INFN - Earnings call transcript Q1 2020

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Operator

Good afternoon and welcome to Infinera's Q1 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Michael Bowen, Managing Director, ICR. ahead. go Please

Michael Bowen

Relations and of operator, today's Welcome Infinera's the to and website. Thank XXXX good conference quarter Investor on available fiscal slides of of call. first the investor you, are afternoon. section A earnings copy

recorded is replay will be Additionally, from being available website. our this and call for

market to, products, and road business, our technology plans, regarding results on our product operations, our regarding Today's statements projections fiscal and business constitute statements, as our about estimates call will performance operations, of including, statements forward-looking financial statements sales, opportunities, our growth, map, that include but COVID-XX manufacturing strategy, not limited XXXX of impact the outlook. as plans of of and quarter future second well including

earnings X-K uncertainties and that XX-K on to that the management's in reminded filed any a and as of update risks statements to our could materially Infinera's result factors recently to differ subject report as are expectations. of filed statements current release Form revise undertakes materially results the made from or included as are most events no today. with results after of Infinera as or our furnished well all statements be obligation differ that forward-looking Actual Please may may to call. as investor risk cause various These arise reflect circumstances slides and date today, this annual

is to the have year our and Regulation section Today's our in on comparable conference a earnings we of financial directly Pursuant to of certain of slides, quarter website. each fiscal G, financial Relations GAAP measures. includes first measures these most which investor release the available call financial non-GAAP Investor of reconciliation provided XXXX non-GAAP measures

our I'll now turn call Fallon. Tom? to Chief Executive Tom over Officer, the

Tom Fallon

were COVID-XX to responding Well, talking we of us. start the about and challenge. unprecedented quarter. going impact reviewing to I'm from would joining typically afternoon thank you and today's by begin call financial for highlights I how the Good this by

on despite those to I at of brings of all working risks would a fear appreciation sincere for you. the the behalf for around who and protect during represents everyone were like upon time take First care us to best Infinera, and globe, of extend our and humanity the selflessness obvious need, in very hope uncertainty. those of they themselves. health Thank This tirelessly

place. an Infinera customers safe, employees are our ability a serviced our at level, and in high our From perspective, being to deliver remain remains

later products of optical costs uncertain for improve We ICEX new are during XXX-gig to will set reduce our efficiency capital taking active is working we with the And pace and on costs. for benchmark measures first the the performance time. delivery that and expect year reach this

operations to For during of due our half development below will our teams impacts second context, and reviewing facilities productivity. the give constraints, on vast the I before production capacity our functions related home modest COVID-XX operated with to an work Well, from quarter the of the quarter. update support majority

and delivery during requests as health countries production fulfill of the vendors quarter. world. ability our that significant experienced capabilities of a This the to disruption chain we certain For many impacted negative quarter, the impose impact had supply our customer around public restrictions a disruptions on the portion

a corporate $XXX while result quarter. for our from million our The two non-GAAP XX% was expectations vast the gross significantly in For achievement was events. original margin basis approximately below XXX our our revenue QX, range. expectation non-GAAP customer varied of of separate This final our mix was guidance and margin points within and

of was a anticipated. accepted points. a by primarily equipment, XXX common project first X contributed of margin was quarter recognition build of rollout The revenue Tier than initial customer comprised a impact earlier of which subsea consortium major this was of XX basis The country the negative that gross

the positive of expected optical our capacity the consortium now solution the shipments begin that is high-margin XXX-gig by America produce as Groove common near-term. of the These in the ICP. this merchant based to is driven North On members is completed, and on engines. shipments compressed to side, a revenue add Margin were major project deployment significant also because was particularly

had the been ability While compression this of quarter, anticipated offset our planned. limited shipments constrained product this to our for higher-margin as

our of solutions, Moving eventually able we of our forward, more base and margin with XXX-gig to integrated improve technology. vertical will our qualifies as be XXX-gig offering customer the

and beginning On the this seen the they is some last of in relatively line reacted brought demand have view the at the increased where to front, year new ahead they first half were on network We’ve from bookings customers pandemic. of the customer in year requirements our from by as demand with time.

early recovering in expected QX, perspective, Tier Asia demand As but and on the our From in segment be second we we respective to in to lumpy in continued Cable North saw we region, this seeing as assess half, economic QX. and demand weakness impacts some but their with We QX in in America the clarity also first see however, in strength look Tier impact quarter. from and the continued that was after in weaker see X from shipments regional volume recovery demand ICP due to bookings the less are significant bookings X EMEA. customers the customers we support. on COVID-XX QX. a operators than they QX businesses from plan Asia

with Groove XX record customers year-over-year expanding Turning well the in growth with XXX-gig our saw delivery and perform existing to substantial year bookings highlights. to product in driven to for quarter. We metro product bookings in QX XTM of platform, and continued and wins by customers. past technology opportunities the

continued on the win progress which year. this are opportunity on during in we remains awards second half delivery track perspective, several with we significant product, Further, From are XXXX ICEX momentum an our very XXX-gig making our the we of for pleased with QX.

