Q2 2022 Infinera Corp Earnings Call
Growth was especially strong with the Icp's, where we grow both with existing customers and expanded with new ones. We set another record backlog growing approximately 80% year over year with product backlog growth over 100% again.
Our remaining performance obligations, which are a measure of both are noncancelable backlog and our deferred revenue grew by $133 million sequentially and quarter.
We successfully delivered our Q2 results despite facing several supply chain challenges, including continued component shortages decommit COVID-19 related shutdowns in China, all of which resulted in higher costs for components and logistics taken together. These factors impacted our gross margin by approximately three.
350 basis points in the quarter and temple temporarily skewed our shipping linearity, which had a much larger portion of shipments occurring in the last three weeks of the quarter. We believe the supply chain impact was at its worst in Q2, and while we expect the supply chain environment to remain difficult for some.
Time, we do expect some relief in the second half of the year with additional improvements in 2023.
Overall, the demand drivers fueling our business are healthy or.
Our bookings strength and record backlog demonstrate the market traction of our open optical portfolio, specifically within the systems business.
We added new <unk> customers secured new design wins in Q2, resulting in very solid bookings for the quarter. We believe <unk> lead times, our industry, leading given our high degree of vertical integration, which we are leveraging to win new deals and drive future share gains we are certifying <unk> six with several leading you.
The us and global tier one service providers for deployment in the networks, which will drive future growth and margin accretion through the first half of the year <unk> ramp to the high teens as a percentage of product revenue and we are on track to grow 6% to 20% to 25% of product revenue in 2022.
Next our Metro solutions performed well as we grew bookings and revenue year over year for both the gx and ex GM platforms are expanding customer footprint sets us up well for future revenue growth and margin expansion once we vertically integrate our coherent <unk> into our metro platforms to that effect.
We have our first set of plug a hole samples available now and we are currently integrating them into our metro platforms for deployment starting in 2023.
And finally, we saw continued growth in our open line systems with both bookings and revenue up in the double digit percentage range year over year. The continued strength in line systems growth over the past two years remains a good leading indicator of future high margin transponder sales as we grow with existing customers.
And when precious new ones.
Turning to our sub systems business group, we have the following highlights for the quarter first as I. Previously stated we have samples available for our 400 gig XR <unk> capable of supporting both point to point.
And industry, leading point to Multipoint applications. These samples are on time and performing well against our technical specifications and we're on track to see their financial impact beginning in the first half of 2023.
Important to our systems business were integrating these plug 400 gig plausible modules into our metro platforms. This is a high percentage of material content for our Metro systems. This is the first time, we've had the ability to produce our own vertically integrated metro solutions instead of buying components from the merchant.
Market, which should result in future meaningful margin expansion and improve global competitiveness.
Third we are beginning to certify our 400 gig <unk> to work and external platforms as well such as routers switches servers and wireless ran this will open up a new multibillion dollar addressable market for us, while giving us additional revenue growth and margin expansion opportunities, we've partnered with leading equipment.
Manufacturers to accelerate our go to market programs for our <unk> and are planning trials with tier ones in the second half of this year.
Next we are expanding our line of plausible products as we develop both 100 gig and 800 gig coherent plug a hole solutions. While we are in the early days of development. We received great feedback from our customers and we're building out our customer pipeline, we plan to provide an update on our <unk> roadmap at an upcoming industry events.
Lastly, membership in the XR open XR Forum, which was established to accelerate the market adoption of point to multi point networks and architectures continues to gain traction during the quarter. Several new service providers joined as members of the forum more importantly, the pipeline of network equipment.
Factors, who who are major players in their respective market segments is growing and in Q2 Dell technologies signed on as a forum member, which is a significant milestone.
Our portfolio is in great shape, and we're seeing insertion opportunities from competitive displacements in the growing need for supply chain diversity from our global customers.
These opportunities are balanced by the temporary supply chain impacts on our business.
Which we expect to attenuate over time.
In 2022, we estimate the total supply chain impact on our gross margins to be over 300 basis points for the full year almost twice the impact we saw in 2021.
We expect these supplier chain higher supply chain cost to start easing next year.
Potentially declining by 30% to 40% in 2023 and the dissipate in 2024.
We're not sitting still as we shared with you on our last earnings call. We're taking several steps to mitigate these higher costs over time, including adjusting our commercial terms cost reducing products and substituting precious parts.
Our investment thesis fundamentally remains intact, and we expect our financial performance to continue to improve in the back half of 2022, as we benefit from design wins ramp the production of <unk>.
