Ciena Reports Fiscal Fourth Quarter 2014 and Year-End Financial Results
Delivers 10% annual revenue growth and 6.5% adjusted operating margin for the year
For the fiscal fourth quarter 2014,
On the basis of generally accepted accounting principles (GAAP),
“We delivered strong revenue growth and improved profitability in fiscal 2014 as we benefited from a more diversified customer base and the strong alignment of our solutions with the increasing on-demand needs of our customers,” said
Fiscal Fourth Quarter 2014 Performance Summary
The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarterly and year over year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendices A and B.
GAAP Results (unaudited) | ||||||||||||||||||
Q4 | Q3 | Q4 | Period Change | |||||||||||||||
FY 2014 | FY 2014 | FY 2013 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 591.0 | $ | 603.6 | $ | 583.4 | (2.1 | )% | 1.3 | % | ||||||||
Gross margin | 37.4 | % | 43.7 | % | 39.7 | % | (6.3 | )% | (2.3 | )% | ||||||||
Operating expense | $ | 222.7 | $ | 227.0 | $ | 232.1 | (1.9 | )% | (4.1 | )% | ||||||||
Operating margin | (0.3 | )% | 6.1 | % | (0.1 | )% | (6.4 | )% | (0.2 | )% | ||||||||
Non-GAAP Results (unaudited) | ||||||||||||||||||
Q4 | Q3 | Q4 | Period Change | |||||||||||||||
FY 2014 | FY 2014 | FY 2013 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 591.0 | $ | 603.6 | $ | 583.4 | (2.1 | )% | 1.3 | % | ||||||||
Adj. gross margin | 37.9 | % | 44.3 | % | 40.8 | % | (6.4 | )% | (2.9 | )% | ||||||||
Adj. operating expense | $ | 203.7 | $ | 206.3 | $ | 210.5 | (1.3 | )% | (3.2 | )% | ||||||||
Adj. operating margin | 3.4 | % | 10.1 | % | 4.7 | % | (6.7 | )% | (1.3 | )% | ||||||||
Revenue by Segment (unaudited) | |||||||||||||||
Q4 FY 2014 | Q3 FY 2014 | Q4 FY 2013 | |||||||||||||
Revenue | % | Revenue | % | Revenue | % | ||||||||||
Converged Packet Optical | $ | 383.3 | 64.9 | $ | 382.0 | 63.3 | $ | 350.9 | 60.2 | ||||||
Packet Networking | 56.4 | 9.5 | 69.5 | 11.5 | 61.2 | 10.5 | |||||||||
Optical Transport | 26.5 | 4.5 | 31.0 | 5.1 | 52.6 | 9.0 | |||||||||
Software and Services | 124.8 | 21.1 | 121.1 | 20.1 | 118.7 | 20.3 | |||||||||
Total | $ | 591.0 | 100.0 | $ | 603.6 | 100.0 | $ | 583.4 | 100.0 | ||||||
* Denotes % change, or in the case of margin, absolute change |
Additional Performance Metrics for Fiscal Fourth Quarter 2014
- Non-U.S. customers contributed 47.8% of total revenue
- One 10%-plus customer represented a total of 12.2% of revenue
- Cash and investments totaled
$777.0 million - Cash flow from operations totaled
$73.8 million - Average days' sales outstanding (DSOs) were 79
- Accounts receivable balance was
$519.0 million - Inventories totaled
$254.7 million , including:- Raw materials:
$64.8 million - Work in process:
$8.4 million - Finished goods:
$165.8 million - Deferred cost of sales:
$75.8 million - Reserve for excess and obsolescence:
$(60.1) million
- Raw materials:
- Product inventory turns were 4.8
- Headcount totaled 5,161
Business Outlook for Fiscal First Quarter 2015
Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of the Notes to Investors below.
