Q1 2024 Infinera Corp Earnings Call

Corporation first quarter earnings conference call.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press Star one. Thank you I will now turn the conference over.

Speaker Change: To amortize the passey head of Investor Relations you May begin your conference.

Speaker Change: Thank you operator, and good afternoon welcome to the call we will discuss the preliminary financial results for Infinera as the first quarter of fiscal 2024.

Speaker Change: A copy of the press release issued by Infinera today is available on the Investor Relations section of the website.

This call is being recorded and will be available for replay from our website.

Today's call will include a financial commentary and metrics based on our preliminary first quarter of fiscal 2024 results.

Yesterday, we announced that we currently expect to file our quarterly report on Form 10-Q for the first fiscal quarter of fiscal 2024 on or before May 21 2024.

Speaker Change: As a result.

With stunning anything to the contrary said during the call all financial results discussed today are preliminary and are subject to change and are based on management's current expectations as of the date of this conference call.

Speaker Change: Final results will be included in the Form 10-Q.

Speaker Change: In addition, today's call will include projections and estimates that constitute forward looking statements, including but not limited to statements related to the matters referenced in the press release and current report on form 8-K that the company issued today and our financial outlook for the second quarter of 2024.

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

Speaker Change: Actual results may differ materially as a result of various risk factors, including those set forth in <unk> annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 27, 2023, and amended February 29, 2024, and its quarterly report on Form 10-Q for the quarter ended.

Speaker Change: At September 32023 filed with the SEC on February 29, 2024, as well as subsequent reports filed with or furnished to the SEC from time to time.

Speaker Change: 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.

Speaker Change: Today's conference call includes references to non-GAAP financial measures, except for revenue balance sheet items and cash flow from operations, which are discussed on a GAAP basis.

Speaker Change: Turning to regulation G. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in our preliminary earnings release, which is available on the Investor Relations section of our website.

Speaker Change: And finally as a reminder will allow for plenty of time for Q&A today, but we ask that you limit yourselves to one question and one follow up please.

Speaker Change: I will turn the call over to our Chief Executive Officer, David heard David.

Speaker Change: Thanks, Bob and Tom Good afternoon, and thanks for joining us today I'll begin with the highlights for the first quarter results and then turn the call over to Nancy to cover the financial details of the first quarter and the outlook for the second quarter.

The first quarter was much like a tale of two cities for us on one hand, looking for strong and on plan and up year over year strategic deal momentum with unprecedented as we won new network decisions potentially representing over $1 billion in cumulative multiyear value across some very strategic account for us.

Speaker Change: Margin and EPS were within our outlook range. Despite the large contribution from lower margin lines of fees, which are crucial for laying the groundwork for future high margin Bill.

Speaker Change: Cash flow generation was healthy with free cash flow of $16 million in the quarter continuing the positive trend from the fourth quarter of 2023, where we generated $58 million in free cash flow. We ended Q1 with $192 million in cash and cash equivalents with no amounts drawn against our 200 million plus.

Speaker Change: And we released our Q4 2023 and full year 2023 financial results have you've hopefully seen by now overall, our Q4 results came in towards the upper end of our prior outlook range for the full year of 2023, we delivered our sixth consecutive year of revenue growth gross margin of approximately.

Speaker Change: 40% and earnings per share growth of 92% compared to 2022 with respect to our quarterly close process, we plan to get back on normal cadence. After we file our first quarter Form 10-Q, which is expected to occur in the next week.

Speaker Change: Despite this progress however, our quarterly revenue came in 4% below the low end of our outlook range and declined 22% on a year over year basis.

Impaired to revenue declines already reported in the industry up 30% to 50% in Q1 by many of our optical peers. Our revenue shortfall in the quarter was due to a slower release of book ship orders to the tune of approximately $25 million. In addition to the pushout of shipments from the first half.

Speaker Change: <unk> of the year to the second half of the year.

Speaker Change: We believe these market dynamics will continue through the second quarter before business conditions start to normalize in the back half of the year, enabling us to get back to year over year growth in the second half.

Speaker Change: The positive news I mentioned earlier is that we continued to win groundbreaking awards in the quarter with some notable customer logos that are expected to have a significant impact on the future trajectory of the company or.

Speaker Change: Our open optical roadmap aligns well with our customers need for open and agile architectures that deliver the lowest cost per bit the lowest power per bit while improving operational efficiencies. Our recent wins reinforce our ability to help customers keep pace with the accelerating traffic demand support the build out of <unk>.

Speaker Change: Fiber networks and efficiently manage evolving datacenter capacity needs, especially with new applications like artificial intelligence.

Speaker Change: As a result, we remained laser focused on our priorities, which are to grow and take market share and the $11 billion plus systems market ramp our business and the growing $5 billion market for coherent plausible and leverage our vertical integration capabilities to break into the high volume $2 billion in.

Speaker Change: Data Center segment, driven from the optical payloads of AI.

Speaker Change: The addition of plausible and inter data center products onto our systems portfolio allows the maximum leverage of our U S based fab as we drive significantly higher volumes through it in.

In fact annual pick volumes associated with embedded solutions that are sold as part of our optical systems business tend to be in the tens of thousands of units.

Speaker Change: Plausible volumes are expected to scale to hundreds of thousands of units and we expect intra datacenter volumes to scale into millions of units annually. We believe this dramatic increase in unit volume will drive a tremendous cost advantage across our portfolio in the future a critical factor in the realization of our long term business model.

Speaker Change: Our U S based fab and advanced semiconductor packaging Center also provides the added benefit of enhanced supply chain security and resiliency, which is increasingly important to our customers in the U S and abroad. Let me dive further into the specifics of the recent strategic wins in.

Speaker Change: And the progress to date in Q2, beginning first with the systems business.

Speaker Change: First we continued the momentum with hyper scaler, and our <unk> portfolio, including our next generation open line systems. During the quarter. We won a U G. Seven based subsidy deal with a major hyperscale or potentially worth $100 million to $200 million over three years, and we secured a major design win.

We close process, we plan to get back on normal cadence. After we file our first quarter Form 10-Q, which is expected to occur in the next week.

Despite this progress however, our quarterly revenue came in 4% below the low end of our outlook range and declined 22% on a year over year basis compared to revenue declines already reported in the industry up 30% to 50% in Q1 by many of our optical peers our revenue.

Speaker Change: With our Gx open line system potentially worth $2 million to $300 million over three years.

Speaker Change: In addition, we on boarded another hyper scaler with our <unk> solution and secure <unk> Metro and open line system win with a tier two content provider.

The shortfall in the quarter was due to a slower release of book ship orders to the tune of approximately $25 million. In addition to the pushout of shipments from the first half of the year to the second half of the year. We believe that these market dynamics will continue through the second quarter before business conditions start to normalize.

Speaker Change: Second influenced by the traffic demands of Hyperscale, we continue winning managed optical fiber networks or <unk> deal in India, The Middle East Africa, and Asia with at least three new customers in Q1 supporting multiple hyperscale are these.

Speaker Change: These land and expand opportunities start out small, but with the expected growth in these regions, we expect them to become a more significant portion of our revenue in the future.

The back half of the year, enabling us to get back to year over year growth in the second half.

The positive news I mentioned earlier is that we continued to win groundbreaking awards in the quarter with some notable customer logos that are expected to have a significant impact on the future trajectory of the company.

Speaker Change: As a reminder for the full year of 2023, we estimate that our direct and indirect exposure to hyper scaler approached 50% of our product revenue.

Speaker Change: And third we secured major wins with our Gx systems portfolio with an international wholesale provider in Europe, and a major service provider in the U S. We continue to see bandwidth and connectivity needs increasing across our target markets, including increased marketing a 400 gig capacity services by carrier.

Our open optical roadmap aligns well with our customers need for open and agile architectures that deliver the lowest cost per bit the lowest power per bit while improving operational efficiencies. Our recent wins reinforce our ability to help customers keep pace with the accelerating traffic demand support the build out of <unk>.

Speaker Change: Yeah.

<unk> fiber networks and efficiently manage evolving data center capacity needs, especially with new applications like artificial intelligence.

Speaker Change: We also anticipate initial orders from a design win at a major U S service provider customer this quarter as they continued to upgrade their metro networks, while pushing to capture higher bandwidth service revenues.

Speaker Change: As a result, we remained laser focused on our priorities, which are to grow and take market share in the $11 billion plus systems market ramp our business and the growing $5 billion market for coherent plug of bowls and leverage our vertical integration capabilities to break into the high volume $2 billion.

Speaker Change: These orders will begin shipping in the second half of the year into 2025.

