Jeff Hustis - IR Tom Fallon - CEO Brad Feller - CFO Dave Welch - President.

George Notter - Jefferies Simona Jankowski - Goldman Sachs Sanjiv Wadhwani - Stifel Alex Henderson - Needham Rod Hall - JPMC Dmitry Netis - WB Blair Ted Moreau - Barrington Research.

Welcome to the First Quarter Year 2015 Investment Community Conference Call of Infinera Corporation. All lines will be in a listen-only mode until the question-and-answer session. [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 Mr.

Jeff Hustis of Infinera Investor Relations. Jeff, you may begin..

Thank you, Liu. Welcome to Infinera’s first quarter of fiscal 2015. A copy of today’s earnings is available on the Investor Relations section of Infinera’s website. Additionally, this call is being recorded and will be available for replay from the website. Today’s call will include projections and estimates that constitute forward-looking statements.

This may include statements regarding Infinera’s overall business strategy, market conditions, market and growth opportunities, Infinera’s results of operations, views on Infinera’s customers and its products, as well as Infinera’s financial outlook for the second quarter of FY 2015 and intent to acquire Transmode.

These statements are subject to risks and uncertainties that could cause Infinera’s results to differ materially from management’s current expectations.

Please refer to Infinera’s current press releases and SEC filings including Infinera’s most recently filed annual report on Form 10-K and subsequent filings for more information on these risks and uncertainties.

Please be reminded that all statements are made as of today, and Infinera 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. Today’s earnings release and conference call includes certain non-GAAP financial measures.

Pursuant to Regulation G, Infinera has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures in its first quarter earnings release which has been furnished with the SEC on Form 8-K and is available on Infinera’s website in the Investor Relations section.

I would now like to turn the call over to Chief Executive Officer, Tom Fallon..

Good afternoon and thank you for joining us on our first quarter 2015 conference call. Joining me on today’s call are Chief Financial Officer, Brad Feller; and President, Dave Welch.

On the call I will touch on the financial highlights for Q1 and then provide an update on the market, our business, a brief recap of our announced offer to acquire Transmode and an overview of key technology development.

I will then turn the call over to Brad, who will provide a more detailed review of our first quarter results and our outlook for the second quarter of 2015. In what is typically a soft quarter for our industry we excelled benefiting from broad strength across customer verticals.

First quarter revenue was $187 million at the higher end of our guidance range and 31% higher than last year’s first quarter revenue. Non-GAAP gross margin was 47.8% above our guidance range. A combination of the higher revenue and gross margin flowed through to earnings of $0.16 per share also above our guidance range.

We continue to demonstrate our ability to drive increasing financial leverage leading Infinera to being one of the most profitable companies in the industry. In the first quarter, we continued to see broad strength across multiple customer verticals. Internet content providers continue to spend and we are delivering.

A recent report from Ovum named Infinera as the fastest growing company in data center interconnect worldwide a of Q4 2014 and number one in worldwide market share for combined ICPs and carrier neutral data center operators for the 2014 year.

We recently announced that we believe -- what we believe is the world’s longest 8 Terabit capable unregenerated route from one of Facebook’s European data centres near the Arctic Circle. Not only does this deal highlight the strength of our business of ICPs globally, it is also a proof point of our coherent optical innovation and leadership.

In addition to ICP strength, in Q1, we experienced robust demand from both the tier-1 and wholesale and enterprise carrier verticals. Our DTN-X platform remained strong in the quarter as we added three new invoice customers allowing us to build new footprint.

We also added significant capacity to the installed base of 100 gig networks built over the last few years. Moving to metro cloud, we continue to gain momentum for our Cloud Xpress platform in Q1.

We started shipping our 10 GigE version of the Cloud Xpress during the quarter and generated revenue from both our 10 GigE and 40 GigE versions of the product. To-date, we have seven invoice customers for the CX platform and several more running lab and field trials.

These seven customers include three large ICPs who have added the CX to their purchase portfolio and three customers who are new to Infinera. We are also excited to see the growing CX traction to our channel program allowing us to engage a broader base of customers to the Cloud Xpress.

Recent announcements of Blackboard, a cloud based educational service provider and JPIX or Japan Internet Exchange highlight the traction we are seeing with this initiative.

We are in track with our internal plan for this product family and remain confident that our revenue from Cloud Xpress in 2015 will be in a range the analyst community isn’t predicting. Moving on to metro aggregation, we briefed you two weeks ago of our intent to acquire Transmode.