- Revenue in the range of
$540 to $570 million - Adjusted (non-GAAP) gross margin percentage in the low 40s range
- Adjusted (non-GAAP) operating expense of approximately
$210 million
Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2014 Results
About
Notes to Investors
Forward-looking statements. 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
Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of
CIENA CORPORATION | ||||||||||||||||
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
|
||||||||||||||||
Quarter Ended October 31, | Year Ended October 31, | |||||||||||||||
2013 | 2014 | 2013 | 2014 | |||||||||||||
Revenue: | ||||||||||||||||
Products | $ | 476,409 | $ | 476,175 | $ | 1,680,125 | $ | 1,865,826 | ||||||||
Services | 106,976 | 114,788 | 402,421 | 422,463 | ||||||||||||
Total revenue | 583,385 | 590,963 | 2,082,546 | 2,288,289 | ||||||||||||
Cost of goods sold: | ||||||||||||||||
Products | 283,780 | 305,171 | 967,510 | 1,083,022 | ||||||||||||
Services | 67,959 | 64,955 | 249,861 | 256,915 | ||||||||||||
Total cost of goods sold | 351,739 | 370,126 | 1,217,371 | 1,339,937 | ||||||||||||
Gross profit | 231,646 | 220,837 | 865,175 | 948,352 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 100,427 | 98,506 | 383,408 | 401,180 | ||||||||||||
Selling and marketing | 87,494 | 84,396 | 304,170 | 328,325 | ||||||||||||
General and administrative | 31,275 | 28,560 | 122,432 | 126,824 | ||||||||||||
Amortization of intangible assets | 12,439 | 11,019 | 49,771 | 45,970 | ||||||||||||
Restructuring costs | 428 | 171 | 7,169 | 349 | ||||||||||||
Total operating expenses | 232,063 | 222,652 | 866,950 | 902,648 | ||||||||||||
Income (loss) from operations | (417 | ) | (1,815 | ) | (1,775 | ) | 45,704 | |||||||||
Interest and other income (loss), net | 276 | (11,031 | ) | (5,744 | ) | (25,262 | ) | |||||||||
Interest expense | (10,946 | ) | (13,559 | ) | (44,042 | ) | (47,115 | ) | ||||||||
Loss on extinguishment of debt | — | — | (28,630 | ) | — | |||||||||||
Loss before income taxes | (11,087 | ) | (26,405 | ) | (80,191 | ) | (26,673 | ) | ||||||||
Provision (benefit) for income taxes | (1,290 | ) | 4,298 | 5,240 | 13,964 | |||||||||||
Net loss | $ | (9,797 | ) | $ | (30,703 | ) | $ | (85,431 | ) | $ | (40,637 | ) | ||||
Net Loss per Common Share | ||||||||||||||||
Basic net loss per common share | $ | (0.09 | ) | $ | (0.29 | ) | $ | (0.83 | ) | $ | (0.38 | ) | ||||
Diluted net loss per potential common share | $ | (0.09 | ) | $ | (0.29 | ) | $ | (0.83 | ) | $ | (0.38 | ) | ||||
Weighted average basic common shares outstanding | 103,523 | 106,931 | 102,350 | 105,783 | ||||||||||||
Weighted average dilutive potential common shares outstanding | 103,523 | 106,931 | 102,350 | 105,783 | ||||||||||||
CIENA CORPORATION | ||||||||
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except share data) | ||||||||
October 31, | ||||||||
2013 | 2014 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 346,487 | $ | 586,720 | ||||
Short-term investments | 124,979 | 140,205 | ||||||
Accounts receivable, net | 488,578 | 518,981 | ||||||
Inventories | 249,103 | 254,660 | ||||||
Prepaid expenses and other | 186,655 | 192,624 | ||||||
Total current assets | 1,395,802 | 1,693,190 | ||||||
Long-term investments | 15,031 | 50,057 | ||||||
Equipment, furniture and fixtures, net | 119,729 | 126,632 | ||||||
Other intangible assets, net | 185,828 | 128,677 | ||||||
Other long-term assets | 86,380 | 74,076 | ||||||
Total assets | $ | 1,802,770 | $ | 2,072,632 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 254,849 | $ | 209,777 | ||||
Accrued liabilities and other short-term obligations | 271,656 | 276,608 | ||||||
Deferred revenue | 88,550 | 104,688 | ||||||
Current portion of long-term debt | — | 190,063 | ||||||
Total current liabilities | 615,055 | 781,136 | ||||||
Long-term deferred revenue | 23,620 | 40,930 | ||||||
Other long-term obligations | 34,753 | 45,390 | ||||||
Long-term debt, net | 1,212,019 | 1,274,791 | ||||||
Total liabilities | 1,885,447 | 2,142,247 | ||||||
Stockholders’ equity (deficit): | ||||||||
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; 103,705,709 and 106,979,960 shares issued and outstanding | 1,037 | 1,070 | ||||||
Additional paid-in capital | 5,893,880 | 5,954,440 | ||||||
Accumulated other comprehensive loss | (7,774 | ) | (14,668 | ) | ||||
Accumulated deficit | (5,969,820 | ) | (6,010,457 | ) | ||||
Total stockholders’ equity (deficit) | (82,677 | ) | (69,615 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,802,770 | $ | 2,072,632 | ||||
CIENA CORPORATION | ||||||||
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(in thousands) | ||||||||
Year Ended October 31, | ||||||||
2013 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (85,431 | ) | $ | (40,637 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Loss on extinguishment of debt | 28,630 | — | ||||||
