INFN - Earnings call transcript Q2 2018

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Operator

Welcome to the second 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 call over to Mr. Investor Infinera of Hustis Relations. Jeff begin. Jeff, you may

Jeff Hustis

section quarter Thank conference XXXX CFO are Investor second today's you, Welcome to commentary Relations the on Andrea. of available our call. and website. fiscal earnings Infinera's of A of copy

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

Thomas J. Fallon

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

an a our in Revenue ICEX quarter, $XXX off our up a and XX% and over all X% quarter, provide Dave delivered customers cover of future to I driven our commentary the lowering sequential strength year cable on I revenue quarter Brad non-GAAP percentage be was are will margins with Tier guidance, was acquisition our Brad wins our call review second over pending Coriant. results grew the of Welch. In significant to internal turn recent were in overall provide as mix. our extremely a X to fifth including progress our we year regions. for relative products QX, first growth. of of will of performance the on then Joining pleased from who growth at million and in me our and by financial Today, our our opportunities, guidance XX% to continued of today from our sequential Feller of again top I'll review and also the contributor more range. ICEX gross financial strong the QX remainder strong cost detailed sequentially performance of year. as key very customers structure outlook and growth revenue products consecutive driving in and

our in our ICE steady with ramp with their significant products with years reminder, solid service on our customers for swaps. activity, grow pleased with unique with for trial from that revenue Based to terabit seamlessly several volume. a X.X a QX, capacity continue second a XT-XXXX to starting the beyond. we converted we card each product in will anticipate our In our will of revenue. of structure ICE positive half ICEX strong for networks generation are particularly of with our to improvement key revenue QX operating XXXX X, to is second ICEX XXXX. in us outlook model my enabling we margin add These ship technology. launches relative the ICEX As sustain factor advantage expectation to successful vertically that half simple integrated providers, new opportunities completed release AOFX-XXXX Similar growth ICEX and enables as to a our I'm product experience cost from products we many full

acquisition technology Before the subsea a to fiber well new receptivity front, technology on in a on On opportunities, for and we Coming this wins QX, and to off Asia. is we this cycles capacity wins ease our These clear going a record Tier the the cost recently capacity refreshed haul proving spend to half with and differentiation to customer drive on solutions, product revenue longer move with transatlantic subsea and significant of in first customer will we compelling that buy current X Instant network globally. utilize some some of which market Bandwidth strong use was track the ability new multiyear low upcoming armed of deploy highlighting subsea, This pipeline value displacement entering In markets ownership ICEX on total ICEX their provides revenue. a in leading had competitive demand strong Infinera's proposition This are the relative significant in we're of benchmark match and has our with to customers. link, our embraced are detail subsea that a network. customer long bodes more architectures, they loves and Coriant on will acquisition, demonstrate robust of to Having given portfolio. open example resonates which the time a our share subsea, set quarters. a momentum. in into a we quarter with deep bookings deployment major

of XXXX for have with a Instant beyond. we global major plans and financial first this capacity deal in of our our with deploying enterprise QX expected XXXX won recently footprint in additions Bandwidth. We deployment CXX, With with

deploy Additionally, QX. footprint with expansion in customer we recently won a ICP that largest sizable our will

couple nationwide from SSE ago. has deregulation incumbent on Enterprise deliver stemming business BT XXX the connectivity we market, UK opportunity will the the its of of capacity to fiber on own highlighted quarters unbundle the services in Telecoms major project targeted update an at a fiber. optical begun a packet exchanges metro, in network access that UK Finally, deploying backbone a a that high

broadly dollar, XTM Towards fiber-deep positioned an and represents Fiber-deep in have will opportunities latency metro build with deployment cable edge, largest More in continue the we SSE of in incumbent, address won architectural some world. new of change. well major this to edge operators significant this a the II that initiative, we to the the displaced of metro is quarter be of begin for traditional the Having applications. point new XXXX. win many-year a low important multi-billion scalability proof third with

well we believe offering. isn't While it clear will the approach and begin positioned in unique earnest, a with deployments when we are

of With attack the well drivers Coriant both be demand will positioned around fiber-deep the addition XG of the capabilities to we initiatives. believe and we the metro,

are It by that future customers, recent growth as XTM nine unique convert Infinera, We systems. Instant we from several My addition booked XX% in supporting Exciting past the competitor view more and we to we ICEX Also, opportunities barrier customers I take creates prospective XX a evidenced thus of transponder and in trials XX% real quarters. projected to Open future In and transformation regarding and over to on trials is share. logical these ship being trials Open and than these the ICEX, that opportunities, am is will of more to pipeline with second of II ICE ICE expansion pairing have us significant opportunities reconfigurability. our Infinera revenue deployments, In beginning as significant seeing Bandwidth, XX is footprint to of units is enabled we than Open expectation these Instant pleased to that QX, far of the this in wins trials drive ICEX II that to have line position new of down Open it. demand clearly XXXX. solid Bandwidth Bandwidth upcoming a and of and in had software-defined versus our supply a XTM incumbency breaks previously in the current much me half the belief that year. Instant love demand. are deployed combined

future from margins. Bandwidth Instant capacity license at revenue software-like comes As a reminder,

network. increase enabled today driving a fully benefit as across products, Bandwidth revenue our portfolio the the to gig all, from wins footprint and up few pool in product capacity increasing refreshed revenue we capacity line Instant future next our XXX the Further, into higher customers to should periods. ICEX terabits is will out in available footprint of lock of several Given are the drive base, add expansion new important license of in X.X that significant which product bottom years. All Infinera our growing considerably for margins quarters wins customer percentage the and high-margin installed

to course contributions see margin For over XXXX. and these recent higher we wins, the of XXXX expect

