Q4 2021 Infinera Corp Earnings Call

Speaker 1: Good afternoon. Welcome to today's conference call and thank you for standing by. My name is Brent and I will be your conference operator today. At this time I would like to...

Good afternoon, welcome to today's conference call and thank you for standing by my name is Brent and I'll be your conference operator today.

At this time I would like to welcome everyone to the neuron Corporation.

Speaker 1: Infinira Corporation Q4 2021 earnings conference call.

Q4, 2021 earnings conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise.

All lines have been placed on mute to prevent any background noise.

Speaker 1: After the speaker's remarks, there will be a question and answer session.

After the Speakers' remarks, there will be a question and answer session.

Speaker 1: like to ask a question at that time, simply press star and the number one on your telephone.

If you'd like to ask a question at that time simply press star and the number one on your telephone keypad.

Speaker 1: like to withdraw your question, again press star 1. Thank you.

He would like to withdraw your question again, Chris.

Star one thank you.

We'd like.

Now turning the call over to Ami top coffee.

Speaker 1: Amitabh Passi, Vice President of Investor Relations. Sir, please go ahead.

<unk> President of Investor Relations Sir Please go ahead.

Thank you operator, and good afternoon, welcome to Infinera as fourth quarter of fiscal 2021 conference call a copy.

Speaker 2: Thank you operator and good afternoon. Welcome to Infinero's fourth 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 is being recorded and will be available for replay from our website.

Today's earnings and Investor slides are available on the Investor Relations section of the website. Additionally.

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

Speaker 2: Today's call will include projections and estimates that constitute forward looking statements, including, but not limited to statements about our business plans, including a product roadmap, sales growth. Market opportunities manufacturing operations products.

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 industry wide supply chain challenges and co.

Speaker 2: technology and strategy, statements regarding the impact of industry-wide supply chain challenges and COVID-19 on our business plans and results of operation, as well as statements regarding future financial performance, including our financial outlook for the first quarter of our fiscal year 2022.

With 19 on our business plans and results of operation as well as statements regarding future financial performance, including our financial outlook for the first quarter for fiscal year 2022.

Speaker 2: These statements are subject to risks and uncertainties that could cause Infinero's results to differ materially from management's current expectations.

These statements are subject to risks and uncertainties that could cause <unk> results to differ materially from management's current expectations.

Speaker 2: Actual results made different materially as a result of various risk factors, including those set forth in an annual report on form 10K for the year ended on December 26, 2020, as filed with the SEC on March 3, 2021. And a quarterly report on form 10Q for the quarter ended on September 25, 2021, as filed with the SEC on November 3, 2021, as well as subsequent reports filed with or furnished to the SEC from time to time.

Actual results may differ 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 three 2021, and our quarterly report on Form 10-Q for the quarter ended September 2005 2021.

As filed with the SEC on November 3rd 2021, as well as subsequent reports filed with or furnished to the SEC from time to time.

Speaker 2: Please be reminded that all statements are made as of today and Infinera 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.

Please be reminded that all statements are made as of today and Infinera 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.

Speaker 2: Pursuant to Regulation G, we've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and investor slides for this quarter, each of which is available on the investor relations section of our website.

Pursuant to regulation G, which provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our earnings release and Investor slides for this quarter each of which is available on the Investor Relations section of our website.

Speaker 2: And finally, as a reminder, we'll allow for plenty of time for Q&A today, though we ask that you limit yourselves to one question and one follow-up, please.

And finally as a reminder will allow for plenty of time for Q&A. Today. So we ask that you limit yourselves to one question and one follow up please with that.

Speaker 2: With that, I'll turn the call over to our Chief Executive Officer, David Hurd. Thanks, Amitabh. Good afternoon and thanks for joining us today. I will begin with a review of the results for the quarter in the full year and then turn the call over to Nancy to cover the details for financial performance.

I'll turn the call over to our Chief Executive Officer, David heard Thanks, Tom and good afternoon, and thanks for joining US today I will begin with a review of the results for the quarter and the full year and then turn the call over to Nancy to cover the details of our financial performance Q.

Speaker 1: Q4 was another strong quarter for us. Non-gap revenue of $401 million exceeded the high end of our outlook range, while both non-gap gross margins and operating margins were above the midpoint of our outlook.

Q4 was another strong quarter for us non-GAAP revenue of $401 million exceeded the high end of our outlook range, while both non-GAAP gross margins and operating margins were above the midpoint of our outlook on a year over year basis revenue grew 13% in the second half grew 9%.

Speaker 1: On a year-over-year basis, revenue grew 13% and the second half grew 9%, driven primarily by the adoption of I-6 and strong demand from our products from customers from the Americas and EMEA region.

Driven primarily by the adoption of <unk>, six and strong demand for our products from customers from the Americas and EMEA regions gross margins in the quarter benefited from a higher mix of ice six partially offset by elevated supply chain costs higher line system sales and slightly lower service.

Speaker 1: Gross margins in the quarter benefited from a higher mix of ICE6 partially offset by elevated supply chain costs, higher line system sales, and slightly lower services margin due to a high mix of professional services to install new networks.

Margin due to a high mix of professional services to install new networks.

Speaker 1: Nancy will provide additional details of these dynamics in her commentary. Bookings momentum continued in the quarter. On a year-over-year basis, bookings were up profoundly and set a company record, and were nicely balanced across customer verticals and major geographies.

We will provide additional details of these dynamics in our commentary.

Bookings momentum continued in the quarter on a year over year basis bookings were up profoundly and set a company record and were nicely balanced across customer verticals and major geographies, our product backlog was up 100% year over year.

Speaker 1: Our product backlog was up 100% year over year.

Speaker 1: Our record backlog provides us greater demand visibility as we enter the new year and positions as well to execute our growth and profitability objectives for 2022.

Our record backlog provides us greater demand visibility as we enter the new year and positions us well to execute our growth and profitability objectives for 2022.

Our strong Q4 performance was a great way to wrap up 2021, a year in which we were able to navigate and ongoing global pandemic.

Speaker 1: Our strong Q4 performance was a great way to wrap up 2021, a year in which we were able to navigate an ongoing global pandemic and the increased impact of supply chain disruption.

The increased impact of supply chain disruptions.

Speaker 1: Despite these headwinds, we executed our planned financial and strategic goals in 2021, including five key accomplishments that I'd now like to highlight.

Fight these headwinds we executed our plans financial and strategic goals in 2021, including five key accomplishments that I would now like to highlight.

Speaker 1: First, we delivered against our major financial milestones. We grew revenue faster than the market, despite absorbing 4-5 percentage points of supply chain impact.

First we delivered against our major financial milestones, we grew revenue faster than the market. Despite absorbing on four to five percentage points of supply chain impacts we expanded gross margins by 380 basis points at the high end of our 300 to 400 basis points goal. Despite absorbing 150 to two.

Speaker 1: We expanded gross margins by 380 basis points at the high end of our 300 to 400 basis point goal, despite absorbing 150 to 200 basis points of increased supply chain costs.

200 basis points of increased supply chain costs.

Speaker 1: And we generated positive and improved operating bargains and cash flow from operations.

And we generated positive and improved operating margins and cash flow from operations.

Speaker 1: Second, we drove commercial success across the customer footprint as we secured new Tier 1 design wins and one new Huawei displacement pistol.

Second we drove commercial success across the customer footprint as we secured new tier one design wins and one new Huawei displacement business during the year, We announced awards with a very diverse set of global customers, including Virgin Media Telstra Telefonica calcium.

Speaker 1: During the year, we announced awards with a very diverse set of global customers, including Virgin Media, Telstra, Telefonica, Telcia, and other global customers.

Speaker 1: Telecom Italia Sparkle, Hatif Libya, and Globe Telecom, amongst many other awards. Our customer successes in 2021 included a 400 gig VETRO win at a major North American service provider, commercialization of 600 gig at another Tier 1 ICP, and 800 gig growth at major ICPs and CSPs worldwide.

Telecom Italia Sparkle had keep Libya and globe Telecom amongst many other awards our customer successes in 2021 included a 400 gig metro win at a major North American service provider.

<unk> of 600 gig at another tier one ICP.

And 800 gig growth at major ICP and Csp's worldwide.

Speaker 1: Overall, we had a record bookings and revenue year with ICPs and have grown our ICP revenue at a 30% tagger since 2019.

Overall, we had a record record bookings and revenue year with ICP and have grown our ICP revenue at a 30% CAGR since 2019.

Speaker 1: And in Subsea, a market characterized by stringent capacity and reach requirements, we grew overall bookings by over 50% in 2021.

And in subsea a market characterized by stringent capacity and reach requirements. We grew overall bookings by over 50% in 2021.

Speaker 1: Third, we expanded our product portfolio, securing design wins and gaining market share with our compact modular platforms, line systems, and metro products. We grew revenue from our 800GB ICE6GX product.

Third we expanded our product portfolio, securing design wins and gaining market share with our compact modular platforms line systems and Metro products. We grew revenue from our 800 gig ice six gx product to.

Speaker 1: To the low teams as a percentage of product revenue in Q4 up from high single digits in Q3. We exited the year with over 30 i6 customers, a healthy pipeline and are on track to ramp i6 revenue to 20.

