INFN - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the First Quarter Year 2018 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 this time. I would now like to turn the conference over to Mr. Investor Infinera of Hustis Relations. Jeff begin. Jeff, you may

Jeff Hustis

of of Thanks, call. conference Commentary available Relations quarter earnings Chad. to Infinera's are section Investor the Welcome fiscal in website. A CFO XXXX and first our copy today's of

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

Thomas J. Fallon

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

the million of from XXXX. fueled In Today, in and and first as financial growth. our review million, on our million. call in $XXX $XXX quarter prior to our with seasonal from cable typical results opportunities. pleased I'll range we outlook XX% performance Dave performance our and and XX% Brad at QX, turn Considerable today weakness growth of the I'll our QX, of X% and was solid financial and verticals I ICEX ICP revenue, detailed ICEX then future product growth down revenue quarter other up in of products outweighed who'll by $XXX were delivered a second Brad of quarter Welch. me provide both sequential sequential resulted to Joining a contributor commentary just the traditionally for upper accounting end XX% provide are more in under in guidance significant nearly for industry, review for the over Feller to year-over-year quarter. in the in

supporting improved the addition contribution our cost In increasing to ICEX. top the of by line, bottom per line lower was bit our

improving resulting and strongly bottom guidance growth margin gross line margin our of drove gross above QX, In our coming guidance top QX, our XX% to share in in range. line, new range our generation Moore's by enables a our lower to our each technology. structure evidenced cost us As was unique driving internal law to operating non-GAAP of from advancements reminder, model and photonic integration like with vertically-integrated ICE earnings XX%. to improvement XX% per above This approach in

strong largely XTM incremental and QX, both II timing. revenue from more metro XX% and than added deal our lower DCI in a markets, new a traction new, coming mostly XXQAM metro, had and long-haul QX. of by were fueled DCI, all European Regarding revenue in year-over-year, sequentially the grew year-over-year end off several and customers. long-haul ICEX function Subsea, very

grow of in capabilities We subsea business to customers our ICEX expect from QX. receiving positive the around feedback this are and

We to spending customer XXXX, cycles. market win in continue driven expect our refresh by to specific and mostly share product

our is progress more from our overall our to existing with material in over total will new II DTN-X refresh, introduced drivers year. networks II of we customers broader service our of decoupled with refresh our new adding ICEX customers date that II a well bringing portfolio completing the packet-optical ICP to positioning In these course their the are industry in With with is of can from our particular, robust XTM XTM being XTM by total XXXX, most percentage growth Digging XX. customers, ICEX to the internal being with I'm that in added traditional late new XX, trends, a II In not and short customers. solid entirely metro, term. market. heightened who pleased mix the is XX our revenue continue as into opportunity QX, improve for deeper the now expectation QX, and the ICEX providers, subsea demand II cable, solutions, had received to While the outlook increase metro having to X.X bringing number our a XX XTM we XTM card. terabit should portfolio line upgrade driven by a My in

customer We customers of the placed anticipate here early XX growth having traction for have the orders, successful and year. already with continued we remainder

opportunities; portfolio important noted in trials last with to XT-XXXX service our are metro yielding customer These terabit products. been QX, trials the and build XXXX customer new earnings long-haul expected providers QX. will achieve. in multi-year customers, UK. networks new to for in an remains and XT-XXXX customer compelling shipping recently The positive for refresh America; and a first multi-year winning begin be results, having awarded one, in our new two a significant portfolio complete other is helping call, we and the new long-haul revenue the metro will us uptick significant for a is in later In North X.X looking refresh. our year new solution a opportunities Additionally, to slated something

gain more An important initial market is be and with potential new element which As us. ramp share over new ICE, time. our of for be to continues networks, acquisition building strategy typical unlocks moderate customer substantially revenue should additional Open

ICE line avoid Europe full we network lab refresh. in strategic Open Open historically a ICE As place easily solutions also Open barrier a our network proof would conducting system purchase traditional operators with accounts new dozen trials. a and to solid taking key some ICE and winning without ultimately around In their by allowing points, to having test included field current more customer opportunities to breaks had a infrastructure. and creating than to winning is which a that reminder, rebuild down customers engage over competitor's QX,

architectural market open we are As well market embraces approach, customers we time. the increase new over feel to positioned gradually share win the and

commitment demonstrating and a On the we're delivering technology engines in leadership to with optical future cadence. releasing optical front, two-year ICEX our

As in a Coming OFC proof the ICEX March opportunity XXX-gig visibility we testing a unusually floor the enabled point, current visibility, off uncertain. cable half lab. which of typically have XXX-gig first beyond our high vertical already from demonstrated prototypes in first started our technology on and ICEX the remains in quarter our

also about, We headwinds. that we are observe excited we potential have prospective opportunities several some growth but

revenue share metro Regarding drive expected half. opportunities, gains early in and help are to the the long-haul generate customers mentioned and second market previously should begin new to

the for takes spend customers conservatively, from some as are are tracking XXXX new in new impacts also to for it XXXX. opportunities customer At time to wins We additional customers modeling ramp. present, we

a having portfolio drive full should Additionally, to opportunity. incremental offer

service the service platform a have several multi-service Specifically, cards for DTN-X new in and providers. interest the XT-XXXX, both for to optimized providers expressed AOFXXXXX upgraded the line the

already AOFXXXXX revenue, the demand. focused delivering generating address With to the on we XT-XXXX emerging customer are

vast a for multi-year remains opportunity fiber-deep Finally, us.

