Infinera Corp. Reports Fast Growth, but Guidance Fails to Impress


Infinera reported its first-quarter results on April 27 after the market closed. While the results came in a bit ahead of its own guidance, traders were selling off shares in Thursday's trading as the company projected that growth is going to slow in the coming quarter. At 3:40 p.m., shares were down nearly 24% from the previous close.

Let's dig into the results to see how the company performed in thethree areasthat I suggested investors should pay attention to.

Infinera's first quarter: The raw numbers

Metric Q1 2016 Q1 2015 Change
Non-GAAP revenue $245 million $186.9 million


Non-GAAP net income $28 million $22.1 million 27%
Non-GAAP EPS $0.19 $0.16 19%


Infinera's top line grew 31% and landed smack in the middle of management's guidance range of $240 million to $250 million.Earnings grew a strong 19% during the period and came in at $0.19, which was ahead of the company's $0.17 forecast.

Managementbelieves that the rapidadoption of 4K video and cloud computing are driving an enormous increase in consumer demand for bandwidth, which in turn is forcing service providers to invest heavily in their networks to keep up. That's greatly increasing the demand for Infinera's equipment and is a major reason the company continues to grow quickly.

That fast growth rate also suggests that Infinera continues to gobble up market share from players like Ciena . For perspective, analysts are projecting that Ciena's revenue will grow by 1% in the coming quarter and by slightly more than 6% for the full year.

Margin checkupInfinera showed a strong non-GAAP gross margin of 50.2% for the period, which is well ahead of the 47.8% it reported in the year-ago quarter. That result also exceeded the high end of management's guidance range and it is the first time that the company has produced a gross margin above its long-term target of 50%.

A higher-than-expected gross margin allowed the company to post a non-GAAP operating margin of 12.3%, up slightly from 12.2% last year. That's a solid result, especially when you consider that management warned that quarterly profit growth would suffer this quarter as it continued to invest heavily in its growth.

While these results were impressive, CFO Brad Feller stated that he does not believe that record gross margins are here to stay just yet:

Is the integration work complete yet?On its conference call, management reaffirmed that the Transmode integration work remains on track and that consumers are responding positively to its ability to now offer a suite of product solutions.

However, management did state that a "significant" Transmode customer has not purchased any products from the company in two quarters. While it believes that the relationship remains healthy, management admitted that it is having a tough time making up for the revenue shortfall with this customer sitting on the sidelines.

Looking aheadWhile the overall report looked solid, Wall Street was less than thrilled to hear management's guidance for the second quarter. The company is forecasting that revenue will land within $5 million of $255 million, representing year-over-year growth of 23%. That's quite a bit below the $272 million that analysts were expecting and represents a significant growth deceleration from the 31% it showed this quarter.

CFO Feller did his best to put the slowdown in perspective:

The company also projects that margins will decline slightly during the period -- it is calling for gross margins around 48% and an operating margin of about 11%. Earnings per share are predicted to be $0.17 per diluted share, which is also quite a bit below analyst expectations of $0.22.

When pressed on the call for more details, management admitted that the downbeat guidance is primarily owed to the absence of the large legacy Transmode customer.

Still, CEO Tom Fallon did his best to remind investors that Infinera's growth story is on track:

The article Infinera Corp. Reports Fast Growth, but Guidance Fails to Impress originally appeared on

Brian Feroldihas no position in any stocks mentioned.Like this article? Follow him onTwitter, where he goes by the handle@Longtermmind-setor connect with him onLinkedInto see more articles like this.The Motley Fool owns shares of and recommends Infinera. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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