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Infinera (NASDAQ:INFN)

Q2 2012 Earnings Call

July 24, 2012 5:00 pm ET

Executives

Jenifer Kirtland

Thomas J. Fallon - Chief Executive Officer, President and Director

Ita M. Brennan - Chief Financial Officer and Principal Accounting Officer

Analysts

Ashwin Kesireddy - JP Morgan Chase & Co, Research Division

Jeremy David - Morgan Stanley, Research Division

Jody Farquhar - Jefferies & Company, Inc., Research Division

Operator

Welcome to the Second Quarter Year 2012 Investment Community Conference Call with Infinera Corporation. [Operator Instructions] Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Jenifer Kirtland of Infinera Investment Relations -- Investor Relations. Jennifer, you may begin.

Jenifer Kirtland

Thank you, operator. Today's call will include projections and estimates that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements address the financial conditions, results of operations, business initiatives, views on our market and customers, our products and our competitors' products, and prospects of the company in the third quarter of fiscal year 2012 and beyond and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current press releases and SEC filings, including the company's annual report on Form 10-K filed on March 6, 2012, for more information on these risks and uncertainties.

Today's press releases include results of the second quarter of fiscal year 2012 and associated financial tables. And investor information summary will be available today on the Investors section of Infinera's website at infinera.com. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

This afternoon's press release and today's conference call also include certain non-GAAP financial measures. In our earnings release, we announced operating results for the second quarter of fiscal year 2012, which exclude the impact of restructuring and other related costs and noncash stock-based compensation expenses. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons. Please see the exhibit of the earnings press release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful and how they are used by management, which will be available today on the Investors section of Infinera's website.

On this call, we'll also give guidance for the third quarter of fiscal year 2012. We have excluded noncash stock-based compensation expenses from this guidance because we cannot readily estimate the impact of our future stock price on future stock-based compensation expenses.

I will now turn the call over to Infinera's President and Chief Executive Officer, Tom Fallon.

Thomas J. Fallon

Good afternoon, and thanks for joining us on our second quarter 2012 conference call. With me are Chief Financial Officer, Ita Brennan; and VP of Corporate Marketing, Michael Capuano. Chief Strategy Officer, Dave Welch is on a well-deserved family vacation.

First, I will talk about DTN-X progress, and then I will touch briefly on global optical market trends and the competitive environment before turning it over to Ita for a full review of our Q2 financial results and Q3 outlook. For the last 2 years, we have been steadfast on our strategy with regard to DTN-X. We initiated our 500-gig PIC program and aggressively pursued what we believe would be the world's highest capacity platform featuring WDM and OTN switching integrated without compromise. We further committed to market delivery in Q2 2012.

I am extremely pleased with the team's execution, launching the DTN-X product to the market in September 2011, executing critical customer trials in Q1 and Q2 of this year and shipping to customers for deployment in June as promised. We believe this platform, with abundance of a cutting-edge technology and elegant ease of use, is available at the exact right time to enable mass adoption of high-bandwidth solutions in the transport market.

The DTN-X reception continues to be very positive. At OFC/NFOEC in March of this year, we announced our first public DTN-X customer, Cable&Wireless Worldwide, who selected DTN-X as the sole platform for the Europe to Persia Express Gateway network, known as EPEG. Subsequently, we announced DANTE's selection of DTN-X for the GÉANT optical network, Europe's largest high-speed research and education network connecting 40 million users in over 8,000 institutions across 40 countries.

In addition to these 2 announced customers, we have received DTN-X purchase orders from 8 other customers, for a total of 10 DTN-X customer commitments to date. Three of these purchase commitments are from customers new to Infinera.

Equally important to note, based on just these decisions, the DTN-X is now being adopted across a broad cross-section of our markets, including the cable, subsea, internet content, R&E and Tier 1 markets. I have every confidence that all of our markets will be well served by this leadership next gen platform.

In addition, we completed 10 customer trials as compared to the 8 we had planned. These customer trials represent a combination of service providers across North America, EMEA and APAC and consist of Tier 1 internet content providers and bandwidth wholesalers. Like the customers who have made purchase commitments, these represent a mix of existing and potential customers.

