Ciena Reports Fiscal Second Quarter 2019 Financial Results

June 6, 2019 at 8:00 AM EDT

HANOVER, Md.--(BUSINESS WIRE)-- Ciena® Corporation (NYSE: CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal second quarter ended April 30, 2019.

  • Q2 Revenue: $865.0 million, increasing 18.5% year over year
  • Q2 Net Income per Share: $0.33 GAAP; $0.48 adjusted (non-GAAP)
  • Share Repurchases: Repurchased approximately 1.2 million shares of common stock for an aggregate price of $45.4 million during the quarter

"Today we reported very strong quarterly performance, including continued market share gains, driven by our technology leadership and diversified customer base in high growth markets," said Gary Smith, President and CEO, Ciena. "We are entering the second half with strong visibility and increased confidence for the full fiscal year supported by favorable industry dynamics and growing competitive advantage."

For the fiscal second quarter 2019, Ciena reported revenue of $865.0 million as compared to $730.0 million for the fiscal second quarter 2018.

Ciena's GAAP net income for the fiscal second quarter 2019 was $52.7 million, or $0.33 per diluted common share, which compares to a GAAP net income of $13.9 million, or $0.09 per diluted common share, for the fiscal second quarter 2018.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2019 was $76.2 million, or $0.48 per diluted common share, which compares to an adjusted (non-GAAP) net income of $33.8 million, or $0.23 per diluted common share, for the fiscal second quarter 2018.

Fiscal Second Quarter 2019 Performance Summary

The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to the prior year. Appendix A and B set forth reconciliations between the GAAP and adjusted (non-GAAP) measures contained in this release.

       
      GAAP Results
      Q2     Q2      
      FY 2019     FY 2018     Y-T-Y*
Revenue     $ 865.0       $ 730.0       18.5 %
Gross margin     43.3 %     40.2 %     3.1 %
Operating expense     $ 294.4       $ 261.2       12.7 %
Operating margin     9.3 %     4.4 %     4.9 %
                         
       
      Non-GAAP Results
      Q2     Q2      
      FY 2019     FY 2018     Y-T-Y*
Revenue     $ 865.0       $ 730.0       18.5 %
Adj. gross margin     43.9 %     40.7 %     3.2 %
Adj. operating expense     $ 269.7       $ 240.6       12.1 %
Adj. operating margin     12.7 %     7.7 %     5.0 %
                         

*

 

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

     
       
      Revenue by Segment
      Q2 FY 2019     Q2 FY 2018
      Revenue     %**     Revenue     %**
Networking Platforms                        
Converged Packet Optical     $ 623.9       72.1       $ 527.9       72.4
Packet Networking     73.1       8.5       63.8       8.7
Total Networking Platforms     697.0       80.6       591.7       81.1
                         
Software and Software-Related Services                        
Platform Software and Services     35.2       4.0       36.4       5.0
Blue Planet Automation Software and Services     12.5       1.4       2.3       0.3
Total Software and Software-Related Services     47.7       5.4       38.7       5.3
                         
Global Services                        
Maintenance Support and Training     68.8       8.0       60.9       8.3
Installation and Deployment     41.3       4.8       28.2       3.9
Consulting and Network Design     10.2       1.2       10.5       1.4
Total Global Services     120.3       14.0       99.6       13.6
                         
Total     $ 865.0       100.0       $ 730.0       100.0
                                   
 

Additional Performance Metrics for Fiscal Second Quarter 2019

 
      Revenue by Geographic Region
      Q2 FY 2019     Q2 FY 2018
      Revenue     % **     Revenue     % **
North America     $ 576.1       66.5       $ 431.2       59.1
Europe, Middle East and Africa     115.0       13.3       121.7       16.7
Caribbean and Latin America     39.4       4.6       25.1       3.4
Asia Pacific     134.5       15.6       152.0       20.8
Total     $ 865.0       100.0       $ 730.0       100.0
                                   

**

 

Denotes % of total revenue

     
  • Two 10%-plus customers represented a total of 25% of revenue
  • Cash and investments totaled $818.5 million
  • Cash flow from operations totaled $104.1 million
  • Average days' sales outstanding (DSOs) were 86
  • Accounts receivable balance was $756.6 million
  • Unbilled contract asset balance was $74.4 million
  • Inventories totaled $359.4 million, including:
    • Raw materials: $90.3 million
    • Work in process: $12.0 million
    • Finished goods: $205.4 million
    • Deferred cost of sales: $100.6 million
    • Reserve for excess and obsolescence: $(48.9) million
  • Product inventory turns were 4.6
  • Headcount totaled 6,176

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Second Quarter 2019 Results

Today, Thursday, June 6, 2019, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website an accompanying investor presentation for its unaudited fiscal second quarter 2019 results.

