Ciena Reports Fiscal First Quarter 2019 Financial Results

March 5, 2019 at 8:00 AM EST

HANOVER, Md.--(BUSINESS WIRE)-- Ciena® Corporation (NYSE: CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal first quarter ended January 31, 2019.

  • Q1 Revenue: $778.5 million, increasing 20.5% year over year
  • Q1 Net Income per Share: $0.21 GAAP; $0.33 adjusted (non-GAAP)
  • Share Repurchases: Repurchased approximately 0.6 million shares of common stock for an aggregate price of $21.2 million during the quarter

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary B. Smith, president and CEO, Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

For the fiscal first quarter 2019, Ciena reported revenue of $778.5 million as compared to $646.1 million for the fiscal first quarter 2018.

Ciena's GAAP net income for the fiscal first quarter 2019 was $33.6 million, or $0.21 per diluted common share, which compares to a GAAP net loss of $(473.4) million, or $(3.29) per diluted common share, for the fiscal first quarter 2018.

Ciena's adjusted (non-GAAP) net income for the fiscal first quarter 2019 was $52.8 million, or $0.33 per diluted common share, which compares to an adjusted (non-GAAP) net income of $21.9 million, or $0.15 per diluted common share, for the fiscal first quarter 2018.

Fiscal First Quarter 2019 Performance Summary

The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to the prior year. Appendix A and B set forth reconciliations between the GAAP and adjusted (non-GAAP) measures contained in this release.

               
              GAAP Results
              Q1     Q1      
              FY 2019     FY 2018     Y-T-Y*
Revenue             $ 778.5       $ 646.1       20.5 %
Gross margin             41.5 %     42.1 %     (0.6 )%
Operating expense             $ 275.4       $ 255.0       8.0 %
Operating margin             6.2 %     2.6 %     3.6 %
                                 
         
        Non-GAAP Results
        Q1     Q1      
        FY 2019     FY 2018     Y-T-Y*
Revenue       $ 778.5       $ 646.1       20.5 %
Adj. gross margin       42.2 %     42.6 %     (0.4 )%
Adj. operating expense       $ 253.6       $ 234.4       8.2 %
Adj. operating margin       9.6 %     6.3 %     3.3 %
                           

* Denotes % change, or in the case of margin, absolute change

         
        Revenue by Segment
        Q1 FY 2019     Q1 FY 2018
        Revenue     %**     Revenue     %**
Networking Platforms                          
Converged Packet Optical       $ 548.9       70.5       $ 427.4       66.1
Packet Networking       71.6       9.2       68.6       10.6
Total Networking Platforms       620.5       79.7       496.0       76.7
                           
Software and Software-Related Services                          
Platform Software and Services       41.6       5.3       44.1       6.8
Blue Planet Automation Software and Services       15.0       1.9       9.4       1.5
Total Software and Software-Related Services       56.6       7.2       53.5       8.3
                           
Global Services                          
Maintenance Support and Training       61.3       8.0       56.0       8.7
Installation and Deployment       30.6       3.9       30.0       4.7
Consulting and Network Design       9.5       1.2       10.6       1.6
Total Global Services       101.4       13.1       96.6       15.0
                           
Total       $ 778.5       100.0       $ 646.1       100.0
                                     
 

Additional Performance Metrics for Fiscal First Quarter 2019

 
            Revenue by Geographic Region
            Q1 FY 2019     Q1 FY 2018
            Revenue     % **     Revenue     % **
North America           $ 485.5       62.3       $ 402.9       62.4
Europe, Middle East and Africa           129.2       16.6       97.8       15.1
Caribbean and Latin America           30.9       4.0       34.6       5.4
Asia Pacific           132.9       17.1       110.8       17.1
Total           $ 778.5       100.0       $ 646.1       100.0
                                         

** Denotes % of total revenue

  • Three 10%-plus customers represented a total of 35% of revenue
  • Cash and investments totaled $788.0 million
  • Cash flow used in operations totaled $14.1 million
  • Average days' sales outstanding (DSOs) were 93
  • Accounts receivable balance was $761.2 million
  • Unbilled contract asset balance was $47.5 million
  • Inventories totaled $323.1 million, including:
    • Raw materials: $75.5 million
    • Work in process: $10.1 million
    • Finished goods: $225.9 million
    • Deferred cost of sales: $60.6 million
    • Reserve for excess and obsolescence: $(49.0) million
  • Product inventory turns were 4.7
  • Headcount totaled 6,154

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal First Quarter 2019 Results

Today, Tuesday, March 5, 2019, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website an accompanying investor presentation for its unaudited fiscal first quarter 2019 results.