I would note that while some of these trials over the last 2 quarters have resulted in purchase commitments for the DTN-X platform, there has not been a direct correlation between trials and POs. We do business with over 100 customers, and not all of them will need to trial the DTN-X before committing to it. In fact, some of the DTN-X POs we have received are from existing customers who have bypassed the trial process. This is the result of the DTN-X being the next phase of our digital optical networking platform and the trust that we've earned over the past 7 years for reliability, quality and delivering on our commitments. Because of this lack of correlation, we will no longer provide an update on the trial pipeline and instead will focus on DTN-X purchase orders and customer wins going forward.

As we discussed on our first quarter conference call in April, we are seeing strong demand from existing customers for DTN-X for bandwidth growth and new footprint requirements. Implementing a new platform often includes a process of evaluating, qualifying and running first office applications, which can take 1 or more quarters. As we expected, this transition has adversely affected our DTN revenues as some customers moved from the DTN to the new DTN-X higher capacity 500-gig platform. While we anticipated this transition, we agree with the market analyst who predicted a very substantial 10-gig market for an extended time frame. We expect continued demand from both existing and new customers for the ATN and DTN as part of the digital optical network family of products.

To this point, in Q2 we won 2 new customers based on the DTN platform, and our invoice customer count now stands at 102. From an overall perspective, we continue to see aggressive pricing in the market for 100 Gig offerings at an average selling price that is several quarters ahead of both market forecast and typical new technology price curves. We believe that a 100 Gig today sells for a lower dollar per bit than 40 Gig and makes 100 Gig a better technology and economic choice for most capacity-constrained customers. Securing this DTN-X-based footprint now allows us to capture those opportunities and enable improved gross margin over time as we add capacity to the DTN-X deployments.

As we increase the volume of our DTN-X product, this will allow us to leverage the scale and cost advantages of our PIC-based vertically integrated model versus our competitors who are using less cost effective off-the-shelf optical technology. As a result, we are competing aggressively for these opportunities.

Market forces will continue to drive demand for the DTN-X into the future. Mobility, video and increasing broadband connectivity are generating significant network traffic growth, while data center and cloud services are creating the need for more meshed architectures. We believe that this bandwidth growth will continue to accelerate and regardless of access method, virtually all traffic will be transported over optical fiber networks. Operators need to invest in an architecture that is not only scalable but also provides a more resilient, flexible and intelligent solution. We believe that digital optical networks built upon a foundation of incredible ease-of-use and field-proven quality uniquely provide this balance.

Our DTN-X platform is seeing traction because of this unique combination. We believe that this combination can also help improve operator business models. First, the DTN-X provides investment protection assurance through unparalleled scale. Today, we deliver 500-gig long-haul super-channels while our competitors are only delivering, or trying to deliver 100 Gig. They are only talking about 400-gig Metro reach channels via slide [ph]. We're in proof-of-concept demonstrations. Their technologies, even if they are commercialized, will have significant compromises versus the performance of Infinera's 500-gig long-haul super-channels that are available now.

Second, the DTN-X provides lower CapEx and OpEx costs through network efficiency, network convergence and PIC economics. We have analyzed an 80-node nationwide network, and the results show that the integrated switching in WDM of the DTN-X can produce up to 60% lower total cost of ownership by using fewer channels, fewer fiber connections, less space and less power when compared to more conventional architectures. Finally, the DTN-X gives carriers the ability to increase customer wins and to reduce churn through service delivery velocity and unparalleled reliability.

With 7 years of field-hardened experience integrating OTN switching, WDM transmission and a GMPLS control plane, our customers can provision 10, 40 and 100 Gig services in minutes and have them run extremely reliably for years. The DTN-X is ushering in a new era of converged network generation, transport network architecture. Not only is the DTN-X early in the 100-gig market, it is also creating a de facto standard with 500-gig super-channels, which are shipping today. And similarly to what the DTN did in the 10-gig market, we believe DTN-X will accelerate mass adoption of both 100- and 500-gig super-channels.

From our inception, Infinera's mission has been to transform the way telecommunications networks are built and to help our customers succeed. Infinera does this through deep innovation. As a reminder, we are the first to design and deliver a large scale photonic integrated circuit currently shipping the third-generation 500-gig PICs and successfully demonstrating 1-terabit PICs; first to design and deliver FlexCoherent, allowing our customers to software-select the best modulation format to optimize reach and capacity while reducing cost; first to design and deliver 500-gig long-haul super-channels; and the first to design and deliver a platform that integrates 5 terabits of non-blocking OTN switching and DWDM transmission without compromise.

