winning through disruption in the transport...
TRANSCRIPT
1 | © 2016 Infinera
Winning Through Disruption In The Transport Market
Investor Overview
November 2016
2 | © 2016 Infinera
This presentation contains "forward-looking" statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any statements about future market performance and similar statements; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectation or belief regarding future events, potential markets or market size, technology and product developments, or enforceability of our intellectual property rights; and any statements of assumptions underlying any of the items mentioned.
These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. These risks and uncertainties include, but are not limited to, delays in the release of new products or updates to existing products; the risks of competitive responses and shifts in the market; fluctuations in customer demand, changes in industry trends, and changes in the macro economic market; the effect that changes in product pricing or mix, and/or increases in component costs could have on our gross margin; our ability to respond to rapid technological changes; our reliance on single-source suppliers; aggressive business tactics by our competitors; our ability to protect our intellectual property; claims by others that we infringe their intellectual property; the risk that Transmode’s and Infinera’s businesses will not be integrated successfully and/or the risk that synergies will not be realized or realized to the extent anticipated; war, terrorism, public health issues, natural disasters and other circumstances that could disrupt the supply, delivery or demand of Infinera’s products; and other risks and uncertainties detailed in our SEC filings from time to time. More information on potential factors that may impact our business are set forth in Infinera’s Quarterly Report on Form 10-Q for the fiscal quarter ended on June 25, 2016 as filed with the SEC on August 2, 2016, as well as subsequent reports filed with or furnished to the SEC from time to time. Our SEC filings are available on our website at www.infinera.com and the SEC’s website at www.sec.gov. Forward-looking statements are subject to change, and we may not inform you when changes occur. We assume no obligation to, and do not currently intend to, update any such forward-looking statements.
Safe Harbor
3 | © 2016 Infinera
Redefining what the network will be• Unique technology innovation with PIC
• Best-in class systems with Automation, Convergence and Scalability
Industry leading global service & support
Unmatched reliability
Right tools for right job
Focused on customer success
Infinera: A Differentiated Technology Company
Enabling An Infinite Pool of Intelligent Bandwidth
DTN-XXT
DTNCloud Xpress DTN-X XTC
Photonic Integrated Circuit (PIC)
XTM/XTG Series
Cloud Xpress 2
FlexCoherent® Electronics
4 | © 2016 Infinera
Infinera’s Journey
* Dell’Oro DWDM Long Haul Reports
2005: Shipped 10G PIC-based DTN
2007: 10G wave market leader (47%)*, completed IPO
2000: Infinera founded, promises to do the impossible: PICs
2004: Introduced industry’s first large scale PIC
2014: Introduced Cloud Xpress for DCI
2015: Introduced Sliceable Photonics
Infinera acquires Transmode
2016: Introduction of Infinite Capacity Engine
Introduction of Cloud Xpress 2 with Infinite Capacity Engine
Infinera validates industry’s first transport platform interoperability with white box open line system
2008: #1 market share in NA LH*
2013: #1 in 100G WDM, ex China*
2010: Leapfrogs 40G, invests in 100G
2012: Shipped 500G PIC-based DTN-X
…2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
5 | © 2016 Infinera
Global Customer Base
Over 600 customers
spanning six continents
Three of thetop four
Internet Content Providers
Six of the top seven
global cable operators
Leading North America and
Pan-European wholesale operators
18 Tier 1 operators globally
6 | © 2016 Infinera
Infinera Differentiators
PIC-enabled Technology• PIC enables scalable, intelligent
functions: SDN, integrated switching, sliceable bandwidth
• High capacity applications: Long-haul, Cloud/DCI, Metro Core
Infinera differentiates due to its technology, market expansion opportunities and vertically
integrated business model
Infinera PIC Fab
Vertical Integration • Lower cost structure
than competition• Supply chain control
New Purpose-built Products• Cloud Xpress 2 for DC Interconnect• XT-Series for Long-haul• XTM Series & XTC-2 for Metro• TAM expansion to $14B in 2020*
Cloud Xpress 2 XTM SeriesXTC-SeriesXT-Series
* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG
7 | © 2016 Infinera
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