We and material contributions the in are to currently we from believe positioned with operators revenue well cable continue XXXX. commencing fiber-deep potential foresee for

has and consolidation speculation in customers. activity potential uptick Regarding been around of there an European headwinds,

in given European challenges faced consolidation impactful not in nearly be customers, including While on somewhat consolidation business. as Global, several as this would impactful our region Liberty be XXXX, position Europe in could we our the with

Next, ICEX strong to to ICP it several challenging us of in for half. could the be our second ICPs, grow business coming off sales quarters

important new though for to somewhat substantial competitors visibility, we dynamic encounter though account, We a our well. continue as to of currently otherwise selling an lumpy see into it second growth tends lower begin limited a be is a vertical to have expect and pipeline ICP half opportunities. us one

our amidst price. seeing are we wins, recent large Finally, certain aggressive on competitors uncharacteristically being

and be our which this largest impede spending hard growth given vertical any our confident the it our as Bandwidth unclear a will customer, might occur and though our might it such of in improvement than extent are Touching or well Open X our to our Instant continues whether capabilities While pick up, eventually we on this and it for driving predict fundamentally margin structure integration Tier margins ICE, with we to believe position line, unique remain peers. in domestic XXXX, in. quarter status refreshed is challenge positioned better product

In As in this the an opportunity. pleased synergies customer near-term we'll plans. cautiously we term, am we in half the I outlook, are process healthier half. remain integral will believe their significant the we its be optimistic part regard I forecasting change of Longer in rate. second company, current not closing, first and emerging how is of grow run In as our through and with that to a works driving long-term any progressing confident larger,

Infinera's diversified, sustainable and opportunities the as In revenue is prove most position systems in a refresh I laying multi-year base. company for driving optical particular, advantageous. product be believe to Our will foundation more vertically-integrated a

our for innovation as us see a integration optical hard Thus, financials. for lines. remain leverage a this to margin impacts With the partners shareholders revenue, structure second commitment for we achieve ongoing cash enables at new call turn unique on the to to their to deliver work. of to of half technologies, and engines during each operating positive a cadence, near I'll new discuss the also products and I'd like our of the employees term, should and and flow that, on in enabling we positive And bottom to Brad destiny we over faster addition new generation Infinera thank grow and customers, higher control their as now vertical top thank profitability our technology. track to operating deliver percentage our year. In and the

Brad D. Feller

CFO of Commentary the in our strong our everyone. recap QX, drove highlights, and as QX continued of will In XX% QX discuss up afternoon, provide year. in ICEX Investor even On $XXX.X million, a revenue good on The weak I and the is call, X% Tom, QX. this sequentially for the our QX Thanks, our results available some and results detailed year-over-year, website. color full ramp was outlook products Relations seasonally

strong than more As cable QX, in XXX% up Tom was mentioned, year-over-year.

by QX our As XXXX significantly in business was a of frame mergers. reference, cable of customer impacted multiple

of impact new The standard. quarter we new XXXX, have QX ASC revenue $X in lower approximately been the During under resulted of standard. transition being first the to million would XXX, our the adopted old it the revenue in than standard

As XXXX, standard, provided our we of our exceed new products. quarter ASC the guidance based past was of the second able the and new were QX and the several impact to we customers to $X the existing for old adoption on both midpoint In million seen revenue revenue guidance. absorb of XXX, as XXX the still our ASC the have fiscal we continue adopt momentum expect quarters further for

ASC to of as aggressive XXX European subsea QX further our Supporting and we we estimate plus our from should deployments customer will driven business pleased the to customers drive to customers existing I'm X% adoption spend. providers. up DTN-X XT-XXXX would infrastructure that announce will capacity XX% cable traditional revenue of continue be ramp $X sequentially existing by service and or line to its QX relatively QX of contributor allowing midpoint project and cards relative new of cable anticipate steady expect adoption significant ramp currently leverage year-over-year. cost-effective to million, QX add revenue by revenue the $XXX largest higher to expect we products, up terabit such, verticals, provider as QX, to At continue million. in revenue our will range, our CXX continues new and customers. we a QX, service minus the million. that in impact growth $X our be and spending Of of a be Cable As note, should negatively approximately strength manner. In Within cable throughout in remain XXXX, in revenue ICPs, and build primarily in from X.X we their

service of providers for remains half our will our outlook half. second timing ICEX uncertainties. with new level unchanged the largely business in Tier determine adoption Our success the of customer from of into revenue, the and products our opportunities with wins several second also of The of new of and ramping XXXX the pace some recovery X largest

see cautiously refreshed year. leveraging I'm customer revenue. for of will half. expected and customers the address of outlook half. deceleration existing our will pleased are in of half areas QX diversify these positive new we opportunities which factors, wins rest on particularly to will year, need new X% half the with coming second focused about a an revenue additional XXXX we and higher on opportunities in the off offset that ones. the win multi-year our robust optimistic first QX, and expect our to grow happy first X% represent In from We QX to to with portfolio our in be results help we remain with of the summary, all second revenue, In cable these Balancing are than the will and