These industry-leading features help our customers to cost-effectively scale their networks now and into the future, significantly reducing their capital and operating cost and increasing their top line revenue opportunity. We are executing well on our mission and are confident about our ability to drive adoption of the digital optical network.

Now before turning the call over to Ita, I want to thank the Infinera team for meeting our commitments and shipping the DTN-X in Q2 as we promised our shareholders and customers. I would also like to thank our customers for their continued business and partnership as we move forward into the terabit age together.

Ita will now provide a detailed financial review.

Ita M. Brennan

Thanks, Tom. This analysis of our Q2 results and our guidance for Q3 is based on non-GAAP. All references exclude noncash stock-based compensation expenses.

Total GAAP revenues in Q2 were $93.5 million compared to our guidance of $92 million to $100 million. As anticipated in our March conference call, the second quarter reflected significant impacts from demand and initial shipments for our DTN-X platform. There have been existing customers made the decision to shift their demand for new footprint to the DTN-X resulting in lower DTN revenues for the quarter. While this resulted in revenues for Q2 at the lower end of our guidance, it also allowed us to exit the quarter with a healthy order book ahead of recognizing DTN-X revenues in Q3.

We added 2 new customers in the quarter, for a total roster of 102. As a reminder, this metric now reflects the completion of a number of previously announced customer mergers and is based on achievement of invoice shipment. The 2 new customers added in Q2 deployed digital optical networks based on the DTN platform. We expect to see new DTN-X customers impact this metric next quarter as we begin to invoice and take revenue on DTN-X deployments.

We had one greater than 10% customer in the quarter, which was a cable operator. The top 5 also included another cable operator, 2 Tier 1s and a bandwidth wholesaler.

International revenues totaled $28 million or 30% of total revenues for the quarter. EMEA accounted for $23 million or 25%, with APAC and the other Americas representing 3% and 2%, respectively. Our service revenues for the quarter were strong at $15.1 million, up from $11.8 million in Q1. This included some incremental deployment services in the quarter and some catch-up revenues from the renewal of a number of significant entitlement contracts. Services margins for the quarter were approximately 68%.

The commencement of DTN-X shipments also affected gross margins for the quarter. Overall gross margins in Q2 were 37%, down from 40% in Q1 and in line with our guidance of 36% to 38%. Q2 margins reflected the impact of lower product revenues, which is offset to some degree by a higher mix of network sales as customers shifted their new deployment opportunities into Q3 in anticipation of DTN-X.

In addition, we recorded lower of cost or market or LCM adjustments related to initial DTN-X inventory and shipments in the quarter. As a refresher on LCM, if we sell product below costs, we must recognize the projected loss on those items when they are recorded as purchase commitments, held in inventory and finally, when shipped and awaiting customer acceptance, all in advance of taking revenue on the transaction. We normally incur LCM on initial common equipment deployments when faced with competitive first-in [ph] pricing.

We did however, record LCM adjustments in the second quarter related to the first DTN-X line modules we manufactured, which carry a higher cost due to lower initial yields and volumes associated with ramping production on a new product. We would expect LCM adjustments related to line modules to cease once we have consumed these already [ph] high cost units.

While we had anticipated some of this LCM effect in our gross margin guidance for the second quarter, our DTN-X shipments awaiting customer acceptance at the end of the quarter exceeded our original plan and drove some additional LCM. This had a somewhat negative impact on our gross margins in Q2, but this change will be directly offset by an improvement in anticipated margins for the third quarter when revenue is recognized on these shipments.

Operating expenses for the quarter were $52.6 million, an improvement versus our guidance of approximately $54 million. We remain focused on careful expense management while balancing the need to fund lab trials and other customer-facing activities. Looking forward to the September quarter, we expect operating expenses to be approximately $55 million, including ongoing OSMINE certification costs and a rollover of some lab trial-related expenses from the second quarter.

Overall headcount for the quarter was 1,228 versus 1,210 in Q1. Headcount additions were primarily related to direct labor for manufacturing, and there were also a few additions in sales and R&D.

