Ciena Reports Fiscal Fourth Quarter 2017 and Year-End Financial Results

December 7, 2017 at 8:00 AM EST

HANOVER, Md.--(BUSINESS WIRE)--Dec. 7, 2017-- Ciena® Corporation (NYSE: CIEN), a network strategy and technology company, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2017.

“Our fourth quarter and fiscal 2017 results reinforce our continued ability to adapt to changing market conditions by growing revenue and expanding profitability as we outperform the industry,” said Gary B. Smith, president and CEO, Ciena. “We are confident that our long-term strategy to scale and diversify our existing business and to expand our addressable market will enable us to continue to grow and generate cash.”

For the fiscal fourth quarter 2017, Ciena reported revenue of $744.4 million as compared to $716.2 million for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena reported revenue of $2.80 billion, as compared to $2.60 billion for fiscal year 2016.

Ciena's fiscal fourth quarter and fiscal year 2017 results reflect a tax benefit of $1.13 billion related to the reversal of a deferred tax asset valuation allowance. As a result, on the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal fourth quarter 2017 was $1.16 billion, or $7.32 per diluted common share, which compares to a GAAP net income of $36.6 million, or $0.25 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena had a GAAP net income of $1.26 billion, or $7.53 per diluted common share, which compares to a GAAP net income of $72.6 million or $0.51 per diluted common share for fiscal year 2016.

Consistent with Ciena's historical non-GAAP presentation ("Prior Method"), Ciena's adjusted (non-GAAP) net income for the fiscal fourth quarter 2017 was $68.8 million, or $0.46 per diluted common share, which compares to an adjusted (non-GAAP) net income of $69.4 million, or $0.44 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena's adjusted (non-GAAP) net income was $260.5 million, or $1.68 per diluted common share, as compared to an adjusted (non-GAAP) net income of $214.6 million, or $1.38 per diluted common share for fiscal year 2016.

Beginning this quarter, Ciena is changing how it calculates its adjusted (non-GAAP) provision for income taxes in accordance with the SEC's interpretive guidance on non-GAAP financial measures. In order to assist investors in understanding the change, Ciena is providing its calculations of adjusted (non-GAAP) net income under its "Prior Method" and the "New Method" in Appendix B. Under the "New Method," the Non-GAAP tax provision consists of current and deferred income tax expense commensurate with the level of adjusted (non-GAAP) income before income taxes using a current blended U.S. and foreign statutory tax rate (which was 36.5%). Under the "Prior Method," the Non-GAAP tax provision consisted of current and deferred income tax expense, primarily related to foreign income tax, which is paid using cash. This change in calculation methodology will not affect Ciena's adjusted (non-GAAP) income before income taxes, actual cash tax payments, or cash flows, but will result in significantly higher non-GAAP provisions for income taxes than our "Prior Method" presentation. However, Ciena does not expect to pay substantial cash taxes for the foreseeable future primarily due to its deferred tax asset balance. As of October 31, 2017, Ciena has deferred tax assets, net, of approximately $1.16 billion and, consequently, over the near term Ciena's cash taxes will continue to be primarily driven by the tax expense of its foreign subsidiaries, which amounts have not historically been significant.

Ciena's adjusted "New Method" (non-GAAP) net income for the fiscal fourth quarter 2017 was $48.5 million, or $0.32 per diluted common share, which compares to an adjusted (non-GAAP) net income of $48.1 million, or $0.30 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena's adjusted (non-GAAP) net income was $177.7 million, or $1.14 per diluted common share, as compared to an adjusted (non-GAAP) net income of $145.3 million or $0.93 per diluted common share for fiscal year 2016.

