UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 5, 2019
(Exact name of registrant as specified in its charter)
Commission File Number: 001-36250
(State or other jurisdiction of incorporation)
(Address of principal executive offices)
(IRS Employer Identification No.)
(Zip Code)
Registrant's telephone number, including area code: (410 ) 694-5700
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | |||
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
ITEM 2.02 – RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On September 5, 2019, Ciena Corporation ("Ciena") issued a press release announcing its financial results for its third fiscal quarter ended July 31, 2019. The text of the press release is furnished as Exhibit 99.1 to this Report. As discussed in this press release, Ciena will be hosting an investor call to discuss its results of operations for its third fiscal quarter ended July 31, 2019.
In conjunction with the issuance of this press release, Ciena posted to the quarterly results page of the Investors section of www.ciena.com an accompanying investor presentation. The investor presentation is furnished as Exhibit 99.2 to this Report.
The information in Exhibits 99.1 and 99.2, as well as Item 2.02 of this Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended. Investors are encouraged to review the “Investors” page of our website at www.ciena.com because, as with the other disclosure channels that we use, from time to time we may post material information exclusively on that site.
ITEM 9.01 – FINANCIAL STATEMENTS AND EXHIBITS
(d) | The following exhibits are being filed herewith: | |||
Exhibit Number | Description of Document | |||
Exhibit 99.1 | ||||
Exhibit 99.2 | ||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
Ciena Corporation | ||
Date: September 5, 2019 | By: | /S/ David M. Rothenstein |
David M. Rothenstein | ||
Senior Vice President, General Counsel and Secretary | ||
FOR IMMEDIATE RELEASE
Ciena Reports Fiscal Third Quarter 2019 Financial Results
HANOVER, Md. - September 5, 2019 - Ciena® Corporation (NYSE: CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal third quarter ended July 31, 2019.
• | Q3 Revenue: $960.6 million, increasing 17.3% year over year |
• | Q3 Net Income per Share: $0.55 GAAP; $0.71 adjusted (non-GAAP) |
• | Share Repurchases: Repurchased approximately 1.1 million shares of common stock for an aggregate price of $45.4 million during the quarter |
"We delivered another quarter of outstanding financial results as we benefit from our strong competitive position within the industry and continue to gain market share," said Gary Smith, President and CEO, Ciena. "Looking ahead, fiscal 2019 will be an extraordinary year for Ciena, including substantial revenue growth and increased profitability."
For the fiscal third quarter 2019, Ciena reported revenue of $960.6 million as compared to $818.8 million for the fiscal third quarter 2018.
Ciena's GAAP net income for the fiscal third quarter 2019 was $86.7 million, or $0.55 per diluted common share, which compares to a GAAP net income of $50.8 million, or $0.34 per diluted common share, for the fiscal third quarter 2018.
Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2019 was $112.3 million, or $0.71 per diluted common share, which compares to an adjusted (non-GAAP) net income of $74.3 million, or $0.48 per diluted common share, for the fiscal third quarter 2018.
Fiscal Third Quarter 2019 Performance Summary
The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to the prior year. Appendices A and B set forth reconciliations between the GAAP and adjusted (non-GAAP) measures contained in this release.
GAAP Results | |||||||||||
Q3 | Q3 | ||||||||||
FY 2019 | FY 2018 | Y-T-Y* | |||||||||
Revenue | $ | 960.6 | $ | 818.8 | 17.3 | % | |||||
Gross margin | 44.2 | % | 42.9 | % | 1.3 | % | |||||
Operating expense | $ | 299.1 | $ | 266.3 | 12.3 | % | |||||
Operating margin | 13.0 | % | 10.4 | % | 2.6 | % | |||||
Non-GAAP Results | |||||||||||
Q3 | Q3 | ||||||||||
FY 2019 | FY 2018 | Y-T-Y* | |||||||||
Revenue | $ | 960.6 | $ | 818.8 | 17.3 | % | |||||
Adj. gross margin | 44.7 | % | 43.4 | % | 1.3 | % | |||||
Adj. operating expense | $ | 273.2 | $ | 241.0 | 13.4 | % | |||||
Adj. operating margin | 16.2 | % | 14.0 | % | 2.2 | % | |||||
* Denotes % change, or in the case of margin, absolute change
Revenue by Segment | ||||||||||||
Q3 FY 2019 | Q3 FY 2018 | |||||||||||
Revenue | %** | Revenue | %** | |||||||||
Networking Platforms | ||||||||||||
Converged Packet Optical | $ | 724.3 | 75.4 | $ | 592.8 | 72.4 | ||||||
Packet Networking | 71.8 | 7.5 | 84.6 | 10.4 | ||||||||
Total Networking Platforms | 796.1 | 82.9 | 677.4 | 82.8 | ||||||||
Software and Software-Related Services | ||||||||||||
Platform Software and Services | 37.3 | 3.9 | 36.8 | 4.5 | ||||||||
Blue Planet Automation Software and Services | 10.5 | 1.1 | 4.4 | 0.5 | ||||||||
Total Software and Software-Related Services | 47.8 | 5.0 | 41.2 | 5.0 | ||||||||
Global Services | ||||||||||||
