Ciena Reports Fiscal Third Quarter 2015 Financial Results
Delivers 12% adjusted operating margin and generates
For the fiscal third quarter 2015,
On the basis of generally accepted accounting principles (GAAP),
"We delivered strong financial performance in our fiscal third quarter, including increased profitability and cash generation, demonstrating our ability to deliver on our business model and drive continued operating leverage," said
Fiscal Third Quarter 2015 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 | ||||||||||||||||||
Q3 | Q2 | Q3 | Period Change | |||||||||||||||
FY 2015 | FY 2015 | FY 2014 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 602.9 | $ | 621.6 | $ | 603.6 | (3.0 | )% | (0.1 | )% | ||||||||
Gross margin | 44.8 | % | 43.8 | % | 43.7 | % | 1.0 | % | 1.1 | % | ||||||||
Operating expense | $ | 225.4 | $ | 230.0 | $ | 227.0 | (2.0 | )% | (0.7 | )% | ||||||||
Operating margin | 7.4 | % | 6.8 | % | 6.1 | % | 0.6 | % | 1.3 | % | ||||||||
Non-GAAP Results | ||||||||||||||||||
Q3 | Q2 | Q3 | Period Change | |||||||||||||||
FY 2015 | FY 2015 | FY 2014 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 602.9 | $ | 621.6 | $ | 603.6 | (3.0 | )% | (0.1 | )% | ||||||||
Adj. gross margin | 45.3 | % | 44.4 | % | 44.3 | % | 0.9 | % | 1.0 | % | ||||||||
Adj. operating expense | $ | 202.1 | $ | 207.9 | $ | 206.3 | (2.8 | )% | (2.0 | )% | ||||||||
Adj. operating margin | 11.8 | % | 10.9 | % | 10.1 | % | 0.9 | % | 1.7 | % | ||||||||
* Denotes % change, or in the case of margin, absolute change |
||||||||||||||||||
Revenue by Segment | ||||||||||||||||||||
Q3 FY 2015 | Q2 FY 2015 | Q3 FY 2014 | ||||||||||||||||||
Revenue | % | Revenue | % | Revenue | % | |||||||||||||||
Converged Packet Optical | $ | 408.0 | 67.7 | $ | 432.9 | 69.6 | $ | 382.0 | 63.3 | |||||||||||
Packet Networking | 57.2 | 9.5 | 53.3 | 8.6 | 69.5 | 11.5 | ||||||||||||||
Optical Transport | 17.5 | 2.9 | 16.5 | 2.7 | 31.0 | 5.1 | ||||||||||||||
Software and Services | 120.2 | 19.9 | 118.9 | 19.1 | 121.1 | 20.1 | ||||||||||||||
Total | $ | 602.9 | 100.0 | $ | 621.6 | 100.0 | $ | 603.6 | 100.0 | |||||||||||
Additional Performance Metrics for Fiscal Third Quarter 2015
Revenue by Geographic Region | ||||||||||||||||||||
Q3 FY 2015 | Q2 FY 2015 | Q3 FY 2014 | ||||||||||||||||||
Revenue | % | Revenue | % | Revenue | % | |||||||||||||||
North America | $ | 389.6 | 64.6 | 397.2 | 63.9 | 403.3 | 66.8 | |||||||||||||
Europe, Middle East and Africa | 93.2 | 15.5 | 102.2 | 16.4 | 99.9 | 16.6 | ||||||||||||||
Caribbean and Latin America | 65.1 | 10.8 | 47.9 | 7.7 | 67.2 | 11.1 | ||||||||||||||
Asia Pacific | 55.0 | 9.1 | 74.3 | 12.0 | 33.2 | 5.5 | ||||||||||||||
Total | $ | 602.9 | 100.0 | $ | 621.6 | 100.0 | $ | 603.6 | 100.0 | |||||||||||
- U.S. customers contributed 59.8% of total revenue
- One customer accounted for greater than 10% of revenue and represented 20% of total revenue
- Cash and investments totaled
$927.3 million - Cash flow from operations totaled
$117.5 million - Average days' sales outstanding (DSOs) were 79
- Accounts receivable balance was
$530.3 million - Inventories totaled
$194.0 million , including:
- Raw materials:
$54.1 million - Work in process:
$8.9 million - Finished goods:
$119.7 million - Deferred cost of sales:
$59.6 million - Reserve for excess and obsolescence:
$(48.3) million
- Raw materials:
- Product inventory turns were 5.6
- Headcount totaled 5,196
Executive Leadership Appointment
Business Outlook for Fiscal Fourth Quarter 2015
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
$665 to $700 million - Adjusted (non-GAAP) gross margin of approximately 44 percent
- Adjusted (non-GAAP) operating expense of approximately
$225 million
Live Web Broadcast of Unaudited Fiscal Third Quarter 2015 Results
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 July 31, | Nine Months Ended July 31, | |||||||||||||||
2014 | 2015 | 2014 | 2015 | |||||||||||||
Revenue: | ||||||||||||||||
Products | $ | 495,889 | $ | 493,919 | $ | 1,389,651 | $ | 1,428,114 | ||||||||
Services | 107,673 | 109,013 | 307,675 | 325,582 | ||||||||||||
Total revenue | 603,562 | 602,932 | 1,697,326 | 1,753,696 | ||||||||||||
Cost of goods sold: | ||||||||||||||||
Products | 275,003 | 273,837 | 777,851 | 797,283 | ||||||||||||
Services | 64,586 | 59,226 | 191,960 | 183,838 | ||||||||||||
Total cost of goods sold | 339,589 | 333,063 | 969,811 | 981,121 | ||||||||||||
Gross profit | 263,973 | 269,869 | 727,515 | 772,575 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 97,685 | 100,379 | 302,674 | 306,342 | ||||||||||||
Selling and marketing | 81,919 | 81,650 | 243,929 | 240,833 | ||||||||||||
General and administrative | 36,285 | 29,743 | 98,264 | 89,598 | ||||||||||||
Acquisition and integration costs | — | 2,435 | — | 3,455 | ||||||||||||
Amortization of intangible assets | 11,019 | 11,019 | 34,951 | 33,057 | ||||||||||||
Restructuring costs | 63 | 192 | 178 | 8,260 | ||||||||||||
Total operating expenses | 226,971 | 225,418 | 679,996 | 681,545 | ||||||||||||
Income from operations | 37,002 | 44,451 | 47,519 | 91,030 | ||||||||||||
Interest and other income (loss), net | (6,328 | ) | (5,491 | ) | (14,231 | ) | (19,273 | ) | ||||||||
Interest expense | (11,508 | ) | (11,883 | ) | (33,556 | ) | (38,491 | ) | ||||||||
Income (loss) before income taxes | 19,166 | 27,077 | (268 | ) | 33,266 | |||||||||||
Provision for income taxes | 3,006 | 3,452 | 9,666 | 7,767 | ||||||||||||
Net income (loss) | $ | 16,160 | $ | 23,625 | $ | (9,934 | ) | $ | 25,499 | |||||||
Net Income (loss) per Common Share | ||||||||||||||||
Basic net income (loss) per common share | $ | 0.15 | $ | 0.20 | $ | (0.09 | ) | $ | 0.23 | |||||||
Diluted net income (loss) per potential common share1 | $ | 0.15 | $ | 0.19 | $ | (0.09 | ) | $ | 0.22 | |||||||
Weighted average basic common shares outstanding | 106,236 | 118,413 | 105,404 | 113,189 | ||||||||||||
Weighted average dilutive potential common shares outstanding2 | 120,809 | 133,233 | 105,404 | 114,549 | ||||||||||||
1. | The calculation of GAAP diluted net income per common share for the third 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 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 third quarter of fiscal 2015 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 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 third quarter of fiscal 2014 includes 1.5 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. | |
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2015 includes 1.7 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. | ||
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2015 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) | ||||||||
October 31, | July 31, | |||||||
2014 | 2015 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 586,720 | $ | 697,091 | ||||
Short-term investments | 140,205 | 160,067 | ||||||
Accounts receivable, net | 518,981 | 530,261 | ||||||
Inventories | 254,660 | 194,017 | ||||||
Prepaid expenses and other | 192,624 | 185,140 | ||||||
Total current assets | 1,693,190 | 1,766,576 | ||||||
Long-term investments | 50,057 | 70,161 | ||||||
Equipment, building, furniture and fixtures, net | 126,632 | 159,592 | ||||||
Other intangible assets, net | 128,677 | 89,019 | ||||||
Other long-term assets | 74,076 | 78,347 | ||||||
Total assets | $ | 2,072,632 | $ | 2,163,695 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 209,777 | $ | 201,774 | ||||
Accrued liabilities | 276,608 | 272,691 | ||||||
Deferred revenue | 104,688 | 114,902 | ||||||
Current portion of long-term debt | 190,063 | 2,500 | ||||||
Total current liabilities | 781,136 | 591,867 | ||||||
Long-term deferred revenue | 40,930 | 53,731 | ||||||
Other long-term obligations | 45,390 | 63,482 | ||||||
Long-term debt, net | 1,274,791 | 1,276,761 | ||||||
Total liabilities | $2,142,247 | $1,985,841 | ||||||
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; 106,979,960 and 118,725,874 shares issued and outstanding | 1,070 | 1,187 | ||||||
Additional paid-in capital | 5,954,440 | 6,187,759 | ||||||
Accumulated other comprehensive loss | (14,668 | ) | (26,135 | ) | ||||
Accumulated deficit | (6,010,457 | ) | (5,984,957 | ) | ||||
Total stockholders’ equity (deficit) | (69,615 | ) | 177,854 | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 2,072,632 | $ | 2,163,695 | ||||
CIENA CORPORATION | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(in thousands) | ||||||||
(unaudited) | ||||||||
Nine Months Ended July 31, | ||||||||
2014 | 2015 | |||||||
Cash flows provided by operating activities: | ||||||||
Net income (loss) | $ | (9,934 | ) | $ | 25,499 | |||
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 | 41,463 | 41,601 | ||||||
Share-based compensation costs | 34,204 | 32,402 | ||||||
Amortization of intangible assets | 43,931 | 39,659 | ||||||
Provision for inventory excess and obsolescence | 22,026 | 18,010 | ||||||
Provision for warranty | 18,720 | 12,549 | ||||||
Other | 21,254 | (1,220 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (55,688 | ) | (12,053 | ) | ||||
Inventories | (66,015 | ) | 42,633 | |||||
Prepaid expenses and other | (26,698 | ) | (5,345 | ) | ||||
Accounts payable, accruals and other obligations | (34,794 | ) | (39,266 | ) | ||||
Deferred revenue | 27,498 | 23,015 | ||||||
Net cash provided by operating activities | 15,967 | 177,484 | ||||||
Cash flows used in investing activities: | ||||||||
Payments for equipment, furniture, fixtures and intellectual property | (35,974 | ) | (39,729 | ) | ||||
Restricted cash | 2,059 | (42 | ) | |||||
Purchase of available for sale securities | (195,259 | ) | (180,203 | ) | ||||
Proceeds from maturities of available for sale securities | 150,000 | 140,000 | ||||||
Settlement of foreign currency forward contracts, net | (10,796 | ) | 16,289 | |||||
Purchase of cost method investment | — | (2,000 | ) | |||||
Net cash used in investing activities | (89,970 | ) | (65,685 | ) | ||||
Cash flows provided by financing activities: | ||||||||
Proceeds from issuance of term loan, net | 248,750 | — | ||||||
Payment of long term debt | — | (8,901 | ) | |||||
Payment for debt and equity issuance costs | (3,263 | ) | (420 | ) | ||||
Payment of capital lease obligations | (2,275 | ) | (6,441 | ) | ||||
Proceeds from issuance of common stock | 17,518 | 19,622 | ||||||
Net cash provided by financing activities | 260,730 | 3,860 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (330 | ) | (5,288 | ) | ||||
Net increase in cash and cash equivalents | 186,397 | 110,371 | ||||||
Cash and cash equivalents at beginning of period | 346,487 | 586,720 | ||||||
Cash and cash equivalents at end of period | $ | 532,884 | $ | 697,091 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid during the period for interest | $ | 23,425 | $ | 31,566 | ||||
Cash paid during the period for income taxes, net | $ | 9,051 | $ | 8,526 | ||||
Non-cash investing activities | ||||||||
Purchase of equipment in accounts payable | $ | 4,334 | $ | 16,717 | ||||
Debt issuance costs in accrued liabilities | $ | 655 | $ | — | ||||
Equipment acquired under capital lease | $ | — | $ | 464 | ||||
Building subject to capital lease | $ | — | $ | 14,939 | ||||
Construction in progress subject to build-to-suit lease | $ | — | $ | 8,770 | ||||
Non-cash financing activities | ||||||||
Conversion of 4.0% convertible senior notes, due March 15, 2015 into 8,898,387 shares of common stock | — | 180,645 | ||||||
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements | ||||||||
Quarter Ended | ||||||||
July 31, | ||||||||
2014 | 2015 | |||||||
Gross Profit Reconciliation | ||||||||
GAAP gross profit | $ | 263,973 | $ | 269,869 | ||||
Share-based compensation-products | 737 | 671 | ||||||
Share-based compensation-services | 572 | 490 | ||||||
Amortization of intangible assets | 2,201 | 2,200 | ||||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Adjusted (non-GAAP) gross profit | $ | 267,483 | $ | 273,230 | ||||
Adjusted (non-GAAP) gross profit percentage | 44.3 | % | 45.3 | % | ||||
Operating Expense Reconciliation | ||||||||
GAAP operating expense | $ | 226,971 | $ | 225,418 | ||||
Share-based compensation-research and development | 2,368 | 2,114 | ||||||
Share-based compensation-sales and marketing | 3,890 | 3,571 | ||||||
Share-based compensation-general and administrative | 3,376 | 3,516 | ||||||
Acquisition and integration costs | — | 2,435 | ||||||
Amortization of intangible assets | 11,019 | 11,019 | ||||||
Restructuring costs | 63 | 192 | ||||||
Settlement of patent litigation | — | 500 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Adjusted (non-GAAP) operating expense | $ | 206,255 | $ | 202,071 | ||||
Income from Operations Reconciliation | ||||||||
GAAP income from operations | $ | 37,002 | $ | 44,451 | ||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Adjusted (non-GAAP) income from operations | $ | 61,228 | 71,159 | |||||
Adjusted (non-GAAP) operating margin percentage | 10.1 | % | 11.8 | % | ||||
Net Income Reconciliation | ||||||||
GAAP net income | $ | 16,160 | $ | 23,625 | ||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Non-cash interest expense | 327 | 397 | ||||||
Change in fair value of embedded redemption feature | 190 | — | ||||||
Adjusted (non-GAAP) net income | $ | 40,903 | $ | 50,730 | ||||
Weighted average basic common shares outstanding | 106,236 | 118,413 | ||||||
Weighted average dilutive potential common shares outstanding 1 | 156,561 | 159,787 | ||||||
Net Income per Common Share | ||||||||
GAAP diluted net income per common share | $ | 0.15 | $ | 0.19 | ||||
Adjusted (non-GAAP) diluted net income per common share 2 | $ | 0.32 | $ | 0.37 | ||||
1. | Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2014 includes 1.5 million shares underlying certain stock options and restricted stock units, 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due March 15, 2015, 13.1 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 third quarter of fiscal 2015 includes 1.7 million shares underlying certain stock options and restricted stock units, 13.1 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 fiscal third quarter of 2014 requires adding back interest expense of approximately $2.1 million associated with Ciena's 4.0% convertible senior notes, due March 15, 2015, approximately $1.4 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 $2.8 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 third quarter of fiscal 2015 requires adding back interest expense of approximately $1.4 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 $2.8 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
- Share-based compensation expense - 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, facilities and systems consolidation costs associated with our acquisition of Cyan.
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 during the third quarter of fiscal 2015 is a
$0.5 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 .
View source version on businesswire.com: http://www.businesswire.com/news/home/20150903005350/en/
Source:
Press:
Ciena Corporation
Nicole Anderson, 877-857–7377
pr@ciena.com
or
Investor:
Ciena Corporation
Gregg Lampf, 877-243–6273
ir@ciena.com