Authorization of Share Repurchase Program

In a separate press release today, Ciena announced that its Board of Directors has authorized a program to repurchase up to $300 million of the company’s common stock through the end of fiscal 2020.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2017 Results

Today, Thursday, December 7, 2017, in conjunction with the issuance of this press release, Ciena has posted to the quarterly results page of the Investors section of www.ciena.com an audio recording of management commentary that provides greater context for Ciena's performance to date and its strategy, as well as certain long-term financial targets. Ciena has also posted a transcript of the recording and a related investor presentation to this page. Consistent with past practice, Ciena’s management will host a discussion with investors and financial analysts of its unaudited fiscal fourth quarter 2017 results and fiscal first quarter 2018 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 at www.ciena.com/investors.

Fiscal Fourth Quarter 2017 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 Appendix A and B to this release.

     
    GAAP Results (unaudited)
    Q4   Q3   Q4   Period Change
    FY 2017   FY 2017   FY 2016   Q-T-Q*   Y-T-Y*
Revenue   $ 744.4     $ 728.7     $ 716.2     2.2 %   3.9 %
Gross margin     43.7 %     45.0 %     44.5 %   (1.3 )%   (0.8 )%
Operating expense   $ 269.9     $ 246.1     $ 258.9     9.7 %   4.2 %
Operating margin     7.5 %     11.3 %     8.3 %   (3.8 )%   (0.8 )%
     
     
    Non-GAAP Results (unaudited)
    Q4   Q3   Q4   Period Change
    FY 2017   FY 2017   FY 2016   Q-T-Q*   Y-T-Y*
Revenue   $ 744.4     $ 728.7     $ 716.2     2.2 %   3.9 %
Adj. gross margin     44.2 %     45.5 %     45.2 %   (1.3 )%   (1.0 )%
Adj. operating expense   $ 240.9     $ 229.3     $ 232.4     5.1 %   3.7 %
Adj. operating margin     11.9 %     14.1 %     12.8 %   (2.2 )%   (0.9 )%

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

       
    Revenue by Segment (unaudited)
    Q4 FY 2017   Q3 FY 2017   Q4 FY 2016
    Revenue   %   Revenue   %   Revenue   %
Networking Platforms                          
Converged Packet Optical   $ 504.7     67.8     $ 506.5     69.5     $ 488.0     68.1  
Packet Networking   92.5     12.5     82.1     11.3     72.4     10.1  
Optical Transport   1.7     0.2     3.7     0.5     5.8     0.8  
Total Networking Platforms   598.9     80.5     592.3     81.3     566.2     79.0  
                           
Software and Software-Related Services                          
Software Platforms   17.3     2.3     18.4     2.5     16.3     2.3  
Software-Related Services   24.5     3.3     23.9     3.3     21.3     3.0  
Total Software and Software-Related Services   41.8     5.6     42.3     5.8     37.6     5.3  
                           
Global Services                          
Maintenance Support and Training   56.2     7.5     57.9     7.9     59.8     8.3  
Installation and Deployment   33.5     4.5     27.4     3.8     38.6     5.4  
Consulting and Network Design   14.0     1.9     8.8     1.2     14.0     2.0  
Total Global Services   103.7     13.9     94.1     12.9     112.4     15.7  
                           
Total   $ 744.4     100.0     $ 728.7     100.0     $ 716.2     100.0  
                                           

Additional Performance Metrics for Fiscal Fourth Quarter 2017

       
    Revenue by Geographic Region (unaudited)
    Q4 FY 2017   Q3 FY 2017   Q4 FY 2016
    Revenue   %   Revenue   %   Revenue   %
North America   $ 440.5     59.2     $ 465.2     63.8     $ 463.1     64.7  
Europe, Middle East and Africa   110.7     14.9     96.1     13.2     112.5     15.7  
Caribbean and Latin America   43.5     5.8     51.7     7.1     46.8     6.5  
Asia Pacific   149.7     20.1     115.7     15.9     93.8     13.1  
Total   $ 744.4     100.0     $ 728.7     100.0     $ 716.2     100.0  
                                           
