Ciena Reports Fiscal Second Quarter 2014 Financial Results
Delivers 10% year-over-year revenue growth and 6% adjusted operating margin
Diversifying business drives continued growth and differentiated performance
For the fiscal second quarter 2014,
On the basis of generally accepted accounting principles (GAAP),
“As a direct result of our expanding role and reach in the industry, we delivered strong financial results in both our second quarter and first half of fiscal 2014, including continued revenue growth and increased operating leverage,” said
Fiscal Second Quarter 2014 Performance Summary
The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarter 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 2014 | FY 2014 | FY 2013 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 560.0 | $ | 533.7 | $ | 507.7 | 4.9 | % | 10.3 | % | ||||||||
Gross margin | 42.4 | % | 42.3 | % | 41.3 | % | 0.1 | % | 1.1 | % | ||||||||
Operating expense | $ | 230.5 | $ | 222.5 | $ | 220.1 | 3.6 | % | 4.7 | % | ||||||||
Operating margin | 1.3 | % | 0.6 | % | (2.1 | )% | 0.7 | % | 3.4 | % | ||||||||
Non-GAAP Results | ||||||||||||||||||
Q2 | Q1 | Q2 | Period Change | |||||||||||||||
FY 2014 | FY 2014 | FY 2013 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 560.0 | $ | 533.7 | $ | 507.7 | 4.9 | % | 10.3 | % | ||||||||
Adj. gross margin | 43.1 | % | 43.4 | % | 42.5 | % | (0.3 | )% | 0.6 | % | ||||||||
Adj. operating expense | $ | 206.3 | $ | 199.8 | $ | 197.4 | 3.3 | % | 4.5 | % | ||||||||
Adj. operating margin | 6.2 | % | 5.9 | % | 3.7 | % | 0.3 | % | 2.5 | % | ||||||||
Revenue by Segment | |||||||||||||||
Q2 FY 2014 | Q1 FY 2014 | Q2 FY 2013 | |||||||||||||
Revenue | % | Revenue | % | Revenue | % | ||||||||||
Converged Packet Optical | $ | 356.8 | 63.7 | $ | 333.4 | 62.5 | $ | 294.3 | 57.9 | ||||||
Packet Networking | 66.5 | 11.9 | 51.7 | 9.7 | 54.2 | 10.7 | |||||||||
Optical Transport | 29.6 | 5.3 | 40.1 | 7.5 | 57.4 | 11.3 | |||||||||
Software and Services | 107.1 | 19.1 | 108.5 | 20.3 | 101.8 | 20.1 | |||||||||
Total | $ | 560.0 | 100.0 | $ | 533.7 | 100.0 | $ | 507.7 | 100.0 | ||||||
* |
Denotes % change, or in the case of margin, absolute change |
|
Additional Performance Metrics for Fiscal Second Quarter 2014
- Non-U.S. customers contributed 42% of total revenue
- One customer accounted for greater than 10% of revenue and represented 21.5% of total revenue
- Cash and investments totaled
$430.2 million - Cash flow from operations totaled
$2.0 million - Average days' sales outstanding (DSOs) were 83
- Accounts receivable balance was
$515.0 million - Inventories totaled
$294.0 million , including:- Raw materials:
$56.7 million - Work in process:
$7.9 million - Finished goods:
$181.0 million - Deferred cost of sales:
$95.9 million - Reserve for excess and obsolescence:
$(47.5) million
- Raw materials:
- Product inventory turns were 3.5
- Headcount totaled 4,998
Business Outlook for Fiscal Third Quarter 2014
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
$585 to $615 million - Adjusted (non-GAAP) gross margin in the low to mid 40s percent range
- Adjusted (non-GAAP) operating expense to be approximately
$210 million range
Live Web Broadcast of Unaudited Fiscal Second Quarter 2014 Results
To accompany its live broadcast,
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
About Ciena.
