Infinera Corporation (NASDAQ: INFN) (or “Company”) today released
preliminary financial results for its third quarter ended
September 30, 2023.
For the third quarter,
- Preliminary revenue is expected to be $378 million to $392
million, ahead of the midpoint of the Company’s prior outlook of
$361 million to $391 million.
- The resulting preliminary GAAP gross margin is expected to be
38.4% to 40.7%, ahead of the midpoint of the Company’s prior
outlook of 36% to 39%.
- The resulting preliminary GAAP operating margin is expected to
be (1.4%) to 2.2%, ahead of the Company’s prior outlook of (8%) to
(3%).
- The resulting preliminary GAAP EPS is expected to be a loss of
($0.07) to ($0.02), ahead of the Company’s prior outlook of a loss
of ($0.17) to ($0.09).
- Preliminary non-GAAP gross margin is expected to be 40.0% to
42.2%, ahead of the midpoint of the Company’s prior outlook of
37.5% to 40.5%, and the preliminary non-GAAP operating margin is
expected to be 4.6% to 8.0%, ahead of the Company’s prior outlook
of (1%) to 4%.
- Preliminary non-GAAP net income (loss) per diluted share is
expected to be $0.03 to $0.08, ahead of the Company’s prior outlook
of ($0.06) to $0.02.
- Preliminary cash and cash equivalents, including restricted
cash, was $127 million.
Infinera CEO David Heard said, “The third quarter was another
solid quarter for us, with all key preliminary financial metrics –
revenue, gross margin, operating margin, and EPS, expected to be
ahead of the midpoint of our outlook range. Bookings were strong in
the quarter with a book-to-bill ratio above 1, based on our
preliminary revenue range. Furthermore, through the first three
quarters of 2023, we expect to report that we have grown revenue,
expanded gross margin, and increased operating margin, compared to
the same period last year.”
“Traction across our portfolio remained strong in the quarter.
We secured new design wins with major telecom service providers and
hyperscale customers for our Systems group and received additional
orders for our Subsystems group. We remain confident in our
strategy, laser focused on execution and committed to driving
meaningful earnings per share expansion in the future,” continued
Mr. Heard.
Preliminary Financial Outlook
Infinera's preliminary outlook for the quarter ending
December 30, 2023, is as follows:
- Revenue is expected to be $421 million
to $451 million.
- GAAP gross margin is expected to be
37.3% to 40.4%. Non-GAAP gross margin is expected to be 38.0% to
41.0%.
- GAAP operating expenses are expected to
be $155.3 million to $159.3 million. Non-GAAP operating
expenses are expected to be $138.0 million to 142.0
million.
- GAAP operating margin is expected to be
0.7% to 5.0%. Non-GAAP operating margin is expected to be 5.5% to
9.5%.
- GAAP net (loss) or income per diluted
share is expected to be $(0.04) to $0.04. Non-GAAP net income per
diluted share is expected to be $0.05 to $0.13.
This preliminary outlook reflects the expected impact of the
timing of revenue recognition described below based on information
currently available to the Company.
During the third quarter of 2023, Ernst & Young, Infinera’s
independent registered public accounting firm (“EY”), informed the
Company that the Public Company Accounting Oversight Board had
commenced an inspection of EY’s integrated audit of the Company’s
consolidated financial statements for the fiscal year ended
December 31, 2022. Subsequently, late in the third quarter of 2023,
EY raised questions regarding the Company’s stand-alone sales price
(“SSP”) methodology as it relates to revenue allocation between
product revenue, which is recognized upon delivery, and certain
components of services revenue, which is amortized over a period of
time, as well as the sufficiency of documentation retained by the
Company relating to the Company’s quote to cash and inventory
cycles. As a result of these queries, the Company reexamined its
SSP methodology and engaged in a review of management’s review
procedures related to the Company’s quote to cash and inventory
cycles. In connection with the period-end close process, the
Company's management concluded that there were material weaknesses
related to its (i) quote to cash cycle including the determination
of SSP and (ii) inventory cycles, each of which remains
unremediated. As a result, the Company has determined that its
internal control over financial reporting and disclosure controls
and procedures were not effective as of December 31, 2022. The
Company intends to amend its Form 10-K for the period ended
December 31, 2022, to reflect management’s and EY’s assessment of
internal control over financial reporting as of the period covered
by such report, as well as the Forms 10-Q for the Company’s first
and second quarters of 2023 to reflect management’s assessment of
internal control over financial reporting covered by each period.