Ciena's management will also host a discussion today with investors and financial analysts that will include the Company's 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.

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: “Today we reported very strong quarterly performance, including continued market share gains, driven by our technology leadership and diversified customer base in high growth markets"; "We are entering the second half with strong visibility and increased confidence for the full fiscal year supported by favorable industry dynamics and growing competitive advantage.”

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 customers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; the impact of the Tax Cuts and Jobs Act; changes in tax or trade regulations, including the imposition of tariffs and duties; changes in estimates of prospective income tax rates and any adjustments to Ciena's provisional estimates whether related to further guidance, analysis or otherwise; and the other risk factors disclosed in Ciena's Quarterly Report on Form 10-Q filed with the SEC on March 11, 2019 and its Annual Report on Form 10-K filed with the SEC on December 21, 2018. 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, earnings before interest, tax, depreciation and amortization (EBITDA), Adjusted EBITDA, and measures of net income and net income 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 and B to this press release set forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

About Ciena. Ciena (NYSE: CIEN) is a networking systems, services and software company. We provide solutions that help our clients create the Adaptive Network™ in response to the constantly changing demands of their users. By delivering best-in-class networking technology through high-touch consultative relationships, we build the world’s most agile networks with automation, openness and scale. 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,
      2019     2018     2019     2018
Revenue:                        
Products     $ 710,688       $ 604,226       $ 1,353,220       $ 1,129,835  
Services     154,323       125,752       290,318       246,278  
Total revenue     865,011       729,978       1,643,538       1,376,113  
Cost of goods sold:                        
Products     411,050       372,568       791,492       685,688  
Services     79,284       64,103       154,028       125,353  
Total cost of goods sold     490,334       436,671       945,520       811,041  
Gross profit     374,677       293,307       698,018       565,072  
Operating expenses:                        
Research and development     137,969       116,924       266,602       235,448  
Selling and marketing     103,502       97,359       201,615       185,874  
General and administrative     42,154       38,976       81,397       77,382  
Amortization of intangible assets     5,529       3,623       11,057       7,246  
Significant asset impairments and restructuring costs     4,068       4,359       6,341       10,320  
Acquisition and integration costs     1,135             2,743        
Total operating expenses     294,357       261,241       569,755       516,270  
Income from operations     80,320       32,066       128,263       48,802  
Interest and other income (loss), net     (244 )     1,296       4,009       2,871  
Interest expense     (9,471 )     (13,031 )     (18,912 )     (26,765 )
Income before income taxes     70,605       20,331       113,360       24,908  
Provision for income taxes     17,867       6,475       27,006       484,415  
Net income (loss)     $ 52,738       $ 13,856       $ 86,354       $ (459,507 )
                         
Net Income (loss) per Common Share                        
Basic net income (loss) per common share     $ 0.34       $ 0.10       $ 0.55       $ (3.19 )
Diluted net income (loss) per potential common share     $ 0.33       $ 0.09       $ 0.55       $ (3.19 )
                         
Weighted average basic common shares outstanding     156,170       143,975       156,244       143,948  
Weighted average dilutive potential common shares outstanding 1     158,289       147,973       158,211       143,948  
                                 
       
      1. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the second quarter of fiscal 2019 includes 2.1 million shares underlying certain stock options and stock unit awards.
       
      Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first six months of fiscal 2019 includes 2.0 million shares underlying certain stock options and stock unit awards.
       
      Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the second quarter of fiscal 2018 includes 1.3 million shares underlying certain stock options and stock unit awards and 2.7 million shares underlying Ciena's "New" 3.75% senior convertible notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018.
       