CIENA CORPORATION | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
(unaudited) | ||||||||||||||||
Quarter Ended April 30, | Six Months Ended April 30, | |||||||||||||||
2013 | 2014 | 2013 | 2014 | |||||||||||||
Revenue: | ||||||||||||||||
Products | $ | 413,217 | $ | 460,821 | $ | 766,274 | $ | 893,762 | ||||||||
Services | 94,495 | 99,240 | 194,531 | 200,002 | ||||||||||||
Total revenue | 507,712 | 560,061 | 960,805 | 1,093,764 | ||||||||||||
Cost of goods sold: | ||||||||||||||||
Products | 239,441 | 257,632 | 435,962 | 502,848 | ||||||||||||
Services | 58,758 | 64,738 | 119,535 | 127,374 | ||||||||||||
Total cost of goods sold | 298,199 | 322,370 | 555,497 | 630,222 | ||||||||||||
Gross profit | 209,513 | 237,691 | 405,308 | 463,542 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 100,787 | 103,492 | 189,912 | 204,989 | ||||||||||||
Selling and marketing | 74,475 | 83,662 | 141,063 | 162,010 | ||||||||||||
General and administrative | 30,883 | 31,882 | 59,091 | 61,979 | ||||||||||||
Amortization of intangible assets | 12,439 | 11,493 | 24,892 | 23,932 | ||||||||||||
Restructuring costs | 1,509 | — | 6,539 | 115 | ||||||||||||
Total operating expenses | 220,093 | 230,529 | 421,497 | 453,025 | ||||||||||||
Income (loss) from operations | (10,580 | ) | 7,162 | (16,189 | ) | 10,517 | ||||||||||
Interest and other income (loss), net | (2,716 | ) | (1,905 | ) | (2,853 | ) | (7,903 | ) | ||||||||
Interest expense | (11,392 | ) | (11,020 | ) | (22,124 | ) | (22,048 | ) | ||||||||
Loss on extinguishment of debt | — | — | (28,630 | ) | — | |||||||||||
Loss before income taxes | (24,688 | ) | (5,763 | ) | (69,796 | ) | (19,434 | ) | ||||||||
Provision for income taxes | 2,391 | 4,395 | 4,607 | 6,660 | ||||||||||||
Net loss | $ | (27,079 | ) | $ | (10,158 | ) | $ | (74,403 | ) | $ | (26,094 | ) | ||||
Basic net loss per common share | $ | (0.27 | ) | $ | (0.10 | ) | $ | (0.73 | ) | $ | (0.25 | ) | ||||
Diluted net loss per potential common share | $ | (0.27 | ) | $ | (0.10 | ) | $ | (0.73 | ) | $ | (0.25 | ) | ||||
Weighted average basic common shares outstanding | 101,913 | 105,451 | 101,560 | 104,977 | ||||||||||||
Weighted average dilutive potential common shares outstanding | 101,913 | 105,451 | 101,560 | 104,977 | ||||||||||||
CIENA CORPORATION | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(in thousands, except share data) | ||||||||
(unaudited) | ||||||||
October 31, | April 30, | |||||||
2013 | 2014 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 346,487 | $ | 325,083 | ||||
Short-term investments | 124,979 | 90,049 | ||||||
Accounts receivable, net | 488,578 | 514,973 | ||||||
Inventories | 249,103 | 293,952 | ||||||
Prepaid expenses and other | 186,655 | 207,279 | ||||||
Total current assets | 1,395,802 | 1,431,336 | ||||||
Long-term investments | 15,031 | 15,042 | ||||||
Equipment, furniture and fixtures, net | 119,729 | 119,876 | ||||||
Other intangible assets, net | 185,828 | 155,117 | ||||||
Other long-term assets | 86,380 | 74,093 | ||||||
Total assets | $ | 1,802,770 | $ | 1,795,464 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 254,849 | $ | 229,498 | ||||
Accrued liabilities | 271,656 | 254,436 | ||||||
Deferred revenue | 88,550 | 118,473 | ||||||
Convertible notes payable | — | 187,647 | ||||||
Total current liabilities | 615,055 | 790,054 | ||||||
Long-term deferred revenue | 23,620 | 23,820 | ||||||
Other long-term obligations | 34,753 | 35,789 | ||||||
Long-term convertible notes payable | 1,212,019 | 1,026,641 | ||||||
Total liabilities | $1,885,447 | $1,876,304 | ||||||
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; 103,705,709 and 105,584,958 shares issued and outstanding | 1,037 | 1,056 | ||||||
Additional paid-in capital | 5,893,880 | 5,926,276 | ||||||
Accumulated other comprehensive loss | (7,774 | ) | (12,258 | ) | ||||
Accumulated deficit | (5,969,820 | ) | (5,995,914 | ) | ||||
Total stockholders’ equity (deficit) | (82,677 | ) | (80,840 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,802,770 | $ | 1,795,464 | ||||
CIENA CORPORATION | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(in thousands) | ||||||||
(unaudited) | ||||||||
|
||||||||
Six Months Ended April 30, | ||||||||
2013 | 2014 | |||||||
Cash flows used in operating activities: | ||||||||
Net loss | $ | (74,403 | ) | $ | (26,094 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Loss on extinguishment of debt | 28,630 | — | ||||||
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements | 28,857 | 27,143 | ||||||
Share-based compensation costs | 18,147 | 23,443 | ||||||
Amortization of intangible assets | 35,661 | 30,712 | ||||||
Provision for inventory excess and obsolescence | 9,027 | 12,972 | ||||||
Provision for warranty | 11,060 | 12,424 | ||||||
Other | 5,068 | 10,164 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (76,526 | ) | (27,548 | ) | ||||
Inventories | 2,975 | (57,821 | ) | |||||
Prepaid expenses and other | (33,969 | ) | (19,054 | ) | ||||