Speaker Change: Shifting to our <unk> solution as you are aware by now we landed a sizeable 800 gig ZR and ZR plus win with a major hyperscale or in Q1.

Speaker Change: Data Center segment, driven from the optical payloads of AI.

Speaker Change: We are under strict NDA, we are limited to what we can say about the specifics of this contract look we estimate this opportunity could generate between $300 million to $700 million in revenue for us over three years beginning in the second half of 2025.

Speaker Change: The addition of plausible and intra datacenter products onto our systems portfolio allows the maximum leverage of our U S based fab as we drive significantly higher volumes through it in.

Speaker Change: In fact annual pick volumes associated with embedded solutions that are sold as part of our optical systems business tend to be in the tens of thousands of units.

I am also excited to announce that we received our first orders for our 400 gig plausible from a major U S cable msos this quarter, while these initial orders or of our relatively small size. We are excited about the potential ramp with this customer to a $300 million to $400 million opportunity over three years.

Plausible volumes are expected to scale to hundreds of thousands of units and we expect intra datacenter volumes to scale into millions of units annually. We believe this dramatic increase in unit volume will drive a tremendous cost advantage across our portfolio in the future a critical factor in the realization of our long term business model.

Speaker Change: We address important use cases, and the customers network across both the consumer and enterprise service offerings.

Speaker Change: Finally, turning to the latest edition of our portfolio, we launched our IC intra data Center solutions ahead of the OFC show in March These solutions, which leverage our core competency in indium phosphide picks and our U S based optical semiconductor fab in California have the potential to reduce power per bit by as much as 70.

Speaker Change: Our U S based fab and advanced semiconductor packaging Center also provides the added benefit of enhanced supply chain security and resiliency, which is increasingly important to our customers in the U S and abroad. Let me dive further into the specifics of the recent strategic wins in.

Speaker Change: 5% for AI centric applications. The elegance of our offering is that it is agnostic to data center architectures and will serve linear bookable optic re timed and half times optics. We have test chips available now are deeply engaged with ecosystem partners and are working towards landing our leading customer in.

And the progress to date in Q2, beginning first with the systems business.

Speaker Change: First we continued the momentum with hyper scaler, and our <unk> portfolio, including our next generation open line systems. During the quarter. We won a U G. Seven based subsidy deal with a major hyperscale or potentially worth $100 million to $200 million over three years, and we secured a major design win.

Second half of the year that could drive significant volume through our fat.

Speaker Change: Win with our Gx open line system potentially worth two to 300 million over three years.

Speaker Change: As you can see the momentum we have on our business sets us up well for 2025 and beyond.

Speaker Change: Evidenced by far OFC show, we are winning business mind share can trust from our customers suppliers and partners. We also believe we remain well positioned for the chip that funding in fact I'm, taking this call today from Washington D C. As.

Speaker Change: In addition, we on boarded another hyper scaler with our <unk> solution and secure <unk>.

Speaker Change: Metro and open line system win with a tier two content provider.

Speaker Change: Second influenced by the traffic demands of Hyperscale, we continue winning managed optical fiber networks or <unk> deal in India, The Middle East Africa, and Asia with at least three new customers in Q1 supporting multiple hyperscale are these.

Speaker Change: As most of the chips that rewards for larger companies had been announced we expect smaller companies to begin receiving awards in the third and fourth quarter of this year.

Speaker Change: While the long term prospects are encouraging the short term macro and industry dynamics are more challenging than our expectations coming into the year. We continue to expect a slow first half with trends improving in the back half as we focus on getting to delivering year over year growth in the second half as a result for the full year, we now expect.

Speaker Change: These land and expand opportunities start out small, but with the expected growth in these regions, we expect them to become a more significant portion of our revenue in the future.

Speaker Change: As a reminder for the full year of 2023, we estimate that our direct and indirect exposure to hyper scaler approached 50% of our product revenue.

Speaker Change: Our revenues to be down 1% to 5% compared to 2023, Nancy will walk through the details shortly.

Speaker Change: And third we secured major wins with our Gx systems portfolio with an international wholesale provider in Europe, and a major service provider in the U S. We continue to see bandwidth and connectivity needs increasing across our target markets, including increased marketing a 400 gig capacity services by carrier.

Speaker Change: As for the overall optical systems market I expect the market to be significantly down in the first half and up in the second half of the year, resulting in an overall decline of 7% to 8% for the year, but as we head into 2025 I expect the overall market to normalize and start the next cycle of optical growth driven.

Speaker Change: Yeah.

Speaker Change: We also anticipate initial orders from a design win at a major U S service provider customer this quarter as they continued to upgrade their metro networks, while pushing to capture higher bandwidth service revenues.

Speaker Change: By fiber to the curb massive datacenter build outs AI and global growth in bandwidth demand.

Speaker Change: Against this backdrop, we will focus on taking our fair share of design wins and new deals.

Speaker Change: These orders will begin shipping in the second half of the year into 2025.

Speaker Change: Several of which ramp in the second half of the year and into 2025.

Speaker Change: Shifting to our <unk> solution as you are aware by now we landed a sizeable 800 gig ZR and ZR plus win with a major hyperscale or in Q1.

Speaker Change: Deploy what is expected to be a record number of next generation line systems across new routes, which will drive future higher margin transponder sales.

Speaker Change: Our investment in R&D for systems, and portable while increasing investments on.

Speaker Change: We are under strict NDA, we are limited to what we can say about the specifics of this contract look we estimate this opportunity could generate between $300 million to $700 million in revenue for us over three years beginning in the second half of 2025.

On ice tea.

Speaker Change: Drive down discretionary spending to keep overall opex flat to down 3% for the year.

Speaker Change: Given the size and scale of our recent wins the competitiveness of our portfolio and the strength of our long term secular drivers underpinning our business. We believe we can return to our target growth rate, 8% to 12% in 2025.

Speaker Change: I am also excited to announce that we received our first orders for our 400 gig plausible from a major U S cable msos this quarter. While these initial orders of our relatively small size. We are excited about the potential ramp at this customer to a $300 million to $400 million opportunity over three years.

Speaker Change: Pending on where we ended up for 2024. This should result in our earnings per share getting back in the range of 40 to 50 next year as I close today I would like to reiterate our recent strategic RFP wins in contract along with the size and scale of our opportunity funnel gives me confidence.

Speaker Change: We address important use cases, and the customers network across both the consumer and enterprise service offerings.

Speaker Change: Finally, turning to the latest edition of our portfolio, we launched our ICT intra data Center solutions ahead of the OFC show in March These solutions, which leverage our core competency in indium phosphide picks and our U S based optical semiconductor fab in California have the potential to reduce power per bit by as much as 70.

Speaker Change: And our ultimate recovery of the business as we head into 2025 and beyond the near term environment is difficult, but I see no change in the long term drivers of the business and the increasing importance of scale and vertical integration in the industry I would like to thank the infinera team for their unwavering commitment to innovation that matters.

Speaker Change: 5% for AI centric applications. The elegance of our offering is that it is agnostic to data center architectures and will serve linear bugaboo optic re timed and half times optics. We have test chips available now are deeply engaged with ecosystem partners and are working towards landing our leading customer in.

Speaker Change: Execution, our customers into one another I would also like to thank our partners customers and shareholders for their continued support.

Nancy: I Couldnt feel better about our strategic position and I believe we remain well positioned for the long term I will now hand, the call over to Nancy to cover the financial details of the quarter and our outlook.

Speaker Change: Second half of the year that could drive significant volume through our fat.

Nancy: Thanks, David and good afternoon, everyone I will begin by covering our first quarter results and then provide the outlook for the second quarter.

Speaker Change: As you can see the momentum we have on our business sets us up well for 2025 and beyond.

Nancy: Heard from David.

Speaker Change: Evidenced by bar OFC show, we are winning business mind share and trust from our customers suppliers and partners. We also believe we remain well positioned for the chip that funding in fact I'm, taking this call today from Washington D C. As.

Nancy: In the first quarter were a bit of a paradox right.

Nancy: On the one hand bookings are in line with our expectation.

Nancy: Design win momentum with unprecedented and the strongest the company has ever seen on the other hand quarterly revenue of $307 million came in 4% below our outlook range and was down 22% on a year over year basis compared to the 30% to 50% decline reported by many of our peers.

Washington D.C.: As most of the chips that rewards for larger companies have been announced we expect smaller companies to begin receiving awards in the third and fourth quarter of this year.

Speaker Change: While the long term prospects are encouraging the short term macro and industry dynamics are more challenging than our expectations coming into the year. We continue to expect a slow first half with trends improving in the back half as we focus on getting to delivering year over year growth in the second half.

