INFN - Earnings call transcript Q4 2017

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Operator

Welcome to the Fourth Quarter Year 2017 Investment Community Conference Call of Infinera Corporation. All lines will be in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at that time. I would now like to turn the conference over to Mr. Investor Infinera of Hustis Relations. Jeff begin. Jeff, you may

Jeff Hustis

section and Thanks, conference XXXX CFO are investor quarter today's Anita. to Infinera's commentary relations the on Welcome full-year available our call. and website. fiscal earnings fourth of A of copy

recorded, call as Infinera made include uncertainties reconciliation available expectations. fourth will of for will or is quarter this to are ASCXXX. and and this differ estimates and results could that the Additionally, cause statements. and Today's subject These risks from statements website. be circumstances that date are Infinera's being is most call financial projections replay using constitute statements its call. today, forward-looking Pursuant to in Infinera measures. that the may conference measures non-GAAP Commentary. results Revenue measures to CFO no to reflect all current directly as materially factors, of Commentary included comparable result certain that filed our management's the any filed provided most furnished may call a the reminded revise events of has Regulation from materially earnings undertakes financial update as of Today's statements obligation to X-K CFO today. Actual financial as provided differ risk release well forward-looking to XX-Q, various and Please these as GAAP with earnings in recently or after and arise be non-GAAP G, guidance a release our includes

will the over QX Fallon. Executive we first an to Chief when ASCXXX adopt turn Officer, report ASCXXX provide call for I results. ASCXXX We and XXXX our Tom to intend will to quarter reconciliation now

Thomas J. Fallon

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

Since XXXX. quarter the share In Brad me provide guidance the key $XXX turn was on delivering I enabling with well, Dave million beyond. growth line, QX, better traction for above accelerating deliver thoughts last over us fourth Feller our our an and guidance our Top-line our on products revenue more quarter our excellent the been on EPS a account financial midpoint. Xpress will driver million, we also of trajectory, margin for QX. to Exceeding primarily attributable to to review Joining I'll of ramping million. releasing of Today, bottom in was ICEX then of opportunities than first performance XX% call and $XXX and detailed to outlook Cloud and in Brad, the XXXX X range to who have products. are Welch. about revenue today review $XXX June, in executed a will first guidance our and product operating ICEX

enable for of In customers QX, As forward. our XXQAM new to recognized XTM new of II customers we we metro, the QX, meaningful ICEX, expect revenue end moving ICEX of XX of up from QX. from and the XX end opportunities customer had XX from for as customers

to two US-based a ICP, platforms. From positive, a opportunities the of EMEA. revenue results While large ICEX adopters biggest standpoint grow its quarters. contributed in a Of perspective, our to was note, were XT-XXXX the in deploying opportunities we who were QX from early these and Europe driver from revenue of meaningfully customers QX, and the first large in customer is a strong in for growth center XTM CXX II relatively small see with coming products, reception vertical one and ICPs, built today, of significantly data

and XX% of particularly was APAC technically-demanding roughly fell in in is customers our market, rate exceeded transition, product strength a run gained growth QX. a driven to our which the In revenue subsea and growing X% stagnant in our an both despite quarter indicator and market international improved by full-year capping in to With of full-year was outstanding a QX, the XXXX very driven the world, spending primarily during driven our endorsement an in strength leadership due QX. new the region. X% solid XX%, our After from region half, being clear over year-over-year. the EMEA growing most technology was for telco. the XXXX. was and customers. growing our however, fourth was Tier the strong providers, first our X revenue then down cable future and in revenue sequentially Infinera's off customer APAC momentum was North here second subsea, XXXX opportunity. by as strong, America, primarily consolidation year-over-year, late XX% up in overall previous consolidated in Internationally, of business year XX% well, service growth more XX% X% in XX% Regarding XXXX than cable This tough sequentially by half QX, in Subsea, in

business optimistic revenue, the cautiously overall X% are a region. yearly incremental and the remains in APAC new about While of we piece of opportunities small

As do have not in a business reminder, we currently China.

momentum, ahead detail, for in revenue as sequential XXXX, Looking anticipating we three year the grown growth the QX. past enter quarters, having to with sequentially will Brad

the grown factors. XXXX. As we half better-than-usual first we year, to visibility half enter of The few due optimism the the has for have first for a

for and customer first large plan First, constrained now XXXX we the its cable had spending spending is that consolidation half. into during accelerating a

pipeline last revenue year outlook our to last built of quarter, near-term. second we the relative in have will translate half higher confidence Second, we in the to that the

and suite cusp our the refresh. I of full to on we're product products Finally, am new finally to demand. completing our pent-up forward deliver looking able satisfying of full being

less of completed and soon. trials new is pace are start and into of to low-single-digit half Indications If second outside the double our products in several in looks largely for network with XXXX said, enable key to visibility is and our new recovery visibility in the these us products. In we overall of we the on on short, trials more opportunity second wins be XXXX to decoupled half. robust, important new Trial improving, second-half in and will somewhat of is opportunities magnitude the continue adoption business customer new from of from drive upgrades for XXXX customer our scheduled but our successful, the XXXX range. activity the have half, promising, our of don't opportunity light, dependent DWDM of market that be half the believe as is growth we have year. XXXX. typical, than the later China first both until trials That first the the middle should While consolidation of

opportunity. report XT-XXXX that, in pleased maximize of shipments DTN-X availability started Of to course, January, expect I am completing with our during we our product line new to units market QX planned to terabit refresh is QX. lab shipping general for imperative during and begin card this revenue X.X

of these While solutions the roughly to recently the products new and addressable multi-service the bulk two-thirds. our market. like XT-XXXX new remaining address market, remain DTN-X XXXX FY soon-to-be-shipping enable The products one-third our cover integrated and of released in us is reality

our final these refreshed we fully With customer to releases, product can entire a product base. offer suite

due future we as return see XX% verticals, opportunities XTM XXXX and having expect are XXXX, due end to in Building late dropped to consolidation, to introduced customer in cable and Looking also customer promising XXXX increase on and will anticipating anticipate anticipated moderate In roughly in growth. in upcoming see to in seeds planting which markets We a of upgrades enable continue year, foundation overall and fiber-deep in base our II growth XXXX. multiple new market that for of multiple long-haul, years, to positive with an we receptions providers revenue ICEX good at our customer with our to which a market XX last revenue In around in has subsea, across making metro, installed growth our roughly recovered us be traditional added XXXX to building a a long-haul our business we new customers. another progress cable strong XX% year to we metro. verticals, European initiatives are overall was for important potential XXXX, XTM of customers XXXX, historic solutions. share we key establish In our considerably business year will strength cross-selling to XXXX, and us new driver.

