INFN - Earnings call transcript Q3 2017

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Operator

Welcome to the third quarter year 2017 investment community conference call of Infinera Corporation. All lines will be in listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Investor Infinera of Hustis Relations. Jeff begin. Jeff, you may

Jeff Hustis

our quarter Thank XXXX year is on section third of you, Welcome to available of Relations Investor operator. of the conference earnings fiscal today's Infinera's website. call. copy A

and on Additionally, these Infinera's all which market Investor regarding the and our for Today's is are Infinera plan, from opportunities, Form its from directly available management's products, I will Chief uncertainties. on to business growth expectations. replay restructuring are of regarding recently include constitute the call. These third or to the events website call that and certain as filings, differ arise the Regulation and Please is of outlook for has Please conditions, current financial forward-looking Tom statements call this risks now be of report include may current most release, turn may the most after Infinera's to statements section. subsequent strategy our expectations revise refer projections SEC measures our fourth filed non-GAAP over measures timing our and cause filings to available include quarter being our in in these Form GAAP G, subject Infinera and statements to Today's a our quarterly uncertainties earnings reminded call pursuant date on to X-K will press comparable and customers on be the regarding will recorded conference to expectations results SEC Infinera's call furnished fiscal Officer, market Executive been for reconciliation of Relations Fallon. has undertakes estimates provided website. and on this including statements operations, the of that today, statements. and update products, releases non-GAAP quarter result new financial obligation XXXX. and reflect to views and These overall and made no and earnings or materially information of forward-looking risks to financial could XX-Q more financial any that measures, circumstances release that the

Thomas J. Fallon

Good joining afternoon you thank on XXXX for third call. and our quarter us conference

restructuring. are our Brad restructuring Joining progress the third review fourth third and on and our quarter, me of and Today, a products technologies, more will additional quarter, detailed today the provide earlier at the details announced pleased range. guidance for and our delivered Brad around Welch. I will quarter we I review performance, Feller go new of was end the outlook today. high financial also we then the In Dave revenue over QX, plan

growth driven by our was primarily revenue internal sequential X% products, with Our forecast. growth exceeding ICEX ICEX

our bottom exceeded range. revenue. operating front, to revenue, satisfied I EPS and II XT are the On in am XTM all with not that while our resulted our stronger that expenses around and was GA On line, impacting be. I CXX, of and tighter controls our we're worried, and are product we pleased new all guidance execution now need XTS-XXXX

up we for recognized XX platform, revenue the ICEX our in had QX, end of from solidly QX. As of customers three from

share on Moreover, providers, in to spectral the from seeing growing Netflix, solutions the XTS-XXXX best-of-breed cable newer largely solution best our commercially is efficiency supplementing grow networks revenue our announced of their existing to cost-effective by who with ICEX Series. any opportunities seeking are of we Also market available are and with applications. subsea, to advantages ICPs, interconnect driven demonstrating being who high-capacity, capabilities the and early and to interest recently ones, such encouraging date is data center their as wholesalers expected, As see both the XT growth customers market.

enhancements and our density anticipate new base of in advantage platform. installed we take the will Finally, metro XTM the II power

service We revenue to of multiservice to customers links form for for solutions customers, over providers power-optimized ensure expect Whether experience course most are their the XTM traditional XXXX. our to larger best or ramp metro for that disaggregated end QX, solutions II and integrated, begin ICPs value seeking deploy. in the we to high-capacity, customers the delivering for factors capabilities reliable, will qualify point-to-point want in

are to DCI gaining all in disaggregated believe units Infinera with systems naming approach an align today, market Our nearly implemented around field Dell'Oro solutions disaggregated one-third seeing category. by in both service needs Beginning With of and roadmap the networks. we this our transponder leader uptick contribute evidenced providers. dynamic, of wavelengths initial this traction, being in to and conducting its of as are customers demonstrations portfolio the in and we open ICPs traditional product reporting

over transponders dynamic As systems, favors on new for pervasive, becomes a and see advantage open up to open would vertical competitors' sell us, we opportunities believe more transponders. that high-capacity Infinera's our markets cost line disaggregated integration we

I in the for offering, than me and recent Seabras-X pleased demonstrating cable, market the submarine material important our demonstration the competitive to on spectrum gives opportunity In performance industry's Seaborn highest subsea. deployment product. This capability front, gain significantly a enables with customer, a to ICEX. am Seaborn, shipping utilize cost efficiency the technology advantage any the On commercially spectral of share very our particular, in in confidence our that to more current fiber an

our providing We Additionally, executing that in optical two-year ICEX demonstrated shaping of constellation- we PIC recently solutions firsts, greater our cost continue per to for both with the to and possible baud ability rate performance achieve technologies X optical highest cadence and advancements varied labs, capabilities. on transmission with algorithms. us Overall, optical and forward optical progress engines I utilizing Combining and our with a a look unique during XXXXQAM, across differentiated two than path are lower integration of am provide path distances, the we the delivering ICEX ICEX capacities give to new DSP both intend leading our cost. and the terabit modulation, PIC both to industry updates on engines ICEX perform engine on DSP leaders. wave to on XXXX. we the customers and includes being making These the and us performance our XXX-gigabaud in massive well optical positions pleased and goal and and

cadence, our experience While and we continued promising a of now are to adoption seeing signs engine near-term also optical challenges. two-year are demonstrating we technology

First, our been the consolidation. over has to pressure customer extreme revenue under attributable year, largely past

is recently combined gradually will of from suppressed CenturyLink most seeing of business for our Level for X our and you're now While improve expectation undetermined remain period consolidated an customers, spending time.

