Ciena Reports Fiscal Second Quarter 2017 Financial Results

June 1, 2017 at 8:00 AM EDT

Delivers 10% revenue growth year-over-year

HANOVER, Md.--(BUSINESS WIRE)--Jun. 1, 2017-- Ciena® Corporation (NYSE: CIEN), a network strategy and technology company, today announced unaudited financial results for its fiscal second quarter ended April 30, 2017.

For the fiscal second quarter 2017, Ciena reported revenue of $707.0 million as compared to $640.7 million for the fiscal second quarter 2016.

On the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal second quarter 2017 was $38.0 million, or $0.25 per diluted common share, which compares to a GAAP net income of $14.0 million, or $0.10 per diluted common share, for the fiscal second quarter 2016.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2017 was $72.3 million, or $0.45 per diluted common share, which compares to an adjusted (non-GAAP) net income of $52.4 million, or $0.34 per diluted common share, for the fiscal second quarter 2016.

“We delivered outstanding second quarter performance across all financial metrics, underpinned by positive market dynamics and a growing competitive advantage," said Gary B. Smith, president and CEO, Ciena. "We continue to win as an innovation powerhouse with global scale and deep customer relationships across a broad set of applications and market segments."

Fiscal Second Quarter 2017 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 2017   FY 2017   FY 2016   Q-T-Q*   Y-T-Y*
Revenue     $ 707.0     $ 621.5     $ 640.7     13.8 %   10.3 %
Gross margin     45.0 %   44.1 %   44.2 %   0.9 %   0.8 %
Operating expense     $ 260.4     $ 254.7     $ 254.9     2.2 %   2.2 %
Operating margin     8.2 %   3.1 %   4.4 %   5.1 %   3.8 %
       
      Non-GAAP Results
      Q2   Q1   Q2   Period Change
      FY 2017   FY 2017   FY 2016   Q-T-Q*   Y-T-Y*
Revenue     $ 707.0     $ 621.5     $ 640.7     13.8 %   10.3 %
Adj. gross margin     45.7 %   44.9 %   45.1 %   0.8 %   0.6 %
Adj. operating expense     $ 234.6     $ 226.2     $ 222.6     3.7 %   5.4 %
Adj. operating margin     12.5 %   8.5 %   10.3 %   4.0 %   2.2 %
                                 

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

       
      Revenue by Segment
      Q2 FY 2017   Q1 FY 2017   Q2 FY 2016
      Revenue   %**   Revenue   %**   Revenue   %**
Networking Platforms                          
Converged Packet Optical     $ 502.1     71.0     $ 412.7     66.4     $ 435.2     67.9
Packet Networking     66.4     9.4     72.2     11.6     68.5     10.7
Optical Transport     3.0     0.4     5.1     0.8     8.5     1.3
Total Networking Platforms     571.5     80.8     490.0     78.8     512.2     79.9
                           
Software and Software-Related Services                          
Software Platforms     13.1     1.9     17.0     2.7     11.8     1.9
Software-Related Services     24.6     3.5     22.3     3.6     18.7     2.9
Total Software and Software-Related Services     37.7     5.4     39.3     6.3     30.5     4.8
                           
Global Services                          
Maintenance Support and Training     58.2     8.2     55.0     8.9     57.1     8.9
Installation and Deployment     28.7     4.1     27.9     4.5     30.2     4.7
Consulting and Network Design     10.9     1.5     9.3     1.5     10.7     1.7
Total Global Services     97.8     13.8     92.2     14.9     98.0     15.3
                           
Total     $ 707.0     100.0     $ 621.5     100.0     $ 640.7     100.0
                                           

Additional Performance Metrics for Fiscal Second Quarter 2017

       
      Revenue by Geographic Region
      Q2 FY 2017   Q1 FY 2017   Q2 FY 2016
      Revenue   % **   Revenue   % **   Revenue   % **
North America     $ 424.4     60.0     $ 405.9     65.3     $ 395.5     61.7
Europe, Middle East and Africa     105.8     15.0     91.5     14.7     96.2     15.0
Caribbean and Latin America     33.9     4.8     35.2     5.7     57.9     9.0
Asia Pacific     142.9     20.2     88.9     14.3     91.1     14.3
Total     $ 707.0     100.0     $ 621.5     100.0     $ 640.7     100.0
                                           