Maintenance Support and Training | 65.9 | 6.9 | 60.9 | 7.4 | ||||||||
Installation and Deployment | 39.8 | 4.1 | 31.3 | 3.8 | ||||||||
Consulting and Network Design | 11.0 | 1.1 | 8.0 | 1.0 | ||||||||
Total Global Services | 116.7 | 12.1 | 100.2 | 12.2 | ||||||||
Total | $ | 960.6 | 100.0 | $ | 818.8 | 100.0 | ||||||
Additional Performance Metrics for Fiscal Third Quarter 2019
Revenue by Geographic Region | ||||||||||||
Q3 FY 2019 | Q3 FY 2018 | |||||||||||
Revenue | % ** | Revenue | % ** | |||||||||
North America | $ | 617.0 | 64.2 | $ | 497.0 | 60.7 | ||||||
Europe, Middle East and Africa | 169.5 | 17.6 | 122.2 | 14.9 | ||||||||
Caribbean and Latin America | 39.3 | 4.1 | 27.5 | 3.4 | ||||||||
Asia Pacific | 134.8 | 14.1 | 172.1 | 21.0 | ||||||||
Total | $ | 960.6 | 100.0 | $ | 818.8 | 100.0 | ||||||
** Denotes % of total revenue
• | Two 10%-plus customers represented a total of 25% of revenue |
• | Cash and investments totaled $842.9 million |
• | Cash flow from operations totaled $83.1 million |
• | Average days' sales outstanding (DSOs) were 82 |
• | Accounts receivable balance was $798.9 million |
• | Unbilled contract asset balance was $74.3 million |
• | Inventories totaled $356.8 million, including: |
◦ | Raw materials: $102.2 million |
◦ | Work in process: $15.5 million |
◦ | Finished goods: $193.5 million |
◦ | Deferred cost of sales: $93.4 million |
◦ | Reserve for excess and obsolescence: $(47.8) million |
• | Product inventory turns were 5.1 |
• | Headcount totaled 6,368 |
Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Third Quarter 2019 Results
Today, Thursday, September 5, 2019, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website an accompanying investor presentation for its unaudited fiscal third quarter 2019 results.
Ciena's management will also host a discussion today with investors and financial analysts that will include the Company's outlook. The live audio web broadcast beginning at 8:30 a.m. Eastern will be accessible via www.ciena.com. An archived replay of the live broadcast will be available shortly following its conclusion on the Investor Relations page of Ciena's website.
Notes to Investors
Forward-Looking Statements. You are encouraged to review the Investors section of our website, where we routinely post press releases, SEC filings, recent news, financial results, supplemental financial information, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or
similar words. Forward-looking statements in this release include: “We delivered another quarter of outstanding financial results as we benefit from our strong competitive position within the industry and continue to gain market share. Looking ahead, fiscal 2019 will be an extraordinary year for Ciena, including substantial revenue growth and increased profitability.”
Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due to a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by customers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; the impact of the Tax Cuts and Jobs Act; changes in tax or trade regulations, including the imposition of tariffs and duties; changes in estimates of prospective income tax rates and any adjustments to Ciena's provisional estimates whether related to further guidance, analysis or otherwise; and the other risk factors disclosed in Ciena's Quarterly Report on Form 10-Q filed with the SEC on June 12, 2019 and its Annual Report on Form 10-K filed with the SEC on December 21, 2018. Ciena assumes no obligation to update any forward-looking information included in this press release.
Non-GAAP Presentation of Quarterly and Annual Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income from operations, earnings before interest, tax, depreciation and amortization (EBITDA), Adjusted EBITDA, and measures of net income and net income per share. In evaluating the operating performance of Ciena's business, management excludes certain charges and credits that are required by GAAP. These items share one or more of the following characteristics: they are unusual and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of Ciena's control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena's GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena's non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena's results of operations in conjunction with our corresponding GAAP results. To the extent not previously disclosed in a prior Ciena financial results press release, Appendices A and B to this press release set forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.
About Ciena. Ciena (NYSE: CIEN) is a networking systems, services and software company. We provide solutions that help our clients create the Adaptive Network™ in response to the constantly changing demands of their users. By delivering best-in-class networking technology through high-touch consultative relationships, we build the world’s most agile networks with automation, openness and scale. For updates on Ciena, follow us on Twitter @Ciena, LinkedIn, the Ciena Insights blog, or visit www.ciena.com.
