Infinera ends 2014 on the upswing; expects the same in 2015

Optical transport systems vendor Infinera Corp. (NASDAQ: INFN) ended the best year in its history with sequential and year-ago revenue gains for its fiscal fourth quarter. Company management predicted continued success in 2015.

Infinera reported revenues for the quarter, which ended December 27, 2014, at $186.3 million, an improvement over the $173.6 million of 3Q14 and the $139.1 million it earned in the fourth quarter of 2013. The performance exceeded management's guidance of $175 million to $185 million (see "Infinera's 4Q14 guidance offers pleasant surprise").

The company invoiced 10 new customers for its DTN-X packet-optical transport system, including three brand new to Infinera, CEO Thomas Fallon revealed during a call with financial analysts January 22. The company also began shipping its new Cloud Xpress platform for revenue during the quarter (see "Infinera ships Cloud Xpress platform"). Infinera has eight customer commitments, either in the form of purchase orders, contracts, or field trials, for the CloudXpress, Fallon said. These commitments include three from what Fallon described as "top Internet content providers."

Rounding up other figures for 4Q14, GAAP gross margin came in at 45.3% versus 43.4% in the third quarter of 2014 and 40.2% in the fourth quarter of 2013. GAAP operating margin for the recently concluded quarter was 6.9%, up from 4.3% in 3Q14 and an operating loss of 5.1% in the year-ago quarter.

GAAP net income for the quarter was $8.4 million ($0.06 per diluted share), almost twice the $4.8 million net income ($0.04 per diluted share) of the previous quarter and well better than the net loss of $10.2 million ($0.08 per share) in 4Q13.

On a non-GAAP basis, gross margin was 46.1%, compared to 44.2% in the previous quarter and 41.4% in the year-ago quarter. Non-GAAP operating margin was 11.0% versus the 8.6% of the previous quarter and the 0.8% of 4Q13.

Non-GAAP net income was $18.0 million ($0.13 per diluted share) up from the $14.2 million ($0.11 per diluted share) net income garnered in the third quarter of 2014 and the $0.2 million (breakeven on an earnings per share basis) net loss of the fourth quarter of 2013.

For the year, the company saw revenues of $668.1 million, well north of the $544.1 million it gathered in 2013. GAAP gross margin for the year was 43.2% versus 40.2% in 2013. GAAP operating margin for 2014 was 4.1%, much better than the operating loss of 4.5% Infinera suffered in 2013. GAAP net income for the year was $13.7 million ($0.11 per diluted share), compared to a net loss of $32.1 million ($0.27 per share) in 2013.

Non-GAAP gross margin for the year was 44.0% compared to 41.6% in 2013. Non-GAAP operating margin in 2014 was 8.3% versus 1.4% in 2013. Non-GAAP net income for the year came in at $49.8 million ($0.39 per diluted share), a significant improvement over the $4.0 million ($0.03 per diluted share) net income reported for 2013.

Looking ahead, Fallon told participants in the call that Infinera this year will beat the 8% to 9% growth in the overall DWDM market that analysts currently forecast for 2015. The company's move into the metro market, signaled by the introduction of the CloudXpress as well as other new systems Infinera is expected to unveil this year, will help fuel this year-long growth.

In the shorter term, Infinera CFO Brad Feller told analysts on the call that the company is guiding revenues for the first quarter of 2015 in the range of $180 million to $190 million. Non-GAAP gross margin for the quarter will be 44%, plus or minus 100 basis points, while non-GAAP operating margin will be 8%, plus or minus 100 basis points, at the midpoint of the revenue guidance. Non-GAAP earnings per share will be $0.10 per diluted share, Feller predicted.

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