trials subsea business. our upcoming technologies, our multiple differentiated for Given our optimistic outlook is on

is in our Finally, was and roughly revenue. XX% metro of which XXXX of subsea, long-haul, DCI, comprised opportunities

prospective we have XXXX, For with new the though with some today that to existing deals solid customers second could a materialize in and are early customers call. pipeline the of opportunities year, too of half

to with applications; us focused intents; The first, roster, With reach across third, that addressing for base into growth. and expand are delivery aggressively on architectural therefore to creating our two-year our shifts is with hires add should opportunities be the to we to some new our our communications second, growth deliver customers developing markets; on customer several finally, smoother We multi-year new and latest and increasingly partners to a to strategic us. product the to like significant being new go-to-market address help better execution touch bring made development shifts strategy. cut changes, end customers new technology. present complement intended market cadence; recent to architectural I'd we in organization consistent and Today, it two position result that our multi-year technology believe apparent new solutions our integrated processes opportunities in that

it without The replace systems believe ICE in system. this that terrestrial are allows cost large customers over line and to open virtually I'm there opens this Europe. QX we to because from advantage to optical differentiated we refers call to We occurring wholesaler increasingly we ICE applications, in the and both investors their transponders Infinera's matters Open to latest move our platforms. anyone's and ICE technological and were up industry line for first matters awarded a sold point-to-point for ICE our First, our Open our engine transponders. decoupling encouraged is being to separately. gradual previously Open line a them systems. selling have in because with deal Open it footprint where benefit transponders unaddressable having structural a disaggregated

win commitment we some Open optical While being to ICE provider likely the the technology demonstrates this will additional opportunities shift most in take expect to new its time Infinera open as develop, market. to

requiring more to revenue deployments gear. networking including edge, companies, will Infinera. represent a optical optical significant magnitude to of fiber-deep opportunity orders the of incremental Second, major we Fiber-deep for two take continue metro cable believe operators' traffic strategies

an believe and network supplier As made be over year anticipate cable begin multiple address revenue this major second will the years. we to to the incumbent in decisions to we to follow are of operators, well-positioned optical half extension with several

Looking both differentiated perpetually and faster technology our restructuring an organization to increasing addition that putting in place the the product over further in go-to-market near-term about in was out, our ensures focus, delivery long-term.

that pleased to market to will engines engines we excited I'm our optical therefore, cost every and progress look are two our and front, are are that track. investors. differentiated hit We a hitting ICEX and providing engine I customers development on and new the on with introductions we market, years optical performance ICEX am to closing, bring in believe We solid March. with plan the at nearing mark optic our on growth to forward more optical making product products first-half completion financial lead this where In continue details and, ICEX our I OFC and expecting on remain performance.

introductions; from our of new over my optimistic, to our go-to-market customers. and finally, considerable the mode, opportunities; In remaining our will namely, expand and corner with approach, the the confident with we second CenturyLink, particular, customers and is we customer recovery turned products consolidated half our when the of product win spending to be our are just spending the improve. recovery begin view remain completing to in opportunities. our continued suite in our are maximize addressable in uncertain refreshed new Success have still new adoption While of success XXXX; will in position of contingent course required execution continued on while we ability

XXXX. customers, the as thanking their increasing now for half attack will flow operating Brad well-positioned over the and and operating we we profitably our partners, will I to and to bottom future focus the line, call efficiency. in grow I and of close second employee a are big On to commitment discuss cash the we thank by ongoing and to positive profitability returning financials. on shareholders turn you during remain to XXXX to to Infinera our committed as leverage the

Brad D. Feller

this on year-over-year. our pleased some streamline our color and outlook. everyone. Thanks, highlights, I guidance of and provide and call, website. that effort revenue On this have QX our above our was on guidance will I the detailed in guidance ICEX afternoon, higher at revenue exceeded Tom, up the the the QX Relations and QX to moved EMEA the sequentially within In vertical. a good In in CenturyLink. to discuss million, quarter, delivered the mostly X% the $XXX.X range end full-year customers an QX, of outlook, revenue call, in EPS QX environment we than our primarily strong our ICP CFO as the offset of key range. Investor X% grew continued muted results Commentary ramp recap we available Tier spending Revenue products, X APAC from and was demand at more on new

cable as typically these customers of the the QX, end large buyers expected, declined year. sequentially not As in at are

minus range, announce the that $X this revenue X% XX% of the we for QX project QX up be of $XXX or outlook At revenue sequentially million. and million, of our Regarding first quarter year-over-year. plus XXXX, in pleased would midpoint I'm fiscal to

is While sequential shipments X.X we the products, space a based new demand of challenging, growth our half projecting our their line increasing very XXXX are spending. the DTN-X on first for quarter customer cable including in industry cards, first strong typically and major our terabit in initial

service typical do to of QX in not our note, for in although at have budgets spending take will in in in to establish well-positioned we this time on as we better expect spending from customers we customer. conservative timing a are continue QX we increase cable, forecast verticals, CapEx weakness beginning this of new Of provider Beyond our CenturyLink, material the and a seasonal until year. trajectory and as customer the believe the such, the are visibility recovery, we remain factoring other

As months at for should QX. on to summary we our steady expect we QX and We the anticipate fully revenue, the existing half the and XXXX. of our enable with a portfolio and ICP customers, the new relatively in pleased to better products product XT-XXXX refreshed CXX customers market our of outlook than performance previously are opportunities keep and customers forward add ICEX expected with In in first most releasing coming final business in revenue to year. look our the attack having for

won't of a until our noted, view we mid-year half Tom As it however, that better second have be opportunities.

