Ciena Reports Unaudited Fiscal Fourth Quarter and Year-End Results
Quarterly revenue of $118.2 million represents 44% year-over-year growth; Gross margin improves more than 500 basis points sequentially
Linthicum, MD — 12/08/2005Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited results for its fiscal fourth quarter and year ending October 31, 2005.
Ciena’s unaudited fiscal fourth quarter revenue was $118.2 million, representing a 7% sequential increase from fiscal third quarter revenue of $110.5 million and an increase of 44% over revenue of $82.0 million for the same period a year ago. For the twelve months ending October 31, 2005, Ciena’s unaudited revenue was $427.3 million, representing an increase of 43% over revenue of $298.7 million for the same year-ago period.
“In the last year, Ciena’s employees have demonstrated extraordinary focus on execution of our strategy and, as a result, have driven the Company’s significant revenue growth and meaningful financial performance improvement,” said Ciena CEO and President, Gary Smith. “With our seventh sequential quarter of revenue growth, and with continued gross margin improvement, our fiscal fourth quarter’s results demonstrate Ciena’s steady progress toward profitability and positive cash flow, and more importantly, our continued progress toward future earnings growth.”
On the basis of generally accepted accounting principles (GAAP), Ciena’s unaudited fiscal fourth quarter net loss was $252.9 million, or a net loss of $0.44 per share. This loss compares to a GAAP net loss of $495.1 million, or a net loss of $0.87 per share, in the same period a year ago. In accordance with Statement of Financial Accounting Standards (SFAS) 142, an accounting rule that requires annual testing of possible goodwill impairment, the Company’s unaudited fiscal fourth quarter 2005 GAAP net loss reflects a goodwill impairment loss of $176.6 million, representing $0.31 of the quarter’s total GAAP net loss per share.
For the twelve months ending October 31, 2005, Ciena’s GAAP net loss was $435.7 million, or a net loss of $0.76 per share. This compares to a GAAP net loss of $789.5 million, or a net loss of $1.51 per share, in the same twelve-month period a year ago.
Non-GAAP Presentation of 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 table that follows (in thousands except per share data), 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 Year Year
Ended Ended Ended Ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31,
2004 2005 2004 2005
---------- ---------- ---------- ----------
Stock compensation costs $ 3,184 $ 631 $ 11,883 $ 9,441
Amortization of intangible
assets 11,381 8,514 30,839 38,782
In-process research and
development - - 30,200 -
Restructuring costs 34,982 2,773 57,107 18,018
Goodwill impairment 371,712 176,600 371,712 176,600
Long-lived asset
impairments 8,709 45,728 15,926 45,862
Recovery of use tax
payments - - (5,388) -
Provision for (recovery
of) doubtful accounts,
net - (2) (2,794) 2,602
Accelerated amortization
of leasehold improvements 8,382 - 22,535 -
Loss on equity
investments, net 4,500 500 4,107 9,486
Loss (gain) on
extinguishment of debt - - 8,216 (3,882)
Income tax benefit on
adjusted net loss 18,328 6,477 86,521 49,435
---------- ---------- ---------- ----------
Total adjustments $ 461,178 $ 241,221 $ 630,864 $ 346,344
========== ========== ========== ==========
GAAP Net Loss $(495,073) $(252,870) $(789,464) $(435,699)
Adjustment for items above 461,178 241,221 630,864 346,344
---------- ---------- ---------- ----------
Adjusted (non-GAAP) net
loss $ (33,895) $ (11,649) $(158,600) $ (89,355)
========== ========== ========== ==========
Weighted average basic
common and dilutive
potential shares
outstanding 569,462 578,822 521,454 575,187
Adjusted (non-GAAP) net
loss per share $ (0.06) $ (0.02) $ (0.30) $ (0.16)
Please see Appendix A for additional information about this table.
Adjusting Ciena’s unaudited fiscal fourth quarter 2005 GAAP net loss of $252.9 million for the items noted above would reduce the Company’s net loss in the quarter to $11.6 million, or a loss of $0.02 per share. This compares with an adjusted net loss of $33.9 million, or a loss of $0.06 per share, in the same year-ago period.
