CIENA Reports Third Quarter Results
LINTHICUM, MD — 08/21/2003Ciena® Corporation (NASDAQ: CIEN), a leading global provider of innovative networking solutions, today reported its third quarter results for the period ending July 31, 2003. Revenue for the quarter totaled $68.5 million, an increase of 37% from same period a year ago. On a generally accepted accounting principles (GAAP) basis, Ciena’s reported net loss for the period was $88.9 million, or a net loss of $0.20 per share.
Revenue for the nine months ending July 31, 2003 totaled $212.5 million. On a GAAP basis, Ciena’s net loss for the nine-month period was $271.5 million, or a net loss of $0.62 per share.
“ Our actions to restore profitability and positive operating cash flow to our business are focused simultaneously on driving revenue, improving gross margin and aligning our costs in pursuit of growth market opportunities,” said Gary Smith, Ciena’s president and CEO. “This quarter we recognized meaningful revenue from our recently completed acquisition of WaveSmith, improved our gross margin and achieved our operating expense targets a quarter ahead of plan.
“ Ciena is a very different company than it was just a year ago, and we’re not finished,” said Smith. “We have been taking deliberate steps to evolve into a more comprehensive network solutions provider. That transformation extends to every facet of our business – from the markets we target and the products we sell to the way we receive and process orders to the way we prioritize R&D dollars.
“ This transformation is not an option,” continued Smith. “If Ciena is going to thrive in today’s telecom environment, we must get bigger, not smaller. We continue to believe that we cannot simply cost-cut our way back to sustainable profitability. We believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see.”
Non-GAAP Presentation
In evaluating the operating performance of its business, Ciena’s management excludes certain charges or credits that are required by GAAP. These items, which are identified in the table below, 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 the Company’s control.
Quarter Nine Months
Ended Ended
-------------- --------------
July 31, 2003 July 31, 2003
-------------- --------------
(in thousands) (in thousands)
Item
----------------------------------- ----------- --------------
Deferred stock compensation $3,931 $13,290
Amortization of intangible assets 4,479 11,453
In-process research and development 1,500 1,500
Nortel settlement - 2,500
Restructuring costs 15,527 18,251
Loss on equity investments - 10
Loss on extinguishment of debt - 20,606
Income tax benefit on adjusted net
loss 22,397 71,944
----------- ---------------------
Total Adjustments $47,834 $139,554
=========== =====================
GAAP Net Loss $(88,874) $(271,477)
Adjusted for items above 47,834 139,554
----------- ---------------------
Non GAAP Net Loss $(41,040) $(131,923)
=========== =====================
Please see Appendix A for additional information about this table.
These adjustments are not in accordance with GAAP, and making such adjustments may not permit meaningful comparisons to other companies. As of the quarter ended July 31, 2003, Ciena’s weighted average shares outstanding were approximately 451,009,000. Adjusting Ciena’s quarterly GAAP results as noted would reduce the Company’s net loss in its third fiscal quarter to $0.09 per share.
As of the nine months ended July 31, 2003, Ciena’s weighted average shares outstanding were approximately 438,133,000. Adjusting Ciena’s nine-month GAAP results as noted would reduce the Company’s net loss for the period to $0.30 per share.
Third Quarter Performance Highlights
- Recognized revenue from a record-high 72 customers.
- Added seven new customers in the quarter, including two incumbent carriers.
- Lowered cash burn 13% sequentially.
- Ended the quarter with cash and short- and long-term securities valued at $1.75 billion, using cash of $68.2 million in the quarter.
- Closed the acquisition of WaveSmith Networks and recognized meaningful revenue from the DN platform in the quarter.
- Achieved operating expense target of low-to-mid $80 million one quarter ahead of plan.
- Reduced inventory for the eighth sequential quarter.
Third Quarter Solution Highlights
- Launched ONLINEÔ Metro Service Aggregator to support multiple data services in one platform.
- Integrated management of multiservice solutions extending Ciena’s point-and-click service provisioning and other management functions into the data layer.
- Introduced enhancements to MetroDirector K2 enabling flexible new Ethernet services on existing networks.
- Announced new CoreStream capabilities enabling end-to-end data service offerings and lower network costs.
- Released ON-Designer™ software suite for automated design, validation and turn-up of end-to-end networks.
- Delivered integrated Ethernet multiplexing on ONLINE Edge™.