an network, new ICEX the GX successfully performance in first leadership with XXX-gig North operators Groove technical XXX-gig XXX carried demonstrated conducted transmissions live major our we single-wavelength a Series announced platform, quarter, the single the in trial. in over with in quarter, kilometers power which we During production we America

With While technology be of the XXX-gig about maintain links need mostly back alternative and transmission be be others deployments, demonstrated to to taking the ability after to XXX-gig ICEX over XXX-gig. network signals speeds our our the to industry address approximately XXX-gig with and will position long speeds. America that in highlights of of technology with XXX-gig are XX% solutions performance links dialed backbone network able ICEX will rates operators lower solution, XXX-gig XX% our North

generation is operators that than greater XX% per power most per cost solution savings buying the America provides than solutions result a of The bit, XXX-gig and to fiber. same level. versus XXX-gig differentiated North of XX% criteria coherent Compared other ICEX third at network typical generation for more in net current solutions, network in we a three backbone fifth highly for significant enable savings will The believe bit, network. capacity

a forward the of performance, papers challenge to field. of and physics. have violating consequence publishing think our of to candidly taken superior a results competitors that white our I competing can't complement As this in is look higher the and laws

XXX-gig China, and of This narrowing compound billion before, overall XX%, highlighted with the having a over a above competitors, optical reach set expected where excluding annual of growth in-house two viable at we targeted segments is fastest-growing only suppliers networking As the see ICEX high-performance of XXXX. transport market market, rate non-Chinese is of and popular forecasted to by is the one $X products.

redefines DSP XR that core with access networks, increasing up backhaul, optics fund network for the optics interest XR We built disruptive a and longer-term support new independent technology Tier at globe. metro providers subcarrier accretive are markets, both architectures fundamentally leadership Purpose technologies how built. our around optics also can and is aggregation continuing of advances, open to rapid on pace, invest cable and from evolution wireless our in progressing the X XR on and be gaining

much This and quarter, deliver analysts cost XX%. of critical the that power cost. by technology, down capabilities costs leadership XR drive several along leverages a that networks to technology customers integration VSP transformative of in conducted industry powerful lower Optics demonstrations the drive with to on and expertise its proven our technology as potential showcase pick capabilities operations, impact and structure as the the with the we for and

With are ICEX, path business company in of to of fastest-growing the sales, margin networking, and step the enabled approach three product-driven for in these gross leading positioning create and beginning we our our a optics, XR, also segments trends DX compact by unique function intercept to high-speed and biggest integration, optical XXXX. to network market vertical improvement our platforms modular

to constraints at around our our QX. away. we expect sites stabilization look factory customer see but from that access we not all do restrictions at and deploy improvement continued networks ongoing QX, utilization we increased Further, of signs delay partners certain in As could world, the manufacturing we anticipate to certain ability in go

As a this time constraints, They orders. response to favorably we by these have extended with to our change expectations responding are customers. accelerating lead

force. we of uncertainty both Directors is operating of senior for this to macroeconomic These proactive contract expansion For customers that intact. regular than reductions, taking to largely improve the and that reduction and of could continued global second uncertainty, expenses measures the we demand of and felt address with by impact the year, are expect the staffing more half the measures temporary area include remain worker To offset Board the gross projected our bandwidth margin. salaries management of reduce positions little in to

approximately million by from to our yield accompanied These impact supply OpEx expected key year. chain the improving position the capital half which actions of a on and to in our are cash process to conversion has working QX considering $X the cycle, cash intense the and million year. our is a a The are the to second been savings ongoing quarter the drive level decisions, being beginning and expected since areas of our focus optimize an be these $X of meaningful of efficiency,

the While manufacturing, we of mandatory Infinera our successfully in to market. This the differentiation capability intellectual held, to approach as markets DSP see enabled medium is view compete and differentiated optimistic circuit impact segments COVID-XX, integrated vertically of the long fastest-growing development long we we the which integrated focus driven our on our property near-term delivering serve. for the in extremely view remain about photonic opportunity is by and by the we solutions term, and for clouded by

we pragmatic focused summary, are cash our challenges and macroeconomic face near-term discipline cycle. on improving conversion about cost are we and intensely In the

together an the As critical we connectivity. remote business organization, organizing by to time and opportunity motivated communities a and separation at of customers, physical people, are by serve our

operating and that, opportunity while are the while significantly innovations gross will networking optical We profit. our improved structurally pushing about physics, the the excited improving to our of also margin market bring to prove boundaries economics

economic on As the continues be that ready opportunity. to bandwidth to grow and deliver improves, environment we'll

call will that, With I turn the Nancy. over to

Nancy Erba

and Good from by provide Today results then framework I think our remainder of QX begin will the to which covering year. about afternoon the everyone. QX and a

As a to comments directed our my today will be non-GAAP results. reminder,

website For expenses, Relations have Despite my financial COVID-XX details your we with to with year-over-year our posted challenges in margin Investor the assist operating operating to associated included the with reference, quarter pandemic, decreasing results and our modest slides improvement. the growth for revenue, commentary.