Accounts payable, accruals and other obligations | 24,805 | (51,631 | ) | |||||
Deferred revenue | 19,799 | 30,123 | ||||||
Net cash used in operating activities | (869 | ) | (35,167 | ) | ||||
Cash flows provided by (used in) investing activities: | ||||||||
Payments for equipment, furniture, fixtures and intellectual property | (21,496 | ) | (26,485 | ) | ||||
Restricted cash | 1,679 | 1,912 | ||||||
Purchase of available for sale securities | (99,914 | ) | (95,033 | ) | ||||
Proceeds from maturities of available for sale securities | 50,000 | 130,000 | ||||||
Settlement of foreign currency forward contracts, net | — | (4,029 | ) | |||||
Net cash provided by (used in) investing activities | (69,731 | ) | 6,365 | |||||
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 | (1,427 | ) | (1,520 | ) | ||||
Proceeds from issuance of common stock | 5,955 | 8,970 | ||||||
Net cash provided by (used in) financing activities | (215,343 | ) | 7,450 | |||||
Effect of exchange rate changes on cash and cash equivalents | (3 | ) | (52 | ) | ||||
Net decrease in cash and cash equivalents | (285,943 | ) | (21,352 | ) | ||||
Cash and cash equivalents at beginning of period | 642,444 | 346,487 | ||||||
Cash and cash equivalents at end of period | $ | 356,498 | $ | 325,083 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for interest | $ | 15,720 | $ | 17,047 | ||||
Cash paid during the period for income taxes, net | $ | 5,136 | $ | 7,221 | ||||
Non-cash investing and financing activities | ||||||||
Purchase of equipment in accounts payable | $ | 3,006 | $ | 4,799 | ||||
Fixed assets acquired under capital leases | $ | 1,286 | $ | — | ||||
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements | ||||||||
Quarter Ended | ||||||||
April 30, | ||||||||
2013 | 2014 | |||||||
Gross Profit Reconciliation | ||||||||
GAAP gross profit | $ | 209,513 | $ | 237,691 | ||||
Share-based compensation-products | 686 | 741 | ||||||
Share-based compensation-services | 435 | 568 | ||||||
Amortization of intangible assets | 5,384 | 2,328 | ||||||
Total adjustments related to gross profit | 6,505 | 3,637 | ||||||
Adjusted (non-GAAP) gross profit | $ | 216,018 | $ | 241,328 | ||||
Adjusted (non-GAAP) gross profit percentage | 42.5 | % | 43.1 | % | ||||
Operating Expense Reconciliation | ||||||||
GAAP operating expense | $ | 220,093 | $ | 230,529 | ||||
Share-based compensation-research and development | 2,204 | 2,782 | ||||||
Share-based compensation-sales and marketing | 3,382 | 4,246 | ||||||
Share-based compensation-general and administrative | 3,144 | 3,661 | ||||||
Amortization of intangible assets | 12,439 | 11,493 | ||||||
Restructuring costs | 1,509 | — | ||||||
Settlement of patent litigation | — | 2,000 | ||||||
Total adjustments related to operating expense | 22,678 | 24,182 | ||||||
Adjusted (non-GAAP) operating expense | $ | 197,415 | $ | 206,347 | ||||
Income (Loss) from Operations Reconciliation | ||||||||
GAAP income (loss) from operations | $ | (10,580 | ) | $ | 7,162 | |||
Total adjustments related to gross profit | 6,505 | 3,637 | ||||||
Total adjustments related to operating expense | 22,678 | 24,182 | ||||||
Adjusted (non-GAAP) income from operations | $ | 18,603 | 34,981 | |||||
Adjusted (non-GAAP) operating margin percentage | 3.7 | % | 6.2 | % | ||||
Net Income (Loss) Reconciliation | ||||||||
GAAP net loss | $ | (27,079 | ) | $ | (10,158 | ) | ||
Total adjustments related to gross profit | 6,505 | 3,637 | ||||||
Total adjustments related to operating expense | 22,678 | 24,182 | ||||||
Non-cash interest expense | 247 | 302 | ||||||
Change in fair value of embedded redemption feature | (120 | ) | 1,460 | |||||
Adjusted (non-GAAP) net income | $ | 2,231 | $ | 19,423 | ||||
Weighted average basic common shares outstanding | 101,913 | 105,451 | ||||||
Weighted average dilutive potential common shares outstanding 1 | 103,165 | 120,628 | ||||||
Net Income (Loss) per Common Share | ||||||||
GAAP diluted net loss per common share | $ | (0.27 | ) | $ | (0.10 | ) | ||
Adjusted (non-GAAP) diluted net income per common share 2 | $ | 0.02 | $ | 0.17 | ||||
1. | Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2013 includes 1.3 million shares underlying certain stock options and restricted stock units. | |
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of 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. | ||
2. | The calculation of Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2014 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. | |
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 its 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 during the second quarter of fiscal 2014 is a
$2.0 million patent litigation settlement. - 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 Contact:
Ciena Corporation
Nicole Anderson, 877-857-7377
pr@ciena.com
or
Investor Contact:
Ciena Corporation
Gregg Lampf, 877-243-6273
ir@ciena.com