to gross demonstration and mix above guidance turning the XX% positive was to our the ICEX QX early margins, in an range margin well non-GAAP create. impact of can XX.X%, shift of Now, to XX%,

of to model. enhanced our their Also As carry leverage delays levels a benefiting as and of builds reminder, a finalize footprint generations on plans. customers budgets lower-margin new and vertically-integrated ICEX in and should structure gross our significantly cost were margin products build certain operating of better QX due integration infrastructure future

to believe will thus, in revenue aggressive deals may to, the is industry to but We seeing and intend win time. Tom delayed expect initially, in the the the we which, our QX builds pricing be lower with QX, margins footprint in capacity dynamics pressure critical higher-margin will margins customers our short sales from given over hit we customers that on in continue We new new and which from term. existing enable are to market alluded drive put scale

each thus, good we line evaluate and balance growth time. hard work to deal top to over However, and ensure profitability profitability

basis be For QX, plus XX%, we XXX points. minus currently anticipate or non-GAAP gross margin will

product As can has depending margins factors, quarter and variety from a case, mix. to of quarter always fluctuate been the customer on including

XXXX, the customers. with Over new deals aggressive new course to to we of win existing customers be and will continue

require considering gross pricing the customers dynamics, approximately investments non-GAAP competitive and up we winning lower-margin Given new a tends target of by end front current today XX% margin also XXXX. reasonable to as envision of

support line midpoint In at anticipate $XX we QX, with were expenses we operating expenses $XX of and million plus lab currently we in non-GAAP OpEx, to leverage million operating efficiency. as enhancing cost new to ongoing products. million, million, minus to in customer Turning $XX $XX our QX, operating will non-GAAP down on reduction as at $X be or in our our invested adoption execute our the million aimed of sequentially guidance efforts trials

customer the and We ramping driving will our on continue focus delivering of and to remainder across the ICEX adoption the investments portfolio base.

both our revenue dependent with Our G&A remain remains OpEx on marketing intact a decrease GAAP levels revenue the million largest year and we our Consistent expense of is loss $XX non-GAAP results. between GAAP we $XX due refresh. non-GAAP QX On year, X.X% R&D than a the driver should Overall expected on metrics plan of restructuring an $X.XX are by to a with of with being guidance XXXX full basis, the per of better net particularly XXXX. over cost $X.XX of our share, the and had approximately quarterly a difference our course and loss per plans, sales achieve My share, operating of stock-based on loss performance. of product than non-GAAP our track margin. and once the of and with steady, to gross end a for we million we to in incurred run in full OpEx basis, ranges projected expectation coming better complete net compensation the rate

For and combination net a of line, QX, tax $X our $XXX,XXX loss the and half we million. project the to progress interest in currently is non-GAAP to X% as out we profitability QX Below be should of expense approximately expected approximately towards target. expense second other operating

balance, given and loss a $X of remain the midpoint per for QX, $X.XX quarter. the foreseeable taxes our a our pennies. non-GAAP for couple million tied to everything our Putting together guidance projected anticipate will tax future not plus in expense a should the of be of translates profitability of reminder, we NOL directly minus significant per share, As range to or

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

sheet, On decline our the loss, likely cash given in anticipated it operating balance QX. is will

CapEx, be towards cash $XXX actively X, to half XXXX. working generating convertible Please QX of continue in during being We second that million and expenses the goal profitable on a our matures of debt and manage aware June XXXX.

with a issue term top in secure investments immediately provide out plan proceeding to debt this driving new portfolio capital is in our are our us and the recovery our improvements. intend to at conclusion, not to fluctuations. settle line as working debt maturity, an with instrument. to instrument flexibility cash made to line do We bottom playing We short the refresh plan steadily we substantial and In long-term growth accommodate are

the encounter opportunities horizon, several conveyed, headwinds we way. have along Tom the As though promising may on some

pinpoint we what extent do growth, typical non-GAAP Overall, faster is over of product refresh market the portfolio, the exactly continue Longer share cadence sufficient to margins we the declining they setting focused with to key the our for full with term, OpEx like continues revenue we well XXXX. finalize gross will customers, in optimistic portion structure opportunities execute in when return that steadily of driving margins. on and new not during the on While our Q&A fairly I'd our will of up is our with be course visibility they profitability over us, With financially, second the to us business to growing year to operator to as grow and operating remain being expectation leveraging technologies a half. existing have expectation the benefit technology begin solidly that, I'm low-teens turn plan the call. for and to My today winning will year. to to and the and call will we low-XXs the

Operator

you. Thank

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

go question will from Sachs. Clark The with Goldman Please first come Doug ahead.