revenue $XXX million $XXX up million $XXX and of guidance million above the non-GAAP QX our XX% was to year-over-year. midpoint range

COVID-XX to revenue consortium we which had mix. of scale a coupled was margin impacted earlier anticipated. overall large This subsea completed mentioned, than by the revenue ability in customer were quarter on demand with the ultimately and certain Tom a impact fulfill impacted QX, our As deal

had came in again once see to continue customer in cloud just a strength We and whose provider XX% under quarter leading the XX%. business one from

driven from with more America, be North to X revenue Our Tier that customers continued region. geographic of from skewed coming by mix our toward strength XX%

Non-GAAP XX% following XX% primarily guidance below was due the gross drivers. XX.X% to our margin range to three

initial the XXX to scale network previously deployment which QX large represented mentioned of our point implementation, timing basis a margin. approximately of the decrement First, subsea

will consortium Now second in that impact gross the initial deal the the anticipated margin year. this of that half it favorably installation is is complete,

market planned. and dynamics as approximately QX, expected related were skewed XX basis the us ICP in which COVID-XX on points. impact a Second, mix that in margin offset significantly in freight This point our to represented the absorbing higher approximately optics. quarter we represented to merchant product the deployment premiums entirely resulted which and logistics And from third, XXX impact unable basis mix

told, All We negatively in included of these these estimates guidance. by have gross QX premiums approximately basis our types margin XXX QX points. impacted drivers three for our

associated These our expenses We due margin Customers with also other excludes issues replacement certain impact were to $X.X non-GAAP public note one-time and that to consist expenses. logistics higher QX health million warranty COVID-related mandates. unable costs for of in of one-time gross repair return parts.

components alternate to commitments necessity cases, supplier cost. by cost source impacted only higher normal incremental at from key the also substantially fulfill In Infinera order both to were excluded the delivery the We course. for we in an in

our Our QX range. million better non-GAAP $XXX million $XXX.X operating million guidance to than expenses were $XXX

in actively bringing our we positioning scale focused down the expenses possible pipeline. of later call, technology overall time, and new downturn, while protracted and At discussed are investments a operating with As to committed our appropriate launch discipline key anticipation very innovation of the programs driving QX this in still effectively products company year. are our on to market maintaining we the same cost in

a our million foreign region within we’ve loss, the $X.X XX% and impacted interest from countries weeks a which the recognized QX, a guidance heavily of where QX, interest the and of non-GAAP a have devaluation recognized a also In our line, few approximate we new in a loss by Below in interest – supplier. XXXX credit Latin an was America expense presence. convertible of from exchange range. currencies was which $XX.X we’ve reflected $XX notes million million, In interest operating X.X%,

the if Our $X.XX, currency guidance our been of would the new operating low excluded, was loss our have beginning a of foreign non-GAAP will remove did fiscal or Historically, fluctuations the beyond guidance are to as which the guidance currency have been But control. projected that with gain a to loss would provide EPS of incorporate down operating any of loss. not EPS $X.XX. of range. margin non-GAAP we impact end year, been had our exchange this risk Hence foreign

with the decline. the a We to in ended million through quarter prior COVID-XX in March, last million offering market in $XXX $XXX million cash, we $XXX In up exiting quarter raised the from the convertible days QX.

ABL million During the quarter, a the for of facility. $XX million additional drew total we an $XX on on million $XXX the drawn

capital of As our on receivables XX days days cash from the in we utilized A generation focused DSOs in in quarter the and results I December in QX. early efficiency, our from working cash reduction was mentioned payables. driving portion remain previous call, include a to XX reduce to and generated

in planning, requires realizing our inventory of we as the time and focus inventory in quarter I we the last million. parallel, supply implementation the efficiencies. enter In began $XX call, the focused on QX. and chain in reduced by stages efforts optimization optimal these work to dedicated logistics of highlighted benefits And benefits are This we generate and we early

As a primarily outflows resulting actions one-time this taken $XX reminder, in year, we have in cash million approximately XXXX. from

million. one-time During $XX QX, items these totaled

our these items, million. Excluding one-time was $XX from cash operations utilization

also Importantly, margin as and capital are generation. we improvements to improvement in working drive consistent efficiency, our we cash driving

within customer Overall, despite our COVID-XX revenue results and maintained the impact guidance our of mix, on revenue range. we

throughout initial expense improvement, efficiency encouraged of results capital and expectations, by each which similar the gross this the While not early working resulted quarters will margin customer our our currently magnitude impact during are a of efforts do this occurring year. result drive being continue We and mix our of fiscal remaining mix of margin below the signs to in in of XXXX. gross a we foresee operating

and to expect currently XX% range lead to $XXX $XXX range revised in to non-GAAP appear million QX up their Certain I'd to in of be in are anticipate be how line to our now of gross accordingly, remainder chain we're planning QX for supply non-GAAP and thinking orders be customers the to the expected times. revenue keeping XX%. of on and about with the year. share like year-over-year placing focused the optimized margin We million

impact related we endure macroeconomic cases, undertaking normalized more to efforts project minimal to customer are Tom the mix. chain both we In COVID supply describes a and downturn. cost-cutting ourselves protracted position

our programs Our and operating to continue be key we $XXX current to QX margin these that million. in drive integration is will expenses gross $XXX expectation levels, focus At vertical expansion. for and between million investment

be operating X%, expense minus Below QX. $X expect operating loss we X%. non-GAAP plus million interest will margin of Finally, a of approximately the line, a or in