This acquisition will complement our own metro product that we will deliver later this year, strengthening the Infinera portfolio in the metro core and extending it to the services delivery at the edge.

The Transmode opportunity accelerates our planned expansion across the metro market and creates an end-to-end portfolio that more than doubles our total available market. This is particularly important considering the metro transition to a 100 gig and is expected to begin ramping in 2016.

Both companies bring complementary customers and technology with Transmode primarily positioned in Europe and delivering services rich metro application and Infinera primarily positioned in North America in delivering broad optical technology leadership.

Combining two of the most profitable companies in the industry, we expect the transaction to be earnings accretive in 2016. I’m very excited to get the Transmode team on board upon the close of the transaction which is expected in Q3.

From a geographic perspective, INFINITEX recently recognized Infinera as the fastest growing optical company in North America and EMEA combined. This result is attributable to our commitment to innovation leadership and creating the Infinera experience with each and every transaction.

As we extend our reach into the metro market, we believe our reputation for providing the best optical technology and customer experience will serve as the foundation for significant market share success. Now turning to technology. It was great to see many of you at OFC in March.

At this industry event, we discussed how the network is simplifying into two fundamental layers, layers C, the cloud services layer, and layer T, the intelligent optical transport layer. The foundation of layer T is scalable optics and includes ST and control to deliver transport services in support of layer C.

At OFC, we introduced our sliceable pix the oPIC-100 and ePIC-500 to support layer T. These new pix combine massive scalability with granular control enabling service providers to maximize network scale while efficiently managing bandwidth.

These PICs will be applicable across the network but in particular provide foundational technology, bring new high capacity metro aggregation platform that will be delivered by the end of this year.

Shifting now to intelligent control, at OFC, Pacnet, just recently acquired by Telstra, joined us to talk about their deployment of our SDN solution, which we believe is the first widely available production deployment of SDN for the transport network.

Pacnet is leveraging Infinera SDN technology to deliver high value customized on-demand services for their customers at the optical layer. While others continue with demos and trials Infinera has shown our leadership in this technology area by deploying commercial solutions to the market helping our customers deliver on their vision.

In summary, we are pleased with all aspects of our performance in Q1, financial, market share momentum, and technology delivery. The first quarter performance is a continuation of the momentum we have built over the past few years and represents an inflexion point as Infinera pursues multiple markets in the optical transport space simultaneously.

As the market continues the transition to a 100 gig and intelligent control, I’m particularly excited about our opportunity to accelerate the creation with Transmode of one of the top packet optical transport companies in the world.

We have never been better positioned to capitalize on our unique breadth of technology, our highly leveragable business model and our strong position with the customers that are building the world’s largest networks the fastest.

With our current products and soon to be unveiled products we intend to capture significant market share and to do so profitability. I would like thank our customers, employees and partners for their ongoing commitment to Infinera. Now I’ll turn the call over to Brad for more detailed financial review of the quarter and our guidance for Q2..

Thanks, Tom, and good afternoon everyone. As Tom mentioned, we had another strong quarter financially. We reported revenue of $186.9 million, a 31% increase over the first quarter of last year, up slightly sequentially and above the midpoint of our guidance range. The first quarter represents our fifth consecutive quarter of sequential revenue growth.

In Q1, we continued to experience strong demand from across our customer base with our top five customers in the quarter consisting of a North American tier-1 two Internet content providers, and two wholesale and enterprise carriers.

We had two greater than 10% customers in the quarter, a North American tier-1 service provider and an Internet content provider. We continue to win opportunities worldwide to build 100 gig long haul footprint with our DTN-X platform. In Q1, we added three invoice customers all of which were existing DTN customers who have now deployed the DTN-X.

This brings our total DTN-X customer count to 62. In Q1, North America continued to be our strongest region accounting for 68% of total revenue. Internationally, EMEA represented 24% of total revenue with APAC and LatAm each representing 4%. Services revenue for the quarter was $26 million down 6% sequentially due to lower deployment services.

On a year-over-year basis, services revenue increased by $7 million or 40% as we continue to grow our maintenance revenues due to the larger installed base as well as expanded service offerings. Moving now to gross margin and operation expenses. Our overall non-GAAP gross margin for the first quarter was 47.8%, up from 46.1% in the fourth quarter.

