Ciena Press Releases

Ciena Reports Unaudited Fiscal Second Quarter 2010 Results

Includes partial quarter of results from acquired Nortel MEN business

LINTHICUM, Md. — 06/9/2010

Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited results for its fiscal second quarter ended April 30, 2010.

Revenue for the fiscal second quarter 2010 totaled $253.5 million. Fiscal second quarter results include $53.5 million in revenue from the acquired assets of Nortel*’s Metro Ethernet Networks business (the “MEN business”), reflecting approximately six weeks of operations since the March 19, 2010 acquisition date. In accordance with acquisition accounting rules, Ciena did not recognize certain deferred revenue of the MEN business that would otherwise have been recognized by Nortel had the acquisition not occurred. Revenue from Ciena’s pre-acquisition portfolio was $200.0 million, representing a 14% sequential improvement compared to fiscal first quarter revenue of $175.9 million, and a 39% improvement compared to the same period a year ago when Ciena reported revenue of $144.2 million.

“We’re very pleased with our progress to date in combining the two companies, and continue to be encouraged by positive market reaction to the acquisition and growing levels of customer engagement across the globe,” said Gary Smith, Ciena’s CEO and president. “As a result, we continue to be on track to deliver on the target operating model milestones that we previously communicated.”

On the basis of generally accepted accounting principles (GAAP), Ciena’s net loss for the fiscal second quarter 2010 was $(90.0) million, or $(0.97) per common share, which compares to a GAAP net loss of $(503.2) million, or $(5.53) per common share, for the second fiscal quarter of 2009, which included a non-cash charge of $455.7 million for impairment of goodwill. The fiscal second quarter 2010 included $39.2 million in acquisition and integration-related expenses associated with Ciena’s acquisition of the MEN business.

Ciena’s adjusted (non-GAAP) net loss for the fiscal second quarter 2010 was $(11.7) million, or $(0.13) per common share, which compares to an adjusted (non-GAAP) net loss of $(22.5) million, or $(0.25) per common share for the fiscal second quarter 2009. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is provided in the table in Appendix A.

Second Quarter 2010 Performance Summary
  •   $253.5 million in revenue, reflecting approximately $53.5 million from the acquired MEN business.
  •   Non-U.S. customers contributed 29% of total revenue.
  •   Two customers each accounted for greater than 10% of revenue, and 42% of total sales in the aggregate.
  •   GAAP gross margin of 41%.
  •   Adjusted (non-GAAP) gross margin of 49%, which excludes share-based compensation costs, amortization of intangible assets, charges for product rationalization, and fair value adjustment of acquired inventory.
  •   GAAP net loss of $(90.0) million or $(0.97) per common share.
  •   Adjusted (non-GAAP) net loss of $(11.7) million or $(0.13) per common share.
  •   Ended the quarter with cash, cash equivalents and short-term investments of $614 million, using $78 million in cash for operations during the quarter, which includes the effect of $38 million of cash spent on acquisition and integration-related costs and a $36 million increase in working capital.
  •   Incurred $39.2 million in acquisition and integration-related expense, and $1.9 million in restructuring costs.
  •   Completed a private offering of 4.0% Convertible Senior Notes due March 15, 2015, in aggregate principal amount of $375.0 million.

 

Business Outlook
“We are encouraged by recent signs of recovery in customer spending, although Europe remains a challenge due to volatile macroeconomic conditions,” stated Smith. “While we still have work to do in delivering the full value of the combined company, we believe we are strategically well-positioned, with strong customer relationships and a portfolio of leading solutions that are tightly aligned with the market trend toward high-capacity, scalable next-generation networks.”

Smith continued, “We anticipate that our fiscal third quarter revenue will be in the range of $375 million to $400 million, and we expect that as-adjusted gross margin will be consistent with our near-term expectation of low 40s.”

Ciena’s fiscal third quarter 2010 financial results will represent the first full quarter to include the operations of the MEN business.

