UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

					

FORM 8-K

					
 	 	 	 	 	
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 7, 2018

	

INFINERA CORPORATION
(Exact name of registrant as specified in its charter)

					

	

Delaware	 	001-33486	 	77-0560433	
(State or other jurisdiction of
incorporation)	 	(Commission
File Number)	 	(I.R.S. Employer
Identification No.)	

					
 	140 Caspian Court	 	 	 	
 	Sunnyvale, CA	 	94089	 	
 	(Address of principal executive offices)	 	(Zip Code)	 	
(408) 572-5200
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)

					
 	 	 	 	 	
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

		
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

		
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	

		
¨	Pre-commencement communication pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	

		
¨	Pre-commencement communication pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨

	
		
Item 2.02	Results of Operations and Financial Condition.	
On February 7, 2018, Infinera Corporation (the “Company”) issued a press release announcing financial results for its fourth quarter and fiscal year ended December 30, 2017. The Company also posted on the Investor Relations section of its website (www.infinera.com) a CFO Commentary with respect to the quarter and fiscal year ended December 30, 2017. Copies of the press release and CFO Commentary are furnished as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K. Information on the Company’s website is not, and will not be deemed, a part of this report or incorporated into any other filings the Company makes with the Securities and Exchange Commission.
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, are being furnished under Item 2.02 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such a filing.
The press release and CFO Commentary furnished herewith as Exhibit 99.1 and Exhibit 99.2, respectively, refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is contained in each exhibit.

	
		
Item 9.01	Financial Statements and Exhibits.	
(d)	Exhibits.	

	
			
Exhibit No.	  	Description	
 	 	
99.1	  	Press release dated February 7, 2018.	
99.2	 	CFO Commentary dated February 7, 2018.	

	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	

 	 	 	 	INFINERA CORPORATION	
 	 	 	
Date: February 7, 2018	 	By:	 	/s/ BRAD D. FELLER	
 	 	 	 	Brad D. Feller
Chief Financial Officer	

Exhibit 99.1

Infinera Corporation Reports Fourth Quarter and Fiscal Year 2017 Financial Results

Sunnyvale, Calif., February 7, 2018 - Infinera Corporation, provider of Intelligent Transport Networks, today released financial results for its fourth quarter and fiscal year ended December 30, 2017.

GAAP revenue for the quarter was $195.8 million compared to $192.6 million in the third quarter of 2017 and $181.0 million in the fourth quarter of 2016.

GAAP gross margin for the quarter was 24.1% compared to 35.2% in the third quarter of 2017 and 38.1% in the fourth quarter of 2016. GAAP operating margin for the quarter was (36.0)% compared to (17.8)% in the third quarter of 2017 and (25.3)% in the fourth quarter of 2016.

GAAP net loss for the quarter was $(74.0) million, or $(0.50) per share, compared to $(37.2) million, or $(0.25) per share, in the third quarter of 2017 and $(36.3) million, or $(0.25) per share, in the fourth quarter of 2016.

Non-GAAP gross margin for the quarter was 37.5% compared to 39.1% in the third quarter of 2017 and 41.8% in the fourth quarter of 2016. Non-GAAP operating margin for the quarter was (9.3)% compared to (7.8)% in the third quarter of 2017 and (9.2)% in the fourth quarter of 2016.

Non-GAAP net loss for the quarter was $(18.6) million, or $(0.12) per share, compared to $(17.0) million, or $(0.11) per share, in the third quarter of 2017, and $(17.0) million, or $(0.12) per share, in the fourth quarter of 2016.

GAAP gross margin for the year was 32.9% compared to 45.2% in 2016. GAAP operating margin for the year was (24.7)% compared to (3.0)% in 2016. GAAP net loss for the year was $(194.5) million , or $(1.32) per share, compared to $(23.9) million, or $(0.17) per share, in 2016.

Non-GAAP gross margin for the year was 39.3% compared to 48.3% in 2016. Non-GAAP operating margin for the year was (10.1)% compared to 6.2% in 2016. Non-GAAP net loss for the year was $(80.0) million, or $(0.54) per share, compared to net income of $49.4 million, or $0.34 per diluted share, in 2016.

A further explanation of the use of non-GAAP financial information and a reconciliation of the non-GAAP financial measures to the GAAP equivalents can be found at the end of this release.
    
“In Q4 we made some difficult but necessary decisions to reposition the company for crisper execution and increased focus on our go to market strategy,” said Tom Fallon, Infinera’s Chief Executive Officer. “With our full product refresh nearing completion, positive sales momentum ending the year, and a significant pipeline of opportunities, we enter 2018 with confidence that our recent positive revenue trajectory will continue.”

Fourth Quarter 2017 Financial Commentary Available Online
A CFO Commentary reviewing the Company's fourth quarter of 2017 financial results will be furnished to the SEC on Form 8-K and published on Infinera's Investor Relations website at investors.infinera.com. Analysts and investors are encouraged to review this commentary prior to participating in the conference call webcast.

Conference Call Information
Infinera will host a conference call for analysts and investors to discuss its fourth quarter and fiscal year 2017 results and its outlook for the first quarter of 2018 today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Interested parties may join the conference call by dialing 1-866-373-6878 (toll free) or 1-412-317-5101 (international). A live webcast of the conference call will also be accessible from the Events & Webcasts 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 Vue	  	Investors:
Jeff Hustis	
Tel. +1 (916) 595-8157	 	Tel. +1 (408) 213-7150	
avue@infinera.com	  	jhustis@infinera.com	

About Infinera
Infinera provides Intelligent Transport Networks, enabling carriers, cloud operators, governments and enterprises to scale network bandwidth, accelerate service innovation and automate optical network operations. Infinera’s end-to-end packet-optical portfolio is designed for long-haul, subsea, data center interconnect and metro applications. Infinera’s unique large scale photonic integrated circuits enable innovative optical networking solutions for the most demanding networks. To learn more about Infinera visit www.infinera.com, follow us on Twitter @Infinera and read our latest blog posts at www.infinera.com/blog.
Forward-Looking Statements
This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. Such forward-looking statements include, without limitation, Infinera’s ability to execute and deliver on its got to market strategy; and Infinera’s ability to continue to grow revenue. Forward-looking statements can also be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. These statements are based on information available to Infinera as of the date hereof and 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, delays in the development and introduction of new products or updates to existing products and market acceptance of these products; the effects of increased customer consolidation; fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures, as well as the timing of purchases by Infinera's key customers; the effect that changes in product pricing or mix, and/or increases in component costs could have on Infinera’s gross margin; Infinera’s ability to respond to rapid technological changes; aggressive business tactics by Infinera’s competitors; Infinera's ability to adequately respond to demand as a result of the restructuring plan; Infinera's reliance on single and limited source suppliers; Infinera’s ability to protect Infinera’s intellectual property; claims by others that Infinera infringes their intellectual property; the effect of global macroeconomic conditions on Infinera's business; war, terrorism, public health issues, natural disasters and other circumstances that could disrupt the supply, delivery or demand of Infinera's products; 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 its Quarterly Report on Form 10-Q for the quarter ended on September 30, 2017 as filed with the SEC on November 8, 2017, 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 measures that exclude restructuring and other costs, gain on the sale and impairment of cost-method investments, non-cash stock-based compensation expenses, amortization of debt discount on Infinera’s convertible senior notes, amortization and impairment of acquired intangible assets, acquisition-related costs, and certain purchase accounting adjustments related to Infinera's acquisition of Transmode AB, which closed during the third quarter of 2015, along with related tax effects. 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, these results 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 net income (loss), basic and diluted net income (loss) per share, gross margin or operating 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 and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, “GAAP to Non-GAAP Reconciliations.” Infinera anticipates

disclosing forward-looking non-GAAP information in its conference call to discuss its fourth quarter and fiscal year 2017 results, including an estimate of certain non-GAAP financial measures for the first quarter of 2018 that excludes restructuring and related costs, non-cash stock-based compensation expenses, amortization of acquired intangible assets and related tax effects, and amortization of debt discount on Infinera’s convertible senior notes.