Doug Clark

that nearly product this the on to just Do Hey. end first Thanks taking point? revenues, my high at any sales. year? ICEX on total of the XX% one And for now product a you mentioned have My going of is question. lot the terms on yields you cycle; looking of is that's how ICEX are how in the be expectation by

Brad D. Feller

released Doug, continue are optical depend much ICEX And point. yields generations. state will on fast on the as year. the faster yields it should have cards obviously year at in based to providers will you releasing How to Yeah, last gotten And service expectation perspective, same the products the good is over where we able engine, of than fairly course our we've to the the new the this now to line expect products yields that DTN-X previous we grow grow in from enhance adopt been But so for a and can so continue percentage. we a are a so how those we're XT-XXXX. to and

Doug Clark

coming you always, a you competitive commentary market bit. a wondering solutions gig or competitive from where competitors from? it little systems signaling Is mean, dynamic with if that themselves, I'm my customer-by-customer your situation is XXX is kind and just XXX so are that incremental. And if is And something pricing the and mentioned so, follow-up a basis? I is, out Tom, seeing Okay. of then optical

Thomas J. Fallon

us There's a continuing people, and the And I very market. would Doug. are that trying some in see larger, deals putting right, are win, also some that we're with a right and the little always we're grab of and from I guys. you're this a of would very a some bit the, some more death. we're play more. number world. is to customers pricing now, And, it in for important over-served type we're don't is because of there's more the because This going competitive but – It's I think some say, little both of land it to aggressive not Yeah, traditional new in normal mentality pricing I customers out very, up raise on. yeah, deals it our call it dynamic, I decade I and optical pressures been raise of up larger a we're of seeing bit of different current what's bit seeing being it or is on time a little – of hyper-aggressive it, a general, think scares that that to a

than lower at or offering, not today product industry. if I are with historically, we've and that among anticipate think that even our are best, had our ICEX we'd the than certainly the volumes lower margins in the best

through we So, a ICEX continue ramp year. cost have we to advantage as structural the

year. I as through Brad's a think it'll of the ICEX, revenue our correct, grow percentage

I than think be QX. in in it QX, it'll was bigger

excited not out news over-served bandwidth company But structure cost the I'm a to volume, there's an continues about but good comes the there. be that of So, a of it demand ton The is, industry. down. only

a place larger more traditionally hyper-competitive But of lots now So, it's bit competitors. with there's right of a opportunities.

Doug Clark

That's helpful. Thanks a lot, guys.

Operator

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

Dmitry G. Netis

Nice way, and quarter, Thanks a margins the well. as lot. by

to So, over guidance kind to X% versus nice the the that half, wanted the of as bit, being the ramp you've on look projecting start we X% number a that been of delve at year. second flat implies first up sort I of into the your a half little of pretty

So, good that I a take news. as

what you're just it's you what bit made you if half you're means far the mean, better, could caution. that color of opportunities of but a the comments pipeline you directionally terms with of and I Now, as in give little And yet still sprinkling to some second help limited some that in square that as the you gives pursuing, pause.

is there on? or something else cautious, being just going you're So,

Thomas J. Fallon

said and is you that said imply. trying pipeline to important Dmitry, an not we're you what word, limited And, No.

large very, a have We very pipeline.

XXXX, As participating I've in. only than walked around number into start year believe in customers said substantive there's do. we said, very our this purchase I that half? materially with The believe of well I do. fair a second impacting world commits are is have next close opportunity months we A I specific received? with we more is in down. opportunities pipeline, name the will the There's of haven't them we'll but we they that's the win walked comfortable couple difference with more very Do of will share? doing deterministic do can't customers, a ICEX I customers I pipeline. a comfortable pipeline. couple in being builds those we the I couple a who yet, just of yet. won Do lot couple that We very I won, from and than feel the were feel that I in of more we

at beginning a not with as fidelity much small customer the interpret a don't just the pipeline healthy it's it's pipeline, we please deals. specific as of had So, as that on year

Dmitry G. Netis

All super follow-up metro helpful. right. That's sounded side. came like in the it would on more Again, be My nicely. metro

North you initial mostly share to line get customers demand? away refresh the couple that that the just that I set years the set is the as sense broader out something so expanding you into and through American cross-selling well. trying see was You box direction So, with as you driving had metro? that kind square of goals you out in that especially year, trying if will progress new your mentioned that's you the kind kind Is the I'm it refresh the than Or legacy to ago. along the of deployments, in all card moving a where a to just the that's enacted Transmode you European this of

Thomas J. Fallon

revenue that some customers We're upgrading. XX from off evaluate of year right years the over that the about excited out upgrade. and But winning that some late half second probably the on I'm were big product in won of most from upgrade. ago. we'll what it and getting important. course that now of in upgrade that fact XXQAM is XTM anticipate new yet to clearly we year, the couple opportunity this It's I That's a upgrades the set a this customers. space to Part is we of not track also certainly some the the as of was we've Yeah. now have larger XXQAM. of we're customers look

We I'd are took a seeing to great, than thought certainly XTM. It actually is cross-win growth. some able role opportunities it's with and provide important also It being the an end-to-end we second of metro. won revenue just the having playing in longer for we and start solution European packet substantive. well-received fairly mentioned it's large will and a this impact that the that metro. deal We closed year in half

back we important metro access. there. again, make high-density It's do we a fine talk the well-received certainly going the had progress sure as it in an is It what we we bought we about company, thought on is to certainly or and I as don't technology think long So, fall I as are of product, when the do think behind making we're metro. we part that but play

that the that fiber-deep into what that have initiative. think they we're technology partly bringing I is

Dmitry G. Netis

right. Thank back All very queue. jump good to you up much. I'll work. the Keep the

Thomas J. Fallon

Thanks, Dmitry.

Brad D. Feller

Thanks.

Operator

question with Genovese Our from MKM Partners. next comes Michael

Michael E. Genovese

in XX% Guys, customers of thanks more of Hey, can much a they your each how detail give revenue were? on you terms us percentage lot.

