Ciena Reports Fiscal First Quarter 2006 Results
Delivers eighth quarter of sequential revenue growth and improves gross margin 200 basis points sequentially to 41.9%
Linthicum, MD — 03/02/2006Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced results for its fiscal first quarter 2006 ending January 31, 2006. Revenue for the first quarter totaled $120.4 million, representing a 1.9% sequential increase from fiscal fourth quarter revenue of $118.2 million, and an increase of 27.1% over the same period a year ago when the Company reported sales of $94.7 million.
“With sequential revenue growth for the eighth straight quarter and continued gross margin and operating cost improvements, Ciena’s first quarter results demonstrate our persistent execution and resulting progress toward profitability,” said Ciena CEO and President Gary Smith. “We continue to believe that Ciena’s role as the network specialist and our focus on enabling our service provider and enterprise customers to transition their networks to reliably deliver an ever-increasing mix of new applications and services – at a pace that makes sense for their business – will enable us to grow faster than the market in 2006.”
On the basis of generally accepted accounting principles (GAAP), Ciena’s reported net loss for the fiscal first quarter 2006 was $6.3 million, or a net loss of $0.01 per share. This compares with a reported GAAP net loss of $57.0 million, or a net loss of $0.10 per share, for the same period a year ago.
Ciena’s GAAP net loss for its fiscal first quarter 2006 includes $3.8 million of share-based compensation expense related to equity based awards in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R), adopted by Ciena on November 1, 2005. Prior periods’ GAAP results do not include the impact of SFAS 123(R).
Debt Repurchase
During its fiscal first quarter, Ciena reduced its long-term debt position with the purchase on the open market of $106.5 million par value of its outstanding 3.75% convertible notes due in February 2008, for $98.8 million. As a result of the purchase, the Company recorded a $6.7 million gain on extinguishment of debt, net of $1.0 million associated debt issuance costs. The Company will save $8.0 million in future interest payments as a result of this action and reduced the outstanding principal on its 3.75% convertible notes to $542.3 million.
Non-GAAP Presentation of Results
In evaluating the operating performance of its business, Ciena’s management excludes certain charges and 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
Ended Ended
Jan. 31, 2005 Jan. 31, 2006
------------- -------------
Stock compensation product $ - $ 135
Stock compensation services - 188
Stock compensation research and
development 1,011 1,637
Stock compensation sales and marketing 876 1,046
Stock compensation general and
administrative 160 821
Amortization of intangible assets 10,411 6,295
Restructuring costs 1,125 2,015
Long-lived asset impairments 184 (3)
Recovery of doubtful accounts, net - (2,604)
Gain on lease settlement - (6,020)
(Gain) loss on equity investments, net (22) 733
Gain on extinguishment of debt - (6,690)
Income tax benefit on adjusted net loss 15,513 3,253
------------- -------------
Total adjustments $ 29,258 $ 806
============= =============
GAAP Net Loss $ (56,995) $ (6,291)
Adjustment for items above 29,258 806
------------- -------------
Adjusted (non-GAAP) net loss $ (27,737) $ (5,485)
============= =============
Weighted average basic common and
dilutive potential shares outstanding 571,573 580,771
Adjusted (non-GAAP) net loss per share $ (0.05) $ (0.01)
Adjusting Ciena’s fiscal first quarter 2006 GAAP net loss of $6.3 million for the items noted above would reduce the Company’s net loss in the quarter from $6.3 million to $5.5 million and would have no effect on the Company’s GAAP loss per share of $0.01.
To aid investor’s understanding of Ciena’s results and the effect of SFAS 123(R)-related share-based compensation expenses, the following table summarizes the presentations of Ciena’s financial results covered in this press release for both the Company’s fiscal first quarter 2005 and fiscal first quarter 2006.
Periods prior to the Company’s fiscal first quarter 2006 have not been restated to reflect, and do not include, the impact of SFAS 123(R). Prior periods do include share-based compensation expense recognized in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” as interpreted by Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 44.
(in thousands except per share data)
Q1 2005 Q1 2006
------------------- -------------------
Net Loss Net Loss
Net Loss per Share Net Loss per Share
--------- --------- --------- ---------
GAAP
-----------------------------
1. GAAP results as reported $(56,995) $(0.10) $(6,291) $(0.01)
========= ========= ========= =========
Non-GAAP
-----------------------------
1. GAAP results less SFAS
123(R)-related share-
based compensation
expense N/A N/A $(2,464) $(0.00)
========= =========
2. GAAP results less APB 25-
related share-based
compensation expense $(54,948) $(0.10) N/A N/A
========= =========
3. As-adjusted results
(excludes SFAS 123(R) and
APB 25-related share-
based compensation
expense and other items
as defined in previous
table) $(27,737) $(0.05) $(5,485) $(0.01)
========= ========= ========= =========
First Quarter 2006 Performance Highlights
Delivered sequential revenue growth of 1.9% and year-over-year revenue growth of 27.1%.
