Ciena Reports Fiscal Third Quarter 2005 Results
Linthicum, MD — 09/01/2005Ciena® Corporation (NASDAQ: CIEN), the network specialist, today reported its fiscal third quarter 2005 results for the period ending July 31, 2005. Revenue for the third quarter totaled $110.5 million, representing a 6.4% sequential increase from fiscal second quarter revenue of $103.8 million, and an increase of 46.2% over the same period a year ago when the Company reported sales of $75.6 million.
On the basis of generally accepted accounting principles (GAAP), Ciena’s reported net loss for the fiscal third quarter was $51.0 million, or a net loss of $0.09 per share. This loss compares to a GAAP net loss of $141.5 million, or a net loss of $0.25 per share, in the same period a year ago. For the nine-month period ended July 31, 2005, Ciena’s reported GAAP net loss was $182.8 million, or a net loss of $0.32 per share. This loss compares to a GAAP net loss of $294.4 million, or a net loss of $0.58 per share, in the same nine-month period a year ago.
“Signs that we are executing our plan and that our application-focused, network specialist approach to the market is on target, are evident in our fiscal third quarter results,” said Gary Smith, Ciena’s president and CEO. “In addition to delivering solid revenue growth for our sixth sequential quarter, as a result of deliberate actions taken over the last several years to expand our product portfolio and successful portfolio-wide cost reduction efforts, we also improved our overall gross margin from 26.2% in our fiscal second quarter to 34.1% in our fiscal third quarter.”
Debt Repurchase
During its fiscal third quarter, Ciena reduced its long-term debt position with the purchase on the open market of $41.2 million par value of its $690 million outstanding 3.75% convertible notes due in 2008, for $36.9 million. As a result of the purchase, the Company recorded a $3.9 million gain on extinguishment of debt, net of $0.4 million associated debt issuance costs. The Company saved $4.3 million in future principal payments as a result of this action and reduced the outstanding principal on its 3.75% convertible notes to $648.8 million.
Third Quarter 2005 Performance Highlights
- Delivered sequential revenue growth of 6.4% and year-over-year revenue growth of 46.2%.
- Recognized initial revenue from the recently announced CN 4200™ Advanced Services Platform, the first product introduced under Ciena’s new FlexSelect™ Architecture.
- Improved overall gross margin nearly 800 basis points from 26.2% in the fiscal second quarter to 34.1% in the fiscal third quarter.
- Improved product gross margin from 28.1% in the fiscal second quarter to 35.6% in the fiscal third quarter.
- Improved services-related gross margin from 11.4% in the fiscal second quarter to 22.5% in the fiscal third quarter.
- Continued to drive toward positive operating cash flow with lower-than-expected cash use from operations in the quarter, at $39.3 million, inclusive of a $12.9 million semi-annual interest payment on the Company’s outstanding 3.75% convertible notes.
- Ended the fiscal third quarter 2005 with cash and short- and long-term investments of $1.12 billion.
Third Quarter 2005 Customer Highlights
- T-Online, part of Deutsche Telekom, selected Ciena’s optical transport solutions as part of the operator's comprehensive program to expand its network infrastructure across France. Under the agreement, T-Online will deploy Ciena's CoreStream™ Agility platform to deliver additional network capacity and enhanced performance to its Club Internet customers.
- StarHub, Singapore's integrated info-communications service provider, has deployed Ciena's DN 7000™ series of multiservice edge switches in the service provider's rollout of third generation (3G) mobile services, including video calls, video streaming and video Multimedia Messaging Services (MMS).
- Jupiter Telecommunications Co., Ltd. (J:COM), the largest cable service operator in Japan based on the number of customers served, is adopting Ciena's optical Ethernet platforms for the transport of Video on Demand (VOD) services, specifically for its "J:COM On Demand" digital service offering.
- Ciena emphasized its focus on government customers with the announcement of a subsidiary, Ciena Government Solutions, Inc., dedicated to government sales and supported by a Government Advisory Board.