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements | 55,699 | 55,616 | ||||||
Share-based compensation costs | 37,720 | 42,930 | ||||||
Amortization of intangible assets | 71,308 | 57,151 | ||||||
Provision for inventory excess and obsolescence | 19,938 | 32,332 | ||||||
Provision for warranty | 24,558 | 22,129 | ||||||
Other | 9,023 | 25,668 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (145,421 | ) | (33,164 | ) | ||||
Inventories | (8,943 | ) | (37,889 | ) | ||||
Prepaid expenses and other | (82,809 | ) | (7,931 | ) | ||||
Accounts payable, accruals and other obligations | 115,312 | (59,837 | ) | |||||
Deferred revenue | 5,094 | 33,448 | ||||||
Net cash provided by operating activities | 44,678 | 89,816 | ||||||
Cash flows used in investing activities: | ||||||||
Payments for equipment, furniture, fixtures and intellectual property | (43,814 | ) | (48,216 | ) | ||||
Restricted cash | 2,338 | 2,060 | ||||||
Purchase of available for sale securities | (184,864 | ) | (245,196 | ) | ||||
Proceeds from maturities of available for sale securities | 95,000 | 195,000 | ||||||
Settlement of foreign currency forward contracts, net | 479 | (10,041 | ) | |||||
Net cash used in investing activities | (130,861 | ) | (106,393 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of long-term debt, net | — | 248,750 | ||||||
Payment of long-term debt | (216,210 | ) | (625 | ) | ||||
Payment of debt and equity issuance costs | (3,692 | ) | (4,227 | ) | ||||
Payment of capital lease obligations | (3,335 | ) | (3,034 | ) | ||||
Proceeds from issuance of common stock | 15,898 | 17,663 | ||||||
Net cash provided by (used in) financing activities | (207,339 | ) | 258,527 | |||||
Effect of exchange rate changes on cash and cash equivalents | (2,435 | ) | (1,717 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (295,957 | ) | 240,233 | |||||
Cash and cash equivalents at beginning of fiscal year | 642,444 | 346,487 | ||||||
Cash and cash equivalents at end of fiscal year | $ | 346,487 | $ | 586,720 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the fiscal year for interest | $ | 32,397 | $ | 36,276 | ||||
Cash paid during the fiscal year for income taxes, net | $ | 10,679 | $ | 11,396 | ||||
Non-cash investing and financing activities | ||||||||
Purchase of equipment in accounts payable | $ | 6,191 | $ | 4,961 | ||||
Fixed assets purchased under capital leases | $ | 2,538 | $ | 10,424 | ||||
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements (unaudited) | ||||||||
Quarter Ended | ||||||||
October 31, | ||||||||
2013 | 2014 | |||||||
Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP gross profit | $ | 231,646 | $ | 220,837 | ||||
Share-based compensation-products | 617 | 547 | ||||||
Share-based compensation-services | 448 | 496 | ||||||
Amortization of intangible assets | 5,384 | 2,201 | ||||||
Total adjustments related to gross profit | 6,449 | 3,244 | ||||||
Adjusted (non-GAAP) gross profit | $ | 238,095 | $ | 224,081 | ||||
Adjusted (non-GAAP) gross profit percentage | 40.8 | % | 37.9 | % | ||||
Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP operating expense | $ | 232,063 | $ | 222,652 | ||||
Share-based compensation-research and development | 1,923 | 1,960 | ||||||
Share-based compensation-sales and marketing | 3,603 | 2,759 | ||||||
Share-based compensation-general and administrative | 3,157 | 3,025 | ||||||
Amortization of intangible assets | 12,439 | 11,019 | ||||||
Restructuring costs | 428 | 171 | ||||||
Total adjustments related to operating expense | 21,550 | 18,934 | ||||||
Adjusted (non-GAAP) operating expense | $ | 210,513 | $ | 203,718 | ||||
Income (Loss) from Operations Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP loss from operations | $ | (417 | ) | $ | (1,815 | ) | ||
Total adjustments related to gross profit | 6,449 | 3,244 | ||||||
Total adjustments related to operating expense | 21,550 | 18,934 | ||||||
Adjusted (non-GAAP) income from operations | $ | 27,582 | 20,363 | |||||
Adjusted (non-GAAP) operating margin percentage | 4.7 | % | 3.4 | % | ||||
Net Income (Loss) Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP net loss | $ | (9,797 | ) | $ | (30,703 | ) | ||
Total adjustments related to gross profit | 6,449 | 3,244 | ||||||
Total adjustments related to operating expense | 21,550 | 18,934 | ||||||
Non-cash interest expense | 284 | 351 | ||||||
Change in fair value of embedded redemption feature | (230 | ) | — | |||||
Adjusted (non-GAAP) net income (loss) | $ | 18,256 | $ | (8,174 | ) | |||
Weighted average basic common shares outstanding | 103,523 | 106,931 | ||||||
Weighted average dilutive potential common shares outstanding1 | 119,401 | 106,931 | ||||||
Net Income (Loss) per Common Share | ||||||||
GAAP diluted net loss per common share | $ | (0.09 | ) | $ | (0.29 | ) | ||
Adjusted (non-GAAP) diluted net income (loss) per common share2 | $ | 0.16 | $ | (0.08 | ) | |||
