INVESTOR PRESENTATION

Transcription

1 INVESTOR PRESENTATION August Infinera 1

2 Safe Harbor Forward-Looking Statements This presentation contains forward-looking statements related to Infinera and Infinera s intent to acquire Coriant that involves substantial risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied by such statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, statements made about future market and financial performance; statements regarding future products or technology as well as the timing to market of any such products or technology; any statements about historical results that may suggest trends for our business; any statements about the plans, strategies, and capabilities of a combined Infinera and Coriant company, including customer expansion and value creation; any projections regarding synergy opportunities for the combined company; and any statements of assumptions underlying any of the items mentioned. These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. These risks and uncertainties include, but are not limited to, delays in the release of new products or updates to existing products and market acceptance of these products; the ability to leverage our vertically-integrated manufacturing infrastructure; the timing to consummate the proposed acquisition; the risk that a regulatory approval for the proposed acquisition or other closing condition is not obtained or is obtained subject to conditions that are not anticipated; our ability to achieve the synergies and value creation contemplated by the proposed acquisition; our ability to promptly and effectively integrate the businesses of the combined company, including unexpected transaction costs, and the costs of integrating operations, severance, professional fees and other expenses; the diversion of management time on issues related to the acquisition; the failure to consummate or any delay in consummating the acquisition for other reasons; changes in laws or regulations; the risks of customer and employee loss and business disruption, including, without limitation, as the result of difficulties in maintaining relationships with customers and employees; increased competitive pressures and solicitations of customers and employees by competitors; the difficulties and risks inherent with entering new markets; and changes in general economic conditions. For additional information concerning factors that could cause actual conditions, events or results to materially differ from those described in the forward-looking statements, please refer to the factors set forth under the headings Risk Factors and Management s Discussion and Analysis of Financial Condition and Results of Operations in Infinera s most recent Annual Report on Form 10-K filed with the SEC on February 28, 2018 and its Quarterly Report on Form 10-Q filed with the SEC on August 8, Additional information will also be set forth in Infinera's future Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and other filings that Infinera makes with the SEC. Infinera disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise Infinera 2

3 Infinera: Market Leader in Optical Transport Over 600 customers spanning 6 continents Leading bandwidth wholesaler operators 3 of top 4 Internet Content Providers 19 Tier 1s Globally Majority of largest Cable MSOs in NA & Europe Distinguished Track Record $6 billion revenue since 2007 IPO Over 500 patents filed/granted Broad talent: Photonics (PIC), DSP/ASIC, IP/Packet Worldwide Market Share (2017)* #1 Worldwide Disaggregated WDM Systems #2 Worldwide Data Center Interconnect (DCI) #2 100G Long-haul Wavelengths ex-china Our Passion is Driven by Customer Success 2018 Infinera * Source: Dell Oro 3

4 Explosion of Bandwidth-Hungry Applications and Devices By the end of the decade* Video Cloud IoT Mobility Video 11.6B devices Traffic >30 exabytes/month 80% global internet usage = video 11x more mobile video traffic than 2015 Mobility Cloud Public cloud services: 19.4% CAGR from 2015 to $141B (2019) Internet of Things > 24B networked devices 42.5 Mb/s avg fixed broadband speed, 2x Infinera *Source: TeleGeography Global Bandwidth Forecast 4

5 Discrete optics PIC + DSP = ICE Optical Engine Differentiated Capacity-Reach & Economics Via Integration Infinite Capacity Engine (ICE) Moore s Law for Optical FlexCoherent DSP Unique Infinera attributes that maximize capacity reach for lowest customer total cost of ownership Infinera PIC Attributes Hundreds of functions in a single device Fundamentally lower cost Orders of magnitude higher reliability Enables software-defined business model ( Instant Bandwidth ) Photonic Integrated Circuit (PIC) + FlexCoherent Digital Signal Processor (DSP) Advanced integration and packaging Unique Infinera DSP Attributes Nyquist subcarriers allow signals to travel farther SD FEC Gain Sharing maximizes capacity on a fiber Lightning protection enables network to function when aerial fiber struck by lightning 2018 Infinera 5

6 Instant Bandwidth: Enabling Customer Success On Demand Instantiation of Pre-Activated Bandwidth Nx100G Application-optimized granularity and modulation Pool of Intelligent Bandwidth Site 1 Site 2 Site 3 Site 4 Pay for bandwidth in proportion to incoming revenue Highly granular: Nx100G/200G units Enabled per device (line card or appliance) Software defined capacity (SDC) activation, in minutes License Pool Transferable Licenses Time-based Licenses 2018 Infinera 6

7 ICE4 & XTM II: New Product Momentum Infinite Capacity Engine (ICE) Approx. 24 months ICE4 ICE5 ICE6 Moore s Law-like for Optical 33GBaud 128GBaud 200G/λ 1T/λ ICE4 Revenue*: CX2 Q2 17 Low single digit millions XTM II Q3 17 Double digit millions XTC (AOFX 1200) XT/S 3300 Q4 17 Q1 18 ~20% INFN product revenue XT/S 3600 Q2/Q3 18 >30% INFN product revenue *Based on public statements by Infinera management 2018 Infinera 7