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

Infinera 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	 	Twelve Months Ended	
 	 	December 30, 2017	 	December 31, 2016	 	December 30, 2017	 	December 31, 2016	
Revenue:	 	 	 	 	 	 	 	 	
Product	 	$	160,543		 	$	151,365		 	$	610,535		 	$	751,167		
Services	 	35,273		 	29,678		 	130,204		 	118,968		
Total revenue	 	195,816		 	181,043		 	740,739		 	870,135		
Cost of revenue:	 	 	 	 	 	 	 	 	
Cost of product	 	115,681		 	101,702		 	427,118		 	433,266		
Cost of services	 	13,708		 	10,309		 	50,480		 	43,151		
Restructuring and other costs	 	19,141		 	—		 	19,141		 	—		
Total cost of revenue	 	148,530		 	112,011		 	496,739		 	476,417		
Gross profit	 	47,286		 	69,032		 	244,000		 	393,718		
Operating expenses:	 	 	 	 	 	 	 	 	
Research and development	 	55,223		 	67,750		 	224,299		 	232,291		
Sales and marketing	 	29,395		 	30,424		 	116,057		 	118,858		
General and administrative	 	17,069		 	16,726		 	70,625		 	68,343		
Restructuring and other costs	 	16,106		 	—		 	16,106		 	—		
Total operating expenses	 	117,793		 	114,900		 	427,087		 	419,492		
Loss from operations	 	(70,507	)	 	(45,868	)	 	(183,087	)	 	(25,774	)	
Other income (expense), net:	 	 	 	 	 	 	 	 	
Interest income	 	858		 	714		 	3,328		 	2,478		
Interest expense	 	(3,609	)	 	(3,243	)	 	(14,017	)	 	(12,887	)	
Other gain (loss), net:	 	(1,698	)	 	8,118		 	(2,160	)	 	7,002		
Total other income (expense), net	 	(4,449	)	 	5,589		 	(12,849	)	 	(3,407	)	
Loss before income taxes	 	(74,956	)	 	(40,279	)	 	(195,936	)	 	(29,181	)	
Benefit from income taxes	 	(971	)	 	(4,026	)	 	(1,430	)	 	(4,751	)	
Net loss	 	(73,985	)	 	(36,253	)	 	(194,506	)	 	(24,430	)	
Less: Net loss attributable to noncontrolling interest	 	—		 	—		 	—		 	(503	)	
Net loss attributable to Infinera Corporation	 	$	(73,985	)	 	$	(36,253	)	 	$	(194,506	)	 	$	(23,927	)	
Net loss per common share attributable to Infinera Corporation:	 	 	 	 	 	 	 	 	
Basic	 	$	(0.50	)	 	$	(0.25	)	 	$	(1.32	)	 	$	(0.17	)	
Diluted	 	$	(0.50	)	 	$	(0.25	)	 	$	(1.32	)	 	$	(0.17	)	
Weighted average shares used in computing net loss per common share:	 	 	 	 	 	 	 	 	
Basic	 	149,412		 	144,770		 	147,878		 	142,989		
Diluted	 	149,412		 	144,770		 	147,878		 	142,989		

Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited)  

																																			
 	Three Months Ended	 	Twelve Months Ended	
 	December 30, 2017	 	 	 	September 30, 2017	 	 	 	December 31, 2016	 	 	 	December 30, 2017	 	 	 	December 31, 2016	 	 	
Reconciliation of Gross Profit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	47,286		 	24.1	 %	 	$	67,826		 	35.2	 %	 	$	69,032		 	38.1	 %	 	$	244,000		 	32.9	 %	 	$	393,718		 	45.2	 %	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	1,846		 	 	 	2,063		 	 	 	1,849		 	 	 	7,811		 	 	 	6,463		 	 	
Amortization of acquired intangible assets (3)	5,169		 	 	 	5,390		 	 	 	4,745		 	 	 	20,474		 	 	 	19,715		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	27		 	 	 	46		 	 	 	144		 	 	
Restructuring and other costs (5)	19,141		 	 	 	—		 	 	 	—		 	 	 	19,141		 	 	 	—		 	 	
Non-GAAP as adjusted	$	73,442		 	37.5	 %	 	$	75,279		 	39.1	 %	 	$	75,653		 	41.8	 %	 	$	291,472		 	39.3	 %	 	$	420,440		 	48.3	 %	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Operating Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	117,793		 	 	 	$	102,074		 	 	 	$	114,900		 	 	 	$	427,087		 	 	 	$	419,492		 	 	
Stock-based compensation (2)	8,450		 	 	 	10,104		 	 	 	9,493		 	 	 	37,909		 	 	 	34,070		 	 	
Amortization of acquired intangible assets (3)	1,555		 	 	 	1,622		 	 	 	1,436		 	 	 	6,160		 	 	 	6,189		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	416		 	 	 	322		 	 	 	1,869		 	 	
Restructuring and other costs (5)	16,106		 	 	 	—		 	 	 	—		 	 	 	16,106		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Non-GAAP as adjusted	$	91,682		 	 	 	$	90,348		 	 	 	$	92,260		 	 	 	$	366,338		 	 	 	$	366,069		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Income (Loss) from Operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(70,507	)	 	(36.0	)%	 	$	(34,248	)	 	(17.8	)%	 	$	(45,868	)	 	(25.3	)%	 	$	(183,087	)	 	(24.7	)%	 	$	(25,774	)	 	(3.0	)%	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	10,296		 	 	 	12,167		 	 	 	11,342		 	 	 	45,720		 	 	 	40,533		 	 	
Amortization of acquired intangible assets (3)	6,724		 	 	 	7,012		 	 	 	6,181		 	 	 	26,634		 	 	 	25,904		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	443		 	 	 	368		 	 	 	2,013		 	 	
Restructuring and other costs (5)	35,247		 	 	 	—		 	 	 	—		 	 	 	35,247		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Non-GAAP as adjusted	$	(18,240	)	 	(9.3	)%	 	$	(15,069	)	 	(7.8	)%	 	$	(16,607	)	 	(9.2	)%	 	$	(74,866	)	 	(10.1	)%	 	$	54,371		 	6.2	 %	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Net Income (Loss) Attributable to Infinera Corporation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(73,985	)	 	 	 	$	(37,231	)	 	 	 	$	(36,253	)	 	 	 	$	(194,506	)	 	 	 	$	(23,927	)	 	 	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	10,296		 	 	 	12,167		 	 	 	11,342		 	 	 	45,720		 	 	 	40,533		 	 	
Amortization of acquired intangible assets (3)	6,724		 	 	 	7,012		 	 	 	6,181		 	 	 	26,634		 	 	 	25,904		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	818		 	 	 	257		 	 	 	3,081		 	 	
Restructuring and other costs (5)	35,247		 	 	 	—		 	 	 	—		 	 	 	35,247		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Amortization of debt discount (7)	2,710		 	 	 	2,643		 	 	 	2,451		 	 	 	10,444		 	 	 	9,447		 	 	
Gain on sale of cost-method investment (8)	—		 	 	 	—		 	 	 	(8,983	)	 	 	 	—		 	 	 	(8,983	)	 	 	

