Infinera (INFN) 8-K Infinera Corporation Reports Third Quarter 2010 Financial Results

Exhibit 99.1

Contacts:
Press: Jeff Ferry	Investors/Analysts: Bob Blair
jferry@infinera.com	bblair@infinera.com
Infinera Corporation	Infinera Corporation
408-572-5213	408-716-4879

Infinera Corporation Reports Third Quarter 2010 Financial Results

Revenue of $130.1 Million on Year-Over-Year Growth of 56%; Non-GAAP Profit of $0.18 per

Diluted Share; Non-GAAP Gross Margin at 51%

Sunnyvale, CA, October 18, 2010 – Infinera Corporation (Nasdaq: INFN), a leading provider of digital optical communications systems, today released financial results for the third quarter ended September 25, 2010.

• GAAP revenues for the quarter were $130.1 million compared to $111.4 million in the second quarter of 2010 and $83.4 million in the third quarter of 2009, representing year-over-year growth of 56%.

• GAAP gross margins for the quarter were 50% compared to 42% in the second quarter of 2010 and 33% in the third quarter of 2009. GAAP net income for the quarter was $4.4 million, or $0.04 per basic and diluted share, compared to a net loss of $9.6 million, or $(0.10) per share, in the second quarter of 2010 and a net loss of $16.5 million, or $(0.17) per share, in the third quarter of 2009.

• Non-GAAP gross margins for the quarter were 51% compared to 44% in the second quarter of 2010 and 38% in the third quarter of 2009, which excludes restructuring and other related costs and non-cash stock-based compensation. Non-GAAP net income for the quarter was $18.7 million, or $0.18 per diluted share, compared to net income of $3.0 million, or $0.03 per diluted share in the second quarter of 2010 and a net loss of $3.1 million, or $(0.03) per share, in the third quarter of 2009.

Management Commentary

“I am pleased with the outstanding financial performance delivered by the Infinera team in the third quarter,” said Tom Fallon, president and chief executive officer. “We achieved new records for quarterly revenue, gross margin and tributary adapter module shipments. The stronger revenue, higher profit margins and ongoing operating expense control resulted in significant income leverage, with a non-GAAP operating income contribution of $18.5 million for the quarter. We believe this operating income contribution, combined with our achievement of 51% gross margin, validates our long-term business model and demonstrates the leverage that is achievable.

“We believe that our continued solid financial performance stems from our customers’ confidence in Infinera’s unique and differentiated PIC-based networks and our expanded product portfolio that provides the end-to-end solutions that they are demanding,” continued Fallon.

The company also noted the following developments in the third quarter and more recently:

• Positive cash from operations of $10.0 million;

• TAM shipments of more than 3,000 units;

• The addition of two new invoiced customers bringing its customer roster to 77;

• The addition of six new ATN metro customers, bringing total ATN customers to 15;

• The launch of new hardware and software products for the company’s DTN and ATN platforms that enable a new end-to-end “Digital OTN” solution; and

• Two important technical demonstrations, including:

• PIC-based 100 Gigabit per second (100G) coherent transmission and reception over a 1,348 kilometer route on an XO Communications nationwide network on a production Infinera line system, and

• 100 Gigabit Ethernet services over Colt’s existing London to Frankfurt Infinera network.

Conference Call Information:

Infinera will host a conference call for analysts and investors to discuss its third quarter results and fourth quarter outlook today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the conference call will also be accessible from the “Investor Relations” section of the company’s website at www.infinera.com. Following the webcast, an archived version will be available on the website for 90 days. To hear the replay, parties in the United States and Canada should call 1-866-380-8126. International parties can access the replay at 1-203-369-0357.