** Denotes % of total revenue

  • U.S. customers contributed 55.4% of total revenue
  • One customer accounted for greater than 10% of revenue and represented 15% of total revenue
  • Cash and investments totaled $993.3 million
  • Cash flow from operations totaled $72.0 million
  • Average days' sales outstanding (DSOs) were 72
  • Accounts receivable balance was $564.9 million
  • Inventories totaled $287.1 million, including:
    • Raw materials: $43.9 million
    • Work in process: $12.9 million
    • Finished goods: $204.4 million
    • Deferred cost of sales: $85.1 million
    • Reserve for excess and obsolescence: $(59.2) million
  • Product inventory turns were 4.6
  • Headcount totaled 5,663

Business Outlook for Fiscal Third Quarter 2017

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 each of the "Forward-Looking Statements" and "Non-GAAP Presentation of Quarterly Results" found in the Notes to Investors below.

Ciena expects fiscal third quarter 2017 financial performance to include:

  • Revenue in the range of $710 to $740 million
  • Adjusted (non-GAAP) gross margin in the mid-40s percentage range
  • Adjusted (non-GAAP) operating expense of approximately $235 million

Live Web Broadcast of Unaudited Fiscal Second Quarter 2017 Results

Ciena will host a discussion of its unaudited fiscal second quarter 2017 results with investors and financial analysts today, Thursday, June 1, 2017 at 8:30 a.m. (Eastern). The live broadcast will be available at www.ciena.com, and an archived replay 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. Ciena will also post to the Investor Relations page a presentation that includes certain highlighted information discussed on the call and certain historical results of operations.

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: “We delivered outstanding second quarter performance across all financial metrics, underpinned by positive market dynamics and a growing competitive advantage"; "We continue to win as an innovation powerhouse with global scale and deep customer relationships across a broad set of applications and market segments"; "Ciena expects fiscal third quarter 2017 financial performance to include: Revenue in the range of $710 to $740 million; Adjusted (non-GAAP) gross margin in the mid-40s percentage range; Adjusted (non-GAAP) operating expense of approximately $235 million."

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 Report on Form 10-Q, which Ciena filed with the Securities and Exchange Commission on March 8, 2017. 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.

With respect to Ciena’s expectations under “Business Outlook for Fiscal Third Quarter 2017” above, Ciena is not able to provide a quantitative reconciliation of the adjusted (non-GAAP) gross margin and adjusted (non-GAAP) operating expense guidance measures to the corresponding gross profit and gross profit percentage, and operating expense GAAP measures without unreasonable efforts. Ciena cannot provide meaningful estimates of the non-recurring charges and credits excluded from these non-GAAP measures due to the forward-looking nature of these estimates and their inherent variability and uncertainty. For the same reasons, Ciena is unable to address the probable significance of the unavailable information.

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 CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

           
      Quarter Ended April 30,   Six Months Ended April 30,
      2017   2016   2017   2016
Revenue:                  
Products     $ 584,630     $ 523,978     $ 1,091,623     $ 981,567  
Services     122,392     116,739     236,896     232,265  
Total revenue     707,022     640,717     1,328,519     1,213,832  
Cost of goods sold:                  
Products     327,295     291,778     614,106     552,260  
Services     61,487     65,846     122,388     127,029  
Total cost of goods sold     388,782     357,624     736,494     679,289  
Gross profit     318,240     283,093     592,025     534,543  
Operating expenses:                  
Research and development     121,623     114,603     238,492     222,649  
Selling and marketing     88,551     86,668     173,553     169,146  
General and administrative     34,990     35,203     70,854     66,345  
Amortization of intangible assets     10,980     15,566     25,531     32,428  
Acquisition and integration costs         2,285         3,584  
Restructuring costs     4,276     535     6,671     919  
Total operating expenses     260,420     254,860     515,101     495,071  
Income from operations     57,820     28,233     76,924     39,472  
Interest and other income (loss), net     (2,918 )   967     (2,548 )   (7,809 )
Interest expense     (13,308 )   (12,608 )   (28,511 )   (25,318 )
Income before income taxes     41,594     16,592     45,865     6,345  
Provision for income taxes     3,568     2,595     3,978     3,894  
Net income     $ 38,026     $ 13,997     $ 41,887     $ 2,451  
                   
Net Income per Common Share                  
Basic net income per common share     $ 0.27     $ 0.10     $ 0.30     $ 0.02  
Diluted net income per potential common share1     $ 0.25     $ 0.10     $ 0.29     $ 0.02  
                   
Weighted average basic common shares outstanding     141,743     137,950     141,223     137,313  
Weighted average dilutive potential common shares outstanding2     165,273     138,889     147,842     138,693  
                           
 
1.   The calculation of GAAP diluted net income per common share for the second quarter of fiscal 2017 requires adding back interest expense of approximately $0.5 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, and approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 to the GAAP net income in order to derive the numerator for the Adjusted earnings per common share calculation.
     
