SEC Filing - Ciena Corporation

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cien-20220730

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36250

Ciena Corporation

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

7035 Ridge Road, Hanover, MD

(Address of principal executive offices)

23-2725311

(I.R.S. Employer Identification No.)

21076

(Zip Code)

(410) 694-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CIEN	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class						Outstanding at September 2, 2022
Common Stock, par value $0.01 per share						148,141,810

CIENA CORPORATION

INDEX

FORM 10-Q


			PAGE NUMBER
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)			3
Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended July 30, 2022 and July 3 1, 2021			3
Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended July 30, 2022 and July 3 1, 2021			4
Condensed Consolidated Balance Sheets at July 30, 2022 and October 30, 2021			5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 30,2022 and July 3 1, 2021			6
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended July 30, 2022 and July 3 1, 2021			7
Notes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			46
Item 4. Mine Safety Disclosures			46
Item 5. Other Information			46
Item 6. Exhibits			47
Signatures			48

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Quarter Ended				Nine Months Ended
	July 30		July 31		July 30		July 31
	2022		2021		2022		2021
Revenue:
Products	$	684,284	$	804,414	$	2,109,239	$	2,071,677
Services	183,697		183,727		552,412		507,521
Total revenue	867,981		988,141		2,661,651		2,579,198
Cost of goods sold:
Products	434,756		420,236		1,259,378		1,074,935
Services	92,446		93,355		275,526		259,403
Total cost of goods sold	527,202		513,591		1,534,904		1,334,338
Gross profit	340,779		474,550		1,126,747		1,244,860
Operating expenses:
Research and development	150,025		146,225		457,758		389,212
Selling and marketing	105,880		114,924		344,700		322,589
General and administrative	41,121		48,863		131,191		132,491
Significant asset impairments and restructuring costs	7,692		9,789		20,203		23,865
Amortization of intangible assets	8,919		5,967		26,757		17,896
Acquisition and integration costs	35		259		598		860

Total operating expenses	313,672		326,027		981,207		886,913
Income from operations	27,107		148,523		145,540		357,947
Interest and other income (loss), net	366		795		4,860		(1,600)
Interest expense	(12,642)		(7,776)		(33,275)		(22,921)

Income before income taxes	14,831		141,542		117,125		333,426
Provision (benefit) for income taxes	4,319		(96,690)		21,868		(63,271)
Net income	$	10,512	$	238,232	$	95,257	$	396,697
Basic net income per common share	$	0.07	$	1.53	$	0.63	$	2.55
Diluted net income per potential common share	$	0.07	$	1.52	$	0.62	$	2.53
Weighted average basic common shares outstanding	149,862		155,271		152,083		155,277
Weighted average dilutive potential common shares outstanding	150,463		156,744		153,209		156,742

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Quarter Ended				Nine Months Ended
	July 30		July 31		July 30		July 31
	2022		2021		2022		2021
Net income	$	10,512	$	238,232	$	95,257	$	396,697
Change in unrealized loss on available-for-sale securities, net of tax	(79)		(21)		(2,184)		(28)
Change in unrealized gain (loss) on foreign currency forward contracts, net of tax	(91)		(4,766)		(6,776)		5,667
Change in unrealized gain (loss) on forward starting interest rate swaps, net of tax	(1,613)		1,620		9,425		5,650
Change in cumulative translation adjustments	(4,037)		(6,823)		(22,783)		19,439
Other comprehensive gain (loss)	(5,820)		(9,990)		(22,318)		30,728
Total comprehensive income	$	4,692	$	228,242	$	72,939	$	427,425

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	July 30, 2022		October 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	859,687	$	1,422,546
Short-term investments	321,823		181,483
Accounts receivable, net of allowance for credit losses of $11.7 million and $10.9 million as of July 30, 2022 and October 30, 2021, respectively.	802,484		884,958
Inventories, net	826,673		374,265
Prepaid expenses and other	377,709		325,654
Total current assets	3,188,376		3,188,906
Long-term investments	77,723		70,038
Equipment, building, furniture and fixtures, net	281,690		284,968
Operating right-of-use assets	45,452		44,285
Goodwill	328,978		311,645
Other intangible assets, net	76,918		65,314
Deferred tax asset, net	797,924		800,180
Other long-term assets	103,721		99,891
Total assets	$	4,900,782	$	4,865,227
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	439,229	$	356,176
Accrued liabilities and other short-term obligations	301,589		409,285
Deferred revenue	147,808		118,007
Operating lease liabilities	19,786		18,632
Current portion of long-term debt	6,930		6,930
Total current liabilities	915,342		909,030
Long-term deferred revenue	61,845		57,457
Other long-term obligations	150,767		166,803
Long-term operating lease liabilities	42,639		41,564
Long-term debt, net	1,062,453		670,355
Total liabilities	$	2,233,046	$	1,845,209
Commitments and contingencies (Note 22)
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; 148,293,357 and 154,858,981 shares issued and outstanding	1,483		1,549
Additional paid-in capital	6,378,007		6,803,162
Accumulated other comprehensive income (loss)	(21,879)		439
Accumulated deficit	(3,689,875)		(3,785,132)
Total stockholders’ equity	2,667,736		3,020,018
Total liabilities and stockholders’ equity	$	4,900,782	$	4,865,227