Our strong results in the quarter were driven by continued cost declines as we leverage our vertically integrated model, strong capacity adds on exciting networks including instant bandwidth licenses, as well as improved services profitability. In addition, we had a few large footprint deployed which pushed into Q2.

Services gross margin grew to 65% in the quarter, up from 56% in Q4, primarily as a result of a decrease in deployment services. Our non-GAAP operating expenses were $67 million in the first quarter, up $2 million sequentially and in line with our guidance.

As expected, we continue to ramp our R&D spend to ensure we can execute on our expanded product roadmap while staying aligned with our R&D target of 20% of revenues. We are excited about the pipeline of new products due to be released in the second half of the year including the 100 GigE Cloud Xpress and our metro aggregation solution.

While we continue to invest in the incremental sales headcount to address new markets and verticals, SG&A expenses declined sequentially 1% in the quarter due to lower commission expenses as we entered a new sales plan year.

Demonstrating the continued leverage in our financial model we achieved a non-GAAP operating margin of 12.2% for the first quarter, up from 11% in Q4 and above our guidance range. I’m particularly proud that we’re able to improve our operating margin even as we continue to ramp our R&D investments.

Interest and other expense for the quarter was $100,000 and tax expense was $600,000. The shares used to compute non-GAAP EPS during the first quarter were 137 million, up from 133 million in the prior quarter as the improved stock price continues to drive more diluted shares.

In summary, non-GAAP net income for the first quarter was $22 million or $0.16 per diluted share, up from $0.13 per diluted share in the prior quarter and above our guidance range. On a GAAP basis, we had net income of $12 million or $0.09 per diluted share in the first quarter.

The difference between our GAAP and non-GAAP results was due to stock-based compensation expense of $7 million, $2 million of the amortization of debt discount and $500,000 of acquisition related costs.

Now turning to the balance sheet, cash, cash equivalents and investments as of the end of the first quarter grew to $409 million, an increase of $18 million from the previous quarter. We generated cash from operations of nearly $20 million in Q1 compared to $19 million in the fourth quarter.

In Q1, CapEx was $7 million or above 4% of revenue as we continue to make investments to further scale the business. We also generated $6 million in net proceeds from employee stock activities in the quarter.

As we have stated in the past, cash generation is one of our top priorities and we remain confident in our ability to continue to generate cash in our business. Now for our outlook for the second quarter of fiscal 2015. I’m pleased to announce that we currently project revenue for the second quarter to be $200 million plus or minus $5 million.

The midpoint of this range represents year-over-year growth in the second quarter of nearly 21%. We currently project non-GAAP gross margin to be 46% plus or minus 100 basis points as we plan to continue to grow footprint, capitalize on the momentum of field activity and drive down cost through leverage of our vertically integrated model.

We currently anticipate non-GAAP operating expenses to be $69 million plus or minus $1 million. In Q2, we will continue to invest in the R&D roadmap and sales talent to address our broadening product portfolio and customer accounts. As we have done in the past, we plan to grow overall operating expenses at a slower rate than our revenue growth.

The midpoint of our projected guidance translates to a non-GAAP operating margin of 11% plus or minus 100 basis points. The combination of interest and other expense is expected to net as of approximately $500,000 and tax expense should be approximately $1 million.

We currently expect diluted share account to be approximately 140 million shares and project non-GAAP EPS to be $0.16 per diluted share plus or minus $0.02. As for GAAP EPS, we currently project it to be lower than non-GAAP EPS by about $0.08 per share primarily related to stock-based compensation expense.

Finally, we anticipate continuing to generate positive free cash flow in the second quarter. In summary, I’m encouraged that we have achieved such strong financial results in a quarter that is traditionally very challenging.

We are enjoying continued demand from across our customer base, building momentum with the Cloud Xpress and looking forward to seizing the opportunities that the 100 gig metro market will present.

As we grow revenue, we will continue to grow profitably as our strong financial model continues to demonstrate the ability to drive differentiated financial results.

On our last call, we indicated that we expected to unveil a new target financial model with higher margin target sometime during this year once we had an improved understanding of the impact of our cloud traction and had demonstrated an ability to consistently exceed our existing targets.

Now with our offer to acquire Transmode, the introduction of our new financial model will likely occur early in 2016, once we better understand the impact of this addition. With that, I’d like to turn the call over to the operator to begin the Q&A portion of the call.

Liu?.

Thank you, sir. [Operator Instructions]. Our first question will come from George Notter of Jefferies..

