Ciena® Corporation (NYSE: CIEN), the network specialist, today announced unaudited financial results for its fiscal second quarter ended April 30, 2015.

For the fiscal second quarter 2015, Ciena reported revenue of $621.6 million as compared to $560.1 million for the fiscal second quarter 2014.

On the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal second quarter 2015 was $20.7 million, or $0.17 per diluted common share, which compares to a GAAP net loss of $(10.2) million, or $(0.10) per diluted common share, for the fiscal second quarter 2014.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2015 was $47.3 million, or $0.35 per diluted common share, which compares to an adjusted (non-GAAP) net income of $19.4 million, or $0.17 per diluted common share, for the fiscal second quarter 2014.

"We delivered outstanding second quarter results that, when combined with our strong financial performance during the past several quarters, demonstrate increased operating leverage and sustained momentum in our business," said Gary B. Smith, president and CEO, Ciena. “This performance also reflects our industry-leading ability to deliver open, on-demand, software-driven networks for an increasingly diverse set of customers across the globe.”

Fiscal Second Quarter 2015 Performance Summary

The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarter and year-over-year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendix A.

GAAP Results

  Q2 Q1 Q2 Period Change
  FY 2015 FY 2015 FY 2014 Q-T-Q* Y-T-Y*
Revenue $621.6 $529.2 $560.1 17.5% 11.0%
Gross margin 43.8% 43.5% 42.4% 0.3% 1.4%
Operating expense $230.0 $226.1 $230.5 1.7% (0.2)%
Operating margin 6.8% 0.8% 1.3% 6.0% 5.5%

Non-GAAP Results

  Q2 Q1 Q2 Period Change
  FY 2015 FY 2015 FY 2014 Q-T-Q* Y-T-Y*
Revenue $621.6 $529.2 $560.1 17.5% 11.0%
Adj. gross margin 44.4% 44.1% 43.1% 0.3% 1.3%
Adj. operating expense $207.9 $197.3 $206.3 5.4% 0.8%
Adj. operating margin 10.9% 6.8% 6.2% 4.1% 4.7%

Revenue by Segment

  Q2 FY 2015 Q1 FY 2015 Q2 FY 2014
  Revenue % Revenue % Revenue %
Converged Packet Optical $432.9 69.6 $336.6 63.6 $356.8 63.7
Packet Networking 53.3 8.6 55.0 10.4 66.6 11.9
Optical Transport 16.5 2.7 22.3 4.2 29.6 5.3
Software and Services 118.9 19.1 115.3 21.8 107.1 19.1
Total $621.6 100.0 $529.2 100.0 $560.1 100.0

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

 

Additional Performance Metrics for Fiscal Second Quarter 2015

Revenue by Geographic Region

  Q2 FY 2015 Q1 FY 2015 Q2 FY 2014
  Revenue % Revenue % Revenue %
North America $397.2 63.9 331.5 62.6 377.8 67.4
Europe, Middle East and Africa 102.2 16.4 111.0 21.0 95.1 17.0
Caribbean and Latin America 47.9 7.7 42.8 8.1 40.2 7.2
Asia Pacific 74.3 12.0 43.9 8.3 47.0 8.4
Total $621.6 100.0 529.2 100.0 560.1 100.0
  • U.S. customers contributed 59.1% of total revenue
  • One customer accounted for greater than 10% of revenue and represented 19% of total revenue
  • Cash and investments totaled $816.7 million
  • Cash flow from operations totaled $37.8 million
  • Average days' sales outstanding (DSOs) were 80
  • Accounts receivable balance was $553.3 million
  • Inventories totaled $214.6 million, including:
    • Raw materials: $57.3 million
    • Work in process: $10.6 million
    • Finished goods: $147.8 million
    • Deferred cost of sales: $51.0 million
    • Reserve for excess and obsolescence: $(52.1) million
  • Product inventory turns were 5.3
  • Headcount totaled 5,108

Business Outlook for Fiscal Third Quarter 2015

Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of the Notes to Investors below.

Ciena expects fiscal third quarter 2015 financial performance to include:

  • Revenue in the range of $610 to $640 million
  • Adjusted (non-GAAP) gross margin of approximately 43 percent
  • Adjusted (non-GAAP) operating expense to be approximately $210 million

Live Web Broadcast of Unaudited Fiscal Second Quarter 2015 Results

Ciena will host a discussion of its unaudited fiscal second quarter 2015 results with investors and financial analysts today, Thursday, June 4, 2015 at 8:30 a.m. (Eastern). The live broadcast will be available at www.ciena.com, and an archived replay will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at www.ciena.com/investors. Ciena will also post to the Investor Relations page a presentation that includes certain highlighted information discussed on the call and certain historical results of operations.

