Ciena Reports Fiscal Fourth Quarter 2014 and Year-End Financial Results

December 11, 2014 at 8:00 AM EST

Delivers 10% annual revenue growth and 6.5% adjusted operating margin for the year

HANOVER, Md.--(BUSINESS WIRE)--Dec. 11, 2014-- Ciena® Corporation (NYSE: CIEN), the network specialist, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2014.

For the fiscal fourth quarter 2014, Ciena reported revenue of $591.0 million as compared to $583.4 million for the fiscal fourth quarter 2013. For fiscal year 2014, Ciena reported revenue of $2.3 billion, as compared to $2.1 billion for fiscal year 2013.

On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal fourth quarter 2014 was $(30.7) million, or $(0.29) per diluted common share, which compares to a GAAP net loss of $(9.8) million, or $(0.09) per diluted common share, for the fiscal fourth quarter 2013. For fiscal year 2014, Ciena had a GAAP net loss of $(40.6) million, or $(0.38) per diluted common share, which compares to a GAAP net loss of $(85.4) million or $(0.83) per diluted common share for fiscal year 2013.

Ciena's adjusted (non-GAAP) net loss for the fiscal fourth quarter 2014 was $(8.2) million, or $(0.08) per diluted common share, which compares to an adjusted (non-GAAP) net income of $18.3 million, or $0.16 per diluted common share, for the fiscal fourth quarter 2013. For fiscal year 2014, Ciena's adjusted (non-GAAP) net income was $65.8 million, or $0.59 per diluted common share, as compared to an adjusted (non-GAAP) net income of $59.0 million, or $0.54 per diluted common share for fiscal year 2013.

“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 Gary B. Smith, president and CEO of Ciena. “As we continue to expand Ciena’s role and reach, we are well positioned to drive continued growth and increased profitability in 2015.”

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
  • 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.

Ciena expects financial performance for fiscal first quarter 2015 to include:

  • 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

Ciena will host a discussion of its unaudited fiscal fourth quarter 2014 and year-end results with investors and financial analysts today, Thursday, December 11, 2014 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena's homepage at http://www.ciena.com/. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at: www.ciena.com/investors.

About Ciena

Ciena (NYSE: CIEN) is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with its OPn architecture for next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. For updates on Ciena news, follow us on Twitter @Ciena or on LinkedIn at http://www.linkedin.com/company/ciena. Investors are encouraged to review the Investors section of our website at www.ciena.com/investors, where we routinely post press releases, SEC filings, recent news, financial results, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use.

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 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 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”; “As we continue to expand Ciena’s role and reach, we are well positioned to drive continued growth and increased profitability in 2015”; "Ciena expects financial performance for fiscal first quarter 2015 to include 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."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due 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 our 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; and the other risk factors disclosed in Ciena's Report on Form 10-Q filed with the Securities and Exchange Commission on September 10, 2014. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) 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, Appendixes A and B to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

 
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 Ciena's 0.875% convertible senior notes, due June 15, 2017.

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 $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

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 Ciena's 0.25% convertible senior notes due May 1, 2013 (which were paid at maturity during the second quarter of fiscal 2013) and 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.

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 Ciena's 0.875% convertible senior notes, due June 15, 2017.

4. The calculation of Adjusted (non-GAAP) diluted net income per common share for fiscal 2013 requires adding back interest expense of approximately $0.7 million associated with Ciena's 0.25% convertible senior notes due May 1, 2013 (which were paid during the second quarter of fiscal 2013) and approximately $5.5 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

The calculation of Adjusted (non-GAAP) diluted net income per common share for fiscal 2014 requires adding back interest expense of approximately $5.5 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

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 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 due December 15, 2020, as compared to the retirement of a portion of Ciena's outstanding 4.0% senior convertible notes due March 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 due December 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 due March 15, 2015.

Source: Ciena Corporation

Press:
Ciena Corporation
Nicole Anderson, 877-857-7377
pr@ciena.com
or
Investor:
Ciena Corporation
Gregg Lampf, 877-243-6273
ir@ciena.com