    The calculation of GAAP diluted net income per common share for the first six months of fiscal 2017 requires adding back interest expense of approximately $1.1 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the GAAP net income in order to derive the numerator for the Adjusted 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 second quarter of fiscal 2017 includes 1.3 million shares underlying certain stock options and restricted stock units, 4.9 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017 and 17.4 million shares underlying Ciena's 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 the first six months of fiscal 2017 includes 1.4 million shares underlying certain stock options and restricted stock units and 5.2 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.
     
    Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the second quarter of fiscal 2016 includes 0.9 million shares underlying certain stock options and restricted stock units.
     
    Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first six months of fiscal 2016 includes 1.4 million shares underlying certain stock options and restricted stock units.
     
           
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
           
      April 30,   October 31,
      2017   2016
ASSETS          
Current assets:          
Cash and cash equivalents     $ 628,623     $ 777,615  
Short-term investments     274,779     275,248  
Accounts receivable, net     564,856     576,235  
Inventories     287,073     211,251  
Prepaid expenses and other     186,919     172,843  
Total current assets     1,942,250     2,013,192  
Long-term investments     89,852     90,172  
Equipment, building, furniture and fixtures, net     299,792     288,406  
Goodwill     266,773     266,974  
Other intangible assets, net     113,245     146,711  
Other long-term assets     65,191     68,120  
Total assets     $ 2,777,103     $ 2,873,575  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable     $ 249,556     $ 235,942  
Accrued liabilities and other short-term obligations     262,482     310,353  
Deferred revenue     105,514     109,009  
Current portion of long-term debt     189,221     236,241  
Total current liabilities     806,773     891,545  
Long-term deferred revenue     81,349     73,854  
Other long-term obligations     113,254     124,394  
Long-term debt, net     929,182     1,017,441  
Total liabilities     $ 1,930,558     $ 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; 141,768,448 and 139,767,627 shares issued and outstanding

    1,418     1,398  
Additional paid-in capital     6,750,632     6,715,478  
Accumulated other comprehensive loss     (21,186 )   (24,329 )
Accumulated deficit     (5,884,319 )   (5,926,206 )
Total stockholders’ equity     846,545     766,341  
Total liabilities and stockholders’ equity     $ 2,777,103     $ 2,873,575  
                   
       
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
       
      Six Months Ended April 30,
      2017   2016
Cash flows provided by operating activities:          
Net income     $ 41,887     $ 2,451  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:          
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements     35,548     30,237  
Share-based compensation costs     24,830     29,210  
Amortization of intangible assets     33,466     40,488  
Provision for inventory excess and obsolescence     19,623     20,104  
Provision for warranty     2,347     9,563  
Other     10,416     8,578  
Changes in assets and liabilities:          
Accounts receivable     9,381     (4,865 )
Inventories     (95,554 )   (19,022 )
Prepaid expenses and other     (15,054 )   (7,670 )
Accounts payable, accruals and other obligations     (24,974 )   (29,400 )
Deferred revenue     3,832     (3,992 )
Net cash provided by operating activities     45,748     75,682  
Cash flows used in investing activities:          
Payments for equipment, furniture, fixtures and intellectual property     (60,328 )   (53,050 )
Purchase of available for sale securities     (179,833 )   (199,994 )
Proceeds from maturities of available for sale securities     180,000     110,000  
Settlement of foreign currency forward contracts, net     (2,965 )   (4,834 )
Acquisition of business, net of cash acquired         (32,000 )
Net cash used in investing activities     (63,126 )   (179,878 )
Cash flows provided by (used in) financing activities:          
Proceeds from issuance of term loan, net         248,750  
Payment of long term debt     (47,296 )   (15,264 )
Proceeds from modification of term loan     399,500      
Payment for modification of term loans     (493,125 )    
Payment of debt issuance costs         (3,778 )
Payment of capital lease obligations     (1,528 )   (3,769 )
Proceeds from issuance of common stock     10,345     9,968  

