Press release

Ciena Reports Fiscal Second Quarter 2019 Financial Results

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Ciena® Corporation
(NYSE: CIEN), a networking systems, services and software company, today
announced unaudited financial results for its fiscal second quarter
ended April 30, 2019.

  • Q2 Revenue: $865.0 million, increasing 18.5% year over year
  • Q2 Net Income per Share: $0.33 GAAP; $0.48 adjusted (non-GAAP)
  • Share Repurchases: Repurchased approximately 1.2 million shares
    of common stock for an aggregate price of $45.4 million during the
    quarter

“Today we reported very strong quarterly performance, including
continued market share gains, driven by our technology leadership and
diversified customer base in high growth markets,” said Gary Smith,
President and CEO, Ciena. “We are entering the second half with strong
visibility and increased confidence for the full fiscal year supported
by favorable industry dynamics and growing competitive advantage.”

For the fiscal second quarter 2019, Ciena reported revenue of $865.0
million as compared to $730.0 million for the fiscal second quarter 2018.

Ciena’s GAAP net income for the fiscal second quarter 2019 was $52.7
million, or $0.33 per diluted common share, which compares to a GAAP net
income of $13.9 million, or $0.09 per diluted common share, for the
fiscal second quarter 2018.

Ciena’s adjusted (non-GAAP) net income for the fiscal second quarter
2019 was $76.2 million, or $0.48 per diluted common share, which
compares to an adjusted (non-GAAP) net income of $33.8 million, or $0.23
per diluted common share, for the fiscal second quarter 2018.

Fiscal Second Quarter 2019 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
Q2     Q2      
FY 2019 FY 2018 Y-T-Y*
Revenue $ 865.0 $ 730.0 18.5 %
Gross margin 43.3 % 40.2 % 3.1 %
Operating expense $ 294.4 $ 261.2 12.7 %
Operating margin 9.3 % 4.4 % 4.9 %
 
   
Non-GAAP Results
Q2     Q2      
FY 2019 FY 2018 Y-T-Y*
Revenue $ 865.0 $ 730.0 18.5 %
Adj. gross margin 43.9 % 40.7 % 3.2 %
Adj. operating expense $ 269.7 $ 240.6 12.1 %
Adj. operating margin 12.7 % 7.7 % 5.0 %
 

*

 

Denotes % change, or in the case of margin, absolute change

 
   
Revenue by Segment
Q2 FY 2019     Q2 FY 2018
Revenue     %** Revenue     %**
Networking Platforms
Converged Packet Optical $ 623.9 72.1 $ 527.9 72.4
Packet Networking 73.1   8.5   63.8   8.7
Total Networking Platforms 697.0 80.6 591.7 81.1
 
Software and Software-Related Services
Platform Software and Services 35.2 4.0 36.4 5.0
Blue Planet Automation Software and Services 12.5   1.4   2.3   0.3
Total Software and Software-Related Services 47.7 5.4 38.7 5.3
 
Global Services
Maintenance Support and Training 68.8 8.0 60.9 8.3
Installation and Deployment 41.3 4.8 28.2 3.9
Consulting and Network Design 10.2   1.2   10.5   1.4
Total Global Services 120.3 14.0 99.6 13.6
       
Total $ 865.0   100.0   $ 730.0   100.0
 
 

Additional Performance Metrics for Fiscal Second Quarter 2019

 
    Revenue by Geographic Region
Q2 FY 2019     Q2 FY 2018
Revenue     % ** Revenue     % **
North America $ 576.1 66.5 $ 431.2 59.1
Europe, Middle East and Africa 115.0 13.3 121.7 16.7
Caribbean and Latin America 39.4 4.6 25.1 3.4
Asia Pacific 134.5   15.6   152.0   20.8
Total $ 865.0   100.0   $ 730.0   100.0
 

**

 

Denotes % of total revenue

 
  • Two 10%-plus customers represented a total of 25% of revenue
  • Cash and investments totaled $818.5 million
  • Cash flow from operations totaled $104.1 million
  • Average days’ sales outstanding (DSOs) were 86
  • Accounts receivable balance was $756.6 million
  • Unbilled contract asset balance was $74.4 million
  • Inventories totaled $359.4 million, including:

    • Raw materials: $90.3 million
    • Work in process: $12.0 million
    • Finished goods: $205.4 million
    • Deferred cost of sales: $100.6 million
    • Reserve for excess and obsolescence: $(48.9) million
  • Product inventory turns were 4.6
  • Headcount totaled 6,176

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal
Second Quarter 2019 Results

Today, Thursday, June 6, 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 second
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: “Today we reported very strong
quarterly performance, including continued market share gains, driven by
our technology leadership and diversified customer base in high growth
markets”; “We are entering the second half with strong visibility and
increased confidence for the full fiscal year supported by favorable
industry dynamics and growing competitive advantage.”