Brad D. Feller

so was Yeah, X XX%, large Tier was company XX%. the the cable

Michael E. Genovese

seeing revenue CapEx we've ICPs percentage that way very you're the from market. recently limited chart the is going ICP up. And very I large of XXX%, question CapEx like about to then, But great. the seen very, mean, strong, sounds my market. just off Okay, numbers it opportunities other in year-over-year growth

some Or win market? So, Could what's talk pipeline There's the the back, ICPs, like what's or more you new back? on Just win like? customers some in please. variability customers the share your outlook. about some competitive environment ICP

Thomas J. Fallon

make then, Dave the I'll Yeah, first comment if to want and you comment. or Brad,

both the very, seeing and are strong very you being CXX platform. QX, had a – has received, and we it's opportunity with as It certainly some In competitive space, is XT-XXXX ICEX know. We very well opportunity. ICP a been

had that an spot where better have in I incumbency, we to are a think we're in. trying break where we than

lumpy it I little a a to these more bit are ICEX. think experiences some of think, having is we with everybody business of a challenge But ones, than breaking new of that in, that. I

I on a a to the technology, ICEX late, we in have XXQAM with come a lot you're bit because short will pretty think if a were late when it's with back of bit tough they get and opportunity cycle. the fairly

has been our So, good. reception I think ICEX

been a see has in challenge that good. more of of traction I customer increasing the half Our growth. second

David F. Welch

they with, yet, bigger Tom's important to prove think in to time that not we those customers. half. customers, Yeah, grow the Mike. But we've so not they're continue of nicely, the big has five, right, you past add do likely volumes customer lot They expect with space. second win some the folks one they big will more about are our with a historic some but like ICPs. one ICP saw, the be I ICEX are so Obviously, continue the But buying probably we top customers over talked growing to we'll were of in sometime large solutions. ICEX. historically the as and ICP of to color, We Two who the just large our big of been wait to of in a to challenges have household business But in of win until names. some ICPs to more would in adopting

Michael E. Genovese

the for Thanks color. Great.

Thomas J. Fallon

Yes.

Operator

Raymond comes next Simon James. with question Leopold from Our

Simon M. Leopold

of talk wanted terms a bit you. see Thank as I what of to about we little vertical the Great. cable could to in think if normalized.

that's is and had the we're in good what's for assumption the gave part guys? market guess thinking project to you cable that a of My normalized I vertical fiber-deep a understand should about infrastructure spending. think visibility. continuing large this I quarter But What that as for contribute of June. expectation that So, you overall you initiatives we

Brad D. Feller

growth mean you revenue? size do Or... or in of Simon, rate terms of

Simon M. Leopold

might rate, up I'm thinking revenue But one leading I certainly I'm not I'll can may be exposure give you a going the but kinds be take This of growth you On hand, terms to can in be color whatever front. and of overall, initiatives. indicator get. on any your to sustainable. those imagining percent you're therefore, of

other the says just I this that longer-term more that's bullish a On of spending paint could trend. beginning picture a is hand, a that

Brad D. Feller

Tom Yeah, some I so and I'll Dave question, or answer has color. then your think Simon,

we've has historically was in Obviously, quite continues of anticipating a and QX had majority XX-ish The revenues. first the the the still half. size in our than some half bigger of half, it first and though in that be the been but second will the the half expectation the cable We near that. in QX, expect So, nowhere percent the will in revenues. that to be bit second be spend

You to well are are we right the very positioned assume cable space. in that

attention, get us initiatives thing around markets be fiber-deep continue So, more to many and in for more the as globe. the that good a will

Thomas J. Fallon

you want Dave, to answer...

Simon M. Leopold

And some about way think it beyond longer year? term to this

David F. Welch

is is view share I that. of that think what there's in cable two does mind, to much for high-density my access Infinera's how metro. spend look. for backbone. going and the years spend That's or optical My over It's is There's, fiber certainly the ways on and transmission nontrivially. increment cable of then metro it's – to on for transport amount several their next

going space for I to of cable a a have is is opportunity. lot our that think industry

have good go accounts Clearly, Our couple expand North America. job then to in and our in of is presence. we a very

with new to providers. cable new and with are wins, both on opportunities work other well We some couple them continuing also a we're positioned in and of footprint Europe

next over capital cycles at capacity as All driven metro the significant years, core. of through which carries them high-density are five by then looking the

I it's probably lot a as an going a percentage. to So, think as grow industry,

Our is job to opportunities. and some win go obviously new

be with opportunity won't really business new some them capture the be our without where to but revenue opportunities, XXXX. working hard are of apparent we are think healthy can architectures until That being is winning deployed. probably new really I this that

Brad D. Feller

would... I Yeah,

Simon M. Leopold

is if Great. something significant I in a And at I was just typically XX%, calculating One, which where from and I March one this very there the services two, is And explain then you've correctly? that just hopefully the did? trended. calculate to might, step-down I'm did simple. quick over gross drop-off clarification, margin if

Brad D. Feller

there bit very adoption impact the is usual, revenue away. that is driving we down of correct. portion two mentioned XXX. The that from of things high-margin the a as is of math tick Simon, ASC the your services A little goes

worse of a in we mix terms deployments little of The a bit the other did. piece is

little deployments bit quarter. So, a lower-margin the in

Simon M. Leopold

questions. taking Great. for my Thanks

Thomas J. Fallon

Dave will make one comment on this.