Nancy: As evidenced in these industry trends, it's been a tough start to the year and the industry.

Our Q1 revenue decline was primarily attributable to lower volumes in the U S across both our major service provider and ICP customers is it the.

Speaker Change: As a result for the full year, we now expect our revenues to be down 1% to 5% compared to 2023, Nancy will walk through the details shortly.

Speaker Change: Slower release of book ship orders and project push outs and an overall cautious spending posture from our customers.

Speaker Change: Geographically, we derived approximately 54% of our Q1 revenue from domestic customers, a lower percentage than the trend of the past few quarters.

Speaker Change: As for the overall optical systems market I expect the market to be significantly down in the first half and up in the second half of the year, resulting in an overall decline of 7% to 8% for the year, but as we head into 2025 I expect the overall market to normalize and start the next cycle of optical growth driven.

Speaker Change: Q1 gross margin of 36, 6% was just below the midpoint of our outlook range and decreased 220 basis points year over year.

Speaker Change: Prior to the prior year the primary driver of the lower gross margin in the quarter with the higher contribution of line system to product mix and secondarily the impact of fixed cost under absorption from lower revenue and volume.

Speaker Change: By fiber to the curb man.

Speaker Change: Datacenter build outs AI and global growth in bandwidth demand.

Speaker Change: Against this backdrop, we will focus on taking our fair share of design wins and new deals.

Speaker Change: While overall company revenue declined in Q1 line system revenue was up approximately 20% compared to the year ago quarter.

Speaker Change: Several of which ramp in the second half of the year and into 2025.

Speaker Change: Deploy what is expected to be a record number of next generation line systems across new routes, which will drive future higher margin transponder sales.

Speaker Change: Setting us up well for kidney care transponder deployment.

Speaker Change: Operating loss in the quarter with $25 $9 million with an operating margin of negative eight 4%.

Speaker Change: Our investment in R&D for systems, and portable while increasing investments on.

Speaker Change: On ice tea.

Speaker Change: It's at the lower end of our outlook range and impacted by lower revenue lower gross margin and product mix.

Speaker Change: Drive down discretionary spending to keep overall opex flat to down 3% for the year.

Speaker Change: Operating expenses of $138 million in Q1 were flat year over year and below our outlook range of $143 million to $147 million due to continued constant discipline, while we managed our investments for growth.

Speaker Change: Given the size and scale of our recent wins the competitiveness of our portfolio and the strength of our long term secular drivers underpinning our business. We believe we can return to our target growth rate of 8% to 12% in 2025.

Speaker Change: Pending on where we ended up for 2024. This should result in our earnings per share getting back in the range of 40 to 50 next year as I close today I would like to reiterate our recent strategic RFP wins in contract along with the size and scale of our opportunity funnel gives me confidence.

Speaker Change: Our resulting diluted EPS was a loss of 17.

Speaker Change: Compared to earning two in.

Speaker Change: In the year ago quarter.

Speaker Change: Moving on to the balance sheet and cash flow items, we ended the quarter with $192 million in cash and cash equivalents with no amounts drawn on our $200 million plus the ABL.

Speaker Change: And our ultimate recovery of the business as we head into 2025 and beyond the near term environment is difficult, but I see no change in the long term drivers of the business and the increasing importance of scale and vertical integration in the industry I would like to thank the infinera team for their unwavering commitment to innovation that matters.

Speaker Change: From a cash flow perspective, we generated $24 million in cash flow from operations and $16 million and free cash flow continuing the positive trend from Q4, when we generated $58 million and free cash flow.

Speaker Change: Let me now turn to the outlook for the second quarter of 2024, and our expectations for the rest of the year as they.

Speaker Change: Execution, our customers into one another I would also like to thank our partners customers and shareholders for their continued support.

Speaker Change: I've heard this afternoon, the near term operating environment remains very challenging across the industry as our customers continue to work down excess inventory and push out some projects.

Nancy: I Couldnt feel better about our strategic position and I believe we remain well positioned for the long term I will now hand, the call over to Nancy to cover the financial details of the quarter and our outlook.

Speaker Change: We expect business dynamics, we experienced in Q1 to persist into Q2 and as a result, our contemplated outlets in the second quarter is revenue of $330 million cluster of minus $20 million, implying a year over year revenue decline of approximately 10% to 15%.

Nancy Erba: Thanks, David and good afternoon, everyone I will begin by covering our first quarter results and then provide the outlook for the second quarter.

Speaker Change: Heard some David it's just trends in the first quarter were a bit of a paradox right.

Nancy: On the one hand bookings were in line with our expectation.

Nancy: Design win momentum with unprecedented and the strongest the company has ever seen on the other hand quarterly revenue of $307 million came in 4% below our outlook range and was down 22% on a year over year basis compared to the 30% to 50% decline reported by many of our peers.

Speaker Change: Gross margin of 39, 5% plus or minus 150 basis points approximately flat on a year over year basis.

Speaker Change: The midpoint of the range.

Speaker Change: Operating expenses of $138 million to $141 million modestly up on a year over year basis.

An operating loss of three 5% plus or minus 300 basis point down on a year over year basis, primarily due to lower revenue.

Nancy: As evidenced in these industry trends, it's been a tough start to the year and the industry are.

Nancy: Q1 revenue decline was primarily attributable to lower volumes in the U S across both our major service provider and ICP customers is it the slower release of book ship orders and project push outs and an overall cautious spending posture from our customers.

Speaker Change: Below the operating income line, we assume $8 million for net interest expense and $4 million for taxes.

Finally, we are anticipating a loss of nine.

Speaker Change: That's a minus <unk> <unk> per share assuming a basic share count of approximately 235 million shares and a fully diluted share count is profitable out of approximately 264 million shares.

Nancy: Geographically, we derived approximately 54% of our Q1 revenue from domestic customers, a lower percentage than the trend of the past few quarters.

Speaker Change: We expect to utilize cash from operations in Q2, primarily for working capital and returns and generating cash from operations over the second half of the year.

Nancy: Q1 gross margin of 36, 6% was just below the midpoint of our outlook range and decreased 220 basis points year over year.

Speaker Change: I expect the first quarter to Mark the low point tracked in the year with a gradual improvement in our financials in Q2, and a more meaningful step up in the back half with revenue growth of about 8% to 10% compared to the second half of 2023.

Nancy: Compared to the prior year the primary driver of the lower gross margin in the quarter with the higher contribution of line system to product mix and secondarily the impact of fixed cost under absorption from lower revenue and volume.

Speaker Change: For the full year, we now expect revenue to be down between one and 5% compared to 2023.

Nancy: Overall company revenue declined in Q1 line system revenue was up approximately 20% compared to the year ago quarter.

While it is early to be talking about 2025, our longer term planning framework assumes that industry dynamics normalize in 2025 and that we'd get back to our objective of 8% to 12% revenue growth depending on where we end 2020 for this growth rate in 2025 would serve as the foundation to get.

Speaker Change: Setting us up well, Stephanie Carrington part of their deployment.

Speaker Change: Operating loss in the quarter with $25 $9 million with an operating margin of negative eight 4%, which was at the lower end of our outlook range and impacted by lower revenue lower gross margin and product mix.

Speaker Change: Just back to the 40 to 50.

Speaker Change: P. S range next year, which obviously implies roughly a year shipped out and the realization of our dollar per share EPS objective.

Speaker Change: Operating expenses of $138 million in Q1 was flat year over year and below our outlook range of $143 million to $147 million due to continued cost discipline, while we managed our investments for growth.

Despite these near term consideration, our refreshed portfolio customer momentum design win contract sign RFP activity and the size and quality of our opportunity funnel gives me a lot more confidence in the long term trajectory of the business.

Speaker Change: Our resulting diluted EPS was a loss of 17.

Speaker Change: Hard to earning two in the year ago quarter.

Speaker Change: Moving onto the balance sheet and cash flow items, we ended the quarter with $192 million in cash and cash equivalents with no amounts drawn on our $200 million plus the ABL.

Speaker Change: I'd like to thank the Infinera team as well for their continued commitment to innovation and execution excellence and our partners customers and shareholders.

Speaker Change: And your cooperation and support.

Speaker Change: From a cash flow perspective, we generated $24 million in cash flow from operations and $16 million and free cash flow continuing the positive trend from Q4, when we generated $58 million and free cash flow.

Speaker Change: Operator, I'd now like to open the line for questions.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: We will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question simply press star one again.

Speaker Change: Let me now turn to the outlook for the second quarter of 2024, and our expectations for the rest of the year.

Speaker Change: As a general reminder.