Due to the low teens as a percentage of product revenue in Q4 up from high single digits. In Q3, we exited the year with over 36 customers a healthy pipeline and are on track to ramp I fix revenue to 'twenty to.

Speaker 1: to 25% of product revenue in 2022.

225% of product revenue in 2022 in.

Speaker 1: In addition, line system bookings, a leading indicator of the future high-margin transponder sales, grew by 100%. This was primarily driven by I-6 deployment.

In addition line system bookings are leading indicator of the future high margin transponder sales grew by 100%. This was primarily driven by <unk> deployments and bookings from our metro portfolio, including the X P. M 7100, Gx platforms grew by 25.

Speaker 1: And bookings from our Metro portfolio, including the XTM 7100 and GX platforms, grew by 25% in year.

<unk> in year.

Speaker 1: Fourth, we unveiled our suite of vertically integrated coherent pluggables to expand our addressable market by over a billion and enable an increase in margins from higher levels of vertical integration in our metro portfolio. In June , we launched the OpenXR Forum with initial members Verizon, BT, Lumen, Windstream, and Liberty Global.

Fourth we unveiled our suite of vertically integrated coherent plausible to expand our addressable market by over $1 billion and enable and increase in margins from higher levels of vertical integration in our metro portfolio. In June we launched the open XR Forum with initial members Verizon BT lumen.

Windstream and Liberty Global over the next couple of weeks ahead of OFC, we plan to announce other major carriers as new members in the Forum. This impressive list of members collectively represents 20% of the global Telecom Capex spend this is a great start.

Speaker 1: Over the next couple of weeks and ahead of OFC, we plan to announce other major carriers as new members in the forum. This impressive list of members collectively represents 20% of the global telecom capex spend. This is a great start, especially given we only announced the forum in June and we have a strong pipeline of additional partners interested in joining the forum.

<unk>, given we only announced the forum in June and we have a strong pipeline of additional partners interested in joining the forum.

Speaker 1: Fifth and lastly, to execute our 8x4x1 strategy that we laid out at our investor day last May, we organized the company into two business groups. One focused on optical systems and the other on coherent optical modules with both groups supported by our services organization.

Fifth and lastly to execute our eight by four by one strategy that we laid out at our Investor Day last May we organized the company into two business groups, one focused on optical systems and the other on coherent optical modules with both groups supported by our services organization. We also bolstered the <unk>.

Speaker 1: We also both bolstered the executive leadership team by bringing in industry veterans from Cisco, Dell, Lumetum and Nokia to accelerate the execution of our growth and scale strategy.

<unk> leadership team by bringing in industry veterans from Cisco, Dell momentum and Nokia to accelerate the execution of our growth and scale strategy.

Speaker 1: Looking ahead to 2022, our goal is to build on the foundation we established in 2021. The industry trends fueling our business remain robust. However, as we begin 2022, the supply chain environment remains challenging, and we expect these supply challenges to persist throughout the year with some relief anticipated in the second half of the year.

Looking ahead to 2022, our goal is to build on the foundation, we established in 2021, the industry trends trends fueling our business remain robust. However, as we begin 2020 to the supply chain environment remains challenging and we expect these supply challenges to persist throughout the year with some relief.

<unk> in the second half of the year the supply chain dynamics have reinforced the importance of our strategic focus on vertical integration, enabling us to have greater control over our supply chain.

Speaker 1: These supply chain dynamics have reinforced the importance of our strategic focus on vertical integration, enabling us to have greater control over our supply chain.

Speaker 1: On the demand side, we see 4 drivers continuing to play out in 2022 1st. Healthy global service provider, capex environment.

On the demand side, we see four drivers continuing to play out in 2022 first healthy global service provider Capex environment will be driven by bandwidth demands five G and the proliferation of deep fiber architectures second a robust 800 gig cycle based on the <unk>.

Speaker 1: will be driven by bandwidth demands 5G and the proliferation of deep fiber architectures.

Speaker 1: Second, a robust 800 gig cycle. Based on the industry analyst forecast, 800 gig is expected to be a long multi-year cycle, growing to almost 4 billion by 2025. A recent survey conducted by ACG Research found that 85% of service providers plan to deploy 800 gig solutions by the end of 2023.

Industry analysts forecast 800 gig is expected to be a long multi year cycle growing to almost $4 billion by 2025, a recent survey conducted by ACG research found that 85% of service providers plan to deploy 800 gig solutions by the end of 2023.

Speaker 1: further substantiating the tremendous demand for 800 gig. Third, new insertion opportunities in the Metro and access networks as service providers transition to 400 gig services and drive 100 gig coherent to the edge of the network. And fourth and lastly, an increased level of competitive opportunities to displace Huawei infrastructure.

Further substantiated the tremendous demand for 800 gig third new insertion opportunities in the Metro and access networks as service providers transition to 400 gig services and drive 100 gig coherent to the edge of the network and fourth and lastly, an increased level of competitive opportunities too.

Huawei infrastructure.

Speaker 1: These demand drivers coupled with the size of our backlog tier 1 wins and growing pipeline give us confidence that we're on the right track to grow and achieve our target business model in 2023. This model assumes revenue growth of 8 to 12% in 2022 and 2023. Gross margin expansion of 3 to 400 basis points per year. And double digit operating margins in 2023.

These demand drivers coupled with the size of our backlog tier one wins and growing pipeline give us confidence that we're on the right track to grow and achieve our target business model. In 2023. This model assumes revenue growth of 8% to 12% in 2022 and 2023 gross margin expansion of three to 400.

<unk> points per year, and double digit operating margins in 2023 Im excited about our competitive position and our market opportunities ahead of us we strengthened our portfolio bolstered our management team and are investing to win in fact, we set an exciting portfolio, we have a set of portfolio announcements.

Speaker 1: I'm excited about our test competitive position and our market opportunities ahead of us. We strengthened our portfolio, bolstered our management team and are investing to win.

Speaker 1: In fact, we've set an exciting portfolio, we have a set of portfolio announcements planned for this year's OFC in San Diego from March 6th to 10th, where you will hear more about near-term performance enhancements to our 1.6 terabit i6 embedded optical engine, faster ways to integrate and manage open transponders in multi-vendor networks with our open automation suite, and the introduction of our own high performance vertically integrated

<unk> for this year's OFC in San Diego from March six to 10, where Youll hear more about near term performance enhancements to our one six terabyte ice fixed embedded optical engine faster ways to integrate and open managed to open transponders and multi vendor networks with our open.

Automation suite, the introduction of our own.

High performance vertically integrated portables.

Speaker 1: Today, we also announced that Rup Lakaraju will be joining our board of directors. I look forward to his contributions as he will work with us every day to drive value for our shareholders. Welcome Rup.

Today, We also announced that route look around you will be joining our board of directors I look forward to his contributions as he will work with US every day to drive value for our shareholders welcome Roop <unk>.

Speaker 1: Separately, I would like to thank board members Cambez-Houshmand and Tom Fallon, who have resigned from the board effective today, for their service to Infinera over the years. I know they will continue to be friends of mine and for the company for years to come. Following these changes, our board will be smaller, more diverse, and reflect a lower average director tenure.

Separately I would like to thank board members <unk> and Tom Ballance, who have resigned from the board effective today for their service to Infinera over the years I know they will continue to be friends of mine and for the company for years to come. Following these changes our board will be smaller more diverse and reflect a lower average direct.

Her tenure.

Speaker 1: As I close today, I want to reiterate how.

As I close today I want to reiterate how.

Speaker 1: Proud I am of the Infinero team's resilience in navigating a top macroeconomic environment while delivering industry leading products, record breaking revenue and bookings, improve margins and cash flow and winning new customers. The team's unwavering commitment, drive and support have been personally humbling. I would also like to extend my thanks to our customers, partners and shareholders for their continued support during a challenging year.

Proud I am.

The infinera team's resilience and navigating a tough macroeconomic environment, while delivering industry, leading products record breaking revenue and bookings improved margins and cash flow and winning new customers. The team's unwavering commitment drive and support has been personally humbling.

I would also like to extend my thanks to our customers partners and shareholders for their continued support during a challenging year I will now hand, the call over to Nancy to cover the financial details of the quarter, our first quarter outlook and the progress towards our target business model Nancy.

Speaker 1: I will now hand the call over to Nancy to cover the financial details of the quarter, our first quarter outlook, and the progress towards our target business model. Nancy.

Speaker 3: Thanks, David. Good afternoon, everyone. I will begin by covering our Q4 results and then provide our outlook for Q1-22, as well as our planning assumptions for the full year of fiscal year 22. My comments reflect our non-GAAP results and outlook. For your reference, we have posted slides with financial details, including our GAAP to non-GAAP reconciliation to our investor relations website to assist with my commentary.

Thanks, David and good afternoon, everyone I will begin by covering our Q4 results and then provide our outlook for Q1, 'twenty two as well as our planning assumption for the full year of fiscal year 2010 My.

My comments reflect our non-GAAP results and outlook for your reference we have posted slides with financial details, including our GAAP to non-GAAP reconciliation to our Investor Relations website to assist with my commentary.

Speaker 3: I am pleased with our performance in the fourth quarter of 2021, a quarter in which we achieved record revenue and bookings for the company and exited the year with a substantial increase in our backlog. We delivered this performance while navigating a global pandemic and a tough supply chain environment that continue to constrain our top line and put pressure on our margins.