APPENDIX B - Reconciliation of Adjusted (Non- GAAP) Annual Measurements (unaudited) | ||||||||
Year Ended | ||||||||
October 31, | ||||||||
2013 | 2014 | |||||||
Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP gross profit | $ | 865,175 | $ | 948,352 | ||||
Share-based compensation-products | 2,522 | 2,531 | ||||||
Share-based compensation-services | 1,771 | 2,216 | ||||||
Amortization of intangible assets | 21,537 | 11,181 | ||||||
Total adjustments related to gross profit | 25,830 | 15,928 | ||||||
Adjusted (non-GAAP) gross profit | $ | 891,005 | $ | 964,280 | ||||
Adjusted (non-GAAP) gross profit percentage | 42.8 | % | 42.1 | % | ||||
Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP operating expense | $ | 866,950 | $ | 902,648 | ||||
Share-based compensation-research and development | 8,214 | 9,682 | ||||||
Share-based compensation-sales and marketing | 13,290 | 14,958 | ||||||
Share-based compensation-general and administrative | 12,055 | 13,568 | ||||||
Amortization of intangible assets | 49,771 | 45,970 | ||||||
Restructuring costs | 7,169 | 349 | ||||||
Settlement of patent litigation | 1,500 | 2,000 | ||||||
Total adjustments related to operating expense | 91,999 | 86,527 | ||||||
Adjusted (non-GAAP) operating expense | $ | 774,951 | $ | 816,121 | ||||
Loss from Operations Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP income (loss) from operations | $ | (1,775 | ) | $ | 45,704 | |||
Total adjustments related to gross profit | 25,830 | 15,928 | ||||||
Total adjustments related to operating expense | 91,999 | 86,527 | ||||||
Adjusted (non-GAAP) income from operations | $ | 116,054 | 148,159 | |||||
Adjusted (non-GAAP) operating margin percentage | 5.6 | % | 6.5 | % | ||||
Loss Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP net loss | $ | (85,431 | ) | $ | (40,637 | ) | ||
Total adjustments related to gross profit | 25,830 | 15,928 | ||||||
Total adjustments related to operating expense | 91,999 | 86,527 | ||||||
Loss on extinguishment of debt | 28,630 | — | ||||||
Non-cash interest expense | 898 | 1,273 | ||||||
Change in fair value of embedded redemption feature | (2,950 | ) | 2,740 | |||||
Adjusted (non-GAAP) net income | $ | 58,976 | $ | 65,831 | ||||
Weighted average basic common shares outstanding | 102,350 | 105,783 | ||||||
Weighted average dilutive potential common shares outstanding3 | 120,263 | 120,950 | ||||||
Net Loss per Common Share | ||||||||
GAAP diluted net loss per common share | $ | (0.83 | ) | $ | (0.38 | ) | ||
Adjusted (non-GAAP) diluted net income per common share4 | $ | 0.54 | $ | 0.59 | ||||
1. Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2013 includes 2.8 million shares underlying certain stock options and restricted stock units and 13.1 million shares underlying
2. The calculation of Adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2013 requires adding back interest expense of approximately
3. Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for fiscal 2013 includes 2.1 million shares underlying certain stock options and restricted stock units, 2.7 million shares underlying
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for fiscal 2014 includes 2.1 million shares underlying certain stock options and restricted stock units and 13.1 million shares underlying
4. The calculation of Adjusted (non-GAAP) diluted net income per common share for fiscal 2013 requires adding back interest expense of approximately
The calculation of Adjusted (non-GAAP) diluted net income per common share for fiscal 2014 requires adding back interest expense of approximately
The adjusted (non-GAAP) measures above and their reconciliation to
- Share-based compensation expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
- 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 the expected useful life. - Restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
- Settlement of patent litigation - included in general and administrative expense is a
$1.5 million patent litigation settlement during the third quarter of fiscal 2013 and a$2.0 million patent litigation settlement during the second quarter of fiscal 2014. - Loss on extinguishment of debt - a non-cash loss, recorded in connection with convertible note exchange transactions completed during the first quarter of fiscal 2013, reflecting the fair value of
Ciena's 4.0% senior convertible notes dueDecember 15, 2020 , as compared to the retirement of a portion ofCiena's outstanding 4.0% senior convertible notes dueMarch 15, 2015 . - 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 dueDecember 15, 2020 relating to the required separate accounting of the equity component of these convertible notes. - Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of
Ciena's outstanding 4.0% senior convertible notes dueMarch 15, 2015 .
Source:
Press:
Ciena Corporation
Nicole Anderson, 877-857-7377
pr@ciena.com
or
Investor:
Ciena Corporation
Gregg Lampf, 877-243-6273
ir@ciena.com