Ciena Reports Fiscal Second Quarter 2013 Financial Results

June 6, 2013 at 8:00 AM EDT

Achieves record quarterly revenue by surpassing $500M milestone

HANOVER, Md.--(BUSINESS WIRE)--Jun. 6, 2013-- Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited financial results for its fiscal second quarter ended April 30, 2013.

For the fiscal second quarter 2013, Ciena reported revenue of $507.7 million.

On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal second quarter 2013 was $(27.1) million, or $(0.27) per common share, which compares to a GAAP net loss of $(27.8) million, or $(0.28) per common share, for the fiscal second quarter 2012.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2013 was $2.2 million, or $0.02 per common share, which compares to an adjusted (non-GAAP) net income of $3.7 million, or $0.04 per common share, for the fiscal second quarter 2012.

“We have designed Ciena to take advantage of the fundamental shift in network architecture driven by changing end-user demands, and our strong quarterly and first half of 2013 performance are a direct result of that strategy. Our unique ability to provide customers convergence, automation, openness and software intelligence positions us to lead the industry in this shift,” said Gary B. Smith, president and CEO of Ciena. “These dynamics are creating new opportunities that we believe will enable us to continue making progress toward our long-term financial goals.”

Fiscal Second Quarter 2013 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.

 
    GAAP Results
    Q2   Q1   Q2   Period Change
    FY 2013   FY 2013   FY 2012   Q-T-Q*   Y-T-Y*
Revenue   $ 507.7     $ 453.1     $ 477.6     12.1 %   6.3 %
Gross margin   41.3 %   43.2 %   38.3 %   (1.9 )%   3.0 %
Operating expense   $ 220.1     $ 201.4     $ 194.4     9.3 %   13.2 %
Operating margin   (2.1 )%   (1.2 )%   (2.4 )%   (0.9 )%   0.3 %
                               
    Non-GAAP Results
    Q2   Q1   Q2   Period Change
    FY 2013   FY 2013   FY 2012   Q-T-Q*   Y-T-Y*
Revenue   $ 507.7     $ 453.1     $ 477.6     12.1 %   6.3 %
Adj. gross margin   42.5 %   44.6 %   39.6 %   (2.1 )%   2.9 %
Adj. operating expense   $ 197.4     $ 176.6     $ 172.9     11.8 %   14.2 %
Adj. operating margin   3.7 %   5.6 %   3.4 %   (1.9 )%   0.3 %
                               
    Revenue by Segment
    Q2 FY 2013   Q1 FY 2013   Q2 FY 2012
    Revenue   %   Revenue   %   Revenue   %
Converged Packet Optical   $ 291.4     57.4     $ 240.0     53.0     $ 264.6     55.4
Packet Networking   57.1     11.2     45.8     10.1     29.9     6.3
Optical Transport   57.4     11.3     57.6     12.7     84.4     17.7
Software and Services   101.8     20.1     109.7     24.2     98.7     20.6
Total   $ 507.7     100.0     $ 453.1     100.0     $ 477.6     100.0
                                         
* Denotes % change, or in the case of margin, absolute change
 

Additional Performance Metrics for Fiscal Second Quarter 2013

  • Non-U.S. customers contributed 43% of total revenue
  • Two customers accounted for greater than 10% of revenue and represented 31.3% of total revenue
  • Cash and investments totaled $456.5 million
  • Cash flow from operations totaled $44.9 million
  • Free cash flow totaled $35.6 million
  • Average days' sales outstanding (DSOs) were 75
  • Accounts receivable balance was $421.0 million
  • Inventories totaled $248.1 million, including:
    • Raw materials: $49.9 million
    • Work in process: $9.7 million
    • Finished goods: $145.1 million
    • Deferred cost of sales: $84.2 million
    • Reserve for excess and obsolescence: $(40.8) million
  • Product inventory turns were 3.9
  • Headcount totaled 4,546

Business Outlook for Fiscal Third Quarter 2013

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 fiscal third quarter 2013 financial performance to include:

  • Revenue in the range of $515 to $545 million
  • Adjusted (non-GAAP) gross margin in the low 40s percent range
  • Adjusted (non-GAAP) operating expense in the mid $190s million range

Live Web Broadcast of Unaudited Fiscal Second Quarter 2013 Results

Ciena will host a discussion of its unaudited fiscal second quarter 2013 results with investors and financial analysts today, Thursday, June 6, 2013 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena's homepage at http://www.ciena.com/. To accompany its live broadcast, Ciena has posted to the Investor Relations page of its website at: www.ciena.com/investors a presentation for investors that includes certain highlighted information relating to this quarter and certain historical results of operation. An archived transcript 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.