About Infinera

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

Forward-Looking Statements

This press release contains forward-looking statements, including statements about our belief in the power and achievement of our long-term business model, our belief in our customers’ confidence in our PIC-based networks and expanded product portfolio, and our belief that the quarterly results validates our long-term business model and demonstrates the leverage that is achievable. These forward-looking statements involve risks and uncertainties, as well as assumptions that if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs and develop new or enhanced products to meet those needs; the adoption rate of our products; our ability to establish and maintain successful relationships with our customers; our ability to reduce customer concentration; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the U.S. Securities and Exchange Commission (SEC). More information about these and other risks that may impact Infinera’s business are set forth in our annual report on Form 10-K, which was filed with the SEC on March 1, 2010, as well as subsequent reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

Use of Non-GAAP financial information

In addition to disclosing financial measures prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP measures that exclude non-cash stock-based compensation expenses and non-recurring restructuring and other related costs. We believe these adjustments are appropriate to enhance an overall understanding of our underlying financial performance and also our prospects for the future and are considered by management for the purpose of making operational decisions. In addition, these results are the primary indicators management uses as a basis for our planning and forecasting of future periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), basic and diluted net income (loss) per share, or gross margin prepared in accordance with GAAP. Non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles and are subject to limitations. For a description of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section titled, “GAAP to Non-GAAP Reconciliations.” We anticipate disclosing forward-looking non-GAAP information in our conference call to discuss our third quarter 2010 results, including an estimate of non-GAAP earnings for the fourth quarter of 2010 that excludes non-cash stock-based compensation expenses.

A copy of this press release can be found on the investor relations page of Infinera’s website at www.infinera.com.

Infinera Corporation and the Infinera logo are trademarks or registered trademarks of Infinera Corporation. All other trademarks used or mentioned herein belong to their respective owners.

Infinera Corporation

GAAP Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 25,			September 26,			September 25,			September 26,
	2010			2009			2010			2009
Revenue:
Product	$	115,121		$	73,690		$	299,323		$	193,912
Ratable product and related support and services		1,460			892			4,738			3,206
Services		13,480			8,826			33,158			21,802
Total revenue		130,061			83,408			337,219			218,920
Cost of revenue (1):
Cost of product		58,552			47,473			171,660			137,037
Cost of ratable product and related support and services		874			444			2,558			1,532
Cost of services		6,224			5,049			14,286			9,681
Restructuring costs (credit) related to cost of revenue		(60	)		2,736			(182	)		2,736
Total cost of revenue		65,590			55,702			188,322			150,986
Gross profit		64,471			27,706			148,897			67,934
Operating expenses (1):
Research and development		29,886			23,611			87,292			70,445
Sales and marketing		14,847			12,364			41,566			34,945
General and administrative		15,609			10,373			45,794			31,978
Restructuring and other costs		—			601			159			601
Total operating expenses		60,342			46,949			174,811			137,969
Income (loss) from operations		4,129			(19,243	)		(25,914	)		(70,035	)
Other income (expense), net:
Interest income		284			441			1,094			1,956
Total other-than-temporary impairment losses		—			—			—			(2,747	)
Portion of loss recognized in other comprehensive loss		—			(161	)		—			1,653
Net credit impairment losses recognized in earnings		—			(161	)		—			(1,094	)
Other gain (loss), net		172			870			(352	)		(138	)
Total other income (expense), net		456			1,150			742			724
Income (loss) before income taxes		4,585			(18,093	)		(25,172	)		(69,311	)
Provision for (benefit from) income taxes		225			(1,561	)		20			(1,340	)
Net income (loss)	$	4,360		$	(16,532	)	$	(25,192	)	$	(67,971	)
Net income (loss) per common share
Basic	$	0.04		$	(0.17	)	$	(0.26	)	$	(0.71	)
Diluted	$	0.04		$	(0.17	)	$	(0.26	)	$	(0.71	)
Weighted average shares used in computing net income (loss) per common share
Basic		99,976			95,864			98,647			95,100
Diluted		105,159			95,864			98,647			95,100

⁽¹⁾ The following table summarizes the effects of stock-based compensation related to employees and non-employees for the three and nine months ended September 25, 2010 and September 26, 2009:

	Three Months Ended				Nine Months Ended
	September 25,		September 26,		September 25,		September 26,
	2010		2009		2010		2009
Cost of revenue	$	725	$	490	$	1,858	$	1,346
Research and development		3,773		2,915		10,546		7,066
Sales and marketing		2,148		1,710		6,187		4,723
General and administration		6,281		3,984		17,188		10,142
		12,927		9,099		35,779		23,277
Cost of revenue - amortization from balance sheet*		1,517		987		4,182		2,457
Total stock-based compensation expense	$	14,444	$	10,086	$	39,961	$	25,734

* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

Infinera Corporation

GAAP to Non-GAAP Reconciliations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended									Nine Months Ended
	September 25,			June 26,			September 26,			September 25,			September 26,
	2010			2010			2009			2010			2009
Reconciliation of Gross Profit:
U.S. GAAP as reported	$	64,471		$	47,310		$	27,706		$	148,897		$	67,934
Restructuring and other related costs(1)		(60	)		(29	)		2,736			(182	)		2,736
Stock-based compensation(2)		2,242			1,867			1,477			6,040			3,803
Non-GAAP as adjusted	$	66,653		$	49,148		$	31,919		$	154,755		$	74,473
Reconciliation of Gross Margin:
U.S. GAAP as reported		50	%		42	%		33	%		44	%		31	%
Restructuring and other related costs(1)		—	%		—	%		3	%		—	%		1	%
Stock-based compensation(2)		1	%		2	%		2	%		2	%		2	%
Non-GAAP as adjusted		51	%		44	%		38	%		46	%		34	%
Reconciliation of Income (Loss)from Operations:
U.S. GAAP as reported	$	4,129		$	(9,741	)	$	(19,243	)	$	(25,914	)	$	(70,035	)
Restructuring and other related costs(1)		(60	)		(31	)		3,337			(23	)		3,337
Stock-based compensation(2)		14,444			12,607			10,086			39,961			25,734
Non-GAAP as adjusted	$	18,513		$	2,835		$	(5,820	)	$	14,024		$	(40,964	)
Reconciliation of Net Income (Loss):
U.S. GAAP as reported	$	4,360		$	(9,561	)	$	(16,532	)	$	(25,192	)	$	(67,971	)
Restructuring and other related costs(1)		(60	)		(31	)		3,337			(23	)		3,337
Stock-based compensation(2)		14,444			12,607			10,086			39,961			25,734
Non-GAAP as adjusted	$	18,744		$	3,015		$	(3,109	)	$	14,746		$	(38,900	)
Net Income (Loss) per CommonShare - Basic:
U.S. GAAP	$	0.04		$	(0.10	)	$	(0.17	)	$	(0.26	)	$	(0.71	)
Non-GAAP	$	0.19		$	0.03		$	(0.03	)	$	0.15		$	(0.41	)
Net Income (Loss) per CommonShare - Diluted:
U.S. GAAP	$	0.04		$	(0.10	)	$	(0.17	)	$	(0.26	)	$	(0.71	)
Non-GAAP	$	0.18		$	0.03		$	(0.03	)	$	0.14		$	(0.41	)
Weighted average shares used in computing net income (loss) per common share - U.S. GAAP:
Basic		99,976			98,777			95,864			98,647			95,100
Diluted		105,159			98,777			95,864			98,647			95,100
Weighted average shares used in computing net income (loss) per common share - Non-GAAP:
Basic		99,976			98,777			95,864			98,647			95,100
Diluted		105,159			103,945			95,864			103,389			95,100

⁽¹⁾ Adjustment amount represents restructuring and other related costs (credit) recorded in relation to the closure of our Maryland FAB announced on July 21, 2009. These amounts have been adjusted in arriving at our non-GAAP results as they are non-recurring in nature and the adjusted numbers provide a better indication of our underlying business performance.