Ciena's management will also host a discussion today with investors and financial analysts that will include the Company's fiscal second quarter outlook. The live audio web broadcast beginning at 8:30 a.m. Eastern will be accessible via www.ciena.com. An archived replay of the live broadcast will be available shortly following its conclusion on the Investor Relations page of Ciena's website.

Notes to Investors

Forward-Looking Statements. You are encouraged to review the Investors section of our website, where we routinely post press releases, SEC filings, recent news, financial results, supplemental financial information, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. Forward-looking statements in this release include: “We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains.”; “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due to a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by customers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; the impact of the Tax Cuts and Jobs Act, changes in estimates of prospective income tax rates and any adjustments to Ciena's provisional estimates whether related to further guidance, analysis or otherwise, and the other risk factors disclosed in Ciena's Report on Form 10-K, which Ciena filed with the Securities and Exchange Commission on December 21, 2018. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly and Annual Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income from operations, earnings before interest, tax, depreciation and amortization (EBITDA), Adjusted EBITDA, and measures of net income and net income per share. In evaluating the operating performance of Ciena's business, management excludes certain charges and credits that are required by GAAP. These items share one or more of the following characteristics: they are unusual and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of Ciena's control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena's GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena's non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena's results of operations in conjunction with our corresponding GAAP results. To the extent not previously disclosed in a prior Ciena financial results press release, Appendix A and B to this press release set forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

About Ciena. Ciena (NYSE: CIEN) is a networking systems, services and software company. We provide solutions that help our clients create the Adaptive Network™ in response to the constantly changing demands of their users. By delivering best-in-class networking technology through high-touch consultative relationships, we build the world’s most agile networks with automation, openness and scale. For updates on Ciena, follow us on Twitter @Ciena, LinkedIn, the Ciena Insights blog, or visit www.ciena.com.

 

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 
        Quarter Ended January 31,
        2019     2018
Revenue:              
Products       $ 642,532       $ 525,609  
Services       135,995       120,526  
Total revenue       778,527       646,135  
Cost of goods sold:              
Products       380,442       313,120  
Services       74,744       61,250  
Total cost of goods sold       455,186       374,370  
Gross profit       323,341       271,765  
Operating expenses:              
Research and development       128,633       118,524  
Selling and marketing       98,113       88,515  
General and administrative       39,243       38,406  
Significant asset impairments and restructuring costs       2,273       5,961  
Amortization of intangible assets       5,528       3,623  
Acquisition and integration costs       1,608        
Total operating expenses       275,398       255,029  
Income from operations       47,943       16,736  
Interest and other income (loss), net       4,253       1,575  
Interest expense       (9,441 )     (13,734 )
Income before income taxes       42,755       4,577  
Provision for income taxes       9,139       477,940  
Net income (loss)       $ 33,616       $ (473,363 )
               
Net Income (loss) per Common Share              
Basic net income (loss) per common share       $ 0.22       $ (3.29 )
Diluted net income (loss) per potential common share       $ 0.21       $ (3.29 )
               
Weighted average basic common shares outstanding       156,314       143,922  
Weighted average dilutive potential common shares outstanding 1       158,174       143,922  
                   
     
    1. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first quarter of fiscal 2019 includes 1.9 million shares underlying certain stock options and restricted stock awards.
     
 

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 
       

January 31,
2019

   