on making existing we opportunities focused customers. that continue of are take We sure with meaningful while to customers, creating care prospective new

large below of range higher the margin gross to our QX from was Now few XX%, turning XX% builds customers. to in XX.X%, margins. Non-GAAP to slightly footprint guidance midpoint of attributable a

sales but As our margin pressure up to a customers capacity grows associated on turn sell impacted us deals, runs stream to providing footprint of of bridge quarter of solutions, high needs, reminder, ICEX higher over a believe are QX. amount margin a follow-on XXXX's the their customer costs positive indicator the QX basis capacity business as from revenue new and builds substantial address to the that impact the put early on with time. With while points in low significantly, gross capacity related enable time quickly allowing the last higher the revenue to capacity over the software-like fulfilling combination in by in margin incur it XXX commercial approximately is future. We which gross we point a significant marks should both margins, production short-term,

enable of structure. a investors to technology model and the operating gradually gross Over remind lower of that economics the vertically margin integrated XXXX, improve. course we our PIC expect We cost

benefit to manufacturing same unit, our capacity lead from lower cost roughly to a largely As set the optical including ability deliver per higher bit. We to at units. we the transition larger the to from cost spread fixed cost a engines, over a which customers per new of benefit the ability they capacities more

QX, basis we plus outlook deals minus behind for be high gross the XX%, cost our margin this anticipate The currently QX, to us. XXX improvement midpoint of for early over commercial and bridge XXX-basis-point units points. a non-GAAP are projected production or represents as As range substantially

not given margin of XXX-basis-point it the improvement in unreasonable a from target quarter, to in challenging predict While gross XXX- any XX%. is expect by QX margin the to XXXX of to gross end

a structure mix improvement, time. predecessor products, yields over the cost ICEX of improving important will shift products, carry along be than an margin expect with which lower driver to We

should the addition, This higher fixed to determining we cost which production the strong improve can volumes, a In in leverage customer drive represents allow extent relatively margins XXXX. over major variable will infrastructure. demand of our us to gross course

non-GAAP higher In will activity. million, higher million, $X million. operating $XX OpEx, higher million lab anticipate due associated expenses in be increase Regarding minus or of and trial in plus were non-GAAP revenue million expenses of $XX the customer $XX QX, our operating guidance with to QX, commissions range we at to $XX currently an end

QX taxes bring Year ICEX the lab and trial payroll expectation remaining to reset customer products market reflects Our of costs incremental bonuses. New and R&D required a and to

cost quarter's costs basis restructuring, track of remain a deliver we to Regarding FY run-rate last to over reduction course XXXX. on XXXX the our and on intend reduce targets

balance run-rate products will We while operating driving the ramped to enacted cadence, our greater technology spending most to of up execute ICEX have cost reductions and continue and these still and deliver leverage to final already efficiency. market

net full-year of a be $XX in our rate while decline exit us the loss execute marketing it of to $X.XX the opportunities steady and step R&D quarterly marginally we at first bottom costs new if our incremental depending while Regarding the to On below decrease referenced, profit remain run net XXXX, over a expense of sales on year, OpEx plan million. products share, improvements line Overall, could the if to this million guidance of OpEx, QX, or of course should over production. incremental $XX We operating driving our X.X% final FY ICEX R&D of as revenue per year. $X.XX higher. per in we to end a allowing on the revenue Tom will would a That for our some GAAP loss only the beat our win share. had said, a today, we us we our incurred some moving expense require loss course R&D forward. allowed performance. non-GAAP basis, a high Based XXXX expense fairly will the we anticipate we year should at release Base over of and year, and anticipate vary the our outlook G&A on the

our GAAP was restructuring between driver of $XX Beyond of results expenses the our and largest non-cash the non-GAAP expenses, difference usual million.

we For operating as QX loss X%, we line, million. $X out be the the tax the to interest QX, should currently an combination of Below of net expected is anticipate results. steadily expense and and other approximately $XXX,XXX, improve to approximately expense in

next million significant As tax impact significant given the expenses have tied expense of tax our years. the $X.XX a in NOL regulations or for of $X share, the any be a We our we net QX, future remain projected Putting to our per to will midpoint for don't range of reminder, will guidance And taxes the not minus everything quarterly. profitability. balance, loss non-GAAP should a on tax for together plus translates new anticipate anticipate of several foreseeable our pennies. the couple

$X.XX share, than we charges primarily non-GAAP be project majority related incurred GAAP it our of were for in as restructuring-related As lower QX. vast compensation the EPS, expense, per by to stock-based EPS to about

of timing, to sheet, working QX. operating expect given expectation balance balance will potential an we due cash and capital our decline the in impacts loss On our negative

cash in to which return As we generation, tightly year. QX, CapEx, and intend spending second to we half anticipate we manage as the be we to the will work did to of in continue

our matures a debt in June As reminder, convertible XXXX.

intention debt our not pay is maturity, to cash a and long-term immediately and As with of instrument. new this off issue today,

the to inclined second Given I'm though outlook of solid quarter, positive profitability QX we first-half expect or the business. the our the until in expressed and our to confidence cash of determine for and confident wait XX% we're structure Last ability debt pleased we're to performance. returning later greater the year half for to flow expectation year. XXXX, in market in full during with in our our appropriate year, the grow less outgrowing

outlook the things better-than-expected for year, achieving year. we growth QX, solid with for our some way exceed better and Given XX% of visibility over QX fall the for full this than as path the to the see to right a now potential course a

point see this the While in at visibility is far growth that we limited. half, second out opportunities our

by degree are of selling we both uncertainty technology we today results and In delivering to view we portion Given with our better refreshed portfolio endured of as to begin and cadence to to the structure, lowering the are and temper the high initial profitability we note and of customers. continue market a have turn conditions. and enable to I'd ramping technology leveraging conclusion, gaining a I'm traction financial well, positioned XXXX. the the call. remaining over encourage clear until the we significant time, that, us With call rough XXXX our pending cost to opportunity to existing on that operator Q&A investors this ICEX particularly integrated the believe on expectations build a products ended a will we to model of year opportunities half, around improved release improving now, with vertical best-in-class to a get II having second our ICEX customer And interest about enter to on transition, execute product our results. strong with XTM manufacturing Over revenue. Anita? back faster and products, like excited we have pleased the new for path today of

Operator

from Jeff today first with question Kvaal Nomura Please The go Instinet. comes ahead.