Now turning acquiring realize the Infinera with overwhelmingly can value I from Infinera number base supportive. ways. and from announcement suppliers scale They Tier employees to have and and Xs customers, significant strategic recent unique that been Coriant of benefits in our and see Coriant customer acquisition, derive unique logic the believe will the of ICPs. greater expansion a

and both this the structurally that confident diligence vertical only area our industry did will we're in margins. to Coriant's occur the leverage First, company function step ability are We margin raise to that when fully technical integration the of execute complete. in can extensive impact and

entire gross not from of the integration, the our volume vertical fab but company. cost addition, margins increased Coriant's In do lowers only through benefit products' structure running

ours Next, that moving Layer the to significant around adding mobile, should open portfolio very capabilities us and for opportunities Coriant complementary additional forward. is product automation X

With optical while and significantly of of is diversity. our improving this overall we the revenue as customer only X scale set, ICP global major as Finally, customers. such presence large business Tier minimal well with company overlap acquisition, system enhance our expand our the significantly Infinera

to on deal our like to to XXXX and clear in synergy intend be some over I'd execution A successful most, for time of seems post-close. integration targets achieving While towards activities our immediately to the logic the growth for crucial plans and act XXXX integration. beyond. We will of integrate remainder spend

to leveraging are COGS XXXX reaffirming than our from the scale integrate million in the advantage The both XXXX. vertical our while vertical engine additional overall $XXX Coriant's on plan targets million million stems three of across $XXX plans million total XXXX XXXX. XX% service in to processes mind related are The in Keep has less chain that and forward executing our our This into the $XXX expected specifically OpEx in R&D $XXX main Coriant an in integration, SG&A, platform of and supply represents starting across synergy optical bottoms-up of avoidance and spend. we and and $XXX resources by First, savings the expected XXXX cost platforms. synergies, integration attributable in combined savings manufacturing chain vectors. Optimizing company synergy million synergies. supply XX% of and additional development

plan we have with will integration a fully proven, professionally integration Second, that staffed resources. robust be supported experienced and

specific the companies. of We have established accomplish the plan a to integration XX work with full streams

effort are integration. we team will from proven of with resources leverage full-time, And from We firms of the dedicated and from capabilities Coriant, industry. staffing the a members each folks stream the professional Oaktree, XXX% with phase integration and key Infinera, for proven coterie of

the would our certain large opportunities on the win we for closing will capabilities. customer Third, customer combined of suite where plans front, develop upon from benefit in-progress

baked this had deal earlier, deal of from we've revenue discussed a response synergies any our strong into we not our analysis. announcement since customers and have As the

this scale talking consistently more suppliers, two to shareholders. differentiated Infinera do which I are investors scheduled for year. share ability integration customers, to spent for substantially we the opportunity from revenue at in our margins. us gives product vertical Coriant, will our the closing, given provide we deeper integration, and Doubling before even this that the about portfolio is can deal intend fourth of Day, what and having quarter plan closes, enhancing into to an feel benefit and weeks dive our be acquiring and our Analyst the incredible we our past deliver Lastly, limited to employees optimistic more In a

of by further benefited and are base ability expanded more a Xs to existing of Tier and solutions to We both comprehensive our increasing deliver ICPs. our suite customers the

from We into this are strong entering acquisition position. a

excited of fully expected for half really customers, is holds. and couldn't growth driving expansion future more Infinera the Our position footprint revenue new second earning like product refreshed and in I our to the turn with XXXX. I'd portfolio what partners, discuss to an the their our the and work. for to shareholders like employees over Brad call customers, Infinera will for to now commitment extra ongoing thank I and their financials. thanks hard our to be

Brad D. Feller

are acquisition. future and driven $XXX.X commentary more large sequentially on some color highlighted was recap revenue in by will Infinera today million, CFO sequentially revenue results results, an on unless website. was Commentary standalone in our Please than afternoon, XXX% provided stated, QX is outlook, the our up In by provide Thanks, Growth and I year region. share APAC and over ICP in that detailed QX the from basis. a to all highlights, note the on both guidance QX, quarter good Relations XX% Coriant Tom, Investor our in everyone. and increase international Today available numbers growing additional discuss the year. growth strong a due The X spending specifically of Tier and on X%

invested to the cost This leverage in upgraded million X and implies attractive for XX% revenue DTN-X robust to substantially growth we approximately the cable the from QX, them adoption represents to half. the existing Consistent across continued first momentum, the expect second second to business our the of expect we at spending saw ICEX stemming midpoint see growth for new existing year. will half Tier quarter, X% capacity X% customers last we with million, linecards, regions, our margins at With encouraging to $XXX them add in which verticals, half at accelerating product our products. our the half the Looking outlook year-over-year from allowing remained In AOFX-XXXX, customer in XXXX of effectively infrastructure all and of continue be than XXXX. range second to $XXX higher revenue in of growth a of full for us. in

we initial will of and anticipate with by with second continued the customers. large driven new deployments adoption growth products existing half, be For new customers

multiple for opportunities and XTM across noted, As of half. substantial in ICEX the we have deployments regions II and verticals Tom new solutions second