October 31,
2018

ASSETS              
Current assets:              
Cash and cash equivalents       $ 668,810       $ 745,423  
Short-term investments       119,143       148,981  
Accounts receivable, net       761,186       786,502  
Inventories       323,106       262,751  
Prepaid expenses and other       217,422       198,945  
Total current assets       2,089,667       2,142,602  
Long-term investments             58,970  
Equipment, building, furniture and fixtures, net       288,713       292,067  
Goodwill       297,968       297,968  
Other intangible assets, net       139,005       148,225  
Deferred tax asset, net       728,139       745,039  
Other long-term assets       74,614       71,652  
Total assets       $ 3,618,106       $ 3,756,523  
LIABILITIES AND STOCKHOLDERS’ EQUITY              
Current liabilities:              
Accounts payable       $ 335,547       $ 340,582  
Accrued liabilities and other short-term obligations       272,712       340,075  
Deferred revenue       85,501       111,134  
Current portion of long-term debt       7,000       7,000  
Debt conversion liability             164,212  
Total current liabilities       700,760       963,003  
Long-term deferred revenue       50,640       58,323  
Other long-term obligations       127,462       119,413  
Long-term debt, net       684,939       686,450  
Total liabilities       $ 1,563,801       $ 1,827,189  
Stockholders’ equity:              
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding              
Common stock – par value $0.01; 290,000,000 shares authorized; 156,336,210
and 154,318,531 shares issued and outstanding
      1,563       1,543  
Additional paid-in capital       6,927,613       6,881,223  
Accumulated other comprehensive loss       (10,640 )     (5,780 )
Accumulated deficit       (4,864,231 )     (4,947,652 )
Total stockholders’ equity       2,054,305       1,929,334  
Total liabilities and stockholders’ equity       $ 3,618,106       $ 3,756,523  
                       
 

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 
        Three Months Ended January 31,
        2019     2018
Cash flows provided by (used in) operating activities:              
Net income (loss)       $ 33,616       $ (473,363 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:              
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements       21,513       20,833  
Share-based compensation costs       13,755       12,393  
Amortization of intangible assets       8,947       5,912  
Deferred taxes       5,037       476,897  
Provision for inventory excess and obsolescence       4,673       6,804  
Provision for warranty       3,891       4,657  
Other       3,356       2,269  
Changes in assets and liabilities:              
Accounts receivable       38,544       72,439  
Inventories       (67,555 )     5,199  
Prepaid expenses and other       1,133       16,120  
Accounts payable, accruals and other obligations       (76,351 )     (111,476 )
Deferred revenue       (4,664 )     (2,981 )
Net cash provided by (used in) operating activities       (14,105 )     35,703  
Cash flows provided by (used in) investing activities:              
Payments for equipment, furniture, fixtures and intellectual property       (15,345 )     (25,662 )
Purchase of available for sale securities       (68,516 )     (118,877 )
Proceeds from maturities of available for sale securities       60,000       110,000  
Proceeds from sales of available for sale securities       98,265        
Settlement of foreign currency forward contracts, net       (4,650 )     1,061  
Purchase of cost method investment       (333 )      

Net cash provided by (used in) investing activities

      69,421       (33,478 )
Cash flows provided by (used in) financing activities:              
Payment of long term debt       (1,750 )     (1,000 )
Payment of capital lease obligations       (758 )     (914 )
Payment for debt conversion liability       (111,268 )      
Shares repurchased for tax withholdings on vesting of restricted stock units       (10,026 )      
Repurchases of common stock - repurchase program       (19,721 )     (4,103 )
Proceeds from issuance of common stock       10,899       11,008  
Net cash provided by (used in) financing activities       (132,624 )     4,991  
Effect of exchange rate changes on cash and cash equivalents       695       1,138  
Net increase (decrease) in cash and cash equivalents       (76,613 )     8,354  
Cash and cash equivalents at beginning of period       745,423       640,513  
Cash and cash equivalents at end of period       $ 668,810       $ 648,867  
Supplemental disclosure of cash flow information              
Cash paid during the period for interest       $ 10,007       $ 10,020  
Cash paid during the period for income taxes, net       $ 3,402       $ 3,498  
Non-cash investing activities              
Purchase of equipment in accounts payable       $ 5,471       $ 2,014  
Non-cash financing activities              
Repurchase of common stock in accrued liabilities from repurchase program       $ 1,441       $ 1,652  
Conversion of debt conversion liability into 1,585,140 shares of common stock       $ 52,944       $  
                       
 
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measures (unaudited)
               
        Quarter Ended January 31,
        2019     2018
Gross Profit Reconciliation (GAAP/non-GAAP)              
GAAP gross profit       $ 323,341       $ 271,765  
Share-based compensation-products       637       672  
Share-based compensation-services       770       625  
Amortization of intangible assets       3,418       2,289  
Total adjustments related to gross profit       4,825       3,586  
Adjusted (non-GAAP) gross profit       $ 328,166       $ 275,351  
Adjusted (non-GAAP) gross profit percentage       42.2 %     42.6 %
               