	
																																			
 	Three Months Ended	 	Twelve Months Ended	
 	December 30, 2017	 	 	 	September 30, 2017	 	 	 	December 31, 2016	 	 	 	December 30, 2017	 	 	 	December 31, 2016	 	 	
Impairment of cost-method investment (9)	1,890		 	 	 	—		 	 	 	—		 	 	 	1,890		 	 	 	—		 	 	
Income tax effects (10)	(1,479	)	 	 	 	(1,543	)	 	 	 	(3,829	)	 	 	 	(5,946	)	 	 	 	(8,360	)	 	 	
Non-GAAP as adjusted	$	(18,597	)	 	 	 	$	(16,952	)	 	 	 	$	(16,978	)	 	 	 	$	(80,008	)	 	 	 	$	49,390		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(0.50	)	 	 	 	$	(0.25	)	 	 	 	$	(0.25	)	 	 	 	$	(1.32	)	 	 	 	$	(0.17	)	 	 	
Non-GAAP as adjusted	$	(0.12	)	 	 	 	$	(0.11	)	 	 	 	$	(0.12	)	 	 	 	$	(0.54	)	 	 	 	$	0.35		 	 	
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(0.50	)	 	 	 	$	(0.25	)	 	 	 	$	(0.25	)	 	 	 	$	(1.32	)	 	 	 	$	(0.17	)	 	 	
Non-GAAP as adjusted	$	(0.12	)	 	 	 	$	(0.11	)	 	 	 	$	(0.12	)	 	 	 	$	(0.54	)	 	 	 	$	0.34		 	 	
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	149,412		 	 	 	148,777		 	 	 	144,770		 	 	 	147,878		 	 	 	142,989		 	 	
Diluted	149,412		 	 	 	148,777		 	 	 	144,770		 	 	 	147,878		 	 	 	145,800		 	 	
_____________________________

(1)  	Business combination accounting principles require Infinera to write down to fair value its maintenance support contracts assumed in the Transmode acquisition. The revenue for these support contracts is deferred and typically recognized over a one-year period, so Infinera's GAAP revenue for the one-year period after the acquisition will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustment eliminates the effect of the deferred revenue write-down. Management believes these adjustments to the revenue from these support contracts are useful to investors as an additional means to reflect revenue trends of Infinera's business.	
		
(2)  	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. The following table summarizes the effects of non-cash stock-based compensation related to employees and non-employees (in thousands):	

																					
 	 	Three Months Ended	 	Twelve Months Ended	
 	 	December 30, 2017	 	September 30, 2017	 	December 31, 2016	 	December 30, 2017	 	December 31, 2016	
Cost of revenue	 	$	728		 	$	779		 	$	791		 	$	3,065		 	$	2,966		
Research and development	 	3,841		 	4,040		 	4,011		 	15,845		 	13,732		
Sales and marketing	 	2,264		 	3,025		 	3,037		 	11,288		 	11,043		
General and administration	 	2,345		 	3,039		 	2,445		 	10,776		 	9,295		
 	 	9,178		 	10,883		 	10,284		 	40,974		 	37,036		
Cost of revenue - amortization from balance sheet*	 	1,118		 	1,284		 	1,058		 	4,746		 	3,497		
Total stock-based compensation expense	 	$	10,296		 	$	12,167		 	$	11,342		 	$	45,720		 	$	40,533		
  _____________________________
		
*	Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.	
		
(3)  	Amortization of acquisition-related intangible assets consists of amortization of developed technology, trade names, and customer relationships acquired in connection with the Transmode acquisition. U.S. 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 operating expenses, gross margin 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.
		
(4)  	Acquisition-related costs associated with the Transmode acquisition include legal, financial, employee retention costs and other professional fees incurred in connection with the transaction, including squeeze-out proceedings. These amounts have been adjusted in arriving at Infinera's non-GAAP results because management believes that these expenses are non-recurring, not indicative of ongoing operating performance and their exclusion provides a better indication of Infinera's underlying business performance.	
		
(5)  	Restructuring and other costs are related to Infinera's plan to restructure its worldwide operations, which was announced during the fourth quarter of 2017. These costs consist of $13.6 million of inventory write-downs as a result of Infinera's product rationalization efforts, $9.4 million of severance and related costs, $7.3 million of facilities-related costs and $4.9 million of manufacturing and test asset impairments. 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.	
		
(6)  	Intangible asset impairments are associated with previously acquired intangibles and acquired in-process research and development (“IPR&D”). The impairment of previously acquired intangibles was the result of management determining that the carrying value will not be recoverable. Acquired IPR&D impairment is associated with intangibles acquired with the Transmode acquisition, which Infinera does not anticipate utilizing in future products. Management has excluded the impact of these charges in arriving at Infinera's non-GAAP results because it is non-recurring and management believes that these expenses are not indicative of ongoing operating performance.	
		
(7)  	Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, Infinera is required to amortize as debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on its $150 million in aggregate principal amount of 1.75% convertible debt issuance in May 2013 over the term of the notes. Interest expense has been excluded from Infinera's non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of Infinera's underlying business performance.	
		
(8)  	The gain on sale of a cost-method investment has been excluded in arriving at Infinera's non-GAAP results because it is non-recurring and management believes that this gain is not indicative of ongoing operating performance.	
		
(9)  	The impairment of cost-method investment has been excluded in arriving at Infinera's non-GAAP results because it is non-recurring and management believes that this non-cash expense is not indicative of ongoing operating performance.	
		
(10)  	The difference between the GAAP and non-GAAP tax is due to the net tax effects of the purchase accounting adjustments, acquisition-related costs, amortization of acquired intangible assets and the IPR&D impairment related to the Transmode acquisition.	