The amendments will also describe the Company’s plans and efforts
to strengthen its internal control over financial reporting and
remediate its material weaknesses. The Company is continuing to
review its SSP methodology with EY, including to determine the
impact of any required reallocation of revenue between products and
services between periods and the related impact on the Company’s
previously reported financial results and the Company’s financial
results for the third quarter of 2023. Based on its initial
evaluation, the Company expects any adjustments to revenue will be
shifts in allocation between deferred revenue and revenue
recognized upfront, and expects that there will be no lost revenue,
only shifts in timing of revenue recognition between accounting
periods. Once the review process with EY is complete, the Company
will report full financial results for the third quarter of 2023.
More information on these matters is contained in the Company’s
Current Report on Form 8-K and Notification of Late Filing filed
with the SEC this afternoon.
Conference Call Information
Infinera will host a conference call for analysts and investors
to discuss its preliminary results for the third quarter of 2023
and its preliminary outlook for the fourth quarter of 2023 today at
5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Interested parties
may register for the conference call at
https://conferencingportals.com/event/SWSmscgp. A live webcast of
the conference call will also be accessible from the Events section
of Infinera’s website at investors.infinera.com. Replay of the
audio webcast will be available at investors.infinera.com
approximately two hours after the end of the live call.
Contacts:
Media:Anna VueTel. +1 (916) 595-8157avue@infinera.com
Investors:Amitabh Passi, Head of Investor RelationsTel. +1 (669)
295-1489apassi@infinera.com
About Infinera
Infinera is a global supplier of innovative open optical
networking solutions and advanced optical semiconductors that
enable carriers, cloud operators, governments, and enterprises to
scale network bandwidth, accelerate service innovation, and
automate network operations. Infinera solutions deliver
industry-leading economics and performance in long-haul, submarine,
data center interconnect, and metro transport applications. To
learn more about Infinera, visit www.infinera.com, follow us on X
and LinkedIn, and subscribe for updates. Infinera and the Infinera
logo are registered trademarks of Infinera Corporation.
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements generally relate to future events or Infinera's future
financial or operating performance. In some cases, you can identify
forward-looking statements because they contain words such as
"anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "should," "will," and "would" or the negative of these words
or similar terms or expressions that concern Infinera's
expectations, strategy, priorities, plans or intentions.
The preliminary financial results for the third quarter and
related commentary, both in this press release and elsewhere, are
forward-looking statements. Neither Infinera, nor its auditors, has
completed the review of its financial results for the third
quarter, and the final third quarter financial results may be
impacted by its determination as to whether Infinera will need to
restate its financial statements for fiscal year 2022 and/or any
prior or subsequent periods including the interim periods in fiscal
year 2023. This determination will depend in large part on the
impacts of the accounting matters described above on Infinera’s
financial results for these prior periods, and whether these
impacts are material. These determinations have not yet been
made.
The preliminary results for the third quarter presented in this
press release assume that Infinera will not need to restate its
financial results for any prior periods. While Infinera
believes this assumption is reasonable based on information
currently available to it, this information may change, Infinera’s
assessment of all available information may change, and/or its
auditors may have a different perspective on these matters. In the
event that Infinera does need to restate its financial statements
for prior periods, its financial results for the third quarter
would likely be affected.
Infinera’s financial results for the third quarter of fiscal
year 2023 are also subject to all aspects of the final quarterly
review process and may change as a result of new information that
arises, or new determinations that are made, in this process.