$XXX million. As or of a X% we result, this currently million $XX plus revenue represents this expect range, midpoint of the minus growth. QX year-over-year At

to for it due the QX the which growth are We broader QX half. half of difficult the timing very off in in we offset an being in deceleration or to half, begin where pleased to year typical revenue Infinera's XX% the won of on the seasonal of wider these either that we an cusp with in QX, we are the second deploy over multiyear a the than in half recognized. expected of In performance exceptional revenue first that cable, to at we'll quarter the have on which some revenue. I'm second accounted it business very excited end from first making beginning the guiding our deployments of will to range comes and about be summary opportunities revenue, are pleased of expect predict in

momentum accelerating additional new For the the rest our base focused capabilities, we on customer growth and of remain winning Coriant's with XXXX. into of addition customers, the year, and

revenue the business gross range Bandwidth enables of mix, footprint of of strong industry the sales, percentage deals demonstrates XX% better factors, Now was XX%. at This was margins. and of of from QX guidance the result potential XX.X%, continuing QX products to end which attributable our increase Instant turning new strong as gross deployment to strong license than our QX. in model, shifting This several to margin the margins, including certain result high to to a non-GAAP

the see a are with on basis when with vertically a from revenue with model. significantly of increase customers same increasing Specifically, Bandwidth capacity Instant Bandwidth nominally margin to cost shift benefit lower the Also, products, licenses, continues at capacity integrated the in business the there's per-unit deliver their as we favorable our a structure we to model our mix enabled impact saw quarter. our as we by Instant new to enjoy able ICEX, grow We as networks in cost. benefits X.Xx

Instant equipment extends of non-GAAP a in to licensable for strong deliver nearly considerably future. gross QX, With pre-deployed able the the amount a delivers, Being amount is ICEX deploying capacity capacity result. software-like of margins in margin Bandwidth-ready at higher large the truly while that XX% Infinera

customers, of an due margin industry, to gross profitability. relatively new aggressive bandwidth Looking Coming first To winning prioritized initial high-margin XXXX deploying, half and ahead, In gross will willingness anticipate balancing non-GAAP topline will year, also expect the new XX% is will best in in we be winning XX%. new our exceptional future half, secure the for footprint to off continue amongst high project utilizing wins in in second carry expansion the and plans margin be share full line we the in QX, gross certain that in with margin combined but this and margin currently non-GAAP we new be This margin out of margins to year. with several technology, range our put indicative of number aggressive XX% toward with the deals. in be exiting earlier XXXX the result of quarters. the network we growth XX% fill the the outlook for wins low the year, to overall have perspective, to in into to the with new footprint gross laid we

our Instant high-margin result given the lower will tend term, in new footprint drive the near margins margins future of the secured to business Bandwidth While increasingly and software-like that the combination vertical is by structure in lower-cost multiyear capacity, the integration we deployments revenue fill have licenses. of profitable, enabled

financial goals. opportunities confident going us we our profitability, networks, deals are overall in improvements drive towards longer-term these within significant the forward growth that will these Given driving our for

balance to in in from than quarter, of lower OpEx, QX slightly to midpoint million the lab $XX.X non-GAAP future investments XXXX new to million to continued we Turning technologies restructuring. customer the to guidance. reductions $XX.X were operating part our adoption our million In $XX as of support of and the with our in cost late we $XX down trials products million and QX, committed expenses

of For completed the plan our restructuring plan $XX OpEx refresh, that well below million. we portfolio overall made have in My our now this commitments be In and will sales QX, expenses to the on dependent operating be will million costs $XX the to will G&A marketing the driver we of exceed the of project be to range million. year, XXXX and revenue sequentially that we we performance. part of as decline. will decline expenses main remainder with exit slightly expectation decrease remains and $XX our quarterly R&D

technologies Looking of will billion, adoption scale revenue to sufficiently with while $X.X balance pace continue a next we and that with will ahead, operating operating them. I'm investing support our demands market investments Entering have the significant deliver drive to growth revenue we differentiated driving efficiencies of products. the at new excited customer approximately the drive to to also year combined leverage

per our strong are in X%, following model to our increase by expenses for non-GAAP loss grew stock-based while profit loss approximately leading non-GAAP of $X.XX both margin. on increasing profit operating XX% while increasing between of financial revenue a to the expense full year GAAP million and share operating evidenced $X.XX operating basis, metrics and driver with XX% above in per gross leverage an net compensation being million and an XX% a by year grow We demonstrating decreasing as of the of loss with share, largest improvement strong leading guidance expect On results. of profit incurred gross metrics. we reducing net $XX GAAP in $XX a non-GAAP to due a QX, and had the our OpEx, a year, we year. over In approximately operating over XX% basis, In approximately to operating difference profit our QX we over we year. And by range, X.X% largely the gross

will our to in to will with the our will call. as anticipate enable QX, reminder, be interest lower this the approximately half, expense profitability stand-alone per new quarter. Also, a expense tax consistent balance loss footprint results on and project share our or due deal second on our debt, pennies, to finance In acquisition, we expense for the $X.XX us a foreseeable drive of margins count. X%. growth combined of financing. stand-alone in share we the basis, XXXX, depend being. plus of tax to pending In we be Future currently off with For driven gross project share approximately previous a by to wins, and intend initial negligible $X on the outlook outlook the non-GAAP our net NOL return we of we prudent Coriant the for quarter million management fourth couple provided revenue stock-based a Below to operating for earnings per non-GAAP closes, After loss the that significant a time future today's we are U.S. on mainly company. expense line, the we compensation debt based non-GAAP $X.XX on GAAP debt. given To on lower a securing our QX, convertible minus closing the paid expect basis the in new interest the of

and fourth in positive Given QX record income XXXX. improved revenue expectation of our expect gross non-GAAP quarter, we margin net in higher the to

as sheet, from balance $X million in build was continued operations. I to QX, momentum in generated business the that the On we cash pleased

