Infinera (INFN) 3 May 232023 Q1 Earnings call transcript

Good day! My name is Rob and I will be your conference operator today. At this time I would like to welcome to the Infinera First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions]. you. Thank

of may Head your Relations, Investor Passi, begin you conference. Amitabh

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

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

product opportunities, wide related Today's and but market customers; capacity not including results. supply progress engines; of growth; call forward-looking chain coherent its to further of priorities trends, business and expectations expectations constitute environment, our financial statements, regarding and impact macroeconomic will growth include subsystems competition that projections the our launch development business industry strategic our against plans, the to including optical and regarding challenges, statements and estimates adoption and on milestones, limited

year-over-year obtaining and second our operating XXXX. margin, and government operating funding, regarding quarter growth Expectations margin of revenue projected margin, gross for demand, the expenses financial outlook performance, and regarding revenue, expectations of drives future our expansion

factors, that filed after to a uncertainties of or for undertakes statements statements to filed XXXX, of with call. Infinera on arise the results as could to December on XXXX, SEC as any the furnished subject to on differ today made risks XX, as that all are time-to-time. XX-K reports or those reflect obligation events update or reminded date including Actual of as February XX, no in with that Please materially are forth circumstances our and to expectations. forward-looking statements Annual materially may as from cause subsequent differ well Infinera's the this risk management's These from the revise various set be Form and current may results result Report year ended SEC

the GAAP and on investor a non-GAAP the slides we website. a most earnings on these flow references is Regulation to section financial operations, GAAP of of includes directly to Relations discussed available G, call to measures in and our Investor cash of basis. our for have financial from sheet financial measures comparable which balance except quarter, items which for Pursuant are each conference this non-GAAP measures, provided Today's revenue, release reconciliation

And as you of that limit allow we a for today, please. reminder, question follow-up finally, but one and will to time ask for one yourself Q&A we plenty

I’ll Executive now turn call Heard. Officer, David our Chief the over to David

good for our to of I'll cover us to Thanks afternoon review turn going Amitabh. the first thanks of the I'm results and joining call then quarter. for financial and performance the today. Hey, with over our details the begin to Nancy

We our start $XXX Revenue margin, to first was we gross had to gross quarter range. compared XXX margins XXXX. expanded beating by a and points margin million the solid all outlook revenue, with EPS, quarter first basis and of operating midpoint by the operating margins basis XXXX of points XX% and the in grew very quarter and XXX year-over-year

laid we make quarter the in six Investor March. continued progress the that milestones at out During towards to we our strategic Day

quarter product of of than greater revenue currently in had ICEX drive we shipping first to Specifically, to and good track on XX% another XXXX. are ICEX

ICE-X our platforms. Metro pluggables being well own XXX ZR, software ZR+ gig defined integrated are our Second, into are and performing

from wins are year. expect integration and exit margin We see vertical as we footprint of these our Metro design the Metro benefit to expanding initial the platforms with new

initial spanning track service ICPs qualification, and XX pipeline sampling To-date tens we're millions for and expanding manufacturers, from of we've is network of to on quite over for received the nicely our deployment business dollars customers external XXXX. Third, providers. orders and capture of pluggables during equipment orders

we're including to focused ICEX development timeline during next the the our Day. roadmap that Investor well we technology embedded engines, you out and on laid our of ICEX for delivering progressing generation Fourth, and and is

CHIPS Act position funding for continuing to ourselves we're the to and business augment Fifth, Science plan. our existing

As a with reassure is table chains. funding well and government at a secure critical time optical manufacturer, on the semiconductor situated significant Infinera U.S. is supply to based

And finally, our for and revenue towards we're driving margin full-year expansion. growth plan

to As and year. with QX heard, in the you've into revenue the expectations half just our X% target of line expect XX% first and our was annual above coming we generally XXXX be

of All towards the atleast milestones target ’XX ’XX, time in these $X of EPS aligned our delivering of model are business period.