Infinera Corporation
Condensed Consolidated Balance Sheets
(In thousands, except par values)
(Unaudited)

									
 	 	December 30, 2017	 	December 31, 2016	
ASSETS	 	 	 	 	
Current assets:	 	 	 	 	
Cash and cash equivalents	 	$	116,345		 	$	162,641		
Short-term investments	 	147,596		 	141,697		
Short-term restricted cash	 	544		 	8,490		
Accounts receivable, net of allowance for doubtful accounts of $892 in 2017 and $772 in 2016	 	126,152		 	150,370		
Inventory	 	214,704		 	232,955		
Prepaid expenses and other current assets	 	42,596		 	34,270		
Total current assets	 	647,937		 	730,423		
Property, plant and equipment, net	 	135,942		 	124,800		
Intangible assets	 	92,188		 	108,475		
Goodwill	 	195,615		 	176,760		
Long-term investments	 	31,019		 	40,779		
Cost-method investment	 	5,110		 	7,000		
Long-term restricted cash	 	4,597		 	6,449		
Other non-current assets	 	5,262		 	3,897		
Total assets	 	$	1,117,670		 	$	1,198,583		
LIABILITIES AND STOCKHOLDERS’ EQUITY	 	 	 	 	
Current liabilities:	 	 	 	 	
Accounts payable	 	$	58,124		 	$	62,486		
Accrued expenses	 	39,782		 	31,580		
Accrued compensation and related benefits	 	45,751		 	46,637		
Short-term debt, net	 	144,928		 	—		
Accrued warranty	 	13,670		 	16,930		
Deferred revenue	 	72,421		 	58,900		
Total current liabilities	 	374,676		 	216,533		
Long-term debt, net	 	—		 	133,586		
Accrued warranty, non-current	 	17,239		 	23,412		
Deferred revenue, non-current	 	22,502		 	19,362		
Deferred tax liability	 	21,609		 	25,327		
Other long-term liabilities	 	16,279		 	18,035		
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 December 30, 2017 and December 31, 2016	 	 	 	 	
Issued and outstanding shares - 149,471 as of December 30, 2017 and 145,021 as of December 31, 2016	 	149		 	145		
Additional paid-in capital	 	1,417,043		 	1,354,082		
Accumulated other comprehensive income (loss)	 	6,254		 	(28,324	)	
Accumulated deficit	 	(758,081	)	 	(563,575	)	
Total stockholders’ equity	 	665,365		 	762,328		
Total liabilities and stockholders’ equity	 	$	1,117,670		 	$	1,198,583		

Infinera Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

									
 	 	Twelve Months Ended	
 	 	December 30, 2017	 	December 31, 2016	
Cash Flows from Operating Activities:	 	 	 	 	
Net loss	 	$	(194,506	)	 	$	(24,430	)	
Adjustments to reconcile net loss to net cash provided by operating activities:	 	 	 	 	
Depreciation and amortization	 	65,997		 	61,489		
Non-cash restructuring and other costs	 	29,237		 	—		
Amortization of debt discount and issuance costs	 	11,342		 	10,260		
Amortization of premium on investments	 	463		 	1,069		
Impairment of acquired in-process research and development	 	252		 	11,295		
Realized gain on sale of cost-method investment	 	—		 	(8,983	)	
Impairment of cost-method investment	 	1,890		 	—		
Stock-based compensation expense	 	45,720		 	40,533		
Other loss	 	40		 	672		
Changes in assets and liabilities:	 	 	 	 	
Accounts receivable	 	25,849		 	33,895		
Inventory	 	2,727		 	(64,095	)	
Prepaid expenses and other assets	 	(8,194	)	 	(5,501	)	
Accounts payable	 	(4,763	)	 	(28,254	)	
Accrued liabilities and other expenses	 	(14,395	)	 	(11,012	)	
Deferred revenue	 	16,416		 	21,439		
Net cash provided by (used in) operating activities	 	(21,925	)	 	38,377		
Cash Flows from Investing Activities:	 	 	 	 	
Purchase of available-for-sale investments	 	(160,215	)	 	(124,077	)	
Proceeds from sales of available-for-sale investments	 	10,531		 	—		
Proceeds from maturities and calls of investments	 	152,876		 	142,898		
Purchase of cost-method investment	 	—		 	(7,000	)	
Proceeds from sale of cost-method investment	 	—		 	23,483		
Purchase of property and equipment	 	(58,041	)	 	(43,335	)	
Change in restricted cash	 	4,296		 	(4,084	)	
Net cash used in investing activities	 	(50,553	)	 	(12,115	)	
Cash Flows from Financing Activities:	 	 	 	 	
Security pledge to acquire noncontrolling interest	 	5,596		 	(6,086	)	
Acquisition of noncontrolling interest	 	(471	)	 	(16,771	)	
Proceeds from issuance of common stock	 	17,991		 	17,648		
Minimum tax withholding paid on behalf of employees for net share settlement	 	(1,034	)	 	(3,657	)	
Net cash provided by (used in) financing activities	 	22,082		 	(8,866	)	
Effect of exchange rate changes on cash	 	4,100		 	(3,856	)	
Net change in cash and cash equivalents	 	(46,296	)	 	13,540		
Cash and cash equivalents at beginning of period	 	162,641		 	149,101		
Cash and cash equivalents at end of period	 	$	116,345		 	$	162,641		
Supplemental disclosures of cash flow information:	 	 	 	 	
Cash paid for income taxes, net of refunds	 	$	5,690		 	$	6,625		
Cash paid for interest	 	$	2,639		 	$	2,776		
Supplemental schedule of non-cash investing activities:	 	 	 	 	
Transfer of inventory to fixed assets	 	$	4,950		 	$	5,597		

Infinera Corporation
Supplemental Financial Information
(Unaudited)

																																	
 	 	Q1'16	 	Q2'16	 	Q3'16	 	Q4'16	 	Q1'17	 	Q2'17	 	Q3'17	 	Q4'17	
GAAP Revenue ($ Mil)	 		$244.8		 		$258.8		 		$185.5		 		$181.0		 		$175.5		 		$176.8		 		$192.6		 		$195.8		
GAAP Gross Margin %	 	47.5	%	 	47.8	%	 	45.6	%	 	38.1	%	 	36.5	%	 	36.7	%	 	35.2	%	 	24.1	%	
Non-GAAP Gross Margin % (1)	 	50.2	%	 	50.4	%	 	49.2	%	 	41.8	%	 	40.3	%	 	40.7	%	 	39.1	%	 	37.5	%	
Revenue Composition:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Domestic %	 	71	%	 	64	%	 	56	%	 	53	%	 	57	%	 	63	%	 	59	%	 	53	%	
International %	 	29	%	 	36	%	 	44	%	 	47	%	 	43	%	 	37	%	 	41	%	 	47	%	
Customers >10% of Revenue	 	3		 	2		 	2		 	2		 	1		 	3		 	2		 	1		
Cash Related Information:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash from Operations ($ Mil)	 		$10.0		 		$28.2		 		$5.2		 		($5.0	)	 		$3.0		 		($3.0	)	 		($20.9	)	 		($1.0	)	
Capital Expenditures ($ Mil)	 		$10.8		 		$12.5		 		$9.6		 		$10.4		 		$14.7		 		$24.5		 		$11.0		 		$7.8		
Depreciation & Amortization ($ Mil)	 		$14.7		 		$15.2		 		$15.9		 		$15.7		 		$16.0		 		$16.6		 		$16.8		 		$16.6		
DSOs	 	69		 	68		 	75		 	81		 	64		 	64		 	65		 	59		
Inventory Metrics:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Raw Materials ($ Mil)	 		$33.1		 		$39.1		 		$37.2		 		$33.2		 		$34.8		 		$36.7		 		$35.8		 		$27.4		
Work in Process ($ Mil)	 		$59.4		 		$61.0		 		$65.5		 		$74.5		 		$81.1		 		$91.6		 		$84.3		 		$59.6		
Finished Goods ($ Mil)	 		$97.2		 		$102.2		 		$128.8		 		$125.3		 		$118.0		 		$117.7		 		$122.7		 		$127.7		
Total Inventory ($ Mil)	 		$189.7		 		$202.3		 		$231.5		 		$233.0		 		$233.9		 		$246.0		 		$242.8		 		$214.7		
Inventory Turns (2)	 	2.6		 	2.5		 	1.6		 	1.8		 	1.8		 	1.7		 	1.9		 	2.3		
Worldwide Headcount	 	2,128		 	2,218		 	2,262		 	2,240		 	2,245		 	2,272		 	2,296		 	2,145		
Weighted Average Shares Outstanding (in thousands):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	140,805		 	142,396		 	143,850		 	144,770		 	145,786		 	147,538		 	148,777		 	149,412		
Diluted	 	146,880		 	145,891		 	144,993		 	145,497		 	147,017		 	148,662		 	149,714		 	150,098		

	

		
(1)  	Non-GAAP adjustments include restructuring and other costs, non-cash stock-based compensation expense, certain purchase accounting adjustments related to Infinera's acquisition of Transmode and amortization of acquired intangible assets. For a description of this non-GAAP financial measure, please see the section titled, “GAAP to Non-GAAP Reconciliations” of this press release for a reconciliation to the most directly comparable GAAP financial measures.	