our In support top-line related technologies. to integrated CapEx demonstrate related receptiveness the market's our of and outflow portfolio by line cash payoff the to earnings cash and cash the from facility, business investments currency growth second the to as convertible improvements bottom offset in impacts our of operations model. positive potential and and to $X declined conclusion, refreshed investments, Excluding vertically our debt million $XXX related next generation quarter by was overall million the

revenue to and in in XXXX beyond. expect We and customer footprint high of reap prioritized expansion this benefits margin have and XXXX strategy and the

the next positioned combined spot a and are armed in are several to a Infinera Coriant's grow capabilities, complementary a well as customers opportunities quarters company. with good strong We we with pipeline over and of

on stand out platforms. scale to benefit I company, few the leveraging profiting from on from Coriant's a across associated Tom, operating combined leverage a early substantially line, years integration stand. its vertical we Like like bottom we and and where also As our

are XXXX of to financial to like differentiated financial portion results in With to model call. of highly time. the poised and turn operator We half over deliver to the begin the I'd call profitable the a strong over second that, Q&A the

Operator

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

question first Vijay of come Our will go from Please Bhagavath Bank. Deutsche ahead.

Vijay Bhagavath

in then gig Thanks. business, afternoon, you, the transition good year, results understand transition? upgrade one here. cycle? do Hey, good today speed terms hopefully? kind to A visibility us Roughly we as in the moving are for plus you speeds both the of how capacity scale? cloud question Tom, and on follow metro. to transition cloud we and are head optical Where currently and Thanks. visibility also into metro. of terabit speed have, And land do we So Like your optical in next what XXX this quarters help

Thomas J. Fallon

Okay, Vijay.

markets. break and going couple Then into talk this going speed a is about in Dave to So visibility to various to the I'm One I'm opportunities. around up parts. transitions ask

area for a the well cloud So we've won I Since first customers into that financial broken ICEX. lot been think upgraded. markets introduced that with that We've in lot the I'm our excited working of it CX. and while. really of we've a being last we finally customers have get of into hard all, is to year, very a received

tend trying a have of averse doesn't now I part a hardest around think risk who somebody is be the that financials have to marquee. they marquee. the We'll

Instant think So fact of the the a I great Bandwidth the of so much really provide opportunity. we that have think capacity, use, program, that quality I ease we the

in kind year has just It's the for our bit But have the of but not around only rest cloud, not the like to received forward ICEX feel us, well center business, of a optimistic and a clearly, there's little and more see we entire expansion metro, continued business. of lumpy in Looking And I'm probably in steady opportunity. of I I metro. actually center. to industry. been In data data good position cloud more the ICP, but

That's First, as very be really about of of over power, substantive went and we I a Clearly incumbent. once opened us, again, a SSE. will in to displacing the talk in up long And on really go we going new the lock program When very, BT talk and where with can SSE for a and everybody UK against us the low program, the access breaking that about we the it's that. very that ease use, an the good it's time. we after win. internet the really, industry door, think going be that density benchmark leverage

about So I'm excited metro.

to One of leader. go about into into us clear play, the complementary when we you power, density, a go is integrated it's When you complement for am have get things of that I metro the control, what will mTera the cost, will and about redundant give great The the acquisition metro to And Coriant more very it's when a good edge core. looking an also with that. access excited very you're be a XTM. switching, XTM is

metro continues in core years. plays big to metro, the clearly it big fiber-deep the be as and think up XG expand. then And the are I a to opportunity over So the next opens several going

we think I well were positioned before.

As new rather compelling their it's we sooner think portfolio rest we that the will Dave, I large. technology going an answer it. add have think sure, to their not customer starts, portfolio, I Coriant both from are transitions, the do could start it's Vijay's I than think, and Vibe capabilities, a SDN, be, automation with When and of solution. you appreciate quite but if really I'd around I'm question particularly to of later a perspective, positioned well we And going now and speed on perspective. incredibly but also

David F. Welch

core the few gigabit down and that from now it going as volume into metro and largest network. probably At transition big course access transition The the edge, haul. you long XXX and in of drive Sure. break impact access to then the gigabit, up. transitions be certainly to speed happen edge, the years. the on It's into have to over that and edge are – speeds going going Right the the edge XX access the the to next in is is

into certainly spectral As a about core, XXX transition right any wave. currently being the make majority all going there. per of far It's that's at But now efficiency isn't going will gigabit. up. to as the the is deployed bandwidth deployed dollar That go gigs

speeds, So coherent. capability. driven gigabits be or class, goes ER a up XXX not you the high will gigs terabit it to whether DCI, XXX per service it gigabit but to types. goes The where whether by concentration, that XXX-gig That's have of dollar a more up transition by

I think XXX to going split market between the and that gig the terabit. is be

will gigabit it be between for per advantages type are set a of dollar So the the two. time. more driven transition for XXXX And basis, probably what that's by

Vijay Bhagavath

helpful. you. very Thank That was

Thomas J. Fallon

Vijay. Thanks

Operator

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

Alex Henderson

you just the a Is I clarify is XX XX your could that that. also ICE First, that If trials? XX? trials, XX, XX clarify or Open just before were you ask there trials. on think say XX you comment plus said question, you in I to on then went could,

Thomas J. Fallon

and old historically said, both technology, pushing typically which of new we customers, not customers. as XX them the or customers Alex. is trials I'm new there's is of new they're Open, That in They're often, products. Infinera XX, have nine been with

speaks Open to I quite think several I'm opportunities our all well next over quarters. the it is excited me frankly important. strategically the trials, about to So and

