Infinera Corporation ( INFN )

Q2 2010 Earnings Call Transcript

July 22, 2010 5:00 pm ET

Executives

Bob Blair – IR

Tom Fallon – President and CEO

Ita Brennan – CFO

Analysts

Subu Subrahmanyan – Sanders Morris

George Notter – Jefferies & Co.

Kim Watkins – Morgan Stanley

Sanjiv Wadhwani – Stifel Nicolaus

Alex Henderson – Miller Tabak

Blair King – Avondale Partners

Kevin Dennean – Citi

Todd Brady – Oppenheimer

Presentation

Operator

Welcome to the second quarter fiscal 2010 investment community conference call of Infinera Corporation. All lines will be in a listen-only mode until the question-and-answer session. (Operator instructions) Today’s call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Mr. Bob Blair of Infinera Investor Relations. Sir, you may begin.

Bob Blair

Thank you. Today’s call will include projections and estimates that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial condition, results of operations, business initiatives, views on our market and customers, our products and our competitor’s products and prospects of the company in Q3 2010 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company’s current press releases and SEC filings including the company’s annual report on Form 10-K filed on March 1, 2010 for more information on these risks and uncertainties. Today’s press releases, including Q2 2010 results and associated financial tables and investor information summary will be available today on the Investors section of Infinera’s Web site at www.infinera.com. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

This afternoon’s press release and today’s conference call also includes certain non-GAAP financial measures. In our earnings release, we announced operating results for the second quarter of 2010, which exclude the impact of non-cash stock-based compensation expenses and restructuring and other costs associated with the closure of our Maryland fab.

These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons. Please see the exhibit of the earnings press release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful and how they are used by management.

On this call, we’ll also give guidance including guidance for the third quarter of 2010. We have excluded non-cash stock-based compensation expenses from this guidance, because we cannot readily estimate the impact of our future stock price on future stock-based compensation expenses.

I will now turn the call over to Infinera President and Chief Executive Officer, Tom Fallon.

Tom Fallon

Good afternoon and thank you for joining us. With me is our Chief Financial Officer, Ita Brennan. I am delighted with the performance delivered Infinera team in the second quarter, one of the strongest in our company’s history. We achieved both record revenue and record bookings. We also shipped an increased number of tributary adapter modules, posted higher gross margins, achieved positive cash flow, and we earned a profit on a non-GAAP basis.

This represents our fifth consecutive quarter of improving revenue and our fourth quarter of sequentially improving gross margins. While we have work to do in attaining our long-term business model on a sustained basis, I believe our current performance demonstrates real progress in both our efforts to attain this model and a leverage we can achieve on the bottom line.

Demand remains robust for Infinera’s PIC-based networks. Driving our business is demand from a broad base of 75 customers, with Infinera deployments in 45 countries that includes Internet content providers, cable companies, wholesale carriers and incumbent carriers, many of whom are among the world’s leaders in moving the highest volumes of Internet traffic today.

Of course, I would note that while the current outlook is strong we believe the optical network business remains inherently lumpy and subject to macroeconomic swings.

In Q2, we had four 10% or greater customers, this included one of the world leading Internet content providers as our top customer, two wholesale carriers, Level 3 and Global Crossing, and one of the largest cable companies in North America.

This quarter, we also had strong bookings in each of our major sales leaders as we continue to grow and diversify our business around the globe.

On the new customer front, we added one new customer in the second quarter following our addition of five new customers in the first quarter. While the Q2 new customer count is disappointing our pipeline of activity with prospective new customers is strong and we are confident in our ability to resume our historic pace of customer additions.

Our Q2 performance as well as our strong outlook for Q3 reflects continued preference by customers for Infinera's network solutions in a highly competitive DWDM industry. We believe that this preference is based on our ability to help our customers win profitable business in their markets by providing the highest-quality and reliability platforms integrated into the most bandwidth efficient, intelligent optical networks.

Our previous record quarterly performance in Q1 of fiscal-year 2010 resulted in the expansion of our number-one share position in the North American long-haul market to 39%, and are moving into the second position for the first time with 50% [ph] share of the worldwide long-haul market. We believe that our second quarter performance will further advance these share positions.

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