And see the conversion of our backlog to revenue.
We are planning for sequential revenue growth in both Q3, and Q4 with product revenue growth of 8% to 12% year over year offsetting the timing of the service revenue recognition.
We're also planning to exit the year with gross margins hitting 40% or higher in Q4.
The size of our backlog, which is approaching $1 billion gives us greater confidence going into 2023, Nancy will provide additional details on our expectations for the rest of the year shortly.
While there are several short term factors at play, including a global pandemic of war, a difficult supply chain environment and macroeconomic uncertainty the underlying market opportunity is healthy in the infant.
Infinera team is executing the plan, we are winning new customers expanding with existing ones ramping up 6% to 20% to 25% of product revenue in 2020, and launching our <unk> products at or ahead of schedule I would like to thank the infinera team for their continued support and dedication to our customers and to one another.
I'd also like to extend our thanks to our customers partners suppliers and shareholders for your continued support.
We intend to take full advantage of these market disruptions to create opportunities for infinera and for our investors I will now hand, the call over to Nancy to cover the financial details of the quarter and the outlook for the third quarter Nancy Thanks, David and good afternoon, everyone. I will begin by covering our Q2 results and then provide our outlook for Q.
Three my comments reflect our non-GAAP results and outlook for your reference on our Investor Relations website, we have posted slides with financial details, including our GAAP to non-GAAP reconciliation to assist with my commentary.
Overall I am pleased with our financial results for Q2 as you heard from David revenue beat the midpoint of our outlook range non-GAAP operating margin was at the upper end of our outlook range and the non-GAAP gross margin in the quarter was near the midpoint of the range as we absorbed the highest supply chain impact to date.
Demand remained strong in the quarter with bookings up in the double digit percentage range above to bill ratio above one and record backlog.
Our strategy is working well and our refresh portfolio is creating insertion opportunities, especially as our customers seek supplier diversity.
Turning to the financial details of the quarter on a year over year basis, Q2 revenue of $358 million was up five 5% with product revenue up 11% in the quarter and up 8% in the first half.
Services revenue, which is still being impacted by the timing of customer project deployment was down 11% on a quarter over I'm, sorry on a year over year basis, we.
We continue to view the dynamic within our services business as temporary and expect revenue to catch up through the rest of the year and into 2023.
Geographically, we saw revenue growth across all regions on a year over year basis, and derive 51% of our revenue from domestic customers a level generally consistent with Q1.
During the quarter, one customer contributed to greater than 10% of our revenue.
Q2 gross margin of 36, 1% was near the midpoint of our outlook range. We delivered this margin while absorbing approximately 350 basis points of impact from elevated supply chain cost.
Operating profit in the quarter was $1 5 million.
Equating to an operating margin of 4% and at the high end of our outlook range.
Operating expenses in the quarter of $127 $6 million were below our outlook range of $132 million to $136 million as we tightly manage spending while maintaining investments in our long term projects.
The resulting EPS in the quarter was a loss of <unk> <unk> per share.
Moving onto the balance sheet and cash flow items, we ended the quarter with $155 million in cash and restricted cash down from last quarter. The primary use of our cash in the quarter was for temporary changes in the working capital balance impacted by atypical linearity as a greater portion of shipments that is <unk>.
Normal occurred late in the quarter.
As a result cash collections were lower than our expectations in Q2, but we expect to see improved collections in Q3 and Q4.
In addition, we used cash opportunistically to increase our inventory by $18 million in the quarter, which we expect to convert to cash in the back half of the year as we ramp <unk> further and drive growth.
Additionally.
Our improved financial position over the last couple of years.
We're able to replace our prior ABL facility at the end of June with a new one at better terms and with expanded capacity.
This new $200 million facility will be an efficient source of short term capital if required to drive working capital for our growth, while allowing us to navigate temporary supply challenges.
Looking ahead to the third quarter of 2002, we are encouraged by our bookings momentum the ramp of <unk> and record backlog.
At the same time as we have discussed this afternoon, we expect the supply challenges to continue through the second half of 'twenty and into 'twenty, three, albeit moderating some over this period.
Taking these factors into account, we expect Q3 revenue to be in the range of $360 million to $400 million.
Representing approximately 7% growth on a year over year basis at the midpoint of the range with product revenue growth at or above 8% to 12% while services revenue will still be down on a year over year basis in Q3.
We expect Q3 gross margin to be in the range of 38% plus or minus 150 basis points up on a quarter over quarter basis. The primary driver of improved gross margins sequentially is a higher percentage of vertical integration and our mix from the ongoing ramp of <unk> in Q3.