macro work balance doubt customers to taking the that their environment with right year. need little dynamic, prioritize perspective, and no establish a there's the backlog, strategic From the to down the more time budgets more current is projects a for

to the ICP XX% market, segment, customer less our the systems overall of a represents bifurcation XX% seen of XX% than in we've and which revenue Within behavior. optical

and ICP digesting winning for While we're significant machine while drive to are workloads, down to backlogs, growth. and who some and of incremental working our intelligence gearing up customers are learning traffic inventory continuing others artificial shipping

communication work on Furthermore, and smacker centered efficiency. priorities as and seeing harder. inventory base networks feeds, Within Despite some and backdrop, with we're new customer portfolio economic bills, service customers our that diversify remain continuing customer our power spot. design their firmly CSP speeds, as out base. customers areas across down segment, projects their look to are strong run fiber the higher hit costs we also or sweet of the spending wins These push are lower vendor to our provider bit land a a

was funnel healthy. is sales and quite activity RFP overall Our solid

stated grow the towards the we prior XXXX weighted of Investor in we our As bookings with half the Day, to year. of second and the like market during two years, ahead expect

our At our expanding and view saying business, our all plan we're reach, focused XXXX. building strategy, our other on meantime, and pluggables market being supports prioritizing about the this investments bottoms-up judicious our while growth point, In for annual expenses.

growth in from while X%, which our expand range continuing the revenue target our year-over-year you've for first the XXXX, at above mid-point annual margins. QX, our half deliver As today, to would of of we of release XX% seen XXXX, press is outlook

In short-term we market, of milestones and at than is and we're during to our closing, grow our some much market, faster any $X is of margins, in a related We're long-term in reflection launch expectation in least expand while deliver the of ’XX. the primary that unchanged; executing Day demand. outlined pluggables remain and underlying seeing it's timing and our near-term six today uncertainty there Analyst that objectives strategic our the to our EPS what not ‘XX timeframe. business

I carrying to customers thank I'd another, that continued and for commitment team their our also our customers their to centered ongoing a the like and would one shareholders to like Infinera partners, culture thank on innovation on matters. for and for building support. delivering

quarter now and outlook Nancy over Nancy. the turn will for of details to I financial second the quarter, cover our call to the the

afternoon, second Thanks, outlet I quarter. the begin for provide Good David. by will covering everyone. then the first and our results quarter

Relations website, reference, commentary. your Investor with assist with details, our on slides have we financial GAAP reconciliation our my For including posted non-GAAP to to

from EPS, outlook the quarter As digit which range. year-over-year was solid us, the and you financial in a midpoint with revenue, coming in for quarter we margins revenue of above key metrics; all first our heard David, growth delivered double

on a and derived with was ICT level domestic This line the our in up Americas year-over-year. year-over-year primarily basis, performance XX% of and continued revenue in GX and systems. strength driven a saw customers, revenue across the million, with we our up QX $XXX we customers, our by the Geographically Revenue both strength QX customer from U.S. consistent XX% across base portfolio as quarter XX% with product in was with

Compared of margin was as offset and some gross higher points quarter, line professional year-over-year. midpoint revenue our XX.X% services gross increased QX services continue and outlook ago costs, of by systems above the release and supply from margin ICEX benefited to margin lower range year through XXX to and our higher work mix we basis the partially revenue backlog.

lower year-over-year QX, line XXXX. revenue, an we calls, the prior margin margin, in On was improved Operating quarter a operating basis the $X.X revenue our operating expanded X.X%, but and an in loss bodes gross of systems operating by margin footprint to $XX.X gross higher higher margin a million, from benefiting million discussed compared margin profit of basis of points, higher have in leverage. the sales. XXX we operating future for comes customer well attachment with expanded transponder at As

Operating QX expenses of below quarterly our as tightly we at The $XXX.X in range the our million cents $X.XX ago compared quarter. $XXX were a to in slightly loss diluted million to managed million of EPS high of the outlook outlook resulting per of which spending. share $XXX range, year end $X.XX was

working cash primary $XX.X on cash the use strategically we to items, in cash flow $XXX to our cash, of while operations with on Consequently, with in flow from in balance The $X.X restricted the quarter of continue flow. million cash sheet quarter free million the we a reflected in was as Moving use capital in no inventory amount drawn and and and ABL. quarter payables. outflow million our modest reducing and cash build cash ended the

of outlet turn second the quarter me XXXX. to Let now the for

the design and wins industry were of our by growth we are encouraged While business, indeed drivers term long above healthy our backlog.