David F. Welch

up out a four of to on coming always be our previous – MSO always Tom had of fruition don't that the list. lines, on as with, just space, guy Yeah, opportunities plays historically Transmode And with cable coming we've this your there'd – question or portfolio. customer I three penetration our and the had XX% on know, out that product of in on we've we're mentioned, an quarters is the access following the cable seeing two some note to things a in some greater

We but years. plays we some their in expect expect access the better coming for continue positioned that on, be to to of

Simon M. Leopold

Great. Thank the for taking you questions.

Operator

comes Jeffrey ahead. Nomura with go Instinet. Please question from The next Kvaal

Jeffrey Thomas Kvaal

up Thank margin Yeah. follow I'm you, provided. gross outlook gentlemen. on hoping the to that you

you know – structure think even you gross two love or at that that I ago, upper-XXs level to to the not get XX% years. margin would were quickly that long expect to I back how

two Your revenue or level of much that that years that, year the won't the mid-XXXs they end by levels ago. the below aren't were be

that So, I the XX% the might that margin have more Thank Brad, threw would on gross have than you. number, you been us. thought at progress line out there

Brad D. Feller

Yeah.

new margin, high-XXs at lower more new north come which we customers can being critical and take is believe It's back We've very going in just So, to scale about scale over again. opportunities, the get initially. driven and Jeff, time. we still a XX% that by us. for of That time talked

there be So, the bit think we lower. growing shareholders if harvest very return wanted we back that just we margins with a a business at are very is revenue had, for better We little quickly. could actually our a clip to nice

continue approach be leverage our forward. that's fab. to as our more But the going get the So, and approach in scale will revenues, we we been

than our revenues cadence, are the very margins. clip, you faster grow to maintaining faster we very to of we at mindful continue will wanting still with a – while continue strong As see market to gross that expand, but

Jeffrey Thomas Kvaal

Okay.

XX% project require that $XXX million you XXXX not to than So, whenever the to a or margin. into your should rate use back level to revenue XXXX we we run going XXXX, or that That revenue even get time higher this is a growth is that as in in implication there beyond, order was. it did

Brad D. Feller

Yes.

Jeffrey Thomas Kvaal

Okay. Thank you.

Brad D. Feller

Yeah.

Operator

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

Brian Yun

question. ramping Thanks are seeing sneak more replenishment, you rest is for capacity? demand optical, it of Hi. my year? taking Yun capacity you the for the network I'll or my long-haul How Vijay. on the do through This new is follow-up see business Brian in On for sort for of And APAC here.

Thomas J. Fallon

which of now, bit Yeah, demand back last in us. actually new regional. and The long-haul, a Yeah, a actually metro because frankly, say pervasively QX, of lots margin had revenue year, little lowers for than quarters. more a seeing it in surprise me we but That to couple frankly had wins. half stream we across over growing bit doesn't footprint network little time. it's of significant fill forecast of mix more footprint over everywhere; wins. we've we last of quite certainly good going right I applications In both pretty QX, of growing quite would little is add mix number assures capacity last am I bandwidth a had of the a the bit, margin long-haul, subsea, a a footprint

now interested, That right a balance So, when winning we long-term it's now. footprint can. think allows growth a right us model. more quite frankly, I in I'm reasonable

subsea. of The participated model. question in Certainly, APAC. year, APAC lot last was APAC second mixed had a a strong very your APAC. part we've little around bit of a is year a by driven

again We've last to technology that few and our India great We use. that that really in have not our much participated over are capabilities they use think really our see opportunities in ICE. that some in Open go some opportunities ease after bring the some like like We we They hard of We or going years. ICEX India. like. market. capacity They we

that into a market. time, been and the going market market in I interested is I think India we a now narrowly pretty They've think base. supply diversified It's a long the to that grows focused. go hard The having that actually is be India need base customer ripe. to for

there that it's go think earn our opportunity business. I and try to some to of in

Operator

will come question Meta from next The you. Marshall Thank Stanley. with Morgan

Meta A. Marshall

question. taking for Thanks Great. the

at whether of the across pricing some to kind kind just the the look pressure is triangulate them the upgrade in are it question DCI the you first or second Thanks. XT-XXXX then XT-XXXX with kind just from decide accounts question, you're with vast is And on and of you Doug DTN-X question, to of options? The is or how seeing seeing Mike's and of maybe might DTN-X of majority or kind where and approaching maybe Open be market, ICE? customers

Thomas J. Fallon

seeing lot customers a for the The the to buying a we're that on for full a a XTXXXX, of and suite metro and a DTN-X, so Yeah, great serves of mix are into into point-to-point. a network a a of regard upgrade is so network. actually chassis, same capabilities. often And it application terrestrial DTN-X DTN-X subsea The drops can a do. to or to network feed package. XT-XXXX long-haul the XT-XXXX often topology network of upgrade grooming and a customers a subsea going way they being It's sometimes metro connect in-service XT-XXXX take DTN-X switching wonderful a off the point-to-point a is it's to way wonderful viewed And basically upgrade also the and to that of region. a infrastructure, double basic as capacity, rich or type same use and

that? those and deploying specific number a looking who at. of Dave, dependent seeing to did are they're actually customers application that looking want of anything all we're add boxes So, on the to three you