We will management, on always in becomes these longer no more important, even guiding EPS. Cash although so be times.

efforts Our to cash working XXXX. discussed in are intended improve efficiency our earlier capital flow operating

we we to onetime operations, of cash in will in majority cash QX. $XX both consideration of Taking continue projected QX. progressively during million outflows, be into timeline that onetime In first efficiencies again in year. substantial cash which approximately The $XX outflows although completed QX, improve be expect half to the from in the million will than and will utilize year the less the supply chain our

and we of continue further improvement implementation by balance plan, QX, reduce in see million, capital of half reduced our our the in million the to In inventory XXXX. Through over second $XX we is $XX year. plan inventory should to working by our utilization the this the of

last we plan outflows. In outline operations the our remains flow cash from quarter, and for achieve by a positive, to drivers an cash and to Fundamentally, it business expansion excluding margin model be integration with driven vertical sound. closing, long-term long-term are shared model intact, this onetime

environment. for However, those the to this over in several I’d providing working the given Tom’s of time at from their In and acknowledgment are our the tremendous an current and tirelessly safe working for keep and market weeks like refraining new conditions, to remainder we thank closing, steadfast challenging us of past echo year. this Infinera commitment outlook team effort

Operator, for it questions turn over now. I’ll

Operator

will Co. with Please question-and-answer Instructions] ahead. and session. first Henderson [Operator Our We’ll go begin come the question Needham now from Alex

Alex Henderson

you much. Thank Great. very

a have that to you lot revenues your second time question do was but been your there’s there reported to You’ve extent it’s this extent you to demonstrate able to to have orders about the and I XXX-gig revenues once what obviously did and around the also GA? gross impact in you How detailed it that. the an you’ve product. you And see then for how the lot fact deliver is, show the And product service you quarter? to COVID quarter, reception with have that, in Thanks. talked have exceed providers on orders for in impact margins, obviously what ability huge to your found impact constraints a relative your despite realize it that

Tom Fallon

Alex. Hey,

to $XX or did had So was of who be first did when we into their not ability had receive and in impact QX, the total around into to about we regard The another thing their of product turned in the ability down QX occur. and contemplated. see we disruption for impact receive constrained not networks, neighborhood contemplating to take globe that out which and impact, supply went revenue of we $XX about supply talked guided shut the customers $XX million We implement actually consideration ability to about product timeframe the million, between in which to million. shutdown

but a significant not was because COVID, there impact of fairly So only logistics. supply,

forward it somewhat Moving as easing see QX, going not we but we about, away. into talked

COVID both guidance incorporated our are identifying expected supply we assume but have We deployment could impacts, in not specifically related you disruptions disruptions. and

that the more to us would us Without that. do million like we that, than. to could $XXX opportunity see the do more So we – to million than range. to $XXX gives will Customers

series to bookings quarter for perspective, bookings we’re book-to-bill, actually regard of under. QX outlook we make based the we in trials one up But the their beginning a delayed of we a certainly continues year. industry. a were comparison pretty us sure typically QX open to understand. their From appreciate COVID having disappointments with be strong to for of employees typically that the trials ability us, of XXX-gig, in which upon up number slower is but at keep is a bookings yes, don’t Alex, to safe, and lined certainly customers network they In we’re talk to our trying a slightly have with to

customers of and XXX-gig. demonstrate the over performance a XXX-gig the showing internet doing at the reviews XXX-gig, of analysts with are and our We both technology lot

or test And those customers in by on very and their their so plants. fiber it well far increasing in it’s to being received actually are actually factories their desire

number released so restrictions that making around lined answer – soon them We for sure they’re up have COVID talk in will interested actually Hopefully as of doing your are we a that lining PR, detail as and up that with we we questions. customers, with can the more are results. these

Alex Henderson

Great. Thank you much. very

Operator

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

Meta Marshall

thanks. Great,

to seen dive expectations into years – and in that get purely can’t at ISPs Just a or just mentioned plans wanted coming or of, aren’t is do to had of sense you and to a coming kind slightly expectations. facilities and change they end of I Or get cable demand? a in they of – short customer least wanted in bookings that open matter – you of you of of shorter kind aren’t for access – them. of kind and the slightly kind

Tom Fallon

and cables. ICP for Yes,

For invariably I and with ICP, We is significant think opportunity year business deployments in QX. that that good ICPs. are period digestion a see fairly There’s this very lumpy.