Our operating loss for Q2 was $18.5 million. Other income expense for Q2 was favorable at $0.4 million. Net loss for the quarter was $18.6 million, resulting on a loss per diluted share of $0.16 in line with our previous guidance, which calls for a loss of $0.14 to $0.18 per diluted share and compared to a loss of $11.2 million or $0.10 per diluted share in Q1.

Now turning to the balance sheet. Cash, cash equivalents, restricted cash and investments ended the quarter at $210 million versus $240 million in Q1. We used $22.7 million of cash from operations in Q2 versus $5.8 million in Q1.

DSOs were 55 days, down from 57 days in Q1. Although DSOs were healthy at 55 days for the quarter, we may see some upward pressure on this metric next quarter depending on the timing of acceptance and billings on some larger DTN-X opportunities.

Inventory turns were 2.1x versus 2.5x in Q1. Overall inventory levels increased to $115 million in Q2. While DTN inventories were slightly below normal levels, DTN-X inventories have increased in advance of revenue recognition. This includes increased inventory awaiting customer acceptance and increased inventory levels throughout the manufacturing cycle. This near-term increase in working capital requirements is in line with our expectations for the initial DTN-X sales period, and our goal is to return to more competitive metrics by the end of the year.

Accounts payable days were 44 days, the same as in Q1. Capital expenditures were $16.1 million in Q2 versus $13.6 million in Q1. Q2 CapEx included costs associated with the finalization of our ERP replacement project, which went live in July. This project was initiated to allow us to better scale our operations and to support multiple product lines, potentially increase volumes from Tier 1 customers and the expanded international footprint. With the completion of this project, we expect go-forward capital expenditures to return to pre-DTN-X levels and run at approximately $20 million per annum.

Turning to our outlook for the rest of the year. We exited the second quarter with a strong order book, having received DTN-X purchase commitments from 10 new and existing customers. We expect to begin recognizing meaningful revenues from the DTN-X platform in Q3, with incremental revenue growth expected for the fourth quarter.

There may, however, be some volatility around the timing of acceptance for some DTN-X deals given that they involve a new platform and in some cases, new customer engagements. We continue to win new DTN opportunities and expect to complete a number of new DTN deployments in the third quarter. That said, we are seeing some falloff in DTN revenues as some of our larger customers transitioned their new higher bandwidth deployments to DTN-X.

In addition, as Tom mentioned in his remarks, market conditions remain unpredictable with competitors' analysts tempering their demand forecast for the second half of the year based on macroeconomic and other concerns. Given these factors and our current visibility, we now believe that revenues for the second half of 2012 will range from approximately $230 million to $245 million, with the higher end of this range representing the midpoint of our previous guidance.

Turning to gross margins. As previously mentioned, we continue to see some aggressive pricing from competitors on a 100-gig footprint opportunities. We are responding to these competitive pressures in order to secure the initial footprint and gain access to the future higher-margin network sales. All things being equal, we believe that this initial 100-gig footprint pricing dynamic, coupled with higher levels of common equipment and the need to absorb some DTN-X ramp-up costs, will result in margins for the year that remain consistent with our previous guidance of somewhat below 40%.

Looking beyond 2012, we believe that with solid revenue growth, our vertically integrated models can deliver significant leverage and allow for healthy margin expansion. In addition, over time, we would expect to see a more balanced mix of new footprint and network sale that should also improve our gross margin structure.

The following specific guidance for Q3 is based on non-GAAP results and excludes any noncash stock-based compensation expenses: revenues of approximately $106 million to $115 million; gross margins of approximately 37% to 39%; operating expenses of approximately $55 million; operating and net loss of approximately $10 million to $16 million; based on estimated average weighted diluted shares outstanding of $114 million, this would lead to a loss per share of approximately $0.09 to $0.14. Please note that the basic share count is expected to be 111 million for the quarter.

Finally, before we open the call up for questions, I want to let you know that we'll be holding an Analyst Day in New York City in December. We will be finalizing the details over the next couple of weeks, and you'll be hearing more from us about this at that time.

Now operator would you please open the call up for questions? Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Rod Hall with JPMorgan.