	Three Months Ended									Nine Months Ended
	September 25, 2010									September 25, 2010
	Cost of Revenue			Operating Expenses			Total			Cost of Revenue			Operating Expenses		Total
Severance and related expenses	$	—		$	—		$	—		$	(144	)	$	55	$	(89	)
Equipment and facility-related costs		(60	)		—			(60	)		(38	)		—		(38	)
Lease termination		—			—			—			—			104		104
Total	$	(60	)	$	—		$	(60	)	$	(182	)	$	159	$	(23	)
	Three Months Ended
	June 26, 2010
	Cost of Revenue			Operating Expenses			Total
Severance and related expenses	$	(129	)	$	—		$	(129	)
Equipment and facility-related costs		100			—			100
Lease termination		—			(2	)		(2	)
Total	$	(29	)	$	(2	)	$	(31	)
	Three and Nine Months Ended
	September 26, 2009
	Cost of Revenue			Operating Expenses			Total
Severance and related expenses	$	804		$	97		$	901
Equipment and facility-related costs		1,900			415			2,315
Lease termination		32			89			121
Total	$	2,736		$	601		$	3,337

⁽²⁾ Stock-based compensation expense is calculated in accordance with the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (ASC) 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:

	Three Months Ended						Nine Months Ended
	September 25,		June 26,		September 26,		September 25,		September 26,
	2010		2010		2009		2010		2009
Cost of revenue	$	725	$	564	$	490	$	1,858	$	1,346
Research and development		3,773		3,350		2,915		10,546		7,066
Sales and marketing		2,148		2,192		1,710		6,187		4,723
General and administration		6,281		5,198		3,984		17,188		10,142
		12,927		11,304		9,099		35,779		23,277
Cost of revenue - amortization from balance sheet*		1,517		1,303		987		4,182		2,457
Total stock-based compensation expense	$	14,444	$	12,607	$	10,086	$	39,961	$	25,734

* Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.

Infinera Corporation

Condensed Consolidated Balance Sheets

(In thousands, except par values)

(Unaudited)

	September 25,			December 26,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	97,976		$	109,859
Short-term investments		174,940			143,350
Short-term restricted cash		1,856			1,533
Accounts receivable		64,058			69,483
Other receivables		3,221			927
Inventories, net		88,694			68,872
Deferred inventory costs		6,940			5,891
Prepaid expenses and other current assets		11,068			8,313
Total current assets		448,753			408,228
Property, plant and equipment, net		47,134			43,656
Deferred inventory costs, non-current		3,141			4,438
Long-term investments		11,118			18,255
Cost-method investment		4,500			—
Long-term restricted cash		2,219			2,480
Deferred tax asset		7,649			12,449
Other non-current assets		2,215			2,439
Total assets	$	526,729		$	491,945
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	45,880		$	31,129
Accrued expenses		17,088			13,929
Accrued compensation and related benefits		18,031			19,248
Accrued warranty		5,560			6,091
Deferred revenue		18,386			18,295
Deferred tax liability		7,649			12,649
Total current liabilities		112,594			101,341
Accrued warranty, non-current		5,364			5,049
Deferred revenue, non-current		4,714			8,080
Other long-term liabilities		5,749			8,968
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 25, 2010 and December 26, 2009 Issued and outstanding shares – 100,960 as of September 25, 2010 and 96,874 as of December 26, 2009		101			97
Additional paid-in capital		801,766			747,580
Accumulated other comprehensive loss		(1,007	)		(1,810	)
Accumulated deficit		(402,552	)		(377,360	)
Total stockholders’ equity		398,308			368,507
Total liabilities and stockholders’ equity	$	526,729		$	491,945

