Infinera Earnings 2020-03-28

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33486

INFINERA CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		77-0560433
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

140 Caspian Court

Sunnyvale, CA 94089

(Address of principal executive offices, including zip code)

(408) 572-5200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common stock, par value $0.001 per share	INFN	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated Filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 13, 2020, 186,897,010 shares of the registrant’s Common Stock, $0.001 par value, were issued and outstanding.

Table of Contents

INFINERA CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED MARCH 28, 2020

INDEX



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets - As of March 28, 2020 and December 28, 2019	3

	Condensed Consolidated Statements of Operations - Three Months ended March 28, 2020 and March 30, 2019	4

	Condensed Consolidated Statements of Comprehensive Loss - Three Months ended March 28, 2020 and March 30, 2019	5

	Condensed Consolidated Statements of Stockholders' Equity - Three Months ended March 28, 2020 and March 30, 2019	6

	Condensed Consolidated Statements of Cash Flows - Three Months ended March 28, 2020 and March 30, 2019	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43

Item 4.	Controls and Procedures	44

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	47

Item 6.	Exhibits	68

	Signature Page	69

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements (Unaudited)

INFINERA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

(Unaudited)



	March 28, 2020			December 28, 2019
ASSETS
Current assets:
Cash	$	261,534		$	109,201
Short-term restricted cash	4,126			4,339
Accounts receivable, net of allowance for doubtful accounts of $4,014 in 2020 and $4,005 in 2019	272,278			349,645
Inventory	319,696			340,429
Prepaid expenses and other current assets	159,845			139,217
Total current assets	1,017,479			942,831
Property, plant and equipment, net	148,815			150,793
Operating lease right-of-use assets	61,914			68,081
Intangible assets	155,356			170,346
Goodwill	239,412			249,848
Long-term restricted cash	17,808			19,257
Other non-current assets	26,347			27,182
Total assets	$	1,667,131		$	1,628,338
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	203,277		$	273,397
Accrued expenses and other current liabilities	186,668			193,168
Accrued compensation and related benefits	69,135			92,221
Short-term debt, net	31,680			31,673
Accrued warranty	18,988			21,107
Deferred revenue	95,693			103,753
Total current liabilities	605,441			715,319
Long-term debt, net	509,564			323,678
Long-term financing lease obligations	2,113			2,394
Accrued warranty, non-current	20,474			22,241
Deferred revenue, non-current	34,149			36,067
Deferred tax liability	7,505			8,700
Operating lease liabilities	60,420			64,210
Other long-term liabilities	65,746			69,194
Commitments and contingencies (Note 13)
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 March 28, 2020 and December 28, 2019 Issued and outstanding shares – 183,198 as of March 28, 2020 and 181,134 as of December 28, 2019	183			181
Additional paid-in capital	1,827,484			1,740,884
Accumulated other comprehensive loss	(46,139		)	(34,639		)
Accumulated deficit	(1,419,809		)	(1,319,891		)
Total stockholders' equity	361,719			386,535
Total liabilities and stockholders’ equity	$	1,667,131		$	1,628,338

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



	Three Months Ended
	March 28, 2020			March 30, 2019
Revenue:
Product	$	255,192		$	223,007
Services	75,081			69,700
Total revenue	330,273			292,707
Cost of revenue:
Cost of product	201,792			157,817
Cost of services	40,695			36,676
Amortization of intangible assets	8,628			8,252
Acquisition and integration costs	1,035			2,064
Restructuring and related	1,157			21,466
Total cost of revenue	253,307			226,275
Gross profit	76,966			66,432
Operating expenses:
Research and development	68,180			73,660
Sales and marketing	36,689			40,037
General and administrative	29,620			33,044
Amortization of intangible assets	4,555			7,057
Acquisition and integration costs	9,222			7,134
Restructuring and related	5,580			17,188
Total operating expenses	153,846			178,120
Loss from operations	(76,880		)	(111,688		)
Other income (expense), net:
Interest income	24			766
Interest expense	(8,794		)	(7,563		)
Other gain (loss), net	(12,682		)	(2,923		)
Total other income (expense), net	(21,452		)	(9,720		)
Loss before income taxes	(98,332		)	(121,408		)
Provision for income taxes	936			193
Net loss	$	(99,268	)	$	(121,601	)
Net loss per common share:
Basic	$	(0.55	)	$	(0.69	)
Diluted	$	(0.55	)	$	(0.69	)
Weighted average shares used in computing net loss per common share:
Basic	182,024			176,406
Diluted	182,024			176,406