aggression pricing historically to transitions by drive Second, moderated declines year, have pricing certain at a down the last competitors continue declines of rapid technology and while to ongoing relative pace. price steep

expectation factor weaker the analysts overall outlook, transition digits, is to slightly with contributing CapEx haul XXXX. XXXX expected we be China, market be anticipated now outside to This disaggregation the multiple Third, there this customers low industry growing customer to key originally a believe disaggregated in long increasingly are up. had supported the to mid-single towards lowering growth I architectures. to trend as their expecting only flat of than signals in is by could outlooks for DWDM

the positive achieve of integrated multiple having would the for the but units comes While This for some is possibility challenge an support and to achieved. of have XXXX, next we this chassis-based this short-term revenue and our to that adoption our a for new that same level Infinera be outlook historically dynamic transition network well-positioned networks experiencing to development sell with and disaggregated as of cautious sale portfolio, our in optimism dampen architectures. deployments do may pauses long-term customers are generation transition we not it

of a for the the quarter of products, X.X-terabit front, timing the QX DTN-X, had the slipped completing XT-XXXX and line XXXX. company-specific to Lastly, final one ICEX on card

plan few next costs quarters, will current expectations cut our operating Given operating our that future restructuring over improve we a opportunities with announced align structure and to leverage. today the

will This products an include company. technology, three a rationalization product ensure effectively as drive To R&D multimarket identified head forward. streamlined in delivering transformed across I years, inevitably, evolution and where a cadence. made and count we have optical reduction significant into R&D remote and more in we fully restructuring of and programs, across we site establishing this faster of some structure have we changes the can structure. the and Over company closure, investments a the organizational have our we operating and substantial going on expansion, have efficient the refreshed Perhaps portfolio internal financial be a functions in reflected company, made lead a all areas past

will He customers on technology and on increase Dave our our will Welch Technology align role capabilities renew product engaging that drive strategy. will with will In the Chief of they actively assume Officer. external horizon. Dave his capacity, this and focus the challenges Strategy First, roadmap differentiated creating his the presence, with to strategies see also

efficiencies. am Heard, of I has David report has strong pleased will an Infinera company Additionally, in efficiency businesses tasked management, to officer process. June, been Product between the Realization. joined internal named responsible who be has a overall and been around in for David teams, and building development record and track operational our and He alignment enhancing our ensuring driving product with marketing engineering,

this challenges shareholders. plan taking strongly about growth, term, do the years. structure and In consider time, to juncture strong company, in lead us our While profitability this imperative. we and I to R&D made now programs future have in operating an optimistic difficult, we growth believe Adjusting will for scale and efficiently to our I market, us enables more technologies, very right near at our to during the for we optical to in we thing opportunity ensure which Infinera's and to the XXXX, generate actions despite industry on our market. investments FY believe returns cash refocus in recent is remain these customers, our generation the Over the outgrow return allow the

faster optical well-positioned see important I begin as are address. In continue impending market. opportunities of mobile ahead, grow cadence Looking fiber-deep. which cable position architectural to in on operators believe our around we us to major inflections we a and and We believe toward to metro, the I in leadership year will ramped-up XXXX decisions than anticipate capitalize

and continue This but demand prevalence. from cloud disaggregation driven in not increase expect services. Additionally, and open will to ICPs bandwidth is we limited to, massive by,

decisive our suggest providing routes. refreshed performance, the become is inflections with will position to return of Over efficiency track With of customer outgrowing closing, win. on ICEX lead XXXX, to bringing grow expectation on to based and belief of as addressing Initial profitable cadence taking we market. cost to profitability optical is refreshed portfolio optical technology technology our decisions growth expectation in with customers our with in and to high-capacity we faster In requirements the my ownership, actions tied is Infinera successfully award Customers our we that decisions portfolio market. this to subsea, a use. cadence in make enable faster product me XXXX in return optimism future. ability ensure bandwidth and gives to that are prevailing leading will and us and us instantly design is ease ICEX ICEX and as Finally to the technologies deploy time, in backdrop more are spectral new

Our opportunity unchanged. long-term is

architectural employees. will that investments in a strong delivering by the be a and we around partners optical customers establish to thank return optimistic our grow and model. in achieving solutions leading customers, share commitment to With to portfolio, we impending opportunities markets, that, and win Infinera, Ultimately, to in significant in business enable to successful for thanks ongoing to we our their sincere you R&D winning and position their be our I stated an have With market made technology our will to am end-to-end inflections. shareholders

Now, to call turn the over I'll Brad.

Brad D. Feller

review good everyone. modeling some details and XXXX. outlook of start and will high-level afternoon, quarter third for Tom, then plan, our around I QX, and for restructuring provide a our with Thanks, the

in again in is down including XX% by in we footprint $XXX.X guidance XT-XXXX. to ICPs America and and As X% benefited deployments XT-XXXX ICEX enterprise customers Tier expansions XT by growth to nearly and X. expectations our Growth XX% traction Tom Tier falloff driven customer products, Revenue we growing From recognize was the revenue and year-over-year. the customers Results million, from initial to demand sequentially, a from internet was cable combined deployments capacity with our sequentially, CXX, mentioned, our were our had in greater Rounding executed million quarter, mid-single-digit the additions XX% with a the results by strong were largest international than telco and an consolidation. less impacted we note, relative North financial than be an of in customer customers perspective, a delivering quarter, five as ranges. wholesale two and the and vertical range. well content wholesale domestic Cable CenturyLink X% up revenue heavily revenue quarter. the favorable QX the X, of for and a for quarter Europe, large sequentially spend the XTS-XXXX. QX the line from low X from XTS-XXXX for continued QX, out top operator. and began carrier down from was in in one from a and Level from of the benefiting primarily customers. as provider, in represented were was CXX and existing our to revenue and slightly in offset Of

XT drove up was essentially APAC. of and new international Excluding with QX, ICPs of and was largely Geographically, XX% of data and a Offsetting customers, total from revenue in North strong wholesale, in in from aside were one these in driven QX, expansion improvement sequential of cable wholesale revenue by and accounting and customers. in EMEA overall two spending was at decreases X% initial in from American results large telco was from XX% sequentially, solid for QX revenue, XX% North for builds coming our XX%. total deployments. of result stemming by combined growth, flat, subdued growing driven This spending subsea and than more EMEA most and QX, couple accounting our in center business led ICP growth from in steady growing sequentially. LATAM grew a combined CenturyLink/Level in both of X APAC primarily by XX% subsea. from weakness our America

units guidance gross XX.X%, of an were volume footprint Non-GAAP slightly we margin builds. came as customer new the at high from ICEX midpoint and margins. above our early impacted onto costs by QX incurred Now in in of our increased

We also originally the costs QX. new to some our to expected incurred delayed customers of costs to were transition commercially though products, in QX we

more to of While are yields volumes performance and track, cost will we recover substantially. margin-challenged our overall on be until ICEX overall continue