Alex Henderson

was I margins. to the gross around question ask primary The wanted

to percentage margins half you range, at the going be think ties XX%. that the gross XX% of very products second and to out said high would with think Instant the product probably ICEX I XX% I Bandwidth in

putting that's two those that I in does off, between aggressive you are charging capacity a an correct on primary that opportunity the is margin footprint? to future, costs more distinguish you're than the lot give you're integrated out First Can – alternatively, for. being more gain It driver factors? you and am pressure, but all-in of you system or that

Brad D. Feller

Sure, Alex.

an going networks described. XX% from traditional than XX% are truly is metrics sense higher are the Bandwidth Just to also that is what of clarify loaded, both one combo QX. out the And The and from thing, half lightly that. sense. you very a for to Instant it's new a It second just

there So new where there's to go lot goes as those those new the customers to bandwidth that be one. footprint of be lot are of day infrastructure will also in obviously and A high-margin additional we incremental a forward. opportunities added new

amount, that we and the script, coming, being on the in a putting his loaded, So large QX and of have as pressure customers infrastructure combo is lightly margins. deployments and them Tom are new mentioned that new

Thomas J. Fallon

me thing. Alex, let one add

more lot to you PIC add customers bandwidth the time. think ability from a leaves about that As incremental for going over to XXX-gig X.X-terabit,

installed base of fillable I-Bandwidth dramatically. Our grows

of customers, new winning percentage are these we're our large now have and we win now we portfolio out, a As we them more than with full ICEX have that I-Bandwidth. buying

as said half the is historically I think we done. in substantially second up we of half from script, I our the in which year, recall, had what

incremental no first-in great. using cost. Then the to locked for that's cost. for expansion. customer's buying basically capacity I-Bandwidth them years think got critical lower is decision, in a I of We're cost, we first-in is That

by I-Bandwidth important, a substantive Tier up of roll capacity more we new as been The a that is another in SSE it's we're letter And a second starts the across intent QX. we've open So all interestingly won a X, it for the to ICE. out then, QX. is just Asia but than one been QX. is and Maybe see footprint. amplifier if half. the will be out us, in in that LatAm in down customer half. in vendors' important. winning will now that in certified double I-Bandwidth. we the have that a is for because their going rollout Open we deploy the up systems. also started fact customer PIC enough, lab second in We've fact new percentage And that We'll not It The can given

pressure. at in under a we're to bit of are but is footprint. winning positive QX So margin cost, the It dynamics mostly a regard comes very little why

Alex Henderson

of paraphrase clear you mostly what loaded, pricing the cause a up price industry-wide I'm be that Bandwidth and would this hearing I for in aggressive aggregate not pressure. Instant to a is think Just and function system step say, lightly

Thomas J. Fallon

in up step a pricing not It's pressure.

seeing footprint and deployments of probably QX. in disproportionate wins a We new are

Brad D. Feller

of capacity right, it pre-deployed it's not little characterized you is into us aggressive, a out which is networks putting think new pressure. that's bit I Alex, exactly it new putting a

Alex Henderson

clarification. you. Thank Great, very helpful that's

Thomas J. Fallon

Alex. Thanks,

Operator

comes ahead. question Samik Our JPMorgan. of next Chatterjee Please go from

Samik X. Chatterjee

loading Hi, follow are at for with. attach at I then of start customer increasingly Bandwidth in customers, behavior? high-margin bandwidth just stage? comes that and lower it, terms rate, typical off in But last or you're question, what terms a customer do you the opting typical Bandwidth lightly the upgrade Instant in later behavior Instant timeline an when is are of the question, higher to What in wanted seen an so probably taking thanks which with at the margins increase and for expect bandwidth, be you've you my purchased question. on you're When up seeing to of the in feel terms get of later? a and to you your mentioned a deploying margin

Brad D. Feller

types talking to we're that It's the look But capacity customers you are if different of very large from about, customer these their customer. customers X rapidly. increase Tier at

we start to to it of within expect couple come deployments. initial those a So quarters

Thomas J. Fallon

a I start deployed, is When services, quarters and of region return couple really carriers infrastructure open as turning for new amounts think deploying easily is was into first beautiful And new to to to things with put a deploying of up things part they up. the capital. them, can already very the go very lot small these Instant out spent that fast have Bandwidth region into going incremental justify CapEx that of the a markets. very of they

larger for carriers, So fairly we adoption fast. the that the is found have actually

investor, as that That's we unit an of is for part a thing loaded better. important on time Bandwidth to how an over Bandwidth margin other fully our understand product pay when it. Instant The unit, loaded sell we loaded versus is the Instant actually

it And also great to part for financing next place, fastest it's the We in our that shareholder. for cheapest, our that XXX to us XXX that is to works deploy customer. coming is I the gig great easiest, and are works customer me It way gig. next it, infrastructure great our think for because once you that have

David F. Welch

then to this the in an on with their mostly And their Tom going I've I talking has because turn more is the here. and make the Bandwidth, sure revenue in seen want Instant comment them of Bandwidth about the There's spent side to catastrophic that value the happened, financial that added highly network customer that to significant is licensed a them as a allows for move that we is it them. capability reason why there the adds instantaneously on higher. primary operational, get around That's where for or their marketplace. that to I'm ability on it value many the of can from value the of if upside of add is a a valuable system reconfigurability amount align those that enables a has significant to Instant to stream. event on our to licenses customers. this and demand reconfigured be margin patterns

Thomas J. Fallon

of about really This use capacity point C a from it Dave automation. is just license the Today C network talking I Instant A this With move you to I have D. Bandwidth, I need a about that the industry's to network actually our from point and to B – talks D. Tomorrow It's to bought. lot real around, automation.

have to do have life. create to as that only bring the anything really utility, we're the and We're else. people hard toolbox that working to don't think network a to that You I

David F. Welch

world bandwidth-as-a-service as value a close is to to software-as-a-service. them. has can you a the significant in that bandwidth-on-demand, capability, It's transport as This and get

Thomas J. Fallon

you. Thank

Samik X. Chatterjee

it. on have it. had on operating I And Got sorry, Got a expense – I a follow-up the quick guidance. follow-up quick

business you're looking structure that $XX $XX cost QX or the to you're for expecting move guiding to into drive move are of in down into where million you the expenses QX million into with, from QX, be integration to you sort further Going is integration? the the before stand-alone

Brad D. Feller

Yeah, so from there. not there's another step-down

be than we're just comp QX $XX it the sales with million, fact, may In some strong a expecting. with titch the that higher year-end

Samik X. Chatterjee

Thanks. you. Thank Okay.