in more that was the and lumpiness. particularly QX, consider COVID don’t to think QX. of I digestion one early. stronger back. is changed would of it significant and [indiscernible] related plans that don’t In always They’re usually come we’re in cable cable, a key half seeing first I So reflection

a when I provider the both our in quarter-on-quarter And think QX. areas. we less in the had cable planning cable did bookings strong demand more in from access record and with for which in for QX, other the a more had at started platform, linear European XTM we year, We access was seeing it just we’re beginning year. U of see

Meta Marshall

Thanks. it. Got

Operator

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

Rod Hall

with thoughts tough operate in guys, question. Yes. wanted share a to Hi. Thanks it’s environment. this all, business for of first to I you some the Well,

Tom, this me before. start. been you’ve Let through

through Do think esoteric in all time. credit the in from where you wasn’t it’s you around likely terms of as hearing in been picture market you’re as they hyperscale be both could of view kind or this thing given maybe characterize your So be long wonder disrupted experience a how You’ve less if XXXX, problems and kind of providers I back, a the question back the to recession. it’ll functioning what talked that’s MSOs you to gold? industry. spending the carriers an industry the liquid here, all then big it that

then could you And way margin, I if in kind quantify low And guys wonder subsea, deployments that on but I know any how the normally be revenue higher. is have that was second tends pull subsea much – forward I of to I chassis are question was.

So could you dig into those margin that the impacts a why in little understand bit quarter? Thanks. and just drove kind of help us much so margin

Tom Fallon

Sure.

First, that actions the will I’ll significant one. and clearly the we’re answer at the and personal our a but regard risk we economics two we In company’s first half fairly things both around also Nancy within the a macro are because see question answer demand, second company around impression has at taking creating second to perspective.

to think the or about. read it reports whether an half. taking two all people the something build about But I things. build talking it’s analyst to first I what going that – analyst as we’re One actually know. be we not And be position pulling that the we very from of going from in our in, it’s that’s pull into So part upon seriously. get a We don’t network wrong, that’s perspective probabilities right

number a to talking from talk it comes thing number second and the customers to ranges. of I customers of The

Some as are be going to business usual.

the are think plans what second in definitely others the on year. half we’re we affect not in demand that second because capital see cautious now right we in pulling are saying, see more bandwidth because correspondent are half I for of today, the don’t That’s planning to in more but the our needs we of are year. replenishing pulling going be, reports. it’ll the And to Some and we read analyst capital we

I type comparison same see big transition, to last think impact. of the don’t I that, in the

I fundamentally have fundamentally demands think work changed. way The changed. we bandwidth has

new of the keeping there’s a has done for sufficient model play. and believes the internet I anybody today remarkable how think with don’t we job live, this capacity. But think I up of work

are I are that the capital I do of of expenditure market. I the are issue XX% is some out think the customers extended customers a in of customers reasonable give we approaching in time, continue there’s read the that chance clearly, QX. we’ve And we who for us are they not that Is seeing as there next evaluating like reports year Nancy, spent a budget CapEx this cautiously. we’ve a lead number think, does orders plans. that mean subsea. liquidity There saying, to QX? Absolutely. going there and What for are does Is to We QX be do not hoping that the and are. So chance going I that a our next that just that year? for half that are to they’re think and pause? be preparing they of there occur. on

Nancy Erba

Sure.

on So the subsea deal the impact that points we spoke about basis had a margin. XXX

to higher additional revenue, to margin amount. But relative consortium year. going from that we that be will move will that installation. move although the not ascertain those the we of through of we’re gross can starting impact aspect it total margin. orders the see small significantly as positively was through forward come was implementing in remainder our margin in gross deal the mentioned, the I year. the reasonable as and of we’re orders that the impact second The a And the to you size disclose total half And as So common already

that much allowing year. of back the about a fact now we move significant benefits the talked was we the deal us than and really year. that QX forward would’ve in the But QX more impact complete. the starting of deployment this them we’re versus earlier we to of coupled very half with installation glad the expected ICP that coming have consortium with occurred to than QX in anticipated see in in to the It’s So

David Heard

Yes.

lowest or consumption optics. our historically of In highest addition, was this merchant

follow you how in to Acacia a the had, merchant it year-over-year, point players had those versus was basis that when much deployment may and you given year supply year. this we impact like who that for and XXX who do of others quarter in again, So last in it us, ICP was comparison highest first this impact consumption quarter-to-quarter, significant quarter, a of integration our

Rod Hall

Okay. Thank you.

Operator

ahead. George question next Jefferies. go will Please Notter Our with come from

George Notter

Thanks guess I question. I go margin to a lot guys. the wanted back to gross

about were I the we you from also past gross guess transition. manufacturing think certainly margin positives the guys getting I the perspective some past there were talked in that

quarter view have part But I sales the also, a just in a you margin was in guys would from where And There’s to margins. narrative I some of guess the imagined going help new to some ERP, think also positive work-from-home a a perspective there there I there had the I was growth aspects that that here? quarter given have think would that bandwidth been instant the traffic. instituted.