Notes to Investors

Forward-looking statements. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. Forward-looking statements in this release include: "We delivered outstanding second quarter results that, when combined with our strong financial performance during the past several quarters, demonstrate increased operating leverage and sustained momentum in our business"; "This performance also reflects our industry-leading ability to deliver open, on-demand, software-driven networks for an increasingly diverse set of customers across the globe”; "Ciena expects fiscal third quarter 2015 financial performance to include: Revenue in the range of $610 to $640 million; Adjusted (non-GAAP) gross margin of approximately 43 percent; Adjusted (non-GAAP) operating expense to be approximately $210 million."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by large communication service providers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; and the other risk factors disclosed in Ciena's Report on Form 10-Q, which Ciena filed with the Securities and Exchange Commission on March 12, 2015. Ciena assumes no obligation to update any forward-looking information included in this press release.

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

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

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

  Quarter Ended April 30, Six Months Ended April 30,
  2014 2015 2014 2015
Revenue:
Products $460,821 $511,880 $893,762 $934,195
Services 99,240 109,722 200,002 216,569
Total revenue 560,061 621,602 1,093,764 1,150,764
Cost of goods sold:
Products 257,632 286,898 502,848 523,446
Services 64,738 62,293 127,374 124,612
Total cost of goods sold 322,370 349,191 630,222 648,058
Gross profit 237,691 272,411 463,542 502,706
Operating expenses:
Research and development 103,492 105,202 204,989 205,963
Selling and marketing 83,662 82,471 162,010 159,183
General and administrative 31,882 30,302 61,979 59,855
Acquisition and integration costs 1,020 1,020
Amortization of intangible assets 11,493 11,019 23,932 22,038
Restructuring costs (17) 115 8,068
Total operating expenses

 

230,529 229,997 453,025 456,127
Income from operations 7,162 42,414 10,517 46,579
Interest and other income (loss), net (1,905) (5,549) (7,903) (13,782)
Interest expense (11,020) (12,947) (22,048) (26,608)
Income (loss) before income taxes (5,763) 23,918 (19,434) 6,189
Provision for income taxes 4,395 3,265 6,660 4,315
Net income (loss) $(10,158) $20,653 $(26,094) $1,874
Net Income (loss) per Common Share
Basic net income (loss) per common share $(0.10) $0.18 $(0.25) $0.02
Diluted net income (loss) per potential common share1 $(0.10) $0.17 $(0.25) $0.02
Weighted average basic common shares outstanding 105,451 113,555 104,977 110,578
Weighted average dilutive potential common shares outstanding2 105,451 128,017 104,977 111,762
  1. The calculation of GAAP diluted net income per common share for the second quarter of fiscal 2015 requires adding back interest expense of approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation.

  2. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the second quarter of fiscal 2015 includes 1.4 million shares underlying certain stock options and restricted stock units and 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.

    Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first six months of fiscal 2015 includes 1.2 million shares underlying certain stock options and restricted stock units.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

  October 31, 2014 April 30, 2015
ASSETS
Current assets:
Cash and cash equivalents $586,720 $586,338
Short-term investments 140,205 145,089
Accounts receivable, net 518,981 553,306
Inventories 254,660 214,593
Prepaid expenses and other 192,624 183,512
Total current assets 1,693,190 1,682,838
Long-term investments 50,057 85,233
Equipment, building, furniture and fixtures, net 126,632 139,064
Other intangible assets, net 128,677 102,238
Other long-term assets 74,076 82,191
Total assets $2,072,632 $2,091,564
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable $209,777 $210,002
Accrued liabilities 276,608 253,871
Deferred revenue 104,688 109,120
Current portion of long-term debt 190,063 2,500
Total current liabilities 781,136 575,493
Long-term deferred revenue 40,930 49,845
Other long-term obligations 45,390 51,456
Long-term debt, net 1,274,791 1,276,107
Total liabilities $2,142,247 $1,952,901
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding
Common stock – par value $0.01; 290,000,000 shares authorized; 106,979,960 and 117,695,169 shares issued and outstanding 1,070 1,177
Additional paid-in capital 5,954,440 6,167,862
Accumulated other comprehensive loss (14,668) (21,793)
Accumulated deficit (6,010,457) (6,008,583)
Total stockholders’ equity (deficit) (69,615) 138,663
Total liabilities and stockholders’ equity (deficit) $2,072,632 $2,091,564