(2)  	Infinera calculates non-GAAP inventory turns as annualized non-GAAP cost of revenue before adjustments for restructuring and other costs, non-cash stock-based compensation expense, and certain purchase accounting adjustments, divided by the average inventory for the quarter.	

Exhibit 99.2

CFO Commentary - Fourth Quarter 2017 Preliminary Financial Results

As of this quarter, we are shifting much of our financial recap and commentary for the prior quarter away from our conference call and to this document. Consistent with historical practice, we will share our next quarter financial outlook on the conference call. The following metrics and commentary are provided by management and should be reviewed in conjunction with our fourth quarter and fiscal year 2017 preliminary financial results press release, available on the Investor Relations section of our website at http://investors.infinera.com.
Fourth Quarter 2017 Preliminary Financial Results
GAAP

																					
(In millions, except per share amounts and percentages)	 	Q4'17	 	Q3'17	 	Q4'16	 	Q/Q Change	 	Y/Y Change	
Revenue	 	$	195.8		 	$	192.6		 	$	181.0		 	2	%	 	8	%	
Product	 	160.5		 	159.6		 	151.3		 	1	 %	 	6	 %	
Service	 	35.3		 	33.0		 	29.7		 	7	 %	 	19	 %	
Gross margin %	 	24.1	 %	 	35.2	 %	 	38.1	 %	 	(11.1)pts		 	(14.0)pts		
Research and development	 	55.2		 	56.6		 	67.8		 	(2	)%	 	(19	)%	
Sales and marketing	 	29.4		 	27.9		 	30.4		 	5	 %	 	(3	)%	
General and administrative	 	17.1		 	17.6		 	16.7		 	(3	)%	 	2	 %	
Restructuring and other costs	 	16.1		 	—		 	—		 	100	 %	 	100	 %	
Total operating expenses	 	$	117.8		 	$	102.1		 	$	114.9		 	15	%	 	3	%	
Operating margin %	 	(36.0	)%	 	(17.8	)%	 	(25.3	)%	 	(18.2)pts		 	(10.7)pts		
Net loss	 	$	(74.0	)	 	$	(37.2	)	 	$	(36.3	)	 	(99	)%	 	(104	)%	
EPS	 	$	(0.50	)	 	$	(0.25	)	 	$	(0.25	)	 	$	(0.25	)	 	$	(0.25	)	

Non-GAAP

																					
(In millions, except per share amounts and percentages)	 	Q4'17	 	Q3'17	 	Q4'16	 	Q/Q Change	 	Y/Y Change	
Revenue	 	$	195.8		 	$	192.6		 	$	181.0		 	2	%	 	8	%	
Product	 	160.5		 	159.6		 	151.3		 	1	 %	 	6	 %	
Service	 	35.3		 	33.0		 	29.7		 	7	 %	 	19	 %	
Gross margin %	 	37.5	 %	 	39.1	 %	 	41.8	 %	 	(1.6)pts		 	(4.3)pts		
Research and development	 	51.4		 	52.5		 	52.4		 	(2	)%	 	(2	)%	
Sales and marketing	 	25.6		 	23.2		 	25.8		 	10	 %	 	(1	)%	
General and administrative	 	14.7		 	14.6		 	14.1		 	1	 %	 	4	 %	
Total operating expenses	 	$	91.7		 	$	90.3			$	92.3		 	2	%	 	(1	%)	
Operating margin %	 	(9.3	)%	 	(7.8	)%	 	(9.2	)%	 	(1.5)pts		 	(0.1)pts		
Net loss	 	$	(18.6	)	 	$	(17.0	)	 	$	(17.0	)	 	(9	)%	 	(9	)%	
EPS	 	$	(0.12	)	 	$	(0.11	)	 	$	(0.12	)	 	$	(0.01	)	 	$	—		

This CFO Commentary contains Non-GAAP financial measures. The reconciliation of the GAAP to non-GAAP financial measures can be found at the end of this document.
Q4’17 Overview
We exited what was a very challenging 2017, with fourth quarter results that continued our recent trend of sequential revenue improvement. We delivered revenue above our guidance range and EPS at the higher end of our guidance range. During the fourth quarter, we made some difficult but necessary decisions in implementing a

1

restructuring plan, which should allow us to drive efficiencies in the business and lower our cost structure as we move forward.
Revenue:
Total revenue in the fourth quarter of 2017 was $195.8 million, up 2% sequentially and 8% year over year.
Product revenue in the fourth quarter of 2017 was $160.5 million, up 1% sequentially and 6% year over year. Growth was driven primarily by the ramp of ICE4 products, which comprised roughly 20% of product revenue in the fourth quarter. Services revenue in the fourth quarter of 2017 was $35.3 million, up 7% sequentially and 19% year over year. Growth was attributable to continued expansion of our installed base and an uptick in our installation business.

Our top five customers consisted of a recently consolidated Domestic Tier 1, two Internet Content Providers ("ICPs"), a cable operator and an International Tier 1. Our only greater than 10% customer in the fourth quarter was a Domestic Tier 1.

Geographies
		
•	North America (53% of total revenue) : In the fourth quarter of 2017, total revenue in North America declined 9% sequentially and grew 7% year over year. The sequential decline was attributable to ongoing weakness from a large recently consolidated customer and seasonal weakness in cable. Within the overall sequential decline in North America, we were pleased that revenue from ICPs was up in the fourth quarter of 2017 due to CX2 revenue ramping at one of our large customers. Despite our fiscal 2017 North America revenue being down 21% due to customer consolidation and product transitions, we are seeing spending from certain consolidated customers improve, as evidenced by North America revenue in the second half of 2017 growing 8% year over year.	
		
•	International (47% of total revenue) : In the fourth quarter of 2017, total revenue from International was up 18% sequentially and 10% year over year.	
		
•	EMEA (36% of total revenue) had a strong fourth quarter, growing 22% sequentially and 6% year over year. A global ICP's European data center expansion was a major contributor to EMEA growth in the fourth quarter. Aside from a small decline in cable, we had sequential growth from all of our major customer verticals in the fourth quarter stemming from solid results in long-haul and metro.	
		
•	APAC (8% of total revenue) grew 8% sequentially and 81% year over year. Growth in the fourth quarter of 2017 was driven primarily by strength in subsea with a key International Tier 1 and an international build from a global ICP. APAC grew every quarter sequentially in fiscal 2017 and was up 29% for fiscal 2017. We are very pleased with the improvement in our subsea business and see APAC as a potential growth region going forward.	
		