Jun '12 Dec '12 Jun '13 Dec '13 Jun '14 Dec '14 Jun '15 Dec '15 Jun '16
INFN
CIEN
JNPR
CSCO
ADV
Revenue Growth: Quarterly Trailing 12-month revenue 129%
DTN-Xfor 100G
Long-haul
Cloud Xpressfor 100G DCI
2x faster growth
than closest competitors
Outpacing Other SP Networking Players
New Metro portfolio introduced
55%
Xceed software suite and Cloud
Xpress 2 introduced
8 | © 2016 Infinera
Disruptive Technology Innovation: The Infinera Way
9 | © 2016 Infinera
The Infinera ApproachConventional Approach
ASICs and coherent
Intelligentsoftware
Photonic integrated circuitsCoherent optical engine
VerticallyIntegrated
Vertically Integrated
Technology LeadershipInfinera Uniquely Delivers Massive Scale
Moore’s Law-like for Optical
Industry’s only large-scale photonic integrated circuit
10 | © 2016 Infinera
Up to 2.4T PIC
Sliceable 600G – 2.4T
10 Channel100G ULH PIC
500G PIC
10 Channel100G PIC
Unmatched Capacity per Line Card/Chassis
Infinera PIC-based Optical Engines
2004 2009 2012 20162015
2 Channel100G PIC
Future Metro PIC
Cap
acit
y
Future
Optical Functions Integrated ~1000
Fiber Connections Eliminated >250
Future Long-haul/DCI PIC
11 | © 2016 Infinera
A Quantum Leap In Optical Transport To Terabits
Bigger Multi-terabit super-channels,
up to 12x bigger
Multi-terabit wire-rate L1 encryption
Smaller One of world’s smallest multi-terabit
subsystems
Lower power: 82%↓ vs. competition
Better Sliceable photonics, 53% lower TCO
Advanced coherent, 40-60% improved capacity-reach performance
DSPPIC
Advanced electronics (DSP/ASIC): Next-gen FlexCoherent® processor
Cutting-edge photonics: Fourth-gen Photonic Integrated Circuit (PIC)
The next step function in optical with Infinite Capacity Engine
Infinera Infinite Capacity Engine
Industry’s First 2.4 Tb/s Transport Technology
12 | © 2016 Infinera
Market Expansion Opportunities
13 | © 2016 Infinera
Explosion Of Bandwidth Hungry Applications And Devices
Infinera well-positioned to address bandwidth explosion
*Source: TeleGeography Global Bandwidth Forecast Q3 2015
Video
Cloud
Mobility
IoT
By the end of the decade*
Mobility 11.6B devices
Traffic >30 exabytes/month
Video 80% global internet usage = video
11x more mobile video traffic than 2015
Cloud Public cloud services: 19.4% CAGR from 2015
to $141B (2019)
Internet of Things
> 24B networked devices
42.5 Mb/s avg fixed broadband speed, 2x 2014
14 | © 2016 Infinera
Poised To Benefit From ICP-Driven Bandwidth Demand
Sources: Cloud market share from UBS report, 5/9/16 “Is the Sky the Limit for Cloud Computing”; Private vs. Internet bandwidth from TeleGeography
Top 4 Cloud & Content Providers:77% market share by 2020
Private backbones replacing Internet transit (i.e., massive server-to-server traffic growth)
Private
Internet
Trans-Atlantic Bandwidth
31% 35%48%
55%62% 68% 74% 77%
0%
20%
40%
60%
80%
100%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
2013 2014 2015 2016 2017 2018 2019 2020
IaaS + PaaS Estimated Revenue
Amazon Microsoft
Google IBM
Big 4 Combined Mkt Share%
15 | © 2016 Infinera
Infinera Unified End-To-End Portfolio
16 | © 2016 Infinera
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Infinera’s Ascending Global Market Position
Source: Dell’Oro2Q 16 DWDM Market Share report (Q3-15 to Q2-16).
Cross-selling and revenue synergies createopportunity to ascend over time
17 | © 2016 Infinera
Fully Addressing The Optical Transport Market
* Long-haul and Metro forecasts are average of latest projections from Ovum, IHS, Dell’Oro, ACG, and Cignal AI. Forecasts include China, which is currently the fastest growing geography and is not addressed by Infinera** DCI based on latest projection from ACG. Small Form Factor CAGR is 58% ($294M in 2016, $1.8B in 2020). Portion of DCI likely also included in long-haul and Metro projections.
Long-haul
DCI
Metro
Forecasts*
$4.4B
$1.6B
$5.8B
$5.1B
$4.1B
$8.2B
20202016
4%
28%**
10%
CAGR
18 | © 2016 Infinera
Long-haulAdding new tools to solve customer needs
19 | © 2016 Infinera
Established Long-haul Leader
Operational simplicity
Terabit-class PIC-enabled scalability
Power/space network efficiency39.4%
36.2%
12.7% 12.6%
INFINERA CIENA NOKIA CORIANT
North America Long-haul Market Share Q2-16
* Based on average of Dell’Oro, Ovum, IHS, Cignal AI
XTC-4XT-Series XTC-10XTC-2 XTC-2E
DTN-X Family
#1 in North America market share#4 Worldwide market share
Long-haul*
20 | © 2016 Infinera
Data Center Interconnect Capturing emerging cloud infrastructures
21 | © 2016 Infinera
Cloud Architecture Drives Network Demands
sources: google.com, facebook.com
Search Query
930x Network Traffic
Cloud Data Center Network
1500 Miles
HTTP request
22 | © 2016 Infinera
Cloud Xpress Cloud Xpress 2
The Infinera Cloud Xpress Family