take year. to we We bit in for more are determine a the environment cognizant as little our the spending are time customers of their operating priorities

material of longer expect effect the our don't drivers transitory the this business. we in term reflect However, to shift

approximately half we over the is that XXXX on or $XXX in of of our our basis the the year-over-year of a the revenue we plus year. government XXXX. at implying half midpoint to the QX $XX on current push expect growth to be of our visibility, minus million, impacting first of million Based dollar materialize of out expect range, in X% half $XX in growth outlook project the second QX XX% the and now representing range first the million, Partially

second our growth to in last of trend both believe with two we and first in will QX XXXX and compared Overall, a years half the sequential stronger half. trajectory mirror the revenue QX the

XXX range QX expect XX.X% minus midpoint plus be of points, basis of the in up XXX range. or year-over-year basis to the points the at margins We

gross the acute year-over-year and revenue partially contribution products impact offset the ICEX in costs, metro margin systems are of from line of lower margin continued of and abatement our projected a in driver primary The supply the non-vertically greater more is integrated. by increase currently mix that

and to to to product our of and business take continue sales million We range million, QX sequentially investments to the the forecasting we of development, in in advantage $XXX opportunity, as expenses be growing $XXX to roadmap. invest continue and operating are global as we prioritize market in modestly

approximately in operating for expected operating taxes. resulting X.X% QX XX basis at midpoint. a points income The million be the basis million net basis the interest plus line, expense year-over-year margin to XXX we minus assume $X or is for up $X on points, and Below

shares million and anticipate a a fully million count basic share, we XXX of count per diluted approximately loss share Finally, a assuming approximately $X.XX $X.XX, shares. minus share XXX of or of plus

The EPS. year-over-year would revenue, gross this income, margin, QX outlook metrics; range all midpoint of outlook represent improvement and across operating

point outlook for the and we are in above to to As full we our X% March, annual with be Consistent this revenue Day unchanged. the our leaving year $X.XX our at approximately Investor XXXX messaging look expect EPS for during be growth we year our ahead, XXXX.

I wrap clearly and today, roadmap the March, in resonating seeing our thank and I thesis investment you our person. are attended is those believe in to As we who technology want customers, booth, of had and at our you Day compelling. I record up OFC attendance enjoyed We with Investor portfolio our

‘XX, least $X delivering at on the and of our ‘XX. focused on strategy, executing are six We by driving EPS milestones

would excellence, support. to and their and their like our shareholders for the I team to for customers thank execution continued and and partners, innovation commitment continued cooperation Infinera

Operator, it questions. for to I'd open like now

from Rosenblatt first your Securities. question comes And Instructions]. from a Mike line Genovese [Operator of

line Your open. is

Mike. Hey,

what saying, the I I slowing some I David, the versus second quarter? or – will markets of think one or do kind thanks Hi can is – some are relatively trend are relatively just of about in But the if service provider, your that's in didn't for get continue terms half clear were David, talking And you guess message, of or of that question. in you're service which kind down. do cloud provider cloud feels think you second guys a when whether up, expectations? different to that guess have ICP speeding same you the that weaker cloud but you the compare stronger you

their you good and what No, was which it's saying publicly What There's back, repeated announced question. some is it's bifurcated. exactly a I – is right. actually they numbers,

of from services some right. above really their some So There's some growth rates. rates, fantastic high growth web mean slowed XX%, still I double-digit down some

I inventory backlog and to and think we've that's think some digest so expected burn So I quarter down issue. all a some of them couple

and three a driving I think which you the be us these it it XXx going were until set in the at they or to everybody that Well, When CapEx, see workloads, told forecast their you machine there ultimately second believe learning order there's don't you of four them. were and are look AI in are, then book. and

at So said be continue I I think to Analysts I to demand be but will going the think Day, as they're lumpy, there.