Jeffrey Thomas Kvaal

for could that you. helpful. positive that? then, your bit loose more if the XXXX. Thank mid-year into XX% Microsoft little you've for year, require into revenue range secondly, the into about understand you expectations XX%-plus all shed us you baked much. baked what's hoping or color Yes. full in does would growth you Can you I'm view, to of that can talk be Thank around or very check-in be And the a help – what

Brad D. Feller

Yeah.

have see those in but yet. visibility half, we Jeff, as described, of opportunities we So, as second for the first half. down some the locked good We don't have

So the half. flat a obviously, XX% assumes, relatively second

Some things that. to us exceed for be the right us, will what would way fall that allow

about baked out in. any Your we terms question Microsoft, specifically specific we've customer break can't what in of

Thomas J. Fallon

amount to that, add really Jeff. but thing I'm commented one market we installed of with to the opportunities few systems we a up, a in pretty bit right QX, going We've on, now plan plans. view We flat sure decoupled we but slightly that. going consider they upon to specific to being integrated takes of and huge ICEX dependent what they're of we they important ship the us customers Yeah. have but understand it's upgrades, when relatively to qualify. from really would see in remarkable we of I Clearly, significant base to our to to some ICEX have it upgrade, opportunity, a upgrade I'm think path as it's will opportunities, upgrade, customers. cadence because starting And the want gives started see to how decide qualify, only when a them that long to

to as but have to it see it. customers, also We significant opening doors qualify they new

getting have these on we go what every on us second have the do. that, So half finishing definitive to But and and reasonable products that we commit growth. give they're execute before plans going to we belief could to customers go have to

Jeffrey Thomas Kvaal

it – ahead feel better cutting see typically close. outlook I'm visibility might have having like the pretty fourth waiting of saying? a bit you you like I though quarter that. and mean, what quarter for seems you well, to typically, third what Do see little seems I mid-year It as

Thomas J. Fallon

enough two We a pretty And have gave our in outlook, never at very all, a was not guidance than don't first change be now we dramatically. typically right things which said we that, I've say of industry because one quarter and half second to insight one-quarter the extend races this we unusual into Jeff, off more yet. Yeah. positive for half, don't into regretted guided time. please would good second that pretty know the a giving because see we quarters.

Jeffrey Thomas Kvaal

Okay. (XX:XX)

Brad D. Feller

Yeah.

likely even So, we're visibility have go this gonna Jeff, a that out point. will not from but just at quarter now, we far better

Operator

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

Simon M. Leopold

Thank get understanding I progression. levers gross better around the to you. wanted the around margin a

guidance ICEX I terms yields the some of how take bit a product exiting specifically, XXXX. beginning from to to want think, versus idea something roughly in XX% understand mix, if little could want of you your better key in of XX% I improving into are dependence mix, what in terms the of see customer drivers. XX% to trajectory we to the just the like get year what is on I

Brad D. Feller

Yeah.

But So, percentage. Simon, volumes lower biggest well. a revenue, with that the the still the single XX% thing relatively factories. we've even yield small a of to-date drives that in Obviously, drives being as The profile is the success profile. it's cost had and it

better the cost mentioned, itself ICEX more customers more go production the expectation, as to Tom and early portfolio, much that will The bit things are cost is on. has the on, and structure. main little structure. the margin that a year are behind as units better much of cost were by our ships us, that everything a year a now benefit putting goes the As on Those goes and will drag that carries margin

Simon M. Leopold

So a in big this? mix terms customer vertical factor is of the not

Brad D. Feller

It's not biggest, the no.

Simon M. Leopold

you. like the a have TV there. also like you it talking about TV sounds as But happy then sounds and around visibility good trend new cable with it you're you're Great. broader follow-up, some And a opportunity, cable secular bit of just in to vertical? TV a give a is Could trend terms little around and perspective you how much of Thank and is as fiber-deep. us much more better a the cable how particular project

Thomas J. Fallon

a provider time. large a been into we've the long space for Well, cable

extend continues have We bandwidth good consider to I time is least at start running to short-term of will to normal at a to go we what growth of anticipate metros. given with in relationships been for to customers networks of with currently would ICEX customer opportunity out other to that there. what also into this we're and We've a The seeing They've presence I upgrade, be long-haul customers our long-haul. the opportunity opportunities an to adjacent came as us as one too. couple some capacity. in the perfect very upgrade of up have organic traditionally had Part ICEX extend

of So, that's kind Phase I. our

is of change cable the that to guys, II they're a the new where there's things. magnitude, bringing the as of more significant Remote to orders space, going Phase more long-haul be in PHY. means they're referred cable metro. opportunity, to couple regional, and bringing a a One, In cellphone two industry metro, it's to that a more it out architecture lot guys, capacity edge all metro. both getting broader capacity And metro Our means the to the the transmission that

are products, that across working couple our providing some a integrate new architectures a of on solution. products we some new So

it's a of it. a couple in So, product, just it's of not but different to hardware software solution transport part a platforms handle that the integrates

these around of cable not approaching some transmission. really traditional guys working equipment DWDM directly. who to partnerships have more can providers foster cable with and are historically We some also if solutioned We're see the we

transport-rich it's for is a I big. going going think that this last historically. it going to be I more long than opportunity to has time and in be been think the that to market It's

it's people, think important, I industry, opportunity. Infinera for has the watch as transport other it's So you whether the or who

time, of lasts thing will some year, is this people same Just Remote late be the be I the PHY type it is probably over be we to and years XG decisions probably and decade. think will or a magnificently large like that think going something for

Simon M. Leopold

much Thank Great. very you

Thomas J. Fallon

My pleasure.

Operator

Bank. comes next Vijay Please Deutsche The question Bhagavath ahead. from with go

Vijay Bhagavath

improve platforms in Good because thoughts your sooner on between and product see around gross of be profitability, I Tom, get you afternoon. to margins the long-haul. Hey. an overlap Thanks. cloud, platforms do have organized terms Yeah, hopefully streamlining my of questions terms is your metro, seems us in of There to platforms. Yeah. your how many overlap in

better thoughts to perhaps Thanks. consolidation, any like quicker platforms, of platform margins? out market, fewer So,

Thomas J. Fallon

products. our roadmaps ask moving kind approach that to to would Yeah. consolidate to It's see we lot will of We have a a and trying different a I think ask on complicated actually discussion. some the minute. forward do in a will of you product our I focused Dave offerings for

I bringing our specific And then needs. designed purposeful DTN-X interconnect, center for CX for got, specifically purposes. data the think which XT-XXXX, integrated a for serve solve of we've short-reach. the platforms, was we've and XT long-haul done products market different The to obviously, that point-to-point. The job was two

I a it's engine need products more ability Dave? to think to across we how do, approach an what you'll out problem. an we optimized take of constrained we what that see get design the kind Vijay, step product more instead elegant those platforms of believe don't repeat a I world-class and optical and is of solutions, do how proliferation multiple create make come It's much efficiently. of easier.