Adjusting Ciena’s unaudited twelve-month fiscal year 2005 GAAP net loss of $435.7 million for the items noted above would reduce the Company’s net loss for the year to $89.4 million, or a loss of $0.16 per share. This compares with an adjusted net loss of $158.6 million, or a loss of $0.30 per share, in the same year-ago period.
These adjustments are not in accordance with GAAP, and making these adjustments may not permit meaningful comparisons to other companies.
Fourth Quarter 2005 Operational Highlights
Ciena delivered sequential revenue growth of 7% and year-over-year revenue growth of 44%. As a result of continued product and manufacturing-related cost reductions and product mix in the quarter, overall gross margin improved more than 500 basis points, from 34.1% in the fiscal third quarter to 39.9% in the fiscal fourth quarter.
- Improved product gross margin from 35.6% in the fiscal third quarter to 42.2% in the fiscal fourth quarter.
- Improved services-related gross margin from 22.5% in the fiscal third quarter to 24.5% in the fiscal fourth quarter.
Ciena used $8.9 million in cash for operations in the fiscal fourth quarter compared to fiscal third quarter cash use of $39.3 million (which was inclusive of a $12.9 million semi-annual interest payment on the Company’s outstanding 3.75% convertible notes). Ciena ended the fiscal fourth quarter 2005 with cash and short- and long-term investments of $1.11 billion. Ciena expanded the Company’s global presence with the launch of a research and development centre located in Gurgaon, India.
Fourth Quarter 2005 Customer and Product Highlights
- Ciena strengthened its relationship with EMC Corporation, adding the Ciena CN 4200™ FlexSelect Advanced Services Platform to the EMC® Select Program and joining the EMC Authorized Services Network's (ASN) Solution Alliances.
- Telecom Ottawa announced the availability of a suite of SONET, WDM and storage extension services enabled by Ciena platforms and designed to provide Canadian federal government agencies, as well as enterprises and carriers, with reliable, high-performance 10-Gigabit Ethernet (GbE) connectivity throughout the Ottawa metropolitan region.
- Adelphia Communications Corporation, a leading U.S. cable provider, deployed Ciena's optical Ethernet platforms across western New York to interconnect 106 school districts serving 189,000 students with a wide range of applications for distance learning, including video conferencing and broadband data networking.
- HSE&DEM, the Republic of Slovenia's largest producer of electricity, selected Ciena's next-generation optical multiservice switches, optical multiplexers, storage extension platforms and network management systems to interconnect its locations nationwide with a reliable, high-performance Adaptive WAN™ (wide area network) to deliver IT services used in the production and delivery of electrical energy to customers.
- Ciena successfully completed interoperability testing and qualification of its ONLINE Metro™ Multiservice DWDM Platform for IBM GDPS eServer zSeries mainframe environments. IBM's validation of ONLINE Metro was based upon the successful completion of test scenarios on IBM zSeries mainframes deemed vital to GDPS operation.
Business Outlook
“We continue to see signs of improving overall market strength and expect our network specialist approach will enable us to continue to grow faster than the market in 2006,” said Smith. “In addition, as a result of relentless execution across the Company, including our ongoing efforts to reduce product and manufacturing-related costs, we expect to demonstrate gross margin improvement over the course of the year,” said Smith. “Provided we execute on plan, we believe we are well positioned to achieve profitability on an as-adjusted basis during a quarter prior to the end of fiscal 2006.”
“We expect our fiscal first quarter revenue will be flat to up slightly from our fiscal fourth quarter revenue, and we expect to see sequential gross margin improvement in our fiscal first quarter,” concluded Smith.