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Nine Months Ended
	July 30		July 31
	2022		2021
Cash flows provided by (used in) operating activities:
Net income	$	95,257	$	396,697
Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements	68,280		71,918
Share-based compensation costs	77,827		62,970
Amortization of intangible assets	36,521		27,341
Deferred taxes	(19,824)		(139,543)
Provision for inventory excess and obsolescence	12,038		13,460
Provision for warranty	12,416		12,726
Other	(442)		6,350
Changes in assets and liabilities:
Accounts receivable	74,478		(163,149)
Inventories	(464,664)		(38,821)
Prepaid expenses and other	(39,805)		(17,272)
Operating lease right-of-use assets	12,504		12,340
Accounts payable, accruals and other obligations	(37,587)		31,388
Deferred revenue	34,949		24,969
Short- and long-term operating lease liabilities	(15,197)		(14,618)
Net cash provided by (used in) operating activities	(153,249)		286,756
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property	(66,908)		(67,290)

Purchase of available-for-sale securities	(614,333)		(132,895)
Proceeds from maturities of available-for-sale securities	460,000		122,063
Settlement of foreign currency forward contracts, net	4,450		7,326

Purchase of cost method equity investments	(8,000)		—
Proceeds from sale of cost method equity investments	—		4,678
Acquisition of business, net of cash acquired	(62,043)		—

Net cash used in investing activities	(286,834)		(66,118)
Cash flows used in financing activities:
Proceeds from issuance of senior notes	400,000		—


Payment of long-term debt	(3,465)		(5,197)

Payment of debt issuance costs	(5,159)		—
Payment of finance lease obligations	(2,555)		(2,243)

Shares repurchased for tax withholdings on vesting of stock unit awards	(41,280)		(36,484)
Repurchases of common stock - repurchase program	(487,792)		(64,555)
Proceeds from issuance of common stock	30,224		28,289
Net cash used in financing activities	(110,027)		(80,190)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(12,780)		1,344
Net increase (decrease) in cash, cash equivalents and restricted cash	(562,890)		141,792
Cash, cash equivalents and restricted cash at beginning of period	1,422,604		1,088,708
Cash, cash equivalents and restricted cash at end of period	$	859,714	$	1,230,500
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	24,823	$	22,392
Cash paid during the period for income taxes, net	$	28,593	$	46,165
Operating lease payments	$	16,342	$	16,162
Non-cash investing and financing activities
Purchase of equipment in accounts payable	$	9,320	$	5,517

Repurchase of common stock in accrued liabilities from repurchase program	$	5,000	$	800



Operating right-of-use assets subject to lease liability	$	8,226	$	4,182

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 30, 2021	154,858,981	$	1,549	$	6,803,162	$	439	$	(3,785,132)	$	3,020,018

Net income	—	—		—		—		95,257		95,257
Other comprehensive loss	—	—		—		(22,318)		—		(22,318)
Repurchase of common stock - repurchase program	(8,279,710)	(83)		(491,909)		—		—		(491,992)
Issuance of shares from employee equity plans	2,359,326	23		30,201		—		—		30,224
Share-based compensation expense	—	—		77,827		—		—		77,827
Shares repurchased for tax withholdings on vesting of stock unit awards	(645,240)	(6)		(41,274)		—		—		(41,280)

Balance at July 30, 2022	148,293,357	$	1,483	$	6,378,007	$	(21,879)	$	(3,689,875)	$	2,667,736


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 31, 2020	154,563,005	$	1,546	$	6,826,531	$	(35,358)	$	(4,283,122)	$	2,509,597
Net income	—	—		—		—		396,697		396,697
Other comprehensive income	—	—		—		30,728		—		30,728
Repurchase of common stock - repurchase program	(1,203,439)	(12)		(65,343)		—		—		(65,355)
Issuance of shares from employee equity plans	2,430,224	24		28,265		—		—		28,289
Share-based compensation expense	—	—		62,970		—		—		62,970
Shares repurchased for tax withholdings on vesting of stock unit awards	(686,475)	(7)		(36,477)		—		—		(36,484)

Effect of adoption of new accounting standard	—	—		—		—		(2,206)		(2,206)
Balance at July 31, 2021	155,103,315	$	1,551	$	6,815,946	$	(4,630)	$	(3,888,631)	$	2,924,236

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) INTERIM FINANCIAL STATEMENTS

The interim financial statements included herein for Ciena Corporation and its wholly owned subsidiaries (“Ciena”) have been prepared by Ciena, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Ciena to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. The inputs into certain of Ciena’s judgments, assumptions, and estimates reflect, among other things, the information available to Ciena regarding the economic implications of the COVID-19 pandemic, and expectations as to its impact on Ciena’s business. Among other things, these estimates form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. To the extent that there are material differences between Ciena’s estimates and actual results, Ciena’s consolidated financial statements will be affected. In addition, because the duration and severity of COVID-19 pandemic are uncertain, certain of these estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. As events continue to evolve, Ciena’s estimates may change materially in future periods.