David F. Welch

Yeah.

a platforms. what is line think management I your product do that to There's to of you're includes trying couple application-efficient that have get got bandwidth integrated series one doesn't. of functionalities out of that one a you've and to

product line functionality preferred the network give that nodes. in and a node then product some We XTM that enhancement streamlined will a And a for The can out of the end consolidation of we we're product with benefits. and what further as our point-to-point-oriented on. going a within network so, the cost us will capabilities. be up of building margins integration continuing kind will continued further bandwidth the see the enhance and that that because of capability for putting the has gross efficiency grooming product wavelength And those our management is and structure it fashion, a right right

Thomas J. Fallon

line The want only I to roadmaps. use go Vijay, product don't over to thing, calls

I very think complicated topic. it's a

things do, them if going good how on encourage to our we update a on efficiently. give and to you to we're at plan One OFC, going you technologies be would putting into platforms pretty you're of and I the products more

Vijay Bhagavath

Perfect. second head quick we think could in for revenues if particular, and as as the Thanks. we sales, A I may. follow-on Brad, OpEx percentage OpEx half? of of how Brad, into

Brad D. Feller

Yeah.

has revenue, about our obviously percentage of traditionally we've So, Vijay, higher as targeted. been what than we've is, R&D, a talked

out. and Our that get new purposefully traditional ran products target has the higher XX%, been we to

last down that as will obviously the on two leverage side out, ICEX revenues. you the things. of see of expect to get a SG&A As products see We trend percentage

script, for good million would trend my percentage the thing a a of revenue run also see that rate. year revenues we had year be as of So to you mentioned south barring $XX down as everyone, as some which we in exit And I ends. should expect, expect a upside the in

Vijay Bhagavath

Thanks. Okay.

Brad D. Feller

Yeah.

Thomas J. Fallon

Vijay. Thanks,

Operator

The next question comes from George Notter with Jefferies. Please go ahead.

George C. Notter

in visibility Thanks QX of just I much. you full Level terms that or CenturyLink, of there, milestones price the in with you to of great. a X Level progress I'd going account. can RFP some are embedded What's I have on on broadly, more you that expecting I their of where terms in wanted us around I there's Hey. to kind think on network the XX% towards X renegotiations? you're that very process the Thanks. XX%-plus. can a would side about milestones curious year, to but organizational ask then, the contribution? of whole guidance teams. about getting be structures within your tell account, be of in the change an Anything terms for lot into about lot know there are not point and don't you know And resolution discussion

Brad D. Feller

Yeah.

will answer conservative for growth of in part So, question, customer, a the think first plan your still haven't George, that account. of lot account. have for in but mentioned baked I the a scripts, We fairly we that they for the we be meaningful as to year a

go it we growth amount Level combination X having on of we we're with closed. price discussions strong customer aligned were important it We as with them us. them. with more lot we well the time that about and tremendous a produces spend color, than CenturyLink. company, things but a right talked not We very but better deal that, aligning baked half, if of this in expectations a have I'll books very for give with you of and have in They're will stuff. kind a very We be Tom the the that, believe think as let soon We second on account.

tremendous We of amount time continue to with them. spend a

Thomas J. Fallon

to on internally joint new, org, a that we're I'm To ask George, fairly careful contract us, agreed-to something me, we've very commenting to. doing to need about regard got It pricing you what went going executing and approved In etcetera. on Yeah. that's them. seamlessly. to be they're

now, QX. So a a as And, CenturyLink that Level There's team. lot we said, because we're beyond and or we're not shoe are would that. one public baking executing in been process Brad there's to the a team, give it, also I in it's not of but to say not obviously contract on that there's RFP upside an only issue going team X of And It's to that color them, We're RFP disruption. with that ongoing. I'm there's not that engaged a counting pricing on some dropping continues. but any

George C. Notter

ICEX guys some other Great. guidance replace embedded back, So, of as And it. now, older I pressure, was to out this go was I'm to gross generation One gross And already Thanks. there anticipation also I I was think benefits just two I struck you product aspects margin deals of understand trying products to And understand the then ask both with about to and it. products. kind in margin you're Got potentially or with also would in is you talking want two I they're where can forward think margins? if if impacts. there That's well. those guess look there ICEX that pricing customers gross I right? coming.

Brad D. Feller

Yeah.

items So, George, behind those are us. largely

early were through shipping finished we units higher-cost. the which production So

the We of bridge on have fulfilled all opportunities. substantially

us. not largely them we revenues ICEX. They they to of you have the time. as be would structure as are So any of grow Also, ICEX going those on as cost those products know, behind we don't like have just the yields as over better baggage forward, the with initially much are And them. good

Over of the those to volumes significantly year, grow ICEX continue products a the once expect fab to have the (XX:XX) broader well, spread cost as base out, which XT-XXXX, including we we to and the us expect And XXXX over fairly fixed should units. the AOFX largely increase as to all that well. in course you of the allows

quarters. things the positive last the negative couple be margin, of you all for had for gross will have that those things and So don't we've

Thomas J. Fallon

George. positive, big A

this but introducing cadence to implies becomes yields long us us us. significant about, not the advanced technology of now we're two we but grown but a significant You've gap every about in within of as industry, it make time interesting, tracked for That probably a understanding the in yields I that we able the It that superior fashion we not was to and a becomes our And generation, has technology proof was volume. that's of between and a That not understand points product. years targeted will margin. to targeted in time a in for last rest years, going a the learning, technology about talk technology a period this. don't achieve and our two-year three only you targeted of really two our to new achieve at being actually a that years on our went reasonable company a yields only the getting of time. cadence, can down used deliver allow we are long mandatory. to to we think and such two-and-a-half, I that us yields and year internal take be can own a of And ability. think It know, It our do it really

George C. Notter

Got you. it. Thank

Operator

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

Meta A. Marshall

a wanted just I couple Thanks. Great. to questions. ask

environment. you First, ICEX second there. particularly the write-down then, And was out and get product noted just wanted was in the I the on long an of script just that, question more kind given on inventory to pricing details how

less extremely sense is declines it or to had XXXX, mentioned aggressive. XXXX, seeing what You far Thanks. or up harsh, pricing kind kind normal a and of year-over-year, as of it XX% been aggressive as XX% as wrapped you just in more of you're

Brad D. Feller

Yeah.