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 Ciena's business outlook for the fiscal third quarter of 2013 as well as: “We have designed Ciena to take advantage of the fundamental shift in network architecture driven by changing end-user demands, and our strong quarterly and first half of 2013 performance are a direct result of that strategy."; "Our unique ability to provide customers convergence, automation, openness and software intelligence positions us to lead the industry in this shift.”; "These dynamics are creating new opportunities that we believe will enable us to continue making progress toward our long-term financial goals."

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 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 Report on Form 10-Q filed with the Securities and Exchange Commission on March 13, 2013. 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, Appendix A 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 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 OPn, its approach for building open 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. 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, other announcements and, from time to time, exclusively post material information as with the other disclosure channels that we use.

 

 

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 
    Quarter Ended April 30,   Six Months Ended April 30,
    2012   2013   2012   2013
Revenue:                
Products   $ 384,726     $ 413,217     $ 718,399     $ 766,274  
Services   92,891     94,495     175,903     194,531  
Total revenue   477,617     507,712     894,302     960,805  
Cost of goods sold:                
Products   234,372     239,441     432,124     435,962  
Services   60,304     58,758     111,481     119,535  
Total cost of goods sold   294,676     298,199     543,605     555,497  
Gross profit   182,941     209,513     350,697     405,308  
Operating expenses:                
Research and development   90,399     100,787     180,063     189,912  
Selling and marketing   62,517     74,475     126,928     141,063  
General and administrative   26,670     30,883     56,334     59,091  
Amortization of intangible assets   12,967     12,439     26,438     24,892  
Restructuring costs   1,851     1,509     3,573     6,539  
Total operating expenses   194,404     220,093     393,336     421,497  
Loss from operations   (11,463 )   (10,580 )   (42,639 )   (16,189 )
Interest and other income (loss), net   (4,387 )   (2,716 )   (9,274 )   (2,853 )
Interest expense   (9,646 )   (11,392 )   (19,216 )   (22,124 )
Loss on extinguishment of debt               (28,630 )
Loss before income taxes   (25,496 )   (24,688 )   (71,129 )   (69,796 )
Provision for income taxes   2,284     2,391     4,304     4,607  
Net loss   $ (27,780 )   $ (27,079 )   $ (75,433 )   $ (74,403 )
Basic net loss per common share   $ (0.28 )   $ (0.27 )   $ (0.77 )   $ (0.73 )
Diluted net loss per potential common share   $ (0.28 )   $ (0.27 )   $ (0.77 )   $ (0.73 )
Weighted average basic common shares outstanding   98,981     101,913     98,525     101,560  
Weighted average dilutive potential common shares outstanding   98,981     101,913     98,525     101,560  
                         
 

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 
    October 31,   April 30,
    2012   2013
ASSETS        
Current assets:        
Cash and cash equivalents   $ 642,444     $ 356,498  
Short-term investments     50,057       99,973  
Accounts receivable, net     345,496       421,014  
Inventories     260,098       248,096  
Prepaid expenses and other     117,595       138,577  
Total current assets     1,415,690       1,264,158  
Equipment, furniture and fixtures, net     123,580       117,553  
Other intangible assets, net     257,137       221,476  
Other long-term assets     84,736       90,157  
Total assets   $ 1,881,143     $ 1,693,344  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)        
Current liabilities:        
Accounts payable   $ 179,704     $ 198,820  
Accrued liabilities     209,540       222,783  
Deferred revenue     79,516       98,603  
Convertible notes payable     216,210        
Total current liabilities     684,970       520,206  
Long-term deferred revenue     27,560       28,272  
Other long-term obligations     31,779       32,989  
Long-term convertible notes payable     1,225,806       1,209,814  
Total liabilities  

$

1,970,115

   

$

1,791,281

 
Commitments and contingencies        
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; 100,601,792 and 102,035,119 shares issued and outstanding     1,006       1,020  
Additional paid-in capital     5,797,765       5,864,381  
Accumulated other comprehensive income (loss)     (3,354 )     (4,546 )
Accumulated deficit     (5,884,389 )     (5,958,792 )
Total stockholders’ equity (deficit)     (88,972 )     (97,937 )
Total liabilities and stockholders’ equity (deficit)   $ 1,881,143     $ 1,693,344  
             
     