QX, $X we acquisition-related initiatives net of was Enhancing The going our at Regarding million a bring non-GAAP debt of execute we compensation, in OpEx, costs, Putting non-GAAP guidance discount. net tighten we our our in well loss loss new achieve $X.XX and expenses committed operating refocusing operating together, share, a solid stock-based on to acceptable of a million approximately Even enable to as $XX quarters, but and this per at below basis, lower products cadence million to of our were OpEx spend QX, share. restructuring. $XX non-GAAP steps market $X GAAP levels. and took line should On advance results million faster operational level, bottom remain $XX of to had us recent we range, forward. X.X% lower of efficiency GAAP technology well R&D our cadence. even $X.XX still levels R&D of over our in million a and loss per attributable incurred in or difference a and between below amortization improvements everything to

Turning million, to of QX. $XX and cash At $XXX from of down million the the sheet. investments end QX, the end balance were

in to the ICEX inventory was million from ramp. I our as Of cash from on quarter. working declined, began note, capital, $XX Our decrease inventory primarily sales overall stemmed offset cash burning operations ICEX in pleased

$XX million, equity $X from received came As in million cash QX, for CapEx in and issuances. in other drivers at we proceeds

beginning our restructuring some with financial our plan. for regarding Now, outlook, thoughts

in cost in ramped-up and products on structure. to are restructuring covered ICEX Tom confident future success have early growth right-size our started based That with we said, to with to initiative ultimate the believe cadence. impact that opportunity the could time and our our technology ICEX-based We our undertake platforms is now see given XXXX, challenges our a

will top-line believe our reducing Under both be XX% spend. company of initiative and XXXX, our grow cash restructuring to our in plan, future. all conscious levels, and of very reducing we return profitability generation profitable enable profitability the by us our to expenses also will contractor during are workforce more we across FY the this as approximately As this by areas also growth we we lower and and

changes we believe As making part of the will several plan, we are our R&D efficiency. help

to in Specifically, plan R&D decisions Outside prioritize such product the operate future. levels the run million closures, as line approximately closing have we to including of in changes a and OpEx, to leverage and and center, our on of to resources regions to development more our this expect us will restructuring-related off XXXX expect we expense facility's much across made the charges plan prototypes. ICEX footprint including XXXX our initiatives effectively will more and of severance we what trajectory that million rate. lower will about consolidate incur development continually writing approximately attributable which a use optimize versus plan annually, reducing including more pre-restructuring we sites, engineering benefits, costs. GAAP and as Beijing of our as allow to around not business, other we equipment drive externally, be performed design in-house will development, be licenses, engineering, $XX From utilized $XXX Relative save our also FY facility standpoint, we $XX restructuring efficiently FY scale exit certain products, finalize we broadly a million to we down

charges be the rationalization There we our QX. taken could finalize as quarters, future efforts. most recognize restructuring to in expect additional in charges We product of

of quarter a CenturyLink on basis at QX, a recently the midpoint of project decline new and to of closing the edge launched anticipation is a or XXXX fourth XXXX, ramp initial million, also the XTM for range plus offset key revenue the by and the we minus adopt down X% CXX up XT due FY from softness in This over we revenue anticipate the platform. expect although substantial transaction this $X our customers. year-over-year Now the The the further XXQAM our sequential contributions customers a we In basis. and turning slightly expectation delay reflects on to continued as of course of our $XXX existing million. more at Series, certain outlook in ICP metro currently platform, contributions II

weather benefit from always what much As flush, budget made and could year-end to have our extent is into it difficult we upside to predict we not guidance.

Regarding non-GAAP margins, next currently QX, in plus than normal, adds customers will capacity be XX%, capacity their will indicated we again gross until will QX, margin anticipate several In be deals minus expect we XXX footprint anticipate basis as grow, and delaying or year. have lower adds points.

While they profitable footprint are represent growth deals often margin-challenged opportunities great we as forward. for move upfront,

incur to early continue to built our much costs expect recently. related higher units, bridge fulfilling than inventory of to costs deals products those we Additionally, and through ICEX working carry commercial which

pleased temporary, level, are we current of not that and are impacting our XXXX. us with the issues improve margin are many we Although profile our margin confident gross we will in

we and cost and lower the demonstrate of release leverage from products model. ICEX ICEX vertically As our products platforms, to to shift substantially more inherent final expect benefit we these of manufacturing integrated the the structure mix our the

in plan operating taking effect million. of plus $X for expectation $XX the middle we quarter. or our in million, restructuring the for be will expenses currently minus This anticipate non-GAAP As QX OpEx, accounts

Even and plus approximately minus and to expected out expense is Below per we to $X products this of already million. expected or QX a operating the support is $X.XX share, interest of invest as of released. line, as be QX, lab a net $XXX,XXX, new of bringing will in loss trials combination non-GAAP guidance of that expense adoption for to Putting altogether XX%, remaining the of the approximately to the translates the to and non-GAAP well be other projected in EPS to midpoint should to pennies. as a couple tax costs, market, products ICEX our the been we have continue reduce loss

be to charges. expense As for related GAAP stock-based non-GAAP by EPS to $X.XX about share, per EPS, lower we than project it restructuring-related primarily and compensation

of to the costs, year. and On balance loss operating for CapEx given our the restructuring-related to tightly will We expect balance an we sheet, the our cash continue intend QX. decline of the in capital manage including working expectation remainder

reasonable. well-positioned with base, the development should Street's a a half advantageous for this that full product customer provide expected in of markets outlook, Finally, wide-ranging current and opportunity during a typically anticipating consolidation, accelerated dynamics portfolio do we that bring regarding perspective XXXX I our beyond I level, to sentiment only be the our our of based to revenue wanted cadence. we're revenue will grow quarter, armed in to as about some strong, new with on around conclusion, are outgrowing ICEX XX% In our with for the at ICEX our to how the our ability That our company one market, With XXXX. being even confident uncertainty lower grow our good said, as enter strengthen back feel I'm profitability low phase as greater we customer and Wall volumes starting a or at profitably, us which our we us cost market will business front in of continuing mid-single to structure, shareholders. remains not requirements while on can ramp, but our cost the the grow given ICEX Tom's from pace provide addressable digits, and address I the expectation structure, and believe to to out XXXX. taking guidance lower recover that remains less actions get year We and echo products that to for we I second

the I'd time, like will the to optical the over turn market we'll portion Q&A begin return and call confident operator are With that, the call. that the outperform We overall the grow market to to to and of over nicely delivering results. best-in-class that financial

Operator

the will session. now begin We question-and-answer

comes question George Jefferies. ahead. Our Notter with Please from go first

George C. Notter

ICEX guess, I how wanted product pipeline, I feel therefore just more terms new solutions want actions there now? and – by of I where Thanks the you're the the that a guys. and on with dialing vis-à-vis cost, talking the stacks the the about ICEX. about I you conversely, new at there. cost lot, good two guess, other some ICEX, Hi, kind taking to about from still that just you are with start back of Or a hesitation I of I how guys a sure ICEX in lot guess, and looking you're it up feel marketplace. information is portfolio guess competitively how to in make to you I are competitively some and forward product looking here, and you're asking year we're stuff competitively you or

Thomas J. Fallon

then start, I'll to add George, Dave ask and – him to can I'll Yes, anything.