 

CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

             
     

April 30,
2019

   

October 31,
2018

ASSETS            
Current assets:            
Cash and cash equivalents     $ 699,148       $ 745,423  
Short-term investments     119,327       148,981  
Accounts receivable, net     756,607       786,502  
Inventories     359,417       262,751  
Prepaid expenses and other     243,669       198,945  
Total current assets     2,178,168       2,142,602  
Long-term investments           58,970  
Equipment, building, furniture and fixtures, net     282,022       292,067  
Goodwill     297,711       297,968  
Other intangible assets, net     129,971       148,225  
Deferred tax asset, net     715,968       745,039  
Other long-term assets     82,938       71,652  
Total assets     $ 3,686,778       $ 3,756,523  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable     $ 366,932       $ 340,582  
Accrued liabilities and other short-term obligations     291,417       340,075  
Deferred revenue     104,030       111,134  
Current portion of long-term debt     7,000       7,000  
Debt conversion liability           164,212  
Total current liabilities     769,379       963,003  
Long-term deferred revenue     40,992       58,323  
Other long-term obligations     129,779       119,413  
Long-term debt, net     683,429       686,450  
Total liabilities     $ 1,623,579       $ 1,827,189  
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; 155,566,701 and 154,318,531 shares issued and outstanding

    1,556       1,543  
Additional paid-in capital     6,892,342       6,881,223  
Accumulated other comprehensive loss     (19,206 )     (5,780 )
Accumulated deficit     (4,811,493 )     (4,947,652 )
Total stockholders’ equity     2,063,199       1,929,334  
Total liabilities and stockholders’ equity     $ 3,686,778       $ 3,756,523  
                     
 

CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

       
      Six Months Ended April 30,
      2019     2018
Cash flows provided by operating activities:            
Net income (loss)     $ 86,354       $ (459,507 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements     42,995       41,400  
Share-based compensation costs     29,362       26,559  
Amortization of intangible assets     17,778       11,824  
Deferred taxes     18,293       481,401  
Provision for inventory excess and obsolescence     10,245       14,977  
Provision for warranty     9,276       10,565  
Other     (2,259 )     12,645  
Changes in assets and liabilities:            
Accounts receivable     43,174       (28,055 )
Inventories     (109,554 )     20,420  
Prepaid expenses and other     (33,241 )     2,623  
Accounts payable, accruals and other obligations     (26,971 )     (55,986 )
Deferred revenue     4,560       (5,736 )
Net cash provided by operating activities     90,012       73,130  
Cash flows provided by (used in) investing activities:            
Payments for equipment, furniture, fixtures and intellectual property     (35,289 )     (31,946 )
Restricted cash           54  
Purchase of available for sale securities     (97,897 )     (198,026 )
Proceeds from maturities of available for sale securities     90,000       200,000  
Proceeds from sales of available for sale securities     98,263        
Settlement of foreign currency forward contracts, net     (2,741 )     132  
Purchase of equity investment     (2,667 )     (767 )
Net cash provided by (used in) investing activities     49,669       (30,553 )
Cash flows used in financing activities:            
Payment of long term debt     (3,500 )     (2,000 )
Payment of capital lease obligations     (1,679 )     (1,868 )
Payment for debt conversion liability     (111,268 )      
Shares repurchased for tax withholdings on vesting of restricted stock units     (15,865 )      
Repurchases of common stock - repurchase program     (65,103 )     (38,036 )
Proceeds from issuance of common stock     11,235       11,804  
Net cash used in financing activities     (186,180 )     (30,100 )
Effect of exchange rate changes on cash and cash equivalents     224       (894 )
Net increase (decrease) in cash and cash equivalents     (46,275 )     11,583  
Cash and cash equivalents at beginning of period     745,423       640,513  
Cash and cash equivalents at end of period     $ 699,148       $ 652,096  
Supplemental disclosure of cash flow information            
Cash paid during the period for interest     $ 19,978       $ 21,843  
Cash paid during the period for income taxes, net     $ 9,258       $ 15,136  
Non-cash investing activities            
Purchase of equipment in accounts payable     $ 2,793       $ 3,226  
Non-cash financing activities            
Repurchase of common stock in accrued liabilities from repurchase program     $ 1,441       $ 1,111  
Conversion of debt conversion liability into 1,585,140 shares of common stock     $ 52,944       $  
                     
       
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measures (unaudited)
             