Nancy Erba

– great thank question, think you. I Yes,

I benefits we of outsourced absolutely model. seeing the the to think manufacturing transition are the

We are the of and we’re ERP operational seeing the and efforts new efficiencies our we’re supply management. where optimizing also stages chain and transition in around inventory going that system early through with are logistics the planning

we’ve on. not benefits had the occurred, on explicitly have really to detail are starting we and where bridge been these three landed out early wanted the time items between We where margin see two those. would largest to that really been So, spending of the we we

we during year. are QX expectation other with million we’re $XX plan, another is inventory and the mentioned on down of in in side. bringing the in very world supply the chain million the aspect the the management in inventory comments our down brought And But on that the it focused that $XX optimization we prepared

in will undertaking the All the efforts of back in move year these we benefit the we’ll early on year that through and part us half. the are of

with overshadowing ICP. are heavy the of deal, and earlier this consortium quarter positive than We one implementation impact of quarter had absolutely expected the COVID, then very the So a happening. there things the

So a and a QX, lot balance some happening bit negatively. our a in little between more a positive that margin impacted

Tom Fallon

was not. Interestingly we George, you when COVID. see of we at a asked the bandwidth, of did anticipated beginning kind do the Hey, on had we it high guided We question, because just enough, surge? we,

be So, anticipated bandwidth. would did a not. there surge There of like had I was that you really high

an is to uptick seeing regional the that access. core. of to think, seen surprising I bandwidth. not bleeds don’t and you’re have I But in congestion as built internet today out, I we think instant a think the in that be lot today over a continues

We out XXX-gig would I about XXX-gig. laid from have anticipated. point we certainly They’re XX specifically happens. is time, shipped taking point said, as that the migration We to reasons And when were ICP that – go hold XXX-gig. we we anticipated. to than which start it thing a basis see we talked half to one of other in beginning when of opportunity The feel transitioning improvement QX. last is the on then being still to taking real it about for industry is a the significant that XXXX as XXX-gig. track take had is than That’s replacement most customers We second real any we opportunity event. longer occurring, It’s XXX-gig. longer The comes obviously buying for but

George Notter

it. Got

Okay. Very good. Thank you much. very

Operator

Please the Citi. come next Jim ahead. Our will Suva go question with from

Jim Suva

you’ve detailed challenges how and with impressed with margin very am associated the the I And gross much. given out very subsidy. you Thank

So that’s very good.

just was I have you the subsea one XX pulled already I one the and by – question month for gone XX got days, why mentioned one in pretty reason and it’s quarter about time guidance, quarter. the days simple. If gave So, is

So than in in quarter? days. subsea the above Thank you. wouldn’t have Why guidance XX by for materially more you come came no your

Tom Fallon

– that. been acceptance. And tracking XX than good was of puts try out, lay I lot It We to had it QX to we there’s takes and actually a question. less but on days. Yes,

Our that with. were customer fiber had a dealing they cut significant

that our tested that of because the bit gear they the testing and wanted So, of capacity. little accepted. and truncated we did cut would actually get links They all cycle, resolved, not fiber they a anticipate

of was carrying in the so than call why their revenue started when and certainly, customer revenue agreement decision that their being to quarter, less for agreement revenue for a wasn’t us, that Now fairly and the more. earnings transition was that days. live was they recognized the question carrying with XX the And after late would

real. $XX As impact supply of that talked I came COVID we perspective about, from contemplated had million a

contemplate because shipping customers had contemplated. million so we actually acceptance – their that about not did receiving $XX also million their of $XX that customer contemplate basically that bridged We not accelerating dock, delays, closed

Jim Suva

much. I your Thank appreciate you very That’s clear. Thank additional commentary. so you.

Tom Fallon

Yes.

Operator

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

Michael Genovese

we’ve in more the in COVID visibility versus questions. telco changed XXXGs that what taking better Is for change longer market. about the the said and of one that the is or worse the than When Thanks than other? hyperscale wondering half visibility the the market generally? Has market You you’re we telco hyperscale in the since that seeing market. second I’m think seen sort the started, about the,

Michael Bowen

we of as always demand, That that by deployment we to as points result Obviously, that XXX large and been basis a as in this in in talked have X,XXX margins QX, range. very environment. vertical the revenues and as gigs, ICPs that again, a Tom a time about. accretive more kind impacted had onboard takes which lumpy said integration gets of they that start

will demand even lumpy growth surge This center to demand QX data So, in see perspective. is, in from We in their continue do we be coming think we capacity center. see front. on to do that data

the depending it’s I to mix small mixed providers’ a think service their service of bag from consumer on business. perspective,

traffic, say businesses year. back there’s think to year half I to needs. little carrier fueled that people last of of the cell Maslow’s unemployed what think trepidation, happen half relatively they’re just they’ve given thinking a I people small up understand internet hierarchy their demand the standpoint, think give sounds is will The I the and serving other those is of for business bandwidth thing the the the the of From and carrier a when consumer, on up, kind are that phone, even that impacts and Netflix. first about

maintaining we’re caution. So that’s why just think I

Tom Fallon

lead I’ll perspective, to say in that to tier demands Tier have quicker Xs, content my time been internet short-term changes also Xs the the providers. respond from and than capacity

would do a network Xs planning open relationship tier more them. Xs, and with more We mostly have, the we the where tier say, with I