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)



	Three Months Ended
	March 28, 2020			March 30, 2019
Net loss	$	(99,268	)	$	(121,601	)
Other comprehensive income (loss), net of tax:
Change in unrealized gain on available-for-sale investments	—			65
Foreign currency translation adjustment	(11,106		)	(5,557		)
Actuarial gain (loss) on pension liabilities	(394		)	78
Net change in accumulated other comprehensive loss	(11,500		)	(5,414		)
Comprehensive loss	$	(110,768	)	$	(127,015	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)



	Three Months Ended March 28, 2020
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders' Equity
Balance at December 28, 2019	181,134	$	181	$	1,740,884	$	(34,639	)	$	(1,319,891	)	$	386,535
ESPP shares issued	1,839	2		7,392		—			—			7,394
Restricted stock units released	225	—		—		—			—			—
Stock-based compensation	—	—		11,411		—			—			11,411
Cumulative-effect adjustment from adoption of Topic 326	—	—		—		—			(650		)	(650		)
Conversion option related to convertible senior notes, net of allocated costs	—	—		67,797		—			—			67,797
Other comprehensive loss	—	—		—		(11,500		)	—			(11,500		)
Net loss	—	—		—					(99,268		)	(99,268		)
Balance at March 28, 2020	183,198	$	183	$	1,827,484	$	(46,139	)	$	(1,419,809	)	$	361,719



	Three Months Ended March 30, 2019
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balance at December 29, 2018	175,452	$	175	$	1,685,916	$	(25,300	)	$	(956,970	)	$	703,821
ESPP shares issued	1,825	2		7,738		—			—			7,740
Restricted stock units released	138	—		—		—			—			—
Stock-based compensation	—	—		9,056		—			—			9,056
Cumulative-effect adjustment from adoption of Topic 842	—	—		—		—			23,697			23,697
Other comprehensive loss	—	—		—		(5,414		)	—			(5,414		)
Net loss	—	—		—		—			(121,601		)	(121,601		)
Balance at March 30, 2019	177,415	177		$	1,702,710	$	(30,714	)	$	(1,054,874	)	$	617,299

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INFINERA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Three Months Ended
	March 28, 2020			March 30, 2019
Cash Flows from Operating Activities:
Net loss	$	(99,268	)	$	(121,601	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	25,445			30,939
Non-cash restructuring charges and related costs	1,760			16,851
Amortization of debt discount and issuance costs	5,731			4,614
Operating lease expense	5,204			14,966
Stock-based compensation expense	11,703			8,713
Other, net	1,153			1,775
Changes in assets and liabilities:
Accounts receivable	70,238			49,754
Inventory	17,737			(24,937		)
Prepaid expenses and other assets	(18,744		)	(5,236		)
Accounts payable	(72,355		)	(23,439		)
Accrued liabilities and other expenses	(32,083		)	(15,486		)
Deferred revenue	(8,038		)	6,933
Net cash used in operating activities	(91,517		)	(56,154		)
Cash Flows from Investing Activities:
Proceeds from maturities of investments	—			10,542
Acquisition of business, net of cash acquired	—			(10,000		)
Purchase of property and equipment, net	(8,464		)	(6,590		)
Net cash used in investing activities	(8,464		)	(6,048		)
Cash Flows from Financing Activities:
Proceeds from issuance of 2027 Notes	194,500			—
Proceeds from mortgage payable	—			8,584
Proceeds from revolving line of credit	55,000			—
Repayment of revolving line of credit	—			—
Payment of debt issuance cost	(1,775		)
Repayment of mortgage payable	(99		)	—
Proceeds from issuance of common stock	7,395			7,740
Net cash provided by financing activities	255,021			16,324
Effect of exchange rate changes on cash and restricted cash	(4,369		)	(1,213		)
Net change in cash, cash equivalents and restricted cash	150,671			(47,091		)
Cash, cash equivalents and restricted cash at beginning of period	132,797			242,337
Cash, cash equivalents and restricted cash at end of period⁽¹⁾	$	283,468		$	195,246