8 A Structure to Deliver Differentiated Financials Gross Margin High scale integration Long-haul DCI Metro Fixed cost leverage Instant Bandwidth Unique pricing structures R&D = long-term target 20% of revenue Operating Expenses G&A grows slower than revenue Success-based S&M investment Structured long-term financial model Financial discipline 2018 Infinera 8

9 $ (Millions) Sustained Success and a Setback Recovery in Progress 5 Consecutive Quarters of Growth $1,000 $888 $871 $193 $196 $ % $ % $800 $600 $400 $200 $0 $438 38% -9% $544 42% 1% $668 44% 8% 48% 48% 13% $741 39% FY12 FY13 FY14 FY15 FY16 FY17 Revenue Gross Margin Operating Margin *Infinera s outlook is as of August 7, 2018, and Infinera assumes no obligation to, and does not currently intend to, update its guidance. GAAP to non-gaap reconciliation is available as part of the Q2-18 earnings release. 6% -10% $176 $ % 40.7% Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Revenue Q2-18 Results Revenue $208.2M Non-GAAP GM 43.9% Non-GAAP OM -0.7% Cash flow from Ops: $7M 39.1% 37.5% Gross Margin Outlook Revenue Q3: $210M +/- $10M 2 nd Half = $420 - $430M Non-GAAP GM Q3: 36% - 40% FY18: GM 41% - 43% Non-GAAP OM Q3: ~-3% Q4: positive 2018 Infinera 9

10 Infinera Summary: The Most Vertically Integrated Optical Systems Company We Build Optical Engines: Photonic Integrated Circuit ( PIC ) + Digital Signal Processor ( DSP ) Superior Products & Service Industry pioneers of optical leadership Highly reliable, high-performance products Driving lower customer total cost of ownership Agile Business Models Customer-friendly usage-based billing unique to Infinera technologies Aligning customers costs with revenue Vertical Integration Leaders The most vertically integrated optical transport systems company Defining innovation destiny; less reliant on supply chain than competition Driving lower cost structure for Infinera Technology Leadership Differentiated Operating Model Financial Leverage 2018 Infinera 10

11 Intent to Acquire Coriant 2018 Infinera 11

12 Infinera + Coriant: Compelling Combination Doubles Infinera s Revenue Creating Significant Operating Leverage Amplifies financial benefit of Infinera s unique vertical integration capability Scale expansion creates significant operating leverage Drives faster than market growth and margin expansion Compelling valuation (~0.5x deal / revenue) Significant Customer & Market Expansion Dramatically expands presence: 9 of top 10 global Tier 1s; Top 6 global ICPs Solidifies our #1 position in open, disaggregated transponders Expanded portfolio drives multi-billion opportunity - IP, Metro Core, 5G, and automation in Tier 1s Financially Attractive Deal Immediate expected synergies ($100M in 2019), accretive in 2019, $250M expected synergies over 3 years Generates significant cash, deal payback anticipated in under 3 years Step function margin acceleration expected to begin in 2020 from vertical integration into Coriant platforms Target Business Model Growing faster than market 50% non-gaap Gross Margin 15% non-gaap Operating Margin Infinera 12

13 $430M Purchase Consideration 53% cash ($230M) 47% stock ($200M) ~$150M cash paid at close ~$25M Q4-18 & Q1-19 ~$55M remainder over several years Debt/Shareholder Consideration ~$114M deducted from purchase price to compensate Infinera for assumed liabilities ~$110M went to senior debtholder ~$6M to Oaktree ~21 million shares issued to Oaktree Oaktree ~12% stockholder post-close Based on 30-day VWAP at announce, $9.535 per share Anticipated Deal Close: Third quarter 2018 subject to regulatory requirements in US, Germany and Russia 2018 Infinera 13

14 Companies at a Glance Customers worldwide Years of vertical integration and transport systems experience Innovation Quality Customer Success Integrity Teamwork Customers worldwide Years of packet-optical transport and software experience ~$800M Annual revenues (last 12 months) ~$750M Annual revenues (2017) ~2100 Employees worldwide ~2100 Employees worldwide 572 Patents and applications 1598 Patents and applications 2018 Infinera 14

15 Capabilities at a Glance $800M+ R&D , refreshed portfolio Vertical integration, terabit optical engine in transport systems Industry s only Instant Bandwidth model First to market with disaggregated platform Unique strengths in L0-L1/L2, advanced coherent Complementary competencies fuel innovation ~$1B R&D investment from , refreshed portfolio 35+ years of Tier 1 experience, programmable packet platform Industry innovation in automation: orchestration 3/4/5G Mobile, IP solutions Strong L2/L3, open & disaggregated systems Renowned Infinera Experience Passion for customer success 2018 Infinera 15