ICPs. I practice have share just Xs plans not we’re with less the tier typical They as a would clear Xs. seeing with the engagement do say as as We and have and perhaps don’t

think that’s So, I It’s different. normal. just don’t

Michael Bowen

bit on We've capacity the in We’ve portfolio push also there's capacity the that fundamental obviously tier with we of serve. sent there that's so the Network, push bit ones, seen creating Access more a end. at terms the in a of to a

Michael Genovese

very it was. not I that in points, interested it helpful. certainty XXXG we're though clearly of to XXXX That's when is second am be going in the because the like what Okay. X,XXX sounds and it this half start would basis to see the

that going a you telling focusing happened might issues orders the there's or might getting raised you that's many XXX% again, to visibility and when just or Thanks. slipping you competitive they what was on on do due so altogether any also skip questions so do is, it's question And the to XXX, think go COVID? I away think And recently, you has ask change but COVID think other do was in weren't potential questions. XXX or last come they one and sorry at other have once, because to

Tom Fallon

that the there substantive to incremental ICPs opportunity meaningful dollar are for XXX not there's do for opportunity gig. to But believe second for do to per last still think lower going not not universal to the speeding that XXX a portion intent is a on move we so COVID enough that that and gig the But lay either go-forward. sure. progressing. that ones to XXX in decision opportunities being cost they us up, I I saw I real have capacity half shipments is is XXX than They that's those we And gigs, time, bit for gig. to some ICPs go-forward are reduction all for is what anything it believe or get out by said not

continuing to a people. being in gig will buy just gig but I of like very, that the long do I vast second a the a I exclusively, do also think carrier XXX the very half gig from XXX see still time, chance of XXX in other trend. XXX gig XXX of has not whether reasonable year. period the meaningful it's significant move believe necessarily for will us technology that gig, gig, majority or us And XXX is remaining for world, in their network and But

in I the think great is progress making industry.

I they that the savings think are be substantive going that are demonstrable enough to be impossible to ignore. to going

over Having was XXX adoption said takes that, awhile. introduced a and the ago year cycle gig

XXX gig not is I to still think market. nominally

that's of there's that time people I the available economics that the best So today. will a think period be utilizing

Michael Genovese

you are Makes need sense. they it edge more talking. Well sounds like some wherever than bandwidth

Tom Fallon

with, edge question. need more no band, I there's

Michael Genovese

Thanks a lot.

Tom Fallon

Thanks.

Operator

go Simon James, please [Operator ahead. Instructions] Leopold Raymond with

Simon Leopold

presume terms the deployed the classic and through gig for questions. a pre-COVID Thank taking a in I the I been of XXX have phase. on. to want couple sort trials of of Great. been you check things One going soak A progress, lot of have

XXX So a deployed some get you recognition gig the higher talk and that of therefore is the second been safe it revenue meeting matter of in of period confidence? when about of that soak it just to rec, field a to it's part the and has revenue half year portion assume the

Tom Fallon

Yes.

Nancy Erba

Yes.

Tom Fallon

Yes.

So yes.

the We because in number we it XXX-gig qualifying yesterday filled the surge the today. over. that that that out But they they was like also in script, had current course the some XX needed and was qualification I think shipped to a before their XXX-gig speed second – half. maintain were are customers of XXX-gig, out capacity and needed

second grow sectors. So again, the I all good bandwidth albeit, think in we're we very about carefully half, feel in to watching growth that continuing that across

Simon Leopold

three but from was generating you've And And up X.X. inventory turns get Thanks. the have of maybe of guesstimate definitely it terms last times had cash million of rough then need improving the from get – X.X, capital, $XX my the to in below to cash an year. inventory working to most trend, turns would

are Just wondering any be you specific achieve of should for if to your hurdles turns. aware inventory increasing there

Nancy Erba

at end year doing XXXX things the One is year then So all quarter, we're of we again and the was there's year was Coriant. couple right? internally. last about integration, that a of about of integrating last I think, talked as this

or are we and areas we move As whether is of driving that's XXXX, efficiencies operational management. our chain, around into inventory the the key supply one logistics

in We that million I'll additional about a in By next inventory, $XX you're that would $XX inventory reduced three to approximately very which that with we And have would say And region. plan turns liberating that we an the laid good right. QX, be, feel drive out plan In actions same million. our correct, by complete. quarters. much

You in have is But and of challenging takes this and process achieve know about implementation good the the plan also inventory and ability that it execution an a very year. the begun time. to we through driving improvement our turns feel

Tom Fallon

X.X There's really question. turns sound your answer like me organization. let a operational So well-run

Simon Leopold

It's it was. improvement Right. over an where

Tom Fallon

So yes.

not getting saying This trivializing big point. task. my we're So task. an going to eight. puts This our I'm as Nancy turns getting the product last goes manufacturing to million our in from ERP It's is a that's And we $XX system not six aligned us out aligned it. is do go that to and the – have tools across place year, take strategy a said, year, last where

lead extending to We supports necessity we're also go we significant how a frankly have actions very have that this. initiative. taken understand to quite managing that regarding significant do the in We MRP, times