Live Web Broadcast of Unaudited Fiscal Second Quarter 2010 Results  
Ciena will host a discussion of its unaudited fiscal second quarter 2010 results with investors and financial analysts today, Wednesday, June 9, 2010 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena’s homepage at http://www.ciena.com/. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena’s website at: http://www.ciena.com/investors.

                                          

                                         CIENA CORPORATION

       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                      (in thousands, except per share data)
                                                      (unaudited)
 
 
    Quarter Ended April 30,
    2009   2010
Revenue:                
  Products   $ 118,849     $ 206,420  
  Services     25,352       47,051  
Total revenue     144,201       253,471  
                 
Cost of goods sold:                
  Products     65,419       118,221  
  Services     18,062       30,308  
Total cost of goods sold     83,481       148,529  
    Gross profit     60,720       104,942  
Operating expenses:                
  Research and development     49,482       71,142  
  Selling and marketing     33,295       45,328  
  General and administrative     12,615       21,503  
  Acquisition and integration costs     -       39,221  
  Amortization of intangible assets     6,224       17,121  
  Restructuring costs     6,399       1,849  
  Goodwill impairment     455,673       -  
    Total operating expenses     563,688       196,164  
Loss from operations     (502,968)       (91,222)  
Interest and other income (loss), net     3,508       3,748  
Interest expense     (1,852)       (4,113)  
Loss on cost method investments     (2,570)       -  
Loss before income taxes     (503,882)       (91,587)  
Benefit for income taxes     (672)       (1,578)  
Net loss   $ (503,210)     $ (90,009)  
Basic net loss per common share   $ (5.53)     $ (0.97)  
Diluted net loss per potential common share   $ (5.53)     $ (0.97)  
Weighted average basic common shares outstanding     90,932       92,614  
Weighted average dilutive potential common shares outstanding     90,932       92,614  
                 
 
                                                                                CIENA CORPORATION
                                                         CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                        (in thousands)

                                                                                           (unaudited)

 
 
ASSETS                      
        October 31,     April 30,
Current assets:       2009     2010
  Cash and cash equivalents       $ 485,705       $ 584,229  
  Short-term investments         563,183         29,537  
  Accounts receivable, net         118,251         178,959  
  Inventories         88,086         233,405  
  Prepaid expenses and other         50,537         95,246  
    Total current assets         1,305,762         1,121,376  
Long-term investments         8,031         -  
Equipment, furniture and fixtures, net         61,868         110,885  
Goodwill         -         39,991  
Other intangible assets, net         60,820         517,185  
Other long-term assets         67,902         117,524  
    Total assets       $ 1,504,383       $ 1,906,961  
                       
LIABILITIES AND STOCKHOLDERS' EQUITY                      
                       
Current liabilities:                      
  Accounts payable       $ 53,104       $ 105,138  
  Accrued liabilities         103,349         185,808  
  Restructuring liabilities         1,811         3,270  
  Income tax payable         -         1,306  
  Deferred revenue         40,565         56,713  
    Total current liabilities         198,829         352,235  
Long-term deferred revenue         35,368         34,978  
Long-term restructuring liabilities         7,794         6,537  
Other long-term obligations         8,554         9,413  
Convertible notes payable         798,000         1,174,665  
    Total liabilities         1,048,545         1,577,828  
Commitments and contingencies                      
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; 92,038,360 and 93,079,180 shares issued and   outstanding         920         931  
  Additional paid-in capital         5,665,028         5,682,647  
  Accumulated other comprehensive income         1,223         230  
  Accumulated deficit         (5,211,333 )       (5,354,675 )
    Total stockholders' equity         455,838         329,133  
  Total liabilities and stockholders' equity       $ 1,504,383       $ 1,906,961  
                       
 
 
                                                                   CIENA CORPORATION
                                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                          (in thousands)
                                                                            (unaudited)
 