Live Web Broadcast of Unaudited Fiscal Fourth Quarter Results
Ciena will host a discussion of its unaudited fiscal fourth quarter results with investors and financial analysts today, Thursday, December 8, 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 per share data)
(unaudited)
ASSETS
October 31,
--------------------------
Current assets: 2004 2005
------------ ------------
Cash and cash equivalents $ 202,623 $ 372,781
Short-term investments 753,251 579,531
Accounts receivable, net 45,878 72,786
Inventories, net 47,614 49,333
Prepaid expenses and other 29,906 27,491
------------ ------------
Total current assets 1,079,272 1,101,922
Long-term investments 329,704 155,944
Equipment, furniture and fixtures, net 51,252 28,090
Goodwill 408,615 232,015
Other intangible assets, net 208,015 120,324
Other long-term assets 60,196 36,934
------------ ------------
Total assets $ 2,137,054 $ 1,675,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,509 $ 43,868
Accrued liabilities 76,045 76,491
Restructuring liabilities 16,203 15,492
Unfavorable lease commitments 9,902 9,011
Income taxes payable 3,354 5,785
Deferred revenue 21,566 27,817
------------ ------------
Total current liabilities 158,579 178,464
Long-term deferred revenue 16,010 15,701
Long-term restructuring liabilities 65,180 54,285
Long-term unfavorable lease commitments 51,341 41,364
Other long-term obligations 1,522 1,296
Convertible notes payable 690,000 648,752
------------ ------------
Total liabilities 982,632 939,862
------------ ------------
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 580,340,947 shares
issued and outstanding 5,717 5,803
Additional paid-in capital 5,482,175 5,489,613
Deferred stock compensation (13,761) (2,286)
Notes receivable from stockholders (48) -
Changes in unrealized gains on
investments, net (2,488) (4,673)
Translation adjustment (277) (495)
Accumulated deficit (4,316,896) (4,752,595)
------------ ------------
Total stockholders' equity 1,154,422 735,367
------------ ------------
Total liabilities and stockholders'
equity $ 2,137,054 $ 1,675,229
============ ============
CIENA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Year Ended
October 31, October 31,
--------------------- ---------------------
2004 2005 2004 2005
---------- ---------- ---------- ----------
Revenue:
Products $ 68,774 $ 102,909 $ 250,210 $ 374,275
Services 13,231 15,274 48,497 52,982
---------- ---------- ---------- ----------
Total revenue 82,005 118,183 298,707 427,257
---------- ---------- ---------- ----------
Costs:
Products 47,543 59,484 186,461 248,931
Services 10,281 11,535 40,493 42,136
---------- ---------- ---------- ----------
Total cost of goods sold 57,824 71,019 226,954 291,067
---------- ---------- ---------- ----------
Gross profit 24,181 47,164 71,753 136,190
---------- ---------- ---------- ----------
Operating expenses:
Research and
development 47,432 31,805 198,850 132,841
Selling and marketing 28,248 28,178 108,259 110,618
General and
administrative 7,222 7,544 27,274 33,082
Stock compensation
costs:
Research and
development 1,041 356 6,514 4,404
Selling and
marketing 1,904 147 4,051 4,404
General and
administrative 239 128 1,318 633
Amortization of
intangible assets 11,381 8,514 30,839 38,782
In-process research and
development - - 30,200 -
Restructuring costs 34,982 2,773 57,107 18,018
Goodwill impairment 371,712 176,600 371,712 176,600
Long-lived asset
impairments 8,709 45,728 15,926 45,862
Recovery of
sale, export, use tax
liabilities and
payments - - (5,388) -
Provision (benefit) for
doubtful accounts - (2) (2,794) 2,602
---------- ---------- ---------- ----------
Total operating
expenses 512,870 301,771 843,868 567,846
---------- ---------- ---------- ----------
Loss from operations (488,689) (254,607) (772,115) (431,656)
Interest and other income
(expense), net 4,680 8,524 22,908 28,311
Interest expense (6,487) (6,082) (26,813) (25,430)
Loss on equity
investments, net (4,500) (500) (4,107) (9,486)
Gain (loss) on
extinguishment of debt - - (8,216) 3,882
---------- ---------- ---------- ----------
Loss before income taxes (494,996) (252,665) (788,343) (434,379)
Provision for income taxes 77 205 1,121 1,320
---------- ---------- ---------- ----------
Net loss $(495,073) $(252,870) $(789,464) $(435,699)
========== ========== ========== ==========
Basic and diluted loss per
common share and dilutive
potential common share $ (0.87) $ (0.44) $ (1.51) $ (0.76)