      Quarter Ended April 30,
      2019     2018
Gross Profit Reconciliation (GAAP/non-GAAP)            
GAAP gross profit     $ 374,677       $ 293,307  
Share-based compensation-products     702       824  
Share-based compensation-services     907       722  
Amortization of intangible assets     3,303       2,289  
Total adjustments related to gross profit     4,912       3,835  
Adjusted (non-GAAP) gross profit     $ 379,589       $ 297,142  
Adjusted (non-GAAP) gross profit percentage     43.9 %     40.7 %
             
Operating Expense Reconciliation (GAAP/non-GAAP)            
GAAP operating expense     $ 294,357       $ 261,241  
Share-based compensation-research and development     4,083       3,796  
Share-based compensation-sales and marketing     4,346       3,760  
Share-based compensation-general and administrative     5,491       5,109  
Amortization of intangible assets     5,529       3,623  
Significant asset impairments and restructuring costs     4,068       4,359  
Acquisition and integration costs     1,135        
Total adjustments related to operating expense     24,652       20,647  
Adjusted (non-GAAP) operating expense     $ 269,705       $ 240,594  
             
Income from Operations Reconciliation (GAAP/non-GAAP)            
GAAP income from operations     $ 80,320       $ 32,066  
Total adjustments related to gross profit     4,912       3,835  
Total adjustments related to operating expense     24,652       20,647  
Total adjustments related to income from operations     29,564       24,482  
Adjusted (non-GAAP) income from operations     $ 109,884       $ 56,548  
Adjusted (non-GAAP) operating margin percentage     12.7 %     7.7 %
             
Net Income Reconciliation (GAAP/non-GAAP)            
GAAP net income     $ 52,738       $ 13,856  
Exclude GAAP provision for income taxes     17,867       6,475  
Income before income taxes     70,605       20,331  
Total adjustments related to income from operations     29,564       24,482  
Non-cash interest expense           759  
Adjusted income before income taxes     100,169       45,572  
Non-GAAP tax provision on adjusted income before income taxes     23,940       11,789  
Adjusted (non-GAAP) net income     $ 76,229       $ 33,783  
             
Weighted average basic common shares outstanding     156,170     143,975
Weighted average dilutive potential common shares outstanding 1     158,289     151,011
             
Net Income per Common Share            
GAAP diluted net income per common share     $ 0.33       $ 0.09  
Adjusted (non-GAAP) diluted net income per common share2     $ 0.48       $ 0.23  
                     

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 2019 includes 2.1 million shares underlying certain stock options and stock unit awards.

     
    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 2018 includes 1.3 million shares underlying certain stock options and stock unit awards, 2.7 million shares underlying Ciena's "New" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, and 3.0 million shares underlying Ciena's "Original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018.
     

2.

 

The calculation of Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2018 requires adding back interest expense of approximately $0.5 million associated with Ciena's "Original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

     
 
APPENDIX B - Calculation of EBITDA and Adjusted EBITDA (unaudited)
             
      Quarter Ended April 30,
      2019     2018
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)            
Net income (GAAP)     $ 52,738       $ 13,856
Add: Interest expense     9,471       13,031
Less: Interest and other income (loss), net     (244 )     1,296
Add: Provision for income taxes     17,867       6,475
Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements     21,482       20,567
Add: Amortization of intangible assets     8,832       5,912
EBITDA     $ 110,634       $ 58,545
Add: Shared-based compensation cost     15,607       14,166
Add: Significant asset impairments and restructuring costs     4,068       4,359
Add: Acquisition and integration costs     1,135      
Adjusted EBITDA     $ 131,444       $ 77,070
                   

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.
  • 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.
  • Significant asset impairments and restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Acquisition and integration costs -consist of financial, legal and accounting advisors' costs and severance and other employment-related costs related to Ciena's acquisition of Packet Design and DonRiver, including costs associated with a three-year earn-out arrangement related to the DonRiver acquisition. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • 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, which were converted during the fourth quarter of 2018, relating to the required separate accounting of the equity component of these convertible notes.
  • Non-GAAP tax provision - consists of current and deferred income tax expense commensurate with the level of adjusted income before income taxes and utilizes a current, blended U.S. and foreign statutory annual tax rate of 23.9% for the second fiscal quarter of 2019, and 25.87% for the second fiscal quarter of 2018. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy.

Press Contact:
Nicole Anderson
Ciena Corporation
+1 (410) 865-8570
pr@ciena.com

Investor Contact:
Gregg Lampf
Ciena Corporation
+1 (410) 694-5700
ir@ciena.com

Source: Ciena Corporation