Business Outlook
“ We continue to win new customers and to expand the solution set sold to existing customers,” said Smith. “However, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty. As a result, we believe revenue in our fourth fiscal quarter is likely to be between five percent up or down from our fiscal third quarter revenue, depending on the timing of significant orders.
“ As part of ongoing efforts to transform Ciena and restore profitability, we also have set new operating expense targets,” said Smith. “Ciena has consistently viewed cost reduction holistically – as a process ultimately leading toward a different Ciena. We believe the restructuring steps taken previously make it possible for us to reduce ongoing operating expenses by an additional 10% to 20% over the next year without jeopardizing customer commitments or near- or long-term growth opportunities.
“ Further, we expect to realize a significant portion of our total longer-term cost savings starting in the first half of fiscal 2004. We also expect to continue to take steps that enable us to lower our quarterly cash burn and improve our already strong balance sheet,” concluded Smith.
Separately today, Ciena announced its intent to acquire Akara Corporation, signaling its entrée into the growing market for SONET/SDH-based extended storage area networking (SAN) solutions. Ciena expects this transaction to be completed in its fourth fiscal quarter 2003.
Live Web Broadcast of Q3 Results
Ciena will host a discussion of its fiscal third quarter 2003 results with investors and financial analysts today, Thursday, August 21, 2003 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena’s homepage at 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: www.Ciena.com/investors.
Ciena Corporation delivers innovative network solutions to the world's largest service providers, increasing the cost-efficiency of current services while enabling the creation of new carrier-class data services built upon the existing network infrastructure. Additional information about Ciena can be found at www.ciena.com.
This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions of Ciena (the Company) that involve risks and uncertainties. Forward-looking statements in this release, including: this transformation is not an option, if Ciena is going to thrive in today’s telecom environment, we must get bigger, not smaller, we continue to believe that we cannot simply cost-cut our way back to sustainable profitability, we believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see, we continue to win new customers and to expand the solution set sold to existing customers, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty, as a result, we believe revenue in our fourth fiscal quarter is likely to be between five percent up or down from our fiscal third quarter revenue, depending on the timing of significant orders, Ciena has consistently viewed cost reduction holistically – as a process ultimately leading toward a different Ciena, we believe the restructuring steps taken previously make it possible for us to reduce ongoing operating expenses by an additional 10% to 20% over the next year without jeopardizing customer commitments or near- or long-term growth opportunities, further, we expect to realize a significant portion of our total longer-term cost savings starting in the first half of fiscal 2004, we also expect to continue to take steps that enable us to lower our quarterly cash burn and improve our already strong balance sheet, and Ciena expects this transaction to be completed in its fourth fiscal quarter 2003, are based on information available to the Company as of the date hereof. The Company’s actual results could differ materially from those stated or implied in such forward-looking statements, due to risks and uncertainties associated with the Company’s business, which include the risk factors disclosed in the Company’s Report on Form 10-Q filed with the Securities and Exchange Commission on August 21, 2003. Forward-looking statements include statements regarding the Company’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. The Company assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
Ciena CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
-------------------- ---------------------
July 31, July 31, July 31, July 31,
2002 2003 2002 2003
---------- --------- ---------- ----------
Revenues:
Products $41,029 $59,294 $254,428 $183,913
Services 8,999 9,184 44,809 28,579
---------- --------- ---------- ----------
Total Revenue 50,028 68,478 299,237 212,492
---------- --------- ---------- ----------
Costs:
Products 37,450 39,249 191,595 123,335
Services 13,510 12,749 66,163 42,300
Provision (benefit) for
excess and obsolete
inventory costs 41,192 (55) 284,883 (4,158)
---------- --------- ---------- ----------
Total cost of goods sold 92,152 51,943 542,641 161,477
---------- --------- ---------- ----------
Gross profit (loss) (42,124) 16,535 (243,404) 51,015
---------- --------- ---------- ----------
Operating expenses:
Research and development
(exclusive of $3,860,
$2,932, $11,277
and $10,136 deferred