Embedded in our gross margin outlook is the assumption that we will continue to absorb approximately 300 basis points of supply chain impact from higher cost tied to components materials logistics and freight.
We are forecasting Q3 operating expenses to be in the range of $131 million to $135 million as we continue to prioritize investments in both sales and R&D consistent with the comments, we made at the beginning of the year.
The resulting operating margin in Q3 is expected to be 3% plus or minus 300 basis points generally in line with current consensus expectations and up on a year over year basis at the midpoint of the range.
We plan to generate cash from operations in the quarter as working capital begins to normalize even as we continue to invest in inventory.
Below the operating income line, we assume $5 million for net interest expense and $5 million for taxes.
Finally, we are anticipating a basic share count of approximately 218 million shares for Q3, and a fully diluted share count of 289 million shares.
Looking further ahead, we are currently planning for revenue to have a normal seasonal uplift in Q4 up approximately in the mid teens percentage range sequentially from Q3 to Q4 and with Q4 gross margin at or above 40% we.
We expect the year over year growth rates for product revenue to be in the 8% to 12% range again in Q4 and on an annual basis in 2002.
Consistent with commentary on our last earnings call, we expect approximately $30 million of services revenue to push out from 'twenty two to 'twenty three.
Despite the ongoing challenges in 'twenty two from numerous external developments, we remain committed to driving revenue growth and margin expansion in 2022 and beyond we are pleased with our record demand customer wins and next generation technology development through.
Through the first half of the year, we have grown bookings in the double digit percentage range and our remaining performance obligations are proxy for backlog are approaching $1 billion up approximately $350 million from the year ago quarter.
Furthermore, we are driving toward product growth of 8% to 12% in 2022 and plan to exit the year with gross margin at 40% or higher based on what we see today, we expect to be generally in line with current consensus for operating margin in Q3 and Q4.
I am proud of our team's operational execution as we are delivering these results while absorbing supply chain costs that are almost twice the level of what we experienced in 2021.
In closing I would like to Echo David's thanks to the Infinera team, who continue to work tirelessly through a very dynamic environment and to our partners customers and shareholders for your continued support.
I would now like to open up the lines for questions.
Thank you and as a reminder, that is star one if you would like to ask a question, we'll pause for a moment to compile the Q&A roster.
And our first question will come from Rod Hall with Goldman Sachs.
Please go ahead.
Hi, Yeah.
Thank you for taking my question and thanks for quantifying the backlog I'm wondering where you expect to see 1 billion backlog total backlog to trend from here as we move throughout the year and into 2023.
Follow up.
Yes.
I think the good news is.
<unk> backlog continues to grow we're continuing to see strong demand certainly as we see match supply begin to ease in the back half of this quarter and as the easing continues in 2023, some of that will drain down but consistent with our comments when we entered the year consistent with our comments every quarter. We believe it will continue to support.
That 8% to 12% growth rate.
It should be noted that double digit product revenue growth.
Is double what we grew last year, despite the supply chain environment, and so that puts us in a nice position because as you know when you when you when you get the revenue on the product side the service and warranty is certain to follow that very very high.
Attach rates and in future commitment rates.
Got it got it thank you for that and then on <unk>.
Six mix of total product revenue.
Teens this quarter and I believe also high teens last quarter and what gives you the confidence to end the year in the 20% to 25% range of total product.
Yes deployment facts, so backlog bookings and some of those deployments are indeed out ships being installed going into revenue going through certification to be clicked on so just based on the facts of our business and front, we're very comfortable with the 20% to 25%.
Got it thank you.
Thank you good questions.
Our next question will come from Alex Henderson with Needham.
Please go ahead, yes.
Thank you I just wanted to clarify on the backlog comment said that $1 billion was total backlog what was the backlog for Joe's product, there, which is what we'd be comparable to what other people are reporting.
Yes, we arent, giving that split out in that $1 billion that referring to is actually the RPI I just want to clarify that which represents noncancelable backlog and our deferred revenue.
But our product backlog grew as David said over 100%.
On a year over year basis, again, so where we are seeing very good product backlog.
So.
If you could talk just about.
Transaction that slipped out of the first quarter into the second quarter I think that clarified.
During the May timeframe that you had $1 19.
In 19 countries.
Sure, Steve deployment, which was.
Apparently that that project.
Have we.
<unk> got most of that into the revenue.
The second quarter or is that still we don't know catheter.