Table of Contents



Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds	$	1,072	$	1,353
Cash paid for interest	$	5,131	$	4,315
Supplemental schedule of non-cash investing and financing activities:
Unpaid debt issuance cost	$	1,793	$	—
Transfer of inventory to fixed assets	$	118	$	1,805

⁽¹⁾ Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:



	March 28, 2020		March 30, 2019

	(In thousands)
Cash and cash equivalents	$	261,534	$	167,259
Short-term restricted cash	4,126		4,671
Long-term restricted cash	17,808		23,316
Total cash, cash equivalents and restricted cash	$	283,468	$	195,246

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INFINERA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation

Infinera Corporation (the “Company”) prepared its interim condensed consolidated financial statements that accompany these notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

The Company has made certain estimates, assumptions and judgments that can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Significant estimates, assumptions and judgments made by management include revenue recognition, stock-based compensation, employee benefit and pension plans, inventory valuation, accrued warranty, operating lease liabilities, business combinations, fair value measurement of investments and accounting for income taxes. Other less significant estimates, assumptions and judgments made by management include allowances for sales returns, allowances for doubtful accounts, useful life of intangible assets, and property, plant and equipment. Management believes that the estimates and judgments upon which they rely are reasonable based upon information available to them at the time that these estimates and judgments are made. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the recent outbreak of a novel strain of the coronavirus (“COVID-19”). These estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in the Company's condensed consolidated financial statements.

The interim financial information is unaudited, but reflects all adjustments that are, in management’s opinion, necessary to provide a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated.

This interim information should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

To date, a few of the Company’s customers have accounted for a significant portion of its revenue. For the three months ended March 28, 2020, one customer accounted for 11% of the Company's total revenue and for the three months ended March 30, 2019, the same customer accounted for 11% of the Company's total revenue.

Certain reclassifications have been made to prior period balances in order to conform to the current period presentation of the cash flows from operating activities in the condensed consolidated statements of cash flows. The reclassifications were not material and had no impact on previously reported net cash used in operating activities and on our other condensed consolidated financial statements for the periods ended March 28, 2020 and March 30, 2019.

There have been no material changes in the Company’s significant accounting policies for the three months ended March 28, 2020 compared to those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019, with the exception of updates to the policy noted below as a result of the adoption of ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326)" ("Topic 326") as of December 29, 2019.

Allowance for doubtful accounts

The Company maintains an allowance for doubtful accounts for estimated credit losses resulting from the inability of its customers to make required payments and reviews the allowance quarterly. The Company determines expected credit losses by performing credit evaluations of its customers' financial condition, establishing both a general reserve and specific reserves for customers in an adverse financial condition and adjusting for its expectations of changes in conditions that may impact the collectability of outstanding receivables. The Company considers factors such as historical experience, credit quality, age of the accounts receivable balances, and geographic or country-specific risks. Amounts are written off when receivables are determined to be uncollectible.


2.	Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-13, “Financial Instruments-Credit Losses (Topic 326)” (“ASU 2016-13”), in order to improve financial reporting of expected credit losses on financial instruments and other commitments to extend credit. ASU 2016-13 requires that an entity measure and recognize expected credit losses for financial assets held at amortized cost and replaces the incurred loss impairment methodology in prior GAAP with a methodology that requires consideration of a broader range of information to estimate credit losses. The Company adopted ASU 2016-13 on a modified retrospective basis in the first quarter of 2020 through a cumulative-effect adjustment at the beginning of the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of the Company’s customers, and external market factors. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). This update eliminates, adds and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 was effective for the Company in its first quarter of 2020. The Company adopted ASU 2018-13 in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements.