Speaker Change: As you have heard this afternoon, the near term operating environment remains very challenging across the industry as our customers continue to work down excess inventory and push out some projects.

One question and one follow up your first question comes from the line of Samekh Chatterji with J P. Morgan. Please go ahead.

Samekh Chatterji: Hi, Thanks for taking my question, so maybe for the first one.

Speaker Change: We expect business dynamics.

Speaker Change: In Q1 to persist into Q2 and as a result, our contemplated outlooks for the second quarter is revenue of $330 million, plus or minus $20 million, implying a year over year revenue decline of approximately 10% to 15%.

Samekh Chatterji: You talked about the strong design activity.

Samekh Chatterji: That you had in <unk>, but in terms of those translating into orders can you give us a bit more sense about what.

Samekh Chatterji: What are you seeing in terms of order trends in the quarter related to <unk>.

Samekh Chatterji: Got it goes a telco service providers versus.

Speaker Change: Gross margin of 39, 5% plus or minus 150 basis points approximately flat on a year over year basis.

Samekh Chatterji: Customers can you give us a bit more sense I think you and I have a follow yes, it's okay.

Samekh Chatterji: Mentioned in past earnings calls the ICP is tend to shop in our bulk.

Midpoint of the range.

Samekh Chatterji: Bulk quantities, we had about $25 million of book ship orders that normally would come the overall booking profile was about to what we expected in terms of.

Speaker Change: Operating expenses of $138 million to $141 million modestly up on a year over year basis.

Speaker Change: An operating loss of three 5% plus or minus 300 basis point down on a year over year basis, primarily due to lower revenue.

Dollar value and was it indeed above one.

Samekh Chatterji: Which isn't bragging given the revenue base, but.

Speaker Change: Below the operating income line, we assume $8 million for net interest expense and $4 million for cockpit.

Samekh Chatterji: There was about 25 million mostly ICP.

Samekh Chatterji: That that pushed out into the back half of the year as well as we had some implementation of projects at some csp's that also pushed into the back half of the year. We think this will continue into Q2, but based on the design wins and orders were pulling in we expect that pattern to reverse a bit in the back half.

Speaker Change: Finally, we are anticipating a loss of <unk>.

Speaker Change: That's a minus four cents per share assuming a basic share count of approximately 235 million shares and our fully diluted share count as profitable of approximately 264 million shares.

Speaker Change: We expect to utilize cash from operations in Q2, primarily for working capital and returns and generating cash from operations for the second half of the year.

And it's given us more credibility and confidence in our plan for 2025.

Samekh Chatterji: Did that answer your question.

Speaker Change: I expect the first quarter to Mark the low point tracked in the year with a gradual improvement in our financials in Q2, and a more meaningful step up in the back half with revenue growth of about 8% to 10% compared to the second half of 2023.

Speaker Change: Yes, and maybe if I can move to gross margins.

Speaker Change: I'm curious I mean do you still have.

Speaker Change: A strong gross margin expansion here from one Q to Q and are we still sort of think if you can just walk us through that and are we still thinking sort of mid forty's existing but maybe if you can clarify that thank you.

Speaker Change: For the full year, we now expect revenue to be down between one and 5% compared to 2023.

Speaker Change: Yeah, So gross margin.

Speaker Change: While it is early to be talking about 2025, our longer term planning framework assumes that industry dynamics normalize in 2025 and that we'd get back to our objective of 8% to 12% revenue growth depending on where we end 2020 for this growth rate in 2025 would serve as the foundation to get.

Speaker Change: Certainly in Q1 was impacted by the number of line systems that we've deployed.

Speaker Change: We talked a little bit about this on our last call, but you can think about that is.

Speaker Change: Almost 200 basis point impact in gross margin from line systems, and then about another 100 million from just the lower volume in terms of absorption of fixed cost as far as exiting the year.

Speaker Change: Just back to the 40 to 50.

Speaker Change: P. S range next year, which obviously implies roughly a year shipped out and the realization of our dollar per share EPS objective.

Speaker Change: Down 1% to 5% I would expect that margins are likely going to be.

Speaker Change: Despite these near term consideration a refreshed portfolio customer momentum design wins contract signed RFP activity and the size and quality of our opportunity funnel gives me a lot more confidence in the long term trajectory of the business.

Speaker Change: Still flat to slightly up with fiscal year 'twenty, three and then it'll take us a little bit of time to get back into that mid Forty's, which it's still our target business model.

Speaker Change: Okay. Thank you thanks for taking my questions.

Speaker Change: I'd like to thank the Infinera team as well for their continued commitment to innovation and execution excellence and our partners customers and shareholders.

Speaker Change: Your next question comes from the line of Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Great. Thanks for taking the question here.

Speaker Change: And your cooperation and support.

It sounds to me just looking at the full year guidance that you expect your September December results to be very similar to what you had talked about in March and and previously and I just wanted to sort of see what are the key drivers given the softness you saw this.

Speaker Change: Operator, I'd now like to open the lines for questions.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: We will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question simply press star one again.

Simon Leopold: <unk> and in your guide what sort of informing your confidence and this is my arithmetic correct in thinking that you're really expecting the theme second half of the year that you anticipated before.

Speaker Change: As a general reminder.

Speaker Change: One question and one follow up.

Speaker Change: Your first question comes from the line of Samekh chatter G with J P. Morgan. Please go ahead.

Speaker Change: Hi, Thanks for taking my question, so maybe for the first one.

Amit: Amit hub.

Simon Leopold: Yes, Simon I think Youre right. The second half is contemplated to be very similar to the first half.

Speaker Change: You talked about the strong design activity.

Speaker Change: That you had in <unk>, but in terms of those translating into autos can you give us a bit more sense about what.

Speaker Change: Sorry to our prior expectations and I think David will cover this in more detail, but we did talk about projects being pushed out from the first half to the second half David talked about the slow release of book ship in the order of $25 million. We also mentioned that in last quarters call. So part of I think what youre seeing in the back half is an expectation that these projects that have been pushed out due to the timing comes.

Speaker Change: What are you seeing in terms of order trends in the quarter related to that.

Speaker Change: Got it goes a telco service providers versus.

Speaker Change: Customers can you give us a bit more sense I think you and I have a follow yes. That's okay. As we've mentioned in past earnings calls the ICP is tend to shop in our bulk book.

David: To fruition, but David Please go ahead of that.

Speaker Change: Bulk quantities, we had about $25 million of book ship orders that normally would come the overall booking profile was about to what we expected in terms of.

David: Yeah, I think Simon what we are doing is just given the slower book ship, which is in our industry. The hardest thing to predict we're just not expecting those push projects to add to what we already had in the back half. So we're kind of tuning that into our back half plan and so it's both the project push outs the RFP wins any line systems were.

Speaker Change: Dollar value and was it indeed above one.

Speaker Change: Which isn't bragging given the revenue base, but.

Speaker Change: There was about 25 million mostly ICP.

Laying out that's what we put into our bottoms up view for the second half.

Speaker Change: Net debt that pushed out into the back half of the year as well as we had some implementation of projects at some csp's that also pushed into the back half of the year. We think this will continue into Q2, but based on the design wins and orders were pulling in and we expect that pattern to reverse a bit in the back half.

Speaker Change: And for my follow up I'm wondering if you could maybe give us a little bit more color on customer concentration were there any 10% customers in the quarter and really more.

Of more interest I think is what are your expectations for customer concentration for the full year 2024, what are you baking in.

Speaker Change: And it's given us more credibility and confidence in our plan for 2025.

Speaker Change: Yes so.

Speaker Change: Let's let amitabh and Nancy hit that one.

Speaker Change: Did that answer your question.

Speaker Change: Oh, yes, and maybe if I can move to gross margins.

Speaker Change: Yeah, so for customer concentration there was not a 10% customer in the quarter for Q1, there were a couple that bumped up close to that.

Speaker Change: Curious I mean do you still have a.

Speaker Change: Strong gross margin expansion here from one Q to Q and are we still sort of think if you can just walk us through that and are we still thinking sort of mid forty's existing but maybe if you can clarify that thank you.

Amitabh: But we are still seeing a lot of strength in terms of ICP that are in our top 10.

Amitabh: Thank you very much.

Speaker Change: Your next question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please go ahead.

Speaker Change: Yeah, So gross margin.

Speaker Change: Certainly in Q1 was impacted by the number of line systems that we've deployed.

Christian Schwab: Great. Thanks for taking my question I had a few difficulties. So I didn't get every design win that you had can you just give us the total of the design wins over a three year basis for all the ones that you kind of walk through that you anticipate.

Speaker Change: We talked a little bit about this on our last call, but you can think about that is.