Ashwin Kesireddy - JP Morgan Chase & Co, Research Division

It's Ashwin filling in for Rod. One question is about your DTN-X customers. You said that you completed 10 customer trials. But you also gave a metric around the number of purchase orders you received. And also you've mentioned that some of the customers bypassed the trial phase. So can you give us a number of how many customers actually bypassed that phase? And is there any North American customer in that -- in the purchase orders you currently have?

Thomas J. Fallon

So I think you asked a couple of questions. One, can we tell you which customers bypassed the process. I will only tell you that it's been customers that we have been working with for a number of years. They have large installed base DTN and it's in markets that we have served for a long time. It's a combination of mostly domestic, but also at least one international customer that bypassed the typical trial phase.

Ashwin Kesireddy - JP Morgan Chase & Co, Research Division

I was just going to ask about the North American customer trial. There was this one Tier 1 service provider, which was present with you around the States, had shown some interest about -- interest in the DTN-X platform. Can you give us some update there?

Thomas J. Fallon

I think you're probably referencing Verizon, and we continued to, as you, I think, probably know, have good interactions with Verizon. They have publicly continued to endorse both the architecture that we are supporting, converged network around both OTN and packet, and they've endorsed the direction we're going. I am not at liberty to discuss any further details about that potential customer engagement.

Ashwin Kesireddy - JP Morgan Chase & Co, Research Division

All right. Then final question is on the gross margin. Last quarter, you mentioned that you are seeing a lot of pressure on the pricing to win the initial footprint. Now you're saying you're continuing to see that pricing pressure. I'm just wondering if the pricing pressure actually increased. Or is it almost stable?

Ita M. Brennan

Yes, I mean, it's always hard to kind of create relative measures around that. I mean, I think we're continuing to see just similar interest in that initial footprint and drive to win that initial footprint. So I don't know if anything has changed from last quarter's call.

Thomas J. Fallon

This is Tom. I have at one point of clarification. We've said it's a very competitive environment now for a number of quarters. A part of that we have linked to the fact that we were competing with platforms that offered 10 and 40 Gig against a market that was very focused on 100. So we said we are making some commercial decisions to offer our customers a good solution around our, then available, 10 and 40 Gig. Now that 100 is available and shipping, we continue to see 100 Gig pricing pressure, which usually for a new technology, there's a period of time where that is less intense. My view is it's probably been less intense over the last couple of years. But as the market opens up now to at least a few people pursuing and delivering 100 gig Coherent, the competition for 100-gig technologies is pretty significant.

Operator

[Operator Instructions] Our next question comes from Ehud Gelblum with Morgan Stanley.

Jeremy David - Morgan Stanley, Research Division

It's Jeremy David speaking on behalf of Ehud Gelblum. I guess a couple of questions on -- you don't take the -- on the second half revenue guidance from $245 million at the midpoint to $237.5 million. Now what's the reason? Is it just macro? Is it just a delay in purchase orders for the DTN-X or greater fallout than you expected in DTN orders? Can you give us some visibility into that?

Thomas J. Fallon

Certainly. This is Tom, Jeremy. If I look at -- there's 2 things that are happening: one, are we creating traction with the DTN-X; and are we winning customers at or above the rate we had anticipated? And as I stated in my statements, I am extremely excited and enthusiastic about the role, I think, that DTN-X is going to play in the market, short and long term. So from a traction perspective, from a customer receptivity perspective, I am extremely bullish. Having said that, and I think you're seeing this from almost everybody who I hear announcements from, the macroeconomic environment is certainly uncertain, and I think that there is, without question, delays of purchase decisions, and we are also concerned about the ability to control when customers accept any DTN-X platform that they might buy from us and deploy. So the change of the guidance is reflective of our view that the macroeconomics are very uncertain, and there's inherent risk there and our inability to control when certain customers will be able to recognize revenue from them accepting the product.

Jeremy David - Morgan Stanley, Research Division

Okay, great. That's very helpful. And then could you comment on the revenue mix this quarter between the DTN and DTN-X? I know you just started shipping it in June so it might be very -- it might be single-digit mix?

Ita M. Brennan

Yes, there's no DTN-X revenue, Jeremy, in the...

Jeremy David - Morgan Stanley, Research Division

There's no DTN-X, okay. What about next quarter? What is that? Can you give us some guidance around the mix between DTN and DTN-X, broadly speaking?

