Ciena Reports Fiscal Third Quarter 2015 Financial Results

September 3, 2015 at 8:00 AM EDT

Delivers 12% adjusted operating margin and generates $117 million in cash from operations

HANOVER, Md.--(BUSINESS WIRE)--Sep. 3, 2015-- Ciena® Corporation (NYSE: CIEN), the network specialist, today announced unaudited financial results for its fiscal third quarter ended July 31, 2015.

For the fiscal third quarter 2015, Ciena reported revenue of $602.9 million as compared to $603.6 million for the fiscal third quarter 2014.

On the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal third quarter 2015 was $23.6 million, or $0.19 per diluted common share, which compares to a GAAP net income of $16.2 million, or $0.15 per diluted common share, for the fiscal third quarter 2014.

Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2015 was $50.7 million, or $0.37 per diluted common share, which compares to an adjusted (non-GAAP) net income of $40.9 million, or $0.32 per diluted common share, for the fiscal third quarter 2014.

"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 Gary B. Smith, president and CEO of Ciena. "Despite short-term revenue headwinds related to the timing of network implementations at certain large service provider customers, fundamental demand drivers for our business remain strong. In fact, we now expect to exceed 10% adjusted operating margin for the full fiscal year."

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
  • Product inventory turns were 5.6
  • Headcount totaled 5,196

Executive Leadership Appointment

Ciena also announced today that François Locoh-Donou has been appointed senior vice president and chief operating officer, effective November 1, 2015, reporting directly to Gary B. Smith, president and CEO. In this new position, Locoh-Donou will assume responsibility for Ciena’s Global Field Organization, including the global sales and services functions, while retaining his existing responsibility for Ciena’s research and development, product line management, supply chain and quality functions. Locoh-Donou joined Ciena in 2002 and has served as senior vice president, Global Products Group since August 2011. Previously, he served as vice president and general manager, EMEA, with responsibility for expanding Ciena’s sales and other operations in that region.

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.

Ciena expects fiscal fourth quarter 2015 financial performance, inclusive of a full quarter of results from the acquired Cyan business, to include:

  • 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

Ciena will host a discussion of its unaudited fiscal third quarter 2015 results with investors and financial analysts today, Thursday, September 3, 2015 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. 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 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"; "Despite short-term revenue headwinds related to the timing of network implementations at certain large service provider customers, fundamental demand drivers for our business remain strong"; "In fact, we now expect to exceed 10% adjusted operating margin for the full fiscal year"; "Ciena expects fiscal fourth quarter 2015 financial performance, inclusive of a full quarter of results from the acquired Cyan business, to include: 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."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by large communication service providers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; and the other risk factors disclosed in Ciena's Report on Form 10-Q, which Ciena filed with the Securities and Exchange Commission on June 10, 2015. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) per share. In evaluating the operating performance of Ciena's business, management excludes certain charges and credits that are required by GAAP. These items share one or more of the following characteristics: they are unusual and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of Ciena's control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena's GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena's non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena's results of operations in conjunction with our corresponding GAAP results. To the extent not previously disclosed in a prior Ciena financial results press release, Appendix A to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

About Ciena. Ciena (NYSE: CIEN) is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with its OPn architecture for next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. For updates on Ciena news, follow us on Twitter @Ciena or on LinkedIn at http://www.linkedin.com/company/ciena. Investors are encouraged to review the Investors section of our website at www.ciena.com/investors, where we routinely post press releases, SEC filings, recent news, financial results, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use.

 
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 Ciena's GAAP results for the periods presented reflect adjustments relating to the following items:

  • Share-based compensation expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
  • 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 due December 15, 2020 relating to the required separate accounting of the equity component of these convertible notes.
  • Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes due March 15, 2015.

 

Source: Ciena Corporation

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