Third Quarter 2005 Innovation Highlights
- Unveiled Ciena’s FlexSelect Architecture as a practical new approach to packet service migration and profitable network convergence.
- Introduced the CN 4200 FlexSelect Advanced Services Platform with breakthrough “Any Service, Any Where, Any Time” capabilities as the first product in the FlexSelect Architecture.
- Added 10 Gigabit Ethernet to the CN 4350™ managed optical services switch to optimize networks for triple play and business-class Ethernet services.
- Expanded the multi-reach capabilities of its DWDM portfolio with the addition of CoreStream Regional.
Non-GAAP Presentation of Quarterly Results
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 tables that follow, 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 Quarter
Ended Ended
-------------- --------------
July 31, July 31,
2004 2005
-------------- --------------
Item (in thousands) (in thousands)
-------------------------------------- -------------- --------------
Stock compensation costs $ 3,953 $ 3,282
Amortization of intangible assets 12,667 9,653
In-process research and development 30,200 -
Accelerated amortization of leasehold
improvements 12,504 -
Restructuring costs 13,547 4,355
Long-lived asset impairment 7,217 (25)
Recovery of use tax payments (3,457) -
Provision for doubtful accounts - 2,604
Loss (gain) on equity investments, net 200 1,708
Loss (gain) on extinguishment of debt - (3,882)
Income tax benefit on adjusted net
loss 22,756 11,722
-------------- --------------
Total Adjustments
$ 99,587 $ 29,417
============== ==============
GAAP Net Loss $ (141,467) $ (51,027)
Adjustment for items above 99,587 29,417
-------------- --------------
Non-GAAP Net Loss $ (41,880) $ (21,610)
============== ==============
Please see Appendix A for additional information about this table.
As of the quarter ended July 31, 2005, Ciena’s weighted average shares outstanding were approximately 576,331,000. Adjusting Ciena’s quarterly GAAP results as noted above would reduce the Company’s net loss in its fiscal third quarter 2005 to $21.6 million, or a loss of $0.04 per share. This compares with an adjusted net loss of $41.9 million, or a loss of $0.07 per share, in the same period a year ago.
These adjustments are not in accordance with GAAP, and making these adjustments may not permit meaningful comparisons to other companies.
Business Outlook
“Like others in our industry, we are seeing some seasonal softness in order patterns seemingly due to customers’ summer holidays, but our fourth quarter visibility remains strong,” said Smith. “As a result of demand fueled by accelerating customer and enterprise broadband adoption and usage, we expect to deliver up to five percent sequential revenue growth in our fiscal fourth quarter. On an as-adjusted basis, we expect our fourth quarter results will demonstrate continued progress toward profitability and positive cash flow.”
Live Web Broadcast of Fiscal Third Quarter Results
Ciena will host a discussion of its fiscal third quarter results with investors and financial analysts today, Thursday, September 1, 2005 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: http://www.ciena.com/investors/investors.htm.