Accounting Pronouncements Not Yet Effective

In March 2020, the FASB issued ASU No. 2020-04 (Topic 848), "Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides temporary optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. The standard was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The Company is currently evaluating the impact the adoption of ASU 2020-04 would have on its consolidated financial statements.

In December 2019, FASB issued Accounting Standards Update No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its simplification initiative. ASU 2019-12 removes certain exceptions from ASC 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation when there is a loss from continuing operations and income or a gain from other items such as discontinued operations or other comprehensive income, (ii) the exception to accounting for outside basis differences of equity method investments and foreign subsidiaries, and (iii) the exception to limit tax benefit recognized in interim period in cases when the year-to-date losses exceeds anticipated losses. ASU 2019-12 also simplifies GAAP in several other areas of ASC 740 such as (i) franchise taxes and other taxes partially based on income, (ii) step-up in tax basis goodwill considered part of a business combination in which the book goodwill was originally recognized or should be considered a separate transaction, (iii) separate financial statements of entities not subject to tax, and (iv) interim recognition of enactment of tax laws or rate changes. ASU 2019-12 is effective for the Company for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2020, with early adoption permitted. The Company elected not to early adopt ASU 2019-12 as of December 28, 2019. The Company is currently evaluating the impact the adoption of ASU 2019-12 would have on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018-14”). This update eliminates, adds and modifies certain disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. ASU 2018-14 is effective for the Company in its first quarter of 2021, with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU 2018-14 would have on its consolidated financial statements.

3. Leases

The Company has operating leases for real estate and automobiles. During the three months ended March 28, 2020, operating lease expense was approximately $8.6 million (including $1.4 million of accelerated rent expense due to restructuring resulting in abandonment of lease facilities). Variable lease cost, short-term lease cost and sublease income were immaterial during the three months ended March 28, 2020. As of March 28, 2020, $18.1 million was included in accrued expenses and other current liabilities and $60.4 million as long-term operating lease liabilities.

The following table presents maturity of lease liabilities under the Company's non-cancelable operating leases as of March 28, 2020 (in thousands):



Remainder of 2020	$	18,987
2021	18,691
2022	15,245
2023	12,054
2024	10,066
Thereafter	35,855
Total lease payments	110,898
Less: interest⁽¹⁾	32,423
Present value of lease liabilities	$	78,475

(1) Calculated using the interest rate for each lease.

The following table presents supplemental information for the three months ended March 28, 2020 (in thousands, except for weighted average and percentage data):



Weighted average remaining lease term	7.01 years
Weighted average discount rate	9.09		%
Cash paid for amounts included in the measurement of lease liabilities	$	6,425
Operating cash flow from operating leases	$	6,425
Leased assets obtained in exchange for new operating lease liabilities	$	1,818

Financing Lease Obligations

During the three months ended March 28, 2020, there were no new finance lease arrangements. The lease term for the existing arrangements range from 3 - 5 years with options to purchase at the end of the term. Finance lease cost was approximately $0.2 million for the three months ended March 28, 2020 and zero for the three months ended March 30, 2019. As of March 28, 2020, $1.7 million was included in accrued expenses and other current liabilities and $2.1 million as long-term finance lease obligation related to these equipment finance lease arrangements.

As of December 28, 2019, $1.4 million was included in accrued expenses and other current liabilities and $2.4 million as a long-term finance lease obligation related to these equipment finance lease arrangements.

The following table presents maturity of lease liability under the Company's finance leases as of March 28, 2020 (in thousands):




Remainder of 2020	$	1,557
2021	1,199
2022	930
2023	402
Thereafter	—
Total lease payments	4,088
Less: interest	281
Present value of lease liabilities	$	3,807

The following table presents supplemental information for the three months ended March 28, 2020 (in thousands, except for weighted average and percentage data):



Weighted average remaining lease term	2.78 years
Weighted average discount rate	7.00		%
Cash paid for amounts included in the measurement of lease liabilities	$	—
Operating cash flow from operating leases	$	—
Leased assets obtained in exchange for new finance lease liabilities	$	—

4. Revenue Recognition

Capitalization of Costs to Obtain a Contract

The ending balance of the Company’s capitalized costs to obtain a contract as of March 28, 2020 and December 28, 2019 were $0.2 million and $0.2 million, respectively. The Company's amortization expense was not material for each of the three months ended March 28, 2020 and March 30, 2019.