•	Other Americas (LATAM) (3% of total revenue) declined 4% sequentially and 33% year over year. Consistent with the rest of fiscal 2017, the region remained light in the fourth quarter as, despite some improvement from subsea, we continued to be hindered by a challenging political climate for one of our key customers in the region.	

Customer Verticals
		
•	ICPs were our highest growth vertical in the fourth quarter of 2017, up substantially sequentially and year over year stemming largely from North America and European deployments of our new ICE4-based CX2 and XT-3300 by major ICPs. As expected, ICPs have been amongst the first adopters of our ICE4 products.	
		
•	Telecom was solid outside of continued softness at a recently consolidated Domestic Tier 1, with combined Tier 1 and Tier 2 business in the fourth quarter slightly up sequentially and year over year. We were strong in International Tier 1, with sequential growth in all our regions, driven primarily by subsea.	
		
•	Wholesale was slightly down sequentially in the fourth quarter and down year over year largely due to lingering impacts of customer consolidation.	
		
•	Cable , which tends to be seasonally lower late in the year was, as expected, sequentially down in the fourth quarter though up substantially year over year.	

2

                       
Gross Margin:

•	GAAP gross margin was 24.1% compared to 35.2% from the prior quarter and 38.1% from the prior year. The large decline in the fourth quarter was primarily attributable to restructuring related expenses of $19.1 million, which consisted of inventory write-downs and manufacturing asset impairments as a result of our product rationalization efforts, and employee-related costs for eliminated roles.	
		
•	Non-GAAP gross margin was 37.5%, compared to 39.1% from the prior quarter and 41.8% from the prior year. Fourth quarter gross margin was slightly lower than the midpoint of our guidance range (36-40%). As expected, we incurred high costs from early production runs of our ICE4 units, took a margin hit related to commercial deals to transition certain customers to our new products and saw growth in footprint builds, which tend to be margin dilutive initially and subsequently enable higher margin capacity adds. We believe the fourth quarter should be the low point of our gross margin as the transitory costs of early ICE4 units and commercial bridge deals are substantially behind us, and we anticipate higher volumes and the improved cost structure of ICE4 to benefit gross margin as we move forward.	

Operating Expenses:

•	GAAP operating expenses were $117.8 million in the fourth quarter, compared to $102.1 million from the prior quarter and $114.9 million from the prior year. The sequential increase was attributable to restructuring related expenses of $16.1 million, which consisted of employee-related costs, facilities-related charges and asset impairments. The year over year increase reflects restructuring-related expenses, offset by a broader decrease in operating expenses consistent with our cost reduction initiatives.	
		
•	Non-GAAP operating expenses were $91.7 million in the fourth quarter, at the higher end of our guidance range ($89-93 million), due to increased commissions associated with higher revenue and an increase in customer lab trial activity related to our new products. We remain on track with our cost reduction plan announced in the fourth quarter of 2017 and anticipate operating expenses will decline over the course of fiscal 2018.	
Restructuring Related Costs:
During the fourth quarter, we implemented a restructuring plan. As part of the plan we are making several changes we believe will help our R&D efficiency, with consolidation of our development sites, including closure of our Beijing design center, process changes to more broadly leverage our engineering resources across regions and product line development, and prioritization of R&D initiatives. Outside of engineering, we have also made changes to allow us to operate more efficiently as we scale the business, including reducing our facilities footprint and writing off certain equipment that will not be utilized in the future. Finally, we realigned our inventory levels to match our new technology cadence and go to market strategies.
As a result of the above actions, we took charges of $19.1 million within cost of revenue, including inventory write-downs of $13.6 million, manufacturing equipment impairments of $4.0 million, and severance related charges of $1.5 million. Within operating expenses, we recorded charges of $16.1 million, including $7.9 million of severance related costs, $7.3 million of facilities impairment costs and test equipment impairments of $0.9 million. We have enacted the majority of these actions with some remaining payments in the first half of the year.

Operating Margin:

•	GAAP operating margin was (36.0)%, compared to (17.8)% from the prior quarter and (25.3)% from the prior year. The decline in the fourth quarter was primarily attributable to restructuring related charges.	
		
•	Non-GAAP operating margin was (9.3)%, compared to (7.8)% from the prior quarter and (9.2)% from the prior year. The sequential decline in the fourth quarter was primarily attributable to the aforementioned decline in gross margin.	
Earnings per Share:

•	GAAP EPS was $(0.50), compared to $(0.25) from the prior quarter and $(0.25) from the prior year. The decline in the fourth quarter was primarily attributable to restructuring related charges.	

3

		
•	Non-GAAP EPS was $(0.12), compared to $(0.11) from the prior quarter and $(0.12) from the prior year. These results reflect revenue growth offset by lower gross margins, both sequentially and year over year.	

Balance Sheet and Cash Flow

													
(In millions)	 	Q4'17	 	Q3'17	 	Q4'16	
Cash, investments & restricted cash, net of debt principal of $150 million	 	$	150.1		 	$	159.0		 	$	210.1		
Accounts Receivable	 	$	126.2		 	$	137.1		 	$	150.4		
Inventory	 	$	214.7		 	$	242.8		 	$	233.0		
Cash from operations	 	$	(1.0	)	 	$	(20.9	)	 	$	(5.0	)	
Capital expenditures	 	$	7.8		 	$	11.0		 	$	10.4		

•	Cash, investments and restricted cash, net of debt principal of $150 million, were $150.1 million at December 30, 2017, down $8.9 million from the prior quarter. The decrease was driven by our operating loss and partially offset by positive working capital changes in the quarter.	
		
•	Net accounts receivable was $126.2 million at December 30, 2017, down $10.9 million from the prior quarter. The lower balance was primarily driven by strong collections efforts, which exceeded our billings in the quarter.	
		
•	Net inventory was $214.7 million at December 30, 2017, down $28.1 million from the prior quarter due to higher volumes of ICE4 sales, reduction in pre-ICE4 materials and an increase of reserves on certain products driven by our product rationalization efforts.	
		
•	Cash from operations in the fourth quarter was negative $1.0 million, better than negative $20.9 million in the prior quarter, due to positive overall working capital changes. Key drivers of these working capital changes were our inventory reduction and strong collections on accounts receivable. Of note, restructuring related cash outflows were approximately $6.0 million in the fourth quarter.	
		
•	Capital Expenditures were $7.8 million in the fourth quarter, versus $11.0 million in the prior quarter, as we actively managed spending in the quarter.	