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 March 11,
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, 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 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 April 30, Six Months Ended April 30,
2019     2018 2019     2018
Revenue:
Products $ 710,688 $ 604,226 $ 1,353,220 $ 1,129,835
Services 154,323   125,752   290,318   246,278  
Total revenue 865,011   729,978   1,643,538   1,376,113  
Cost of goods sold:
Products 411,050 372,568 791,492 685,688
Services 79,284   64,103   154,028   125,353  
Total cost of goods sold 490,334   436,671   945,520   811,041  
Gross profit 374,677   293,307   698,018   565,072  
Operating expenses:
Research and development 137,969 116,924 266,602 235,448
Selling and marketing 103,502 97,359 201,615 185,874
General and administrative 42,154 38,976 81,397 77,382
Amortization of intangible assets 5,529 3,623 11,057 7,246
Significant asset impairments and restructuring costs 4,068 4,359 6,341 10,320
Acquisition and integration costs 1,135   —   2,743   —  
Total operating expenses 294,357   261,241   569,755   516,270  
Income from operations 80,320 32,066 128,263 48,802
Interest and other income (loss), net (244 ) 1,296 4,009 2,871
Interest expense (9,471 ) (13,031 ) (18,912 ) (26,765 )
Income before income taxes 70,605 20,331 113,360 24,908
Provision for income taxes 17,867   6,475   27,006   484,415  
Net income (loss) $ 52,738   $ 13,856   $ 86,354   $ (459,507 )
 
Net Income (loss) per Common Share
Basic net income (loss) per common share $ 0.34   $ 0.10   $ 0.55   $ (3.19 )
Diluted net income (loss) per potential common share $ 0.33   $ 0.09   $ 0.55   $ (3.19 )
 
Weighted average basic common shares outstanding 156,170   143,975   156,244   143,948  
Weighted average dilutive potential common shares outstanding 1 158,289   147,973   158,211   143,948  
 
     
1. Weighted average dilutive potential common shares outstanding
used in calculating GAAP diluted net income per common share for the
second quarter of fiscal 2019 includes 2.1 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 six months 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
second quarter of fiscal 2018 includes 1.3 million shares underlying
certain stock options and stock unit awards and 2.7 million shares
underlying Ciena’s “New” 3.75% senior convertible notes, which were
converted by holders thereof immediately prior to maturity during
the fourth quarter of fiscal 2018.
 
 

CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE
SHEETS
(in thousands, except share data)
(unaudited)

       

April 30,
2019

October 31,
2018

ASSETS
Current assets:
Cash and cash equivalents $ 699,148 $ 745,423
Short-term investments 119,327 148,981
Accounts receivable, net 756,607 786,502
Inventories 359,417 262,751
Prepaid expenses and other 243,669   198,945  
Total current assets 2,178,168 2,142,602
Long-term investments — 58,970
Equipment, building, furniture and fixtures, net 282,022 292,067
Goodwill 297,711 297,968
Other intangible assets, net 129,971 148,225
Deferred tax asset, net 715,968 745,039
Other long-term assets 82,938   71,652  
Total assets $ 3,686,778   $ 3,756,523  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 366,932 $ 340,582
Accrued liabilities and other short-term obligations 291,417 340,075
Deferred revenue 104,030 111,134
Current portion of long-term debt 7,000 7,000
Debt conversion liability —   164,212  
Total current liabilities 769,379 963,003
Long-term deferred revenue 40,992 58,323
Other long-term obligations 129,779 119,413
Long-term debt, net 683,429   686,450  
Total liabilities $ 1,623,579   $ 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;
155,566,701 and 154,318,531 shares issued and outstanding

1,556 1,543
Additional paid-in capital 6,892,342 6,881,223
Accumulated other comprehensive loss (19,206 ) (5,780 )
Accumulated deficit (4,811,493 ) (4,947,652 )
Total stockholders’ equity 2,063,199   1,929,334  
Total liabilities and stockholders’ equity $ 3,686,778   $ 3,756,523  
 
 

