High-speed networking systems specialist Infinera (NASDAQ:INFN) reported first-quarter results on Tuesday, May 12. It posted mixed results, where the bottom line was hamstrung by the early closing of a low-margin contract. That being said, Infinera nearly met Wall Street's bottom-line targets despite these headwinds, and the rest of the year looks good.

Infinera's first-quarter results by the numbers

Metric

Q1 2020

Q1 2019

Change

Analyst Consensus

Revenue

$330 million

$293 million

13%

$318 million

GAAP net income (loss)

($99 million)

($122 million)

18%

N/A

Adjusted earnings (loss) per diluted share

($0.27)

($0.23)

(17%)

($0.18)

Data source: Infinera. GAAP = generally accepted accounting principles.

The company rose above Wall Street's revenue targets thanks to the early delivery of a major subsea network connection. The same project also reduced Infinera's total gross margins by 300 basis points or 3 percentage points, because the equipment involved in this stage of the subsea installation consists of low-margin commodities. Infinera would have delivered an adjusted net loss of approximately $0.22 per share without this accelerated project, edging out the analyst consensus.

Violating the laws of physics

The large subsea project comes with plenty of upsides in the long run. The consortium of customers that ordered the basic cable pull will come back with orders for higher-margin network endpoints across 19 countries along this fiber-optic loop.

Moreover, Infinera is shipping 600-megabit networking gear to replace the last generation of 200-megabit and 400-megabit equipment, and an even faster 800-megabit solution will be available in the second half of 2020. That's a unique business advantage that the company's sector rivals will find difficult to match in the near term.

"During the quarter, we demonstrated technical performance leadership in 800-gig transmissions in a major North America operators live production network, conducted with our new ICE6 powered Groove GX Series platform," CEO Tom Fallon said in the earnings call. "Compared to the current third-generation 400-gig solutions, we believe ICE6 will enable savings of more than 65% in the same typical North America backbone network. As a consequence of this superior performance, our competitors have taken to publishing white papers that challenge our results as violating the laws of physics. I kindly can't think of a higher compliment and look forward to competing in the field."

A colorful bundle of optical networking fibers in dramatic lighting.

Image source: Getty Images.

What's next for Infinera?

Infinera's management isn't terribly worried about the COVID-19 health crisis, which increased the company's shipping costs in the first quarter to a modest degree. Looking ahead to the second quarter, revenues should land near $320 million, down from $330 million in the year-ago period. The coronavirus pandemic is making bottom-line earnings too unpredictable to provide a meaningful guidance target, but many companies also refuse to provide top-line targets these days. The revenue guidance is a handy little bonus.

As a leader in the long-haul networking space, Infinera is itching to get back to network installations in support of 5G wireless rollouts and a rapid rise in global network traffic. There's a fantastic long-term growth story to be told here, and Infinera's stock entered this report at a 30% discount from February's 52-week highs. This is a wide-open buying window for a high-quality networking company.