | ) | $ | (0.01 | ) | $ | (0.47 | ) | $ | (0.06 | ) | ||||||||||||||
Weighted Average Shares Used in Computing Net Loss per Common Share - Basic and Diluted: | 178,677 | 176,406 | 152,259 | 177,542 | 151,296 |
(1) | Business combination accounting principles require Infinera to write down to fair value its maintenance support |
(2) | Other customer related charges include one-time benefits and charges that are not directly related to Infinera’s ongoing or core business results. During the quarter, Infinera agreed to reimburse a customer for certain expenses incurred by them in connection with a network service outage that occurred during the fourth quarter of fiscal 2018. 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 this reimbursement is not indicative of ongoing operating performance. |
(3) | 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 | Six Months Ended | |||||||||||||||||||
June 29, 2019 | March 30, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||||||
Cost of revenue | $ | 663 | $ | 538 | $ | 624 | $ | 1,201 | $ | 502 | ||||||||||
Research and development | 6,127 | 3,603 | 4,192 | 9,730 | 8,516 | |||||||||||||||
Sales and marketing | 2,099 | 1,547 | 3,046 | 3,646 | 5,944 | |||||||||||||||
General and administration | 3,230 | 2,235 | 2,767 | 5,465 | 5,534 | |||||||||||||||
12,119 | 7,923 | 10,629 | 20,042 | 20,496 | ||||||||||||||||
Cost of revenue - amortization from balance sheet* | 928 | 790 | 1,415 | 1,718 | 2,531 | |||||||||||||||
Total stock-based compensation expense | $ | 13,047 | $ | 8,713 | $ | 12,044 | $ | 21,760 | $ | 23,027 |
* | Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods recognized in the current period. |
(4) | Amortization of acquired intangible assets consists of developed technology, trade names, customer relationships and backlog acquired in connection with the Coriant acquisition, which closed during the fourth quarter of 2018. Amortization of acquired intangible assets also consists of amortization of developed technology, trade names and customer relationships acquired in connection with the Transmode AB 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 gross profit, operating expenses 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. |
(5) | Acquisition and integration costs consist of legal, financial, IT, manufacturing-related costs, employee-related costs and professional fees incurred in connection with Infinera's acquisition of Coriant. 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) | Business combination accounting principles require Infinera to measure acquired inventory at fair value. 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 acquisition-related step-up in carrying value for units sold in the quarter. Additionally, in connection with the Coriant acquisition, cost of sales excludes a one-time adjustment in inventory as a result of renegotiated supplier agreements that contained unusually higher than market pricing. Management believes these adjustments are useful to investors as an additional means to reflect ongoing cost of sales and gross margin trends of Infinera's business. |
(7) | Restructuring and related costs are associated with Infinera's two restructuring initiatives implemented during the fourth quarter of 2018 and during the fourth quarter of 2017, the planned closure of the Company's Berlin, Germany manufacturing facility and Coriant's historical restructuring plan associated with their early retirement plan. In addition, management included accelerated amortization on operating lease right-of-use assets due to the cease use of certain facilities. 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. |
(9) | 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 |
(10) | Management has excluded 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 this income is not indicative of ongoing operating performance |
(11) | The difference between the GAAP and non-GAAP tax provision is due to the net tax effects of the purchase accounting adjustments, acquisition-related costs and amortization of acquired intangible assets. |