I am pleased with our performance in the fourth quarter of 2021, a quarter in which we achieved record revenue and bookings for the company and exited the year with a substantial increase in our backlog.

We delivered this performance, while navigating a global pandemic and a tough supply chain environment that continued to constrain our topline and put pressure on our margins.

Speaker 3: Despite these transitory challenges, we accelerated revenue growth to 9% in the second half of the year and remain on course to execute to our 8 by 4 by 1 strategy and deliver on our target business model in 2023.

Despite these transitory challenges, we accelerated revenue growth to 9% in the second half of the year and remain on course to execute to our eight by four by one strategy and deliver on our target business model in 2023.

Speaker 3: Q4 revenue of $401 million was up 13% year over year with strong product revenue growth of 19%

Q4 revenue of $401 million.

With $400 million was up 13% year over year with strong product revenue growth of 19%.

Speaker 3: primarily driven by the growth in our 800 gig i6 solution and strengths in the Americas and EMEA region.

Primarily driven by the growth in our 800 gig <unk> solution.

In the Americas and EMEA regions.

Speaker 3: We derived 58% of our revenue from international customers compared to 64% in the year-ago quarter, and no customer contributed to greater than 10% of our revenue.

We derived 58% of our revenue from international customers compared to 64% in the year ago quarter, and no customer contributed to greater than 10% of our revenue.

Q4 gross margin of 37, 2% came in just above the midpoint of our outlook range benefiting from higher volumes and the ramp up of <unk>.

Speaker 3: Q4 gross margin of 37.2% came in just above the midpoint of our outlook range, benefiting from higher volumes and the ramp of I6, offset by approximately 200 basis points from the impact of elevated supply chain costs and another 200 basis points impact from a higher mix of lower margin line systems.

Offset by approximately 200 basis points.

Impact of about elevated supply chain cost and another 200 basis points impact from a higher mix of lower margin line system Q.

Speaker 3: Q4 services growth margin was slightly lower on both a sequential and a year over year basis due to higher logistics costs and a higher mix of professional services from an increase in installation projects.

Q4 services gross margin was slightly lower on both a sequential and a year over year basis due to higher logistics costs and a higher mix of professional services for an increase in installation projects.

Speaker 3: Operating profit in the quarter was $17.1 million, equating to an operating margin of 4.3%, which was at the high end of our outlook range.

Operating profit in the quarter was $17 1 million.

Equating to an operating margin of four 3%, which was at the high end of our outlook range.

Speaker 3: Operating margin benefited from higher revenue, higher growth margin, and good control expense in the quarter relative to the upside we delivered.

Operating margin benefited from higher revenue higher gross margin and good control expense in the quarter relative to the upside we delivered.

Speaker 3: Operating expenses of $132 million were just above the midpoint of our outlook range, primarily due to higher sales commissions resulting from a very strong bookings and revenue quarter and year.

Operating expenses of $132 million were just above the midpoint of our outlook range, primarily due to higher sales commissions, resulting from a very strong bookings and revenue quarter and year.

Speaker 3: The resulting EPS in Q4 was $0.03 a share.

The resulting EPS in Q4 was <unk> <unk> per share.

Speaker 3: Moving on to the balance sheet and cash flow items, we ended the quarter with $203 million in cash and restricted cash. During the quarter, we generated $1.4 million of cash from operations down on a year-over-year basis as we accelerated investments in R&D, restored bonuses, paid higher sales commissions, and made strategic investments in working capital, including inventory.

Moving onto the balance sheet and cash flow items, we ended the quarter with $203 million in cash and restricted cash during the quarter, we generated $1 $4 million of cash from operations.

On a year over year basis, as we accelerated investments in R&D restored bonuses paid higher sales commissions and made strategic investments in working capital including inventory.

Speaker 3: Free cash flow in the quarter was a negative $7.7 million, and we ended the quarter with a zero balance on our credit facility.

Free cash flow in the quarter was a negative $7 7 million and we ended the quarter with a zero balance on our credit facility.

Speaker 3: As David mentioned in his commentary, fiscal year 21 was a strong year for us, with notable progress across our business model, new product introductions, customer design lens, and talent acquisition.

As David mentioned in his commentary fiscal year 'twenty, one was a strong year for us with notable progress across our business model, new product introductions customer design wins and talent acquisition.

Speaker 3: For the full year of 2021, we delivered revenue of $1.43 billion, up 5% on a year-over-year basis, and about 200 basis points above projected market growth.

For the full year of 2021, we delivered revenue of $1 four 3 billion up.

Up 5% on a year over year basis, and about 200 basis points above projected market growth.

Speaker 3: We had a record bookings year and exited the year with product backlog up 100% on a year-over-year basis.

We had a record bookings year and exited the year with product backlog up 100% on a year over year basis.

Speaker 3: We expanded gross margin to 37.6% of 380 basis points on a year-over-year basis and at the high end of our 300 to 400 basis point margin expansion goal. We expanded operating margin to 2.1% of 260 basis points on a year-over-year basis, and we generated positive cash flow from operations.

We expanded gross margin to 37, 6% up 380 basis points on a year over year basis and at the high end of our 300 to 400 basis point margin expansion goal, we expanded operating margin to two 1% up 260 basis points on a year over year basis, and we Jenna.

<unk> positive cash flow from operations.

Speaker 3: We delivered these strong results in a challenging supply chain environment which impacted our top line growth by four to five percentage points for the full year and constrained our growth margin by 150 to 200 basis points as we absorbed additional supply chain costs.

We delivered these strong results in a challenging supply chain environment, which impacted our top line growth by 4% to five percentage points for the full year and constrained our gross margin by 150 to 200 basis points as we absorbed additional supply chain costs.

Speaker 3: Looking ahead to the first quarter of 2022, we are encouraged by the demand drivers fueling our business. These drivers, combined with our backlog and continued order intake, give us optimism for 2022. At the same time, the supply chain challenges are real and even more intense than what we have experienced in the past few quarters.

Looking ahead to the first quarter of 2022, we are encouraged by the demand drivers fueling our business.

These drivers combined with our backlog and continued order intake give us optimism for 2022.

At the same time, the supply chain challenges are real and even more intense than what we have experienced in the past few quarters.

Speaker 3: We expect the supply environment to remain difficult through at least the first half of the year, followed by some relief in the second half, as we add inventory and bring up additional capacity.

We expect the supply environment to remain difficult through at least the first half of the year followed by some relief in the second half as we add inventory and bring up additional capacity.

Speaker 3: Taking these factors into account, we are forecasting Q1 revenue to be in the range of $345 to $375 million, representing approximately 8.5% growth on a year-over-year basis at the midpoint of the range, constrained entirely by supply.

Taking these factors into account we are forecasting Q1 revenue to be in the range of $345 to $375 million, representing approximately eight 5% growth on a year over year basis at the midpoint of the range constrained entirely by supply.

Speaker 3: Sequentially, the revenue forecast for Q1 is slightly better than the seasonality we have experienced over the past three years. We are forecasting Q1 growth margin to be in the range of 37% plus or minus 150 basis points, down slightly on a year-over-year basis.

Sequentially. The revenue forecast for Q1 is slightly better than the seasonality we have experienced over the past three years.

We are forecasting Q1 gross margin to be in the range of 37% plus or minus 150 basis point down slightly on a year over year basis.

Speaker 3: Compared to the first quarter of last year, the primary factors influencing our growth margin outlook include a higher mix of I-6 revenue, which is accretive to the company's growth margin, but is being offset by approximately 300 basis points from the impact of higher supply chain costs as we bear the burden of higher component and logistic costs, and additional capacity and inventory costs as we plan for the continued growth in I-6 through this year.

Compared to the first quarter of last year. The primary factors influencing our gross margin outlook include a higher mix of <unk> revenue, which is accretive to the company's gross margin, but it is being offset by approximately 300 basis points from the impact of higher supply chain costs as we bear the burden.

A higher component and logistic costs and additional capacity and inventory costs as we plan for the continued growth in <unk> through this year.

Speaker 3: We are planning for Q1 operating expenses to be in the range of $130 to $134 million as we increase investment in both our sales organization and R&D to take advantage of the market opportunity ahead of us.

We are planning for Q1 operating expenses to be in the range of $130 million to $134 million as we increased investment in both our sales organization and R&D to take advantage of the market opportunity ahead of us.

Speaker 3: Within R&D, we are investing in pluggable vertical integration, metro platform, and software, areas critical to driving top line growth and margin expansion.

Within R&D, we are investing in probable vertical integration metro platform and software areas critical to driving topline growth and margin expansion.

Speaker 3: We expect Q1 operating margin to be 0.5% plus or minus 200 basis points, approximately flat on a year over year basis at the midpoint. During the quarter, we expect to use Castrum operations as we match inventory with our backlog.

We expect Q1 operating margin to be <unk>, 5%, plus or minus 200 basis points approximately flat on a year over year basis at the mid point during the quarter, we expect to use cash from operations as we match inventory with our backlog.

Speaker 3: Below the operating income line, we assume about $5 million for net interest expense and $7 million for taxes.

Below the operating income line, we assume about $5 million for net interest expense and $7 million for taxes.

Speaker 3: Finally, we are anticipating a base and share count of 213 million shares for Q1. In the event that we are profitable on a non-gap basis in the quarter, diluted share count should be approximately 223 million shares.