I to burn still and connect optics. slowed that have data are still growing – via off to down backlog, think ones out when it need even you the you're and center build the double-digit, server infrastructure workloads

the That they running spending and cut out cut R typically budgets, of service what hotter service and what we're they a are are burning $XX provider don't right, of happens front, the couple down and little priority the On right the some when spend. times a when recession, billion, $X backlog. a their really that billion, this, cut number them them providers going they seeing to sweating think being honestly a of billion in like it's dollars, huge lot RFPs of word, them their But I by them said, now. assets hear is globally you on

that's think priority I orders be. where are is to going of So and what through, they're going their spend,

big news concentration is the in term a more Tier of remind customer that would medium X some in XX wins like I for term got design those I'll priority. fiber you, CSPs. We've think is many good and big I the top the long actually CSPs. those

drive versus slowdown in order you're deployment be when concentrated more the drawdown answer to their to as but So painful concentrated, those as backlog of we are isn't their terms to your Mike, question? quite on did not going CSPs. I continue

half? second it last year. be X% And saying of this steep that year. come year, year pretty thanks. could second steeper this the branch seems is I are half to the getting year, half you Where was a looking even by was the the that just first confidence? to does achievable it confidence compared slightly great, Yes, that guess the there like Where in in of

a things. so couple of Well,

a for right. the last had more I back start. front think slower Actually of half dramatic couple you're years a we've than half much

years Day X%. magnitude that, we'd bit and X% being that half believe the in talked stronger right? you front what in the than is front quite the is Meaning half. we that below was being stronger, Analyst XX% said, we our at think our I which last saw two we March thought market, that came but overall back at half that certainly QX we would performance XX% about be a right, and the But and be in again certainly above

would to we're get having it We're at and looking get we're funnel; than our we're people Hey look, deployments crazy that be could micro. being mindful we're We'd with continue stick – be we hotter? looking conversations executional in making supply this did pandemic. with keeping and we speculation. same same at this through of quarter-to-quarter March use forecast chain, tools the did like We're our said focus. what methodology we to I through much our We're we micro that like – think and in and our Mike looking these and more at really market with we the the sales the our kind frothy deployments; think managing point

the All Thanks questions. a right, for great. lot

Thanks Mike.

question from next Company. are of Alex You line come Henderson and Needham the from

open. Your line is

thanks Great, much. so

lot these what comes you'll with of as good the the in of about XXXX, on of that seems sized could are backlog that imply. some bit that it after the more talk have to what you and improves. systems be hoping And large on focused in The supply backlog you you pretty give bait shipping think I guys product companies a happens was market a the backlog down. backlog and the I that chain visibility believes mix might little pretty be should street good a

Specifically, But optical backlog. line is my a your Sienna similar it's are significant and not. transceiver guys situation, are those to also pretty have of it’s line needed the you I that my the light a to talking understanding in systems that piece optical think that understanding systems

question if longer OLS of you ship term that growth. come second and guess in and should so XX% backlog orders the to to long And how the is of I light systems a up, it's those a visibility is, the orders that before out, round of line trajectory give is that

make, some that can comments backlog. our of you and But in. backlog, of the to I'll the in one that what's I start we're I'll seeing where you're more and deployed, of the into about did I the David, loosen But seeing, the up supply one we line Yeah, if not say jump are specifics and that systems going QX get keeping we of did. range getting made the margin statements

customers will on at depends really to need network deployment. what of up multiple the deploying order quarters, transponders running. they are at take is timing deployment customer really to going it to It the the rates. but the be and the in time the get sell and are and line staged and same to and it going their the buy a buy Others, line, going depend they the Certain systems, more customer, different on

a is our in point Alex, I think still that portion there’s your one the that's industry. But backlog of fair good the and line supply area to of bit constraint a that there systems still, in there's

to of let's on order filling. opportunity out, terms completely to value from first those Xx As say fill the come a in you go have

whole, rate the fill know are where you it's spectrum typically, unless to whole Like away. a subsea true they going the

to want not certainly and that them, and fill then Typically aren't and going to we right. systems buy don't absolutely happen. right people deploy You're them, line

where of and nasty us forward these And loads gives got kind force That micros. in yes, which our what our at manage is we visibility systems line than margins those selling we that transponders, higher track system. So be tend where in out to sales funnel. line they we're we've that funnel, when