500 Gb/s super-channel line10/40/100 GbE clients
Hyperscale Density Simple OperationLow Power Automation Built-in SecurityInstant Bandwidth
1.2 Tb/s super-channel line in 1RU100 GbE clients16-QAM
23 | © 2016 Infinera
The Metro MarketA new market for Infinera as 100G Metro begins to ramp
24 | © 2016 Infinera
1G to 100G Packet Optical
100G at Layer 1 and Layer 2 P-OTS
Multi-service, access to core
Low power and latency, high density design
Metro Solutions From Core To Access
Cloud Xpress
XTC-2/2EXTM Series XTG Series
Source: 2015 IHS 100G Coherent Optical Equip Ports Mkt Fcst
Building a differentiated portfolio from Core to Access
25 | © 2016 Infinera
XTC-4
XTC-10
DTN-X Family
500G
Converged Packet Aggregation& OTN Switched Metro Core
E.g. Frankfurt Metro Area, Germany
100GXTC-2
XTC-10
Value Of End-to-End
Triple PlayBroadband
BusinessEthernet
Mobile Front/Backhaul
Infinera Management (IMS) and Control (Xceed Software Suite)
XTM Series
Packet-Optical SwitchingAccess & Aggregation
CableBroadband
XT-500
26 | © 2016 Infinera
Metro: How Infinera Wins
• Strong customer base and reputation in Metro Edge/Access• Power efficient and purpose-built products
• Early technology leadership in Mobile FronthaulDifferentiated Approach
• High capacity solutions for Metro Core upgrades to 100G• Over time, lowers cost structure and enhances technology
differentiationVertical Integration
• Long-haul customer base upgrading to 100G Metro• Strong presence in Metro-heavy Cable vertical
Customer Base
Infinera Current Metro Market Share: 3% Worldwide*
Significant opportunities to grow!
*Average of latest projections from Ovum, IHS, Dell’Oro and ACG
27 | © 2016 Infinera
Differentiated Financial Results
28 | © 2016 Infinera
Infinera – A Track Record of Profitable Growth
$544
FY13
$438
FY12
$668
FY14
44.0%
8.3%
41.6%
1.4%
-9.4%
37.9%
Revenue (in $m)
GM%:
OM%:
• * Estimated; based on Wall Street Consensus as of 10/27/16• All income statement figures are Non-GAAP. See reconciliation to GAAP on last page• All figures as of end of Q3-FY2016
Q3 ‘16 Performance $185 million revenue 49.2% gross margin 3.6% operating margin
Q3 ’16 Outlook $165 to $185 million revenue 40% to 42% gross margin (12)% to (8%) operating margin $(0.16) to ($0.12) diluted EPS
$888
FY15
13.1%
47.8%
Solid Balance Sheet $210M net cash (Cash less face value of convertible debt)
10 consecutive quarters of positive Cash Flow from Ops
Last 4 quarters Cash Flow from Ops = $69 million
FY16
48.1%
6.2%
$869*
29 | © 2016 Infinera
Recent Revenue Decline: Drivers & Implications
What has Happened Longer Term Impact
1) Subsea drop-offMultiple quarter impact; Infinite Capacity Engine technologies expected to improve situation
2) Long-haul footprint pauseTemporary impact; Certain customers currently prioritizing Metro over Long-haul spend; Long-haul market expected to resume growth in FY17
3) Metro synergies delayedSynergies now expected to begin to take shape in 2nd half FY17; Pricing more aggressively to secure high quality Metro footprint
30 | © 2016 Infinera
Long Term Opportunities Intact
DCI - Small form factor market leader
Long-haul - Continue to outgrow the market
Metro – Significant market share growth
Near-term outlook doesn’t alter the future
Long-haul growth paused, but should resume
•Only halfway into 100G Long-haul cycle
•Customers must invest to address bandwidth demand
DCI and Metro remain promising high growth opportunities
•DCI – Significant market growth + alignment with key ICPs
•Metro – Synergy opportunities with Infinera customer base
Track record of best in class profitability
•Margins currently low due to footprint investments
• Infinite Capacity Engine-enabled products should enhance cost benefits of vertical integration and Instant Bandwidth
Long Term Opportunities
Profitability – Restore and exceed recent levels
32 | © 2016 Infinera
GAAP to Non-GAAP Reconciliation(In millions, except percentages and per share data)
(Unaudited)
Note: Amounts represent the midpoint of the expected range.
Q3'16 Q4'16
Actual Outlook
Reconciliation of Gross Margin:
U.S. GAAP 45.6% 37%
Stock-based compensation 0.8% 1%
Amortization of acquired intangible assets 2.8% 3%
Non-GAAP 49.2% 41%
Reconciliation of Operating Expenses:
U.S. GAAP 101$
Stock-based compensation (9)
Amortization of acquired intangible assets (2)
Non-GAAP 90$
Reconciliation of Operating Margin:
U.S. GAAP (5.9)% (20)%
Stock-based compensation 5.5% 6%
Amortization of acquired intangible assets 3.6% 4%
Acquisition-related costs 0.4%
Non-GAAP 3.6% (10)%
Net Income per Common Share:
U.S. GAAP (0.27)$
Stock-based compensation 0.08
Amortization of acquired intangible assets 0.04
Amortization of debt discount 0.02
Income tax effects (0.01)
Non-GAAP (0.14)$