Delivered overall gross margin of 41.9%, an improvement of 200 basis points from fiscal fourth quarter 2005’s gross margin of 39.9% and an improvement of more than 1600 basis points from the same year-ago period’s 25.6% gross margin.
Improved product gross margin from 42.2% in the fiscal fourth quarter of 2005 to 43.0% in the fiscal first quarter of 2006.
Improved services gross margin from 24.5% in the fiscal fourth quarter of 2005 to 33.9% in the fiscal first quarter of 2006.
Ended the fiscal first quarter 2006 with cash and short- and long-term investments of $961.6 million.
First Quarter 2006 Customer and Product Highlights
-
Ciena announced that it had successfully completed contract negotiations with BT confirming Ciena’s participation as a preferred supplier to the operator’s revolutionary 21st Century Network, or 21CN. BT plans to deploy Ciena’s CN 4200™ FlexSelect™ Advanced Services Platform, CoreDirector® Multiservice Switch and CoreStream™ Agility Optical Transmission System.
-
Ciena's CN 4200 FlexSelect platform was selected by Slovenia's T-2 for a new nationwide next-generation VDSL network.
-
Progress Telecom selected Ciena’s CN 4200 for 10G DWDM metro and regional transport and CN 3600™ Intelligent Optical Multiservice Switch for international gateway and SONET/SDH applications in their next-generation network.
-
Ciena expanded its involvement with the U.S. Department of Energy, announcing product deployments with Oak Ridge National Laboratory and Fermi National Accelerator Laboratory.
“In recent weeks, we have seen an increase in order flow which seems to validate signs of improving overall market strength,” said Smith. “Depending on the timing of revenue recognition associated with orders from several larger customers, we expect our fiscal second quarter revenue could increase by as much as 7% sequentially from our fiscal first quarter revenue and will likely include initial revenue associated with BT’s 21CN project.”
“We expect our continued product- and manufacturing-related cost reductions and anticipated product and customer mix will enable us to maintain overall gross margin in excess of 40% during our fiscal second quarter,” continued Smith. “In addition, we are continuing to pursue operating efficiencies designed to improve our operating margin, including ramping hiring at our Gurgaon, India development facility.”
Live Web Broadcast of Fiscal First Quarter Results
Ciena will host a discussion of its fiscal first quarter results with investors and financial analysts today, Thursday, March 2, 2006 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, January 31,
------------- -------------
Current assets: 2005 2006
------------- -------------
Cash and cash equivalents $ 358,012 $ 298,624
Short-term investments 579,531 496,010
Accounts receivable, net 72,786 81,136
Inventories, net 49,333 64,379
Prepaid expenses and other 37,867 34,717
------------- -------------
Total current assets 1,097,529 974,866
Long-term investments 155,944 166,951
Equipment, furniture and fixtures, net 28,090 27,131
Goodwill 232,015 232,015
Other intangible assets, net 120,324 113,061
Other long-term assets 41,327 30,867
------------- -------------
Total assets $ 1,675,229 $ 1,544,891
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,868 $ 51,995
Accrued liabilities 76,491 64,138
Restructuring liabilities 15,492 12,687
Unfavorable lease commitments 9,011 8,620
Income taxes payable 5,785 5,846
Deferred revenue 27,817 30,986
------------- -------------
Total current liabilities 178,464 174,272
Long-term deferred revenue 15,701 15,727
Long-term restructuring liabilities 54,285 35,939
Long-term unfavorable lease commitments 41,364 38,934
Other long-term obligations 1,296 1,151
Convertible notes payable 648,752 542,262
------------- -------------
Total liabilities 939,862 808,285
------------- -------------
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;
580,340,947 and 581,581,317 shares
issued and outstanding 5,803 5,816
Additional paid-in capital 5,489,613 5,493,614
Deferred stock compensation (2,286) -
Changes in unrealized gains on
investments, net (4,673) (3,433)
Translation adjustment (495) (505)
Accumulated deficit (4,752,595) (4,758,886)
------------- -------------
Total stockholders' equity 735,367 736,606
------------- -------------
Total liabilities and stockholders'
equity $ 1,675,229 $ 1,544,891
============= =============
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended January 31,
----------------------------
2005 2006
------------- -------------
Revenues:
Products $ 82,300 $ 105,941
Services 12,448 14,489
------------- -------------
Total revenue 94,748 120,430
------------- -------------
Costs:
Products 60,848 60,399
Services 9,669 9,576
------------- -------------
Total cost of goods sold 70,517 69,975
------------- -------------
Gross profit 24,231 50,455
------------- -------------
Operating expenses:
Research and development 34,662 29,462
Selling and marketing 26,840 26,572
General and administrative 7,656 9,896
Amortization of intangible assets 10,411 6,295
Restructuring costs 1,125 2,015
Long-lived asset impairments 184 (3)
Recovery of doubtful accounts, net - (2,604)
Gain on lease settlement - (6,020)
------------- -------------