16 FINANCIAL STATEMENT ~$525M Product Revenue *New product revenue ~70% of total in 2017, expected to grow 20% and tracking to ~80% in 2018 ~$225M Services Revenue ~$100M positive cash flow on annual basis Future network upgrade opportunities ~$150M Net Assets ~$350M A/R, inventory, fixed assets ~$150M of other assets Liabilities ~$350M No debt * Products that have been released or refreshed in the last 3 years We are paying $430M for: DEAL VALUE Incremental Customers/Revenue Incumbency in Tier-1s creates significant opportunity for growth Avoids significant upfront costs to break in at new customers Fully Refreshed Portfolio Strong, refreshed portfolio covering Metro, LH, DCI, Mobile, IP, SDN Benefit of $1B of recent R&D spend (over last 5 years) $250M+ Annual Synergies by 2021 $100M+ savings in 2019 Driven by operational integration Additional $75M+ savings in 2020 Further operational integration and early vertical integration benefits Additional $75M+ savings in 2021 Step function impact from vertical integration 2018 Infinera 16

17 Scale + Vertical Integration: A Powerful Combination Scale Drives Bottom Line Results Larger Revenue Base = Customer Opportunities Vertical integration: Step function improvement in Coriant gross margins Incremental benefit from driving additional volume into Infinera s fab facility, which is expected to improve cost of all products Improved purchasing power Ability to order in larger volume and make commitments with strategic suppliers lowers prices with suppliers Operating leverage - Higher revenue enables ability to sufficiently invest in R&D and achieve long-term goal of 15% non-gaap operating margin Technology leadership and financial stability give customers confidence to make long term commitments Incumbency at large customers provides significant growth opportunities 2018 Infinera 17

18 Significant Customer Expansion Opportunity Accelerates Timing, Avoids Break-in Costs Skips multi-year process required to win new Tier-1 customers Avoids customer acquisition break-in costs which can be $10-20 million per customer Complementary Customer Bases 9 of 10 largest carriers; Top 6 largest web-scale ICPs 9 of each company s top 10 customers are unique Minimal overall customer overlap Diversifies Revenue Base Combined company revenue split 50/50% US/International Significantly reduces top 10 customer concentration from ~60% to ~45% Deeply embeds Infinera with the largest Tier 1s in the world 2018 Infinera 18

19 Complementary Portfolios Approximate revenue by application Complementary offerings drive end-to-end scale DCI Services Long-haul Little overlap in long-haul, offset by customer diversity Metro core achieves scale Subsea 100% unique to Infinera Services Long-haul Metro Access Metro Core Mobile 5G & IP Edge unique to Coriant - high growth potential Metro Core Metro Access Subsea Services businesses are additive & drive scale Mobile 5G, IP Edge (Non-optical) DCI 2018 Infinera 19

20 Great Timing for This Deal Once in a decade wave of network investment underway Fiber Deep for Cable & 5G Long-haul & Subsea Networks Will Transform to Manage Bandwidth Demand and Control Costs Network Automation Data Center Interconnect Combined company exceptionally well positioned to capitalize on this opportunity Open Architectures & IP Edge 2018 Infinera 20

21 Immense Synergy Opportunities Near-term synergies alone, given valuation, drive 2019 accretion and justify deal 2019 Operational Integration ~$100M ~30% COGS, ~70% OpEx 2020 Portfolio Optimization ~$75M ~30% COGS, ~70% OpEx 2021 Vertical Integration ~$75M ~95%+ COGS Near term synergies alone justify deal Drive accretion in 2019 Enable payback within 3 years Vertical integration benefits ramp In line with release of ICE optical engines Realize cost synergies by leveraging Infinera optical engines across broader Coriant platforms Detailed synergy plans developed 2018 Infinera 21

22 Gross Margin Ladder We will move quickly to realize operational efficiencies and benefits from vertical integration Starting Point 36-38%* * Estimated at Close; non-gaap ** Non-GAAP bps improvement Lower cost of materials Operational efficiencies bps improvement Value engineering Lower cost of materials Initial vertical integration bps improvement Incorporate Infinera optical engines across portfolio PIC volume benefit Beyond 50% GM Target** Step-function gross margin improvement Combined overall company 1000+bp potential Coriant standalone products 2000+bp potential Higher margins on 2x revenue base drive operating income leverage 2018 Infinera 22

23 Infinera Uniquely Positioned to Create Value Customers will invest to address massive bandwidth demand growth cost effectively Why Infinera + Coriant Works Unique Differentiation Vertical integration leveraged through broader end-to-end portfolio Leading performance to cost solutions leveraged into Tier-1 customers Scale Economies 2x revenue base enables R&D and overall operating leverage Significant synergy potential from integrating Infinera optical engines in Coriant platforms Customer Expansion 9 of the top 10 global Tier-1s (5 new to Infinera) Top 6 global ICPs (3 new to Infinera) Differentiated Financials Grow faster than market 50% non-gaap gross margin 15% non-gaap operating margin 2018 Infinera 23

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