So is portfolio set technologies. well-performing of I think actually and ICEX product an exceptionally

how both ICEX shipping, CXX is in very well, customers. our very ramped, the material that you've if the huge both successful products part. responsibility. next the optical ship. the we're it's years you is with And the spectral a address numbers, look market. creating in how I XT-XXXX significantly if as having, today. new to efficiency couple on believe as to we take XT-XXXX I ICEX customer we and be And actually remember, reports wins of you shipping outgrew that is a ramping comparison in current the slipping the seen And do an was customers ICEX we'll same on X, shipments. in be year. – make The you able subsea and doing challenge we about internally AOFXXXXX it amount capability look Gen of the series quarters doing well. still of that frankly, and two-thirds of XTS-XXXX, in to can't ICEX it's our see created, quite on the level products of is our to interest at Those base. to best-performing but we're not I the The at faster capitalize quarter is first or think bookings in have the error how products is are the and If track on in

go challenging in the slow to also the down So opening and thematic. you consistent industry a competitive in the exceptionally a I that ICEX my erratic. mind, our when to being has well-received about is have to materially has on be. has look quite fix today, as do extremely in a could doing, big the up don't and we and for top about and how It been on Carriers a I third want Netflix in best they X done is receptivity that shipping have It's and talk the of market. that's The exceeding my to you trying some forecast, and exceeded long will not of that when do solution, of We think with are exhaustive than nothing they're form we point to will us. they picked are look picked and for out, and announced market the we're recently less still industry spending, complete of with, market, that best the been. the in expectations across CenturyLink/Level new well, laid landscape, the the at restructuring The ICEX. look frankly, of across at And has the me products all the available fairly It's It ICPs all review that it there's factor Netflix us line our from accomplish. at in it how uncertain because what value addresses industry, component how itself. expectations. subsea. look suppliers accounts could anything you

in guys. You and module you systems the the in see you in the see see guys, it it component it guys,

is I technology? So to restructuring, on the environment. think it's disappointing the quite this the have I but frankly, think to Dave, considering do, in that landscape imperative, macro

David F. Welch

I'll Tom. think add couple comments to I a

the are optical of our the great Gen most which seeing are applications, subsea. X We in engine acceptance stringent

on strong to with propagate technology. think both reiterate functions, that and to came Gen the to to driven conference response and and That is on when we the it Gen X for I that's still that product, comments, out, faster similar we Tom's a than our products as community will subsea again, indicated demonstrated out have continue platform. it of superior call validated there. we market, getting we comfortable think other left are the by a applications X through one, has, the interest And types and we go what saw the well. Brad growing couple

George C. Notter

it. And changing customers affect opening products the then always allowing wondering. a in those customers? in from understand, does lot follow-up, configurations. you vendors, open and ICPs like up capability historically for and of kinds they how and guess and terms taken it's wavelengths haven't advantage Got ICPs, and what I just now, – of been that of changing price I a I of then that earlier that's line now. those buy it margins maybe that in requirement sounds that I over understand mentioned is I'm that always with Why Thanks. the system from guess you a as shelves that's alien those shelves are

Thomas J. Fallon

We It's interesting verticals. trials seriously number while, there the it, outside I bundling and open space. open. of a that level intent, in The now the So say for of ICP And and is say, requested I a real fairly statement, that. more expecting significant are part said would explored in we multiple multiple We said geographies, a open being, there's deployment of on now think. George, been ICPs quite has didn't are have ICPs. as we limited you're ICPs a general doing

think an opportunity I with longer their overall that cycle. it's it's but put guys it, I and some is There in caution engines. these think goes a a sales optical that along to for leading of spend place lower

your have initiative Open extends it. now infrastructure it and right mid-next We significant doing ICE number of current year. to a a the across into trials early technology put We use that latest ICE, of call customers with so

they're couple won have very of would not – they're interesting and – We a important. not They're well, deals. I

it this view that capabilities can starts have enough significant space will the of opportunity very will be, to that a going a of that be significant I in winner quite moving is space. people's frankly, is even the has ICP lowest-cost, best-performing covered so and the for I an if guy transponder. landscape, very significant amplifiers, across optical this of complexities with driving that to building, ICP reluctance outside forward. going And hard, market us hard. is the momentum as of it And associated the that There the to margin. grow savings a the the across of this be systems. other much this opportunity will the think who line world But our with the is is as We're I not we be industry. it running us because think has think you operationalize grow different push look the the be guys most that The been, some the transponders to think for it's occurring in enough, I that transaction

George C. Notter

Got it, thank you.

Brad D. Feller

to portion touch on obviously, of make George, on margin your the we our transponder of the the the question on majority business. margin piece, So,

from So to transponders when our that system, happens thing a we're able good line be other put perspective. that will people's a and margin across

fulfill with margin side, is through our new and be because On as more the there. cautious we they infrastructure that's obviously obviously that us with have that costly that to of a we flip build customers portion and follow less footprint

George C. Notter

thank Got it, you.

Thomas J. Fallon

Okay.