Net cash provided by (used in) financing activities

    (132,104 )   235,907  
Effect of exchange rate changes on cash and cash equivalents     490     (649 )
Net increase (decrease) in cash and cash equivalents     (148,992 )   131,062  
Cash and cash equivalents at beginning of period     777,615     790,971  
Cash and cash equivalents at end of period     $ 628,623     $ 922,033  
Supplemental disclosure of cash flow information          
Cash paid during the period for interest     $ 23,439     $ 20,432  
Cash paid during the period for income taxes, net     $ 11,379     $ 6,991  
Non-cash investing activities          
Purchase of equipment in accounts payable     $ 3,818     $ 11,437  
Equipment acquired under capital lease     $     $ 3,012  
Building subject to capital lease     $ 20,695     $ 8,993  
Construction in progress subject to build-to-suit lease     $     $ 21,606  
                   
 
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
           
      Quarter Ended April 30,
      2017   2016
Gross Profit Reconciliation          
GAAP gross profit     $ 318,240     $ 283,093  
Share-based compensation-products     708     629  
Share-based compensation-services     679     693  
Amortization of intangible assets     3,623     4,315  
Total adjustments related to gross profit     5,010     5,637  
Adjusted (non-GAAP) gross profit     $ 323,250     $ 288,730  
Adjusted (non-GAAP) gross profit percentage     45.7 %   45.1 %
           
Operating Expense Reconciliation          
GAAP operating expense     $ 260,420     $ 254,860  
Share-based compensation-research and development     3,653     3,791  
Share-based compensation-sales and marketing     3,513     3,923  
Share-based compensation-general and administrative     3,417     4,968  
Share-based compensation-acquisition and integration         697  
Acquisition and integration costs, excluding share-based compensation         1,588  
Amortization of intangible assets     10,980     15,566  
Restructuring costs     4,276     535  
Settlement of patent litigation         1,200  
Total adjustments related to operating expense     25,839     32,268  
Adjusted (non-GAAP) operating expense     $ 234,581     $ 222,592  
           
Income from Operations Reconciliation          
GAAP income from operations     $ 57,820     $ 28,233  
Total adjustments related to gross profit     5,010     5,637  
Total adjustments related to operating expense     25,839     32,268  
Adjusted (non-GAAP) income from operations     $ 88,669     $ 66,138  
Adjusted (non-GAAP) operating margin percentage     12.5 %   10.3 %
           
Net Income Reconciliation          
GAAP net income     $ 38,026     $ 13,997  
Total adjustments related to gross profit     5,010     5,637  
Total adjustments related to operating expense     25,839     32,268  
Non-cash interest expense     526     460  
Modification of debt     2,924      
Adjusted (non-GAAP) net income     $ 72,325     $ 52,362  
           
Weighted average basic common shares outstanding     141,743   137,950
Weighted average dilutive potential common shares outstanding 1     174,471   178,026
           
Net Income per Common Share          
GAAP diluted net income per common share     $ 0.25     $ 0.10  
Adjusted (non-GAAP) diluted net income per common share 2     $ 0.45     $ 0.34  
 
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 2017 includes 1.3 million shares underlying certain stock options and restricted stock units, 4.9 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017, 17.4 million shares underlying Ciena's 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 Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2016 includes 0.9 million shares underlying certain stock options and restricted stock units, 12.6 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017, 17.4 million shares underlying Ciena's 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.
     
2.   The calculation of Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2017 requires adding back interest expense of approximately $0.5 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $3.6 million associated with Ciena's 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 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 the second quarter of fiscal 2016 requires adding back interest expense of approximately $1.3 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $3.6 million associated with Ciena's 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 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 - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
  • Acquisition and integration costs - consist of expenses for financial, legal and accounting advisors and severance and other employee related costs, associated with our acquisition of Cyan, Inc. on August 3, 2015 and our acquisition of certain high-speed photonic component assets from TeraXion, Inc. on February 1, 2016. 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 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 is a $1.2 million patent litigation settlement during the second quarter of fiscal 2016.
  • 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 modification of debt to refinance term loans.

Source: Ciena Corporation

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