Finally, we are anticipating a basic share count of 213 billion shares for Q1 in the event that we are profitable on a non-GAAP basis in the quarter diluted share count should be approximately 223 million shares.

Looking ahead to the full year of 2022, we intend to make continued progress toward our target business model and plan to grow revenue by 8% to 12% expand gross margin by 300 to 400 basis points and expand operating margin by 200 to 300 basis points. Furthermore.

Speaker 3: Looking ahead to the full year of 2022, we intend to make continued progress toward our target business model and plan to grow revenue by 8 to 12 percent, expand gross margin by 300 to 400 basis points, and expand operating margin by 200 to 300 basis points.

Speaker 3: Furthermore, we're assuming a typical seasonal cases to our business this year, as well as with a seasonal uptick in revenue and margin in Q2. And expect revenue and margin in the second half of the year to be greater than the first half.

We're assuming a typical seasonal cadence to our business this year as well with a seasonal uptick in revenue and margin in Q2, and expect revenue and margin in the second half of the year to be greater than the first half.

Speaker 3: I would like to close today by echoing David's thanks to the Infinera team and to our partners, customers, and shareholders for your continued support. We have made tremendous progress these past few years in enhancing the financial profile of the company by putting the right team in place, launching new products, and securing key customer wins. We know we have more work to do, and we look forward to delivering additional shareholder value in the years ahead. Brent, I'd now like to open.

I would like to close today by echoing David Thanks to the Infinera team and to our partners customers and shareholders for your continued support we have made tremendous progress. These past few years and enhancing the financial profile of the company by putting the right team in place launching new products and securing key customer wins.

We have more work to do and we look forward to delivering additional shareholder value in the years ahead Brent.

I'd now like to open the lines for questions.

Speaker 4: At this time I would like to remind everyone, in order to ask a question, press star followed by the number 1 on your telephone keypad. We'll pause for just a moment.

At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Speaker 4: Your first question comes from David Kang with B-Rally. Your line is.

Your first question comes from David Kang with B Riley Your line is open.

Speaker 5: Thank you. Yeah. Good afternoon. Thank you. I guess my first question is on 800 gig. Customers went from 25 to 30, and you're still targeting 20 to 25%. I'm just wondering if you can talk about customer concentration. Is that going to be driven by maybe just a couple of customers or more broader than that?

Hey, Thank you good afternoon and thank you.

So my first question is on 800 gig.

<unk> went from 25 to 30, and you're still targeting 20% to 25% I'm. Just wondering if you can talk about customer concentration is that going to be driven by maybe just a couple of customers or more broader broader than that.

Speaker 1: No, it's broader. I think when you look at, you know, we don't have any 10% customers now, we could use a little bit more customer concentration. But I think when it comes to i6 800 gig, we're continuing to

No it's broader I think when you look at.

We don't have any 10% customers now we could use a little bit more customer concentration, but I think when it comes to <unk> 800 gig we're continuing to.

Speaker 1: to win both in this quarter, and we obviously racked up a bunch of design wins last quarter. So customer wins are really across the footprint, both with ICPs and CSPs, with ICPs being a little bit lumpier in terms of larger initial deployment, CSPs taking a little bit longer when they roll new products into their network.

To win both in this quarter and we obviously racked up a bunch of design wins last quarter.

Customer lens or really across the footprint, both with ICP and Csp's with ICP is being a little bit lumpier in terms of larger initial deployment CSP has taken a little bit longer when they roll new products into their networks.

Speaker 5: Got it. And my follow-up is on 800 gig, 20% to 25% for the years, so I was wondering what the exit rate will be in fourth quarter. I'm assuming it's going to be much higher than 25%.

Got it and my follow up is on.

<unk>.

Good gig.

20% to 25% for the years so.

Just wondering you know what the exit rate will be in.

In fourth quarter, I'm, assuming it's can be much higher than 25%.

Speaker 1: That'd be right on kind of a weighted average basis, yeah. So, you know, if you think about us finishing Q4 in the early teens, which is exactly what we said, same as what we had mentioned for finishing in high single digits in Q3, that continues to build quarter over quarter over quarter with an exit rate that should be greater than 25 percent, which is why you'll see the margins both in terms of as we build that out, our entitlements become even much better. So our margins get even stronger as we go throughout the year.

That would be right on kind of a weighted average basis, yes. So if you think about finishing Q4 in their early teens, which is exactly what we said same as what we had mentioned for finishing in high single digits in Q3.

That continues to build quarter over quarter over quarter with an exit rate that should be greater than 25%, which is why you'll see the margins. Both in terms of as we build that out our entitlements become even much better so our margins get even stronger as we go throughout the year.

Thanks, Dave.

Speaker 4: As a reminder, please limit yourself to one question and one follow-up.

As a reminder, please limit yourself to one question and one follow up question. Your next.

Speaker 4: Your next question comes from the line of Alex Henderson with Needham.

<unk> comes from the line of Alex Henderson with Needham Your line is open.

Speaker 6: Great, thank you very much. I was hoping you could talk a little bit about the pricing environment. There's obviously a lot of raises in cost in supply chain industry-wide. We've heard some players are actually pushing up pricing. I know that's never happened in this industry before, but I was wondering if you're getting any pricing help. And I have a follow-up.

Great. Thank you very much I was hoping you could talk a little bit about the pricing environment.

So obviously a lot of races and caused supply chain industry wide.

Her days some players are actually pushing up pricing.

I know that hole.

Never happened in the industry before but I was wondering if youre getting any pricing help.

And then any of the toll.

That's never held fitness industry right.

Speaker 1: That's never help in this industry. Right? Yeah. Look, I don't think we're going to go through our complete pricing strategy. Our view is right now. There's a bunch of customers.

Yes look I don't think we're going to go through our complete pricing strategy. Our view is right now there is a bunch of customers that are looking to deploy bandwidth.

Speaker 1: that are looking to deploy bandwidth, we're trying to give them the price value by heavily working Moore's law of optical.

We're trying to give them the price value by heavily working Moore's law optical and getting them then that price per bit youll see some new.

Speaker 1: and getting them in that price per bit, you'll see some new announcements at OFC which will help even more. We go through kind of a cleanup on our list structure now annually, but again, we're trying to be very careful that we're a market taker in this environment, and we want to be very cautious of that and continue to drive the impact of our R&D to the lowest cost per bit without kind of the same impact we're getting from our supply base on temporary.

Some new announcements at OFC, wallets, which will help even more we go through kind of a cleanup on our list structure now annually.

But again, we're trying to be very careful that we are a market taker in this environment and we want to be very cautious of that and continue to drive the impact of our R&D to the lowest cost per bit without.

The same impact were getting from our supply base.

On temporary price increases we are seeing it in the industry, we're going to be opportunistic to continue to take share while keeping to our margin commitments.

Speaker 1: We are seeing it in the industry. We're going to be opportunistic to continue to take share while keeping to our margin commitment.

Speaker 6: Yeah, so the question, and this isn't the follow-up yet, the question really is what are you doing and what are you seeing? Are you actually seeing, can you quantify the price hikes by your competitors at all?

Yes, so the question, indicating to follow up yet the question really is what we're doing.

What are you seeing.

Gary you actually seen can you quantify the price hikes by your competitors at all.

Speaker 1: We are seeing and hearing from some of our customers that they are being approached by some telecom infrastructure companies with price increases. And, you know, again, our response to that is we're trying to provide them solutions in an open architecture environment. To be able to take share and drive lower costs with newer platforms. I think all of this is yeah, go ahead.

Now we're seeing we are seeing and hearing from some of our customers that they are being approached by some.

Telecom infrastructure companies with price increases.

And again, our response to that is we're trying to provide them solutions in an open architecture environment to be able to take share and drive lower costs with newer platforms.

All of this is tough.

Yeah go ahead.

Speaker 6: So the question, the follow-up question I wanted was really on the backlog. I think you said the backlog is up 100%, but I guess I don't have a clarity on what the dollar value of that backlog is relative to the base, so I don't know what 100% of what. All right, so could you give us a dollar characterization of what the backlog looks like?

So should the question over the phone.

One question I wanted to do was really into backlog.

Thank you said the backlog is up 100%.

But I guess I don't have them.

Clarity on what's the dollar value of that backlog is already.

The base, so I don't know what a 100% of what right. So could you give me.

A dollar.

Characterization of what the backlog looks like.

Speaker 3: Hi, Alex. We're not going to disclose the backlog number per se, but I can share with you that our book to bill was meaningfully above one this year, and we're starting the year with

Hi, Alex we're not going to disclose the backlog number per se, but I can share with you that our book to Bill was meaningfully above one this this year and we're starting the year with great coverage from our backlog as we go into Q1 and for the year and it gives us even more.

Speaker 3: Great coverage from our backlog as we go into Q1 and for the year. And it gives us even more confidence in the revenue growth that we're projecting for 22. And as David said, you know, you'll see that start to grow through the year, quarter to quarter to quarter. We're really pleased that we were able to hit the high end of our outlook range for revenue in Q4. And feel very well positioned as we go into 22.

And the revenue growth that we're projecting for 2002 and as David said, you'll see that start to grow through the year quarter to quarter to quarter.

We're really pleased that we were able to hit the high end of our outlook range for revenue in Q4.