  • U.S. customers contributed 56% of total revenue
  • Two 10%-plus customers represented a total of 27.6% of revenue
  • Cash and investments totaled $969.4 million
  • Cash flow from operations totaled $138.5 million
  • Average days' sales outstanding (DSOs) were 75
  • Accounts receivable balance was $622.2 million
  • Inventories totaled $267.1 million, including:
    • Raw materials: $52.9 million
    • Work in process: $18.6 million
    • Finished goods: $185.5 million
    • Deferred cost of sales: $61.3 million
    • Reserve for excess and obsolescence: $(51.2) million
  • Product inventory turns were 5.3
  • Headcount totaled 5,737

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: "Our fourth quarter and fiscal 2017 results reinforce our continued ability to adapt to changing market conditions by growing revenue and expanding profitability as we outperform the industry." and "We are confident that our long-term strategy to scale and diversify our existing business and to expand our addressable market will enable us to continue to grow and generate cash."

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 large communication service providers; 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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on September 6, 2017 and Ciena's Annual Report on Form 10-K to be filed with the SEC. 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, and measure of net income and net income per share, in each case, under our "Prior Method" and "New Method" as described above. 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. Under the "Prior Method" of calculating adjusted (non-GAAP) net income and net income per share, the Non-GAAP tax provision consists of current and deferred income tax expense, primarily related to foreign income tax, which is paid using cash. Under the "New Method" of calculating adjusted (non-GAAP) net income and net income per share, the Non-GAAP tax provision consists of current and deferred income tax expense commensurate with the level of adjusted (non-GAAP) income before income taxes using a current blended U.S. and foreign statutory tax rate (which was 36.5%). As such, the tax provision in our adjusted (non-GAAP) net income is presented as a separate and comparative reconciling item. To the extent not previously disclosed in a prior Ciena financial results press release, the Appendix 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.

About Ciena

Ciena (NYSE: CIEN) is a network strategy and technology company. We translate best-in-class technology into value through a high-touch, consultative business model – with a relentless drive to create exceptional experiences measured by outcomes. For updates on Ciena, follow us on Twitter @Ciena, LinkedIn, the Ciena Insights blog, or visit www.ciena.com.

 

         
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
         
    Quarter Ended October 31,   Year Ended October 31,
    2017   2016   2017   2016
Revenue:                
Products   616,216     582,455     2,318,581     2,117,472  
Services   128,233     133,736     483,106     483,101  
Total revenue   744,449     716,191     2,801,687     2,600,573  
Cost of goods sold:                
Products   352,992     324,663     1,308,295     1,176,304  
Services   65,772     72,980     247,606     262,693  
Total cost of goods sold   418,764     397,643     1,555,901     1,438,997  
Gross profit   325,685     318,548     1,245,786     1,161,576  
Operating expenses:                
Research and development   119,108     112,448     475,329     451,794  
Selling and marketing   95,877     96,853     356,169     349,731  
General and administrative   36,181     32,147     142,604     132,828  
Amortization of intangible assets   3,661     14,551     33,029     61,508  
Acquisition and integration costs               4,613  
Significant asset impairments and restructuring costs   15,059     2,876     23,933     4,933  
Total operating expenses   269,886     258,875     1,031,064     1,005,407  
Income from operations   55,799     59,673     214,722     156,169  
Interest and other income (loss), net   652     (1,339 )   (2,744 )   (12,795 )
Interest expense   (13,926 )   (15,371 )   (55,852 )   (56,656 )
Income before income taxes   42,525     42,963     156,126     86,718  
Provision (benefit) for income taxes   (1,117,531 )   6,376     (1,105,827 )   14,134  
Net income   $ 1,160,056     $ 36,587     $ 1,261,953     $ 72,584  
                 
Net Income per Common Share                
Basic net income per common share   $ 8.11     $ 0.26     $ 8.89     $ 0.52  
Diluted net income per potential common share1   $ 7.32     $ 0.25     $ 7.53     $ 0.51  
                 
Weighted average basic common shares outstanding   143,097     139,741     141,997     138,312  
Weighted average diluted potential common shares outstanding 2   158,791     165,298     169,919     150,704  
                         

1. The calculation of GAAP diluted net income per common share for the fourth quarter of fiscal 2017 requires adding back interest expense of approximately $0.4 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $2.3 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation.