David F. Welch

of to a substantive DTN-X buy pressure customer with The the price networks. more links value or are meshed into a majority out their or the take a that we've also In number a and the pressure or people buy price networks. networks. are point-to-point that the different take-up features say to need meshed, of about portfolio. you looking is pressure is more XT-XXXX. buy customers you would customers the the a There uniquely added I network see XT-XXXX greater scenario, a a greater the that's where take-up point-to-point of meshed to networks. the Yeah, along at To across majority meshed our price point asked you more the a want platforms, But network, I really this account our within has network. about of the in come that just managing And of before, integrate price the talked fulfill on that –

Thomas J. Fallon

their ICE. a horribly And we I lower of customer. outcomes happens. I open using not have We're much Two, mean, network been think one a it's historically all alternative of new transponders. a way going got Open competitors the we're ICE prefer One, disappointed a transponder. of alternative to think I to the with somebody's I when In price to two win wonderful Open with all one, two. I'm that our And competition. with in certainly but amp, has ICE opening world, Open they mitigate that. to hard

Meta A. Marshall

Got it. Thank you.

Operator

The Please next question with ahead. go from comes Citi. Jim Suva

Jim Suva

Thank you.

which versus happened, you any result a purchasing some say, of and has seen have some as shifts international environment? the those China political share of U.S. against the political trends from, Regarding of

Thomas J. Fallon

for mean the a the active across Chinese there I inability any U.S. carry what to – shift supplier's share in gear. an environment, government for the quite frankly some has political No, in traffic carrier now, time been

something right this us at now. is that really impacts So, all not

us world. don't I to that recent But China. ZTE impact what's think the direct doesn't the considered government impact, sell challenge a much lot certainly product. to ZTE next big of They either. haven't a obviously on really with them the given competitor. sells I next That know the impact mostly around – we the has supplying is regard

plenty that are sense, going are a to from to Internet the to continue suppliers demand bandwidth you demand. demand, to look going think if macro, macro and able there of that is that I be satisfy grow, at

there's think I those disruption or So, that fundamental because of for us actions. don't a opportunity

telecom the has I around we bandwidth a cetera. America, Chinese gear that. with haven't stage In Really, to China. trade, see in gear grow. going continues a sell in to out going political lot can't it's suppliers what and play of in We're North meantime, and to been et can't larger think sell happen still to

net-net, changed. much has So, not

Jim Suva

build is, desire any average? my market. consider to or that's you in going or need or corporate costs sales additional, into India we versus unique costs to mentioned your Do about Then go say, anything a market follow-up into the promotion that

Brad D. Feller

new services stand picture Yeah, terms making we on of nothing big that things. are But types investments in of there entity a would out perspective. a Obviously, setting up those locally, are some there some of we of of investments. nothing new not they're business, amount as based to but investments, winning believe there, think unique right? some you should our business Winning on of comes out-of-the-norm type opportunities with

Thomas J. Fallon

had these built ICEX to to a team opportunities so year time. I'm we Open now hopeful that actually up And as or this We quite to, market, period there now and we a time are period brand-new after in for we're a having We've ICE that expect been to market. some sales end of now. sales to capability, of bring that prepare go a for just we've frankly. selling starting

Jim Suva

and clarifications. details Thanks the so for much

Thomas J. Fallon

Yes.

Operator

Chatterjee Samik from be with JPMorgan. will question next The

Samik X. Chatterjee

with for questions. off my Hi. I wanted to start Thanks outlook. taking revenue just the

gain share your from, to of You're that it's guiding market. to most year. That market But I understand XX% the or whether revenue market. outperforming believe that wanted be from growth losses the which if long-haul the years. does from segment the last come imply over for you're of that's metro do you for that will to in metro then share recouping it's the the market the what's wanted mean few more that some going outlook but the long-haul it segment, conversation to case, just sounds understand

Brad D. Feller

board. your in to Tom just it as frankly, comes opportunities comments a so would Yeah, to. clarify metro, the quite our alluded year-over-year. growth And in There's latest low-teens subsea. imply comment, today across There's opportunities

the M&A in through there's opportunities, growth the the recovery us of one the there's side who customers our across board. Obviously, from in opportunities metro opportunities long-haul went of business of is long-haul, some for drivers of Our activity.

starts share frankly, So, as of important to across and opportunity the big, as the we're gets We I with quite drive seeing a mentioned that's through But is integration spend critical opportunities ICEX, help even and half as out Tom big us. new opportunities ours customer growth they will the for us. bring very a not there. think again, more second And as board. we well. are ICP, necessarily in But there for customer. mentioned, customer a that their significantly gain that net there's

a I allowed with opening we eyes. mentioned opportunities. growth to has are broader a that Open significantly well. be portfolio speed has opportunities products and time the ICE lot over Tom to ICE. seeing will of up drive So, as new Open of much lot right think And now, it's faster of a

Samik X. Chatterjee

clarification on Got margin it. the for Got a gross XQ. outlook quick it. And just

lower you're the get sort of But just think or implying upside there rollout in which your to is what deceleration come from a just sequential seems and adoption at in margin, the outlook? the from gains gross of for ICEX. ICEX decline you margins I there of to the initially. the XQ embedding terms of are footprint Trying what downside

Brad D. Feller

Sure.

to a from So, to and it both strong. be margin good in that is But plan thing structure second we to new perspective. continued the Obviously, customers better new has continue us, offset a we cost adoption for so a that quarter. be that footprint ICEX deploy will expect by

Samik X. Chatterjee

you. Thank it. Got

Thomas J. Fallon

Thanks.