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended July 31, | Nine Months Ended July 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue: | |||||||||||||||
Products | $ | 810,588 | $ | 691,758 | $ | 2,163,808 | $ | 1,821,593 | |||||||
Services | 150,018 | 127,059 | 440,336 | 373,337 | |||||||||||
Total revenue | 960,606 | 818,817 | 2,604,144 | 2,194,930 | |||||||||||
Cost of goods sold: | |||||||||||||||
Products | 454,921 | 399,886 | 1,246,413 | 1,085,574 | |||||||||||
Services | 81,333 | 67,388 | 235,361 | 192,741 | |||||||||||
Total cost of goods sold | 536,254 | 467,274 | 1,481,774 | 1,278,315 | |||||||||||
Gross profit | 424,352 | 351,543 | 1,122,370 | 916,615 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 139,880 | 121,133 | 406,482 | 356,581 | |||||||||||
Selling and marketing | 104,230 | 95,395 | 305,845 | 281,269 | |||||||||||
General and administrative | 42,695 | 38,212 | 124,092 | 115,594 | |||||||||||
Amortization of intangible assets | 5,529 | 3,837 | 16,586 | 11,083 | |||||||||||
Significant asset impairments and restructuring costs | 5,355 | 6,359 | 11,696 | 16,679 | |||||||||||
Acquisition and integration costs | 1,362 | 1,333 | 4,105 | 1,333 | |||||||||||
Total operating expenses | 299,051 | 266,269 | 868,806 | 782,539 | |||||||||||
Income from operations | 125,301 | 85,274 | 253,564 | 134,076 | |||||||||||
Interest and other income (loss), net | 1,050 | (1,543 | ) | 5,059 | 1,328 | ||||||||||
Interest expense | (9,404 | ) | (13,611 | ) | (28,316 | ) | (40,376 | ) | |||||||
Income before income taxes | 116,947 | 70,120 | 230,307 | 95,028 | |||||||||||
Provision for income taxes | 30,198 | 19,280 | 57,204 | 503,695 | |||||||||||
Net income (loss) | $ | 86,749 | $ | 50,840 | $ | 173,103 | $ | (408,667 | ) | ||||||
Net Income (loss) per Common Share | |||||||||||||||
Basic net income (loss) per common share | $ | 0.56 | $ | 0.35 | $ | 1.11 | $ | (2.84 | ) | ||||||
Diluted net income (loss) per potential common share 1 | $ | 0.55 | $ | 0.34 | $ | 1.10 | $ | (2.84 | ) | ||||||
Weighted average basic common shares outstanding | 155,488 | 143,400 | 156,013 | 143,766 | |||||||||||
Weighted average dilutive potential common shares outstanding 2 | 157,455 | 159,998 | 157,949 | 143,766 | |||||||||||
1. The calculation of GAAP diluted net income per common share for the third quarter of fiscal 2018 requires adding back interest expense of approximately $0.5 million associated with Ciena's "Original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018 and approximately $2.6 million associated with Ciena's 4.0% convertible senior notes, which were converted at Ciena's election during the fourth quarter of fiscal 2018, 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 2019 includes 2.0 million shares underlying certain stock options and stock unit awards.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2019 includes 1.9 million shares underlying certain stock options and stock unit awards.
Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2018 includes 1.3 million shares underlying certain stock options and stock unit awards, 3.0 million shares underlying Ciena's "New" 3.75% senior convertible notes, 3.0 million shares underlying Ciena's "Original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes.