Disaggregation of Revenue

The following table presents the Company's revenue disaggregated by revenue source (in thousands):



	Three Months Ended
	March 28, 2020		March 30, 2019
Product	$	255,192	$	223,007
Services	75,081		69,700
Total revenue	$	330,273	$	292,707

The Company sells its products directly to customers who are predominantly service providers and to channel partners that sell on its behalf. The following table presents the Company's revenue disaggregated by geography, based on the shipping address of the customer and by sales channel (in thousands):



	Three Months Ended
	March 28, 2020		March 30, 2019
United States	$	170,526	$	132,522
Other Americas	19,688		15,132
Europe, Middle East and Africa	88,578		98,992
Asia Pacific	51,481		46,061
Total revenue	$	330,273	$	292,707



	Three Months Ended
	March 28, 2020		March 30, 2019
Direct	$	244,351	$	248,196
Indirect	85,922		44,511
Total revenue	$	330,273	$	292,707

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in thousands):



	March 28, 2020		December 28, 2019
Accounts receivable, net	$	272,278	$	349,645
Contract assets	$	34,806	$	22,814
Deferred revenue	$	129,842	$	139,820

Revenue recognized for the three months ended March 28, 2020 that was included in the deferred revenue balance at the beginning of the reporting period was $38.7 million. Changes in the contract asset and liability balances during the three months ended March 28, 2020 were not materially impacted by other factors.

Transaction Price Allocated to the Remaining Performance Obligation

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) at the end of the reporting period (in thousands):



	Remainder of 2020		2021		2022		2023		2024		Thereafter		Total
Revenue expected to be recognized in the future as of March 28, 2020	$	453,406	$	37,172	$	11,538	$	6,056	$	1,802	$	449	$	510,423

5. Fair Value Measurements

The following tables represent the Company’s fair value hierarchy for its assets and liabilities measured at fair value on a recurring basis (in thousands):



	As of March 28, 2020								As of December 28, 2019
	Fair Value Measured Using								Fair Value Measured Using
	Level 1		Level 2			Total			Level 1		Level 2			Total
Liabilities
Foreign currency exchange forward contracts	$	—	$	(52	)	$	(52	)	$	—	$	(159	)	$	(159	)

During the three months ended March 28, 2020, there were no transfers of liabilities between Level 1 and Level 2 of the fair value hierarchy. As of March 28, 2020 and December 28, 2019, none of the Company’s existing liabilities were classified as Level 3.

The Company classifies certain facilities-related charges within Level 3 of the fair value hierarchy and applies fair value accounting on a nonrecurring basis when impairment indicators exist or upon the existence of observable fair values. The fair values are classified as Level 3 measurements due to the significance of unobservable inputs. This analysis requires management to make assumptions and estimates regarding industry and economic factors, future operating results and discount rates.

The Company measures goodwill and intangible assets at fair value on a nonrecurring basis when there are identifiable events or changes in circumstances that may have a significant adverse impact on the fair value of these assets. In light of the COVID-19 pandemic, the Company performed an analysis of impairment indicators of these assets and noted no adverse impact to their fair values as of March 28, 2020.

Table of Contents

Facilities-related Charges

In connection with the 2018 Restructuring Plan (as defined in Note 9, “Restructuring and Related Costs” to the Notes to Consolidated Financial Statements), the Company calculated the fair value of the $3.0 million in facilities-related charges based on estimated future discounted cash flows and classified the fair value as a Level-3 measurement due to the significance of unobservable inputs, which included the amount and timing of estimated sublease rental receipts that the Company could reasonably obtain over the remaining lease term and the discount rate.