The calculation of GAAP diluted net income per common share for fiscal 2017 requires adding back interest expense of approximately $0.9 million associated with Ciena's 0.875% convertible senior notes which were paid at maturity during the third quarter of fiscal 2017, approximately $7.2 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $8.7 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation.

The calculation of GAAP diluted net income per common share for the fourth quarter of fiscal 2016 requires adding back interest expense of approximately $0.7 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, and approximately $3.6 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation.

The calculation of GAAP diluted net income per common share for fiscal 2016 requires adding back interest expense of approximately $4.8 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation.

2. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the fourth quarter of fiscal 2017 includes 1.2 million shares underlying certain stock options and restricted stock units, 1.6 million shares underlying Ciena's "New" 3.75% convertible senior notes, due October 15, 2018, 3.7 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, and 9.2 million share underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units, 0.4 million shares underlying Ciena's "New" 3.75% convertible senior notes, due October 15, 2018, 3.0 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 13.9 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, and 9.2 million share underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the fourth quarter of fiscal 2016 includes 1.6 million shares underlying certain stock options and restricted stock units, 6.6 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017 and 17.4 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for fiscal 2016 includes 1.3 million shares underlying certain stock options and restricted stock units and 11.1 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017.

 

     
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
     
    October 31,
    2017   2016
ASSETS        
Current assets:        
Cash and cash equivalents   $ 640,513     $ 777,615  
Short-term investments   279,133     275,248  
Accounts receivable, net   622,183     576,235  
Inventories   267,143     211,251  
Prepaid expenses and other   197,339     172,843  
Total current assets   2,006,311     2,013,192  
Long-term investments   49,783     90,172  
Equipment, building, furniture and fixtures, net   308,465     288,406  
Goodwill   267,458     266,974  
Other intangible assets, net   100,997     146,711  
Deferred tax asset, net   1,155,104     1,116  
Other long-term assets   63,593     67,004  
Total assets   $ 3,951,711     $ 2,873,575  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable   $ 260,098     $ 235,942  
Accrued liabilities and other short-term obligations   322,934     310,353  
Deferred revenue   102,418     109,009  
Current portion of long-term debt   352,293     236,241  
Total current liabilities   1,037,743     891,545  
Long-term deferred revenue   82,589     73,854  
Other long-term obligations   111,349     124,394  
Long-term debt, net   583,688     1,017,441  
Total liabilities   $ 1,815,369     $ 2,107,234  
         
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; 143,043,227 and 139,767,627 shares issued and outstanding   1,430     1,398  
Additional paid-in capital   6,810,182     6,715,478  
Accumulated other comprehensive loss   (11,017 )   (24,329 )
Accumulated deficit   (4,664,253 )   (5,926,206 )
Total stockholders’ equity   2,136,342     766,341  
Total liabilities and stockholders’ equity   $ 3,951,711     $ 2,873,575  

 