Forward-looking statements in this press release also include,
without limitation, Infinera’s future business plans, strategy and
growth opportunities, including progress against strategic
priorities and milestones; expectations regarding Infinera’s future
performance, including but not limited to, revenue growth, gross
margin expansion, increased operating margin and earnings per share
expansion; expectations related to Infinera’s range of preliminary
financial results for the third quarter of 2023 and Infinera's
preliminary financial outlook for the fourth quarter of 2023;
expectations related to remediation efforts and disclosure related
to Infinera’s material weaknesses; expectations related to the
outcome of Infinera’s continued review of its SSP methodology;
Infinera’s expectation that adjustments to revenue will be shifts
in allocation between deferred revenue and revenue recognized
upfront and that there will be no lost revenue; and Infinera’s
expectations regarding the need to amend prior periodic reports or
restate prior financials. These forward-looking statements are
based on estimates and information available to Infinera as of the
date hereof and are not guarantees of future performance; actual
results could differ materially from those stated or implied due to
risks and uncertainties. The risks and uncertainties that could
cause Infinera’s results to differ materially from those expressed
or implied by such forward-looking statements include demand growth
for additional network capacity and the level and timing of
customer capital spending and excess inventory held by customers
beyond normalized levels; delays in the development, introduction
or acceptance of new products or in releasing enhancements to
existing products; aggressive business tactics by Infinera’s
competitors and new entrants and Infinera's ability to compete in a
highly competitive market; supply chain and logistics issues,
including delays, shortages, components that have been discontinued
and increased costs, and Infinera's dependency on sole source,
limited source or high-cost suppliers; dependence on a small number
of key customers; product performance problems; the complexity of
Infinera's manufacturing process; Infinera's ability to identify,
attract, upskill and retain qualified personnel; challenges with
our contract manufacturers and other third-party partners; the
effects of customer and supplier consolidation; dependence on
third-party service partners; Infinera’s ability to respond to
rapid technological changes; failure to accurately forecast
Infinera's manufacturing requirements or customer demand; the
effects of public health emergencies; Infinera’s future capital
needs and its ability to generate the cash flow or otherwise secure
the capital necessary to meet such capital needs; the effect of
global and regional economic conditions on Infinera’s business,
including effects on purchasing decisions by customers; the adverse
impact inflation and higher interest rates may have on Infinera by
increasing costs beyond what it can recover through price
increases; restrictions to our operations resulting from loan or
other credit agreements; the impacts of any restructuring plans or
other strategic efforts on our business; our international sales
and operations; the impacts of foreign currency fluctuations; the
effective tax rate of Infinera, which may increase or fluctuate;
potential dilution from the issuance of additional shares of common
stock in connection with the conversion of Infinera's convertible
senior notes; Infinera’s ability to protect its intellectual
property; claims by others that Infinera infringes on their
intellectual property rights; security incidents, such as data
breaches or cyber-attacks; Infinera's ability to comply with
various rules and regulations, including with respect to export
control and trade compliance, environmental, social, governance,
privacy and data protection matters; events that are outside of
Infinera's control, such as natural disasters, violence or other
catastrophic events that could harm Infinera's operations;
Infinera’s ability to remediate its recently disclosed material
weaknesses in internal control over financial reporting in a timely
and effective manner; any other impacts of Infinera’s and its
auditors’ review of the accounting matters described above; and
other risks and uncertainties detailed in Infinera’s SEC filings
from time to time. More information on potential factors that may
impact Infinera’s business are set forth in Infinera's periodic
reports filed with the SEC, including its Annual Report on Form
10-K for the year ended December 31, 2022, as filed with the SEC on
February 27, 2023, as well as subsequent reports filed with or
furnished to the SEC from time to time. These reports are available
on Infinera’s website at www.infinera.com and the SEC’s website at
www.sec.gov. Infinera assumes no obligation to, and does not
currently intend to, update any such forward-looking
statements.
Use of Non-GAAP Financial Information
In addition to disclosing financial measures prepared in
accordance with U.S. Generally Accepted Accounting Principles
(GAAP), this press release and the accompanying tables contain
certain non-GAAP financial measures that exclude in certain cases
stock-based compensation expenses, amortization of acquired
intangible assets, and restructuring and other related costs.
Infinera believes these adjustments are appropriate to enhance an
overall understanding of its underlying financial performance and
also its prospects for the future and are considered by management
for the purpose of making operational decisions. In addition, the
non-GAAP financial measures presented in this press release are the
primary indicators management uses as a basis for its planning and
forecasting of future periods. The presentation of this additional
information is not meant to be considered in isolation or as a
substitute for revenue, gross margin, operating expenses, operating
margin, net income (loss) and net income (loss) per common share
prepared in accordance with GAAP. Non-GAAP financial measures are
not based on a comprehensive set of accounting rules or principles
and are subject to limitations.