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

     
    Six Months Ended April 30,
    2012   2013
Cash flows from operating activities:        
Net loss   $ (75,433 )   $ (74,403 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Loss on extinguishment of debt       28,630  
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements   29,079     28,857  
Share-based compensation costs   16,830     18,147  
Amortization of intangible assets   37,865     35,661  
Provision for inventory excess and obsolescence   13,982     9,027  
Provision for warranty   16,615     11,060  
Other   7,993     5,068  
Changes in assets and liabilities:        
Accounts receivable   19,107     (76,526 )
Inventories   (26,630 )   2,975  
Prepaid expenses and other   19,597     (33,969 )
Accounts payable, accruals and other obligations   8,315     24,805  
Deferred revenue   6,036     19,799  
Net cash provided by (used in) operating activities   73,356     (869 )
Cash flows used in investing activities:        
Payments for equipment, furniture, fixtures and intellectual property   (16,150 )   (21,496 )
Restricted cash   (17,202 )   1,679  
Purchase of available for sale securities       (99,914 )

Proceeds from maturities of available for sale securities

      50,000  
Proceeds from sale of cost method investment   524      
Net cash used in investing activities   (32,828 )   (69,731 )
Cash flows from financing activities:        
Payment of long term debt       (216,210 )
Payment for debt and equity issuance costs       (3,661 )
Payment of capital lease obligations   (699 )   (1,427 )
Proceeds from issuance of common stock   5,715     5,955  
Net cash provided by (used in) financing activities   5,016     (215,343 )
Effect of exchange rate changes on cash and cash equivalents   (1,893 )   (3 )
Net increase (decrease) in cash and cash equivalents   45,544     (285,943 )
Cash and cash equivalents at beginning of period   541,896     642,444  
Cash and cash equivalents at end of period   $ 585,547     $ 356,498  
Supplemental disclosure of cash flow information        
Cash paid during the period for interest   $ 16,520     $ 15,720  
Cash paid during the period for income taxes, net   $ 5,811     $ 5,136  
Non-cash investing and financing activities        
Purchase of equipment in accounts payable   $ 4,004     $ 3,006  
Fixed assets acquired under capital leases   $ 4,427     $ 1,286  
                 
 
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
         
    Quarter Ended
    April 30,
    2012   2013
Gross Profit Reconciliation (GAAP/non-GAAP)        
GAAP gross profit   $ 182,941     $ 209,513  
Share-based compensation-products   460       686  
Share-based compensation-services   367       435  
Amortization of intangible assets   5,484       5,384  
Total adjustments related to gross profit   6,311       6,505  
Adjusted (non-GAAP) gross profit   $ 189,252     $ 216,018  
Adjusted (non-GAAP) gross profit percentage   39.6 %     42.5 %
         
Operating Expense Reconciliation (GAAP/non-GAAP)        
GAAP operating expense   $ 194,404     $ 220,093  
Share-based compensation-research and development   2,092       2,204  
Share-based compensation-sales and marketing   2,820       3,382  
Share-based compensation-general and administrative   2,141       3,144  
Acquisition and integration costs   (410 )      
Amortization of intangible assets   12,967       12,439  
Restructuring costs   1,851       1,509  
Total adjustments related to operating expense   21,461       22,678  
Adjusted (non-GAAP) operating expense   $ 172,943     $ 197,415  
         
Income (Loss) from Operations Reconciliation (GAAP/non-GAAP)        
GAAP loss from operations   $ (11,463 )   $ (10,580 )
Total adjustments related to gross profit   6,311       6,505  
Total adjustments related to operating expense   21,461       22,678  
Adjusted (non-GAAP) income from operations   $ 16,309    

$

18,603

 
Adjusted (non-GAAP) operating margin percentage   3.4 %     3.7 %
         
Net Income (Loss) Reconciliation (GAAP/non-GAAP)        
GAAP net loss   $ (27,780 )   $ (27,079 )
Total adjustments related to gross profit   6,311       6,505  
Total adjustments related to operating expense   21,461       22,678  
Non-cash interest expense         247  
Change in fair value of embedded redemption feature   3,750       (120 )
Adjusted (non-GAAP) net income   $ 3,742     $ 2,231  
         
Weighted average basic common shares outstanding   98,981       101,913  
Weighted average dilutive potential common shares outstanding   100,715       103,165  
         
Net Income (Loss) per Common Share        
GAAP diluted net loss per common share   $ (0.28 )   $ (0.27 )
Adjusted (non-GAAP) diluted net income per common share   $ 0.04     $ 0.02  
               

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 its expected useful life.
  • Acquisition and integration costs - reflects transaction expense, and consulting and third party service fees associated with the acquisition of the Nortel MEN Business and the integration of this business into Ciena's operations.
  • Restructuring costs - costs incurred as a result of restructuring activities (or in the case of recoveries, previous restructuring activities) taken to align resources with perceived market opportunities.
  • 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 Contact:
Ciena Corporation
Nicole Anderson, 877-857-7377
pr@ciena.com
or
Investor Contact:
Ciena Corporation
Gregg Lampf, 877-243-6273
ir@ciena.com