Operator

ahead. Please go question Sachs. Doug comes next from Our with Goldman Clark

Balaji Krishnamurthy

Perhaps, for Balaji tracking on for below be, that give order on losing typically well at meaning, long your could, Are think do overall for Doug. they you Thank rate? share industry. Level share, sense are take prior large at to be does M&A stable? how you. closure This you it And they for I rate on based or a should the normal CenturyLink your from to X you customers, orders from where X. is touch commentary is on and a run us Level and Krishnamurthy if CenturyLink want the then

Thomas J. Fallon

market gone of never X either or not or that avoidance We have they CenturyLink but I share sure, believe capital are within we the on expenditure. Level just complete XXX% confident a are say losing we footprint, separated. highly combined

new signed. working the quite the to I that opportunity get, get think reflects they're They're the a frankly, contract joint to contract now waiting of business.

of quarters. So reduction like I so back I of cut in low reduction. a took They rate. it it's CapEx stated normal a In really unusual something it probably how them quarters size possibly price achieve X in in was of have other are their an for what ones number get two a go. closer consider part could and of have is it opportunity that size, at goal to assessing can I to wrong long to the hard for this it, it would How could run spending. this poking take take, saying so time one

certainly know. year. confident it and this it not happening But market maybe that I quarter, in we losing happening feel anticipate could just we're next happen don't don't anticipating share. QX, I'm not So we

Balaji Krishnamurthy

it. Got

David F. Welch

are right buying one certainly piece and will – talked Brad in buying now, into at that of than larger have in translate footprint The general is of information past, line the that it means expect fraction – they customers are a we they cards. the our

Thomas J. Fallon

actually We're in footprint more footprint. even lot to a general, in selling guys. That's we're selling those interesting that actually

again, regard fill. buying hopefully, happening they more anticipating an more have when is fill, I opportunity in we're it So to year they it a I will and next for on outlook, to expect the that start so have an outlook be,

David F. Welch

Yeah.

Balaji Krishnamurthy

Level clarify, to and into do just X footprint you are just And selling mean currently? you CenturyLink

Thomas J. Fallon

Yes.

David F. Welch

Yes.

Balaji Krishnamurthy

Okay.

Thomas J. Fallon

Yes.

Balaji Krishnamurthy

the it there? was think you follow-up anything what's from one Do ICP it. here? was on any going lasting temporary weak you on throw longer And term Got that can more or in on then the another light quarter,

Thomas J. Fallon

to watched COLORZ you of Inphi believe – some the is if As some that announcement, one you impeding traction. that make customer. with is the guys I customer, that significant starting our that business

Balaji Krishnamurthy

Got it.

Okay.

David F. Welch

that pervasive a though. seeing trend not are as We

Thomas J. Fallon

one customer. it's No,

Brad D. Feller

Yeah.

Balaji Krishnamurthy

to what's or just Is final Got delay here? causing I on get products. launches it's it qualification delayed product issues it. there? question hard these but right, on the know the exactly And something going else

Thomas J. Fallon

this had little think we on anticipate prioritize I things. of I just a was you CXX first. say, bring general we've refresh of That line product dramatic, on and selected but resources in the in getting some type ability next short optimistic We've to I overly third, of And anticipated. XTS-XXXX areas of prioritized of the a that nothing in bit a I demand certainly part multiple the from That's groups, later do release these upgrade, we a significant quarter customers' I as the also anticipate our have, the some – and as QX. we had we and ripple but when problem, period couple a will of just to cascading our to crisply challenges out entire a external. have the have impeded I hands putting One, pushes in it earlier things, of it technologies market XT the ability things expertise our AOFX atypically in pre-GA in it It's out. these with in would some caused platforms. slip in a has for being of time. certainly it's I experts on couple we and certain say, engineering kind

Balaji Krishnamurthy

best. the cede All the it. floor. Got I'll

Thomas J. Fallon

you. Thank

Operator

Henderson go question Our with ahead. Please Needham. from Alex next comes

Alex Henderson

that wanted restructuring. for just to about you talk Thanks. bit a little based the suggested guide the OpEx on I XXXX

I gets taking million rate, you four be fourth the take and of out, wrong your $XX million, should the improvement the million you're over if – but and think me – at the when multiplying $XXX at me if was comment looked year. quarter I $X that only million. a course and suggests I'm correct $XXX and at million $XXX numbers, run by you But

suggesting How And midpoint reconcile of you the million flat recent You're $XXX I this again, guide at fairly fact suggested million number? OpEx particularly, as that is for light would that be improvement. only XXXX $XXX do conversations? OpEx, at in the had your in in of $X million

Brad D. Feller

of million Yeah, so the been pre-restructuring impact the taken of we quoted commissions. the includes quarter then these impacts get of into already got XXXX, so you've you you've of bonus, the actions? reset as had Alex, you have the numbers guidance not the the And I reset focal, for the got $XXX numbers would the that the of fourth got restructuring, the is

had nothing number. were based we on we else So, the done the that's $XXX trajectory million if on,

of So that and what with, the number. we is is million that $XX started off

Alex Henderson

big increase million fourth that clear, you're in $XXX to quarterly to OpEx at Because certainly pretty from would million. be you Just $XX.X cost? quarter, in have that's suggesting closer the so been a

Brad D. Feller

been of look spend, you you Yeah, around and look Alex, and million QX on, our so QX trajectory have at at would were the $XXX we if back spend. QX

seeing holding and in QX in and to starting impacts of in restructuring. in – get back advance definitely the we've guide tightening the you're the So and spend already of QX

Alex Henderson

Great.

mid-single way last CenturyLink Second over suggesting business really lot completed was a turning made the year. be question, to because on line, in various the running it's the was the partial and at I the from hair improvement revenues of back there digits, by lack them than just think able CenturyLink X that executives XX% and back would quarter you where comments in your guidance least CapEx. that better "red with would a of or Level that year a the get that was maybe of of correctly, rebounding to implying top so they One for recall were. If by away hot" half

reconcile I those do how comments? three So,

Brad D. Feller

we been us. Alex, and to Obviously, QX, upside decline. continued believe so to that X lower a spend they start that bit had again, will Yeah, good QX, we in CenturyLink when have running do ever quite in Level be expected. and They again than for

how is be recover, that much when start will will it that a when back. comes when be we will to be, thing. have good So that challenge The they

aspects thing other clip. overriding gives the of the to though, year, assume us at a that nice market their correct of are by caution that should half for You The the growing is be spend second XXXX. the

Alex Henderson

if gear that But that be a kicks over other down alone to the spending in offset where give back you been you if back rate this be CenturyLink wouldn't going to things half suggesting company are starts the prior they anywhere merger? Are occurs? to had near and just XX% clear, into growth to

Thomas J. Fallon

Alex, you're to us levels prior don't be, spend to possible, more you're I If drive that. XX%, assume they're independently. did but that that than it right, to would they that. mergers know imprudent assuming at going the of We think, would that's

think business long-haul afterward I from network their overlap contract a what going have $X networks to to end up a networks, some have that that a in $X happen. be going to do to Two, to strategy. go Less not They going know go with? we things might are business. to two, are One, of before what I reconciliation. they they two going couple are perspective. than going so a is. have through there's understand we're don't have to have to many how they're

are a understand So about I of week. we have uncertain lot been those things completely closed because premise. your that a now for right it's

I it's think that thinking, customer. We but happen know the to assuming some logical what's based new going premise – upon that in we is within don't. those

Alex Henderson

One question, I Okay. could. last if

as the language the was in you'd the used you pretty prior and conditions, pricing about comment used quarters. same You much language

Thomas J. Fallon

Yeah.