stock compensation costs) 53,950 47,963 178,264 153,890
Selling and marketing
(exclusive of $842,
$687, $2,649 and $2,122
deferred stock
compensation costs) 30,829 24,536 98,264 76,805
General and
administrative
(exclusive of $256,
$312, $658, and $1,032
deferred stock
compensation costs) 10,798 7,969 37,729 28,241
Deferred stock
compensation costs 4,958 3,931 14,584 13,290
Amortization of intangible
assets (exclusive of $0,
$966, $0, and $2,315
included in cost of goods
sold related to certain
technology licenses) 2,343 4,479 5,969 11,453
In-process research and
development - 1,500 - 1,500
Nortel Networks
settlement costs - - - 2,500
Restructuring costs 18,562 15,527 146,738 18,251
Provision for doubtful
accounts (1,242) - 14,813 -
---------- --------- ---------- ----------
Total operating expenses 120,198 105,905 496,361 305,930
---------- --------- ---------- ----------
Loss from operations (162,322) (89,370) (739,765) (254,915)
Interest and other income
(expense), net 13,558 8,865 44,775 33,297
Interest expense (10,614) (8,070) (29,756) (28,334)
Loss on equity investments,
net - - (5,740) (10)
Loss on extinguishment of
debt - - - (20,606)
---------- --------- ---------- ----------
Loss before income taxes (159,378) (88,575) (730,486) (270,568)
Provision for income taxes 607 299 112,243 909
---------- --------- ---------- ----------
Net loss $(159,985) $(88,874) $(842,729) $(271,477)
========== ========= ========== ==========
Basic and dilutive net loss
per common share and
dilutive potential
common share $ (0.42) $ (0.20) $ (2.45) $ (0.62)
========== ========= ========== ==========
Weighted average basic
common and dilutive
potential common shares
outstanding 376,548 451,009 344,242 438,133
========== ========= ========== ==========
Ciena CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
October 31, July 31,
2002 2003
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $377,189 $585,258
Short-term investments 1,130,414 727,078
Accounts receivable, net 28,680 41,966
Inventories, net 47,023 26,954
Prepaid expenses and other 54,351 33,863
----------- -----------
Total current assets 1,637,657 1,415,119
Long-term investments 570,861 437,135
Equipment, furniture and fixtures, net 196,951 132,061
Goodwill 212,500 301,024
Other intangible assets, net 62,457 130,889
Other long-term assets 70,596 62,635
----------- -----------
Total assets $2,751,022 $2,478,863
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $39,841 $40,390
Accrued liabilities 132,588 110,880
Restructuring liabilities 27,423 12,686
Unfavorable lease commitments 7,630 8,744
Income taxes payable - 5,203
Deferred revenue 15,388 16,802
Other current obligations 948 -
----------- -----------
Total current liabilities 223,818 194,705
Long-term deferred revenue 15,444 13,342
Long-term restructuring liabilities 65,742 53,657
Long-term unfavorable lease commitments 70,124 63,365
Other long-term obligations 5,009 2,886
Convertible notes payable 843,616 729,514
----------- -----------
Total liabilities 1,223,753 1,057,469
----------- -----------
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; 980,000,000
shares authorized; 432,842,481 and
468,743,185 shares issued and outstanding 4,328 4,687
Additional paid-in capital 4,683,865 4,841,120
Deferred stock compensation (24,983) (14,878)
Notes receivable from stockholders (3,866) (545)
Accumulated other comprehensive income 8,840 3,402
Accumulated deficit (3,140,915) (3,412,392)
----------- -----------
Total stockholders' equity 1,527,269 1,421,394
----------- -----------
Total liabilities and stockholders' equity $2,751,022 $2,478,863
=========== ===========
Appendix A
The adjustments management makes in analyzing Ciena's third quarter 2003 GAAP results are as follows:
- Deferred stock compensation costs - a non-cash expense largely unrelated to normal operations, and which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire, including Cyras, ONI and WaveSmith.
- Amortization of intangible asset - a non-cash expense unrelated to normal operations arising from acquisitions of intangible assets, principally developed technology acquired in the Cyras, ONI and WaveSmith acquisitions which Ciena is required to amortize over its expected useful life.
- In-process research and development - a non-recurring expense related to acquired technology.
- Nortel litigation - a non-recurring expense, unrelated to normal operations.
- Restructuring costs - non-recurring charges, unrelated to normal operations, incurred as the result of reducing the size of the Company's operations to align its resources with the reduced size of the telecommunications market as well as the result of targeting new segment opportunities within the overall market.
- Income tax benefit on adjusted net loss - the income tax charge or benefit on the adjusted net loss, which is a necessary adjustment for consistency. The Company currently has a full valuation allowance for GAAP reporting purposes and accordingly does not recognize a tax benefit for losses generated.
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Marie Downing
Ciena Corporation
(888) 243-6223
ir@ciena.com