In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of the results of operations of Ciena for the interim periods covered and of the financial position of Ciena at the date of the interim balance sheets. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The Condensed Consolidated Balance Sheet as of October 30, 2021 was derived from audited financial statements, but does not include all disclosures required by GAAP. However, Ciena believes that the disclosures are adequate to understand the information presented herein. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with Ciena’s audited consolidated financial statements and the notes thereto included in Ciena’s annual report on Form 10-K for fiscal 2021 (the “2021 Annual Report”).

Ciena has a 52 or 53-week fiscal year, with quarters ending on the Saturday nearest to the last day of January, April, July and October, respectively, of each year. Fiscal 2022 and 2021 are 52-week fiscal years.

(2) SIGNIFICANT ACCOUNTING POLICIES

Except for the changes in certain policies described below, there have been no material changes to Ciena’s significant accounting policies, compared to the accounting policies described in Note 1 above, Ciena Corporation and Significant Accounting Policies and Estimates, in Notes to Consolidated Financial Statements in Item 8 of Part II of the 2021 Annual Report.

Newly Issued Accounting Standards - Effective

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”), Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. ASU 2019-12 was effective for Ciena beginning in the first quarter of fiscal 2022. Ciena adopted ASU 2019-12 beginning in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations.

In November 2021, the FASB issued ASU No. 2021-10 (“ASU 2021-10”), Government Assistance, to increase transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 was effective for annual periods beginning after December 15, 2021. Early adoption was permitted. Ciena adopted ASU 2021-10 in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations.

In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance on contract

modifications and hedging accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. In January 2021, the FASB issued ASU No. 2021-01, which refines the scope of Topic 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance and may be applied prospectively through December 31, 2022. Ciena adopted Topic 848 beginning in the first quarter of fiscal 2022 without any material impact on its financial position and results of operations.

Newly Issued Accounting Standards - Not Yet Effective

In October 2021, the FASB issued ASU No. 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination to address recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 on a prospective basis. Early adoption is permitted. Ciena is currently evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures.

(3)REVENUE

Disaggregation of Revenue

Ciena’s disaggregated revenue as presented below depicts the nature, amount, and timing of revenue and cash flows for similar groupings of Ciena’s various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies may differ across Ciena’s product lines, resulting in different economic risk profiles for each line.

The tables below set forth Ciena’s disaggregated revenue for the respective periods (in thousands):


	Quarter Ended July 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	563,837	$	—	$	—	$	—	$	563,837
Routing and Switching	100,741		—		—		—		100,741
Platform Software and Services	—		63,483		—		—		63,483
Blue Planet Automation Software and Services	—		—		17,342		—		17,342
Maintenance Support and Training	—		—		—		72,760		72,760
Installation and Deployment	—		—		—		38,704		38,704
Consulting and Network Design	—		—		—		11,114		11,114
Total revenue by product line	$	664,578	$	63,483	$	17,342	$	122,578	$	867,981

Timing of revenue recognition:
Products and services at a point in time	$	664,578	$	15,230	$	4,632	$	9,408	$	693,848
Services transferred over time	—		48,253		12,710		113,170		174,133
Total revenue by timing of revenue recognition	$	664,578	$	63,483	$	17,342	$	122,578	$	867,981


	Quarter Ended July 31, 2021
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	712,906	$	—	$	—	$	—	$	712,906
Routing and Switching	69,698		—		—		—		69,698
Platform Software and Services	—		56,945		—		—		56,945
Blue Planet Automation Software and Services	—		—		16,607		—		16,607
Maintenance Support and Training	—		—		—		74,006		74,006
Installation and Deployment	—		—		—		46,653		46,653
Consulting and Network Design	—		—		—		11,326		11,326
Total revenue by product line	$	782,604	$	56,945	$	16,607	$	131,985	$	988,141

Timing of revenue recognition:
Products and services at a point in time	$	782,604	$	17,928	$	4,558	$	6,508	$	811,598
Services transferred over time	—		39,017		12,049		125,477		176,543
Total revenue by timing of revenue recognition	$	782,604	$	56,945	$	16,607	$	131,985	$	988,141


	Nine Months Ended July 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	1,730,066	$	—	$	—	$	—	$	1,730,066
Routing and Switching	295,638		—		—		—		295,638
Platform Software and Services	—		205,557		—		—		205,557
Blue Planet Automation Software and Services	—		—		55,334		—		55,334
Maintenance Support and Training	—		—