another because system front. out the them that orders line the the the suggest round clear, order meaningfully a transceiver the be And lag of generally OLS to include was transceivers ordering Just the is in order yes. not going do up, when correct, that to light put to therefore at is thesis time from same in. That does comes there

people initial order are and Partially, as versus might they line of dollar doing there the deployment. current. that the initial order portion of when of a their that is the value systems future potential deal a are majority But

you this just did And seasonally during is case. the normally quarter clear, down – I you assume orders. week is backlog that’s period I the – or for to mean have work [Cross be it the Talk] a

that thought did, yes. mentioned Day. that in first half Analyst We yes, we We the the would that in case. Yes, definitely the be had

to from Yeah. RPOs went XXX XXX.

Thank much. you so

Thanks Alex.

line question from next Simon of Your comes Raymond from a Leopold James.

line is open. Your

the taking you because the customers understand, in David, that want absorption were I'm the got your to like broad prepared whether sure I bit that had confused radios of I puzzled the own imagine – this how inventory guess I In about your absorbed your make question. mentioned didn't I remarks comment Thanks inventory I and it. products, products. If a now. for referring I’m little talking it’s gear of your sort sense about you being specifically XD inventory. own they things you're know or to of

question. our statement Hey just optical was it wide the like not right. clarifying thank not to for in you specific industry the and gear, comments, very would so a Simon, clear I make and prepared to Yeah, here,

loaded given are. a many during lot cases I in CSPs up of be times chain lead that and and customers where think to the the up, loaded supply

you As pressures, to in warehouse those deployed. have down, down to ability what's the are burn out try get and know drives innovative coming necessity and they that what's and to drive that economic spirit the

year. have, is, and what half then Day, backlog as we that And recharge gear in new down of of burning they’re of and I out front that would Analyst rather go throughout meant year. that the that happen they mentioned that down we the we in the people the ordering they're kind So burning thought lots would reload the than inventory and

and And that thinking then in guidance. flows as what a the are follow-up, and your terms of ebbs in second you mix customer just quarter

at want thinking it's one I'm call least your the So following not think the make this if just traditional of to that comments your on correctly. sure seasonality, make is it implies But verticals telcos. not that about the ICPs me and I

a half the And timelines, with times, mentioned, half productivity was that two a I One, Nancy that reasonable deal own typically to their from and This government in a of projects have think $XX before half. of the move and things. project. supposed governments did is government big that us. we happen be you've at these to the the million first other in size run that's seen with first going one year the into second a deal

ICP As continue us. see lumpy to shipments of from revenue I you're the mentioned terms going to Analyst think in in the I Day, to

I had the a weaker. to see to continuing for Europe think America's we a little continued quarter. strong be very bit you're

timing. one's cautious I of a environment, out overall number there. large That think very going more to be that's although we just a see RFPs of

they rate CSPs to lot down lumpiness. think and of are that ICP strong So bit try government then traditionally is just the I burn QX, spit are a longer, out little that backlog. ramp A their again, in that pretty it as taking darn has project a of just

appreciate quick I'm I your verification. service shows segments. with up other as just government the and clarification the a provider assuming

correct. That's

much. very Thank Great. you

Thanks Simon.

line next from comes Morgan the question Meta of Marshall Stanley. Your of

Your line is open.

to looking of at be getting. seeing of valuations What of in in question any sense head scale on get we second or you I and you external or early just is Maybe slowdown kind could wanted of these on customers, the commentary kind activity, ‘XX. And kind kind projects in are the Great, of you're their a kind just seeing comment trials this of the about just then orders? of maybe XX what thanks. of is really to that your as pluggables, Are kind a ‘XX slowdown Thanks. second general. of lab a feedback

Thanks I question. The specific. mentioned they want clarify well looking. do Meta. is be to XX very aren't are as this to Good I one What ordering.

hard or initial So that's in sampling, really that. for deployment orders by qualification, so either good I'm we firm have news. encouraged actually

happening. I see more think The module, for those at strong ICE-X of the to has little of of bit XXX as you gig been quite filling degree need. of the reach. would XXX that as it gig [inaudible] as gig some couple ZR and did cases And were goes you a Metro as XXX well CSTs, in our is pluggable our go XXX like deploy large who a for look gig interest into performance people ZR are a spec, ZR+ they things and

orders our to are nice do. won't when is we got building big funnel – So we've to in-house, sales count some with opportunities able we'll lots come But of those work look, there.