Half of the year, how do we what's the.
Local debt.
Massive project and do you expect to have terrestrial wins.
In the 19 countries.
Is it tariffs will land Poland.
Yes. So good question, Alex So we had removed that from second quarter, right and said it was likely to push out to the back half of the year. We're confident it will be done in the back half of the year between Q3 and Q4.
And we are getting.
The prior question asked we are having new wins on Asics that are making us confident that as we go through shipment deployments.
We'll hit the $20 to 25% that we committed to for the year.
The other piece of that was being terrestrial opportunities off of it.
Yeah look I think we're seeing terrestrial opportunities based on the fact that.
Our lead times for <unk> are quite low because of our vertical integration compared to maybe compared to others right now at.
At the same time those same customers are looking for supply chain diversity I think this whole last two years has taught everybody to try to better equalized the supply chain and as a market taker in.
And our position of somebody that needs to take share that is opening up opportunity for us. So we are starting to see those terrestrial wins I'm not commenting in particular on that particular customers attach rate to the subsea but that does remain.
Opportunistic upside for us and we continue to see our sales pipeline increase which is super important right now because youre seeing very very healthy backlog continue to grow I mean, rps growing in quarter at $133 million.
It makes me feel much better about our growth trajectory going forward much more confident about our year end as well as two.
<unk> 2023.
Thanks.
Thanks, Alex.
Our next question will come from Mike Genovese with Rosenblatt Securities.
Please go ahead.
Great. Thanks, Thanks very much.
Our first question.
It sounds like we are still with the 8% to 12% total revenue guidance for 'twenty three 'twenty four.
And are we still looking at.
300 basis points of gross margin and about 200.
<unk> operating margin or since we're starting with a little bit lower operating margin basis or a reason the operating margins.
Growth say in line with gross margins of.
Next year.
So based on what we see today right and we're still halfway through 2002 and have just come off of a tough supply chain quarter I'll leave it at that but based on that yes, we're still expecting that 8% to 12% growth in 'twenty, three and the margin expansion, albeit off a lower base of 'twenty two than we had originally anticipated.
But our view today is that we'll still exit 'twenty three at our target business model, which has margins in the 45% range and double digit operating income.
Okay. Thanks.
I understand that it was a backend loaded quarter.
Yes.
With receivables and so forth, but as yet is that the reason that you took the revolver.
$40 million more and just talk to me about the cash flow and the balance sheet.
What makes me a little bit more comfortable for the back half of the year and into next year, but the above.
Situations.
No that's great. It's a good question I think look the reason we changed out the ABL is we've got we're in much better financial shape. So we had better terms both in terms of setup fees.
Both in terms of the interest rate as well as the capacity. So this was an increased capacity as well as the ability to expand it over time.
We're looking at a big backlog and growth sitting in front of us and a big pipeline in front of us. So as we exited the quarter. We had the ability for really the first time in multiple quarters to add some inventory and our team has been working really hard in putting those purchase commitments and so we were actually able to add.
To be able to execute for the back half in the beginning of 2023 and at the same time, yet the linearity in the mountains is shipped in the last month of the quarter was significant.
And so we changed out because we're going to get better terms. The fact that we use and ABL for a low cost.
And flexible working capital release.
Is there and given we expect to create cash from operations in Q3, and Q4, we feel adequately positioned in the future and that that was a good thing to help us drive to these growth numbers into our target business model.
Perfect very helpful. Thank you thanks, Brian .
Our next question will come from Simon Leopold with Raymond James.
Please go ahead. Thanks.
Thank you for taking the question I wanted to see if you could talk a little bit about.
Foreign exchange rates are or are not affecting your business.
So it's a little bit of a sequential slowing from premier.
In the region and slower growth in Asia Pacific.
We've had certainly big moves in the dollar to other currencies.
Or are you factoring that into your outlook and how did it affect you in the quarter.
Sure.
Minimal impact.
Less than $5 million on an overall basis, our exposure in Europe .
From contracts that are transacted in the Euro are limited and we have a natural hedge on some expenses in opex. So we did not have a meaningful exposure to FX this quarter.
And in the outlook how are you thinking about the impact that your goods are now more expensive for.
For customers to pay $1 when they budget in euros.
Yes, I mean, we're planning accordingly based on we're watching the trends in the forecast as well, but we don't expect it to be a.
Full impact to the back half of the year, a big portion of that is there still drawn down on backlog. So the reason I mentioned, the we're watching the pipeline carefully is to pick up any nuances like that but so far we haven't seen any any material shift in that demand equation.