Thomas J. Fallon

track committed, come costs to important and It's the $XX I to that. think, year, on achieve out that million business of this realize we're to we that of

Operator

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

Jeffrey Thomas Kvaal

Thank you all.

last from following talked gotten me this It had like are is some which just Let ago? doesn't things actually seem a worse? haven't follow-up, intense up you pricing mean they have Or to where things reverted any a start were quarter, Does that intensifying with about quarter. quarter as pressure.

Thomas J. Fallon

opportunity compression QX the of both our new to than mind my is fair it's us more becoming some in industry that new quarter. as allow indication that wasn't things in was return My future of You on arsenal talk it's Instant on lot to is current and always should My has with me, change that's fully armed indicator and price intense is that of new on seeing, that. one we're you're a trying customers. see. last that of that. aggressiveness even assume that I about, aggressively it we new competition. with an like best footprint tools come communicated and new upfront, because very actually price I disclosing we was on over This worse Bandwidth footprint. poorly no To the what getting be a of but That's that time, the with how implying deploying, footprint take We it's The on much make footprint. reasons footprint significant.

not So going from over a it's we and to make something we return that that deals. away walking sleep will a go lot deals that. not aggressively lose we where allow of have We're to We're toolbox about. a time, pursue us can fair do

Brad D. Feller

that's them the the the normal. fact that And, at clarified that very think pressure we're has you winning it's of any clarify, deals, those Jeff, multiple to had extra one The margin just before, side. Tom puts same you where have it time, if I on of this

Jeffrey Thomas Kvaal

margins, the ICEX ICEX on margins low the just say I we're the let's from and XXs. year had a deep cycle, significant though ago me the now but have XXs. them that What if up and in Even the into makes deep low you would they're quarter, across me asked that have would let's scratch made progress yet the that bit, thought into cycle we're a caught third get gentlemen, my not a couple gross is head average little the quarters, and

than here? had about should So happening we you Instant popular becoming expected? a Bandwidth the Or more how think what's Is is model that? it business

Brad D. Feller

the and just launched launched the is that Yeah, thing really so, got you've Jeff, biggest AOFX-XXXX to the realize just we've XT-XXXX.

we've So products. that base primarily use our historically customer of about talked those two-thirds about

very say we're CX out XT-XXXX the XT-XXXX time, small portion been that have overall for period still good So I AOFX-XXXX deep and into would a but of of baseline the and are piece. the ICEX a

it north about see revenue. So, continue you XX% talked grow. of will We product being to that of

over you forward. to will see of into power year the grow go course the start future the You continue years. structure cost we the as see when really and That's to of that

Jeffrey Thomas Kvaal

Okay. very follow much. up on that, you Thank Brad. We'll

Thomas J. Fallon

Thanks, Jeff.

Operator

of Our go next Please question Jefferies. comes from George Notter ahead.

George C. Notter

business the and Hi, with just narratives if And sure opportunity X guidance? know guys. about in also looking Level What Thanks. terms process. would I very in over improvement make And are largest I I'm what much just are that going seeing them? general, you kind Thanks I RFP here one CenturyLink improve much. customer was process guys for then an I RFP I merger second understand historically, of of that your in past I run your curious to of think in of expecting there's as that terms customer, you're improve around does jump kind wanted you of the in guess the time how integration obviously you you that and of kind as half rates guess get forward? there. its think

Thomas J. Fallon

it that up Yeah, slightly as. certainly, what out we're from seeing revenue would I George. CenturyLink now say is bottomed

forecasting that. We in fundamental not are change still any

know that's is that. from back baking We're have that. suspicion at. replacing planning gap and My near-term will is in hopeful significant RFP, to occur. we decision continue a at good every it to to at, made quarter our a significant aren't what a In close was there's into was We goes to monitor running that be just because that going we track that's to occur. we news what Clearly, successful upside. it the regard running before, where become if The it to is that don't more when So it QX. anywhere will

to are We're certainly well both company. I chickens for am had long incumbent count metro we long companies. a haul relationship the substantive relationship, of I but not positioned at before think companies. both very has base, good certainly they Coriant going hatch. part We've old a my at with that a the

likely We're hard there positioned. will I – this likely think I that worked very and we're going in to we've So go well decision earn be to a think opportunity QX.

George C. Notter

Okay. Good luck. Thanks much. very

Thomas J. Fallon

Thank you, George.