Forward-Looking Statements
This CFO Commentary and related conference call contain certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. Such forward-looking statements include, without limitation, our expectations concerning our overall business strategy, market conditions and growth opportunities; factors that impact our revenue, gross margin and operating expenses; views on our customers and products, including the timing of the introduction of new products; our product portfolio and success of particular products and product families; our expectations regarding the future impact of customer consolidation; our financial outlook for the first quarter of fiscal 2018; impact of tax regulations; our ability to deliver operational expense discipline; our ability to execute on our restructuring plan; and our overall future prospects. Forward-looking statements can also be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. These statements are based on information available to us as of the date hereof and actual results could differ materially from those stated or implied due to risks and uncertainties. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include, delays in the development and introduction of new products or updates to existing products and market acceptance of these products; the effects of increased customer consolidation; fluctuations in demand, sales cycles and prices for products and services, including discounts given in response to competitive pricing pressures, as well as the timing of purchases by our key customers; the effect that changes in product pricing or mix, and/or increases in component costs could have on our gross margin; our ability to respond to rapid technological changes; aggressive business tactics by our competitors; our ability to adequately respond to demand as a result of the restructuring plan; our reliance on single and limited source suppliers; our ability to protect our intellectual property; claims by others that we infringe their intellectual property; the effect of global macroeconomic conditions on our business; war, terrorism, public health issues, natural disasters and other circumstances that could disrupt the supply, delivery or demand of our products; and other risks and uncertainties detailed in our SEC filings from time to time. More information on potential factors that may impact our business are set forth in our Quarterly Report on Form 10-Q for the quarter ended on September 30, 2017 as filed with the SEC on November 8, 2017, as well as subsequent reports filed with or

4

furnished to the SEC from time to time. These reports are available on our website at www.infinera.com and the SEC’s website at www.sec.gov. We assume no obligation to, and do not currently intend to, update any such forward-looking statements.

Use of Non-GAAP Financial Information
This CFO Commentary contains references to the following non-GAAP financial measures: gross margin, operating expenses, operating margin, net loss and EPS. To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated above, which exclude restructuring and other costs, gain on the sale and impairment of cost-method investments, non-cash stock-based compensation expenses, amortization of debt discount on our convertible senior notes, amortization and impairment of acquired intangible assets, acquisition-related costs, and certain purchase accounting adjustments related to our acquisition of Transmode AB, which closed during the third quarter of 2015, along with related tax effects. 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 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 net income (loss), basic and diluted net income (loss) per share, gross margin or operating 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 and a reconciliation to the most directly comparable GAAP financial measures, please see the section titled, “GAAP to Non-GAAP Reconciliations.”

5

Infinera Corporation
GAAP to Non-GAAP Reconciliations
(In thousands, except percentages and per share data)
(Unaudited)  

																																			
 	Three Months Ended	 	Twelve Months Ended	
 	December 30, 2017	 	 	 	September 30, 2017	 	 	 	December 31, 2016	 	 	 	December 30, 2017	 	 	 	December 31, 2016	 	 	
Reconciliation of Gross Profit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	47,286		 	24.1	 %	 	$	67,826		 	35.2	 %	 	$	69,032		 	38.1	 %	 	$	244,000		 	32.9	 %	 	$	393,718		 	45.2	 %	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	1,846		 	 	 	2,063		 	 	 	1,849		 	 	 	7,811		 	 	 	6,463		 	 	
Amortization of acquired intangible assets (3)	5,169		 	 	 	5,390		 	 	 	4,745		 	 	 	20,474		 	 	 	19,715		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	27		 	 	 	46		 	 	 	144		 	 	
Restructuring and other costs (5)	19,141		 	 	 	—		 	 	 	—		 	 	 	19,141		 	 	 	—		 	 	
Non-GAAP as adjusted	$	73,442		 	37.5	 %	 	$	75,279		 	39.1	 %	 	$	75,653		 	41.8	 %	 	$	291,472		 	39.3	 %	 	$	420,440		 	48.3	 %	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Research and Development Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	55,223		 	 	 	56,616		 	 	 	67,750		 	 	 	224,299		 	 	 	232,291		 	 	
Stock-based compensation (2)	3,841		 	 	 	4,040		 	 	 	4,011		 	 	 	15,845		 	 	 	13,732		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	44		 	 	 	(70	)	 	 	 	147		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Non-GAAP as adjusted	$	51,382		 	 	 	$	52,576		 	 	 	$	52,400		 	 	 	$	208,272		 	 	 	$	207,117		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Sales and Marketing Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	29,395		 	 	 	$	27,824		 	 	 	$	30,424		 	 	 	$	116,057		 	 	 	$	118,858		 	 	
Stock-based compensation (2)	2,264		 	 	 	3,025		 	 	 	3,037		 	 	 	11,288		 	 	 	11,043		 	 	
Amortization of acquired intangible assets (3)	1,555		 	 	 	1,622		 	 	 	1,436		 	 	 	6,160		 	 	 	6,189		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	209		 	 	 	387		 	 	 	989		 	 	
Non-GAAP as adjusted	$	25,576		 	 	 	$	23,177		 	 	 	$	25,742		 	 	 	$	98,222		 	 	 	$	100,637		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of General and Administrative Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	17,069		 	 	 	$	17,634		 	 	 	16,726		 	 	 	70,625		 	 	 	68,343		 	 	
Stock-based compensation (2)	2,345		 	 	 	3,039		 	 	 	2,445		 	 	 	10,776		 	 	 	9,295		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	163		 	 	 	5		 	 	 	733		 	 	
Non-GAAP as adjusted	$	14,724		 	 	 	$	14,595		 	 	 	$	14,118		 	 	 	$	59,844		 	 	 	$	58,315		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Operating Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	117,793		 	 	 	$	102,074		 	 	 	$	114,900		 	 	 	$	427,087		 	 	 	$	419,492		 	 	
Stock-based compensation (2)	8,450		 	 	 	10,104		 	 	 	9,493		 	 	 	37,909		 	 	 	34,070		 	 	
Amortization of acquired intangible assets (3)	1,555		 	 	 	1,622		 	 	 	1,436		 	 	 	6,160		 	 	 	6,189		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	416		 	 	 	322		 	 	 	1,869		 	 	
Restructuring and other costs (5)	16,106		 	 	 	—		 	 	 	—		 	 	 	16,106		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Non-GAAP as adjusted	$	91,682		 	 	 	$	90,348		 	 	 	$	92,260		 	 	 	$	366,338		 	 	 	$	366,069		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Income (Loss) from Operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(70,507	)	 	(36.0	)%	 	$	(34,248	)	 	(17.8	)%	 	$	(45,868	)	 	(25.3	)%	 	$	(183,087	)	 	(24.7	)%	 	$	(25,774	)	 	(3.0	)%	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	10,296		 	 	 	12,167		 	 	 	11,342		 	 	 	45,720		 	 	 	40,533		 	 	
Amortization of acquired intangible assets (3)	6,724		 	 	 	7,012		 	 	 	6,181		 	 	 	26,634		 	 	 	25,904		 	 	

6

	
																																			
