Infinera reports a strong end to 2023, slow start to 2024

David Heard, Infinera CEO, addressed shareholders at the company’s fourth quarter earnings report on March 7, reporting a robust end to the year.

“Overall,” said Heard, “the fourth quarter was a strong quarter for us, in which the midpoint of our preliminary revenue, gross margin, and EPS ranges are all expected to come in above our outlook ranges. We delivered a book-to-bill of approximately one for the second quarter in a row, and we generated over $50 million in free cash flow. Furthermore, during the quarter, our GX Systems portfolio performed strongly, landing new Tier 1 design wins with global service providers and ICPs. It now represents almost 50% of our expected annual product revenue, and in Subsystems, we shipped our first 400 gig ICE-X coherent pluggables vertically integrated into our own GX Metro platform.”

Heard said that, in 2023, Infinera scored notable strategic deals with major service providers in the United States, Europe, India, Australia, and several multination subsea consortiums, and for the full year of 2023, Infinera expects to have delivered its sixth consecutive year of revenue growth.

Expected financials

Nancy Erba, CFO of Infinera, relayed that because the company was delayed in filing its third quarter 2023 Form 10-Q, the results for Q4 2023 and the 2023 fiscal year have been delayed and the company was only able to share preliminary, unaudited ranges, with actual Q4 results expected in mid-April.

“I am pleased with the strong finish we had to the year,” said Erba, “The midpoint of our preliminary range of $435 million to $452 million is expected to be at or above our outlook range. This quarterly performance was primarily driven by strength in the Americas and with ICPs or hyperscalers.”

Sixty-five percent of Infinera’s Q4 revenue came from domestic customers.

“We expect the midpoint of our Q4 preliminary gross margin range of 39% to 41% to be above that in our outlook range and up on a year-over-year basis,” she added.

Infinera ended the quarter with around $174 million in cash and cash equivalents, generating more than $50 million in free cash flow in Q4.

Picking up momentum

Infinera expects a slow start to 2024 due to, among other things, first quarter customers digesting excess inventory. It reported revenue between $320 million and $350 million.

“In Q1 In particular,” said Heard, “we’re experiencing a temporary low point in revenue and margin driven by two factors. First, from a revenue standpoint, approximately $35 million of revenue has shifted out of the quarter, with roughly $10 million being recognized earlier in Q4 and $25 million of shippable backlog shifting from Q1 into future quarters. Second, from a margin standpoint, we expect gross margin to be approximately 400 basis points lower in Q1 due to a 300-basis point impact from the timing impact of higher line system shipments in Q1 associated with many of our global Tier 1 customer wins.”

Infinera believes that this will lead to a better back half of 2024.

“Overall,” said Erba, “we feel great about our strategy and the strength of our portfolio, as evidenced by the pace and scale of recent design wins across both our systems and subsystems portfolios. In the first 60 days of the quarter, I am encouraged by our win rate deployment of line systems, setting us up for future margin expansion. I’m encouraged by the growth of our sales funnel and the margins on our bookings, which I believe put us on a path to drive revenue growth of 2% to 3% for the full year and deliver on our seventh consecutive year of revenue growth.”

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