Speaker Change: And almost 200 basis point impact in gross margin from line systems, and then about another 100 million from just the lower volume in terms of absorption of fixed cost.

Christian Schwab: So starting in 'twenty, five and going through 28 with that total number was I think maybe just to recall it. We can go through the ones for systems and for <unk>. So that it's it is quite clear because I think it's an important point Ron do you want to walk through those.

Speaker Change: As far as exiting the year.

Speaker Change: We're down 1% to 5% I would expect that margins are likely going to be still.

Speaker Change: Still flat to slightly up with our fiscal year 'twenty, three and it'll take us a little bit of time to get back into that mid forty's, which it's still our target business model.

Sure. Thanks, David.

Speaker Change: We had to.

Speaker Change: Hyperscale demand, we had a number of wins one of them was on August seven for a subsidy based win.

Speaker Change: Okay. Thank you thanks for taking my questions.

Speaker Change: But we see works, so $100 million to $200 million over over three years.

Speaker Change: Your next question comes from the line of Simon Leopold with Raymond James. Please go ahead.

Speaker Change: We had a gx open line system.

Speaker Change: Great. Thanks for taking the question here.

Speaker Change: Terrestrial applications.

Simon Matthew Leopold: It sounds to me just looking at the full year guidance that you expect your September December results to be very similar to what you had talked about in March and and previously and I just wanted to sort of see what are the key drivers given the softness you saw this quarter.

Speaker Change: Over three years is worth $200 million to $300 million also with a major hyperscale or.

Speaker Change: All of these are with the Hyperscale.

Speaker Change: Third one with Hyperscale, there's was a 96.

Speaker Change: Our solution.

As well as our Geos just not true.

Speaker Change: We didn't talk about a specific number on this but this is likely.

Simon Matthew Leopold: And in your guide what sort of informing your confidence and this is my arithmetic correct in thinking that you're really expecting the theme second half of the year that you anticipated before.

Speaker Change: Likely in the similar range between $100 million to $200 million.

Speaker Change: We also and then also the hyperscale space, but motivated while high.

Speaker Change: <unk>.

Simon Matthew Leopold: Amitabh.

A number of Molson Williams alright.

Speaker Change: <unk> optical fiber network. So these are in.

Simon Matthew Leopold: Yes, Simon I think Youre right. The second half is contemplated to be very similar to the first half.

In places, where the Hyperscale is Don operating networks deleverage service providers to do so.

Speaker Change: Sorry to our prior expectations and I think David will cover this in more detail, but we did talk about projects being pushed out from the first after the second half David talked about the slow release of book ship in the order of $25 million. We also mentioned that in last quarters call. So part of I think what youre seeing in the back half is an expectation that these projects that have been pushed out due to the timing come through.

Speaker Change: Typically in the Middle East and Africa.

Speaker Change: Asia.

Speaker Change: Three new wins for these aren't these aren't massive wounds, but these are what we refer to Atlanta or expense. So there are opportunities to get into.

Speaker Change: These service providers expand into other applications within the service providers.

Speaker Change: Fruition, but David Please go ahead.

Speaker Change: On the.

Yeah, I think Simon what we are doing is just given the slower book ship, which is in our industry. The hardest thing to predict we're just not expecting those push projects to add to what we already had in the back half. So we're kind of tuning that into our back half plan and so it's both the project push outs the RFP wins any line systems were.

Speaker Change: On the systems side and the service providers.

Speaker Change: Gx systems portfolio, a win with a wholesaler in Europe, and a major service provider in the U S.

Speaker Change:

Speaker Change: Again over multiple years in the same time for this one.

Speaker Change: Can be worth $2 million to $300 million.

Speaker Change: Laying out that's what we put into our bottoms up view for the second half.

Speaker Change: And then if we look at the smokable wounds. So this is also a hyper scaler.

Speaker Change: And for my follow up I'm wondering if you could maybe give us a little bit more color on customer concentration were there any 10% customers in the quarter and really more.

Speaker Change: We had a sizable win in ZR and ZR plus for 800 gig.

Speaker Change: Is the one that David referred to.

Speaker Change: Restrict immunization can't say a lot about it but it is working we're between 3% to 700 million over over a three year period.

Speaker Change: Of more interest I think is what are your expectations for customer concentration for the full year 2024, what are you baking in.

Speaker Change: Okay, and then on the on the.

Speaker Change: Yes.

Speaker Change: Let's let amitabh and Nancy hit that one.

Speaker Change: Sub systems side, we had a poor hungry our first 400 gig.

Speaker Change: Yeah, so for customer concentration there was not a 10% customer in the quarter for Q1, there were a couple that bumped up close to that.

Speaker Change: This win but bookings.

Speaker Change: With a major U S cable provider.

Speaker Change: And the cable provider has the potential.

Speaker Change: But we are still seeing a lot of strength in terms of ICP that are in our top 10.

Just just in the split.

Speaker Change: The decision for that network to spend.

Speaker Change: Thank you very much.

Speaker Change: $3 million to $400 million over the next three years.

Speaker Change: Your next question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please go ahead.

Speaker Change: Leveraging both of them.

Speaker Change: Applications that use our subcarrier technology with our 400 gig as well as point to point applications with our 400 gig.

Christian David Schwab: Great. Thanks for taking my question I have a few difficulties. So I didn't get every design win that you had can you just give us the total of the design wins.

Speaker Change: Really really good.

Speaker Change: Desirable women the 400 gig space there.

Christian David Schwab: Over a three year basis for all the ones since you kind of walk through that you anticipate you know starting in 'twenty, five and going through 28 with that total number was.

Ron: Thanks, Ron.

Ron: So those are all based on again, those either design wins rfps or actual contracts and again on the forecast that were being provided from the customer side did that help.

Speaker Change: I think maybe just to recall it we can go through the ones for systems and for <unk>. So that it is quite clear because I think it's an important point Ron do you want to walk through those.

That's tremendous and then my follow up question is you know is there a number of other customers that you're working forward would you expect more substantial orders on top of that to occur throughout calendar.

Ron: Sure Okay.

Ron: We had to.

Ron: Hyperscale demand, we had a number of wins one of them was on.

Speaker Change: 2020 for sure Yeah, I mean, I think last time, when we updated we had talked about the 800 gig design win is an example.

Speaker Change: Seven four a subsidy based win.

Speaker Change: But we see worst so $100 million to $200 million over three years.

Initial sampling order that we got from the major U S Msos.

We had a gx open line system for <unk>.

Speaker Change: Ron talked about that happened in Q2 here and there.

Speaker Change: Arrest real applications.

Speaker Change: Then we also have a U S service provider that we had a design win.

Speaker Change: Over three years is worth $200 million to $300 million also with a major hyperscale or.

Speaker Change: Almost.

Speaker Change: Call it three quarters ago.

Speaker Change: All of these are with the Hyperscale.

Ron: And we believe that we will be receiving the first orders this quarter.

Speaker Change: Third one with Hyperscale orders was six <unk>.

Speaker Change: Solution.

Speaker Change: As well as other Geos just not true.

Ron: That would then be up for scaling as we get into the back half of the year into 25. So obviously thats kind of why we're we're riding out this kind of short term bottoming of the optical curve as people finally burn out the inventory, but ultimately the traffic needs both in the back half and definitely into 25. This helps us fill.

Speaker Change: We didn't talk about a specific number on this but this is.

Speaker Change: Likely in the similar range between $100 million to $200 million.

Speaker Change: We also and then also the hyperscale space, but motivated.

Speaker Change: <unk>.

Speaker Change: A number of Molson wins the day.

Ron: Kind of the capacity curve.

Speaker Change: <unk> optical fiber network. So these are in.

Speaker Change: To substantiate the growth for 2025.

Speaker Change: In places, where the Hyperscale is Don operating networks deleverage service providers to do so.

Speaker Change: Fantastic Thanks for the clarity no other questions. Thank you. Thank you.

Speaker Change: Typically in the Middle East and Africa.

Christian Schwab: Thanks Christian.

Speaker Change: Asia.

Speaker Change: Your next question comes from the line of Michael Genovesi with Rosenblatt Securities. Please go ahead.

Three new wins for these aren't these aren't massive wounds, but these are what we refer to Atlanta or expense. So there are opportunities to get into.

Mike: Hey, Mike.

Michael Genovesi: Hey, Hi, Dave how are you.

Speaker Change: These service providers expand into other applications within the service providers.

Michael Genovesi: The second half outlook that you have I mean, it's really strong and it seems to be based on that like an unprecedented number of design wins that you can list off like we've never heard.

Speaker Change: On the.