I wanted to ask about the Cloud Xpress platform, I think on the monologue here you guys were talking about eight customers I think you said invoice – sorry, seven invoice customers and I think that included the top three ICPs, but I think those numbers were actually similar when you guys talked about Cloud Xpress traction coming out of Q4.

Can you kind of tell us what’s going on there, is this may be an apple to oranges comparison and I’m kind of missing that but kind of talk about why those customer numbers haven’t really moved that much?.

Okay, George, its Tom. It was seven customers and that’s the customers that are per our normal recognition of revenue.

Last time when it was -- since it had just been launched we’ve said we are going to kind of one time talk about a combination of commitment which could be PO, it could be a contract, it could have been any kind of commitment they have made plus field trails and lab trials.

So it was a kind of an aggregation of showing overall early receptivity and now we’re moving back to our more traditional where we’re going to talk about customers that have been invoiced. So we’re actually pretty happy with our how these products been received into the market.

Seven customers, three big ICPs, which I think it, can drive a lot of demand.

You are -- also we have announced two that would be the key through channels which are fitting a whole tier of customer that we’ve never been able to directly sell to before and I think that’s another long term type of seeds that we are planting but I think the channel infrastructure will allow us to approach and address customers that on our own we couldn’t before and I think it’s great for us to have a sell-through model with partners now instead of a sell-with.

We’ve also introduced now our 10 GigE in addition to our 40 GigE.

As I talked about last time 40 GigE is a smaller portion of the market that we brought that the market first at the request of a specific large ICP; 10 gig now will offer the ability to go between a larger portion of the market probably three times larger than 40 gig market or more five times.

And then a 100 gig, there is a lot of interest in the 100 gig platform as people are evaluating this architecture number of them have comeback very favorable but they are inclined to wait for a 100 gig and deploy it when it comes out later this year since its going to be coming up relatively soon.

That’s probably a long-winded answer to your question..

Yes, okay.

And then can you talk about what percentage of the revenue stream this quarter came from Cloud Xpress? Is that a number you can give us?.

Yes. So George, as we done traditionally we’ll give color on the number of customers, the types of customers but probably refrain from breaking it out specifically..

Okay.

Is there a threshold where you might to start that break that out, is it 10% of sales or how do you think about that?.

Yes, it’s probably higher than that, George. And we’ll monitor it as we go forward..

Got it, okay. Got it. And then I guess I wanted to also ask about your backlog this quarter.

So I mean obviously you guys don’t give a backlog every quarter it’s just a year end on the K but is it fair to say that book to bill improved and it was greater than one and backlog grew this quarter; how do you characterize that?.

Yes, George, we don’t break-out the backlog on a quarterly basis. We obviously came into the year with a very strong backlog but we don’t update on that on a quarterly basis..

Okay, great, thank you very much..

Thanks, George..

Our next question will come from Simona Jankowski of Goldman Sachs..

Yes, hi. Just wanted to clarify couple of things on Cloud Xpress.

Are the three ICPs referenced the same ones asked the ones you have talked about before being three of the top four?.

Yes. I think two of them are the same as one as before and one is a different one, is how it's broken out so far..

Okay, that one is that a previous customer or is that a new customer to Cloud Xpress..

It’s a previous customer that we had..

Got that.

And then can you also clarify the comment you made on Cloud Xpress being consistent with the current sell-side estimate; what is that range that you are referring to?.

So I think the range, Simona, is somewhere between $30 million and $60 million is what people have told me they have in their models..

Okay.

And then on the Transmode acquisition, clearly the impetus there is one of revving the synergies and term expansion, but is there an opportunity for cost synergies just from the perspective of having some duplicative spend perhaps in the metro area or do you view that as purely additive spend in terms of their portfolio and their roadmap on metro versus yours?.

This is vastly about revenue synergy and the ability to aggressively grow our portfolio, our customer presence, cross-selling and geographic dispersing of strengths. There is a cost opportunity to put our pick into appropriate parts of their platforms over time that would reduce the cost structure of their platform.

But from an overall the headcount, this is really about revenue synergies; there might be some small overlap but it’s really going to be rounding here..

Sure.

And then just last one for me, given the big move we had in FX this quarter and obviously you had a very strong quarter in the US and Europe is not as big for you, but what impact of, if any, are you seeing in terms of your customer behaviour given the big move we’ve had?.