Cash

As of March 28, 2020, the Company had $261.5 million of cash, including $53.6 million of cash held by its foreign subsidiaries.

As of December 28, 2019, the Company had $109.2 million of cash including $68.7 million of cash held by its foreign subsidiaries. The Company's cash in foreign locations is used for operational and investing activities in those locations, and the Company does not currently have the need or the intent to repatriate those funds to the United States.

6. Derivative Instruments

Foreign Currency Exchange Forward Contracts

The Company transacts business in various foreign currencies and has international sales, cost of sales, and expenses denominated in foreign currencies, and carries foreign-currency-denominated monetary assets and liabilities, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management objective is to protect the U.S. dollar value of future cash flows. The Company utilizes foreign currency forward contracts, primarily short term in nature.

Historically, the Company enters into foreign currency exchange forward contracts to manage its exposure to fluctuation in foreign exchange rates that arise from its euro and, British pound denominated receivables and restricted cash balances. Gains and losses on these contracts are intended to offset the impact of foreign exchange rate fluctuations on the underlying foreign currency denominated accounts receivables and restricted cash, and therefore, do not subject the Company to material balance sheet risk.

The Company also enters into foreign currency exchange contracts to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in euros and British pounds. The contracts are generally settled for U.S. dollars, euros and British pounds at maturity under an average rate method agreed to at inception of the contracts. The gains and losses on these foreign currency derivatives are recorded to the consolidated statement of operations line item, in the current period, to which the item that is being economically hedged is recorded.

As of March 28, 2020, and December 28, 2019, the Company posted $0.9 million and 0.9 million, respectively, of collateral on its derivative instruments to cover potential credit risk exposure. This amount is classified as other long-term restricted cash on the accompanying consolidated balance sheets.

For the three months ended March 28, 2020 and March 30, 2019, the before-tax effect of the foreign currency exchange forward contracts was a net gain of $0.1 million and a net gain of $0.7 million, respectively, included in other gain (loss), net in the consolidated statements of operations. In each of these periods, the impact of the gross gains and losses was offset by foreign exchange rate fluctuations on the underlying foreign currency denominated amounts.

As of March 28, 2020, the Company did not designate foreign currency exchange forward contracts as hedges for accounting purposes and accordingly, changes in the fair value are recorded in the accompanying condensed consolidated statements of operations. These contracts were entered into with one high-quality institution and the Company consistently monitors the creditworthiness of the counterparties.

The fair value of derivative instruments not designated as hedging instruments in the Company’s condensed consolidated balance sheets was as follows (in thousands):



	As of March 28, 2020					As of December 28, 2019
	Gross Notional⁽¹⁾		Other Accrued Liabilities			Gross Notional(1)		Other Accrued Liabilities
Foreign currency exchange forward contracts
Related to euro denominated receivables	$	8,928	$	(52	)	$	27,566	$	(159	)
	$	8,928	$	(52	)	$	27,566	$	(159	)


⁽¹⁾	Represents the face amounts of forward contracts that were outstanding as of the end of the period noted.

Accounts Receivable Factoring

The Company sells certain designated trade account receivables based on factoring arrangements to a large international banking institution. Pursuant to the terms of the arrangements, the Company accounts for these transactions in accordance with ASC 860. The Company's factor purchases trade accounts receivables on a non-recourse basis and without any further obligations. Trade accounts receivables balances sold are removed from the consolidated balance sheets and cash received are reflected as cash provided by operating activities in the consolidated statements of cash flow. The difference between the fair value of the Company's trade receivables and the proceeds received is recorded as interest expense in the Company's consolidated statements of operations, and for the three months ended March 28, 2020 and March 30, 2019, the Company's recognized factoring related interest expense was approximately $0.1 million and $0.2 million. The gross amount of trade accounts receivables sold during the three months ended March 28, 2020 and March 30, 2019 totaled approximately $26.5 million and $24.4 million, respectively.

7. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.