Alex Henderson

pretty as been. Has has change far as Because there couple it the can been last months? tell, as course of much a trajectory in of the it's I of pricing the over

Brad D. Feller

it's not that it to challenging. continues it's Yeah, just be worse, Alex, gotten

not said a but just It's deals. wasn't bad where be obviously, last phenomenon. to painful. very new year, as as bid we continues to continue it So on It see we situations competitors aggressively

Alex Henderson

Okay. One...

Thomas J. Fallon

environment. hypercompetitive a It's

Alex Henderson

I if question last could. One

suggesting new in give are to talked improvement in sense of some You margins assume XXXX your I back of get the the you relative margins what the assumptions the products? about mix gross shifts least your And in course to of would some sales? the card to past, over half mid-XXs. the as think, XXXX back gross us I you at getting in Can

Brad D. Feller

by of also the the portfolio Gen both commercial more what get you get to structure. the of this done much as year. the XT of CX you'll biggest thing more and is drive is that there cost the better will we've high end in fab, rest the some cost the with terms the grow will That as early then ICEX And and to the well. so of units, you costs that out, largely which for has volumes Yeah, X be the benefits experience and the done going to and then of deals of start transition units

Alex Henderson

in mid-XXs half? doable the back So

Thomas J. Fallon

Yeah.

Alex Henderson

Okay. Thank you. I'll cede the floor.

Brad D. Feller

Yeah.

Operator

question reminder, and one short a questions limit to a your follow-up. As please

is from Our Genovese Partners. Please ahead. MKM question Michael with next go

Michael E. Genovese

Great. Thanks. Hi.

spending but the the there one large answered said in to some there through was next also another market the technology, the seems delays in seemed already in question You've and year. to year ICP shift just ICP, about you where end a it be like into of general, this

couple more talk you're patterns about next generally you what market ICP the and seeing of seasonality the over terms can So quarters? in of spending

Brad D. Feller

Sure.

So, adopt seen platforms. Mike, and same CX customer. of them We've and good. referring the actually both to fairly The start been the is the one the comment ICP same. has XT you're It's rest to the space

and ICP have We that more the multiple in products. and space, win more traveling continued customers to are new the we more

you're comment spend to still seems healthy. same, relatively referring the one and otherwise, the is So

Michael E. Genovese

should seasonality Okay, or though we it my not in the a a want general? for phenomenon follow-up, to that in just this Christmas I that terms market, that don't but even follow-up, slowdown expect a around market in of is is that be season,

Brad D. Feller

all us. of that have adds budget anything either. that couple side their into basically the is big out hard out challenge only prepared of year-end see that flush our so call, capacity don't of space things any haven't piece really The a we I is No, really assumptions my next year, a specific we of point then mentioned baked to remarks, And for which I'll in we in is, for as seasonality. customers have seen pushed into

Michael E. Genovese

DSP. Okay. is the just technology a your about And focused other question I it ask asked in ICEX versus then way were technology, very X.X-terabit to more you because want first a

I think Ciena has a X.X-terabit.

application number, that headline other DCI a out think more But features at? other doesn't X.X-terabit? Acacia who and capabilities to X.X-terabit looking we X.X-terabit, the that the are product comparing has facets or attractive, it their mean, just have should your we be say, there X.X-terabit that than makes the has technology else versus looking besides somebody I I yet. are what at

David F. Welch

they an technology have What unique in we subassembly. a in comparative out box. about It's a talk X.X piece XXX-gigabit today X.X-terabit, terabits of It's deployed a what optical a a is the market refer to So PIC. have a of of equivalent. when technology. they common in that's piece people coming terabits X.X It's as

that box capacity not Our cost in a optical to need package drive set completely XT-XXXX there's capacity gigabits higher economics what time multi-wavelength per gigabits higher. a leverage The box. photonic it's and box, per a does this is per is different It capability. optical is have We that drive enables no at point of that X.X-terabit technologies integration the per believe subassembly.

for network by for is customers to subsea space that, key have significant only on-demand but the gives and you adoption We enablement the ability bandwidth very application. not within of the critical for in Instant the that. service for the technology networks. space So optical the strong for see that Bandwidth and it's application provider a that piece our the It's offering

the ease that a about see we've is also of that doing. this use, it software Again, we've of ICP software, capable facilitated referenced much in reliability, win as for of about interface Tom Netflix application. software and our We box what turn-on as as rapid got. CLI That's an the optical this turn-up is engine ease interface,

continue to that of growth, and market of our I'd we So complete win from offering, it's offerings. because customer suite a share say

Thomas J. Fallon

gain sharing, In today which in only regard the matters believe people subsea I offering to DSP, the space. we're SD-FEC

making surprised you matter into strikes fairly and have believe it the have think networks they're and design when to It's their people transmission. I people market, is run in terrestrial about who a subsea. of that capability ours find people terrestrial specific commercially cause talk receptivity. it aerial a the that's believe because to and often they I leading subcarriers, ability offering is something terrestrial realize I in don't they're lightning networks, a which decisions. surprised out is they they lot matters think strike aerial, only performance who don't for to we're And disruption lightning People I are lot today Nyquist a in the that DSP. will the

to it's So talk not say DSP about the really segments requirements, we think various frankly quite DSP, DSP have there ICP. DSP leading today. important you for have when out for different I and

David F. Welch

Yes, absolutely.