Yes, I wouldn’t say, Simona, we’ve seen a big difference in customer behaviour. I think at the end of the day the bandwidth demands on their network continue to be strong, and so it doesn’t have an overall -- we haven’t seen an overall big impact on our business..

Great. Thanks very much..

Thanks, Simona..

Our next question comes from Sanjiv Wadhwani of Stifel..

Thanks. I had but one quick follow-up on Simona’s question, Brad.

What percentage of your revenues are not based on US dollar? And the broader question I had was last year you had a big tier-1 deployment in Q2 and Q3 and I’m just curious as to when you look at it Q2 guidance which you are signalling pretty strong year-over-year growth, is there a particular type or types of customers that are coming in to offset that year-over-year tough comp and I think you refer to specifically there was some sort of big builds that were pushed out from Q1 to Q2? Maybe you can give some flavor as to what types of customers those were?.

Sure. So Sanjiv on the mix in terms of FX, it differs from quarter-to-quarter but it’s roughly 10% of our overall sales are in non-USD. So it’s a relatively small percentage of our overall revenues. In terms of the Q2 guidance, unlike last year where we had the very large build from one customer, this year the strength is broader.

As you know, the cable vertical tends to be stronger in the first half of the year, but the strength is across cable, it’s across the ICPs, it’s across the tier-1s, the enterprise and bandwidth wholesalers. So it is much broader than it was last year that we saw in Q2..

Any color, Brad, on the push outs from Q1 to Q2 in terms of the builds; is that like a one or two customers or there are a bunch of them in the pipeline?.

No, it’s just a couple of reasonably big networks that were right at the tail end of the quarter that didn’t quite get accepted at the end of the quarter, and so they are getting accepted in Q2..

So the deployments have been done, this is merely sort of acceptance?.

Yes..

Okay. Got it. Thanks..

Our next question will come from Alex Henderson of Needham..

Yes, a couple of questions on the competitive side. So as you look at your competitors on the international front, are any of them offering their pricing strategies based on the change in FX? And do you see Lucent -- or do you see ALU as the manufacturer, and I ask it that way in the sense is the cost structure for ALU more a U.S.

denominated cost structure, is it blended? How do you think about that relative to those that particular competitor?.

Yes, candidly, I don’t have enough understanding of how their business runs on FX and their cost structures. So I think I’m just the wrong guy to ask and you should probably ask those guys.

We’re seeing is a relatively normal pricing environment, we see normal kind of cost reductions; Alcatel has historically been a pretty aggressive person in the market particularly in Europe though it seems like they’re not being quite as aggressive as they historically have been..

No change there in fact may be even less competitive, or less aggressive?.

I don’t know if they’re less aggressive may be there is a new leader that’s putting the price down some more right -- I always focus on kind of who is creating the most challenge. They had historically done that, lesser right now..

And on the build push outs, what kind of scale are we talking about there? I mean is that bigger than a breadbox impact on the quarter-to- quarter and is it something that we should be nervous about sequentially as we go from 2Q to 3Q or how does that lump in?.

Yes, so Alex it's not a tremendously large number it's just, because of its footprint it can move the needle on the gross margin side of things. So it was more intended to talk about why Q1 margin was a bit higher and it's coming down a little bit in Q2.

It's not an overly significant number from a revenue perspective or anything you should worry about in comparables or anything like that..

And then finally the last question is, and you elaborate to is the margin side of the equation.

How much of the improvement of margin is a function of service/line card sales or should we read into it that may be you're getting pretty good margins on the Cloud Xpress line, is that any read through on the Cloud Xpress margin profile?.

Yes. So Alex we're not going to break out the margins on Cloud Xpress. It is the combination of things. We continue to drive down our cost structure and leverage our vertical integration.

We are seeing as we've talked about for several quarters now more mix going to capacity ads, including people buying follow-on Cloud Xpress licenses and then the services side some of the deployments were more efficient so better profitability there..

One last thing, any comment on liquid bandwidth uptake? Thanks..

Yes, so instant bandwidth continues to be a good program for us. I think it provides a great level of flexibility for our customers. As we've talked about before it's not the largest customers in the world and the largest routes but it continues to be an attractive portion of the portfolio..

Super. Thank you..

[Operator Instructions]. Our next question will come from Rod Hall with JPMC..

Yes, hi, guys, thanks for the question. I just wanted to follow up on the gross margin a little bit. May be Brad and Tom both, Brad may be could you comment on what the -- do you have any idea what the underlying gross margin would have been without these push outs.