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

  Six Months Ended April 30,
  2014 2015
Cash flows provided by (used in) operating activities:
Net income (loss) $(26,094) $1,874
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements 27,143 27,322
Share-based compensation costs 23,443 22,136
Amortization of intangible assets 30,712 26,439
Provision for inventory excess and obsolescence 12,972 10,834
Provision for warranty 12,424 7,658
Other 10,164 (94)
Changes in assets and liabilities:
Accounts receivable (27,548) (34,903)
Inventories (57,821) 29,233
Prepaid expenses and other (19,054) (4,129)
Accounts payable, accruals and other obligations (51,631) (39,775)
Deferred revenue 30,123 13,347
Net cash provided by (used in) operating activities (35,167) 59,942
Cash flows provided by (used in) investing activities:
Payments for equipment, furniture, fixtures and intellectual property (26,485) (21,899)
Restricted cash 1,912 (44)
Purchase of available for sale securities (95,033) (130,239)
Proceeds from maturities of available for sale securities 130,000 90,000
Settlement of foreign currency forward contracts, net (4,029) 10,364
Purchase of cost method investment (2,000)
Net cash provided by (used in) investing activities 6,365 (53,818)
Cash flows provided by (used in) financing activities:
Payment of long term debt (8,190)
Payment for debt and equity issuance costs (247)
Payment of capital lease obligations (1,520) (4,745)
Proceeds from issuance of common stock 8,970 9,980
Net cash provided by (used in) financing activities 7,450 (3,202)
Effect of exchange rate changes on cash and cash equivalents (52) (3,304)
Net increase (decrease) in cash and cash equivalents (21,352) 2,922
Cash and cash equivalents at beginning of period 346,487 586,720
Cash and cash equivalents at end of period $325,083 $586,338
Supplemental disclosure of cash flow information
Cash paid during the period for interest $17,047 $21,882
Cash paid during the period for income taxes, net $7,221 $5,811
Non-cash investing activities
Purchase of equipment in accounts payable $4,799 $11,733
Building acquired under capital lease $10,032

APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements

  Quarter Ended April 30,
  2014 2015
Gross Profit Reconciliation
GAAP gross profit $237,691 $272,411
Share-based compensation-products 741 653
Share-based compensation-services 568 574
Amortization of intangible assets 2,328 2,201
Total adjustments related to gross profit 3,637 3,428
Adjusted (non-GAAP) gross profit $241,328 $275,839
Adjusted (non-GAAP) gross profit percentage 43.1% 44.4%
Operating Expense Reconciliation
GAAP operating expense $230,529 $229,997
Share-based compensation-research and development 2,782 2,534
Share-based compensation-sales and marketing 4,246 3,841
Share-based compensation-general and administrative 3,661 3,723
Acquisition and integration costs 1,020
Amortization of intangible assets 11,493 11,019
Restructuring costs (17)
Settlement of patent litigation 2,000
Total adjustments related to operating expense 24,182 22,120
Adjusted (non-GAAP) operating expense $206,347 $207,877
Income from Operations Reconciliation
GAAP income from operations $7,162 $42,414
Total adjustments related to gross profit 3,637 3,428
Total adjustments related to operating expense 24,182 22,120
Adjusted (non-GAAP) income from operations $34,981 67,962
Adjusted (non-GAAP) operating margin percentage 6.2% 10.9%
Net Income (Loss) Reconciliation
GAAP net income (loss) $(10,158) $20,653
Total adjustments related to gross profit 3,637 3,428
Total adjustments related to operating expense 24,182 22,120
Non-cash expense associated with the conversion of convertible notes 768
Non-cash interest expense 302 371
Change in fair value of embedded redemption feature 1,460
Adjusted (non-GAAP) net income $19,423 $47,340
Weighted average basic common shares outstanding 105,451 113,555
Weighted average dilutive potential common shares outstanding 1 120,628 158,917
Net Income (Loss) per Common Share
GAAP diluted net income (loss) per common share $(0.10) $0.17
Adjusted (non-GAAP) diluted net income per common share 2 $0.17 $0.35
  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 2014 includes 2.1 million shares underlying certain stock options and restricted stock units, and 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017.

    Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2015 includes 1.4 million shares underlying certain stock options and restricted stock units, 4.3 million shares underlying Ciena's 4.0% convertible senior notes, due March 15, 2015, 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017, 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020.


  2. The calculation of Adjusted (non-GAAP) diluted net income per common share for the fiscal second quarter of 2014 requires adding back interest expense of approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

    The calculation of Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2015 requires adding back interest expense of approximately $1.1 million associated with Ciena's 4.0% convertible senior notes, due March 15, 2015, approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 and approximately $2.8 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation.

The adjusted (non-GAAP) measures above and their reconciliation to Ciena's GAAP results for the periods presented reflect adjustments relating to the following items:

  • Share-based compensation expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance.
  • Acquisition and integration costs - reflects non-recurring legal and accounting costs associated with the pending acquisition of Cyan. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • Amortization of intangible assets - a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life.
  • Restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Settlement of patent litigation - included in general and administrative expense during the second quarter of fiscal 2014 is a $2.0 million patent litigation settlement.
  • Non-cash expense associated with the conversion of convertible notes - a non-cash expense related to certain private exchange offers conducted with several holders of Ciena's 4.0% senior convertible notes due March 15, 2015 prior to maturity of such notes.
  • Non-cash interest expense - a non-cash debt discount expense amortized as interest expense during the term of Ciena's 4.0% senior convertible notes due December 15, 2020 relating to the required separate accounting of the equity component of these convertible notes.
  • Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes due March 15, 2015.