Speaker Change: On the systems side and the service providers.

Speaker Change: Gx systems portfolio, a win with a wholesaler in Europe, and a major service provider in the U S.

Michael Genovesi: Before like states of the newest going on here and I wanted to gauge on Nuomi and like is this how much of the second half is the industry and how much is specific to you guys.

Speaker Change:

Speaker Change: Again over multiple years in the same time for this one does seem to be worth $2 million to $300 million.

Speaker Change: I don't know taking share and heavily yesterday design, it's really a good question I mean look the industry is tough to gauge right. When you looked at where we were coming into the year, everybody kind of had optical growing at low single digits, 1% to 3%. When we look at who is announced so far right. It appears that.

Speaker Change: And then if we look at the smokable wounds. So this is also a hyper scaler.

Speaker Change: We had a sizable win in ZR and ZR plus for 800 gig.

Is the one that David referred to under strict immunization can't say a lot about it but it is working we're between 3% to 700 million over over a three year period.

Speaker Change: Most folks that have announced had been now with us announcing between 22%.

And 50% year over year declines in Q1.

Speaker Change: Okay, and then on the on the <unk>.

Speaker Change: Now, we think that'll improve for everybody based on everybody's imputed guidance in Q2.

Speaker Change: Sub systems side, we had a poor hungry our first 400 gig.

Speaker Change: And based on what we what we see for the industry there will be year over year growth in the back half I mean, I hate to say it but a really lousy compare when you're at the bottom of the curve for the front half.

Speaker Change: When but bookings.

Speaker Change: With a major U S cable provider.

Speaker Change: And cable provider has the potential.

Just just in a split.

Speaker Change: Now.

Speaker Change: Decision for that network to spend.

Speaker Change: But that being said I have been at the company six years and I just haven't seen us.

Speaker Change: $3 million to $400 million over the next three years.

Speaker Change: In a position with our portfolio, we were able to get these kind of design wins, but don't forget we still have to get orders for that deliver the orders and execute so what we're trying to do for everybody is give you. Our best view I think we are taking more than our fair share. If you look at our book to Bill over the last two years compared.

Speaker Change: Leveraging both of them.

Speaker Change: Applications that use our subcarrier technology with our 400 gig as well as point to point applications with our 400 gig.

Speaker Change: Really really good.

Speaker Change: Desirable women the 400 gig space there.

Speaker Change: Thanks, Ron.

Speaker Change: So those are all based on again, those either design wins rfps or actual contracts and again on the forecast that were being provided from the customer side did that help.

Speaker Change: Competitors, but again getting that rolled out and seeing that.

Speaker Change: The recovery start in Q3 is an important aspect a lot of the schedules for these products for the back half and especially into 2025.

Speaker Change: That's tremendous and then my follow up question is you know is there a number of other customers that you're working forward would you expect more substantial orders on top of that to occur throughout calendar two.

Speaker Change: Are supported by a lot of the traffic growth.

Speaker Change: That we see in between data centers and for new technology insertion.

Speaker Change: 2020 for sure Yeah, I mean, I think last time, when we updated we had talked about the 800 gig design win is an example.

Speaker Change: Oh great.

Speaker Change: Particularly in the ICP hyperscale market, but I think also in metro.

Speaker Change: Initial sampling order that we got from the major U S. Msos that Ron talked about that happened in Q2 here and then we also have a U S service provider that we had a design win.

Speaker Change: It feels like we've gained a lot of share.

Speaker Change: In.

Speaker Change: <unk>.

In the last year I would say, but have you have you seen any numbers come out to kind of quantify.

Speaker Change: Whether it was in our feeling is right and it would have gained share in metro and Dci.

Speaker Change: Almost call.

Speaker Change: Call it three quarters ago.

Speaker Change: Not yet seen anything come out and I think that's because the industry is still again, when I mentioned that ashish.

And we believe that we will be receiving the first orders this quarter.

Speaker Change: Those.

Speaker Change: It would then be up for scaling as we get into the back half of the year into 25.

Decline numbers for Q1 for a market that was going to grow 1% to 3% I just think youre seeing a bottoming of the curve in the front half as people work through the final inventory and reload for 400 gig networks in the Metro the 800 gig networks and the high capacity networks for <unk>.

Speaker Change: So obviously thats kind of why we're we're riding out this kind of short term bottoming of the optical curve as people finally burn out the inventory, but ultimately the traffic needs both in the back half and definitely into 25. This helps us fill out kind of the capacity curve.

Speaker Change: Next lift up but the <unk>.

Speaker Change: The plug able to hit as.

Speaker Change: To substantiate the growth for 2025.

Speaker Change: As well as subsea theyre laying a record number of cables out across the world. So.

Speaker Change: Yeah.

Speaker Change: Fantastic Thanks for the clarity no other questions. Thank you. Thank you.

Speaker Change: Typically you don't get analysts. It then very quickly calculate overall optical looks like maybe it declined 7% or 8%. This year Thats our calculation based on what we see today I'm sure. The analysts will come down with the market share, but it's usually a looking back figure.

Christian David Schwab: Thanks Christian.

Speaker Change: Your next question comes from the line of Michael Genovesi with Rosenblatt Securities. Please go ahead.

Mike: Hey, Mike.

Dave: Hi, Dave how are you.

Michael Genovese: The second half outlook that you have I mean, it's really strong.

Speaker Change: Yeah, Great I appreciate it thanks very much alright. Thanks.

Michael Genovese: To be based on that like an unprecedented number of design wins that you can list off like like we've never heard.

Okay.

Your next question comes from the line of meta Marshall with Morgan Stanley. Please go ahead.

Speaker Change: Just before it likes the dates of the newest going on here and I wanted to gauge on Nuomi and like is this how much of the second half is the industry and how much is specific to you guys.

Speaker Change: Alright. This is our crown jewel broker Carnegie Parker on for meta.

Carnegie Parker: The first question is just more of a clarification question I think you mentioned that $25 million of the.

Speaker Change: I don't know taking share and heavily yesterday design, it's really a good question I mean look the industry is tough to gauge right. When you looked at where we were coming into the year, everybody kind of had optical growing at low single digits, 1% to 3%.

Carnegie Parker: Push outs were mostly on the ICP side did I hear that correctly.

Carnegie Parker: Was that a surprise to you guys I guess any detail on sort of.

Carnegie Parker: Yeah.

Speaker Change: Well, yes, no obviously are contemplated midpoint of the range was higher than what we what we got and that's not our job as leaders of the company and executives and stewards of the shareholders.

Speaker Change: When we look at who is announced so far right. It appears that most folks that have announced had been now with us announcing between 22% and 50% year over year declines in Q1.

Speaker Change: You have the best view of what we see so obviously that shifting out was a bit surprising.

Speaker Change: Now, we think that'll improve for everybody based on everybody's imputed guidance in Q2.

Speaker Change: And we continue to see that happening in Q2.

Speaker Change: And based on what we what we see for the industry there will be year over year growth in the back half I mean, I hate to say it but a really lousy compare when you're at the bottom of the curve for the front half.

Speaker Change: Again.

Speaker Change: Some.

Speaker Change: If that is actual book ship business and some are projects that are just being delayed as people try to kind of clean up things on their own financials in the front half and then we see things being scheduled in the second half.

Speaker Change: Now.

Speaker Change: But that being said I have been at the company six years and I just haven't seen us.

Speaker Change: In a position with our portfolio, we were able to get these kind of design wins, but don't forget we still have to get orders for that deliver the orders and execute so what we're trying to do for everybody is give you. Our best view I think we are taking more than our fair share. If you look at our book to Bill over the last two years compared.

But yes, primarily on the ICP front and if you look at our ICP numbers year over year quarter over quarter. That's why you see a little bit more of a decline there and yes that was.

Speaker Change: That wasn't something we had planned.

Speaker Change: Okay. That's helpful. And then second question for me.

Speaker Change: Competitors, but again getting that rolled out and seeing that.

Speaker Change: I guess traction on the <unk> win that you had last quarter and any details around there and was this one of the push outs that you saw in the quarter and if so does that impact the gross margins.

Speaker Change: The recovery start in Q3 is an important aspect a lot of the schedules for these products for the back half and especially into 2025.

Speaker Change: Just given it's a more vertically integrated product.

Speaker Change: I appreciate that you have an idea so you may not be able to disclose much but yes.

Speaker Change: Are supported by a lot of the traffic growth.

Speaker Change: Yes, just to be clear, yes, I want to be crystal clear. So the 800 gig wouldn't start until the as we as we talked about on our last call until we're in the mid of 2025, so that had no impact.