========== ========== ========== ==========
Weighted average basic
common and dilutive
potential common shares
outstanding 569,462 578,822 521,454 575,187
========== ========== ========== ==========
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year Ended October 31,
--------------------------
2004 2005
------------ ------------
Cash flows from operating activities:
Net loss $ (789,464) $ (435,699)
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 26,924 13,636
Non-cash loss from equity investments 4,107 9,486
Non-cash impairment of long-lived
assets 15,926 45,862
Accretion of convertible notes
payable 599 -
In-process research and development 30,200 -
Depreciation and amortization of
leasehold improvements 72,213 33,377
Goodwill impairment 371,712 176,600
Stock compensation 11,883 9,441
Amortization of intangibles 34,708 42,651
Provision for doubtful accounts 284 2,602
Provision for inventory excess and
obsolescence 4,172 5,232
Provision for warranty and other
contractual obligations 8,351 9,738
Other 3,449 3,218
Changes in assets and liabilities:
Accounts receivable (2,562) (29,510)
Inventories 962 (6,951)
Deferred income tax asset - -
Prepaid expenses and other 15,253 7,420
Accounts payable and accruals (67,671) (19,633)
Income taxes payable (1,286) 2,431
Deferred revenue and other
obligations 6,589 5,942
------------ ------------
Net cash used in operating
activities (245,435) (128,039)
------------ ------------
Cash flows from investing activities
Additions to equipment, furniture,
fixtures and intellectual property (32,999) (11,315)
Proceeds from sale of equipment,
furniture and fixtures 1,857 278
Purchase of available for sale
securities (696,344) (578,846)
Maturities of available for sale
securities 897,738 910,505
Acquisition of business, net of cash
acquired 4,864 -
Minority equity investments, net (4,407) 4,882
------------ ------------
Net cash provided by investing
activities 170,709 325,504
------------ ------------
Cash flows from financing activities:
Net proceeds from (repayment of) other
obligations 100 -
Repayment of convertible notes payable (49,243) (36,913)
Proceeds from issuance of common stock
and warrants 16,780 9,558
Repayment of notes receivable from
stockholders 47 48
------------ ------------
Net cash used in financing activities (32,316) (27,307)
------------ ------------
Net (decrease) increase in cash and
cash equivalents (107,042) 170,158
Cash and cash equivalents at beginning of
period 309,665 202,623
------------ ------------
Cash and cash equivalents at end of period $ 202,623 $ 372,781
============ ============
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal fourth quarter 2004 and 2005 GAAP results are as follows:
- Stock compensation costs – a non-cash expense (unrelated to share-based payment expense under SFAS 123(R) which the Company adopted in its fiscal first quarter 2006), 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.
- 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.
- Goodwill impairment – non-cash expense resulting from the decline in the forecasted market demand for the Company’s products.
- 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.
- Accelerated amortization of leasehold improvements – a non-cash expense related to the closure of our San Jose, California facility.
- Loss 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: with our seventh sequential quarter of revenue growth, and continued gross margin improvement, our fiscal fourth quarter’s results demonstrate Ciena’s steady progress toward profitability and positive cash flow, and more importantly, our continued progress toward future earnings growth; we continue to see signs of improving overall market strength and expect our network specialist approach will enable us to continue to grow faster than the market in 2006; as a result of relentless execution across the Company, including our ongoing efforts to reduce product and manufacturing-related costs, we expect to demonstrate gross margin improvement over the course of the year; provided we execute on plan, we believe we are well positioned to achieve profitability on an as-adjusted basis during a quarter prior to the end of fiscal 2006; we expect our fiscal first quarter revenue will be flat to up slightly from our fiscal fourth quarter revenue and we expect to see continued gross margin improvement sequentially in our fiscal first quarter. 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