So are we talking about sort of the high-end of the prior guidance range around 45% and the push outs added 2.8% to the gross margins or just trying to understand how much the push outs affected the gross margins and what kind of the underlying rate of gross margins would be.

I know it's kind of tough to, a tough number may be to get to, but just to try to figure out even with the 46% you're still talking about a gross margin trajectory that's up on average over the last few quarters and I can't imagine it's just because of push out, other good things are going on so..

Yes, you're absolutely right, Rod. It's a piece of the puzzle right. As you know our footprint deployments traditionally come with a much lower margin profile. So it's a piece to the equation and not the sole driver. So we -- we likely would have been above the range either way..

Okay, thanks, Brad. And then on the margins the other thing I was wondering after you guys announced Transmode, I didn't ask you at the announcement call was, how much -- what are the margin drivers is vertical integration and just loading your plant. How much, it sounds like part of Transmode will allow for more about, and part may be not.

Can you just comment on the degree to which this allows you to continue that vertical integration impact on gross margins and how that might play out as you integrate Transmode?.

Yes, this is Dave Welch. The -- we plan on utilizing our vertical infrastructure to the degree that's appropriate within their product portfolio and fix are well suited for high capacity applications, are well suited for high density applications, they're not well suited for very low speed applications.

And so we will continue to use that vertical infrastructure there. And we think that will drive our overall economic benefits..

Okay. And just last question, could I just -- just wanted to ask Tom, is, he thinks that Alcatel Lucent hiccups now, I mean the integration may take their eye of the ball a little bit.

So you think that gives you an opportunity in Europe, have you seen any evidence of that yet?.

Well I think it's too soon to see evidence of it. I'm personally delighted that this is occurring. The industry or the history of the industry of large companies getting together and efficiently taking care of customers and doing things that are good about creating business in a short-term, I'm not sure there is one.

And I'm a big advocate that well they're going to worry about who has got the biggest office and gets a car on the company. I’m going to work really hard to go take care of their former customers.

I can tell you they've already shutdown one optical group because it wasn't strategic to them, they picked up a new optical group, I'm not sure this will be strategic to them and I think it's a great opportunity for us..

Great. Thanks a lot guys..

Dmitry Netis, WB Blair. Your line is open..

I have a couple of quick ones.

On the system clarification to 2%, 10% customers one was I heard with the tier-1 carrier who was the other one?.

It was Internet content provider..

ICP, okay great. And then how close to that 10% threshold were they are they close to the 10% or a bit above.

Can you give some color?.

The North American tier-1 you saw what they were for last year. They probably weren't that big of a percentage this quarter and then the Internet Content Provider was greater than 10% obviously but not as big as the tier-1..

How much do you expect from these customers in Q2.

Do you think they're still -- I guess what stages of their deployment cycle are we -- is it continuous are we kind of in the late stage, middle stage, do you expect those guys to come back in Q2?.

Yes, so Dmitry, we're going to shy away from laying out any specific customer. As you know we have a very broad customer base. We've had I think seven different customers have been greater than 10% in a given quarter; they can all drive big volumes.

The strength is broad, it's not a, any given customer that is driving the growth it's across all the different verticals and multiple guys in each of the verticals..

Okay, good, and then I know you've talked about Level Three but they're material customer views that could be on a 100 GigE side. You've announced some wins there.

Are their network as we speak, we still kind of waiting for that to happen where are we on that front?.

Yes, Dmitry, you broke up a little bit, but I think your question was on Level Three..

Yes..

Level Three is a great customer of ours; they are aggressively building with us in the U.S., in Latin America, and pretty much around the globe..

Okay, Brad, and one last one, I appreciate that candid answer. I just -- the Facebook announcement was I guess well received by the investment community.

Would you mind may be describing a little bit what exactly you do for them?.

Roughly, we supply our networks for them and they operate with our gear that was a particular data center connectivity that they needed from northern in the Nordics down to one of a more centralized data center applications in -- within Europe.

We provide the bandwidth that leads the building and it reverses the long haul network and comes back into one of our other buildings..

Okay. So it's some -- it's data finally that DTN-X products and I guess there is a line of site with CX there as well that --.

We're not going to conflict -- they were gracious enough to allow us to do this press release which as you know they are very reluctant to do that and our rules with them are we won't talk around any of our business other than the ones they announced us lot us to announce..

Okay excellent. Thank you for that. I appreciate it..