The following table presents details of the Company’s goodwill during the three months ended March 28, 2020 (in thousands):



Balance as of December 28, 2019	$	249,848
Foreign currency translation adjustments	(10,436		)
Balance as of March 28, 2020	$	239,412

The gross carrying amount of goodwill may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in foreign currency. To date, the Company has not recognized any impairment losses on goodwill.

Intangible Assets

The following tables present details of the Company’s intangible assets as of March 28, 2020 and December 28, 2019 (in thousands, except for weighted average data):



	March 28, 2020
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Trade names	$	1,000	$	(1,000	)	$	—	NMF*
Customer relationships and backlog	153,216		(71,159		)	82,057		5.6
Developed technology	174,068		(100,769		)	73,299		3.5
Total intangible assets with finite lives	$	328,284	$	(172,928	)	$	155,356

*NMF = Not meaningful



	December 28, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Trade names	$	1,000	$	(1,000	)	$	—	NMF*
Customer relationships and backlog	155,942		(68,119		)	87,823		5.8
Developed technology	179,593		(97,070		)	82,523		3.5
Total intangible assets with finite lives	$	336,535	$	(166,189	)	$	170,346

*NMF = Not meaningful

The gross carrying amount of intangible assets and the related amortization expense of intangible assets may change due to the effects of foreign currency fluctuations as a portion of these assets are denominated in foreign currency. Amortization expense was $13.1 million for the three months ended March 28, 2020 and was $15.3 million for the three months ended March 30, 2019.

Intangible assets are carried at cost less accumulated amortization. Amortization expenses are recorded to the appropriate cost and expense categories.

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of March 28, 2020 (in thousands):



			Fiscal Years
	Total		Remainder of 2020		2021		2022		2023		2024		2025 and Thereafter
Total future amortization expense	$	155,356	$	33,596	$	34,904	$	32,417	$	26,662	$	11,983	$	15,794

Table of Contents

8. Balance Sheet Details

Restricted Cash

The Company’s restricted cash balance is held in deposit accounts at various banks globally. These amounts primarily collateralize the Company’s issuances of standby letters of credit and bank guarantees. The following table provides details of selected balance sheet items (in thousands):



	March 28, 2020			December 28, 2019
Inventory
Raw materials	$	49,992		$	47,474
Work in process	52,012			48,842
Finished goods	217,692			244,113
Total inventory	$	319,696		$	340,429
Property, plant and equipment, net
Computer hardware	$	33,179		$	36,086
Computer software⁽¹⁾	45,124			45,428
Laboratory and manufacturing equipment⁽²⁾	314,701			313,081
Land and building	12,349			12,349
Furniture and fixtures	3,218			2,845
Leasehold and building improvements⁽³⁾	52,568			52,263
Construction in progress	37,148			27,946
Subtotal	498,287			489,998
Less accumulated depreciation and amortization⁽⁴⁾	(349,472		)	(339,205		)
Total property, plant and equipment, net	$	148,815		$	150,793
Accrued expenses and other current liabilities
Loss contingency related to non-cancelable purchase commitments	$	25,860		$	24,812
Professional and other consulting fees	14,218			12,296
Taxes payable	76,589			65,815
Accrued rebate and customer prepay liability	711			4,390
Short-term operating lease liability	18,054			18,106
Short-term financing lease obligation	1,693			1,380
Restructuring accrual	24,262			26,076
Other accrued expenses and other current liabilities	25,281			40,293
Total accrued expenses	$	186,668		$	193,168


⁽¹⁾	Included in computer software at March 28, 2020 and December 28, 2019 were $23.5 million and $23.3 million, respectively, related to enterprise resource planning (“ERP”) systems that the Company implemented. The unamortized ERP costs at March 28, 2020 and December 28, 2019 were $10.8 million and $11.3 million, respectively.


⁽²⁾	Included in laboratory and manufacturing equipment at March 28, 2020 was $2 million related to an equipment finance lease entered by the Company for a term of three years with an option to purchase at the end of the three-year term. The finance lease was recorded at $2 million using a discount rate of 8.2% and was included in property, plant and equipment, net.