Ita M. Brennan

Yes, I mean, as we said, meaningful so I think, we will start to see a good ramp on the DTN-X revenues. We're not really going to break that out between the 2 platforms because, I mean, essentially for us a network is a network. And we'll be selling DTN and DTN-X as a solution to these customers. So we're not going to try and track that between the 2 platforms.

Jeremy David - Morgan Stanley, Research Division

Okay. And finally, you mentioned you will not be disclosing trials anymore for the DTN-X going forward. You had mentioned 10 trials last quarter, and you had 10 purchase orders, presumably some of them came from customers who are already using you. Are there any trials that were not successful? And if any, anything that we can learn from those trials that may not have lead to purchase orders?

Ita M. Brennan

Yes, I mean, I think some of them are still in play, as I look at the list of trials. We don't see anybody where we would say that we have absolutely lost out on the opportunity. But some of those opportunities are definitely still in play.

Thomas J. Fallon

Yes, I'll be more clear. You asked if any of them were unsuccessful. None of them were unsuccessful, and I would qualify that I was very satisfied with the results of the trials, certainly the ones that resulted in POs. But I was also as satisfied that potential customers who have not made a purchase decision yet walked away with an exceptionally good feeling about the product, the architecture, the company. So I think they were all successful. That's one of the reasons we are going to break apart not talking about trials because trials come at many different times. Sometimes customers are about to deploy something. Sometimes people are thinking about deploying something and sometimes people are just evaluating a longer-term architectural direction, and they will not understand what we are doing. It might impact that strategy. That could be a year or 2 years away. I think the most relevant thing to think about is customer wins and market share of 100 Gig moving forward. We will talk about customer wins, and we are going to talk about 100-gig market share because we think we're going to have something we can be very proud of. Just for Q3, we do have a number of trials that are scheduled, so I don't want anybody to think that we're walking away because the metric wouldn't look good. We have approximately the same number of trials scheduled in Q3 as we had scheduled in Q2, but we just don't think it provides great clarity as a predictor of short-term business.

Operator

Our next question comes from Jody Farquhar with Jefferies & Company.

Jody Farquhar - Jefferies & Company, Inc., Research Division

This is Jody in for George Notter. On the back of the commentary on the strong order book, I guess, any granularity you could provide around book-to-bill metric? And then also, I noticed we had a downtick in the deferred revenue number on the quarter. So any commentary around those would be greatly appreciated.

Ita M. Brennan

Yes, I mean, it's difficult to give you a meaningful book-to-bill just because our business tends to be large opportunities that kind of have their own cycle time. I think the best book-to-bill we can give you is to look at the revenue guidance, which essentially is there and out through the end of the year between both the second half guidance and the Q3 numbers, right? The downtick on deferred revenues, we did recognize some deferred services revenues and some deferred product revenue in the quarter. We'll start to see that scroll again starting in Q3 as we start to bill kind of service contracts for next year, so it's typical for it to come down. We had a couple of larger amounts come out of that this quarter. And then we should start to see it build again in Q3 and Q4.

Jody Farquhar - Jefferies & Company, Inc., Research Division

Okay, great. Final question on DTN and DTN-X overlap, going back to that. I believe the commentary on the last update was that 15% to 20% of this customer base maybe there's an overlapping customer there. Is this -- any update on that number given today's commentary? Does this look like something like 25%, 30% overlap now? Any further commentary on that?

Thomas J. Fallon

I don't remember the commentary saying that there's only a 15% or 20% overlap. So I'm going to have to take a note, Jody, and get back to you. I believe that a substantial portion of the customers that buy from us today at a dollar basis will also be interested in the DTN-X. I don't think that all of their applications necessarily will have the DTN-X be the right answer because it has such a magnificent scale and magnificent capacity, and that costs money. So there are certain applications that the DTN is going to be better suited for, but I would say at a dollar basis, more like 80% of the purchase dollars we get today would come from customers who would have opportunities for DTN-X.

Operator

[Operator Instructions]

Thomas J. Fallon

On behalf of Infinera, I would like to thank you very much for your time. I look forward to giving you updates over the next quarter and look forward to hopefully seeing you in December. Thank you.

Operator

Thank you for participating in today's conference. Please disconnect at this time.

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