Michael E. Genovese

All right, thanks lot. a

Operator

ahead. Please Kovler Stanley Citi. Our with next from comes question go

Stanley Kovler

order ask networks guys staying be a Thank you lot past. the network, on a is telco the talked as be recovery incremental? a patterns increasing utilization just Should cloud you. be sense So words, I that will in Thank past? in the we across as you. a the seen on have will the networks high-level to not I And so the that than customers we've other in traffic that expect rates point? in One past very think you And of your may this couple the come doing we've at when are do the a referenced and all terms confirm question. can first I what capacity back, times. you I the utilization you orders the wanted much that have this that of of seen Tom, in is flatter we've follow-up. the thing of guess about

Thomas J. Fallon

drive orders apologize. a couple I regard I cell traffic so to staying cloud, don't question opportunity. in In back, your I in think the going things regard coming understand to are to

optical new our I linearly. to some the customers to to I new but with think see our opportunity believe is I will I family. that where well-positioned will think competitive, win we're we gain with market going do we're exceptionally subsea, XT-XXXX continue CXX. DCI in continue The to market think believe share I grow somewhat

could the opportunity big customers the to as in is It's the expansion half and do upgrade that think answer, of to I next revenue AOFX, their And it's probably significant upon some pretty second or happening think rate the right think year. see be hard it make continue competitors A a one half will grow I a certify I in people environment of and of think bad, network the ASP significant I with same believes of ASP more And step to the second be I which quite said lot in for market, everybody unabated plans. I function. year that XT-XXXX, it function could the drive versus also bandwidth, dependent bandwidth in half they but think right of first that step next DTN-X a continued really it's compelling their it's compression. growth growth. at back now, to as linearly now. going see compression competitive frankly coming our don't

he zero to allow and I I he time, market industry saying expect what more X% forecasted significantly continue us grow that and year, us now. tell a Brad I being significant that a to new next should the think share. positive in that over time end conservative. think look grows you reasonably grow to conservative that has on to we hauls conservative, to the have than for technology our to think I long do hard telling think year, being opportunity next up shareholders right today. if we But things believe is transpire we see we have way, reasonable reflect XX% a what could to there's

Stanley Kovler

had as terms to issues? overall. impact My question meant they Thanks. bridge Can just were between to items as you accounted various the near-term what for other were on really expectations revenue? the to of mobile. I parse we've had guys some on growth what question DTN-X in relative or the related Can follow-up my the about is general, us growth you expectations XT-XXXX what far through just maybe expectations the maybe you've in outlook for wasn't traffic where staying But as traffic lower we pushout, and as cloud based and QX.

Brad D. Feller

the CenturyLink/Level the Stan, us, that ICP the we're Those pretty expecting down in down versus was so. thing, to. problem a between I their what Sure, is customer significantly. the That's sequentially biggest the big we are expecting world mentioned dropping also XX% what by the quarter and items guiding fourth two is were or X. for another spend big that

Operator

Meta ahead. comes question Please go Morgan from next Stanley. Our Marshall with

Meta A. Marshall

do talk with made just two announcement model Arista pricing or line from announcement cards? not line selling so today. the that to what Like change towards Great, of the Netflix, open that George's And the model chassis Netflix you had or question gauge ago trying guys systems were relationship of traditional if you're couple there? that as the on a second, and necessarily about but quick about an kind accepted more just a think pricing then you between been upon earlier, how by data selling announcements that and center building was And trialing years you're the differences moving and the interconnect the pricing of question figured does industry? selling made has out necessarily razor/razorblade Thanks. model not and their

Thomas J. Fallon

switching. Netflix, customer the data to that's that is be probably doesn't would with surprise using which question transport data the different for us. a customer the be That cloud, centers would centers Netflix of for an It candidly interconnecting a what announced data in would for, Arista certainly first center me or Arista and us into than So don't them. be We I regard Arista know provide what and inside optical they're what using for.

your can't that competitive sell way different We customers a I Arista. question Does answer It's be think application So it's with don't a any different how I architecture, at to your unusual answer in and for different. in so on not it's with us question Arista. all?

Meta A. Marshall

indications can so we shorter it switching, as applications well. if indications a – for of I or Arista in follow they or made take that optical optical made but with it for kind their rather past, more the was know reach was had don't it but that systems up offline had They more it than was

So...

Thomas J. Fallon

her. Jayshree and We should and I'll it ask call offline take up probably

Brad D. Feller

talk of pointed it, lots Open as and your on of different desires it, it Tom deployed Meta, it question, a not ICE out, is to widely model, lots have of a about yet. seeing bit

because I were be in be very have you But you to line you to to obviously, put going will you get you think could the more line some it systems at knew point. as aggressively systems, price because cautious historically transponders. afford

need to make traffic on to other sure getting systems, situations, people's those we're we more those if they're those... Now, putting in that licenses careful need we be line that for

Thomas J. Fallon

Yeah.

Brad D. Feller

return us ...that for flexibility. got a more we pay and for well, customers fair to in make or money, our you more exchange the you to that, say, still we and go get line system,

but management think take deal deal-by-deal thing does a it's for with, it us. on will So term, basis, I more good something we'll longer and a ultimately be

Thomas J. Fallon

while, right paradigm no a is worked The a I is very longer model figure for think and I system that but model, be into this to for has to open. line the model it'll blade business the transition there now it's of trying a the industry long new time, appropriate out for model. but that whole be going in industry to – Razor it going the open think, more

and drive Google trying doing Facebook open watch to They're You their these line system with initiatives. what models. are

If our said, you as transponder. sold competitors, filling look when us it Brad were your or at with anticipating you you your amps,

an a to that structure think I how down, dancing of I a accept from and frankly transition to use of of around it, my you paid, that's quite and and some customers get get think there's if to amp be is that, but business from-to, this but be level transition don't how going we're you do going slow of to done, Most inevitable. lot I in transition I that the that? do people, most going value reflected have Now fill appropriate there's

David F. Welch

little grab are difficult, I'm of optically-meshed system When The line infrastructure. is bit have bit. networks. deploying right? in meshed to going general trying aspects don't There the a all and difficulty service for that of are in The easier of or track service little types very you X line there within deploy to over the implement. The the network, of an open multi-domains there need operational a to two to you task link the a neck one it commentary is to are mitigate keep across networks, an optical is multi-domains, to the point-to-point networks, you're then point-to-point optical OTN track keep Layer trying across over network. system

for the service your pieces however, not within amount opportunities, and a it it's Tom provider The when certain provider bulk is it. is the and centers, ICE application. they services service between a have data a a within point-to-point Open are application, those Brad meshed network. point-to-point a about have really ICPs talking So business, of of

there. the got you markets differently to so two And look at

Operator

question James. Leopold comes next from ahead. Our Raymond Please with Simon go

Simon M. Leopold

you. thank Great,

clarifications Just wanted question. a two to quick get before

took step down. look like On gross it the the clarification front, for does margin a services

gross to the I think been It's appreciate. margin something pressure So, wanted should what's most first in whether certainly the gross just we XX%, but there? a explanations services, looked of XX%, generally segment the regarding little understand there's that on time over understanding margin clarification on services get above on the around going is products, I like an so

Brad D. Feller

Sure.

