Infinera's Customers Are Spending Again

Infinera (INFN 1.45%) reported its fourth-quarter and full-year results on Thursday. The company's top line soared thanks to the closing of its massive acquisition of Coriant last quarter. The results came in ahead of management's guidance in part because a significant order from the first quarter was pulled forward at the customer's request.

However, the company's margins and net loss still took a significant step backward as management continued to try to right-size the combined entity. Infinera makes optical equipment that is used in the telecommunications industry

Infinera fourth-quarter results: The raw numbers

Data source: Infinera. 

What happened with Infinera this quarter?

• Non-GAAP gross margin nose-dived 560 basis points to 31.9%. However, the decline was expected and came in at the high end of guidance. 
• The non-GAAP net loss ballooned to $43.8 million, or $0.25 per share. This was better than management had predicted. 
• Cash balance stood at $269 million at quarter's end.

Image source: Getty Images.

Here's a look at the headline numbers from the full year 2018:

• Revenue grew 28% to $948 million.
• Non-GAAP gross margin contracted 90 basis points to 38.4%.
• The non-GAAP net loss was $59.1 million, or $0.37 per share. That was better than 2017's net loss of $80 million, or $0.54 per share.

What management had to say

CEO Tom Fallon reported on the integration progress that was made during the quarter: "We have already taken substantial costs out of the business, are seeing a significant uptick in opportunities from Tier-1 and ICP [internet content providers] customers, have announced our Infinite Network Architecture, and are on track to begin driving vertical integration across the combined company portfolio in 2020."

On the conference call with Wall Street analysts, Fallon stated that customer spending patterns returned to normal after the third quarter ended: "I was particularly pleased that bookings from traditional Coriant customers rebounded significantly in Q4 after a noted pause in Q3 due to the announced acquisition. With the fast start on integration execution, I believe our customers are now much more comfortable with our consolidated road map and are making network decisions based on the combined strength of our broad portfolio."

Check out the latest Infinera earnings call transcript.

Looking ahead

While the first quarter is always a seasonally weak period for the business, management had previously predicted that revenue in the period would be roughly flat with the fourth quarter of 2018. But management did note that a significant order that was planned for the first quarter of 2019 was pulled forward at the request of the customer. In response, management now expects that the current quarter will show a sequential decline:

Data source: Infinera.

Even with that short-term headwind, CFO Brad Feller restated his belief that the company will still generate at least $1.4 billion in total revenue for the year, show margin improvements with each passing quarter, and will return to non-GAAP profitability and cash generation by the end of 2019.