 
        Six Months Ended April 30,
        2009     2010
Cash flows from operating activities:                      
  Net loss       $ (528,041 )     $ (143,342 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                      
    Amortization of (discount) premium on marketable securities         (904)         575  
    Loss on cost method investments         3,135         -  
    Gain on embedded redemption feature         -         (6,640)  
    Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements         10,830         13,543  
    Impairment of goodwill         455,673         -  
    Share-based compensation costs         17,591         16,799  
    Amortization of intangible assets         15,930         33,618  
    Provision for inventory excess and obsolescence         8,809         7,100  
    Provision for warranty         9,235         8,847  
    Other         1,171         1,037  
    Changes in assets and liabilities, net of effect of acquisition:                      
      Accounts receivable         21,728         (53,255)  
      Inventories         (6,626)         (38,250)  
      Prepaid expenses and other         6,253         4,944   
      Accounts payable, accruals and other obligations         (16,371)         83,525  
      Income taxes payable         -         1,306  
      Deferred revenue         3,572         (3,043)  
      Net cash provided by (used in) operating activities         1,985         (73,236)  
Cash flows from investing activities:                      
  Payments for equipment, furniture, fixtures and intellectual property         (12,632)         (18,275)  
  Restricted cash         (109)         (9,046)  
  Purchase of available for sale securities         (719,165 )       (63,591)  
  Proceeds from maturities of available for sale securities         239,072         424,841  
  Proceeds from sales of available for sale securities         523,137         179,380  
  Acquisition of business         -         (711,932 )
    Net cash provided by (used in) investing activities         30,303         (198,623 )
Cash flows from financing activities:                      
  Proceeds from issuance of 4.0% convertible notes payable, net         -         369,660  
  Proceeds from issuance of common stock and warrants         539         831  
    Net cash provided by financing activities         539         370,491  
    Effect of exchange rate changes on cash and cash equivalents         (15)         (108)  
    Net increase in cash and cash equivalents         32,827         98,632  
Cash and cash equivalents at beginning of period         550,669         485,705  
Cash and cash equivalents at end of period       $ 583,481       $ 584,229  
                       
Supplemental disclosure of cash flow information                      
  Cash paid (refunded) during the period for:                      
    Interest       $ 2,560       $ 2,560  
    Income taxes, net       $ (281)       $ 1,294  
Non-cash investing and financing activities                      
    Purchase of equipment in accounts payable       $ 605       $ 649  
    Accrual of debt issuance costs        -         $ 5,021   
 

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

 
 
        Quarter Ended April 30,
        2009     2010
                       
Gross Profit Reconciliation (GAAP/non-GAAP)                      
GAAP gross profit       $ 60,720       $ 104,942  
Share-based compensation-product         445         548  
Share-based compensation-services         425         453  
Amortization of intangible assets         684         2,356  
Fair value adjustment of acquired inventory         -         9,653  
Product rationalization charges         -         6,572  
Total adjustments related to gross profit         1,554         19,582  
Adjusted (non-GAAP) gross profit       $ 62,274       $ 124,524  
Adjusted (non-GAAP) gross profit percentage        

43%

       

49%

 
                       
Operating Expense Reconciliation (GAAP/non-GAAP)                      
GAAP operating expense       $ 563,688       $ 196,164  
Stock compensation research and development         2,817         2,259  
Stock compensation sales and marketing         2,685         2,665  
Stock compensation general and administrative         2,773         2,300  
Amortization of intangible assets         6,224         17,121  
Acquisition and integration related costs         -         39,221  
Restructuring costs         6,399         1,849  
Goodwill impairment         455,673         -  
Total adjustments related to operating expense         476,571         65,415  
Adjusted (non-GAAP) operating expense       $ 87,117       $ 130,749  
                       
Loss from Operations Reconciliation (GAAP/non-GAAP)                      
GAAP loss from operations       $ (502,968)       $ (91,222)  
Total adjustments related to gross profit         1,554         19,582  
Total adjustments related to operating expense         476,571         65,415  
Adjusted (non-GAAP) loss from operations       $ (24,843)       $ (6,225)  
Adjusted (non-GAAP) operating margin percentage        

-17%

       

-2%

 
                       
Net Loss Reconciliation (GAAP/non-GAAP)                      
GAAP net loss       $ (503,210)       $ (90,009)  
Total adjustments related to gross profit         1,554         19,582  
Total adjustments related to operating expense         476,571         65,415  
Loss on cost method investments         2,570         -  
Gain on fair value of embedded derivative         -         (6,640)  
Adjusted (non-GAAP) net loss       $ (22,515)       $ (11,652)  
                       
