Infinera's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Infinera (INFN)

Q2 2011 Earnings Call

July 19, 2011 5:00 pm ET


Ita Brennan - Chief Financial Officer

Thomas Fallon - Chief Executive Officer, President and Director

Bob Blair - Investor Relations

David Welch - Co-Founder, Chief Marketing & Strategy Officer, Executive Vice President and Director


Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc.

Blair King - Avondale Partners, LLC

Alex Henderson - Miller Tabak + Co., LLC

Rod Hall - JP Morgan Chase & Co

Michael Genovese - MKM Partners LLC

George Notter - Jefferies & Company, Inc.

Subu Subrahmanyan - Sanders &

Ehud Gelblum - Morgan Stanley

Simona Jankowski - Goldman Sachs Group Inc.



Welcome to the second quarter Year 2011 Investment Community Conference Call Of Infinera Corp. [Operator Instructions] Today's call is being recorded. [Operator Instructions] 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 competitors' products and prospects of the company in Q3 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 company's current press releases and SEC filings, including the company's annual report on Form 10-K filed on March 1, 2011, for more information on these risks and uncertainties. Today's press release is including Q2 2011 results and associated financial tables and investor information summary, 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 second quarter of 2011, which exclude the impact of restructuring and other related costs and 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 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, which will be available today on the investors section of our website.

On this call, we'll also give guidance for the third quarter of 2011. 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's President and Chief Executive Officer, Tom Fallon.

Thomas Fallon

Good afternoon and thanks for joining us. With me are Chief Strategy Officer, Dave Welch; and CFO, Ita Brennan. I will spend a few minutes today commenting on our Q2 performance, the current industry environment key technology trends and then conclude with an update on the development of our new products. This is a period of significant investment for Infinera as we continue to invest in our core DTN and develop multiple new products without the benefit of a COC revenue from those new offerings. Having said that, we are encouraged with the company's Q2 performance, including an improvement in both bookings momentum and in continued progress toward market delivery of our development initiatives.

For our longer-term success, we remain focused on executing our PIC-based digital optical strategy and product roadmap to enable the company to operate profitably and to achieve our long-term business model.

In Q2, our revenues came in at the high-end of our guidance. As we experienced the continuation of healthy TAM purchases by a broad base of customers looking to meet their bandwidth growth needs. In addition to the strong TAM purchases, we also saw growth in new optical capacity deployments, which establishes a base for future TAM purposes. The MSO space was especially strong with 2 customers from that in our top 5 customer count for the quarter.

We placed our strategic focus on the MSO market several years ago, and based on our subsequent penetration of the leading cable operators in North America, we recently established a sales force dedicated to these customers to ensure we will continue to meet their needs on an ongoing basis.

We also saw stronger bookings in Q2 and as a result, we exited the quarter with a larger backlog than in recent quarters. This is a reflection of overall continued growth in bandwidth demand across our customer base, our ability to win new footprint deployments and our continued strength with the leading cable customers. We view this activity as a result of continued customer confidence in the unique Infinera value proposition, our product roadmap and network vision.

We continue to diversify our revenue base with 3 greater than 10% customers in the quarter and a broad base of activity across a wide set of customers and multiple products. More than 25% of our 90 invoice customers now deploy both our long-haul DTN and Metro ATN platforms and 6 customers have deployed both DTN terrestrial and submarine solutions.

It is worth noting that we are seeing very good pipeline activity in the subsea segment, another area of strategic focus where we also recently deployed a dedicated sales force. Furthermore we added 2 ATN customers, growing our ATN customer base to 28. We also continue to build additional features and capability into our ATN platform and

ethernet aggregation functionality with our most recent release.

The continued trend for multi-product purchases demonstrates our customer's increased commitment to the Infinera solution and validates the importance of the end-to-end benefits that our portfolio delivers. Our customers find that their business has become more efficient when they extend the Infinera architecture through their transport topology while accelerating their ability to deliver services to their customers. Looking at the current WDM market environment, I would describe it as active, not robust, not soft but with bandwidth growth continuing historic rates and evident pent-up demand.

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