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
July 31, 2019 | October 31, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 723,229 | $ | 745,423 | |||
Short-term investments | 119,670 | 148,981 | |||||
Accounts receivable, net | 798,884 | 786,502 | |||||
Inventories | 356,818 | 262,751 | |||||
Prepaid expenses and other | 292,631 | 198,945 | |||||
Total current assets | 2,291,232 | 2,142,602 | |||||
Long-term investments | — | 58,970 | |||||
Equipment, building, furniture and fixtures, net | 280,630 | 292,067 | |||||
Goodwill | 297,884 | 297,968 | |||||
Other intangible assets, net | 121,270 | 148,225 | |||||
Deferred tax asset, net | 700,206 | 745,039 | |||||
Other long-term assets | 84,486 | 71,652 | |||||
Total assets | $ | 3,775,708 | $ | 3,756,523 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 356,716 | $ | 340,582 | |||
Accrued liabilities and other short-term obligations | 325,137 | 340,075 | |||||
Deferred revenue | 102,182 | 111,134 | |||||
Current portion of long-term debt | 7,000 | 7,000 | |||||
Debt conversion liability | — | 164,212 | |||||
Total current liabilities | 791,035 | 963,003 | |||||
Long-term deferred revenue | 42,848 | 58,323 | |||||
Other long-term obligations | 140,523 | 119,413 | |||||
Long-term debt, net | 681,918 | 686,450 | |||||
Total liabilities | $ | 1,656,324 | $ | 1,827,189 | |||
Stockholders’ equity: | |||||||
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding | — | — | |||||
Common stock – par value $0.01; 290,000,000 shares authorized; 155,113,012 and 154,318,531 shares issued and outstanding | 1,551 | 1,543 | |||||
Additional paid-in capital | 6,866,341 | 6,881,223 | |||||
Accumulated other comprehensive loss | (23,764 | ) | (5,780 | ) | |||
Accumulated deficit | (4,724,744 | ) | (4,947,652 | ) | |||
Total stockholders’ equity | 2,119,384 | 1,929,334 | |||||
Total liabilities and stockholders’ equity | $ | 3,775,708 | $ | 3,756,523 | |||
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended July 31, | |||||||
2019 | 2018 | ||||||
Cash flows provided by operating activities: | |||||||
Net income (loss) | $ | 173,103 | $ | (408,667 | ) | ||
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 | 65,071 | 63,104 | |||||
Share-based compensation costs | 44,446 | 38,896 | |||||
Amortization of intangible assets | 26,610 | 18,196 | |||||
Deferred taxes | 35,949 | 491,863 | |||||
Provision for inventory excess and obsolescence | 18,833 | 19,942 | |||||
Provision for warranty | 15,933 | 15,715 | |||||
Other | 743 | 18,164 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (2,517 | ) | (112,696 | ) | |||
Inventories | (115,427 | ) | 17,751 | ||||
Prepaid expenses and other | (85,039 | ) | (11,163 | ) | |||
Accounts payable, accruals and other obligations | (9,005 | ) | 14,840 | ||||
Deferred revenue | 4,427 | (4,710 | ) | ||||
Net cash provided by operating activities | 173,127 | 161,235 | |||||
Cash flows provided by (used in) investing activities: | |||||||
Payments for equipment, furniture, fixtures and intellectual property | (49,063 | ) | (50,386 | ) | |||
Purchase of available for sale securities | (127,601 | ) | (217,715 | ) | |||
Proceeds from maturities of available for sale securities | 120,000 | 290,000 | |||||
Proceeds from sales of available for sale securities | 98,263 | — | |||||
Settlement of foreign currency forward contracts, net | (3,155 | ) | 4,759 | ||||
Acquisition of business, net of cash acquired | — | (40,412 | ) | ||||
Purchase of equity investment | (2,667 | ) | (1,433 | ) | |||
Net cash provided by (used in) investing activities | 35,777 | (15,187 | ) | ||||
Cash flows used in financing activities: | |||||||
Payment of long term debt | (5,250 | ) | (3,000 | ) | |||
Payment of capital lease obligations | (2,599 | ) | (2,811 | ) | |||
Payment for debt conversion liability | (111,268 | ) | — | ||||
Shares repurchased for tax withholdings on vesting of restricted stock units | (23,234 | ) | — | ||||
Repurchases of common stock - repurchase program | (110,484 | ) | (73,512 | ) | |||
Proceeds from issuance of common stock | 22,895 | 22,735 | |||||
Net cash used in financing activities | (229,940 | ) | (56,588 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 392 | (3,759 | ) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (20,644 | ) | 85,701 | ||||
Cash, cash equivalents and restricted cash at beginning of period | 745,434 | 640,513 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 724,790 | $ | 726,214 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 29,921 | $ | 31,561 | |||
Cash paid during the period for income taxes, net | $ | 21,573 | $ | 20,099 | |||
Non-cash investing activities | |||||||
Purchase of equipment in accounts payable | $ | 4,328 | $ | 5,677 | |||
Non-cash financing activities | |||||||
Repurchase of common stock in accrued liabilities from repurchase program | $ | 1,441 | $ | 1,275 | |||
Conversion of debt conversion liability into 1,585,140 shares of common stock | $ | 52,944 | $ | — | |||
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measures (unaudited) | ||||||||
Quarter Ended July 31, | ||||||||
2019 | 2018 | |||||||
Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP gross profit | $ | 424,352 | $ | 351,543 | ||||
Share-based compensation-products | 781 | 783 | ||||||
Share-based compensation-services | 783 | 618 | ||||||
Amortization of intangible assets | 3,303 | 2,534 | ||||||
Total adjustments related to gross profit | 4,867 | 3,935 | ||||||
Adjusted (non-GAAP) gross profit | $ | 429,219 | $ | 355,478 | ||||
Adjusted (non-GAAP) gross profit percentage | 44.7 | % | 43.4 | % | ||||
Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP operating expense | $ | 299,051 | $ | 266,269 | ||||