Weighted average basic common shares outstanding         90,932         92,614  

Weighted average basic common and dilutive potential common shares outstanding

        90,932         92,614  
                       
Net Loss per Common Share                      
GAAP diluted net loss per common share       $ (5.53)       $ (0.97)  
Adjusted (non-GAAP) diluted net loss per common share       $ (0.25)       $ (0.13)  

 



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:

  •   Fair value adjustment of acquired inventory – an infrequent charge required by acquisition accounting rules resulting from the required revaluation of finished goods inventory acquired from the MEN business to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and a $9.7 million increase in cost of goods sold during the second quarter of fiscal 2010.
  •   Product rationalization charges – infrequent costs relating to excess and obsolete inventory charges and purchase commitment losses associated with product rationalization decisions made by Ciena as to the combined portfolio of products to be offered following the completion of the MEN business acquisition.
  •   Share-based compensation cost – a non-cash expense incurred in accordance with share-based compensation accounting guidance.
  •   Amortization of intangible assets – a non-cash expense arising from acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life. The amount of amortization cost will increased significantly as a result of the MEN business acquisition
  •   Acquisition and integration-related costs – reflects transaction expense, and consulting and third party service fees associated with the acquisition of the MEN business and the integration of this business into Ciena’s operations. Ciena expects to incur acquisition and integration-related costs of approximately $180 million, with the majority of these costs to be incurred in fiscal year 2010. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  •   Restructuring costs – infrequent costs incurred as a result of restructuring activities (or in the case of recoveries, previous restructuring activities) taken to align resources with perceived market opportunities that Ciena believes are not reflective of its ongoing operating costs.
  •   Goodwill impairment – a non-cash charge reflecting the impairment during the second quarter of fiscal 2009 of the then remaining goodwill on Ciena’s balance sheet. Ciena conducted an interim impairment assessment of goodwill at that time based on a combination of factors, including unfavorable macroeconomic conditions and the sustained decline in Ciena’s common stock price and market capitalization below its net book value.
  •   Loss on cost method investment – a non-cash loss related to changes in the value of Ciena’s equity investments in technology companies that Ciena does not believe is reflective of its ongoing operating costs.
  •   Gain on fair value of embedded derivative – a non-cash gain reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena’s 4% senior convertible note.

About Ciena

Ciena specializes in practical network transition. We offer leading network infrastructure solutions, intelligent software and a comprehensive services practice to help our customers use their networks to fundamentally change the way they compete. With a growing global presence, Ciena leverages its heritage of practical innovation to deliver maximum performance and economic value in communications networks worldwide. We routinely post recent news, financial results and other important announcements and information about Ciena on our website. For more information, visit www.ciena.com.

*'Nortel' is a trademark of Nortel Networks, used under license by Ciena.

Note to Investors

Forward-looking statements. This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to Ciena as of the date hereof; and Ciena's actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Report on Form 10-Q, which Ciena filed with the Securities and Exchange Commission on March 5, 2009. 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] continue to be encouraged by the positive market reaction to the acquisition and growing level of customer engagement across the globe”; “we continue to be on track to deliver on the target operating model milestones that we previously communicated”; “we are encouraged by recent signs of recovery in customer spending”; “we still have work to do in delivering the full value of the combined company”; “we believe we are strategically well-positioned, with strong customer relationships and a portfolio of leading solutions that are tightly aligned with the market trend toward high-capacity, scalable next-generation networks”; “we anticipate that our fiscal third quarter revenue will be in the range of $375 million to $400 million”; “we expect that as-adjusted gross margin will be consistent with our near-term expectation of low 40s.” Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena’s gross profit, operating expenses, income from operations, 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. For a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release, see Appendix A.

Press Contacts:
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Investor Contacts:
Gregg Lampf
Ciena Corporation
(877) 243 6273
ir@ciena.com
Media inquiries

For media inquiries, please contact Jamie Moody at 877-857-7377 or email us.

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