Operator

from comes Alex question with Henderson The next Needham.

Alex Henderson

such behavior the on last talk five dynamics. competitive of players. private seen of any behaving they We've terms pricing all? out out in some good one have could FX under of international moderate about bit And started are of Or that in still any seeing in little companies on at of impact all of medium-size are in has has terms some we've started four, Thanks, second, market whether aggressively have European numbers guys. the that been stress change to in the behavior, seen its the then months over you you was I market same financially hoping a pretty to the price? lines, the that the moves

Brad D. Feller

some your you're all it impact to So, tends in competitive Alex, there of when on FX, to but part itself is the deals. wash first to out question, touch

the be to places, but certain helps they in price us at of you hurts our around we're The did in pressure it many side against – nice dancing of So, in places. to job very a They – positioning be and deals it like the that customer be aggressive. of you're aggressive. to continue them, to it to other continues put us We on looking continue alluding things. very tend and

Alex Henderson

the Okay. first would And quarter, year. going the a point? pricing model, as still – know it this not it you last was moderating that aggressive, bad still you as pricing extremely at year, but generally, describe was was anywhere had said said it I aggressive. moderated; it it And Is last you into trend

Brad D. Feller

as example, ICE, moderate, competitors Tom Alex, alluding overall, new And I of as our opportunities customers. But would protect where with they're we have haven't customers those a cases attacking historically was what new say, aggressive very fairly our who invited, been get is, to being fairly we're are it's they aggressive where with as well. normal. there's customer Open aggressive to for some very may

deals go about would it's say quarters, we've we on the similar seen but specific couple those last of some what overall, I to talked So, competitors fairly of hyper-aggressive.

Alex Henderson

right. All Thanks.

Thomas J. Fallon

Yes. Alex. Thanks,

Operator

The next with Drexel question from will Hamilton. Williams David be

David Williams

of the good that how give you maybe and I the course degree maybe standpoint, kind my idea us seeing an a over Thanks questions. demand year? first you where you're afternoon. think of of can taking Hey, the shifts off, from geographical greatest of for guess

Thomas J. Fallon

Certainly.

a going pressure America. to we're we're that and actually X in in they're much. network, increase – down from in demand – buy resolved, particularly standoff in our don't I Our would gone Telmex of and capacity. seeing think so gets demand, us, still think under see a Clearly, bit Tier There's see for North because though our cable still be of demand. I market substantive the of to Until the are presence, has the government. We old demand I customers North relatively healthy disproportionately business, LATAM significant our say, XO a North even heavy continues between a we America America. lot

creating when resolves of a pent-up, opportunity I because think for there's been just for amount huge amount built no I a that country. that like a that's itself year-and-a-half. think, there And there's huge opportunity network of

down to do this world to successful that. in level new a not think continue the not more a inroads we having grow years, going share I we the probably not and think do in anybody five than opportunity growth have X% a go growth We're real to there. into going market think India there's been though opportunity up will clearly fair medium; good EMEA is has our I certainly markets, else. but metro at I it'll of been capacity long-term and I to X% over think lead year, do in we as to particularly and investment China the in probably need the that lot, participate world opportunity, next And win be historically. are relatively as APAC the some

and first think have actually a and into that who because they're couple they wanting with as and have sure technology I dual-vendor customers, people to make market been our to perfect winners, think these now, cadence talk ICEX time I of a I it's we opportunity have there's strategy. a done maturing

strategy think that an we're market. ideal I dual-vendor for

of view. So, that's kind my

David Williams

a current you TAM. is you portfolio portfolio products? your out of to then – talked and about is the new, current TAM And product in thanks. your past, I product guess of do about you've your active think of percentage covering you your how What much say third your know being are would rolled Great, and maybe with I

David F. Welch

you're referring primarily the the targeted of cable products ICP XT-XXXX, the at is are CXX so customers comment those with and and some the folks. the Yeah, to

it. of about was third that So, a

out and more X.X several well. the as in terabit brings cards bring we opportunities service as for we customers customers. bring provider the in the those that As then there's XT-XXXX, And line with more DTN-X, of

Thomas J. Fallon

ballpark to in XT. going our available grow So, covering, releases. our from with a we're as would and market out. the That's current I XX% current The perspective the of DTN-X, the of revenue we probably our get XT-XXXX to call, today XX% is the bulk market CX, opportunity much higher

David F. Welch

It thing addressing portion in testing the to remember takes those And than those customers, one we much involved. we obviously ramp them customers to about of up. bigger more But types for just longer a there's are have recent of quarters.

David Williams

Thanks Great. for color. the

Operator

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

Thomas J. Fallon

your to progress. continued for a for joining all We today on questions. you Thank updating great look day. and forward you us Have our

Operator

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

You may now disconnect.

Infinera (INFN) 9 May 182018 Q1 Earnings call transcript