And feel very well positioned as we go into 'twenty two.

Okay. Thank you.

Thanks, Alex.

Your next question comes from the line of Simon Leopold with Raymond James Your line is open.

Speaker 4: Your next question comes from the line of Simon Leopold with Raymond James. Your line is open.

Speaker 4: Great, thanks. Sorry, joined late, so hopefully I'm not rehashing. Quarter was good in December , and I imagine that some of this might have been revenue recognition on projects that you had shipped during the course of the year. Could you quantify where you are in terms of acceptance on new products and how that might have contributed to the reported quarter?

Great. Thanks, sorry, I joined late so hopefully I'm not rehashing.

That quarter was good in December .

I imagine that some of this might have been revenue recognition on projects that you had shipped during the course of the year.

Could you quantify where you are in terms of.

Except it's on.

New products and how that might have contributed to the reported quarter.

Speaker 1: Yeah, I would tell you that the overachievement to the midpoint that we provided in the outlook wasn't just the acceptance. It was actually better execution from the team on actually getting shipments out, heavier flow of bookings than we expected with a nice match to the supply, and just better execution from the team. There has been no change in actually the acceptance criteria or acceptance intervals across our footprint during that time.

Yes, I would tell you that.

The over achievement to the midpoint that we provided in the outlook wasn't just the acceptance it was actually better execution from the team on actually getting shipments out.

Heavier flow of bookings than we expected with a nice match to the supply and just better execution from the team. There has been no change in actually the acceptance criteria or acceptance intervals across our footprint during that time.

Speaker 4: That's helpful. And then I wanted to just follow up on, on what you're seeing in terms of component supply issues and, and drill down a little bit. And part of the reason for this question is that with, with the PIC architecture, you've got a different build and not, not like maybe all your peers in terms of your components. So could you maybe double click on what you're seeing as constraints currently? Thanks.

That's helpful. And then I wanted to just follow up on on what Youre seeing in terms of component supply issues in and drill down a little bit and.

The reason for this question is that.

The Pic architecture, you've got a different billed and not not like maybe all your peers in terms of your components. So could you maybe double click on what youre seeing as constraints currently thank you.

Speaker 1: No, it's a good question and I think what Nancy had mentioned in her comments is, look, I think we're going to all live with this supply chain environment for 2022. I think we're beginning to see the back half with commitments that we put in place as well as commitments we're getting back from the supply chain that are becoming a little bit more reliable. For the back half of the quarter, what we are seeing Simon is kind of more acute supply chain costs.

Yes, no it's.

Good question and I think what Nancy had mentioned in her comments is look I think we're going to all live with their supply chain environment for 2022.

I think we're beginning to see the back half with commitments that we put in place as well as commitments were getting back from the supply chain that are becoming a little bit more reliable for the back half of the quarter. What we are seeing Simon is kind of more acute supply chain cost being extracted maybe this is the final wave.

Speaker 1: being extracted, maybe this is the final wave, you know, from folks that are providing, call it processors for packets, switch

No problem.

Folks that are providing.

Call it processors for packet switch.

Switch architectures.

Speaker 1: Obviously, a lot of our optical stuff is, we have a little bit more under our control.

Obviously, a lot of our optical stuff is we have a little bit more under our control.

Speaker 1: So it really is around, you know, think of them as microcontrollers, processors, packet processors, and switch fabric.

So it really is around.

Think of them as Microcontrollers processors packet processors and switch fab.

Fabrics out in the network space. So in comparison to some of our competitors those might be bigger constraints that we have but we're obviously mindful that we could we've been challenging with them too, but the team executed well in Q4.

Speaker 1: Out in the network space. So, in comparison, some of our competitors, those might be bigger constraints than we have, but we're obviously mindful that, you know, we've been challenging with them too, but the team executed well in Q4. Thank you very much.

Thank you very much for taking the questions I appreciate it.

Okay.

Your next question comes from the line of Alex Henderson with Needham Your line is open.

Speaker 4: Your next question comes from the line of Alex Henderson with Needham. Your line is open.

Hey, Alex.

<unk>.

Speaker 6: I wasn't expecting to get back in that fast. I've got my headset on here if we have a second.

Hi.

I expect them to get back in that <unk>.

Got my headset on here, we have a second.

Now back to your back to your last question, Alex One one way you can kind of gauge the kind of buildup that we're adding is as we put the K out and have rps.

Speaker 1: Back to your last question, Alex, one way you can kind of gauge the kind of buildup that we're having is as we put decay out and have RPOs.

Speaker 1: disclose there that we're just seeing that continue to grow. So our coverage.

Disclose there that we're just seeing that continue to grow so our coverage overall for the first half and for the first half is pretty profound. We we also see when we're looking at orders that are coming in we measure what orders for this quarter plus one and four orders outside of that so we kind of have a more.

Speaker 1: overall for the first half and even for the first half is pretty profound. We also see when we're looking at orders that are coming in, we measure what order is for this quarter plus one and for orders outside of that. So we kind of have a more normalized view of bookings as we go, so we're not getting too far ahead of our schemes.

Normalized view of bookings as we go so we're not getting too far ahead of our skis.

Speaker 6: Yeah, that's smart way of doing it, the duration.

Yes, that's a smart way.

They are doing it to duration.

Speaker 6: misleading a lot of people relative to the backlogs. I wanted to

Misleading a lot of people relative to the backlogs.

Right.

I wanted to <unk>.

Speaker 6: the component issue from a slightly different perspective. As you build out your i6 production and that becomes an increasing portion of your business, does that have a measure at the impact of reducing your exposure to some of the areas that are, you know, in short supply or particularly constrained or is it

The address.

The component issue from a slightly different perspective, as you build out your <unk>.

Production.

And that becomes an increasing portion of your business does that help.

Have a measurable impact in reducing your exposure to some of the areas that are.

In short supply or particularly constrained or is it.

Speaker 6: as you described a moment ago, just processors that sit around the other elements that, therefore, is not directly related to the 800 gig platform per se.

As you described a moment ago just processors that.

Sit around the element the other element that therefore is not directly related to the to the.

800 gig platform per se.

Speaker 1: Yeah, no, good, good, good question. I'd say three, three follow follow on tidbits for you one.

Yes. Good good good question I'd say three three follow on Tidbit for you one.

Speaker 1: It does kind of happen implicitly as people are going to transition from legacy platforms quicker to newer platforms. So that is helpful. When they go off the legacy stuff, we might have had a commercial solution and merchant integration, and now we can go into our own vertical integration. That's helpful. And we do see customers that are much more sensitive of the age of the profile based on the...

It does kind of happen implicitly as people people are going to transition from legacy platforms quicker to newer platform. So that is helpful. When they go off the legacy stuff that they might we might have had a commercial solution and merchant integration and now we can go into our own vertical integration that is helpful and we do see customers that are much more.

Sensitive of the age of the profile based on the.

Speaker 1: In this supply chain environments, not only you can't get the parts, but many suppliers are coming out and end up lifing older geometry.

In the supply chain environment, not only you can't get the parts, but many suppliers are coming out end of life ing older geometries, which is get a push people to pressure platforms.

Speaker 1: which is going to push people to a fresher platform.

Speaker 1: Number two, yeah, we still will have some dependence on microprocessors and other things for fans and packet processing in the platform, just less dependent.

Number two yes, we would still have some dependants on microprocessors and other things for fans and packet processing in the platform just less dependent right.

Speaker 1: something that we want to consider. And thirdly, you're aware that when we run our own fab and our own packaging, while we haven't had a huge entitlement bump like we used to, we will see, and as Nancy described, we will see a nice entitlement push when we move from Q1 into Q2, Q3, Q4 moving forward from a volume perspective of I6.

Something that we want to consider and thirdly, youre aware that when we run our own fab and our own packaging, while we haven't had a huge entitlement bump like we used to.

We will see and as Nancy described we will see a nice entitlement push when we move from Q1 into Q.

Q2, Q3, Q4, moving forward from a volume perspective of IL six.

Does that help Alex.

Speaker 6: Absolutely, exactly what I was looking for. On the DSP side, have you seen a...

Oh, absolutely exactly what I was looking for.

On the DSP side.

Have you seen a.

Speaker 6: a change in pricing behavior out of your primary supplier in the sense that we're understanding that they've raised prices across.

A change in pricing behavior out of.

Your primary supplier in the sense that we are understanding that they've raised prices across.

Speaker 6: most of their products by as much as 20% and including a 10% price hike effective February 1st. So have we seen any pricing changes in the DFP supply that should have gone through third parties?

Most of their products by as much as 20%.

And including a 10% price hike.

Effective February one so.

Have we seen any pricing changes in the DSP Mcguire.

That should come from third parties.

Speaker 1: Yeah, I think we absolutely have and that is Nancy talked through a little bit more pressure on the PPV.

Yes, I think we absolutely have in that Nancy talked through it a little bit more pressure on the PPV.

Speaker 1: As we enter the year, the good news is when we look at the bill of material for what we do, given what we do in the fab, what we do in the packaging, the DSP itself is, you know, it's, it's a piece of it, but it's not a huge piece of the bill of material. So what we've worked on over the last year.

As we entered the year. The good news is when we look at the bill of material for what we do given what we do in the fab what we do in the packaging the DSP itself is.