Speaker Change: That we see in between data centers and for new technology insertion.

Speaker Change: Oh great.

Speaker Change: Particularly in the ICP hyperscale market, but I think also in metro.

Speaker Change: On our business in Q1 and Q2.

Speaker Change: It feels like we've gained a lot of share.

Speaker Change: So those that number that we gave is again based on as we engage on the contract and look at the forecasts.

Speaker Change: In.

Speaker Change: The.

Speaker Change: In the last year I would say, but have you have you seen any numbers come out to kind of quantify.

Speaker Change: That we've contemplated to be able to drive the right capacity through our fabs.

Speaker Change: Whether it was in our feeling is right and it would have been.

Speaker Change: Chairman Metro Dci.

Speaker Change: That 300 to 700 is something we haven't talked about prior.

Speaker Change: I've not yet seen anything come out and I think that's because the industry is still again, when I mentioned that ashish.

Speaker Change: The new win in the or the design win in.

Speaker Change: Those.

Speaker Change: Decline numbers for Q1 for a market that was going to grow 1% to 3% I just think youre seeing a bottoming of the curve in the front half as people work through the final inventory and reload for 400 gig networks in the Metro the 800 gig networks and the high capacity networks for <unk>.

Speaker Change: With the Msos in North America is something new here in Q2.

Ron: Meaning the first order we have the ability to then scale that to the numbers Ron talked about.

Ron: Ken.

Speaker Change: Would begin to happen as we get into the back half of the year. So that was also not contemplated that's not an excuse code for the the front half dip that both the industry is experiencing and we're experiencing.

Speaker Change: Next lift up but the <unk>.

Speaker Change: The plug able to hit as.

Speaker Change: As well as subsea theyre laying a record number of cables out across the world. So.

Speaker Change: Yeah.

Speaker Change: Okay. That's helpful. Thank you.

Speaker Change: Okay.

Speaker Change: Typically you don't get analysts. It then very quickly calculate overall optical looks like maybe it declined 7% or 8%. This year, that's our calculation based on what we see today I'm sure. The analysts will come down with the market share, but it's usually a looking back figure.

Speaker Change: Your next question comes from the line of George Notter with Jefferies. Please.

Okay.

Hi, Thanks, a lot guys I just wanted to come back on.

George Notter: The roster of content provider wins, you mentioned just to be clear are these all incremental to the existing run rates of business you're doing with these customers.

Speaker Change: Yeah, Great I appreciate it thanks very much alright. Thanks.

Speaker Change: Okay.

George Notter: Okay.

Speaker Change: Your next question comes from the line of meta Marshall with Morgan Stanley. Please go ahead.

Okay.

Speaker Change: Yes, I think for the most part the I seven subsea win is incremental.

Speaker Change: Alright. This is our crown jewel broker Carnegie Parker on for meta.

Speaker Change: The hyper scaler OLS win for a new line system that we just announced in Q1 is indeed incremental on the system side of things and certainly the 800 gig wins. So those were the three largest that we talked about.

Speaker Change: The first question is just more of a clarification question I think you mentioned that $25 million of the.

Meta A. Marshall: Push outs were mostly on the ICT side did I hear that correctly.

Speaker Change: Was that a surprise to you guys I guess any detail on sort of.

Speaker Change: The moving somebody over to <unk> six.

Speaker Change: Yeah.

Speaker Change: It is actually.

Speaker Change: In existing customer that we have that's moving onto the <unk> platform.

Well, yes, no obviously are contemplated midpoint of the range was higher than what we what we got and that's not our job as leaders of the company and executives and stewards of the shareholders.

Speaker Change: Got it Okay and then.

Before these wins I assume then.

Speaker Change: You have the best view of what we see so obviously that shifting out was a bit surprising.

Speaker Change: These are all contracted.

Speaker Change: With the dollar values you guys have outlined specified or at least unit volumes that translate into those kinds of dollars specified or I guess I just want to make sure yes.

Speaker Change: And we continue to see that happening in Q2.

Speaker Change: Again.

Speaker Change: Some.

Speaker Change: If that is actual book ship business and some are projects that are just being delayed as people try to kind of clean up things on their own financials in the front half and then we see things being scheduled in the second half.

Speaker Change: Pieces of business that are in backlog now and I guess I would've expected the bookings to be up more.

George Notter: So given the strength here I'm, just trying to put it all together and think about the second half of the year and that ramp no. George It's a good question and I think we were pretty specific in our language here. These design wins are RFP wins, when you win them it's great.

Speaker Change: But yes, primarily on the ICP front and if you look at our ICP numbers year over year quarter over quarter. That's why you see a little bit more of a decline there and yes that was.

George Notter: And.

Speaker Change: In many cases, you sign a contract but then the volumes are based on the forecast that they then rollout. So what we've given you is as we've negotiated these rfps these design wins and price them as well as the <unk>.

Speaker Change: That wasn't something we had planned.

Speaker Change: Okay. That's helpful. And then second question for me.

Speaker Change: I guess traction on the <unk> win that you had last quarter and any details around there and was this one of the push outs that you saw in the quarter and if so does that impact the gross margins.

Speaker Change: As well as the.

Speaker Change: The <unk> contract that we talked about we get volumes.

Speaker Change: Just given it's a more vertically integrated product.

Speaker Change: Kind of low range medium range high range or it's actually a low and high from the customers. These are not hard program volume to rollout in quarter X Y and Z that would be great because it would be.

Speaker Change: I appreciate that you have an idea so you may not be able to disclose much but yes.

Yes, just to be clear, yes, I want to be crystal clear. So the 800 gig wouldn't start until the as we as we talked about on our last call until we're in the mid of 2025, so that had no impact.

Speaker Change: Much easier to do the quarterly predictions going forward. So these are as we said.

Speaker Change: On our business in Q1 and Q2.

Speaker Change: It should be worth these ranges.

Speaker Change: Right and Thats based on the forecast we've gotten from the client that we've landed those deals at.

Speaker Change: Although those that number that we gave is again based on as we engage on the contract and look at the forecasts.

Speaker Change: Got it and is that a big element of the second half ramp I assume it is given the conversation.

Speaker Change: That we've contemplated to be able to drive the right capacity through our fabs.

Speaker Change: It's a reasonable portion of the second half ramp.

Speaker Change: That 300 to 700 is something we haven't talked about prior.

Speaker Change: We have them on the line system, the <unk> side, and then the push outs of the ICP.

Speaker Change: The new win in the or the design win in.

Q1, and Q2, I mean, that's material to the second half and when you look at the plug a bowl the OLS when NII seven when that's more primary to 2025.

Speaker Change: With the Msos in North America is something new here in Q2.

Speaker Change: Meeting the first order we have the ability to then scale that to the numbers Ron talked about.

Speaker Change: Okay. Thank you.

Speaker Change: Dan.

George Notter: Thanks George.

Speaker Change: Would begin to happen as we get into the back half of the year. So that was also not contemplated that's not an excuse code for the <unk>.

Speaker Change: Your next question comes from the line of David Kang with B Riley. Please go ahead.

Speaker Change: <unk> have dipped that both the industry is experiencing and we're experiencing.

David Kang: Thank you and good afternoon. My first question is regarding the inventory situation, but just exactly how much excess inventories are out there and I'll be pretty close and we still got.

Yes.

Speaker Change: Okay. That's helpful. Thank you.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of George Notter with Jefferies. Please.

David Kang: Maybe a few more quarters to go.

Speaker Change: Well certainly there was enough to prevent $25 million of <unk>.

Speaker Change: Okay.

George Charles Notter: Hi, Thanks, a lot guys I just wanted to come back on.

Speaker Change: Book ship in the quarter end.

George Charles Notter: The roster of content provider wins, you mentioned just to be clear are these all incremental to the existing run rates of business you're doing with these customers.

Speaker Change: All at an equal number for Q2 as well as continued project push outs, but we do think that things are beginning to turn down and based on the RFP activity and the engagement, we're having on both the ICP and CSP side.

George Charles Notter: Okay.

Speaker Change: Yes, I think for the most part the I seven.

Speaker Change: <unk> subsea win is incremental.

Speaker Change: We believe things are narrowing down to where the second half there should be again that year over year growth not just first half over second half growth. Because this is a I think a trough that youll see in the industry that will begin to pick up in Q3 and Q4.

Speaker Change: The hyper scaler OLS win for a new line system that we just announced in Q1 is indeed incremental on the system side of things and certainly the 800 gig win so those were the three largest that we talked about.

Speaker Change: The moving somebody over to <unk>.

Speaker Change: Got it and then regarding all of these.

Speaker Change: Multiple design wins, you talked about ranging from them.