     
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
    Year Ended October 31,
    2017   2016
Cash flows from operating activities:        
Net income   $ 1,261,953     $ 72,584  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements   77,189     63,394  
Share-based compensation costs   48,360     51,993  
Amortization of intangible assets   45,713     78,298  
Deferred taxes   (1,126,732 )   (1,116 )
Provision for doubtful accounts   18,221     1,701  
Provision for inventory excess and obsolescence   35,459     33,713  
Provision for warranty   7,965     15,483  
Other   22,417     24,929  
Changes in assets and liabilities:        
Accounts receivable   (66,123 )   (26,074 )
Inventories   (91,567 )   (53,000 )
Prepaid expenses and other   (33,834 )   30,047  
Accounts payable, accruals and other obligations   33,897     7,153  
Deferred revenue   1,964     (9,585 )
Net cash provided by operating activities   234,882     289,520  
Cash flows used in investing activities:        
Payments for equipment, furniture, fixtures and intellectual property   (94,600 )   (107,185 )
Restricted cash   (54 )   11  
Purchase of available for sale securities   (299,038 )   (365,191 )
Proceeds from maturities of available for sale securities   335,075     230,612  
Settlement of foreign currency forward contracts, net   (2,810 )   (18,506 )
Purchase of cost method investment       (4,000 )
Acquisition of business, net of cash acquired       (32,000 )
Net cash used in investing activities   (61,427 )   (296,259 )
Cash flows from financing activities:        
Proceeds from issuance of long-term debt, net       248,750  
Payment of long-term debt   (233,554 )   (266,116 )
Payment for modification of term loans   (93,625 )    
Payment of debt and equity issuance costs   (722 )   (3,987 )
Payment of capital lease obligations   (3,562 )   (5,966 )
Proceeds from issuance of common stock   20,412     23,091  
Net cash used in financing activities   (311,051 )   (4,228 )
Effect of exchange rate changes on cash and cash equivalents   494     (2,389 )
Net decrease in cash and cash equivalents   (137,102 )   (13,356 )
Cash and cash equivalents at beginning of fiscal year   777,615     790,971  
Cash and cash equivalents at end of fiscal year   $ 640,513     $ 777,615  
Supplemental disclosure of cash flow information        
Cash paid during the fiscal year for interest   $ 47,235     $ 46,897  
Cash paid during the fiscal year for income taxes, net   $ 33,166     $ 15,268  
Non-cash investing and financing activities        
Purchase of equipment in accounts payable   $ 6,214     $ 15,030  
Equipment acquired under capital leases   $     $ 5,322  
Building subject to capital lease   $ 50,370     $ 8,993  
Construction in progress subject to build-to-suit lease   $     $ 39,914  
 
APPENDIX A- Reconciliation of Adjusted (Non- GAAP) Measurements (unaudited)
                 
    Quarter Ended   Year Ended
    October 31,   October 31,
    2017   2016   2017   2016
Gross Profit Reconciliation (GAAP/non-GAAP)                
GAAP gross profit   $ 325,685     $ 318,548     $ 1,245,786     $ 1,161,576  
Share-based compensation-products   694     612     2,672     2,457  
Share-based compensation-services   561     557     2,487     2,479  
Amortization of intangible assets   2,332     4,320     12,685     16,401  
Total adjustments related to gross profit   3,587     5,489     17,844     21,337  
Adjusted (non-GAAP) gross profit   $ 329,272     $ 324,037     $ 1,263,630     $ 1,182,913  
Adjusted (non-GAAP) gross profit percentage   44.2 %   45.2 %   45.1 %   45.5 %
                 
Operating Expense Reconciliation (GAAP/non-GAAP)                
GAAP operating expense   $ 269,886     $ 258,875     $ 1,031,064     $ 1,005,407  
Share-based compensation-research and development   2,956     3,172     12,957     13,870  
Share-based compensation-sales and marketing   3,218     2,890     12,846     15,138  
Share-based compensation-general and administrative   4,130     2,961     17,321     17,342  
Share-based compensation-acquisition related               714  
Amortization of intangible assets   3,661     14,551     33,029     61,508  
Acquisition and integration costs, excluding share-based compensation               3,899  
Significant asset impairments and restructuring costs   15,059     2,876     23,933     4,933  
Settlement of patent litigation               1,200  
Total adjustments related to operating expense   $ 29,024     $ 26,450     $ 100,086     $ 118,604  
Adjusted (non-GAAP) operating expense   $ 240,862     $ 232,425     $ 930,978     $ 886,803  
                 