Share-based compensation-research and development | 3,560 | 3,082 | ||||||
Share-based compensation-sales and marketing | 4,192 | 3,417 | ||||||
Share-based compensation-general and administrative | 5,813 | 4,538 | ||||||
Amortization of intangible assets | 5,529 | 3,837 | ||||||
Significant asset impairments and restructuring costs | 5,355 | 6,359 | ||||||
Acquisition and integration costs | 1,362 | 1,333 | ||||||
Legal settlement | — | 2,753 | ||||||
Total adjustments related to operating expense | 25,811 | 25,319 | ||||||
Adjusted (non-GAAP) operating expense | $ | 273,240 | $ | 240,950 | ||||
Income from Operations Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP income from operations | $ | 125,301 | $ | 85,274 | ||||
Total adjustments related to gross profit | 4,867 | 3,935 | ||||||
Total adjustments related to operating expense | 25,811 | 25,319 | ||||||
Total adjustments related to income from operations | 30,678 | 29,254 | ||||||
Adjusted (non-GAAP) income from operations | $ | 155,979 | $ | 114,528 | ||||
Adjusted (non-GAAP) operating margin percentage | 16.2 | % | 14.0 | % | ||||
Net Income Reconciliation (GAAP/non-GAAP) | ||||||||
GAAP net income | $ | 86,749 | $ | 50,840 | ||||
Exclude GAAP provision for income taxes | 30,198 | 19,280 | ||||||
Income before income taxes | 116,947 | 70,120 | ||||||
Total adjustments related to income from operations | 30,678 | 29,254 | ||||||
Non-cash interest expense | — | 793 | ||||||
Adjusted income before income taxes | 147,625 | 100,167 | ||||||
Non-GAAP tax provision on adjusted income before income taxes | 35,282 | 25,913 | ||||||
Adjusted (non-GAAP) net income | $ | 112,343 | $ | 74,254 | ||||
Weighted average basic common shares outstanding | 155,488 | 143,400 | ||||||
Weighted average dilutive potential common shares outstanding 1 | 157,455 | 159,998 | ||||||
Net Income per Common Share | ||||||||
GAAP diluted net income per common share | $ | 0.55 | $ | 0.34 | ||||
Adjusted (non-GAAP) diluted net income per common share2 | $ | 0.71 | $ | 0.48 | ||||
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 2019 includes 2.0 million shares underlying certain stock options and stock unit awards. |
Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2018 includes 1.3 million shares underlying certain stock options and stock unit awards, 3.0 million shares underlying Ciena's "New" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, 3.0 million shares underlying Ciena's "Original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, which were converted at Ciena's election during the fourth quarter of fiscal 2018.
2. | The calculation of Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2018 requires adding back interest expense of approximately $0.5 million associated with Ciena's "Original" 3.75% convertible senior notes and $2.1 million associated with Ciena's 4.0% convertible senior notes 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 July 31, | ||||||||
2019 | 2018 | |||||||
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) | ||||||||
Net income (GAAP) | $ | 86,749 | $ | 50,840 | ||||
Add: Interest expense | 9,404 | 13,611 | ||||||
Less: Interest and other income (loss), net | 1,050 | (1,543 | ) | |||||
Add: Provision for income taxes | 30,198 | 19,280 | ||||||
Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements | 22,076 | 21,704 | ||||||
Add: Amortization of intangible assets | 8,832 | 6,371 | ||||||
EBITDA | $ | 156,209 | $ | 113,349 | ||||
Add: Shared-based compensation cost | 15,084 | 12,337 | ||||||
Add: Significant asset impairments and restructuring costs | 5,355 | 6,359 | ||||||
Add: Acquisition and integration costs | 1,362 | 1,333 | ||||||
Add: Legal settlement | — | 2,753 | ||||||
Adjusted EBITDA | $ | 178,010 | $ | 136,131 | ||||
* * *
The adjusted (non-GAAP) measures above and their reconciliation to Ciena's GAAP results for the periods presented reflect adjustments relating to the following items:
• | Share-based compensation - a non-cash expense incurred in accordance with share-based compensation accounting guidance. |
• | Amortization of intangible assets - a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life. |
• | Significant asset impairments and restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities. |
• | Acquisition and integration costs - consist of financial, legal and accounting advisors' costs and severance and other employment-related costs related to Ciena's acquisition of Packet Design and DonRiver, including costs associated with a three-year earn-out arrangement related to the DonRiver acquisition. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities. |
• | Legal settlement - costs incurred as a result of a settlement, during the third quarter of fiscal 2018, of a commercial dispute with a former vendor. |
• | Non-cash interest expense - a non-cash debt discount expense amortized as interest expense during the term of Ciena's 4.0% senior convertible notes, which were converted during the fourth quarter of 2018, relating to the required separate accounting of the equity component of these convertible notes. |
• | Non-GAAP tax provision - consists of current and deferred income tax expense commensurate with the level of adjusted income before income taxes and utilizes a current, blended U.S. and foreign statutory annual tax rate of 23.9% for the third fiscal quarter of 2019, and 25.87% for the third fiscal quarter of 2018. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy. |
Ciena Corporation Q3 fiscal 2019 Investor Presentation Quarterly Period ended July 31, 2019 September 5, 2019 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary.