Infinera has included forward-looking non-GAAP information in
this press release, including an estimate of certain non-GAAP
financial measures for the fourth quarter of 2023 that excludes
stock-based compensation expense, amortization of acquired
intangible assets, and restructuring and other related costs.
A reconciliation of GAAP to non-GAAP financials for the third
quarter and fourth quarter is included in the table below.
Infinera CorporationGAAP to Non-GAAP
Reconciliations(In millions, except
percentages)(Unaudited)
|
|
Q3'23Preliminary |
|
Q4'23 Preliminary
Outlook |
|
|
Low |
|
High |
|
Low |
|
High |
Reconciliation of
Gross Margin: |
|
|
|
|
|
|
|
|
GAAP |
|
|
38.4 |
% |
|
|
40.7 |
% |
|
|
37.3 |
% |
|
|
40.4 |
% |
Stock-based compensation
expense(1) |
|
|
0.7 |
% |
|
|
0.6 |
% |
|
|
0.7 |
% |
|
|
0.6 |
% |
Amortization of acquired
intangible assets(2) |
|
|
0.9 |
% |
|
|
0.9 |
% |
|
|
— |
% |
|
|
— |
% |
Non-GAAP |
|
|
40.0 |
% |
|
|
42.2 |
% |
|
|
38.0 |
% |
|
|
41.0 |
% |
|
|
|
|
|
|
|
|
|
Reconciliation of
Operating Expenses: |
|
|
|
|
|
|
|
|
GAAP |
|
$ |
150.4 |
|
|
$ |
150.9 |
|
|
$ |
155.3 |
|
|
$ |
159.3 |
|
Stock-based compensation
expense(1) |
|
|
(13.2 |
) |
|
|
(13.2 |
) |
|
|
(14.7 |
) |
|
|
(14.7 |
) |
Amortization of acquired
intangible assets(2) |
|
|
(3.0 |
) |
|
|
(3.0 |
) |
|
|
(2.3 |
) |
|
|
(2.3 |
) |
Restructuring and other
related costs(3) |
|
|
(0.4 |
) |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
Non-GAAP |
|
$ |
133.8 |
|
|
$ |
134.3 |
|
|
$ |
138.0 |
|
|
$ |
142.0 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Operating Margin: |
|
|
|
|
|
|
|
|
GAAP |
|
|
(1.4 |
)% |
|
|
2.2 |
% |
|
|
0.7 |
% |
|
|
5.0 |
% |
Stock-based compensation
expense(1) |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
4.2 |
% |
|
|
3.9 |
% |
Amortization of acquired
intangible assets(2) |
|
|
1.7 |
% |
|
|
1.7 |
% |
|
|
0.5 |
% |
|
|
0.5 |
% |
Restructuring and other
related costs(3) |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
Non-GAAP |
|
|
4.6 |
% |
|
|
8.0 |
% |
|
|
5.5 |
% |
|
|
9.5 |
% |
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income (Loss) per Common Share -
Diluted: |
|
|
GAAP |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
$ |
0.04 |
|
Stock-based compensation
expense(1) |
|
|
0.06 |
|
|
|
0.06 |
|
|
|
0.07 |
|
|
|
0.07 |
|
Amortization of acquired
intangible assets(2) |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Restructuring and other
related costs(3) |
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
Add: Interest expense related
to the convertible senior notes, net of tax |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Non-GAAP |
|
$ |
0.03 |
|
|
$ |
0.08 |
|
|
$ |
0.05 |
|
|
$ |
0.13 |
|
(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.
(2) Amortization of acquired intangible assets consists of
developed technology and customer relationships acquired in
connection with the acquisitions of Coriant and Transmode AB. 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.
(3) Restructuring and other related costs are primarily
associated with Infinera's restructuring of certain international
research and development operations, the reduction of operating
costs and the reduction of headcount. In addition, this includes
accelerated amortization on operating lease right-of-use assets due
to the cessation of 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.
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