Infinera Corporation

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	September 25,			September 26,
	2010			2009
Cash Flows from Operating Activities:
Net loss	$	(25,192	)	$	(67,971	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		11,594			12,064
Non-cash restructuring and other costs		100			2,404
Net credit impairment losses in earnings		—			1,094
Amortization of premium on investments		2,753			289
Stock-based compensation expense		39,961			25,733
Unrealized loss on Put Rights		1,696			2,540
Unrealized holding gain for trading securities		(1,696	)		(3,141	)
Non-cash tax benefit		(411	)		—
Tax benefit (reversal) from stock option transactions		—			(593	)
Reduction of tax benefit from stock option transactions		—			248
Gain on disposal of assets		(139	)		(117	)
Other gain		(71	)		(113	)
Changes in assets and liabilities:
Accounts receivable		5,425			15,324
Other receivables		(430	)		(1,105	)
Inventories, net		(19,787	)		(12,728	)
Prepaid expenses and other current assets		21			(2,331	)
Deferred inventory costs		114			21
Other non-current assets		4,911			(4,795	)
Accounts payable		15,024			(1,875	)
Accrued liabilities and other expenses		(6,856	)		8,749
Deferred revenue		(3,275	)		(3,922	)
Accrued warranty		(215	)		197
Net cash provided by (used in) operating activities		23,527			(30,028	)
Cash Flows from Investing Activities:
Purchase of available-for-sale investments		(212,307	)		(136,338	)
Purchase of cost-method investment		(4,500	)		—
Proceeds from sale of available-for-sale investments		—			1,536
Proceeds from maturities and calls of investments, and exercise of Put Rights		184,662			93,157
Proceeds from disposal of assets		284			206
Purchase of property and equipment		(15,639	)		(11,599	)
Change in restricted cash		(61	)		(1,148	)
Net cash used in investing activities		(47,561	)		(54,186	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock		12,341			8,545
Excess (reduction of) tax benefit from stock option transactions		—			(248	)
Repurchase of common stock		(14	)		(19	)
Payments for purchase of assets under financing arrangement		(262	)		—
Net cash provided by financing activities		12,065			8,278
Effect of exchange rate changes on cash		86			111
Net change in cash and cash equivalents		(11,883	)		(75,825	)
Cash and cash equivalents at beginning of period		109,859			166,770
Cash and cash equivalents at end of period	$	97,976		$	90,945
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	882		$	1,245

Infinera Corporation

Supplemental Financial Information

(Unaudited)

	Q4’08			Q1’09			Q2’09			Q3’09			Q4’09			Q1’10			Q2’10			Q3’10
Revenue ($ Mil)(1)	$	86.2		$	66.6		$	68.9		$	83.4		$	90.2		$	95.8		$	111.4		$	130.1
Gross Margin %(1)		36	%		31	%		31	%		38	%		40	%		41	%		44	%		51	%
Invoiced Shipment Composition:
Domestic %		73	%		74	%		64	%		63	%		74	%		79	%		81	%		73	%
International %		27	%		26	%		36	%		37	%		26	%		21	%		19	%		27	%
Largest Customer %		23	%		30	%		20	%		15	%		17	%		22	%		13	%		19	%
Cash Related Information:
Cash from Operations ($ Mil)		($5.4	)		($2.9	)		($18.8	)		($8.3	)		($2.7	)	$	2.3		$	11.2		$	10.0
Capital Expenditures ($ Mil)	$	7.8		$	6.0		$	2.8		$	2.8		$	4.4		$	4.7		$	5.0		$	5.9
Depreciation & Amortization ($ Mil)	$	4.1		$	3.9		$	4.0		$	4.2		$	4.5		$	4.0		$	3.7		$	3.9
DSO’s		74			61			72			61			71			56			45			45
Inventory Metrics:
Raw Materials ($ Mil)	$	9.1		$	7.7		$	10.1		$	7.4		$	6.9		$	7.5		$	9.1		$	11.0
Work in Process ($ Mil)	$	37.9		$	43.2		$	40.1		$	36.2		$	32.1		$	31.5		$	29.2		$	36.5
Finished Goods ($ Mil)	$	12.0		$	13.6		$	22.3		$	29.3		$	29.9		$	33.0		$	45.9		$	41.2
Total Inventory ($ Mil)	$	59.0		$	64.5		$	72.5		$	72.9		$	68.9		$	72.0		$	84.2		$	88.7
Inventory Turns(1)		3.8			2.8			2.6			3.0			3.2			3.2			3.0			2.9
Worldwide Headcount		937			962			973			970			974			999			1,028			1,040

⁽¹⁾ Q4’08 reflects Adjusted GAAP results and non-GAAP adjustments. Periods Q1’09 and going forward reflect non-GAAP results.

Adjusted GAAP results reflect our GAAP results reduced for amounts released from deferred revenue and deferred cost of inventory balances recorded priorto the second quarter of 2008 and previously reported in our invoiced shipment results. Non-GAAP adjustments include restructuring and other related costsand non-cash stock-based compensation.