Thank you for taking the question.
No good question.
Our next question will come from meta Marshall with Morgan Stanley .
Please go ahead.
Great. Thanks.
A couple of questions for me.
One maybe just on kind of the confidence that you guys have about.
Conditions are improving in the second half.
A little bit of kind of.
Maybe more background on kind of what's giving you or part availability is kind of giving you some of that confidence on that.
It seems as if both of the gross margin ramp into the second half is largely just from kind of a <unk> mix picking up but I just want to make sure that none of that is also from kind of any supply chain overhang improving in the second half.
Yes, Matt I'll, let's talk about that because I don't want to be crystal clear I don't think the supply chain environment is anywhere near over I. Just think when you talk to the supply chain all the way through CMS all the way through the folks that are in the semiconductor field I think everybody saw Q2 is kind of a triple witching between cost transportation.
<unk> cost the China pandemic shut down it was just more material than anybody had expected and therefore, whether you call it a peak or a bottom.
I think a lot of us see that is going to be the top impact that supply chain has to us we are seeing parks free up youre hearing some some banter in the in the world.
Whether its cell phones or consumer electronics or freeing up due to the economy that doesn't have a lot of cross hatch with the products, we build but it does have some shared components in terms of resistors capacitors some of the raw materials.
Overall I just think the planning effect that that we've put in place over the last two years again, you haven't seen us with the ability to pre bring in $18 million of inventory before that should be a telling sign and a good selling sign because we tend to turn the inventory pretty damn quick once we get it in.
Obviously it has to be a matched set so we are seeing that lighten up that matter to that point 350 basis points of gross margin was the impact in Q2, it'll be about 300 basis points in Q3.
Be a little bit lighter than that in Q4, but thats still a pretty big margin impact to put it in perspective roughly in 'twenty one we.
Had our results improve yet we absorbed $25 million roughly of supply chain extra supply chain costs. This year that number will be closer to 50, yes, we will improve on every financial metric next year I expect that to attenuate back down not.
Not all the way to zero, but as we said, 30% to 40% down in 'twenty four I expect it to be zero, I think thats prudent planning right now.
Okay perfect. Thanks for all the context.
And as a reminder, that is star one if you would like to ask your question and our next question will come from.
Jim Suva with Citigroup.
Please go ahead.
Thank you your comments around the back end loaded quarter I get it but I'm just kind of curious with such a big backlog and arguably more visibility than kind of ever.
Was it so backend loaded or was that just you didn't get the parts into the warehouses or the shipment.
So that's why it was so so.
<unk>, we shut down for half the quarter CMS, we're having a hard time getting digestion in and so our production lines were smoking around the clock.
Both at our CMS, and then our own internals to be able to get things.
<unk> stacked and finish to get out to the customer and a lot of that shift deployed and had to turn on in the last period. Unlike we've seen before so that's why it's abnormal linearity.
And then in the quarter outlook for the revenue growth is it then back to normal cadence of linearity or actually better since the spigot was so tight given the lockdowns in the June quarter that just kind of started to release towards the end.
Hey, Jim nothing is normal in this period, but it's beginning to normalize I would tell you and so.
So we don't expect that kind of dramatic linearity, we do expect it to normalize and thus the working capital balance to rebalance between Q3 and Q4 based on payment terms collection cycles.
Just math.
But I would also add to that that if we have the opportunity to bring in inventory and we're doing it so.
The faster, we can get it in and turn to the better for us in the back half.
Great. Thanks, so much for the details and clarifications.
Thanks, Jim.
Our next question will come from George Notter with Jefferies.
Please go ahead.
Hi, guys. Thanks, very much I guess.
I know there was some talk at one point about pricing increases was that something that you guys.
Did in Q2 and.
Is there a possibility of raising price going forward as well.
Yeah, I think I've mentioned this on probably three or four earnings calls.
Obviously, we work with our customers on their commercial terms as.
As well as cost reductions in parts of institutions, but I don't make public our competitive price actions.
Got it.
Is it.
So can we say is it fair to say that the RPE OS or backlog were not affected by any type of price increase is that.
I guess I just want to know that improving its fair to say eight where organic yet it's fair to say a portion of that might not be impacted by that but all of it's impacted by our ability to continue to drive the cost reductions in parts substitutions, we're going through.
Okay.
Okay got it and then Nancy could you just remind me the share count.
I missed the fully diluted number.
Yes, $2 89 for Q3, because that includes the convertible with the new accounting standard.
Got you okay.