Thanks..

Ted Moreau of Barrington Research. Your line is open..

I was wondering, just referencing the opportunity with an Internet Content Provider with the DTN-X and we've also been talking about the Cloud Xpress opportunity but could you just kind of walk through how you view the growth opportunities for both the DTN-X and the Cloud Xpress and Internet Content Providers like kind of what you're seeing as the trajectories of both those product lines within that customer base for this year?.

Well I think both of them have huge opportunities, both Internet Content Providers whether they are carrying bandwidth across their backbone or going into the metros, or Interconnecting Data Center bandwidth is exploding for them.

I think the fundamental difference in all that they comment is that for the backbone of their network is if they have had one, they are growing it, they are continuing to grow them; there are some Internet Content Providers that are deciding to put in backbones.

But I would call it more of a decision has been made a while ago and now they're deploying and are growing with capacity. The data center interconnect market where the Cloud is going to go, it is probably the more explosive opportunity over time.

It's a relatively young market today, few hindered million dollars and it's forecasted to grow to a few billion dollars over the next several years. But you are not going to see probably linear growth in that.

When you create new markets with new applications you see kind of a, add some top where it starts accelerating and then you will hit some kind of knee and inflexion that it really starts exploding.

When that will happen we’re not sure, but we do believe that there is going to be a lot of opportunity in Data Center Interconnect both at the larger ICP’s but also others.

Dave?.

Yes. You need to make sure to clarify the applications of the CX and the DTN-X platforms are different. The DTN-X is a long haul platform with integrated bandwidth management capabilities on it. And so if I'm operating on a mesh network configuration, the DTN-X is a more appropriate box.

The CX is a point-to-point configuration and its generally metro reach or less types applications. It's not configured for a long haul application and has no integrated switching capabilities for it.

So if I'm a Cloud provider and I’ve got my network or however I’m my network the regions of my networks that require bandwidth management and/or -- and meshed network configurations and the regions where I just need to go high capacity point-to-point and ICP's or Cloud providers will require both of those within their network architectures as we go forward..

Okay, great. Thanks and so I just want to make sure I'm clear. So the DTN-X sounds like it's a big opportunity this year and then not taking anything away from Could Xpress. But then Cloud Xpress kind of layers on in out years that's how we should be thinking about it..

The DTN-X is a full featured full network product capability. The Cloud Xpress is a point product for point-to-point connectivity in the metro region. In the DTN-X it was predominately a high capacity long haul box, but it's a Could Xpress is a high rack and stack scalable metro box two very different applications for their networks..

Yes, and Ted, just to clarify. So we do expect Cloud Xpress to ramp with those guys over the course of this year so it's not a 16, 17 opportunity. We do expect them to ramp this year..

Definitely..

Okay.

And then you kind of touched on this a little bit with a lumpiness of deployments and what not, are -- do you view that the deployment scenarios with Internet Content Providers and may be could you compare like how that the deployments are from a lumpiness perspective similar or may be different from what you've historically, seen in the traditional telecom business?.

If I'm deploying a large nationwide network, that requires a subset amount of optical infrastructure amplifiers, optical mugs etcetera; it takes time to deploy that, right. If I want to simultaneously add connectivity between dozen data centers across North America the deployment of the common infrastructures may take four, five months.

That in and of itself or six or eight months it can take a while. That in and of itself drives you into a lumpy aspects of buy commons put fills in after you've done their plant.

If what I’m doing our networks it go between data centers in the metro infrastructure I don’t have a lot of infrastructure to build out in which case that can be a smoother transition and frankly is driven more its less of a planning exercise and its more of reaction to how much Cloud business goes into a data center and how much bandwidth they need to provide..

It’s also things what you deploy as Dave was talking about large scale networks and the amount of work that has to be done. But invariably there is long poles and the pit like making sure fibres available and power into the appropriate buildings that tend to cause things outside of our control that cause some of these projects to slip..

Yes. And you have raised it, you raised an important point as the cloud network scales and the data center and the Data Center Interconnect scales it's not just going to realize itself in Cloud Xpress products.

It will realize ourselves in all of our across the broad products because there is a certain amount of bandwidth that needs to go into the long haul where we’ll satisfy that with DTN-X solutions and there is a certain amount of bandwidth that will be local in nature which will be more of a Cloud Xpress solution..

Okay, great, congrats, and keep up the good work. Thanks guys..

Thank you..

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