I'll the piece, and piece. other inventory cover Meta, cover the So, Tom write-down I'll let

wanted looked to driven we related decisions obviously part to different different did markets. as cost products our us So, That fast at the products. for the had to led down. what market we we is restructuring advanced on looked go-to how of focus technology what and We the how ICEX structures different at had

made actually those strong. as That demand inventory we some some profile different of significant of attack products what us changes with. led the to in wanted impair the for because wasn't so fairly we And to just markets terms

some We that new of side those Gen the and have – cost, we the where to because X capacity time. technology. allowed on somewhat we the ability decisions to was PIC products us build chose also to X the cost a inventory and or manufacturing us shift structure abandon better. products not that the much out We That amount incur the Gen caused so over reasonable made of more to had additional

Thomas J. Fallon

to Gen isn't X It's One of a for on you the really a you has perspective. for technology implied been while. out Gen impairment realize Meta, that important type thing, X from PIC

of will Gen for sell, many more massive amounts years. X I think, We

While won't we for customers likely have couple upgrade Gen our of of now, years. many a X out

getting of unnecessary. And Gen and Vijay's found looked had I has will a a subset So Brad some X we've anticipate a of customers of earlier, our of overlap at that portion some our for be our we focused, bit of said, products a time. point for significant products, as long certainly part to and more

a unprecedented maintaining instead differentiated bit some first nominally if ASP reduction of dollar market, two, that value. offer potentially regard know a where that not, and times. I products converging bit pricing, and In one the but offset of growth really that's XXXX by were space cascaded in XXXX XXX% the in or right don't pricing challenging even in heard very, killing it's I've to don't tremendously. the per ballpark. So, system we're was very the true

a commercial that. at adjustments for come it having to price products make to good again. we had we think our were The don't market, level, technologies we new next have so while difficult to have bridge commercial I those the is, news generation particularly now adjustments exceptionally make XXX-gig, product out, because, us was to

industry. to seeing are too pricing there to in competitors I we be Secondarily, would that, in industry. the what specific deal, said many more consider normal continue Having any this on be

of some to it and won't competitors, is make think market share those them. important frankly, I quite

we We're make frankly, not decision. to our So, the And, China. also sometimes a the is We're true were market guys take Last in price component kind it for ICPs the on of quite the staying any share year, side. to out a return going time, long to stay unless we're fair a can time. at deal sold to core. going positive to over

has costs freed equation. demand a we're of the of the that getting side As up, bit relief on

So we're a I think better with year much in pricing. this normal deal position to more

Meta A. Marshall

Thank it. Got you.

Operator

from question go with comes MKM Michael ahead. Genovese Partners. next The Please

Michael E. Genovese

you. Thank Yes.

a lot XXXX. what's first of but the that, you giving there half thread gave the of lost in the guys the You detail of so somehow on call, better appreciate I I visibility for

look over that we quarter, the growth in for So, at when first driving you again, the sequential go instance can what's it?

Thomas J. Fallon

better Yeah. detail. a When There's that specific and with can between Often, from companies. and a process. add interaction very you lot few quite backlog of have things, Brad tremendous upgrade amount upgrade you're opportunities Usually, there's occur. obviously that we're that the not doing very That a involved planning upgrade, comes we're customers probably specific work of involved. trivially happens an to then give frankly, I'll visibility, perspective some us. committed The my to and causes

that intimate. So interaction we've fact a the that products out, got the fact planning demands new level of are these that's upgrades, they more significant

fortunate next XX% for ICEX, customers but based and of new at can a this lot I significant contract a nothing and a probability now the to the from – also of new And significant pipeline XXX%, on deals visibility customers those have few and that this are booking pipeline backlog, a and for been we it's quarter comes also So we of a touch win that said, We've significant opportunities driven sales upgrade. like quarter. is PO phase. quarter by, of

we're mean, more – and So, from really good upgrade than POs it's have Brad? data really we I visibility. getting some plans.

Brad D. Feller

wow, come that to ordering, really add DTN-X placing it's need out seeing oh, now, line start parts X.X for actually POs. with terabit actually I'd the thing only customers the now say, the we're And to shipping, I is, and Yeah.

second say customers first it Tom's in and that deals half. potentially visibility half, the good are stage in is closed hit either point. late half, opportunities which very potentially to in But the And so, point, we there first are will this and the when hit really at opportunities other or

Michael E. Genovese

Okay. products are bit a detail little it it the that would I categories few pretty than more and verticals mean, hoping That's on driving of sounds others? I But was more geographies. helpful. a and but contain answer there broad-based, those

Brad D. Feller

being of talked we upside cable a the Mike, So, lot provider. about a

Michael E. Genovese

Yeah.

Brad D. Feller

largest are in America. North Our providers cable

that. you color So, on some that should give

driving the fairly ICP the are quite of are Europe, there customers, with region, have We are ICEX some frankly, the that things APAC in new spread. deals they're some upside. there And, side broad won in new in some

Thomas J. Fallon

Europe. also one that metro out Yeah. a opportunity, in I significant be mean, there's rolling in we'll QX

a ICP couple is submarine certainly We've of won that big driver, is feel we big things. things metro There's a very of about. driver. cable a So, couple a good

half, and six I driven things that think – a trials, with broad, months the pretty lot new are opportunities. it's working it's pipeline spot ago of by, now So with of were we're we on ton of a we in quite In frankly, the our technology. right second same

us is the opportunity that non-trivial. think ICEX I So for upgrade

Michael E. Genovese

I Thank it. right. All appreciate you.

Thomas J. Fallon

Yes.

Brad D. Feller

Yeah.

Operator

ahead. Blair. question with go Dmitry next William from The Please comes Netis

Steven Sarver

potential that customer is third win. was This we said you Sarver Last for you guys guys. could Steven there Dmitry. a Hi, large in time spoke, that ICP

the top You guys of two currently have four.

Thomas J. Fallon

Yes.