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

   
Six Months Ended April 30,
2019     2018
Cash flows provided by operating activities:
Net income (loss) $ 86,354 $ (459,507 )
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 		42,995 41,400
Share-based compensation costs 29,362 26,559
Amortization of intangible assets 17,778 11,824
Deferred taxes 18,293 481,401
Provision for inventory excess and obsolescence 10,245 14,977
Provision for warranty 9,276 10,565
Other (2,259 ) 12,645
Changes in assets and liabilities:
Accounts receivable 43,174 (28,055 )
Inventories (109,554 ) 20,420
Prepaid expenses and other (33,241 ) 2,623
Accounts payable, accruals and other obligations (26,971 ) (55,986 )
Deferred revenue 4,560   (5,736 )
Net cash provided by operating activities 90,012   73,130  
Cash flows provided by (used in) investing activities:
Payments for equipment, furniture, fixtures and intellectual property (35,289 ) (31,946 )
Restricted cash — 54
Purchase of available for sale securities (97,897 ) (198,026 )
Proceeds from maturities of available for sale securities 90,000 200,000
Proceeds from sales of available for sale securities 98,263 —
Settlement of foreign currency forward contracts, net (2,741 ) 132
Purchase of equity investment (2,667 ) (767 )
Net cash provided by (used in) investing activities 49,669   (30,553 )
Cash flows used in financing activities:
Payment of long term debt (3,500 ) (2,000 )
Payment of capital lease obligations (1,679 ) (1,868 )
Payment for debt conversion liability (111,268 ) —
Shares repurchased for tax withholdings on vesting of restricted
stock units 		(15,865 ) —
Repurchases of common stock – repurchase program (65,103 ) (38,036 )
Proceeds from issuance of common stock 11,235   11,804  
Net cash used in financing activities (186,180 ) (30,100 )
Effect of exchange rate changes on cash and cash equivalents 224   (894 )
Net increase (decrease) in cash and cash equivalents (46,275 ) 11,583
Cash and cash equivalents at beginning of period 745,423   640,513  
Cash and cash equivalents at end of period $ 699,148   $ 652,096  
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 19,978 $ 21,843
Cash paid during the period for income taxes, net $ 9,258 $ 15,136
Non-cash investing activities
Purchase of equipment in accounts payable $ 2,793 $ 3,226
Non-cash financing activities
Repurchase of common stock in accrued liabilities from repurchase
program 		$ 1,441 $ 1,111
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 April 30,
2019 2018
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 374,677       $ 293,307  
Share-based compensation-products 702 824
Share-based compensation-services 907 722
Amortization of intangible assets 3,303   2,289  
Total adjustments related to gross profit 4,912   3,835  
Adjusted (non-GAAP) gross profit $ 379,589   $ 297,142  
Adjusted (non-GAAP) gross profit percentage 43.9 % 40.7 %
 
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 294,357   $ 261,241  
Share-based compensation-research and development 4,083 3,796
Share-based compensation-sales and marketing 4,346 3,760
Share-based compensation-general and administrative 5,491 5,109
Amortization of intangible assets 5,529 3,623
Significant asset impairments and restructuring costs 4,068 4,359
Acquisition and integration costs 1,135   —  
Total adjustments related to operating expense 24,652   20,647  
Adjusted (non-GAAP) operating expense $ 269,705   $ 240,594  
 
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations $ 80,320   $ 32,066  
Total adjustments related to gross profit 4,912 3,835
Total adjustments related to operating expense 24,652   20,647  
Total adjustments related to income from operations 29,564   24,482  
Adjusted (non-GAAP) income from operations $ 109,884   $ 56,548  
Adjusted (non-GAAP) operating margin percentage 12.7 % 7.7 %
 
Net Income Reconciliation (GAAP/non-GAAP)
GAAP net income $ 52,738 $ 13,856
Exclude GAAP provision for income taxes 17,867   6,475  
Income before income taxes 70,605 20,331
Total adjustments related to income from operations 29,564 24,482
Non-cash interest expense —   759  
Adjusted income before income taxes 100,169 45,572
Non-GAAP tax provision on adjusted income before income taxes 23,940   11,789  
Adjusted (non-GAAP) net income $ 76,229   $ 33,783  
 
Weighted average basic common shares outstanding 156,170 143,975
Weighted average dilutive potential common shares outstanding 1 158,289 151,011
 
Net Income per Common Share
GAAP diluted net income per common share $ 0.33 $ 0.09
Adjusted (non-GAAP) diluted net income per common share2 $ 0.48 $ 0.23
 

1.

 

Weighted average dilutive potential common shares outstanding used
in calculating adjusted (non-GAAP) diluted net income per common
share for the second quarter of fiscal 2019 includes 2.1 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 second quarter of fiscal 2018 includes 1.3 million
shares underlying certain stock options and stock unit awards, 2.7
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, and 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.
 

2.

The calculation of Adjusted (non-GAAP) diluted net income per
common share for the second 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, 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 April 30,
2019 2018
Earnings Before Interest, Tax, Depreciation and Amortization
(EBITDA)
Net income (GAAP) $ 52,738 $ 13,856
Add: Interest expense 9,471 13,031
Less: Interest and other income (loss), net (244 ) 1,296
Add: Provision for income taxes 17,867 6,475
Add: Depreciation of equipment, building, furniture and fixtures,
and amortization of leasehold improvements 		21,482 20,567
Add: Amortization of intangible assets 8,832   5,912
EBITDA $ 110,634   $ 58,545
Add: Shared-based compensation cost 15,607 14,166
Add: Significant asset impairments and restructuring costs 4,068 4,359
Add: Acquisition and integration costs 1,135   —
Adjusted EBITDA $ 131,444   $ 77,070
 

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.
  • 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 second fiscal quarter of
    2019, and 25.87% for the second 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.