Operator

ahead. Our next Sachs. from question Rod come Please go will Goldman of Hall

Rod Hall

I Thanks on Yeah, quarter. QX the pretty are hi, you've first want got guess question wins revenues question. is these footprint guys. the yet in for I to and the quarter flat ask

go sure seems ought to just so So to you the wondering in because to with wanted I up I've revenue ask. It about but got that not ought higher along follow-up. I'm is that that flow? other terms weaker Then deteriorated? of there how the have I'm to something making margins revenues a revenue Or is like

Brad D. Feller

in for so, space, while Yeah, that the was aggressive first second we out traditionally customer the the in our talking piece half that about half roll had Rod, exceptionally a is was half. as strong, the cable been and in in first we've largest that very plans

into not the continue we So was half. to anticipated had going that second that

and backfill which AOFX-XXXX XT-XXXX, top growing see new you see with significantly. what with why is that, the So and customers more is opportunities these don't to you line both new ramping helping

Rod Hall

guys is lumpy expected. – margin bit way that gross depresses guess the kind I'm QX. to it's just wondered have exiting that XX.X% we we you then sort could margin or a I into how more it? And margins. gross Is I you Instant revenue get much margins of that than I feeling Brad, it also get indication it for Bandwidth a one the be? But then a is way what would calculating trajectory on can math us, like that there Is roll of any some follow-up. it originally, going of we wonder. give year my the than bumpier behind in And We're expected this the the would was, little so understanding, much you thought Okay.

Brad D. Feller

put get call Yeah, than lumpiness, but successful behind is I also variability the is additional about will good winning revenue that a and every has of into offline. little on expected focused ask into We've itself expected. deal we you I anticipations terms long-term rolled we than focus Rod, more rate as to your the real customers. year's it's in detail and The we work though, the been we've the higher than win very hard you, would significantly on thing and the But more on bit frankly, to say can tell but of it we bigger towards margins. the had that out, opportunity the question quite anticipated we been is

Thomas J. Fallon

And a revenue just footprint. of cadence a into network's installed, on the Once one comment it's new much and these get to of roll-outs easier planning with customer.

fiber to there they out. they with at move move New kinds those footprint availability, have unusual have in. unusual of not for them for availability, the to It's power facility it's to work and all very

very to rolled of the of high QX. in had QX the QX some reasons anticipated the was range our footprint actually of our at is guidance end we margin One

it's a time. over QX about thought. is have of period So a little lower little than higher. was Net-net the QX a we would same

wins because actually margin. really I period on with move I pretty of quarterly footprint think focus any to do of it's comfortable our time, important needle think margin over variation I'm And type of integrated a expansion. the not

Rod Hall

Great.

guys. Thanks, Okay.

Operator

Our Citi. of Jim ahead. comes next from go Please question Suva

Jim Suva

In as reference new very you as a made wins. results and your the congratulations you on prepared recent comments, the much well Thank some gross margin. to

a... you said companies of telecom had I think have the that some

Thomas J. Fallon

garbled, coming understand through pretty the unfortunately you're I Jim, can't question. and

Jim Suva

Is that better?

Thomas J. Fallon

yes. think I so,

Jim Suva

and margins. gross Congratulations results the on the

Thomas J. Fallon

you. Thank

Jim Suva

to at anything that an products you On Can think about you some margin gross wins gross there wins had remarks, I more like tempo think the pull-through adverse positive of that, seems see. want that will that of be or and layers unique additional quite a margins. there higher Thank you. I we negative. your to a had just about? should than happen, what's of some timeline telecom follow-on Is you expect prepared when to more or It recent mentioned impact come? that will

Thomas J. Fallon

initial is each We kind it's The talked of think average average has that I with going two lower footprint three-year a the of deal in Jim. The I to Bandwidth. typically kind will margin that And have cadence, positive, Asia, than one and the right. Instant different will achieve of achieve. a one out in kind you're about timeframe. It deal

have leaves So the will first they hundred Bandwidth. What customer large found gig Every gig, of starts them Bandwidth average. and seeing get thing to They'll up Instant do they typically five can circuits of hundred typically is deploy. the I steady start that a Instant then that and with you growth then is turn still a I couple after the that's different, capacity. the deployment that increased three is ramp the but think several later, with quarters

Brad D. Feller

way that a absolutely types is comment. the Tom's the that winning, bandwidth we're Jim, unlicensed our is deploying positive. winning, The and situation great us shareholders. I This of would we're we're reinforce amount a for customers of for

Jim Suva

so the much congratulations. and and for you clarifications Thank details

Thomas J. Fallon

Thanks Jim.

Brad D. Feller

Thanks.

Operator

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

Simon M. Leopold

possible one question. top a out made to bit on don't just color my to get a thanks for way. on I contributions? XX% it Great, taking think more a wanted customer you first get of be I little comment the Would customers. the housekeeping

Brad D. Feller

the being combined recently X other Sure, one the large two in the cable customer, than greater XX%, Tier the being U.S.

Simon M. Leopold

they? big how Great. And combined, were

Brad D. Feller

Combined...

Thomas J. Fallon

About XX%.

Brad D. Feller

Yeah.

Simon M. Leopold

Great. (XX:XX)

Thomas J. Fallon

on look the that. take at a a little Simon, more CFO Commentary for

Brad D. Feller

Yeah.