Steven Sarver

of I know much I and they are on guess, upside? RFP, a indeed that? have guys that win you you this completion any Do customer, do how update guys an nearing if

Thomas J. Fallon

Yeah.

of to So believe will are it's roster. high I we is, than an sometime now, I We a opportunity But describe that it's, I'm the reluctant next I we being still too commit customer will to non-trivial any months, with do contract We're we have close six magic that in have but the that because good said, must missing them But was have have added them. will belief making the like evaluated which we that it, to I opportunity. with but confidence my them PO. a our break apart. early it. progress. more still event,

a event. an not event, it's it's high-probability happens, So, that but until

Steven Sarver

or CenturyLink, quarter the you was quarter? decline fourth Sequentially, just that quarter that think said could follow-up. And X, I in it XX%. for was to you guess, be Understood. what guys revenue roughly you XX% decline? see Level total last a another or sequential fourth expecting I the customer expected quarter? about Flat, of first did revenue, less the and And, On than you a bottom, there are from

Brad D. Feller

Yeah.

in them. a QX, release, we revenue the included as tables in combined anticipating the higher So, my QX. was and press not actually very I point significantly low we're that. commentary XX% about, being we the as think for than talked in is That company only of obviously

Over the believe we see happens. We still of what well-positioned are the very there. course year, we'll

what I the on what over being planning think do see very course year. company, they as they're and thoughtful happens the the in we'll combined of their

Thomas J. Fallon

on it's And beat we're a good QX. was horse a not business. to happy historically our not have as a what been and actual mean up portion a based dead pretty I to combined a that but sequential significant has this, that of entity on able company I'm QX

company, an in to I if the fan now. really but opportunity hard I'm think we not upside, the just think the conservative we're counting they're that being strong we near-term. because happening right are a build back pretty and on a that strong, they very we're that to of consider going come they're is, I working diversify work And doing big

Steven Sarver

Great. Thanks.

Operator

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

Alex Henderson

much. very you Thank

was us service. the So and I could give mix content you some around hoping between product

the heavily and installation rate that a of quarter. you're You sales then continue. increase growth into installation? thinking growth the in strong that continued function card we quarter this? Is I'm about March plant future the seeing a line in into it in that's skewed turns trajectory related that had that to the line, fourth be that way sequential to should Is pretty services. Most assuming of

Brad D. Feller

Yeah.

we've So, being growth Alex, the done. the what in new some in footprint side the part terms correct new first you on said of installations we of built, service you are

they the mix forward, customers, more But as side biggest networks, bigger see our to number number, bit the product, forward well. going majority as will the likely on things. the will is growth install use product will will of going the but up come service And But on new product towards a well. a be obviously, obviously us side growth things. Going service the skewed of be as a given of you're

Alex Henderson

the installations, into Or that installations to back-half capacity for So, it's in some before longer that that a you period do does sales result given potential there's and those imply, strength think in card that initial the absorb they... footprint?

Thomas J. Fallon

think the past, putting in terms cost over time when absolutely a I mean give have absolutely are correct in about great you're only one things of right footprint, that our can that I better that's are much stream to is we that service more of you things significantly add will that is, customer not script, terms for impact so margin. I things time high-margin necessarily But of line. believe structure our we deliver incremental ultimately ICEX it in will my in strong, thinking that in us capacity gross customer in put about and will it'll because on mentioned No, also is of in happen, customers licenses thinking happen. IB that do And that as customers different but amount those of over a wouldn't higher-capacity sales. Every that but have currently the

Alex Henderson

that following installation just is on leg So, gross the margin than lower on somewhat services. that. services consulting-related second I assume the of

normalized? service So, the larger footprint more mix should until and shifting some builds of starts lower we on GM mature somewhat to piece these be a anticipating the back

Brad D. Feller

Yeah.

work installation as pressure service But it'll margins, that. than happens, So the with more margins. service the puts product on advances the the side, that the offset on

Alex Henderson

mix the service side in to the more two. a little between It Right. more as like I'm you're sounds and pressures having that the move... product just bit trying on pressure implies out the we rebound service figure

Brad D. Feller

That's correct.

Alex Henderson

Okay.

Brad D. Feller

Yeah. That's correct.

Alex Henderson

Thank helpful. That's what Very you. need. I

Brad D. Feller

Yeah.

Operator

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

Doug Clark

point, this the give longer-term that something a a period? my the project? about first driving quarter for sense visibility one upside to kind the the of in of longer-term that question. on half It a XXXX. sounds share is you Is of a into taking cable gains length, combination also Thanks or two My gains. first or or most return Can us like will be just metro a post-consolidation, spending extend it but it's could over quarters in market both expansion of

Thomas J. Fallon

linear driven, significant huge time. say, being news upgrade is would above by to upgrade footprint network. The fill us their a Right a over now, That's question. to it's amount that I hard capacity good of significant provides for

think I the wireless more bring like little cable a the out. in a just race space, of to that they're bit capacity space,

six to I will there burst that months kind So think a over be should tamper for opportunity I that in us of time. anticipate market But normal of lucrative of a a period rates. it that opportunity back longer the be to more next

amount So over to footprint of I able will the network. upgrade of think That will of they've we'll a run at it's a lower they to a upgrade but added. combination longer have be time of The to want build, the rate. consolidation is significant picked their done, be they've period network reconciled us monetize a where it footprint

So far, them happy. making we are

to adjacent significant markets So of opportunities the have in into between before. a hopeful they're portion we but that expand giving become we where now long portion and us I'm then. participated network, way or a there's that not player

a every to could going every we one go over day time. happy. going metro day at of time, go We're So opportunity. to And I to work them substantive think have work a we're a win period to make

regard we're both several domestically internationally. in PHY, ones addressing guy also and that to going on, cable While Remote other is

architecture that number a we into early opportunity solution and right capacity. set, it said, it's massive other is but that add of a extremely too our meetings we're them And where I for is compelling. That's where I I like manage that a about, in integrates and that having a an deploy, talked makes with it what to think easy the for solution I think transport. to us sit, declare people platforms

PIC unique that capability Network a provides some value our Instant is there. and think I

big So really years opportunity hopeful this a that over the space. several there's I'm next in

Brad D. Feller

Yeah.

on just first would the Tom's like based great this bit add color Doug, visibility to So, a in see build. to half. in half They things little second of the comment. We to additional do

uncertainty or We the a That's we'll agree happen not. in step-level bit side half of little is that time. a the year PHY over will to the see of if Remote things. I with going they incremental the as be That function, second Tom see But goes on on.