So, between quarter any Simon, we to where of deployment services maintenance are so come different, mix with EF&I going as our you adds, know, and footprint our have services that the ongoing some stronger that's will on each we still it but mix the services so that doing. we're of XX% a way in couple depending a lower profile, which margin fluctuate has that points a are range bit the

Simon M. Leopold

Great. an guidance. very the around I follow then wanted And on OpEx That's helpful. earlier question to up

you point expect full restructuring want kind it, make sure do I'm year to for a budgeting roughly of million? $XXX that this XXXX operating understanding just to put for fine the on So, you're forecast. I expenses

Brad D. Feller

ballpark, the Simon. in you're Yeah, right

Simon M. Leopold

to Great. And it. a you're overall maybe angled could in going of had double then and That's question because scale terms the if cycle we've little very where market. metro about as of I presence, it ask seem click kind wanted got is to hoping you've web the you've talked we was lot the market opportunities, helpful. that's where on I really, product the trends the does

your maybe a of portion you. about think Thank we around should metro? how whatever So you quantification offer business or can

David F. Welch

try metro question. successes we're distance and having links. today in Two the the are I'll answer metro that Sure, places significant metro high-capacity

of seen years, Much leadership certainly we're within metro, volume about in in also cross-selling coming I of from as types that XXX success good account metro that. we've wins, gigs because a we had applications, think the the dollar named the a We're far there would what that. of haven't opportunity the having see but I last As lot access we call a of position of and talked opportunity. couple lot for we've

expect connectivity the missing And Infinera ports. a opportunity links some capacity We focusing The energy element process. on. strategy market those with we for capacity that's connects that high metro see that forward. bandwidth that going product lower management as are that's metro still access growth in a piece the We is of our good the definitely

Brad D. Feller

and yeah, let Yeah, Simon, the just on Simon, other – other touch thing that thing. one me

those XT some network, opportunity over go deeper We And the more but linking as guys what big fiber out and be but I onto will team the few initiatives, well we forward. the were there, longer opportunities those metros. the for the if we're more the guys think opportunities metro drives our with I see about of as whether as great also XG portfolio. quarters, fiber-deep us big look it's spend term amount are you the leverage the not alluding with cable term. has They're the to to at think strengths very the portfolio, of longer those what Sweden is very talking next as those in to that opportunities both pushing the brought

Simon M. Leopold

combined, your of quantify to XX-plus acquisition but just on XX fair to this, sales of and order to trying of metro is XXXX, organic So in reasonable? percent to products through the that think

Brad D. Feller

then in in I And ballpark, the It's ballpark, it's think... yeah. the

Simon M. Leopold

Great. Thank much. you very

Brad D. Feller

could yeah, I more than of we as that. Simon, think ...longer – with other If we those right? term, get be initiatives, so longer traction term, some it

Simon M. Leopold

you. thank Great,

Brad D. Feller

Yeah.

Operator

Kvaal Instinet. comes question with from ahead. next Nomura Please go Our Jeff

Jeffrey Thomas Kvaal

time revenue margins what that that you revenue gentlemen. to little maybe is I'm how ICEX erratic, point more for you, one I the earlier you is, needs revenue PICX mentioned fleshing think line? how or type that much – little. left start of a and up secondly, a Thank before couple wondering go. in if Hi. could pass out at picking then spending much remarks And A One the spend – product bit to

Thomas J. Fallon

some is a Yes, two from expansions time. of then for metro certain part, consistent and or what we'll quarter-on-quarter. In they – significant for and erratic it's make ICP perspective, purchases not long-haul are parts. that buyers away we of about the will period talked kind it in the see expansions, we it break really guided They'll go

of in a not level typically we steady, run segments. that it's So rate see consistent other

erratic business, people we think I think a know a ICPs. and have this industry they to I that lot being lumpy But pursue on continue in level new doing in doing bit we still spend. is ICP, And a if a recently. other of technologies. see of if that's and don't of see opportunity. it participate I still time that, But in or We of of are commented continue way a it we'll point or is do lots to where of the transitions new

Brad D. Feller

Yeah, of continues ICEX In were extent, increasing nicely, several very numbers that grow but so, to in Jeff, in that that QX, over, small to we on some mid-single-digit to grew times in obviously, your are significantly QX, ICEX low revenues. QX again. volumes question, millions we the so law mentioned

just by volumes the us going of factory. So margins piece high costs dragging thing that those of the the overall largely quarter. end the thing early more subside the which today is should themselves, the Gen only that's on units, is the X just this The through hurts

buying customers being CenturyLink big Level in down X X would they like Gen So, the and not volumes because of otherwise.

very we get margins some X some through again. once some see the start back, higher you see out, to to of nice-looking commercial the So, units and bounce of you get deals the get cost early Gen we to start

Jeffrey Thomas Kvaal

Okay, Brad.

So about is, se much is factory I absorption your volumes, ICEX or guess, it your as your gross the the as volumes really point – on per limiting it's the overall is factor about not margins.

Brad D. Feller

Correct.

Thomas J. Fallon

time you any where a early you – have there units. introduce has new generation, the ICEX consume a period to is

whether Gen more or that overall through margin X, the loading causing it's Brad fab, across QX, said, is company. but of going a PIC mostly the is X, the be X, to done As pressure

Jeffrey Thomas Kvaal

Thank you, gentlemen.

Thomas J. Fallon

look us We afternoon our forward to joining you on Thank progress. Well, it. questions. you this for updating with that's your continued

Operator

conference attending Thank presentation. today's The concluded. for has now you

disconnect. now may You

Infinera (INFN) 8 Nov 172017 Q3 Earnings call transcript