Operating Expense Reconciliation (GAAP/non-GAAP)              
GAAP operating expense       $ 275,398       $ 255,029  
Share-based compensation-research and development       3,391       3,255  
Share-based compensation-sales and marketing       3,785       3,328  
Share-based compensation-general and administrative       5,112       4,474  
Amortization of intangible assets       5,528       3,623  
Significant asset impairments and restructuring costs       2,273       5,961  
Acquisition and integration costs       1,608        
Legal settlement       137        
Total adjustments related to operating expense       21,834       20,641  
Adjusted (non-GAAP) operating expense       $ 253,564       $ 234,388  
               
Income from Operations Reconciliation (GAAP/non-GAAP)              
GAAP income from operations       $ 47,943       $ 16,736  
Total adjustments related to gross profit       4,825       3,586  
Total adjustments related to operating expense       21,834       20,641  
Total adjustments related to income from operations       26,659       24,227  
Adjusted (non-GAAP) income from operations       $ 74,602       $ 40,963  
Adjusted (non-GAAP) operating margin percentage       9.6 %     6.3 %
               
Net Income (Loss) Reconciliation (GAAP/non-GAAP)              
GAAP net income (loss)       $ 33,616       $ (473,363 )
Exclude GAAP provision for income taxes       9,139       477,940  
Income before income taxes       42,755       4,577  
Total adjustments related to income from operations       26,659       24,227  
Non-cash interest expense             749  
Adjusted income before income taxes       69,414       29,553  
Non-GAAP tax provision on adjusted income before income taxes       16,590       7,645  
Adjusted (non-GAAP) net income       $ 52,824       $ 21,908  
               
Weighted average basic common shares outstanding       156,314     143,922
Weighted average dilutive potential common shares outstanding 1       158,174     145,558
               
Net Income (Loss) per Common Share              
GAAP diluted net income (loss) per common share       $ 0.21       $ (3.29 )
Adjusted (non-GAAP) diluted net income per common share       $ 0.33       $ 0.15  
                       
     

1.

 

Weighted average dilutive potential common shares outstanding used in calculating adjusted (non-GAAP) diluted net income per common share for the first quarter of fiscal 2019 includes 1.9 million shares underlying certain stock options and restricted stock unit awards.

     
    Weighted average dilutive potential common shares outstanding used in calculating adjusted (non-GAAP) diluted net income per common share for the first quarter of fiscal 2018 includes 0.9 million shares underlying certain stock options and restricted stock unit awards and 0.7 million shares underlying Ciena's "New" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018.
     
       
APPENDIX B - Calculation of EBITDA and Adjusted EBITDA (unaudited)
               
        Quarter Ended January 31,
        2019     2018
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)              
Net income (loss) (GAAP)       $ 33,616       $ (473,363 )
Add: Interest expense       9,441       13,734  
Less: Interest and other income (loss), net       4,253       1,575  
Add: Provision for income taxes       9,139       477,940  
Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements       21,513       20,833  
Add: Amortization of intangible assets       8,947       5,912  
EBITDA       $ 78,403       $ 43,481  
Add: Shared-based compensation cost       13,755       12,393  
Add: Significant asset impairments and restructuring costs       2,273       5,961  
Add: Acquisition and integration costs       1,608        
Add: Legal settlement       137        
Adjusted EBITDA       $ 96,176       $ 61,835  
                       

The adjusted (non-GAAP) measures above and their reconciliation to Ciena's GAAP results for the periods presented reflect adjustments relating to the following items:

  • Share-based compensation - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
  • Significant asset impairments and restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Amortization of intangible assets - a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life.
  • Acquisition and integration costs -consist of financial, legal and accounting advisors' costs and severance and other employment-related costs related to Ciena's acquisition of Packet Design and DonRiver, including costs associated with a three-year earn-out arrangement related to the DonRiver acquisition. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • Legal settlement - costs incurred as a result of a settlement during the first quarter of fiscal 2019.
  • Non-cash interest expense - a non-cash debt discount expense amortized as interest expense during the term of Ciena's 4.0% senior convertible notes, which were converted during the fourth quarter of 2018, relating to the required separate accounting of the equity component of these convertible notes.
  • Non-GAAP tax provision - consists of current and deferred income tax expense commensurate with the level of adjusted income before income taxes and utilizes a current, blended U.S. and foreign statutory annual tax rate of 23.9% for the first fiscal quarter of 2019, and 25.87% for the first fiscal quarter of 2018. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy.

Press Contact:
Nicole Anderson
Ciena Corporation
(877) 857-7377
pr@ciena.com

Investor Contact:
Gregg Lampf
Ciena Corporation
(877) 243-6273
ir@ciena.com

Source: Ciena Corporation