years. future made Now, There'll some that that happen half. in more the be that over won't the but revenue the second be are second in will half, decisions

take customer, metro plus the if And business is Remote us, opportunity, not you for space. core broader just but PHY that, growing to opportunity cable good that so, in a their very cable a add you

Doug Clark

be about All helpful. technology of an is it opportunity? actually is of expansionary you was then, system, could right. also can sale? you talk think cannibalistic substitutive kind kind that or other my Or And I and product well, line existing a gain it point, share that? this market then and And think interest that footprint question customer evolution to in hardware somewhat it. the At as Got is That or you call on open ICE. Open

Thomas J. Fallon

on. I'm Dave's and answer add going to going first to

David F. Welch

Yeah. Two things.

is on refers product system, mentioned our line actually different system. two ICE. One open You to one Open line offerings. ICE someone Open an else's transponders is

threshold the of barriers and systems, those closely through to other with transponders opportunities working to on that. suppliers but opportunity number our just of within over smaller get the line technical creates us business but space, ultimately There adoption of that lot able huge people's one get a growing of within the to do to a As openings for a doing to be customer. we DWDM is are

we Over amplifiers is and line multiple system, that deploy line being The commercial think through that transponders, we're a area a to leadership us is We of of to what I that. one fit the open and see it our be of in future line view the long-term, to a Tom us, product higher as to number a able referred be in on ensure and for that. to be a front creates position hopeful we requirement great to that receive separate propagates space, to also, result, systems, that's such, a continue technology for that to which baud-rate opportunity able are an wins to the that in that do first that the well. all able ROADMs into. of capability customers as as push to as able our transponders will And

Thomas J. Fallon

upon our This a rates line Yeah. an allows that it. to future flexible is grid thing because deployed be interesting has really open baud system

of come capabilities some their old these don't rates, higher that out at line we transponders. As baud systems are these competitors our with new of some accommodate finding

So, upgrade to can can either and knock from on our or them Open give a the can competitor ICE. our new system we customer they door line

use the that of trials was with with So, is be go use Open we Open I we system. done. that model Open want The it lot try ICE. if they have line ICE. of our work well that a actually I they number to it technology Dave from of challenge at running trial challenge, go more I their has And people can Clearly, really look installed way, to to a our accommodate through they operationalizing and competitors. challenge, to it's lower worth Maybe across and one felt want go scheduled, to operationalizing Either customer and of customer ICE, right a newest than new business going get to as tool think backlog there. the as their to said, our maybe go pricing time we're there's in wanting believe now a that

it's ours, because That going have there. somebody's but come on out greatest ways. out doesn't is line to line We're world's that line an them transponder It's work every or and going are both to it going cannibalize damn every right. to it's Is can hard play we're going else's that's and system. the that technology system going to somebody up to cannibalize You're cannibalize? to open very go system mean line to We that transponder and going it business. convince open be with to going today you Infinera, deploy system

for fine with across a I build believe If than transponder want run to cost a better we lower somebody's should lower transponder somebody our can. you build anybody gear, transponder can better You a have can for us. personally that's cost, don't them. go with

a job Open So, serve and to up food the a fight. is our create to We're we're industry fight ICE. in create going going to food

Brad D. Feller

critical times critical think the probably an understand And, on you to vendor opportunity out add add this that call. Doug, piece heard new customers is for that easy XX to their new is you customers. way rip to us to for And other having to as they I new add I'd for everything customers refer very without an the is is It network is to this a us to have. – us

actually And we with or that doing new so ICE. trials never had have customers we've to actively are Open seen that several access planning

Operator

Patrick Stifel. ahead. with go Newton comes The Please next question from

Patrick Michael Newton

any thank Brad, and level percentage Could set pause for be questions. of to and been some lack cable strength second Dave, area then some I Tom, deployments you afternoon, side. one help risk us for Good of these clearly you're first cable of what do strength guess, is ahead quarters, the And that now. you contributing the the maybe my new having speaking see multi-quarter an a revenue in multiple you represents? of that on Yeah. taking currently half? architectural It's of contributing visibility of to of could

Brad D. Feller

Yeah.

XX%, cable general from of Patrick, XX% revenue. to quarter-to-quarter. in So, fluctuate tends is It

the that's For is on ongoing what buy year, of the cable example, soft at it but basis. we talked being about end they in QX roughly traditionally an because don't

Your opportunities. growing strength you are ICEX question existing are very products in think those around see pause, the that new I nicely and the out with

I soon adopt to XXXX think see as the to XT-XXXX you're possible. going the as customers (X:XX:XX) wanting AOFX and

the So expectation I saw you of throughout year have we'll coming and the drop-off a some see the in is advance won't good you that momentum stuff ICEX out. my think necessarily of

Patrick Michael Newton

right good in direction it's to Brad, guess, I moving March. the And, see helpful. gross That's in margin

Brad D. Feller

bud. to keep it try going, We'll

Patrick Michael Newton

cycles. And to take in think is want I and the longer-term view for the But a outlook expansion year prior next about good. also

high XXs, XX% even achieved the hit You for margins in quarters. previously and a few

to your put pieces get levels? structure, ICE I we question in window trends, an you of tighter levels? is, dynamics, guess, all your if the model have prior competitor have there together, to are guess, I design leverage games which back investments. the increased structural products, that you cost margin means cetera. you There's try So, peak broader market those et would can Infinera achieving preclude prior any to Or challenges from a

Brad D. Feller

going platforms, new the time. the customers, timeframe, ability that, do line, to be, say we think XX% or win new over Patrick, margins absolutely Can't So, to continue I'm but the ramp to that to in a exactly have continue when continue not top have but think will I to ability the high-XXs we still back out to I over grow we as bring to absolutely. commit

Patrick Michael Newton

Great. questions. Good Thank luck. taking you for my

Operator

for back question-and-answer Tom the would concludes any to conference remarks. closing I turn over session. like our This to Fallon

Thomas J. Fallon

joining to afternoon want day. you Have on thank your you for at to and great a this forward We OFC for you just us progress. seeing and continued look of I questions. updating all our

Operator

Thank This for attending you conference is now today's concluded. presentation.

disconnect. now may You

Infinera (INFN) 7 Feb 182017 Q4 Earnings call transcript