It's a piece of it but it's not a huge piece of the bill of materials. So what we've worked on over the last year, our ways to counter avail of that and again, you'll hear a little bit more about that at OFC to get more.

Speaker 1: are ways to countervail that. And again, you'll hear a little bit more about that at OFC to get more, again, more efficient bits per dollar out of the platform. Thanks, Alex. Apologies, there's actually several people in the queue.

Again more efficient bits per dollar out of the platform.

Okay. Thanks, Alex apologize, there's actually several people in materiality.

Great. Thank you.

Your next question comes from the line of meta Marshall with Morgan Stanley . Your line is open.

Speaker 4: Your next question comes from the line of Mehta Marshall with Morgan Stanley . Your line is open.

I'll jump back before Alex.

Speaker 7: Third turn. So, just a question, you know, Nancy, maybe as you look forward to the Gross Margin Outlook for 22, you know, and calling for the 300 to 400 basis point uplift throughout the year, you know, how much of that is from kind of supply chain, getting back some of the supply chain costs or those costs mitigating or how much of that is from the uplift of, you know, becoming a greater piece of the portfolio? And then maybe second question.

Third term.

So just a question you.

And forgive me as you look forward to the gross margin outlook for 'twenty two.

You know I'm, calling for the 300 to 400 basis point uplift throughout the year, how much of that is from kind of a supply chain getting back some of the supply chain cost or the cost mitigating or how much of that is from.

The uplift.

<unk> is becoming a greater piece of the portfolio.

And then maybe second question.

Speaker 8: You know, just any customer categories that you're expecting to lead growth at 22, are there any kind of project-based dynamics, like we saw with Tier 1, that we should just be mindful of that would lead to different kind of growth rates between the categories? Thanks.

Just any.

Customer categories that Youre expecting <unk> growth at 22 are there any kind of project based dynamics like we saw with tier one that we should just be mindful of that would lead to a different kind of growth rates between the categories. Thanks.

Speaker 3: Sure, no problem. Yeah, as we look at the trend in March and through the year, and I'm sure you're doing the math just like.

Sure No problem, yeah, as we look at that trend in margins through the year and Im sure Youre doing the math just like we do in terms of where we're looking at Q1 and how we exit the year with 300 to 400 basis point that we are going to see the continued improvement quarter over quarter.

Speaker 3: We do, in terms of where we're looking at Q1 and how we exit the year with 300 to 400 basis points up, it's, you know, we are going to see the continued improvement quarter over quarter. I am planning for, as I mentioned, the first half still remaining very, very tight on supply and having those pressures. We may see some relief in the back half, but really it's the continued ramp of I-6 and that margin impacting

I am planning tour as I've mentioned in the first half still remaining very very tight on supply and having those pressures.

May see some relief in the back half, but really it's.

The continued ramp of <unk> and that margin impacting from the vertical integration to our overall gross margin for the company.

Speaker 3: from the vertical integration to our overall gross margin.

Speaker 9: But you'll see it be another second half really stepping up in the.

But you'll see it be kind of another.

Okay.

The second half really stepping up in the gross margin.

Speaker 1: And then on the customer category piece, I'd say, you know, we continue to see strong uptake from the in this open line system environment. We're now seeing that in worldwide. So, we are, we had a number of tier 1 design wins last year, and we continue already this year with those. And so we expect to be ramping those as we exit the quarter, which you should see some relief in that tier 1 category that you're talking about as well as continued strength in the. ICP.

And then on the customer category piece I would say, we continue to see strong uptake from the ICP and this open line system environment. We're now seeing that in Csp's worldwide. So we are we had a number of tier one design wins last year and we continue already this year.

With those and so we expect to be ramping those as we exit the quarter.

Which you should see some relief in that tier one category that you are talking about as well as continued strength in the <unk>.

Speaker 1: Very very strong business in Europe and you know, we're looking to amp up our presence in Asia

Very very strong business in Europe , and we're looking to amp up our presence in Asia.

Great. Thanks.

Thank you Matt.

Offer.

Speaker 4: Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is open.

Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is open.

Speaker 10: Hey guys, thanks for taking my question. This is Bala on forward. Congrats on good results by the way, especially in this.

Hey, guys. Thanks for taking my question. This is <unk> on for Rod.

Tom Good results by the way, especially in this environment.

Speaker 10: David, I wanna start off with 800GB mix

David I'll start off with 800 gig mix. It was high single digits last quarter. Its now been low teens in Q4 and full year 2000 trained hypersound, which probably indicates that ending the year it would be able to put it behind me.

Speaker 10: It was high single digits last quarter, it's now in low.

Speaker 10: Q4 and full year 20 to 25 percent, which probably indicates that ending the year it could be about 30 percent I6 max.

<unk>.

Speaker 10: You mentioned your customer wins, but just wondering, what's the visibility for this 20...

You mentioned, new customer wins, but just wondering.

What's the visibility for this 20% to 25% <unk> mix to how is it in the fall off of existing backlog or are those already one pipeline that I have a follow up.

Speaker 10: they have either in the form of existing backlog or orders or even pipeline, they have followed.

Speaker 11: Excellent. Yeah, all of the above, but quite a bit of pipeline, but quite a bit of backlog. I mean, we have existing backlog for the product. We have design wins that, you know, we haven't yet deployed and reached the orders for, and we have a growing pipeline of opportunity. So, it's a nice mix, and again, it's a nice global mix, and it's a nice mix between CSPs and ICPs.

Excellent yeah, all of the above but quite a bit of pipeline.

But quite a bit of backlog I mean with that.

Existing backlog for the product.

We have design wins.

We haven't yet deployed and reached the orders for and we have a growing pipeline of opportunities. So it's a nice mix and again, it's a nice global mix and it's a nice mix between <unk> and <unk>.

Speaker 11: But a substantial backing of backlog to back up the confidence in that 20 to 25% number as well as a couple of quarters now of revenue hitting where we said it would hit in terms of its percentage of revenue. So we feel pretty solid there.

But.

A substantial the backing of backlog to back up the confidence in that 20% to 25% number as well as a couple of quarters now of revenue hitting where we said it would hit.

In terms of its percentage of revenue so we feel pretty solid there.

Very good.

Speaker 10: Very good. Again, competition in 800GIG. You mentioned 30 customer wins for the year. Just wondering how many of them were against?

Okay competition and 800 gig.

You mentioned.

Customer wins for the year, just wondering how many of them.

<unk>.

Speaker 10: with those that you went head-to-head against your major U.S. competitor.

Let those Dr Joanne head to head against Euro.

Major U S competitor.

Speaker 11: Yeah, look, in an open architecture environment, the best transponder wins. We're not, you know, we're not keeping public score of how many of those are there, but very few of our customers go into a single supply scenario. So, they're all competitive environments.

Yeah look in an open architecture environment, the best transponder wins, we're not we're not keeping public score of how many of those are there, but very few of our customers go into a single supply scenario, so they're all competitive environments.

Speaker 1: And they look for, again, the best solution, the lowest cost per bit. Some people may be trying to provide that via 400 gig. Some people may be providing it via a single wave 800 gig. We just tend to provide it in a 1.6 terabit, two-wave, 800 gig platform. So. No, it doesn't.

And they look for again, the best solution the lowest cost per bit. Some people may be tried to provide that the 400 gig. Some people may be providing it would be a single wave 800 gig. We just tend to provided at a one six terabits to wave 800 gig platform.

So.

It's amazing.

Okay. Thanks, Paul Thanks, so much.

Speaker 4: Your next question comes from the line of Jim Suva with Citigroup.

Your next question comes from the line of Jim Suva with Citigroup. Your line is open.

Speaker 6: Thank you, and I just have one question. A lot of the discussion was focused on gross margins, which was likely so. Could we just take it one level a little bit lower and focus a little bit on operating margins, kind of as the year progresses? Because I would assume you're seeing some inflation or salary payroll increases or R&D or something. Can you talk to us about the gross margin flow through? Should we expect a similar flow through to operating margins or do we need to adjust for some inflationary environment for operating?

Thank you and I just have one question column a lot of the discussion was focused on gross margins, which was slightly so could we just take it one level, a little bit lower and focus a little bit on operating margins kind of as the year progresses, because I would assume youre seeing some <unk>.

Inflation or salary payroll increases.

R&D or something can you talk to us about the gross margin flow through should we expect a similar flow through to operating margins or do we need to adjust for some inflationary environment for operating margins. Thank you.

Speaker 3: Great question, right? We are expecting for the year, as I mentioned in my comments, 200 to 300 basis point improvement year over year on operating income. Certainly, we are planning for, as everyone is in this inflationary environment, step up to certain expenses there. But managing through those as we did in fiscal year 21 really carefully in terms of our expense profile.

So great question right.

We are expecting for the year as I mentioned in my comments 200 to 300 basis point improvement year over year on operating income.

Certainly we are planning for as everyone is in this inflationary environment step ups in certain expenses there but.

But managing through those as we did in fiscal year 'twenty, one really carefully in terms of our expense profile, but you will see a step up investments in sales and marketing as we go after the market growth.

Speaker 9: But you will see us step up investments in sales and marketing as we go after the market growth.

Speaker 3: We need to do some further investing there in addition to the ongoing R&D and pluggables and Metro and software, as I mentioned, because we really want to see that vertical integration percentage go up. To be able to flow through to the bottom line, but you can expect 2 to 3 X what we did in fiscal year 21 for 22.