Income from Operations Reconciliation (GAAP/non-GAAP)                
GAAP income from operations   $ 55,799     $ 59,673     $ 214,722     $ 156,169  
Total adjustments related to gross profit   3,587     5,489     17,844     21,337  
Total adjustments related to operating expense   29,024     26,450     100,086     118,604  
Total adjustments related to income from operations   32,611     31,939     117,930     139,941  
Adjusted (non-GAAP) income from operations   $ 88,410     $ 91,612     $ 332,652     $ 296,110  
Adjusted (non-GAAP) operating margin percentage   11.9 %   12.8 %   11.9 %   11.4 %
 
APPENDIX B- Reconciliation of Adjusted (Non- GAAP) Measurements (unaudited)
         
    (New Method)   (Prior Method)
    Quarter Ended   Year Ended   Quarter Ended   Year Ended
    October 31,   October 31,   October 31,   October 31,
    2017   2016   2017   2016   2017   2016   2017   2016
Net Income Reconciliation (GAAP/non-GAAP)                                
GAAP net income   $ 1,160,056     $ 36,587     $ 1,261,953     $ 72,584     $ 1,160,056     $ 36,587     $ 1,261,953     $ 72,584
Exclude GAAP provision (benefit) for income taxes   (1,117,531 )   6,376     (1,105,827 )   14,134     (1,117,531 )   6,376     (1,105,827 )   14,134
Income before income taxes   42,525     42,963     156,126     86,718     42,525     42,963     156,126     86,718
Total adjustments related to income from operations   32,611     31,939     117,930     139,941     32,611     31,939     117,930     139,941
Loss on extinguishment of debt       376     41     226         376     41     226
Non-cash interest expense   525     500     2,099     1,881     525     500     2,099     1,881
Modification of debt   692         3,616         692         3,616    
Adjusted income before income taxes   76,353     75,778     279,812     228,766     76,353     75,778     279,812     228,766
Non-GAAP tax provision on adjusted income before income taxes   27,869     27,659     102,131     83,500     7,597     6,376     19,301     14,134
Adjusted (non-GAAP) net income   $ 48,484     $ 48,119     $ 177,681     $ 145,266     $ 68,756     $ 69,402     $ 260,511     $ 214,632
                                 
Weighted average basic common shares outstanding   143,097     139,741     141,997     138,312     143,097     139,741     141,997     138,312
Weighted average dilutive potential common shares outstanding 1   158,791     174,496     169,919     177,258     158,791     174,496     169,919     177,258
                                 
Net Income per Common Share                                
GAAP diluted net income per common share   $ 7.32     $ 0.25     $ 7.53     $ 0.51     $ 7.32     $ 0.25     $ 7.53     $ 0.51
Adjusted (non-GAAP) diluted net income per common share 2   $ 0.32     $ 0.30     $ 1.14     $ 0.93     $ 0.46     $ 0.44     $ 1.68     $ 1.38

1. Weighted average dilutive potential common shares outstanding used in calculating New Method and Prior Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2017 includes 1.2 million shares underlying certain stock options and restricted stock units, 1.6 million shares underlying Ciena's "New" 3.75% convertible senior notes, due October 15, 2018, 3.7 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

Weighted average dilutive potential common shares outstanding used in calculating New Method and Prior Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2016 includes 1.6 million shares underlying certain stock options and restricted stock units, 6.6 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 17.4 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

Weighted average dilutive potential common shares outstanding used in calculating New Method and Prior Method adjusted (non-GAAP) diluted net income per common share for fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units, 0.4 million shares underlying Ciena's "New" 3.75% convertible senior notes, due October 15, 2018, 3.0 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 13.9 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, and 9.2 million share underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

Weighted average dilutive potential common shares outstanding used in calculating New Method and Prior Method adjusted (non-GAAP) diluted net income per common share for fiscal 2016 includes 1.3 million shares underlying certain stock options and restricted stock units, 11.1 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, 17.4 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018, and 9.2 million share underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.

2. The calculation of New Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2017 requires adding back interest expense of approximately $0.4 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $1.9 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the New Method adjusted (non-GAAP) net income in order to derive the numerator for the New Method adjusted earnings per common share calculation.

