Infinera CEO Discusses Q4 2010 - Earnings Call Transcript

Infinera Corporation ( INFN)

Q4 2010 Earnings Call

January 27, 2011 06:00 pm ET

Executives

Tom Fallon – President and Chief Executive Officer

Ita Brennan – Chief Financial Officer

Dave Welch – Executive Vice President and Chief Strategy Officer

Bob Blair – Investor Relations

Analysts

Alex Henderson - Miller Tabak

Kevin Dennean - Citi

George Notter - Jefferies & Co.

Brent Bracelin – Pacific Crest

Rod Hall – JP Morgan & Chase

Ehud Gelblum – Morgan Stanley

Samona Jankowski – Goldman Sachs

Blair King - Avondale Partners

Presentation

Operator

Welcome to the Q4 and fiscal year 2010 Investment Community Conference Call of Infinera Corporation. (Operator instructions.) I will 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 and results of operations, business initiatives, views on our market and customers, our products and our competitors products and prospects of the company in Q1 2011 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 companies current press releases and FCC 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 include fiscal year in Q4 2010 results and associated financial tables and investments, investor information summary which will be available today on the investors section of Infinera’s website. 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 include certain non-GAAP financial measures.

In our earnings release we announced operating results for the fiscal year in Q4 of 2010 which exclude the impact of restructuring and other related costs of non cash stock based compensation expenses. These non-GAAP financial measures are provided to facilitate meaningful year over year comparisons. Please see the exhibit of the earnings 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 Q1 of 2011. We have excluded non-cash stock base compensation expenses from this guidance because we can not readily estimate the impact of our future stock price on future stock based compensation expenses.

I will not turn the call over to Infinera President and Chief Executive Officer, Tom Fallon.

Tom Fallon

Good afternoon and thanks for joining us. With me are Chief Strategy Officer and Co-Founder Dave Welsh and CFO Ita Brennan.

We are pleased to have concluded a year of significant achievements for Infinera both operationally and within our market. We also made important strategic investments and decisions that align our future with a significant opportunity and we have to help build out and fully utilize the optical infrastructure of the internet.

At the beginning of 2010 we said that our four primary areas of focus would be making progress towards our long term business model, growing share and customers, expanding into new markets and investing in key technologies to extend our competitive advantage. We believe that we have made significant progress of all those (inaudible) over the past 12 months.

During fiscal 2010 we significantly improved the company’s profitability, showing a net profit on a non-GAAP basis in three of the last four quarters and posting $22 million in operating income for the year compared with a non-GAAP loss of $48 million in fiscal 2009.

We believe that we have also achieved proof points of our long-term business model with non-GAAP gross margins of 51% in the last two quarters of the year. In addition we generated $30.5 million in cash from operations and grew our cash balance to $296 million while carrying zero debt.

We also grew our revenue 47% year over year from $309 million to $454 million on expanding our number one market share position in the US WDM market to 30% up from 29% one year ago and growing our share worldwide to 16% up from 12%. We believe this reflects continued customer preference for Infinera’s differentiated digital optical network and the economic and operational benefits that it provides.

We had an especially strong year with customers in the cable and internet content providers basis with revenues up 82% year over year and several of these customers completed large build-outs.

While I remind you that in the US cable industry, six of the top seven providers utilize Infinera gear on their networks. This business is increasingly important as it reflects where so much of today’s internet traffic is moving and demonstrates that the Infinera value proposition resonates clearly with this class of customer for rapid response to market demand and flexible demand with our paramount.

On the new customer front we added five customers in Q4 bringing our roster to 82 versus 69 one year ago. We also made some important strides in penetrating new markets in 2010. After introducing our ATN metro product we signed up and shipped the ATN to 22 customers last year including three ATN only customers.

With 19 existing DTN customers taking the ETN we now have 23% of our customers buying end-to-end Infinera networks. The metro market remains one of our most promising long-term growth opportunities and to the degree our top line growth allows a growing portion of our future investments will reflect an increase in focus on this opportunity.

We also established Infinera as a significant participant in the submarine market where we now have five customers carrying traffic over 8500 kilometers of submarine networks. The success with our sub sea landing station platform has resulted in additional terrestrial business with some of our submarine customers who have recognized the cost effectiveness of not only the Infinera platform but also the Infinera network solution. And we continue to grow our worldwide presence with live traffic on Infinera networks now in 43 countries having expanded our product and equipment deployment into the Middle East, Brazil and additional Eastern European countries.

During the year we also made a set of investment decision relative to our product roadmap that we believe over time will provide a significant strategic advantage to our company, our customers and our shareholders.

In May 2010 we accelerated the development of our 100G coherent network based on our 500G PIC and decided to address the 40G with a solution based on discreet components. We remain on schedule to introduce our 40G solution in the middle of this year providing twice the fiber capacity of competitive offerings. We are also on target for volume production of our 100G solution in 2012. We believe our PIC based economics and early entry into the 100G coherent transmission adoption cycle positioned us well for significant market share gains with those customers that are looking for high capacity systems and radical economics.

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