Forward-looking statements and non-GAAP measures Information in this presentation and related comments of presenters contain a number of forward-looking statements. 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 Ciena’s long-term financial targets, prospective financial results, return of capital plans, business strategies, expectations about its addressable markets and market share, and business outlook for future periods, as well as statements regarding Ciena’s expectations, beliefs, intentions or strategies regarding the future. Often, these can be identified by forward-looking words such as “target” “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “plan,” “predict,” “potential,” “project, “continue,” and “would” or similar words. 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; our ability to execute our business and growth strategies; changes in network spending or network strategy by our customers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; the impact of the Tax Cuts and Jobs Act; changes in tax or trade regulations, including the imposition of tariffs and duties; and the other risk factors disclosed in Ciena’s periodic reports filed with the Securities and Exchange Commission (SEC) including Ciena’s Quarterly Report on Form 10-Q to be filed with the SEC and Ciena’s Annual Report on Form 10-K filed with the SEC on December 21, 2018. All information, statements, and projections in this presentation and the related earnings call speak only as of the date of this presentation and related earnings call. Ciena assumes no obligation to update any forward-looking or other information included in this presentation or related earnings calls, whether as a result of new information, future events or otherwise. In addition, this presentation includes historical, and may include prospective, non-GAAP measures of Ciena’s gross margin, operating expense, operating profit, EBITDA, net income, and net income per share. These measures are not intended to be a substitute for financial information presented in accordance with GAAP. A reconciliation of non-GAAP measures used in this presentation to Ciena’s GAAP results for the relevant period can be found in the Appendix to this presentation. Additional information can also be found in our press release filed this morning and in our reports on Form 10-Q filed with the Securities and Exchange Commission. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 2
Achieving balanced growth Driving the pace of innovation Delivering shareholder value • Non-telco represented 41% of total • TTM Adjusted R&D* investment was revenue $527.0 million • Direct web-scale contributed over 26% • WaveLogic Ai has 128 total customers of total revenue with 16 new wins in Q3 • EMEA revenue up 39% YoY • Waveserver has 142 customers with 8 • NA revenue up 24% YoY, with telco new wins in Q3 and web-scale growth * A reconciliation of these non-GAAP measures to our GAAP results is included in the appendix to this presentation. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 3
Q3 fiscal 2019 financial highlights Adjusted Operating Margin* * A reconciliation of these non-GAAP measures to our GAAP results is included in the appendix to this presentation. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 4
Q3 fiscal 2019 comparisons (year-over-year) Revenue Adj. Gross Margin* Adj. Operating Margin* (in millions) Q3'18 Q3'19 Q3'18 Q3'19 Q3'18 Q3'19 44.7% 16.2% $960.6 43.4% 14.0% $818.8 Adj. EBITDA* Adj. EPS* (in millions) Q3'18 Q3'19 Q3'18 Q3'19 $0.71 $178.0 $0.48 $136.1 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. * A reconciliation of these non-GAAP measures to our GAAP results is included in the appendix to this presentation. 5
Revenue by segment (Amounts in millions) Q3 FY 2019 Q3 FY 2018 Revenue %** Revenue %** $1,000.0 44.7% 50.0% 44.7% Networking Platforms 43.4% 43.9% $900.0 42.2% 45.0% Converged Packet Optical $724.3 75.4 $592.8 72.4 $800.0 40.0% Packet Networking 71.8 7.5 84.6 10.4 $700.0 35.0% Total Networking Platforms 796.1 82.9 677.4 82.8 $600.0 30.0% Software & Software-Related Services $500.0 25.0% Platform Software and Services 37.3 3.9 36.8 4.5 Blue Planet Automation Software and $400.0 20.0% 16.2% Services 10.5 1.1 4.4 0.5 14.0% 13.9% $300.0 12.7% 15.0% Total Software & Software- 9.6% $200.0 10.0% Related Services 47.8 5.0 41.2 5.0 Global Services $100.0 5.0% Maintenance Support and Training $0.0 0.0% 65.9 6.9 60.9 7.4 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Installation and Deployment 39.8 4.1 31.3 3.8 Networking Platforms Software & Software-Related Services Consulting and Network Design 11.0 1.1 8.0 1.0 Global Services Adj. Gross Margin* * Total Global Services Adj. Operating Margin 116.7 12.1 100.2 12.2 Total $960.6 100.0% $818.8 100.0% * A reconciliation of these non-GAAP measures to our GAAP results is included in the appendix to this presentation. ** Denotes % of total revenue Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 6
