Infinera Corporation

Good day and welcome to the Infinera Corp. First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the call over to Amitabh Pasi, Head of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon. Welcome to Infinera's first quarter of fiscal 2021 conference call. A copy of today's earnings and investor slides are available on the investor relations section of the website. Additionally, this call has been recorded and will be available to replay from our website. Today's call will include projections and estimates that constitute forward-looking statements, including but not limited to statements about our business plans, including our product roadmap, sales, growth, market opportunities, manufacturing operations, products, technology and strategy, statements regarding the impact of COVID-19 and industry-wide supply chain challenges on our business plans, and results of operation, as well as statements regarding future financial performance, including a financial outlook for the second quarter of fiscal year 2021. These statements are subject to risks and uncertainties that could cause Infenera's results to differ materially from management's current expectations. Actual results were different materially as a result of various risk factors, including those set forth in our annual report on Form 10-K for the year ended on December 26, 2020, as filed with the SEC on March 3, 2021, as well as the earnings release and investor slides furnished with our Form 8-K file today. Please be reminded that all statements are made as of today, and Infonera 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. Today's conference call includes certain non-GAAP financial measures. Percedency Regulation G, we've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in the first quarter of fiscal year 2021 earnings release and investor slides, each of which is available on the investor relations section of our website. And finally, as a reminder, we'll allow for plenty of time for Q&A today, but we ask that you limit yourselves to one question and one follow-up, please. I'll now turn the call over to our Chief Executive Officer, David Hurt. Thanks, Amitabh.

Good afternoon and thanks for joining us today. I will begin with a brief review of the first quarter results and then turn the call over to Nancy to cover the details of our financial performance and the outlook for the second quarter. Q1 marked another quarter of strong performance with solid execution across the board. Revenue came in just ahead of the midpoint of our outlook, with both non-GAAP gross margin and non-GAAP operating margin above the high end of our outlook. Each was up over 900 basis points on a year-over-year basis. During the quarter, we generated $19 million of operating cash flow, which was up over $100 million from the same quarter a year ago. From a top-line perspective, revenue came in as expected as we navigated against a challenging supply chain environment impacted by COVID and industry-wide semiconductor shortages and extended lead times. We experienced strong sequential revenue growth with Tier 1 service providers as spending recovered in the United States following a weak Q4. Most other customer segments performed generally in line with our expectations. On a product basis, revenue grew in the double-digit percentage range on a year-over-year basis from our open optic portfolio, including compact modular and line system platforms. This growth was driven by network expansions, new customer wins, and favorable traffic growth dynamics in the metro, including international 5G builds. Revenue was up on a year-over-year basis for our 600 gig GX product as we added several new service provider customers and continued to expand our customer base. Overall, bookings were robust, up double-digit year over year with broad-based strength across customer verticals and regions. We had record bookings for our open optical compact modular platforms and near-record bookings for our open optical line systems as service providers and ICPs planned for the rollout of 400 gig in the metro and 800 gig in the core. Within our subsea segments, bookings were up almost 150% year over year as service providers continued with their build-outs of subsea routes to handle the enormous traffic growth. Our recent bookings momentum, especially in line systems, reflects ongoing footprint expansion, which we believe is a positive precursor to anticipated future high-margin revenues. The Metro network insertion opportunity continues to drive solid bookings for our Metro products, and 400 gig service demand is increasing. To that effect, today we announced the availability of 400 gig CFP2 interfaces to our Metro portfolio. On the 800-gig front, I6 is now commercially shipping to customers. The pace of customer wins accelerated in the quarter, and we secured additional purchase orders and design wins. Our list of customer wins includes Tier 1 global service providers and ICPs across both subsea and terrestrial deployments as we remain on track for a more meaningful revenue ramp in the second half of 2021. We have built a healthy backlog and remain focused on ramping production to meet the strong demand we are seeing. We look forward to sharing additional details on our market traction and longer-term growth expectations for 800 gig at our investor day in a few weeks. Overall, I'm encouraged by a very solid start to 2021 with broad-based demand strength across geographies, customers, and our open optical platforms. While demand indicators are very encouraging across the customer base, supply constraints remain a challenge, not only for us, but many of our peers and companies across a broad spectrum of industries. We continue to work closely with our supply chain partners to address these industry-wide challenges and are positioning inventory to mitigate the effects of the component shortages and extended lead times. For the full year of 2021, we continue to expect the optical systems market to grow 2% to 3% year over year and project that our revenue growth rate will be slightly exceed market growth as we ramp our 800-gig solutions and enhance our metro portfolio with 400-gig optical interfaces on the XTM and GX series, complementing our 600G and 800G offerings. I am confident in the long-term market opportunities ahead of us. I continue to believe this is a great time to be a differentiated supplier of optical technology, and there is growing recognition in the market of the value that we provide and the scarcity of our vertical integrated capability. We see numerous insertion opportunities ahead of us as the competitive dynamics with Huawei, the rollout of 400G in the Metro, and the deployment of our high-performance 800-gig i6 solution. Our strategic priorities remain focused on leveraging our core competence in vertical integration in leading high-performance optical engines, accelerating the shift to open optical, and differentiating in next-generation pluggables with category-defining products like XR Optics. This strategic focus should enable us to gain market share, expand our addressable market, and drive margins towards our long-term targets. We look forward to sharing additional details regarding our strategic priorities, portfolio evolution, and financial roadmap at our upcoming Investor Day on May 19th. In closing, I want to thank the global Infanera team for their unwavering support, dedication, and resilience, recognizing that the effects of the pandemic remain acute in several geographies where we operate. In particular, I wish to recognize the members of the Infanera family in India who are currently facing a very challenging and difficult period. In addition, I would like to thank our customers, partners, and shareholders for their continued support. I will now turn the call over to Nancy to provide additional details of the quarter and our second quarter outlook.