x
DWDM

IPO Alert: Infinera Files Its S-1

Infinera Corp. (Nasdaq: INFN) filed its S-1 with the Securities and Exchange Commission (SEC) today, and no, it's not profitable yet.

But the filing itself is a landmark for the Silicon Valley superstartup that intends to change the way DWDM networks are built.

Infinera's IPO has been anticipated for about a year, and strong signs of an S-1 filing were cropping up in January. (See Is Infinera Ready for an IPO?)

The company, now with 605 employees, has raised $315 million since its inception in 2000 as Zepton Networks. Its most recent round, a whopping $110 million, came in July. (See Infinera Raises Another $110M.)

But Infinera has only started to get meaningful revenues. Its true sales have rocketed -- to $58.7 million in 2006, according to the S-1 -- but $44.3 million of that came in the quarter ended Dec. 31. Revenues for 2005 totaled just $4.1 million.

As for the losses, they're hard to ignore: $89.1 million, or $14.55 per share, for calendar 2006, and another $215 million during the four previous years, according to the S-1.

Table 1: Infinera in the Red
    2002   2003   2004   2005   2006 
Revenues ($M) 0 0 0.6 4.1 58.7
Net loss ($M) (34.1) (50.2) (66.5) (64.6) (89.1)
Net loss per share ($17.05) ($16.10) ($15.30) ($13.76) ($14.55)
Cash & equivalents ($M) 50 54.2 40 37.1 29.6
Source: Infinera Corp.; figures as of Dec. 31 of each year




Despite a burst of customer wins recently, Infinera got 60 percent of its 2006 revenues from Level 3 Communications Inc. (NYSE: LVLT), a deal announced in May 2005. That situation should pass eventually; Infinera's S-1 says the company has scored 25 customer wins as of Feb. 15. (See Infinera Reaches Level 3, XO Selects Infinera, and Infinera Muscles Into Interoute.)

Details such as the number of shares to be offered, or the price, haven't been penciled in yet. For the purposes of calculating a registration fee, the company's paperwork lists its "maximum proposed aggregate offering price" of $150 million.

Goldman Sachs & Co. is Infinera's lead underwriter, joined by Citigroup , JPMorgan Partners , Lehman Brothers , and Thomas Weisel Partners .

Aside from the numbers, the S-1 reveals a bit of Sarbanes-Oxley trouble, in the form of a "material weakness" in the way Infinera valued its inventory. The S-1 says the weakness has been corrected. Separately, and perhaps unrelated, Infinera swapped out its CFO in June, around the time it was presumed to be planning an IPO. (See Infinera's CFO Quits.)

Another interesting tidbit: The S-1 says Infinera got sued last year by Cheetah Omni LLC of Ann Arbor, Mich., over two patents -- Nos. 6,795,605 ("Micromechanical Optical Switch") and 7,142,347 ("Method and system for processing photonic systems using semiconductor devices").

Both patents are credited to Mohammed Islam, a professor at the University of Michigan whose research group has spun out startups including Xtera Communications Inc. (Nasdaq: XCOM)

Infinera's largest shareholders are Advanced Equities Inc. and Kleiner Perkins Caufield & Byers , the S-1 says. Each holds roughly 6.4 million shares, for a 9.3 percent stake. Mobius Venture Capital and RWI Ventures , respectively holding 7.8 and 5 percent, are the next largest shareholders.

The largest employee/director shareholder is chairman and CEO Jagdeep Singh, with 3.2 million shares, or 4.5 percent.

— Craig Matsumoto, West Coast Editor, Light Reading

<<   <   Page 2 / 9   >   >>
deauxfaux 12/5/2012 | 3:13:50 PM
re: IPO Alert: Infinera Files Its S-1 Venture financed companies almost never take down financing rounds smaller than 1 year's worth of runway and by the looks of Infinera's financials, a year of runway would cost their existing syndicate $75-100M. The balance sheet clearly shows that they must take down a big chunk of cash within 90 days or so, and I can't imagine that the venture syndicate could stomach the price that a lead investment syndicate would offer.

Think about it....in addition to the minimum size check size ($30M?) there would be a huge stack of liquidation preferences to deal with along with along with a god-only-knows-what-else in preferred to common share conversion before anyone makes a nickel.

Given these issues, and the fact that the financials are not strong enough to support a "normal" IPO makes the situation smack of desperation.

