Infinera guidance disappoints Wall Street

Infinera Corp. (NASDAQ: INFN) reported another strong revenue quarter for the three months ended September 28, 2013. But because it doesn’t expect its current fourth quarter to maintain the breathless pace at which it has grown this year, Wall Street dinged its stock price.

The optical transport systems vendor reported GAAP revenues of $142.0 million, better than its 2Q13 revenues of $138.4 million and much better than the $112.2 million it earned in the year-ago quarter. The figure was in the upper end of management’s guidance for the quarter of $135 million and $145 million (see “Infinera forecasts profit and a metro platform”). GAAP gross margin for 3Q13 was 48%, again up versus the 37% enjoyed in both the second quarter of 2013 and the third quarter of 2012. GAAP net income also improved to the point of profitability – a total of $3.3 million ($0.03 per diluted share) versus a net loss of $10.0 million ($0.09 per share) in the previous quarter and a net loss of $19.1 million ($0.17 per share) in 3Q12.

Non-GAAP gross margin for the recent third quarter was 49% compared to 39% in the second quarter of 2013 and 39% in the third quarter of 2012, excluding non-cash stock-based compensation expenses. Non-GAAP net income for 3Q13 was $12.8 million ($0.10 per diluted share) excluding non-cash stock-based compensation expenses and the amortization of debt discount on our convertible senior notes. The non-GAAP profit compared favorably to the non-GAAP net loss of $1.2 million ($0.01 per share) in the previous quarter and the non-GAAP net loss of $7.8 million ($0.07 per share) in the year-ago quarter.

The DTN-X again led the way. The company reported purchase commitments from five additional customers, including two new to Infinera. The wins brought total DTN-X customers to 39.

However, Wall Street paid the most attention to the guidance provide by CFO Ita Brennan, who said the company expects fourth quarter revenues to come in between $130 million and $140 million. While management anticipates new wins and deployments in the quarter, “We do not currently expect significant budget flush or year-end money and have not reflected this in our guidance,” Brennan told those on an analyst call October 23. On a non-GAAP basis, the company expects both operating income and earnings per share to reach break-even, at best.

Given the fact that the fourth quarter typically is a positive one for the optical network hardware space, investors expressed their concerns with their wallets. Infinera’s stock price dropped 9.2% the following day and was trading at $10.00 (down 2.49% from yesterday and 17.7% from its 52-week high of $12.16) in trading this morning. The stocks of other optical transport systems vendors tumbled in sympathy.

Infinera also announced that Brennan will leave the company to join a start up at the end of Infinera’s fiscal year.

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