 	Three Months Ended	 	Twelve Months Ended	
 	December 30, 2017	 	 	 	September 30, 2017	 	 	 	December 31, 2016	 	 	 	December 30, 2017	 	 	 	December 31, 2016	 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	443		 	 	 	368		 	 	 	2,013		 	 	
Restructuring and other costs (5)	35,247		 	 	 	—		 	 	 	—		 	 	 	35,247		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Non-GAAP as adjusted	$	(18,240	)	 	(9.3	)%	 	$	(15,069	)	 	(7.8	)%	 	$	(16,607	)	 	(9.2	)%	 	$	(74,866	)	 	(10.1	)%	 	$	54,371		 	6.2	 %	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Net Income (Loss) Attributable to Infinera Corporation:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(73,985	)	 	 	 	$	(37,231	)	 	 	 	$	(36,253	)	 	 	 	$	(194,506	)	 	 	 	$	(23,927	)	 	 	
Acquisition-related deferred revenue adjustment (1)	—		 	 	 	—		 	 	 	—		 	 	 	—		 	 	 	400		 	 	
Stock-based compensation (2)	10,296		 	 	 	12,167		 	 	 	11,342		 	 	 	45,720		 	 	 	40,533		 	 	
Amortization of acquired intangible assets (3)	6,724		 	 	 	7,012		 	 	 	6,181		 	 	 	26,634		 	 	 	25,904		 	 	
Acquisition-related costs (4)	—		 	 	 	—		 	 	 	818		 	 	 	257		 	 	 	3,081		 	 	
Restructuring and other costs (5)	35,247		 	 	 	—		 	 	 	—		 	 	 	35,247		 	 	 	—		 	 	
Intangible asset impairment (6)	—		 	 	 	—		 	 	 	11,295		 	 	 	252		 	 	 	11,295		 	 	
Amortization of debt discount (7)	2,710		 	 	 	2,643		 	 	 	2,451		 	 	 	10,444		 	 	 	9,447		 	 	
Gain on sale of cost-method investment (8)	—		 	 	 	—		 	 	 	(8,983	)	 	 	 	—		 	 	 	(8,983	)	 	 	
Impairment of cost-method investment (9)	1,890		 	 	 	—		 	 	 	—		 	 	 	1,890		 	 	 	—		 	 	
Income tax effects (10)	(1,479	)	 	 	 	(1,543	)	 	 	 	(3,829	)	 	 	 	(5,946	)	 	 	 	(8,360	)	 	 	
Non-GAAP as adjusted	$	(18,597	)	 	 	 	$	(16,952	)	 	 	 	$	(16,978	)	 	 	 	$	(80,008	)	 	 	 	$	49,390		 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Basic:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(0.50	)	 	 	 	$	(0.25	)	 	 	 	$	(0.25	)	 	 	 	$	(1.32	)	 	 	 	$	(0.17	)	 	 	
Non-GAAP as adjusted	$	(0.12	)	 	 	 	$	(0.11	)	 	 	 	$	(0.12	)	 	 	 	$	(0.54	)	 	 	 	$	0.35		 	 	
Net Income (Loss) per Common Share Attributable to Infinera Corporation - Diluted:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. GAAP as reported	$	(0.50	)	 	 	 	$	(0.25	)	 	 	 	$	(0.25	)	 	 	 	$	(1.32	)	 	 	 	$	(0.17	)	 	 	
Non-GAAP as adjusted	$	(0.12	)	 	 	 	$	(0.11	)	 	 	 	$	(0.12	)	 	 	 	$	(0.54	)	 	 	 	$	0.34		 	 	
Weighted Average Shares Used in Computing Net Income (Loss) per Common Share:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	149,412		 	 	 	148,777		 	 	 	144,770		 	 	 	147,878		 	 	 	142,989		 	 	
Diluted	149,412		 	 	 	148,777		 	 	 	144,770		 	 	 	147,878		 	 	 	145,800		 	 	
_____________________________

(1)  	Business combination accounting principles require us to write down to fair value our maintenance support contracts assumed in the Transmode acquisition. The revenue for these support contracts is deferred and typically recognized over a one-year period, so our GAAP revenue for the one-year period after the acquisition will not reflect the full amount of revenue that would have been reported if the acquired deferred revenue was not written down to fair value. The non-GAAP adjustment eliminates the effect of the deferred revenue write-down. Management believes these adjustments to the revenue from these support contracts are useful to investors as an additional means to reflect revenue trends of our business.	
		
(2)  	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. The following table summarizes the effects of non-cash stock-based compensation related to employees and non-employees (in thousands):	

7

	
																					
 	 	Three Months Ended	 	Twelve Months Ended	
 	 	December 30, 2017	 	September 30, 2017	 	December 31, 2016	 	December 30, 2017	 	December 31, 2016	
Cost of revenue	 	$	728		 	$	779		 	$	791		 	$	3,065		 	$	2,966		
Research and development	 	3,841		 	4,040		 	4,011		 	15,845		 	13,732		
Sales and marketing	 	2,264		 	3,025		 	3,037		 	11,288		 	11,043		
General and administration	 	2,345		 	3,039		 	2,445		 	10,776		 	9,295		
 	 	9,178		 	10,883		 	10,284		 	40,974		 	37,036		
Cost of revenue - amortization from balance sheet*	 	1,118		 	1,284		 	1,058		 	4,746		 	3,497		
Total stock-based compensation expense	 	$	10,296		 	$	12,167		 	$	11,342		 	$	45,720		 	$	40,533		
  _____________________________
		
*	Stock-based compensation expense deferred to inventory and deferred inventory costs in prior periods and recognized in the current period.	
		
(3)  	Amortization of acquisition-related intangible assets consists of amortization of developed technology, trade names, and customer relationships acquired in connection with the Transmode acquisition. U.S. GAAP accounting requires that acquired intangible assets are recorded at fair value and amortized over their useful lives. As this amortization is non-cash, we have excluded it from our non-GAAP operating expenses, gross margin 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 our underlying business performance.	
		
(4)  	Acquisition-related costs associated with the Transmode acquisition include legal, financial, employee retention costs and other professional fees incurred in connection with the transaction, including squeeze-out proceedings. These amounts have been adjusted in arriving at our non-GAAP results because management believes that these expenses are non-recurring, not indicative of ongoing operating performance and their exclusion provides a better indication of our underlying business performance.	
		
(5)  	Restructuring and other costs are related to our plan to restructure our worldwide operations, which was announced during the fourth quarter of 2017. These costs consist of $13.6 million of inventory write-downs as a result of our product rationalization efforts, $9.4 million of severance and related costs, $7.3 million of facilities-related costs and $4.9 million of manufacturing and test asset impairments. Management has excluded the impact of these charges in arriving at our non-GAAP results as they are non-recurring in nature and its exclusion provides a better indication of our underlying business performance.	
		
(6)  	Intangible asset impairments are associated with previously acquired intangibles and acquired in-process research and development (“IPR&D”). The impairment of previously acquired intangibles was the result of management determining that the carrying value will not be recoverable. Acquired IPR&D impairment is associated with intangibles acquired with the Transmode acquisition, which we do not anticipate utilizing in future products. Management has excluded the impact of these charges in arriving at our non-GAAP results because it is non-recurring and management believes that these expenses are not indicative of ongoing operating performance.	
		
(7)  	Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. Accordingly, for GAAP purposes, we are required to amortize as debt discount an amount equal to the fair value of the conversion option that was recorded in equity as interest expense on our $150 million in aggregate principal amount of 1.75% convertible debt issuance in May 2013 over the term of the notes. Interest expense has been excluded from our non-GAAP results because management believes that this non-cash expense is not indicative of ongoing operating performance and provides a better indication of our underlying business performance.	
		
(8)  	The gain on sale of a cost-method investment has been excluded in arriving at our non-GAAP results because it is non-recurring and management believes that this gain is not indicative of ongoing operating performance.	
		
(9)  	The impairment of cost-method investment has been excluded in arriving at our non-GAAP results because it is non-recurring and management believes that this non-cash expense is not indicative of ongoing operating performance.	

8

		
(10)  	The difference between the GAAP and non-GAAP tax is due to the net tax effects of the purchase accounting adjustments, acquisition-related costs, amortization of acquired intangible assets and the IPR&D impairment related to the Transmode acquisition.	

9