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IC

Infinera Corp (INFN)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 revenue was $342.7M, up 12% q/q and down 9% y/y; GAAP gross margin improved to 39.6% (non-GAAP 40.3%) and non-GAAP operating margin improved to -1.3% from -8.4% in Q1, with results “above the midpoint” of the outlook range.
  • Bookings increased sequentially and y/y, with book-to-bill above 1; management cited continued design-win momentum across the GX portfolio (line systems and transponders) and an 800G ZR/ZR+ ICE‑X pluggable win with another major ICP.
  • In light of the pending Nokia merger (target close 1H25), the company suspended forward guidance; the strategic rationale emphasizes scale, portfolio breadth, and U.S.-based optical semiconductor vertical integration as AI-driven bandwidth growth accelerates.
  • Free cash flow was -$74.5M in Q2 (working capital use), ending cash, cash equivalents and restricted cash at $115.7M; U.S. revenue recovered sequentially, while EMEA and APAC reflected timing and project pushouts.

What Went Well and What Went Wrong

  • What Went Well

    • “Revenue, gross margin and operating margin [were] all above the midpoint of our outlook range,” with bookings up both sequentially and y/y and book-to-bill >1.
    • Design wins progressed: YoY revenue growth across GX, ICP strength, line-system momentum, and an 800G ZR/ZR+ ICE‑X pluggable win with another major ICP.
    • Sequential recovery in the U.S. after a slow Q1; U.S. revenue rose 22% q/q to $200.5M.

  • What Went Wrong

    • Revenue down 9% y/y; non-GAAP operating margin -1.3% and non-GAAP diluted EPS -$0.06; free cash flow -$74.5M as working capital swung negative.
    • APAC was weak (down 41% y/y) on timing and pushouts; Tier 1 and other service provider verticals were pressured by inventory digestion and project delays.
    • Company withdrew forward guidance pending merger; risk disclosures highlight potential deal delays, customer/supplier uncertainty, FX, and remediation of material weaknesses in ICFR.

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Revenue ($M)$453.5 $306.9 $342.7
GAAP Gross Margin %38.6% 36.0% 39.6%
Non-GAAP Gross Margin %39.6% 36.6% 40.3%
GAAP Operating Margin %2.5% -14.0% -8.7%
Non-GAAP Operating Margin %7.2% -8.4% -1.3%
GAAP Diluted EPS$0.06 -$0.27 -$0.21
Non-GAAP Diluted EPS$0.12 -$0.17 -$0.06

Results vs prior Q2 outlook (issued May 14, 2024):

MetricQ2 2024 Outlook (mid)Q2 2024 Actual
Revenue ($M)$330 $342.7
GAAP Gross Margin %38.5% 39.6%
Non-GAAP Gross Margin %39.5% 40.3%
GAAP Opex ($M)$162.5 $165.4
Non-GAAP Opex ($M)$139.5 $142.7
Non-GAAP Operating Margin %-3.5% -1.3%
Non-GAAP EPS-$0.09 -$0.06

Revenue by Region, Channel, Vertical (GAAP revenue, $M):

CategoryQ2’23Q1’24Q2’24
United States217.1 164.7 200.5
Other Americas23.2 19.8 28.3
EMEA85.6 95.7 84.2
APAC50.3 26.7 29.7
Total376.2 306.9 342.7
Direct237.6 214.3 211.0
Indirect138.6 92.6 131.7
Total376.2 306.9 342.7
Tier 190.8 69.9 73.5
Other Service Provider155.8 140.7 123.4
ICP108.8 75.5 125.3
Cable20.8 20.8 20.5
Total376.2 306.9 342.7

KPIs and Cash Metrics:

KPIQ2 2023Q1 2024Q2 2024
Book-to-billn/an/a>1
Bookings (direction)n/an/aUp QoQ and YoY
Cash from Operations ($M)$1.4 $24.0 -$59.9
Capex ($M)$10.8 $8.1 $14.6
Free Cash Flow ($M)-$9.353 $15.950 -$74.536
DSOs (days)79 79 76
Inventory Turns2.2 1.8 2.0
Cash, Cash Eq. & Restricted Cash ($M)n/a$192.2 $115.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
All financial guidancePost‑Q2 2024Company historically provided quarterly guidanceNo guidance during pendency of Nokia acquisitionWithdrawn
RevenueQ2 2024 (issued in Q1)$330M ± $20M Actual: $342.7M Outperformed midpoint
Non-GAAP GM %Q2 2024 (issued in Q1)39.5% ±150 bps Actual: 40.3% Outperformed midpoint
Non-GAAP Opex ($M)Q2 2024 (issued in Q1)$139.5 ±$1.5 Actual: $142.7 Above guide (higher)
Non-GAAP Op Margin %Q2 2024 (issued in Q1)-3.5% ±300 bps Actual: -1.3% Better than guide
Non-GAAP EPSQ2 2024 (issued in Q1)-$0.09 ±$0.04 Actual: -$0.06 Better than guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
AI/technology initiativesSecured first major 800G ZR/ZR+ pluggable contract (hundreds of $M over 3 years starting 2025); launched intra‑DC “ICE‑D” chips; vertical integration key to cost/power advantages. 800G ZR/ZR+ ICE‑X pluggable win with another major ICP; value of vertical integration emphasized. Strengthening
Supply chain/inventory digestionExcess inventory drove book-ship pushouts; expected first-half headwinds then back-half normalization. APAC/EMEA delays and pushouts; sequential U.S. recovery; bookings/book‑to‑bill improved. Improving
Product performance (GX line systems)Heavy Q1 line‑system deployments pressured GM but set up margin‑accretive transponder fill later in year. Design‑win momentum with next‑gen open line systems; YoY GX revenue growth. Expanding
Regional trendsICP momentum (U.S. hyperscalers); wins in Europe wholesale/Tier‑1; MOFN in India/Middle East. U.S. up q/q; EMEA/APAC softer on timing/pushouts; ICP vertical up 66% q/q to $125.3M. Mixed (US improving)
Regulatory/strategic (M&A)n/aPending Nokia merger (H1’25 close target); no guidance during pendency. New structural change

Management Commentary

  • “I am pleased with our second quarter results with revenue, gross margin and operating margin all above the midpoint of our outlook range… bookings up both sequentially and on a year-over-year basis. We ended Q2 with a book-to-bill ratio above 1.” — David Heard, CEO.
  • “We remain excited about our pending combination with Nokia… broadened portfolio, greater scale and geographic reach, while leveraging vertically integrated optical semiconductor technologies developed here in the U.S.”
  • Slides highlight YoY revenue growth across the GX portfolio, an 800G ZR/ZR+ ICE‑X pluggable win with another major ICP, line‑system design‑win momentum, and sequential U.S. recovery after a slow Q1.

Q&A Highlights

  • A full Q2’24 earnings call transcript was not available in our document set. We relied on the Q2 press release and investor slides for qualitative insights.

Estimates Context

  • S&P Global consensus (revenue/EPS) for Q2’24 was unavailable in our tool for INFN due to a mapping issue; as a proxy, we compared actual results to the company’s prior Q2 outlook, where revenue, gross margin, non-GAAP operating margin, and non-GAAP EPS all came in better than midpoint, while opex was higher than guided.
  • If you want, we can refresh and append SPGI consensus once the mapping is available.

Key Takeaways for Investors

  • Execution improved: sequential revenue and margin recovery with multiple metrics above prior outlook midpoints; bookings/book‑to‑bill indicate pipeline health.
  • Mix turning favorable: heavy line-system deployments earlier are setting up future transponder (higher‑margin) fill; non‑GAAP gross margin rose to 40.3%.
  • ICP momentum remains a core driver (U.S. sequential recovery; ICP vertical +66% q/q); EMEA/APAC still lumpy on timing and pushouts.
  • Near-term modeling constraint: company suspended forward guidance during the Nokia merger process; focus on quarterly execution and order trends.
  • Cash discipline needed near term: Q2 free cash flow -$74.5M on working capital; monitor inventory/DSO trends and cash conversion in 2H.
  • Strategic upside: AI-driven bandwidth, pluggables (800G ZR/ZR+) and vertical integration (U.S. fab) remain core long-term differentiators; merger could enhance scale and portfolio.
  • Trading implication: absent formal guidance, stock should trade on design‑win conversion, book‑to‑bill, regional recovery cadence, and merger milestones.

Appendix — Other Documents Reviewed (for trend context)

  • Q1’24 preliminary 8‑K (outlook and drivers): revenue $306.9M; non‑GAAP GM 36.6%; Q2’24 outlook (now complete) was given on May 14, 2024.
  • Q1’24 call: back‑half normalization narrative; large ICP pluggable (800G ZR/ZR+) opportunity (hundreds of $M over 3 years starting 2025); line systems as margin setup.
  • Q4’23 8‑K & call: strong finish to 2023; ICP exposure grew; metro/GX expansion; vertical integration progress; set expectations for slow 1H24 and improved 2H24.