Ciena Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
October 31, July 31,
2004 2005
----------- -----------
Current assets:
Cash and cash equivalents $ 202,623 $ 313,569
Short-term investments 753,251 602,888
Accounts receivable, net 45,878 70,622
Inventories, net 47,614 51,447
Prepaid expenses and other 29,906 30,361
----------- -----------
Total current assets 1,079,272 1,068,887
Long-term investments 329,704 200,188
Equipment, furniture and fixtures, net 51,252 32,984
Goodwill 408,615 408,615
Other intangible assets, net 208,015 174,845
Other long-term assets 60,196 37,955
----------- -----------
Total assets $2,137,054 $1,923,474
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,509 $ 43,025
Accrued liabilities 76,045 72,541
Restructuring liabilities 16,203 15,201
Unfavorable lease commitments 9,902 8,908
Income taxes payable 3,354 4,093
Deferred revenue 21,566 31,298
----------- -----------
Total current liabilities 158,579 175,066
Long-term deferred revenue 16,010 14,379
Long-term restructuring liabilities 65,180 56,722
Long-term unfavorable lease commitments 51,341 43,846
Other long-term obligations 1,522 1,216
Convertible notes payable 690,000 648,752
----------- -----------
Total liabilities 982,632 939,981
----------- -----------
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; 571,656,659 and
576,908,483 shares issued and outstanding as
of October 31, 2004 and July 31, 2005,
respectively 5,717 5,769
Additional paid-in capital 5,482,175 5,485,595
Deferred stock compensation (13,761) (2,925)
Notes receivable from stockholders (48) -
Changes in unrealized gains on investments,
net (2,488) (4,744)
Translation adjustment (277) (477)
Accumulated deficit (4,316,896) (4,499,725)
----------- -----------
Total stockholders' equity 1,154,422 983,493
----------- -----------
Total liabilities and stockholders' equity $2,137,054 $1,923,474
=========== ===========
Ciena Corporation
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
July 31, July 31,
--------------------- ---------------------
2004 2005 2004 2005
---------- ---------- ---------- ----------
Revenues:
Products $ 64,340 $ 97,448 $ 181,436 $ 271,366
Services 11,249 13,032 35,266 37,708
---------- ---------- ---------- ----------
Total revenue 75,589 110,480 216,702 309,074
---------- ---------- ---------- ----------
Costs:
Products 48,069 62,756 138,918 189,447
Services 8,723 10,095 30,212 30,601
---------- ---------- ---------- ----------
Total cost of goods sold 56,792 72,851 169,130 220,048
---------- ---------- ---------- ----------
Gross profit 18,797 37,629 47,572 89,026
---------- ---------- ---------- ----------
Operating expenses:
Research and development 57,762 32,619 151,418 101,036
Selling and marketing 29,468 29,275 80,011 82,440
General and administrative 6,969 9,340 20,052 25,538
Stock compensation costs:
Research and development 1,860 2,195 5,473 4,048
Selling and marketing 1,214 934 2,147 4,257
General and
administrative 879 153 1,079 505
Amortization of
intangible assets 12,667 9,653 19,458 30,268
In-process research and
development 30,200 - 30,200 -
Restructuring costs 13,547 4,355 22,125 15,245
Long-lived asset
impairments 7,217 (25) 7,217 134
Recovery of sale, export,
use tax liabilities and
payments (3,457) - (5,388) -
Provision for (recovery
of) doubtful accounts,
net - 2,604 (2,794) 2,604
---------- ---------- ---------- ----------
Total operating
expenses 158,326 91,103 330,998 266,075
---------- ---------- ---------- ----------
Loss from operations (139,529) (53,474) (283,426) (177,049)
Interest and other income,
net 4,936 6,765 18,228 19,787
Interest expense (6,469) (6,406) (20,326) (19,348)
Gain (loss) on equity
investments, net (200) (1,708) 393 (8,986)
Gain (loss) on
extinguishment of debt - 3,882 (8,216) 3,882
---------- ---------- ---------- ----------
Loss before income taxes (141,262) (50,941) (293,347) (181,714)
Provision for income taxes 205 86 1,044 1,115
---------- ---------- ---------- ----------
Net loss $(141,467) $ (51,027) $(294,391) $(182,829)
========== ========== ========== ==========
Basic and diluted loss per
common share and dilutive
potential common share $ (0.25) $ (0.09) $ (0.58) $ (0.32)
========== ========== ========== ==========
Weighted average basic
common and dilutive
potential common shares
outstanding 566,234 576,331 504,812 573,939
========== ========== ========== ==========
Ciena Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
July 31,
---------------------
2004 2005
---------- ----------
Cash flows from operating activities:
Net loss $(294,391) $(182,829)
Adjustments to reconcile net loss to net cash
used in operating activities:
Early extinguishment of debt 8,216 (3,882)
Amortization of premium on marketable securities 21,893 12,344
Non-cash impairment of long-lived assets 7,217 134
Non-cash loss on equity investments (393) 8,986
Accretion of convertible notes payable 599 -
In-process research and development 30,200 -
Depreciation and amortization of leasehold
improvements 52,325 26,803