Simon M. Leopold

that. Okay, I appreciate

we in new another I projects think quarterly focus had better So, margin, you answering XQ. good clearly you a slide about Tom, activity earlier, into made point question, so and because gross on one appreciate quarter I XQ, movement of the some shouldn't

what we a is great, XXXX. And about normalized So margin? get the some what look to I gross in as views but think we're think level. is, should you. what all ideally, what at it way That love should be to would your Thank trying get I'd think to of on normalized like

Thomas J. Fallon

answer, Their at ask tricky Brad XXXX then I I'm consolidated think and margin I'm to be a with point anticipate level, cost a until to to gross margin get we items, We to years becomes product going can company going Coriant. a structure because dilutive we'll into be couple XXs. the that fix will to profile. take back will some our certainly specifically.

of based mid-XXs or wins think our I had next we're structure would that the of say we we're hitting standalone, I exceeding internal view, be in track of Day on for And targets, the early you But have anticipated give more will would specifics margin ICEX the our that by you the probably actually blend a we year. in that. say point data Infinera out. at would gross cost how accomplishing For for our that having, upon all from I that QX consolidated Investor actually will to

to XX our long-term platforms. company, gross but ICE into major combined a our we're of As remaining still committed the infrastructure that's model points, Coriant including margin

Brad D. Feller

to as standalone. to these at mid-XXs that winning follow-on after a get somewhere but phase capacity you will past Tom gives normalized, continue next of new say that customers, we change I a get that in year win customers, a but it's in initial standalone the new additional right low for on once when it puts is deal, basis. of you you feel to least Simon, to that the we'll say, would a you hard terms normal. will growth have But the

Simon M. Leopold

helpful. Thank the questions. for That's very you taking

Operator

comes of question Tim next Savageaux Northland Our Markets. Capital ahead. go from Please

Tim Savageaux

Coriant missed. announcement. else wanted share, been and anything since I anything wonder by Level CenturyLink I customer of could merger in the the hearing that I something anecdotally if good to you have those that what the earlier reaction Hello, I since have I afternoon, coming your share the of ask carrier call lines you me. if mentioned customers repeating from to here, the to I'm deal, cloud, announcement around and along maybe footprints was be if comments Excuse anything about out guess obviously in to Infinera-Coriant the at and you you've apologies X of deal, but useful. intrigued general,

Thomas J. Fallon

the been the been neutral, positive that other. servicing. The response or very, by Coriant overall the positive, or we've would Tier long-term it's also, that very been and positive Xs from ICPs one it's positive customer I talked It's has has say, to, certainly

Some don't at people haven't they them been really and looking care.

at platform. looking buying product going the continue actually they're are were innovated did from they and architecture with some not didn't at that them delighted. first ICPs a really got they they people they enjoy good And have and have. we're what's and them, sleds – we them Some that It's They the we ones very with your told actually with then nice pensive offering. and the around, Groove got have, we to that traction were about plan, that some

introduce opened it them are of ICP up, Tier I substantive to us in customers. that markets Both and and as in our and success. commentary, my important both think customers this of in think talked I X we long-term those they are about acquisition meaningful for

to continue care, continue they because actually we've starting. don't that activities, were they had the they them commentary. neutral on ICPs I and And negative we've are don't and they because to use happy that them the some with very going of will couple articulated with people zero So we told just Groove least their deployment will are actually best platform. which are know. continue, At A

optimistic. actually I'm So

Tim Savageaux

Thank you.

Thomas J. Fallon

in good come update closes give the The news everybody is to deal roadmap. on once the wants us and an them

me that say, our going offer from tell and part is what thing it. even actually plans have streams disrupt do have deal the want well, on as killing thing are you you, doing. and until are. we what is is customers the revenue of closed, are last we we with we're first And restricted them what tell to portfolio. restricted are can Great, on we tell we we're not But The you to I on go dealing to go can Coriant

Brad D. Feller

being I the They big gotten would them forward. more meet of perspective. several color very worry don't a a is requests bit add it for stable financial I've to financial going on that positive situation a Obviously, from a because have ownership side them. under as they about much see our little to

looking customers at stability roof. So also under I it as our big are think a point

Tim Savageaux

you. Thank

Thomas J. Fallon

Tim. Thanks

Operator

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

Meta A. Marshall

down just had I QX item to ago in And dig completion line know of I I would to to R&D the be Hey. wanted years up just guys. and quickly thought have moving to that with R&D would portfolio. Thanks, that the the resources there because have cadence, next mentioned a turn you just step take the it a wanted would couple and of idea was to a that so step to I generation. the faster in

Is moves is And anticipatory it overlap so higher portion is a we less sampling there that or don't there? fixed ahead of see? costs of Coriant, just just there

Brad D. Feller

new The about not than do R&D Meta, refresh the of did, cost we there's to us entire portfolio, full products So, it, you protos, lot publicly That's drive faster restructuring for to you to you to allows going remainder train. we a that actually the to dollars the a work business an it's finish entire and what PIC around type portfolio. our of of once and when refresh cut down. that we there of of but going continue to to to underlying allow of commentary continue refresh – the around this be stuff, on to actually you're deeper that is an start on talked always we the cadence be module shifted back side go if to us

David F. Welch

And can level that of add the in products. there, some if same I in the that we had past of the that we R&D, reduction prototypes just released in is of the fact because aren't going forward, making

just our So a that build prototypes these people organization. have we in engineering aren't these drops, are to

Meta A. Marshall

to size, you past think the I Thanks. think kind of development for approximate we million DSP Like kind industry Got what as generation. PIC. at of it. And $XX of the as the in about generation like guys around just million $XX size a each do

David F. Welch

range. span $XX the what I it's think I range big million development than less as generations it the $XX of sometimes would DSP type for more But you've put one I'd generation, I $XX got type each in probably each still in scale million the not million first calibrate other. significant. optics that always. there, to the instead DSP. bang It's Those $XX million event of for The would

Meta A. Marshall

Great.

helpful. Thanks, that's guys. Okay,

Thomas J. Fallon

Meta. Thanks

Brad D. Feller

Thanks.

Operator

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

Thomas J. Fallon

and thank look Have and us this afternoon Analyst just We continued great your you see questions. joining progress, day. we'll our Day. I want updating you on forward for to you to the at for all a

Operator

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

disconnect. now may You

Infinera (INFN) 7 Aug 182018 Q2 Earnings call transcript