The calculation of Prior Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2017 requires adding back interest expense of approximately $0.6 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $3.1 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Prior Method adjusted (non-GAAP) net income in order to derive the numerator for the Prior Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of New Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2016 requires adding back interest expense of approximately $0.5 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $2.3 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $1.8 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the New Method adjusted (non-GAAP) net income in order to derive the numerator for the New Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of Prior Method adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2016 requires adding back interest expense of approximately $0.7 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $3.6 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $2.9 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Prior Method adjusted (non-GAAP) net income in order to derive the numerator for the Prior Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of New Method adjusted (non-GAAP) diluted net income per common share for fiscal 2017 requires adding back interest expense of approximately $0.9 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $7.2 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $7.4 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the New Method adjusted (non-GAAP) net income in order to derive the numerator for the New Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of Prior Method adjusted (non-GAAP) diluted net income per common share for fiscal 2017 requires adding back interest expense of approximately $1.3 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017, approximately $11.4 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $11.6 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Prior Method adjusted (non-GAAP) net income in order to derive the numerator for the Prior Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of New Method adjusted (non-GAAP) diluted net income per common share for fiscal 2016 requires adding back interest expense of approximately $3.0 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $9.1 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $7.2 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the New Method adjusted (non-GAAP) net income in order to derive the numerator for the New Method adjusted (non-GAAP) earnings per common share calculation.

The calculation of Prior Method adjusted (non-GAAP) diluted net income per common share for fiscal 2016 requires adding back interest expense of approximately $4.8 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $14.3 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018 and approximately $11.4 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Prior Method adjusted (non-GAAP) net income in order to derive the numerator for the Prior Method adjusted (non-GAAP) 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.
  • Acquisition and integration costs - consist of financial, legal and accounting advisors, facilities and systems consolidation costs, and severance and other employment-related costs related to our recent acquisitions of Cyan and TeraXion. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • 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.
  • Significant asset impairments and restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities and a significant asset impairment for a trade receivable for a customer in the Asia Pacific region.
  • Settlement of patent litigation - included in general and administrative expense is a $1.2 million patent litigation settlement during the second quarter of fiscal 2016.
  • Loss on extinguishment of debt - losses related to certain private repurchase transactions during fiscal 2016 and 2017 of Ciena's then outstanding 0.875% convertible senior notes, due June 15, 2017.
  • 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.
  • Modification of debt - costs incurred as a result of the modification of debt to refinance then existing term loans and an exchange offer for Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018.
  • Non-GAAP tax provision - Beginning this quarter, Ciena is changing how it calculates its adjusted (non-GAAP) provision for income taxes in accordance with the SEC guidance on non-GAAP financial measures. Under the "New Method," the Non-GAAP tax provision consists of current and deferred income tax expense commensurate with the level of adjusted income before income taxes using a current blended U.S. and foreign statutory tax rate (which was 36.5%). This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy. Under the "Prior Method," the Non-GAAP tax provision consists of current and deferred income tax expense, and primarily related to foreign income tax, which is paid using cash. This change in calculation methodology will not affect Ciena's adjusted income before income taxes, actual cash tax payments, or cash flows, but will result in significantly higher non-GAAP provisions for income taxes compared to our "Prior Method" Non-GAAP presentation. Ciena, however, does not expect to pay substantial cash taxes for the foreseeable future primarily due to Ciena's deferred tax asset balance. Ciena's foreign and domestic income tax expense which will be paid using cash was $7.6 million and $6.4 million for the fourth quarter of fiscal 2017 and 2016, respectively, and $19.3 million and $14.1 million for the fiscal 2017 and 2016, respectively. As of October 31, 2017, Ciena has deferred tax assets, net of approximately $1.16 billion, and consequently, over the near term, Ciena's cash taxes will continue to be primarily related to the tax expense of Ciena's foreign subsidiaries, which amounts have not historically been significant.

 

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Source: Ciena Corporation

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