Okay, great. Thank you guys very much.
Thanks George.
And we do have a follow up from Alex Henderson with Needham.
Please go ahead.
Great I was hoping you could just clarify the commentary around.
The absorption on the supply chain, obviously $50 million. This year is a pretty good lift in <unk>.
<unk> of that.
Two years have been large number but they're using $50 million are you, saying, we said post 70 525 from last year and the <unk> 50, this year and how would the.
Parts price inflation.
Part of standard cost accounting going forward.
The parts prices increase by the Oems.
Further against that.
Yes, it's a good question, Alex we keep pretty.
At like forward orders that we track we track everything that we view as extraordinary so we can drive it the heck out of our business as soon as possible. So that the 25 from 21 was <unk> 25 of extraordinary cost not planned at the beginning of the year as part of our standard basis.
The $50 million was $50 million of extraordinary costs beyond our standard cost basis and that is typically captured in PPV extra transportation costs that you can track in O Cogs, a great portion of it so.
When you put that altogether, Alex when we go into next year, we expect those.
Those costs to go down again by 30% to 40% I think that's a good conservative assumption, we're making and.
We always track what is going to be reoccurring cost a part a b and C. That's in our standard cost basis and Thats in our standard margin.
Does that makes sense right.
Doug just wanted to be clear, 30% to 40% is on the $75 million, but no 30%, 40% is off into the 50% off of the.
<unk> 50. This year is at peak, yes. So it went from 25% in 'twenty one of extra above standard cost 50 extra above standard cost in 2022.
25.
Correct and net increase year over year at 25, and where we didn't expect it to net increase and next year. We expect a net decrease after the 50 conservatively 30% to 40%.
Okay. So the.
The fundamental element of that question, which was underpinning it was.
I assume that.
Yes, you had a whole bunch of oil.
Creases in costs, but.
That are not abnormal by the standard accounting.
But on the other side of the coin that the price increases with components.
Be hearing from your suppliers that they plan to increase their standard pricing and therefore, you've got two.
Add that back into your cost structure going forward, which would then be an offset to the benefits that you are talking about because.
Obviously, you can bucket, but it but it does go against it and its similar.
Costs that you're absorbing now for expediting parts at the higher prices that will turn into a price increase in future periods as standard pricing.
So that's why we tried to put it where we did Alex.
We have a price increase of a product, but it goes into our standard cost and Thats normal course of business I mean don't get me wrong. So people took advantage of this period of time.
It always will remember that.
But our job is to offset that with normal cost reduction in the Moore's law of optics. So.
Those things that we all track at normal standard costs. So if a chip goes up 10% when we do that and then we'd go try to negotiate that just like we negotiate with our suppliers to get costs down on an annual basis and through volume.
So those $25 50, and then the.
Whatever its going to be next year, meaning the 30% to 40% below those are extraordinary on top of standard cost.
Okay.
At this point I'll take it okay.
Okay.
No.
And again that is star one if you would like to ask a question.
Yeah.
And with no further questions I'll turn the call back over to David Harris for closing remarks.
No I do appreciate the questions and the engagement overall I look at a tough macroeconomic backdrop, but growing.
Our current view of the year as we will grow product revenue eight 8% to 12% and that will be doubled what we did last year and a tough supply chain environment. We are on track for the promises that we made to our shareholders.
Our employees and our customers to have six scaling to 20% to 25% of revenue Metro wins are ahead of schedule. The <unk> have gone from Powerpoint to products to qualification and are building a pipeline to open up a new $1 billion opportunity, we have new 400 gig plausible samples out there today.
We will be talking further about our 100 gig and 800 gig coherent <unk>.
We have solid wins across the board with ICP and Csp's, we've built that strong backlog up to $1 billion with RP O that Nancy talked about.
Margins will be up for the year. Despite us absorbing these huge 350 basis points of supply chain. They would've been up further if you've taken the operating leverage effect of the attenuated revenue.
So overall, we feel good about our business going forward. We've got opportunities that are further enhanced by both competitive displacements of Huawei as well as an opportunity where our customers are really saying we've got to balance the scale here in terms of supply chain and bring on new vendors and in <unk>.
<unk> architecture environment that puts us in great shape, we really do appreciate.
<unk> been really good developments of partnership with our customers for planning I think it'll be something that will change. This all forever. Our supplier partnerships that we've had the patience of our shareholders and certainly the dedication of our employees. So thank you very much.
And Thats all we got have a great day.
Thank you everyone. Thanks operator.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
Okay.
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