Total operating expenses 80,878 65,613
------------- -------------
Loss from operations (56,647) (15,158)
Interest and other income, net 7,433 9,262
Interest expense (7,226) (6,053)
Gain (loss) on equity investments, net 22 (733)
Gain on extinguishment of debt - 6,690
------------- -------------
Loss before income taxes (56,418) (5,992)
Provision for income taxes 577 299
------------- -------------
Net loss $ (56,995) $ (6,291)
============= =============
Basic and diluted net loss per common
share and dilutive potential common
share $ (0.10) $ (0.01)
============= =============
Weighted average basic common and
dilutive potential common shares
outstanding 571,573 580,771
============= =============
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended January 31,
------------------------------
2005 2006
-------------- --------------
Cash flows from operating activities:
Net loss $ (56,995) $ (6,291)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Early extinguishment of debt - (6,690)
Amortization of premium on
marketable securities 4,913 1,176
Non-cash impairment of long-lived
assets 184 733
Depreciation and amortization of
leasehold improvements 8,383 5,312
Stock compensation 2,047 4,183
Amortization of intangibles 11,378 7,263
Provision for inventory excess and
obsolescence 1,115 3,000
Provision for warranty and other
contractual obligations 3,016 2,470
Other 749 608
Changes in assets and liabilities:
Accounts receivable (6,244) (8,350)
Inventories 242 (18,046)
Prepaid expenses and other 4,888 10,151
Accounts payable and accrued
liabilities (13,889) (30,813)
Income taxes payable 318 61
Deferred revenue and other
obligations (3,436) 3,195
-------------- --------------
Net cash used in operating activities (43,331) (32,038)
-------------- --------------
Cash flows from investing activities:
Additions to equipment, furniture,
fixtures and intellectual property (4,201) (4,375)
Proceeds from sale of equipment,
furniture and fixtures 177 -
Restricted cash (621) 1,102
Purchases of available for sale
securities (161,847) (63,641)
Maturities of available for sale
securities 200,731 136,219
Minority equity investments, net (1,595) -
-------------- --------------
Net cash provided by investing
activities 32,644 69,305
-------------- --------------
Cash flows from financing activities:
Repayment of convertible notes
payable - (98,772)
Proceeds from issuance of common
stock 347 2,117
Repayment of notes receivable from
stockholders 45 -
-------------- --------------
Net cash provided (used) in financing
activities 392 (96,655)
-------------- --------------
Net decrease in cash and cash
equivalents (10,295) (59,388)
Cash and cash equivalents at beginning
of period 185,868 358,012
-------------- --------------
Cash and cash equivalents at end of
period $ 175,573 $ 298,624
============== ==============
Appendix A
The adjustments management makes in analyzing Ciena’s first quarter 2006 GAAP results are as follows:
-
Stock compensation costs – As of November 1, 2005, Ciena adopted SFAS 123(R). In accordance with the modified prospective application transition method, Ciena’s consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Prior periods do include share-based compensation expense recognized in accordance with APB 25 as interpreted by FASB Interpretation (FIN) No. 44.
-
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.
-
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 doubtful accounts – a non-recurring charge unrelated to normal operations resulting from the recovery of an amount that was previously written off.
-
Gain on lease settlement – a non-recurring charge unrelated to normal operations resulting from termination of obligations under a lease for an unused facility.
-
(Gain) loss on equity investments, net – a non-recurring loss or gain related to changes in the value of the Company’s equity investments which the Company feels is not reflective of its ongoing operating costs.
-
Gain on extinguishment of debt – a non-recurring gain 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-K filed with the Securities and Exchange Commission on January 12, 2006. 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 believe that Ciena’s role as the network specialist and our focus on enabling our service provider and enterprise customers to transition their networks to reliably deliver an ever-increasing mix of new applications and services – at a pace that makes sense for their business – will enable us to grow faster than the market in 2006; depending on the timing of revenue recognition associated with orders from several larger customers, we expect our fiscal second quarter revenue could increase by as much as 7% sequentially from our fiscal first quarter revenue and will likely include initial revenue associated with BT’s 21CN project; we expect our continued product- and manufacturing-related cost reductions and anticipated product and customer mix will enable us to maintain overall gross margin in excess of 40% during our fiscal second quarter; and, in addition, we are continuing to pursue operating efficiencies designed to improve our operating margin, including ramping hiring at our Gurgaon, India development facility. 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