Stock compensation 8,699 8,810
Amortization of intangibles 22,361 33,169
Provision of doubtful accounts 284 2,604
Provision for inventory excess and obsolescence 3,026 3,396
Provision for warranty and other contractual
obligations 7,179 7,546
Other 2,270 2,072
Changes in assets and liabilities:
Accounts receivable (6,505) (27,348)
Inventories (114) (7,229)
Prepaid expenses and other 13,533 5,194
Accounts payable and accrued liabilities (77,793) (17,789)
Income taxes payable 969 739
Deferred revenue and other obligations 3,268 8,101
---------- ----------
Net cash used in operating activities (197,157) (119,179)
---------- ----------
Cash flows from investing activities:
Additions to equipment, furniture, fixtures and
intellectual property (18,828) (8,935)
Proceeds from sale of equipment, furniture and
fixtures 403 266
Purchases of available for sale securities (488,832) (490,041)
Maturities of available for sale securities 686,250 755,320
Acquisition of businesses, net of cash acquired 4,864 -
Minority equity investments, net (5,500) 4,882
---------- ----------
Net cash provided by investing activities 178,357 261,492
---------- ----------
Cash flows from financing activities:
Net proceeds from other obligations 72 -
Repayment of convertible notes payable (49,243) (36,913)
Proceeds from issuance of common stock 13,989 5,498
Repayment of notes receivable from stockholders 47 48
---------- ----------
Net cash used in financing activities (35,135) (31,367)
---------- ----------
Net (decrease) increase in cash and cash
equivalents (53,935) 110,946
Cash and cash equivalents at beginning of period 309,665 202,623
---------- ----------
Cash and cash equivalents at end of period $ 255,730 $ 313,569
========== ==========
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal third quarter 2005 GAAP results are as follows:
- Stock compensation costs – a non-cash expense which arises under GAAP accounting from the assumption of unvested stock options issued by any companies we acquire and which the Company feels is not reflective of its ongoing operating costs.
- Amortization of intangible assets – a non-cash expense arising from acquisitions of intangible assets, principally developed technology, which Ciena is required to amortize over its expected useful life and which the Company feels is not reflective of its ongoing operating costs.
- In-process research and development – a non-recurring expense related to in-process technology that, as of the date of acquisition, has not reached technological feasibility and has no alternative future use.
- Accelerated amortization of leasehold improvements – a non-cash expense related to the closure of our San Jose, California facility.
- Restructuring costs – non-recurring charges 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, which the Company feels are not reflective of its ongoing operating costs.
- Long-lived asset impairments – non-recurring charges, incurred as a result of excess equipment classified as held for sale which the Company feels are not reflective of its ongoing operating costs.
- Recovery of use tax payments – a non-recurring gain unrelated to normal operations
- Provision for (recovery of) doubtful accounts – a non-recurring charge unrelated to normal operations resulting from an assessment of doubtful payment due to a customer’s financial condition.
- Loss (gain) on equity investments, net – a non-recurring gain or loss related to changes in the value of the Company’s equity investments which the Company feels is not reflective of its ongoing operating costs.
- Loss (gain) on extinguishment of debt – a non-recurring gain or loss related to the early extinguishment of outstanding debt.
- 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.
Ciena specializes in network transition. We provide the flexible platforms, intelligent software and professional services to build converged networks for enhanced services and applications. With a growing global presence, Ciena leverages its heritage of practical innovation to deliver maximum performance and economic value in communications networks worldwide. For more information, visit www.ciena.com.
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 the Company 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 filed with the Securities and Exchange Commission on September 1, 2005. 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 are seeing some seasonal softness in order patterns seemingly due to customers’ summer holidays, but our fourth quarter visibility remains strong; as a result of demand fueled by accelerating customer and enterprise broadband adoption and usage, we expect to deliver up to five percent sequential revenue growth in our fiscal fourth quarter; and, on an as-adjusted basis, we expect our fourth quarter results will demonstrate continued progress toward profitability and positive cash flow. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Marie Downing
Ciena Corporation
(888) 243-6223
ir@ciena.com
