Infinera Revenues, Losses Widen
The company reported net losses of $26.1 million, or $1.10 per share, on revenues of $58.4 million in the second quarter. That compares with losses of $19.8 million, or $2.62 per share, on revenues of $49.2 million the previous quarter. (See Infinera Reports Q2.)
For its second quarter in 2006, Infinera incurred losses of $18.2 million, or $3.23 per share, on revenues of $4.1 million, according to its SEC filings.
On a pro forma basis, Infinera beat analysts' expectations. It reported a pro forma profit of 4 cents a share. Analysts were expecting a pro forma loss of 11 cents per share, according to Reuters Research .
"Invoiced shipments," which Infinera describes as the revenues it really collected during the quarter, were $69 million, outpacing analysts' expectations of $61.4 million. The trick is that Infinera spreads the revenues of each sale across multiple quarters. So its GAAP revenue number will usually be lower than its "invoiced shipments" -- and that gives analysts an idea of what's to come in the months ahead.
Alongside its earnings, Infinera reported a contract with Cox Communications Inc. to build a nationwide transport network. That's a job separate from some metro DWDM work Infinera said it had previously won with Cox. (See Cox Picks Infinera.)
But despite having grabbed Cox along with some 30 other customers, Infinera so far has taken in the most money from Level 3 Communications Inc. (NYSE: LVLT), one of its investors. And its invoiced shipments, while steady, haven't yet grown past the $70.5 million reported in the fourth quarter of 2006.
For its third quarter, which ends in September, Infinera says it expects invoiced shipments of $68 million to $72 million. Analysts were expecting $64.1 million.
That quarter will include some new deployments, Infinera expects, some of which might not get invoiced until the fourth quarter. Included in the deployment mix will be some metro wins for the 19-inch chassis that Infinera announced in June. (See Infinera Spews News.) All told, Infinera thinks it will report a per share loss of between 0 and 2 cents.
Shares of Infinera rose $1.20 (5.3%) to $24.00 in early after-hours trading.
— Craig Matsumoto, West Coast Editor, Light Reading
I'm not an accounting expert, so take this with a pinch of salt (and a dash of pepper too if you like) :-)
GAAP regulations have tightened up since Enron and Worldcom. Auditors are getting pretty finicky about what really counts as revenue, and the gap (pun intedned) between GAAP and pro forma has increased.
In the case of a product shipment, you need to ship the product, invoice the customer, and get paid by that customer before you can recognise revenue.
HOWEVER. If the product has a warranty associated with it, then you need to be able to provide some kind of evidence that the thing isn't going to break down, and the customer just throws it back at you, demanding their money back.
Most hardware warranties are pretty short. Anything from 90 days to a year. From the presentation that Infinera gave to my company back in March it seems they've been shipping product since 2004, and so they have good evidence (VSOE) that the boxes don't catch fire or explode within the hardware warranty period.
But I think the catch with Infinera is that some of their warranties apply to the system software, and for some reason these are much longer - somebody mentioned 5 years (this is REALLY unusual by the way)?
Infinera does not have VSOE established for a 5 year warranty, and because it's system software it means that the customer could potentially throw the whole thing (hardware AND software) back if they prove there is a fault in the software.
So Infinera is only allowsd to report some percentage of the money they have received from customers as GAAP revenue.
OK, so the Wikipedia article you quoted implies that pro forma revenues have been overly optimistic in the past. I think that's a fair judgement. Historically, software companies sold at very high margins and through a long value chain (ie. through distributors, retailers, etc.). And software goes out of date real quick - look how cheap you can buy Windows XP these days.
The supply chain partners are allowed to claim back some of the revenue they give to the manufacturer in these cases (under stock rotation agreements). But the manufacturer may have already declared this revenue. You see the problem?
I guess what you have to ask is how likely it is that this would happen to a company like Infinera? My guess is zero. All the folks I know who are using this gear absolutely love it.
hR.