We need to do some further investing there in addition to the ongoing R&D and plausible.

Metro in software as I mentioned, because we really want to see.

That vertical integration percentage go up.

To be able to flow through to the bottom line, but you can expect two to three X. What we did in fiscal year 'twenty one for 'twenty two.

In terms of operating principle March.

Thank you so much.

Okay.

Speaker 4: Your next question comes from the line of Tim Savagot with Corporate Northland Capital Markets. Your line is open.

Your next question comes from the line of Tim <unk> with corporate Northland Capital markets. Your line is open.

Okay.

Okay.

Your next question.

Okay might still there yes.

Speaker 12: Go ahead. Am I still there? Yeah, we hear you.

Yes, we hear you.

Okay, Great got it.

Speaker 13: Got to be quick on the dry here. I want to go back to. We're having some technical challenges. Go ahead.

Quick on the draw here.

Let me go back.

So technically challenging to go ahead.

When we go back to 800 gig mix here.

Speaker 13: and try and get underneath those dynamics a little bit. And I don't know if you've given a contribution for the full year 21, but given what you've said about the second half, I'm gonna assume we're in the mid single digits or maybe mid to high.

And trying to get underneath those dynamics a little bit.

I don't know if you've given a contribution for the full year 'twenty, one but given.

What you've said about the second half from consumer in the mid single digits or maybe mid to high.

Speaker 13: And so you're looking at a pretty dramatic increase in 22.

And so youre looking at a pretty dramatic increase in 'twenty two.

Speaker 13: And I guess the overall question is how incremental.

And I guess the overall question is how incremental.

Speaker 13: is the 800 gig business to the total business. I mean, it looks like you could grow as much as fourfold, certainly three and a half fold. In 22, obviously, you're cannibalizing some of the older stuff. So, do you look at these dynamics of more bringing in new customers with 800 gig or maybe current customers transitioning from previous generations? And when you net that out, what kind of a

Is the 800 gig business to the total business. So if you could grow as much as four fold certainly three five fold.

In 'twenty, two obviously youre cannibalizing some of the older stuff so.

Do you look at these dynamics of more bringing in new customers with 800 gig or maybe current customers transitioning from previous generations.

When you net that out.

What kind of overall growth dynamic do you see.

Speaker 11: It's good. It's a good question. So, you know, again, overall, you know, we see the 800 gig. I 6.

Yes.

Good question. So again overall, we see the 800 gig six product line pretty confidently hitting that $20 to 25% as you said some portion of that is people moving from previous generations, whether they're ours or.

Speaker 11: product line, you know, pretty confidently hitting that 20 to 25% as you said.

Speaker 1: Some portion of that is people moving from previous generations, whether they're ours or more hopefully for us, our competitors.

More and more.

More hopefully for us our competitors.

Speaker 1: As people roll off the older technologies, we've kind of baked that into our overall growth rate. So that 8 to 12% does include any kind of single digit fall offs, which typically happens in older product lines as you go through the.

As people roll off the older technologies, we've kind of baked that into our our overall growth rate. So that 8% to 12% does include any kind of single digit falloff, which typically happens in older product lines as you go through the cycle.

Speaker 1: So again, higher pickup with the ICPs and with CSPs just taking a bit longer to onboard into their environment.

So again higher pickup with the ICP and with CSP is just taking a bit longer to onboard into their environment.

Speaker 1: So the 8 to 12% includes that offset.

So.

8% to 12% includes set offset.

Speaker 13: Yeah, it's sort of a netting and that's, you know, most of your competitors and I think some of this is supply catch up and maybe this is true for you guys as well, are looking to grow kind of in that, you know, double digit, low double digit area. I mean, as you look at, you know, in scenarios growth relative to the overall market, I mean, do we need to kind of a normalize for those supply issues and look for an above trend growth there this year or, you know, you're talking about that growth being sustainable in the twenty three.

Yeah, that's sort of the netting and that's you know most of your competitors I think some of this is supply catch up and maybe this is true for you guys as well.

We're looking to grow kind of in that double digit low double digit area.

And as you look at it.

Infinera is growth relative to the overall market.

I mean, do we need to kind of a.

Normalized for those supply issues and look for an above trend growth. There this year or youre talking about that growth being sustainable into 'twenty three.

Speaker 13: I guess it's a long-winded thing, but is your view of market growth, kind of baseline market growth changed or accelerated?

Or I guess, it's a long winded question is is your view of market growth kind of baseline market growth changed or accelerated a bit.

Speaker 11: Yeah, it's we've probably accelerated that. I mean, look, we came back in April , May in our analysts day and said we're going to grow at 8 to 12%. And many, many people in the after calls and suggested we we might want to go calm down a little bit. Right. And we saw that based on the market dynamics of what we're going on with open the growth of 800 gig, you know, the open line system growth and our line system bookings, which grew 100% year over year.

Yes, we've probably accelerated that I mean look we came back in April may in our analyst day, and said, we're going to grow at 8% to 12% and many many people in the after calls suggested we might want to go calmed down a little bit right and we saw that based on the market dynamics of what we're going on with <unk>.

And the growth of 800 gig.

Open line system growth in our line system bookings, which grew 100% year over year. So we do believe we're going to grow faster than the market. The market says the analysts today say three to three 5% growth for this year I just don't buy it.

Speaker 1: So we do believe we're going to grow faster than the market. The market says the analysts today say three to three and a half percent growth for this year. I just don't buy it.

Speaker 11: You know, I think the market will probably grow more like five percent. Now, I think there are winners and losers in the market. So there are certainly people that are going to lose share, like the Huawei infrastructure opportunity. You know, that's a substantial portion of the market. It's two billion outside of China annually.

I think the market will probably grow more like 5% now I think there are winners and losers in the market. So there are certainly people that are going to lose share like that Huawei infrastructure opportunity. That's a substantial portion of the market, it's $2 billion outside of China annually.

Speaker 1: So, you know, I expect the market analyst to change, you know, I'll wait for them. They'll change their view on real numbers, but I expect that to maybe move from three, three and a half percent, maybe up to five. And we still expect to grow well above that. I do expect, and we said back in May of last year, we expected that to continue into 2023.

So I expect the market analysts to.

I'll wait for them they'll change their view on real numbers, but I expect that to maybe move from 335% maybe up to five and we still expect to grow well above that I do expect and we said back in May of last year, we expected that to continue into 2023.

Speaker 1: So, you know, I don't think that we measure our bookings and what we think are people, you know, stocking for a later period very carefully. And, you know, we feel good about that 8 to 12% growth rate, you know, in 2022 and the continuance as long as we keep our heads down and execute, do the right thing for our customers and shareholders.

I don't think that we measure our bookings and what we think our people.

Stocking for a later period very carefully and we feel good about that 8% to 12% growth rate in 2022, and the continuance as long as we keep our heads down and execute and do the right thing for our customers and shareholders.

Thank you Tim Thanks very much.

Your next question comes from the line of George Notter with Jefferies. Your line is open.

Speaker 4: Your next question comes from the line of George Nodder with Jeffreys. Your line is open.

Speaker 14: Hi, guys. Thanks very much. I guess my question, I was wondering what the mixture of vertically integrated products was in Q4. I think you guys have given us that number in the past. You gave us the i6 piece, certainly, but I'd love to know what the bigger number is for overall.

Yes.

Hi, guys. Thanks, very much I guess my question I was wondering what the mixture of vertically integrated products was in Q4, I think you guys have given us that number in the past you gave us the I six piece, certainly, but I'd love to know what the bigger the bigger number is for overall.

Yes give me one second we're pulling it up right now.

Speaker 3: Yeah, give me one second. We're pulling it up right now. Yeah. Yeah. It wasn't close to the mid forties George in the quarter.

Yes, it was close to mid Forty's George in the quarter.

Speaker 14: Okay, got it. And if memory serves, you were also close to mid-40s in Q3. So, it sounds like the growth in I6 is coming at the expense of, I presume, the Heritage DTNx product. Is that the right read here, or am I missing something?

Okay.

Got it.

If memory serves you were also.

Close to mid forties in Q3, so it sounds like the growth in <unk> six is coming at the expense of I presume. The heritage <unk> X product is that is that the right read here or am I missing something.

Speaker 11: No. So remember, it's also on a lower number. So I think what we're seeing is new opportunities. We didn't see a precipitous decline from Q3 to Q4 on that. So we were in the – I want to say it was 42 or 43 percent in Q3 and then in the mid-45, 46 percent in Q4, which obviously on a higher revenue base. So no, I wouldn't make that as a foredrawn conclusion.

No. So remember its also on a lower number so.

I think what we're seeing is new opportunities, we didn't see a precipitous decline from Q3 to Q4 on that so we were in the.

I want to say it was <unk> 42, or 43% in Q3 and then.

In the mid 4500, 46% in Q4, which obviously.

On a higher revenue base so.

No I wouldn't make that as a port drawn conclusion.

Speaker 14: Okay, so it's a mix of new customers and then you know existing and then

Got it okay. So it's a mix of.

New customers and then Brett.

<unk> existing and then.

Speaker 14: I guess I also wanted to ask about the XTM portfolio. You guys didn't say much about it here. I know Metro's been a source of growth for you guys in recent quarters. That is not a vertically integrated product. I know you guys are looking to redesign XTM, but do you guys have a sense for when those redesigned products will come into the marketplace and help you kind of juice that vertically integrated mix?