So now impact. actually That's what can want. nontrivial we people we what be think they a want buying versus

to first goal. is turns step very, very but I you a the candor, three, will me I tell So appreciate six

Simon Leopold

Hence the last one just question. one. then And

shipping? my XXX-gig. the yet, impression your lot a but you sort that basis you'll duopoly. talked to little market think about maybe advantages. are have market's your in shaping of think in expectations happy into When that your the seen we expectation think How setup about on you've start competitive see is what XXXX, bit detail talk you we positioning haven't I certain As past, the do a a is the about about up? of that really Could being once you of kind with

Tom Fallon

Yes.

assets think will utilizing it fifth significantly technology us DSP, call DSP lower dollar productively. generation XXX-gig, create customers fiber and much generation to XXX-gig it's let’s – I that allow fifth bit yes, more think not their per scarce I the

and and in as anxious market a going market I the have step-up I've that later. to rather within customers, participant believe this that to main is is savings out more the continuity that than supply desire the cost supplier. think have very, and and [indiscernible] talked one a significant I think desired. is technology is between having to come very I competitive This is to than but sooner for significant there to also be highly ability pricing the

XXX-gig designed positioning as kilometers, reach is with XXX-gig some type applications. Our people are being for so total really we've demonstrated, XXX short of

the kilometers is that XXX-gig we can such at of kilometers to any links. up and to XX% believe XXX type XX% XXX-gig, in performance of that Our of covers XXX at get we America over of links fiber North Backbone

this we're was So cover for calling Because at XXX-gig a of built Backbone technology. that everybody, with portion can right? we significant

I real be getting year. that this market think into the right test now needs to

who ready a we're also. ready. other think is have as a deploy customer activity And to take their and We labs by this into spur as of it customers lot soon I that will

we going us to do. So what to do it's to we're and go up say

Simon Leopold

Thank you questions. my for taking much very

Tom Fallon

pleasure. Our

Operator

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

Jeff Kvaal

that two which goodness gross sounds year gross the you for the If margin initial it kind on might How minus is track. one, end first the of second we was questions. headwinds still – And it. from you. have margin the one Nancy. fiscal Yes, margin of end by plus for much like. XXX quarter is of that anticipate the I gross guess, I trajectory or for year? Thank the the of by what update

Nancy Erba

Yes.

into is foundationally with exit quarter move gross exceptionally last see we fundamentally out meaningful. XXXX really margin and this importantly sound, then will as laid that and to are right. we with start what The year XXX-gig XXX-gig benefits think in I before COVID we

in that see gross the impact merchant heavily where ICP the even optics toward skewed our we quarter margin. our to on were deployment you commentary could more see overall this You and

into So XXX to quarter but larger next part really see in deploys the that's revenue as occur will of and you'll the starting the becomes our where fundamental the really step XXX with then gig base gig. up occur, half, that expansion a and second

Jeff Kvaal

right. All Okay.

just shifted XXX by quarter is intact, to or or so. might've less out it So a the X more

Nancy Erba

I think fair. that's

Jeff Kvaal

Yes.

gig, saying? gig what when I'm next Or be with of your for some that point I share? the do you, maybe ramp? – XXX share reel you market that Okay. to market Tom you're Is And Thank then guess is you'll inflection sort for think the understanding able you. XXX

Tom Fallon

three today Our in growth customer trajectory significant customers platform, about in platform growth the was when continue fundamental for significant a the received my group market very is again optical. we We is already a is gig XXX had QX, One share. had growing winning shipment Putting of bookings and QX, last in we up And QX significant XXX in it's been in which market us, in the platform on. well in that, script disaggregated year share. and growth today leadership that believe it's drivers again I the market talked very, group gig growth and picking platform. it's we’ll type

it's opportunity is year. a growth it's it market and GX growing growing gig major as billion is leadership by beautiful I said with the pairs significant and takes as Today, China platforms above. of it's XXX optics targeted position outside both capacity think market, fast think it's my be Another a for XX% the that's area are it about underserved growing defined a high remarks, optics $X in long very XXXX hand to an market, I platform in a a that most. The We and prepared about that space. the thing

and our space providers. QX in cable as at some XTM up it's for most believe are picking certainly also platform share continuing, we We with market targeted excess carriers

Jeff Kvaal

both you very Thank much, Okay.

Tom Fallon

Yes.

Operator

conclude remarks. will back to would CEO Fallon any like Tom question-and-answer closing This turn session. to for our I it

Tom Fallon

time thank my want supporting to extend are to want them our you of all needed. focused I customer when employees success also our I who today. they are by where Yes, your on to and for appreciation

the for the also Thank down thank I want we heads year. as your spirits rest very much. For and up of attack you rest to this you the employees, of

Operator

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

may disconnect. now You

Infinera (INFN) 12 May 202020 Q1 Earnings call transcript