Continued strength derived from non-telco revenue* Q3 FY 2019 Direct Webscale Cable Gov't, R&E & Enterprise 45% 40% 7% 35% 7.2% Direct Webscale 11% 8% 30% 8% 8% 7% 25% Cable 6% 7% 6.7% 9% 7% 20% 26.5% Gov't, R&E, Enterprise 15% 27% 10% 21% 21% 17% 19% 5% 0% Q3 FY2018 Q4 FY2018 Q1 FY2019 Q2 FY2019 Q3 FY2019 *represents 41% of total revenue Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 7
Revenue by geographic region Q3 FY 2019 North America EMEA CALA APAC $1,000.0 $900.0 14% $800.0 19% 16% 4% North America 21% 4.1% 14.1% $700.0 6% 17% 5% 18% 3% 4% 13% Europe, Middle East $600.0 14% and Africa 15% 17% 17.6% Caribbean and Latin $500.0 64.2% America (Inmillions) $400.0 Asia Pacific $300.0 64% 62% 67% 61% 62% $200.0 $100.0 $- Q3 FY2018 Q4 FY2018 Q1 FY2019 Q2 FY2019 Q3 FY2019 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 8
Q3 fiscal 2019 balance sheet and operating metrics DSO Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 9
Returning value to shareholders through strong capital allocation priorities Adj. R&D* R&D % Rev $50.0 $500.0 17% $45.0 $40.0 $480.0 16% $35.0 $460.0 15% $30.0 $440.0 14% $25.0 $420.0 13% $20.0 $15.0 $400.0 12% $10.0 $380.0 11% $5.0 $360.0 10% $0.0 2015 2016 2017 2018 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 * A reconciliation of these non-GAAP measures to our GAAP results is included in the appendix to this presentation. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 10
Delivering consistent and differentiated financial performance Normalized Revenue Normalized Adjusted OM Ciena Industry Avg1 Ciena Industry Avg1 1.60 3.00 2.50 1.40 2.00 1.20 1.50 1.00 1.00 0.50 0.80 0.00 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 *Industry Average: ACIA, ADTN, ADVA, CSCO, INFN¹, JNPR and NOKIA IP Networks segment 1. INFN Q4 2018 revenue and adjusted OM exclude Coriant; Coriant adjusted OM is based on the assumption that Coriant had flat GM% and fixed OPEX in 2018 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 11
Delivering profitability and total shareholder return Adjusted EPS 1YR Stock Return* 22.3% CAGR $1.39 60.00% $1.14 40.00% $0.93 20.00% 0.00% -20.00% -40.00% -60.00% FY2016 FY2017 FY2018 Ciena Acacia Cisco Nokia ADVA Juniper ADTRAN Infinera *1 year represents 8/22/18-8/22/19 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 12
Business outlook and long-term targets Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 13
Our extraordinary fiscal 2019 performance is driven by a combination of strategic execution and favorable dynamics Continued strategic execution • Favorable competitive dynamics • Customer trust in Ciena and strong relationships • Subscale vendors struggle financially and with innovation • Web-scale providers pursue quality products and a strong • Larger competitors face roadmap competing investment priorities • Service providers seek strong, • Web-scale spending has outpaced the long-term partners overall market • Tier 1 service provider wins at a higher rate • Diversification as a result of broad based geographies, market verticals and customers All the above is resulting in intensified share gains Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 14
Long-term financial targets1 Execution of our strategy will drive top-line growth, profitability and cash generation 1 Projections or outlook with respect to future operating results are only as of December 13, 2018, the date presented on the related earnings call. Actual results may differ materially from these forward looking statements. Ciena assumes no obligation to update this information, whether as a result of new information, future events or otherwise. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 15
Long-term financial targets* Optical Systems Attached Services Packet Networking Blue Planet *Projections or outlook with respect to future operating results are only as of December 13, 2018, the date presented on the related earnings call. Actual results may differ materially from these forward looking statements. Ciena assumes no obligation to update this information, whether as a result of new information, future events or otherwise. 1Projection indicates annual target for Ciena’s Blue Planet Automation software and services business in fiscal 2021 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 16