I guess I also wanted to ask about the <unk> portfolio you guys Didnt say much about it here I know metro has been a source of growth for you guys in recent quarters.

That is not a vertically integrated product I know you guys are looking to redesign X T M. But do you guys have a sense for when those redesigned products will come into the marketplace and help you kind of juiced that vertically integrated mix.

Speaker 1: Yeah, we do. So when we when we did our analyst today, we talked about one great had a great year record year with XTM bookings.

Yes, we do so when we when we did our analyst day, we talked about.

One great had a great year record year with ex GM bookings.

Speaker 11: Overall, Metro grew 25%, and I believe was about 45% of our overall bookings, product bookings. As we get into 2023, you'll hear a little bit at OFC about our pluggable, that we will have our own CFP2 and DD pluggables available to be able to provide 400 gig ZR plus.

Overall Metro grew 25% and I believe was about 45% of our overall bookings product bookings.

As we get into 2023, Youll hear a little bit of OFC about our plug a hole that we will have our own CFP two and DD plausible is available to be able to provide 400 gig ZR plus as well as our XR point to multi point of which that form is growing that will stop.

Speaker 11: as well as our XR point-to-multipoint of which that forum is growing, that will start phasing in in the first half of 2023 and should significantly improve our margin profile. And those CFP2s can be used on older products as well as newer products. Got it.

Phasing in in the first half of 2023 and should significantly improve our margin profile and those those <unk> can be used on older products as well as newer products.

Got it.

Good thank you very much.

Thanks George.

Your next question comes from the line of Amit Chatterjee with Jpmorgan. Your line is open.

Speaker 4: Your next question comes from the line of Samit Chatterjee with J.B. Morgan.

Yeah, Hi, thanks for taking my questions.

Speaker 15: All right, thanks for taking my questions. I have a couple here. So just starting first one with just a broader one. I know the

I have a couple here. So just starting first one with the discipline ordered one I know the 8% to 12% Youre guiding for revenue growth in 2022.

Speaker 15: I mean, that's a strong growth guidance in itself, but that's more in line with your long-term guidance.

Strong growth.

Growth guidance and it says but that's.

That's more in line with your long term guidance that you had presented at the analyst day.

When we look at across most optical companies that have done till date and during this earning season or recently most of it.

Speaker 15: that have talked till date during this earnings season or recently most are...

Expecting to exceed the long term growth rates over the next 12 months given some of the pent up demand that we are seeing so just wanted to get your thoughts around that I mean this is Philip.

Speaker 15: Just wanted to get your thoughts around that, I mean, this is still a good growth number, but why not more upside to your long-term growth rates?

Gross number, but why not more upside to your long term growth rate.

I have a follow up please go ahead.

Speaker 11: Now, I appreciate the comment, but we also are empathetic to others in this industry that, you know, you know, when you have a supply chain shortage and miss your number, you guys aren't very happy, so, nor are our shareholders. So, you know, I think we've done a good job, as you saw with last year and with Q3 and Q4, the back half grew at 9%, Q4 grew at 13%.

No I appreciate the comment, but we also are empathetic to others in this industry that.

When you have a supply chain shortage admission number you guys arent very happy so nor our shareholders. So I think we've done a good job as you saw with last year and with Q3 and Q4 the back half grew at 9% Q4 grew at 13%.

Speaker 11: We're just not trying to get ahead of our skis. Again, we're very, very in tune with our supply chain environment, and we want to provide you the right range as we go. As Nancy said, that 8-12 percent was entirely constrained in our outlook, was constrained by supply.

We're just not trying to get ahead of our skis.

Again, we're very very in tune with our supply chain environment, and we want to provide you the right range as we go as Nancy said that 8% to 12% was entirely constrained.

Our outlook was constrained by supply, which we expect to continue through 2022.

Speaker 1: which we expect to continue through 2022.

Speaker 1: We might see some light as we get to the back half, just based on inventory that's been provisioned and some of the activity we see amongst the supply base of starting to give a little bit clearer of a picture of how capacities are going to be met. But it's too early to tell that. So 8 to 12% is pretty good. Our intention is always to beat that, you know, like, we came at the high end of the range in Q4. Follow up. I mean, you did have some.

We might see some light as we get to the back half just based on inventory thats been provisioned and some of the activity we see amongst the supply base of starting to give a little bit clear of a picture of how capacities are going to be mad, but it's too early to.

To tell that so 8% to 12% pretty good our intention is always to beat that.

We came at the high end of the range in Q4.

Follow up I mean.

You did have some displacement revenues already starting to creep in in 2021 how should we you did about the magnitude of that in 2022.

Speaker 16: how

Much of a contribution is.

From that aspect.

Speaker 1: Yeah, I think when we did our analyst day, we kind of had a bar chart that had an indicative view and it hasn't really changed actually.

Yeah, I think I think when we did our analyst day, we kind of had a bar chart that we have.

Rather than indicative view and it hasnt really changed actually.

Speaker 11: Um, so we see it, you know, it was a nice taste nice appetizer in 2021, but I think we said all along we would see the design wins and really scaling. And we thought that we'd see revenues from that really beginning to take hold as we got into 2023. And we did contemplate that way back in May when we, when we gave you our 8 to 12% growth rate.

So we see it.

A nice taste nice appetizer in 2021, but I think we said all along we would see the design wins in Rfps really scaling and we thought that we'd see revenues from that really beginning to take hold as we got into 2023, and we did contemplate that way back in May when we when we gave you.

<unk> percent to 12% growth rate.

Okay.

Thanks for taking my question no. Thank you.

Speaker 4: Again, if you would like to ask a question, press star 1 on your telephone.

Again, if you would like to ask a question press star one on your telephone keypad.

Speaker 4: Your next question comes from Dave Kang with B-Rally.

Next question comes from Dave Kang with B Riley Your line is open.

Okay.

Speaker 5: Oh, thanks again. Nancy, I may have missed it, but fourth quarter, what was the impact on, you talked about margin impact, but what about revenue impact? Was it approximately $20 million as you said before?

Thanks again.

Nancy I may have missed it but.

The quarter, what was the impact on you talked about margin impact well what about revenue impact was it.

May 20 million as you said before.

Speaker 9: Yes, in that range. So we did still have constraints on our revenue in Q4 because of supply.

Yes in that range. So we did still have constraints.

On our revenue in Q4 because of supply.

Speaker 5: Got it. And my follow-up is, you said the supply impact was about four to five points for 2021. Should we expect, you know, nearly all of that four or five points to be shifted to next quarter so it's more like 8% or 6% on top of that, you're adding about 4% from last year, so you're, you know, that's how you get to like 10% growth this year?

Got it and my follow up is you said the supply impact was about four to five points for 2021.

Should we expect.

Given all of that four five to be shifted to <unk>.

Next quarter, so, it's more like 8% or 6% on top of that.

We're adding about 4%.

From from last year. So that's how you get to like 10% growth this year.

Speaker 1: We expect in the supply chain environment that lead times are extended and backlog is going to continue to, you know, we're going to bleed off the older backlog as the lead time hits. And we'll be building out new backlog for the future.

Mike.

We expect in the supply chain environment that backlog and lead times are extended and backlog is going to continue to.

We're going to bleed off the older backlog is the lead time hits and we will be building out new new backlog for the future.

Speaker 11: So we're not, our view all along was the 8 to 12% growth. If the supply chain environment attenuates and we can overachieve that, that'd be great. But right now we don't think it's prudent to call that.

So we're not there yet.

Our view all along was the 8% to 12% growth if the supply chain environment.

<unk> and we can overachieve that that'd be great, but right now we don't think its prudent to call that.

Got it thank you.

Thanks, Dave.

Speaker 4: There are no further questions at this time. I would like to now turn the call back over to Mr. David.

There are no further questions at this time I would like to now turn the call back over to Mr. David heard.

Yes. Thanks I appreciate that I appreciate the thoughtful questions. Appreciate the engagement 2021 was a great year for Infinera, we achieved our financial targets demand was robust new products ramp nicely.

Speaker 11: Yeah, thanks. Appreciate appreciate the thoughtful questions. Appreciate the engagement. You know, 2021 was a great year for Infinera, you know, we achieved our financial targets. Demand was robust, new products ramped nicely. And our momentum with customers continued to build and continues to build as we sit here today. We feel good about our position and the opportunity in the future for both our financial targets and our strategic goals.

And our momentum with customers continued to build and continues to build as we sit here today, we feel good about our position and the opportunity in the future.

For both our financial targets and our strategic goals.

Speaker 11: So we couldn't do that without the extended global infinera team, our suppliers, our customers, and again, our loyal shareholders. So thank you all and be safe. Be well. We look forward to a bright 2022. Thank you. Ladies and gentlemen, thank you.

So we couldnt do that without the extended global Infinera team, our suppliers our customers and then again R.

Our loyal shareholders. So thank you all.

Be safe be well, we look forward to a bright 2022.

Thank you.

Ladies and gentlemen, thank you for your participation.

Concludes today's conference call you may now disconnect.

Speaker 17: Please wait. The conference will begin shortly. Please stand by. Please stand by.

Please wait the conference will begin shortly.

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