⁽³⁾	Included in leasehold improvements at March 28, 2020 was equipment finance lease entered by the Company for a term of five-years with an option to purchase at the end of five year term. The finance lease was recorded at $2.3 million using a discount rate of 5% and was included in property, plant and equipment, net.


⁽⁴⁾	Depreciation expense was $12.3 million, which includes depreciation of capitalized ERP cost of $0.7 million for the three months ended March 28, 2020.

Table of Contents

9. Restructuring and Related Costs

Price	5.60	EPS	-3
Shares	181	P/E	-2
MCap	1,011	P/FCF	-6
Net Debt	198	EBIT	-426
TEV	1,210	TEV/EBIT	-3
TTM 2019-09-28, in MM, except price, ratios

10-Q	2020-03-28	Filed 2020-05-15
10-K	2019-12-28	Filed 2020-03-04
10-Q	2019-09-28	Filed 2019-11-12
10-Q	2019-06-29	Filed 2019-08-08
10-Q	2019-03-30	Filed 2019-05-09
10-K	2018-12-29	Filed 2019-03-14
10-Q	2018-09-29	Filed 2018-11-08
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-10
10-K	2017-12-30	Filed 2018-02-28
10-Q	2017-09-30	Filed 2017-11-08
10-Q	2017-07-01	Filed 2017-08-08
10-Q	2017-04-01	Filed 2017-05-10
10-K	2016-12-31	Filed 2017-02-23
10-Q	2016-09-24	Filed 2016-11-01
10-Q	2016-06-25	Filed 2016-08-02
10-Q	2016-03-26	Filed 2016-05-04
10-K	2015-12-26	Filed 2016-02-23
10-Q	2015-09-26	Filed 2015-11-05
10-Q	2015-06-27	Filed 2015-07-31
10-Q	2015-03-28	Filed 2015-05-04
10-K	2014-12-27	Filed 2015-02-18
10-Q	2014-09-27	Filed 2014-10-29
10-Q	2014-06-28	Filed 2014-08-01
10-Q	2014-03-29	Filed 2014-04-30
10-K	2013-12-28	Filed 2014-02-21
10-Q	2013-09-28	Filed 2013-11-01
10-Q	2013-06-29	Filed 2013-08-05
10-Q	2013-03-30	Filed 2013-05-07
10-K	2012-12-29	Filed 2013-03-05
10-Q	2012-09-29	Filed 2012-11-06
10-Q	2012-06-30	Filed 2012-08-07
10-Q	2012-03-31	Filed 2012-05-07
10-K	2011-12-31	Filed 2012-03-06
10-Q	2011-09-24	Filed 2011-11-01
10-Q	2011-06-25	Filed 2011-08-02
10-Q	2011-03-26	Filed 2011-05-03
10-K	2010-12-25	Filed 2011-03-01
10-Q	2010-09-25	Filed 2010-11-02
10-Q	2010-06-26	Filed 2010-08-03
10-Q	2010-03-27	Filed 2010-05-05
10-K	2009-12-26	Filed 2010-03-01

8-K	2020-05-29
8-K	2020-05-21
8-K	2020-05-11
8-K	2020-04-30
8-K	2020-04-13
8-K	2020-03-04
8-K	2020-03-04
8-K	2020-02-25
8-K	2020-01-03
8-K	2019-12-23
8-K	2019-11-12
8-K	2019-11-05
8-K	2019-08-20
8-K	2019-08-07
8-K	2019-08-01
8-K	2019-08-01
8-K	2019-06-03
8-K	2019-05-23
8-K	2019-05-08
8-K	2019-03-04
8-K	2019-02-21
8-K	2019-01-24
8-K	2018-12-10
8-K	2018-11-06
8-K	2018-10-01
8-K	2018-09-06
8-K	2018-08-07
8-K	2018-07-23
8-K	2018-05-24
8-K	2018-05-09
8-K	2018-02-15
8-K	2018-02-07

EX-31.1	infn-03282020exhibit311.htm
EX-31.2	infn-03282020exhibit312.htm
EX-32.1	infn-03282020exhibit321.htm

INFN 10Q Quarterly Report

Infinera Earnings 2020-03-28