Speaker Change: Is actually.

Speaker Change: An existing customer that we have that's moving onto the <unk> platform.

Speaker Change: $100 to $300 million.

Speaker Change: Got it Okay and then.

Speaker Change: Are these just for a clarification hard contracts, where there's like a minimum amount or is just a forecast from from these customers. Now these are I mean look.

Speaker Change: Before these wins I assume then.

Speaker Change: These are all contracted.

Speaker Change: With the dollar values, you guys have outlined specified or at least unit volumes.

Speaker Change: These are all wins that then purchase orders are issued against right either contracts.

Speaker Change: Translate into those kinds of dollars specified or I guess I just want to make sure yes.

Speaker Change: Or RFP wins or.

Speaker Change: Design wins, where you then have quantities off against that now part of that process. We go through what volume over what period of time.

George Charles Notter: There are pieces of business that are in backlog now and I guess I would've expected the bookings to be up more also given the strength here I'm just trying to put it all together and think about the second half of the year and then that ramp no. George It's a good question and I think we were pretty specific in our language here. These design wins are RFP wins, when you win them it's great.

Speaker Change: And Thats why there is such a wide range of we tried to put a low and a high and thats just to better educate folks on why we feel good about 2025 moving forward.

Speaker Change: And when would they start to hit your backlog then.

George Charles Notter: And.

George Charles Notter: In many cases, you sign a contract but then the volumes are based on the forecast that they then rollout. So what we've given you is as we've negotiated these rfps these design wins and price them as well as the <unk>.

Speaker Change: Yes, so I mean as you start to get out towards the end of this year I think you would start to see that hit the backlog that's kind of what would be.

Speaker Change: Normalized in view of the growth rates, we have in for Q3 and Q4 and for 2025.

George Charles Notter: As well as the.

George Charles Notter: The <unk> contract that we talked about we get volumes.

George Charles Notter: Kind of low range medium range high range or it's actually a low and high from the customers. These are not hard program volume to rollout in quarter X Y and Z that would be great because it would be.

Speaker Change: Got it thank you.

That concludes our question and answer session I will now turn the call back over to David heard for closing remarks, yeah. So certainly as we mentioned the start to the year with slower than expected as carriers and ICP has kind of held on to their orders and ran their networks a bit hotter than I think we all expected and.

George Charles Notter: Much easier to do the quarterly predictions going forward. So these are as we said.

George Charles Notter: It should be worth these ranges.

Speaker Change: Right and Thats based on the forecast we've gotten from the client that we've landed those deals at.

Speaker Change: You will see that going across the industry, but they are planning on expanding those 400 gig services in 800 gig services for high capacity routes as I said, we're not the overall market analysts, but as we calculate that probably says that there's a market decline in the front half that's kind of temporary in nature.

Speaker Change: Got it and is that a big element of the second half ramp I assume it is given the conversation.

Speaker Change: It's a reasonable portion of the second half ramp.

Speaker Change: We have them on the line system, the <unk> side, and then the push outs of the ICP.

Speaker Change: Q1, and Q2, I mean, that's material to the second half and when you look at the <unk> the OLS when NII seven when that's more primary to 2025.

Speaker Change: We call it a digestion finalization at 20% followed by growth in the back half, albeit still we're not pushing anything we're not pushing everything that was missed in the front half to the second half for an overall decline in the optical market that 7% to 8%, but the traffic generation.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks George.

Speaker Change: Your next question comes from the line of David Kang with B Riley. Please go ahead.

Speaker Change: And 400 gig subsea high.

Dave Kang: Thank you and good afternoon. My first question is regarding.

Speaker Change: High capacity routes and then ultimately inside the data center are going to drive I think the optical world to go back to that normalized next cycle on AI as we get into 2025.

Dave Kang: The inventory situation just exactly how much excess inventories are out there and I'll be pretty close and we still got.

Dave Kang: Maybe a few more quarters to go.

Speaker Change: So certainly as these RFP wins and fair questions guys on the.

Speaker Change: Well certainly there was enough to prevent $25 million of a book ship in the quarter end.

Speaker Change: It's not hard coded contract value, but in the company's history. We just have not seen this kind of potential value of lining brand new line system into Icp's seven wins already that are significant in nature as well as on the applicable side, which is I think going to drive a huge.

Speaker Change: Call it an equal number for Q2 as well as continued project push outs, but we do think that things are beginning to turn down and based on the RFP activity and.

Speaker Change: And the engagement, we're having on both the ICP and CSP side.

Speaker Change: Cost benefit for us.

Speaker Change: We believe things are narrowing down to where the second half there should be again that year over year growth not just first half over second half growth. Because this is a I think a trough that youll see in the industry that will begin to pick up in Q3 and Q4.

Speaker Change: For our long term model. So we all know optical is becoming more important to the network outside and inside the data center and I think our strategy for <unk> is well positioned for the next optical cycle. So.

Speaker Change: I know the news on the Q1.

Speaker Change: In the Q2 outlook.

Speaker Change: Got it and then regarding all of these.

Speaker Change: Well in line with the optical industry, a little bit better is not great.

Speaker Change: The multiple design wins, you talked about ranging from.

Speaker Change: <unk>.

Speaker Change: $100 to $300 million.

Speaker Change: On that second half growth and even more importantly into 2025 is <unk>.

Speaker Change: Are these just for clarification.

Speaker Change: Vacation hard contracts, where there's like a minimum.

Speaker Change: Is is very very strong so we'll continue to keep our heads down and focusing on execution and taking more than our fair share driving operating efficiencies and keeping transparent with what we see in the market as it develops so I appreciate the thoughtful questions and engagement.

Speaker Change: Or is just a forecast from from these customers now these are I mean look there.

Speaker Change: These are all wins that then purchase orders are issued against right either contracts.

Speaker Change: Or RFP wins or design wins were.

Speaker Change: And we'll be talking to you soon thanks, everybody have a great night.

Speaker Change: You then have <unk>.

Speaker Change #100: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: Wanted these off against that now part of that process. We go through what volume over what period of time.

Speaker Change: And Thats why there is such a wide range of we tried to put a low and a high and thats just to better educate folks on why we feel good about 2025 moving forward.

Speaker Change #100: And when would they start to hit your backlog then.

Speaker Change #101: Yes, so I mean as you start to get out towards the end of this year I think you would start to see that hit the backlog that's kind of what would be.

Speaker Change #101: Normalized in view of the growth rates, we have in for Q3 and Q4 and for 2025.

Speaker Change #102: Got it thank you.

David W. Heard: That concludes our question and answer session I will now turn the call back over to David heard for closing remarks, yeah. So certainly as we mentioned the start to the year with slower than expected as carriers and ICP has kind of held on to their orders and ran their networks a bit hotter than I think we all.

David W. Heard: <unk> and Youll see that going across the industry, but they are planning on expanding those 400 gig services in 800 gig services for high capacity routes as I said, we're not the overall market analysts, but as we calculate that probably says that there's a market decline in the front half that's kind of temporary.

David W. Heard: Very nature call. It digestion finalization at 20% followed by growth in the back half, albeit still we're not pushing anything we're not pushing everything that was missed in the front half to the second half for an overall decline in the optical market that 7% to 8%, but the traffic.

David W. Heard: Generation in 400 gig subsea <unk>.

David W. Heard: High capacity routes and then ultimately inside the data center are going to drive I think the optical world to go back to that normalized next cycle on AI as we get into 2025, So certainly as these RFP wins and fair questions guys on the.

It's not hard coded contract value, but in the company's history. We just have not seen this kind of potential value of lining brand new line system into Icp's seven wins already that are significant in nature as well as on the applicable side, which is I think going to drive a huge.

David W. Heard: Cost benefit for us.

David W. Heard: For our long term model. So we all know optical is becoming more important to the network outside and inside the data center and I think our strategy for <unk> is well positioned for the next optical cycle. So.

David W. Heard: I know the news on the Q1.

David W. Heard: In the Q2 outlook.

David W. Heard: Well in line with the optical industry, a little bit better is not great.

David W. Heard: <unk>.

David W. Heard: On that second half growth and even more importantly into 2025 is <unk>.

David W. Heard: Is is very very strong so we'll continue to keep our heads down and focusing on execution and taking more than our fair share driving operating efficiencies and keeping transparent with what we see in the market as it develops so I appreciate the thoughtful questions and engagement.

David W. Heard: And we'll be talking to you soon thanks, everybody have a great night.

Speaker Change #104: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change #104: Sure. Thanks, everybody have a great night.

Speaker Change #104: This concludes today's conference call. Thank you for your participation.