are definition advanced the not California networks. in is States, own on say in manageable alarm, be Networks the thing are these with secure even big them. United our looking second Meaning, in forget, software Sunnyvale, has packaging Pennsylvania. The and track to third fab our and point the manufactured in are facility here is, pluggables and I'd a the semiconductor hit. let's software our are via ICP fact People complicated, segment been that

they're performance a for that given that have especially reach and of looking and USA, proposition And the in performance the software been Made so the and hit. value economics

And just…

Yeah, go ahead.

own on that's the to pluggables starts and to to and in with just was and we are to exit this Day that really I our don't to say, year vertically you that ‘XX. go forget allow Investor what's shared expansion margin kick-in we on these right, add platform, us, ‘XX going integrate that Metro that as at

of goal the millions that's deployments. about the talked by the statement we that business and time and that's takes That translate so XX of quite we that's almighty We income Meta orders the some But orders exit initially Day to then tens to what there. our sampling sheet. we scale the and balance by to need year, again a while happening why encouraged far at see. for, initial Analyst scale and new I'm being Now, and

so much. Great, thanks

line comes your the And next of question Notter Jefferies. George from from

Your line is open.

guys, Hey about questions pricing. price May I've you will a the QX. of last maybe guys I'm I flowing raised that start, much. in thanks in thought about guess got through very here to X% you start know I’d ask I kind guessing back I year. few model that here. of

of in And Thanks. of then quarter secondly, of I'm products integrated you us that growth or the just and of pricing benefit the curious front sales. Can a from is and sense of about still mix for get mix getting mix how coming of the product us. ICEX vertically that. you're much that to is the give a love kind wondering sense in what update maybe on of I’d is

you vertical other Amitabh, can and piece? Yeah the Nancy integration hit ICEX the and don't why hit

and quarter XX%. in ICEX VI so addition it's the we we Yeah, said, say of XX% revenue George did well, was product another

all I we and increase. never price first a Yeah, announced think of

you're that a to the going on and a for we above up look made the year, we’ve products said, at pricing, right. as of assessments on the at customer get is seeing So look mix, they that our buying track have mix at quarter-by-quarter to a the be continue make XXX go margin of and look as we compilation number of our basis. now, are the things, XX% But our of

to market, expand where margin us we where to where ICEX to market grow, we we're the of in us. want as continue going relative to to our pricing want also to we relative and we mix the of see look grow primarily But opportunity, helps own there the front at right, and and our

comment So further about other or decreases. increases I won't any any

Got it.

it. thanks guys. Okay, very appreciate I much

George. Thanks

questions turn for closing no call the I David over at some back are Mr. Heard, to you And there further time. this final remarks.

we I of reviewed appreciate it. go. of I hopefully everybody short great we're to Investor Like Day, where today, so it was at the kind because see we Nancy know said, plans

that mentioned there, six that Investor laid we out we through, milestones Day. As have at we went those we

to are I had in this, growth, think concentrating gross QX. team. credible team we We XX% of and XXX happens the a nice margin of in news is I like good a on did. margin times the on those ensuring off operating what with think quite expansion, measures of year-over-year and job points QX XXX I'm proud closing strong the

the QX earnings supplies on. We've of for to macro. Our listened the We're ahead going We certainly revenue of understand read news. calls. what's what other is first again XX% half, of mindful see. we guidance growth which We the

we're operating with wars, have the micro pandemic, manage that close our to However, us. business you our in processes through we supply be and the name chain tools off as crisis, proved effective clients discussions

that's to continue going do. So to we're what

with those we give job you encouraged what that's is what see. to know key it by of a But are what quite exciting. six view business, Our We We're the see we great you are on. focused always again, takes time. in subsystems we milestones

and speaking if at great look forward the everybody's we sooner. Everybody to day! call, to appreciate thoughtful today our interest, next not So we a really you questions continued earnings have

Thank call. conference participation. you for today's concludes This your

disconnect. may You now