Q3 fiscal 2019 appendix Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 17
Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 GAAP gross profit $424,352 $374,677 $323,341 $398,075 $351,543 Share-based compensation-products 781 702 637 705 783 Share-based compensation-services 783 907 770 651 618 Amortization of intangible assets 3,303 3,303 3,418 2,957 2,534 Total adjustments related to gross profit 4,867 4,912 4,825 4,313 3,935 Adjusted (non-GAAP) gross profit $429,219 $379,589 $328,166 $402,388 $355,478 Adjusted (non-GAAP) gross margin 44.7% 43.9% 42.2% 44.7% 43.4% Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 18
Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 GAAP operating expense $299,051 $294,357 $275,398 $302,205 $266,269 Share-based compensation-research and development 3,560 4,083 3,391 3,385 3,082 Share-based compensation-sales and marketing 4,192 4,346 3,785 3,741 3,417 Share-based compensation-general and administrative 5,813 5,491 5,112 5,588 4,538 Amortization of intangible assets 5,529 5,529 5,528 4,654 3,837 Significant asset impairments and restructuring costs 5,355 4,068 2,273 1,460 6,359 Acquisition and integration costs, excluding share-based compensation 1,362 1,135 1,608 3,778 1,333 Legal settlement - - 137 1,929 2,753 Total adjustments related to operating expense $25,811 $24,652 $21,834 $24,535 $25,319 Adjusted (non-GAAP) operating expense $273,240 $269,705 $253,564 $277,670 $240,950 Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 GAAP income from operations $125,301 $80,320 $47,943 $95,870 $85,274 Total adjustments related to gross profit 4,867 4,912 4,825 4,313 3,935 Total adjustments related to operating expense 25,811 24,652 21,834 24,535 25,319 Total adjustments related to income from operations 30,678 29,564 26,659 28,848 29,254 Adjusted (non-GAAP) income from operations $155,979 $109,884 $74,602 $124,718 $114,528 Adjusted (non-GAAP) operating margin 16.2% 12.7% 9.6% 13.9% 14.0% Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 19
Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 GAAP net income $86,749 $52,738 $33,616 $63,977 $50,840 Exclude GAAP provision (benefit) for income taxes 30,198 17,867 9,139 (10,224) 19,280 Income before income taxes 116,947 70,605 42,755 53,753 70,120 Total adjustments related to income from operations 30,678 29,564 26,659 28,848 29,254 Loss on extinguishment and modification of debt - - - 13,887 - Non-cash interest expense - - - 727 793 Change in fair value of debt conversion liability - - - 12,070 - Adjusted income before income taxes 147,625 100,169 69,414 109,285 100,167 Non-GAAP tax provision on adjusted income before income taxes 35,282 23,940 16,590 28,272 25,913 Adjusted (non-GAAP) net income $112,343 $76,229 $52,824 $81,013 $74,254 Weighted average basic common shares outstanding 155,488 156,170 156,314 143,659 143,400 Weighted average dilutive potential common shares outstanding1 157,455 158,289 158,174 157,745 159,998 Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 GAAP diluted net income per common share $ 0.55 $ 0.33 $ 0.21 $ 0.34 $ 0.34 Adjusted (Non-GAAP) diluted net income per common share $ 0.71 $ 0.48 $ 0.33 $ 0.53 $ 0.48 • 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 2019 includes 2.0 million shares underlying certain stock options and stock unit awards. Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 20
Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) Q3 FY 2019 Q2 FY 2019 Q1 FY 2019 Q4 FY 2018 Q3 FY 2018 Net income (GAAP) $ 86,749 $ 52,738 $ 33,616 $ 63,977 $ 50,840 Add: Interest expense 9,404 9,471 9,441 14,873 13,611 Less: Interest and other income (loss), net 1,050 (244) 4,253 (13,357) (1,543) Add: Loss on extinguishment and modification of debt - - - (13,887) - Add: Provision (benefit) for income taxes 30,198 17,867 9,139 (10,224) 19,280 Add: Depreciation of equipment, building, furniture and fixtures, and amortization 22,076 21,482 21,513 21,110 21,704 of leasehold improvements Add: Amortization of intangible assets 8,832 8,832 8,947 7,611 6,371 EBITDA $ 156,209 $ 110,634 $ 78,403 $ 124,591 $ 113,349 Add: Share-based compensation cost 15,084 15,607 13,755 14,076 12,337 Add: Significant asset impairments and restructuring costs 5,355 4,068 2,273 1,460 6,359 Add: Acquisition and integration costs 1,362 1,135 1,608 3,778 1,333 Add: Legal settlement - - 137 1,929 2,753 Adjusted EBITDA $ 178,010 $ 131,444 $ 96,176 $ 145,834 $ 136,131 Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary. 21
Thank You Copyright © Ciena Corporation 2019. All rights reserved. Confidential & Proprietary.