....but that doesn't mean that Goldman won't be able to pawn it off on weak minded PMs
trict 12/5/2012 | 3:13:49 PM
re: IPO Alert: Infinera Files Its S-1 Is the concensus that this IPO will fall flat on it's face. Should Infinera just close the doors now?
Again I am not and expert but I think they booked 130 million in sales in 2006. L3 accounts for the bulk of the revenue BECAUSE they were the 1st to take delievery (re read light reading customer wins) and that is more then a year out thus it is counted as revenue. 2007 bet you a buck will be huge. 200M or more. Or I could be wrong but it will be fun to see what happens.
litereading 12/5/2012 | 3:13:48 PM
re: IPO Alert: Infinera Files Its S-1 Over two years INFN sold $173M (63M recognized + 110M deferred) on CoS of $166M (99M recongized + 67 deferred) making it 4%GM. They sold product essentially at cost. Doubtful they can increase prices, so they need to fill existing slots with higher margin line cards + reduce cost.

2H '06 ship rate was $107M. Assuming this is 1H '07 rate, they are spending 18% on R&D and 15% on SG&A - both respectable... 33%GM to break-even? Well, they got that ugly debt coming due...

But they burned $67M in cash last year; have $29M in cash & equivs, $33M in AR.... any wonder why an IPO?

Can INFN grow at the sake of competitors, rapidly reduce mfg cost, maintain SGA & R&D rates, and get enough cash from an IPO to reach profitability in 2-3 years?

whyiswhy 12/5/2012 | 3:13:48 PM
re: IPO Alert: Infinera Files Its S-1 Trict:

Growth rate of what, their burn?

Used to be the formula for getting more money (up rounds, IPO, etc) was to burn even faster and hotter. Just give away product, take back a purchase order, sprinkle liberally with options. All sides leveraged the IPO because even the crappiest spreadsheet crossed over at some point...and everyone "knew" the market for anything fiber optical was going to infinity!

That business plan-style ended in 2002, but some people took a long time to wake up to the fact: the greater fools.

At this point the ethical thing for the Infinera BOD to do would be to shut the place down, pay off their employees accrued vacation time, pay off their vendors, and give the remaining money (if any) back to the investors, to turn over to their limiteds.

Or they (the BOD consisting of the founders and the VCs) could throw it all down and file for an IPO...afterall, Barnum was and still is right.

-Why
leftbehind 12/5/2012 | 3:13:48 PM
re: IPO Alert: Infinera Files Its S-1 this analysis is exactly right, no choice but to IPO because cash is running out. Margins are difficult, but improved margins with no growth do not justify an IPO. There is simply not enough growth in the space to sustain the offering price against larger competitors with weaker technology.
To invest in this offering you have to beleive they can break out of their current run rate/product offering and generate some growth - you cannot rely on margin improvement alone with the numbers presented in the S1.
erbium210 12/5/2012 | 3:13:47 PM
re: IPO Alert: Infinera Files Its S-1 I don't really see the need for this company to shut it's doors and call it quits. Per the S1, the company went from $0 to $150 mil in annual revenue within 2 years. I see strong growth from a young company within a sector that was nearly desimated a few years back. There is much value in their InP technology. Companies are investing heavily in R&D to develop silicon based photonics. I wonder what value Intel would place on a working photonics circuit for optical BUS technology? $1 Bil in R&D savings??
fiber_r_us 12/5/2012 | 3:13:47 PM
re: IPO Alert: Infinera Files Its S-1 Ultimately, Infinera will have a difficult time improving margins. Other major vendors have continuesd to improve their products over the years. Other vendor's gear is actually cheaper to build. At least one major vendor's newer systems eliminate dispersion compensation and simplify the optical line system dramatically, while maintainting 2000km unregenerated reaches. No amount of InP integration at terminals and regenerators will make as much cost difference as that.

For new bids, when Infinera tries to improve its margins above negative, other vendors will simply become the "low price leader" while maintaining postive margins. The other vendors will not let Infinera significantly improve their margins.

In existing installs, the price of all of the upgrades (new cards) to any installed system has already been negotiated at some really low (or negative) margin. So, even if Level(3) and the few others were to "max-out" their systems, it wouldn't be enough revenue/margin to save Infinera. Infinera had better raise a lot more than $150M in the IPO if they wish to stick around more than 2 more years.
litereading 12/5/2012 | 3:13:47 PM
re: IPO Alert: Infinera Files Its S-1 Their technology obviously works quite well or Level (3) wouldn't keep buying they product. INFN has proven they can grab market share by selling initial systems at or below cost. No magic so far. The question is can they become cash positive before their money runs out. They need the IPO to generate cash.
whyiswhy 12/5/2012 | 3:13:46 PM
re: IPO Alert: Infinera Files Its S-1 Trict:

Q: "What does the market cap figure come out to for the 150 million they are looking for?"

A: What do you think it should be for a company that can only take market share by continuuing to sell below margin, meaning they will NEVER break even?

I'd say $149 million at most.

I wish all the worker bees nothing but the best, the rest deserve to eat the fruits of their garden.

-Why
trict 12/5/2012 | 3:13:46 PM
re: IPO Alert: Infinera Files Its S-1 What does the market cap figure come out to for the 150 million they are looking for?
<<   <   Page 2 / 9   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE