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Ciena Reports Fiscal First Quarter 2018 Financial Results

March 06, 2018

HANOVER, Md.--(BUSINESS WIRE)-- Ciena® Corporation (NYSE: CIEN):

  • Q1 Revenue: $646.1 million, increasing 4% year over year
  • Q1 Net Income (Loss) per Share: $(3.29) GAAP; $0.15 adjusted (non-GAAP)
    • GAAP loss primarily due to significant non-cash charges related to the Tax Cuts and Jobs Act, which resulted in an estimated $476.9 million of additional tax expense
  • Share Repurchase: Commenced repurchase activity on three-year, $300 million repurchase program during Q1

Ciena, a network strategy and technology company, today announced unaudited financial results for its fiscal first quarter ended January 31, 2018.

“We demonstrated a strong start toward achieving our long-term financial goals with our fiscal first quarter results, including year-over-year top-line growth, continued cash generation and a strengthening balance sheet,” said Gary B. Smith, president and CEO, Ciena. “We also are confident in our ability to continue driving market share gains across key geographies and customer segments by intersecting the industry’s demand drivers with leading innovation.”

For the fiscal first quarter 2018, Ciena reported revenue of $646.1 million as compared to $621.5 million for the fiscal first quarter 2017.

Ciena's fiscal first quarter 2018 GAAP results include a non-cash $476.9 million charge related to the enactment of the Tax Cuts and Jobs Act. As a result, Ciena's GAAP net loss for the fiscal first quarter 2018 was $(473.4) million, or $(3.29) per diluted common share, which compares to a GAAP net income of $3.9 million, or $0.03 per diluted common share, for the fiscal first quarter 2017.

Ciena's adjusted (non-GAAP) net income for the fiscal first quarter 2018 was $21.9 million, or $0.15 per diluted common share, which compares to an adjusted (non-GAAP) net income of $24.6 million, or $0.17 per diluted common share, for the fiscal first quarter 2017.

Share Repurchase Program

On December 7, 2017, Ciena announced that its Board of Directors had authorized a program to repurchase up to $300 million of the Company’s common stock through the end of fiscal 2020. The Company commenced repurchases late in the fiscal first quarter 2018, and through March 5, 2018, has repurchased approximately 874,000 shares of its common stock, for an aggregate purchase price of $19.5 million at an average price of $22.34 per share.

Fiscal First Quarter 2018 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



Q1   Q1  

Period
Change




FY 2018
FY 2017
Y-T-Y*
Revenue

$ 646.1

$ 621.5

4.0 %
Gross margin


42.1 %

44.1 %
(2.0 )%
Operating expense

$ 255.0

$ 254.7

0.1 %
Operating margin


2.6 %

3.1 %
(0.5 )%







 



Non-GAAP  Results




Q1
Q1

Period
Change




FY 2018
FY 2017
Y-T-Y*
Revenue

$ 646.1

$ 621.5

4.0 %
Adj. gross margin


42.6 %

44.9 %
(2.3 )%
Adj. operating expense

$ 234.4

$ 226.2

3.6 %
Adj. operating margin


6.3 %

8.5 %
(2.2 )%
Adj. EBITDA

$ 61.8

$ 69.9

(11.6 )%
 
* Denotes % change, or in the case of margin, absolute change
 
 

    Revenue by Segment



Q1 FY 2018   Q1 FY 2017



Revenue   %**
Revenue   %**
Networking Platforms








Converged Packet Optical 1

$ 427.4

66.1

$ 417.8

67.2
Packet Networking

68.6  
10.6  
72.2  
11.6
Total Networking Platforms

496.0

76.7

490.0

78.8









 
Software and Software-Related Services








Software Platforms

29.6

4.6

17.0

2.7
Software-Related Services

23.9  
3.7  
22.3  
3.6
Total Software and Software-Related Services

53.5

8.3

39.3

6.3









 
Global Services








Maintenance Support and Training

56.0

8.7

55.0

8.9
Installation and Deployment

30.0

4.7

27.9

4.5
Consulting and Network Design

10.6  
1.6  
9.3  
1.5
Total Global Services

96.6

15.0

92.2

14.9



 
 
 
 
Total

$ 646.1  
100.0  
$ 621.5  
100.0
 
1. As of the first fiscal quarter of 2018, sales of Optical Transport products are reflected within the Converged Packet Optical product line for all periods presented.
 

Additional Performance Metrics for Fiscal First Quarter 2018

 

    Revenue by Geographic Region



Q1 FY 2018   Q1 FY 2017



Revenue   % **
Revenue   % **
North America

$ 402.9
62.4
$ 405.9
65.3
Europe, Middle East and Africa


97.8
15.1

91.5
14.7
Caribbean and Latin America


34.6
5.4

35.2
5.7
Asia Pacific

  110.8
17.1
  88.9
14.3
Total

$ 646.1
100.0
$ 621.5
100.0
 
** Denotes % of total revenue
 
  • U.S. customers contributed 59.3% of total revenue
  • Two customers each accounted for greater than 10% of revenue and in aggregate represented 25% of total revenue
  • Cash and investments totaled $986.8 million
  • Cash flow from operations totaled $35.7 million
  • Free cash flow totaled $10.0 million
  • Average days' sales outstanding (DSOs) were 77
  • Accounts receivable balance was $553.7 million
  • Inventories totaled $255.3 million, including:
    • Raw materials: $47.7 million
    • Work in process: $16.5 million
    • Finished goods: $176.5 million
    • Deferred cost of sales: $64.4 million
    • Reserve for excess and obsolescence: $(49.8) million
  • Product inventory turns were 4.9
  • Headcount totaled 5,712

Impact of the Tax Cuts and Jobs Act

The first fiscal quarter 2018 provision for income taxes includes the following significant non-cash charges related to the enactment of the Tax Cuts and Jobs Act:

  • $431.3 million charge related to the remeasurement of U.S. net deferred tax assets at the lower statutory rate under the Tax Cuts and Jobs Act; and
  • $45.6 million charge related to a transition tax on accumulated historical foreign earnings and its deemed repatriation to the U.S.

Ciena continues to evaluate the impact of the Tax Cuts and Jobs Act. At this time, Ciena does not expect to pay substantial cash taxes for U.S. federal income tax for the foreseeable future primarily due to its deferred tax asset balance. As of January 31, 2018, Ciena has net deferred tax assets of approximately $739.4 million, and consequently, over the near term, Ciena's cash taxes will continue to be primarily related to the state taxes and tax expense of Ciena's foreign subsidiaries, which amounts have not historically been significant. Ciena's foreign and domestic income tax expense for the first quarter of fiscal 2018 and 2017 expected to be paid using cash was $1.0 million and $0.4 million, respectively.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal First Quarter 2018 Results

Today, Tuesday, March 6, 2018, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website supporting materials for its unaudited fiscal first quarter 2018 results, including prepared remarks from management and a related investor presentation.

Ciena's management will also host a discussion today with investors and financial analysts that will include the Company's fiscal second quarter 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: "We demonstrated a strong start toward achieving our long-term financial goals with our fiscal first quarter results, including year-over-year top-line growth, continued cash generation and a strengthening balance sheet"; "We also are confident in our ability to continue driving market share gains across key geographies and customer segments by intersecting the industry’s demand drivers with leading innovation".

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; the impact of the Tax Cuts and Jobs Act, 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 Report on Form 10-K, which Ciena filed with the Securities and Exchange Commission on December 22, 2017. 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 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 January 31,



2018   2017
Revenue:




Products

$ 525,609

$ 506,993
Services

  120,526  
  114,504  
Total revenue

  646,135  
  621,497  
Cost of goods sold:




Products


313,120


286,811
Services

  61,250  
  60,901  
Total cost of goods sold

  374,370  
  347,712  
Gross profit

  271,765  
  273,785  
Operating expenses:




Research and development


118,524


116,869
Selling and marketing


88,515


85,002
General and administrative


38,406


35,864
Amortization of intangible assets


3,623


14,551
Significant asset impairments and restructuring costs

  5,961  
  2,395  
Total operating expenses

  255,029  
  254,681  
Income from operations


16,736


19,104
Interest and other income (loss), net


1,575


370
Interest expense

  (13,734 )
  (15,203 )
Income before income taxes


4,577


4,271
Provision for income taxes 1

  477,940  
  410  
Net income (loss)

$ (473,363 )
$ 3,861  





 
Net Income (Loss) per Common Share




Basic net income (loss) per common share

$ (3.29 )
$ 0.03  
Diluted net income (loss) per potential common share

$ (3.29 )
$ 0.03  





 
Weighted average basic common shares outstanding

  143,922  
  140,682  
Weighted average dilutive potential common shares outstanding 2

  143,922  
  142,184  





 
1. The provision for income taxes for the first quarter of fiscal 2018 is primarily related to the enactment of the Tax Cuts and Jobs Act. These amounts are provisional and reflect management’s current estimates and current interpretations of the Tax Cuts and Jobs Act. These amounts may require adjustment in future periods as additional guidance under the Tax Cuts and Jobs Act becomes available and analysis of its provisions is completed.
 
2. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first quarter of fiscal 2017 includes 1.5 million shares underlying certain stock options and restricted stock units.
 
 
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 

    January 31,
2018
  October 31,
2017
ASSETS




Current assets:




Cash and cash equivalents

$ 648,867

$ 640,513
Short-term investments


278,743


279,133
Accounts receivable, net


553,724


622,183
Inventories


255,251


267,143
Prepaid expenses and other

  186,837  
  197,339  
Total current assets


1,923,422


2,006,311
Long-term investments


59,151


49,783
Equipment, building, furniture and fixtures, net


318,835


308,465
Goodwill


267,899


267,458
Other intangible assets, net


96,485


100,997
Deferred tax asset, net


739,446


1,155,104
Other long-term assets

  64,146  
  63,593  
Total assets

$ 3,469,384  
$ 3,951,711  
LIABILITIES AND STOCKHOLDERS’ EQUITY




Current liabilities:




Accounts payable

$ 209,243

$ 260,098
Accrued liabilities and other short-term obligations


268,164


322,934
Deferred revenue


103,216


102,418
Current portion of long-term debt

  352,753  
  352,293  
Total current liabilities


933,376


1,037,743
Long-term deferred revenue


79,297


82,589
Other long-term obligations


115,970


111,349
Long-term debt, net

  584,601  
  583,688  
Total liabilities

$ 1,713,244  
$ 1,815,369  
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; 144,180,782
and 143,043,227 shares issued and outstanding



1,442


1,430
Additional paid-in capital


6,828,648


6,810,182
Accumulated other comprehensive income (loss)


2,375


(11,017 )
Accumulated deficit

  (5,076,325 )
  (4,664,253 )
Total stockholders’ equity

  1,756,140  
  2,136,342  
Total liabilities and stockholders’ equity

$ 3,469,384  
$ 3,951,711  





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

    Three Months Ended January 31,



2018   2017
Cash flows provided by (used in) operating activities:




Net income (loss)

$ (473,363 )
$ 3,861
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:




Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements


20,833


16,699
Share-based compensation costs


12,393


12,825
Amortization of intangible assets


5,912


18,864
Deferred taxes


476,897



Provision for inventory excess and obsolescence


6,804


5,431
Provision for warranty


4,657


553
Other


2,269


4,452
Changes in assets and liabilities:




Accounts receivable


72,439


(21,956 )
Inventories


5,199


(78,749 )
Prepaid expenses and other


16,120


(1,004 )
Accounts payable, accruals and other obligations


(111,476 )

4,037
Deferred revenue

  (2,981 )
  8,737  
Net cash provided by (used in) operating activities

  35,703  
  (26,250 )
Cash flows used in investing activities:




Payments for equipment, furniture, fixtures and intellectual property


(25,662 )

(25,706 )
Purchase of available for sale securities


(118,877 )

(89,897 )
Proceeds from maturities of available for sale securities


110,000


95,000
Settlement of foreign currency forward contracts, net

  1,061  
  440  
Net cash used in investing activities

  (33,478 )
  (20,163 )
Cash flows provided by (used in) financing activities:




Payment of long term debt


(1,000 )

(46,296 )
Payment of capital lease obligations


(914 )

(605 )
Repurchases of common stock-repurchase program


(4,103 )


Proceeds from issuance of common stock

  11,008  
  9,708  
Net cash provided by (used in) financing activities


4,991


(37,193 )
Effect of exchange rate changes on cash and cash equivalents

  1,138  
  (156 )
Net increase (decrease) in cash and cash equivalents


8,354


(83,762 )
Cash and cash equivalents at beginning of period

  640,513  
  777,615  
Cash and cash equivalents at end of period

$ 648,867  
$ 693,853  
Supplemental disclosure of cash flow information




Cash paid during the period for interest

$ 10,020

$ 11,831
Cash paid during the period for income taxes, net

$ 3,498

$ 5,521
Non-cash investing activities




Purchase of equipment in accounts payable

$ 2,014

$ 5,293
Non-cash financing activities




Repurchase of common stock in accrued liabilities from repurchase program

$ 1,652

$





 
 
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measures (unaudited)

   
 



Quarter Ended January 31,



2018
2017
Gross Profit Reconciliation (GAAP/non-GAAP)




GAAP gross profit

$ 271,765     $ 273,785  
Share-based compensation-products


672


561
Share-based compensation-services


625


628
Amortization of intangible assets

  2,289  
  4,313  
Total adjustments related to gross profit

  3,586  
  5,502  
Adjusted (non-GAAP) gross profit

$ 275,351  
$ 279,287  
Adjusted (non-GAAP) gross profit percentage


42.6 %

44.9 %





 
Operating Expense Reconciliation (GAAP/non-GAAP)




GAAP operating expense

$ 255,029  
$ 254,681  
Share-based compensation-research and development


3,255


3,209
Share-based compensation-sales and marketing


3,328


2,873
Share-based compensation-general and administrative


4,474


5,453
Amortization of intangible assets


3,623


14,551
Significant asset impairments and restructuring costs

  5,961  
  2,395  
Total adjustments related to operating expense

  20,641  
  28,481  
Adjusted (non-GAAP) operating expense

$ 234,388  
$ 226,200  





 
Income from Operations Reconciliation (GAAP/non-GAAP)




GAAP income from operations

$ 16,736  
$ 19,104  
Total adjustments related to gross profit


3,586


5,502
Total adjustments related to operating expense

  20,641  
  28,481  
Total adjustments related to income from operations

  24,227  
  33,983  
Adjusted (non-GAAP) income from operations

$ 40,963  
$ 53,087  
Adjusted (non-GAAP) operating margin percentage


6.3 %

8.5 %





 
Net Income (Loss) Reconciliation (GAAP/non-GAAP)




GAAP net income (loss)

$ (473,363 )
$ 3,861
Exclude GAAP provision for income taxes

  477,940  
  410  
Income before income taxes

$ 4,577

$ 4,271
Total adjustments related to income from operations


24,227


33,983
Loss on extinguishment of debt





41
Non-cash interest expense

  749  
  513  
Adjusted income before income taxes

$ 29,553

$ 38,808
Non-GAAP tax provision on adjusted income before income taxes

  7,645  
  14,165  
Adjusted (non-GAAP) net income

$ 21,908  
$ 24,643  





 
Weighted average basic common shares outstanding

  143,922  
  140,682  
Weighted average dilutive potential common shares outstanding 1

  145,558  
  165,104  





 
Net Income (Loss) per Common Share




GAAP diluted net income (loss) per common share

$ (3.29 )
$ 0.03
Adjusted (non-GAAP) diluted net income per common share 2

$ 0.15

$ 0.17





 
1.   Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the first quarter of fiscal 2018 includes 0.9 million shares underlying certain stock options and restricted stock units and 0.7 million shares underlying Ciena's "New" 3.75% convertible senior notes, due October 15, 2018.


 


Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the first quarter of fiscal 2017 includes 1.5 million shares underlying certain stock options and restricted stock units, 5.6 million shares underlying Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017 and 17.4 million shares underlying Ciena's "Original" 3.75% convertible senior notes, due October 15, 2018.


 
2.
The calculation of Adjusted (non-GAAP) diluted net income per common share for the first quarter of fiscal 2017 requires adding back interest expense of approximately $0.4 million associated with Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017 and approximately $2.3 million associated with Ciena's "Original" 3.75% convertible senior notes, due October 15, 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 January 31,



2018
2017
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)




Net income (loss) (GAAP)

$ (473,363 )
$ 3,861
Add: Interest expense


13,734


15,203
Less: Interest and other income (loss), net


1,575


370
Add: Provision for income taxes


477,940


410
Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements


20,833


16,699
Add: Amortization of intangible assets

  5,912  
  18,864
EBITDA

$ 43,481  
$ 54,667
Add: Shared-based compensation cost


12,393


12,825
Add: Significant asset impairments and restructuring costs

  5,961  
  2,395
Adjusted EBITDA

$ 61,835  
$ 69,887





 

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.
  • Non-cash loss on extinguishment of debt - related to certain private repurchases conducted with several holders of Ciena's 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017.
  • 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.
  • 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 25.87% for the first fiscal quarter of 2018, and 36.5% for the first fiscal quarter of 2017. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy. In calculating, the Non-GAAP tax provision for the first fiscal quarter of 2018, Ciena excluded certain significant non-cash charges resulting from the enactment of Tax Cuts and Jobs Act. Specifically, during the first quarter of fiscal 2018, Ciena recorded a provisional, non-cash charge of $476.9 million, consisting of a $431.3 million charge related to the re-measurement of net deferred tax assets at the lower statutory rate, and a $45.6 million charge related to the U.S. transition tax described above. These amounts are provisional in nature based on Securities and Exchange Commission Staff Accounting Bulletin No. 118 and therefore subject to adjustment in future periods, including as a result of the availability of additional guidance and further analysis by Ciena under the Tax Cuts and Jobs Act.

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

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