Ciena Reports Fiscal Third Quarter 2006 Results
Delivers 16% sequential revenue growth in tenth straight quarter of growth
Linthicum, MD — 08/31/2006Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced results for its fiscal third quarter 2006 ended July 31, 2006. Revenue for the third quarter totaled $152.5 million, representing a 16.3% sequential increase from fiscal second quarter revenue of $131.2 million, and an increase of 38.0% over the same period a year ago when the Company reported sales of $110.5 million. For the nine months ended July 31, 2006, Ciena reported revenue of $404.1 million, representing an increase of 30.7% over revenue of $309.1 million for the same nine-month year-ago period.
“Strong sequential revenue growth in our fiscal third quarter, combined with significant progress toward a normalized operating model, attests to continued success in the execution of our strategy,” said Ciena CEO and President Gary Smith. “Our ability to deliver ten straight quarters of revenue growth is evidence that our network specialist position is resonating with customers, as service providers and enterprises alike look to evolve network infrastructures to make ready for a new wave of Ethernet and IP-based services and end-user applications.”
Separately today, Ciena announced that its Board of Directors has approved a one-for-seven reverse split of its common stock to be effective as of 5:00 p.m. Eastern Time on September 22, 2006. The results presented in this press release do not take into account the effect of this forthcoming reverse split.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net loss for the fiscal third quarter 2006 was $4.3 million, or a net loss of $0.01 per share. This compares with a reported GAAP net loss of $51.0 million, or a net loss of $0.09 per share, for the same period a year ago. For the nine-month period ended July 31, 2006, Ciena’s reported GAAP net loss was $12.5 million, or a net loss of $0.02 per share. This compares to a GAAP net loss of $182.8 million, or a net loss of $0.32 per share, for the same nine-month year-ago period.
Ciena’s GAAP results for its fiscal third quarter 2006 include $2.9 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. Fiscal year 2005’s GAAP results do not include the impact of SFAS 123(R).
Non-GAAP Presentation of Quarterly 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
July 31, July 31,
2005 2006
------------ ------------
Stock compensation product $ - $ 361
Stock compensation services - 211
Stock compensation research and
development 2,195 1,061
Stock compensation sales and marketing 934 715
Stock compensation general and
administrative 153 594
Contingent legal and consulting fees
upon litigation settlement - 5,705
Amortization of intangible assets 9,653 6,295
Restructuring costs 4,355 11,008
Long-lived asset impairment (25) -
Provision for (recovery of) doubtful
accounts, net 2,604 (139)
Loss (gain) on equity investments, net 1,708 (948)
Loss (gain) on extinguishment of debt (3,882) -
Income tax adjustment 11,722 (6,994)
------------ ------------
Total adjustments $ 29,417 $ 17,869
============ ============
GAAP net loss $ (51,027) $ (4,285)
Adjustment for items above 29,417 17,869
------------ ------------
Adjusted (non-GAAP) net (loss) income $ (21,610) $ 13,584
============ ============
Weighted average basic common shares
outstanding 576,331 589,381
Weighted average basic common and
dilutive
potential common shares outstanding 576,331 650,666
Adjusted (non-GAAP) net (loss) income
per share $ (0.04) $ 0.02
Adjusting Ciena’s fiscal third quarter 2006 GAAP net loss by $17.9 million for the items noted above would have the effect of moving the Company’s quarterly results from a net loss of $4.3 million to net income of $13.6 million. The GAAP net loss per share, calculated using the basic share count of 589.4 million shares, is a loss of $0.01 per share. Since the consequence of the adjustments described above result in moving from a net loss to a net profit, it is necessary to use the Company's fully diluted share count of 650.7 million shares to compute earnings per share on an as-adjusted basis. On this basis, the as-adjusted earnings per share would be $0.02.
To aid investors’ understanding of Ciena’s results and the effect of SFAS 123(R)-related share-based compensation expenses, the following table summarizes the presentation of Ciena’s financial results covered in this press release for both the Company’s fiscal third quarter 2005 and fiscal third 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)
(in thousands except per share data)
Q3 2005 Q3 2006
--------------------- ---------------------
Net Net Income Net Net Income
Income (Loss) Income (Loss)
(Loss) per Share (Loss) per Share
---------- ---------- ---------- ----------
GAAP
-----
1. GAAP results as
reported $(51,027) $(0.09) $(4,285) $(0.01)
========== ========== ========== ==========
Non-GAAP
---------
1. GAAP results less SFAS
123R-related share-
based compensation
expense N/A N/A $(1,343) $(0.00)
========== ==========
2. GAAP results less APB
25-related share-
based compensation
expense $(47,745) $(0.08) N/A N/A
========== ==========
3. As-adjusted results
(excludes SFAS 123R
and APB 25-related
share-based
compensation expense
and other items as
defined in previous
table) $(21,610) $(0.04) $13,584 $0.02
========== ========== ========== ==========
Third Quarter 2006 Performance Highlights
- Delivered sequential revenue growth of 16.3% and year-over-year revenue growth of 38.0%.
- As a result of ongoing product- and manufacturing-related cost reductions and favorable product mix in the quarter, delivered overall gross margin of 47.0%, a slight decrease from fiscal second quarter gross margin of 48.0%.
- Ended the fiscal third quarter 2006 with cash and short- and long-term investments of $1.2 billion.
Third Quarter 2006 Customer Highlights
- neuf cegetel selected the CN 4200™ FlexSelect™ Advanced Services Platform for deployment across its metro and regional broadband network in France to support the delivery of new broadband applications to corporate and residential customers.
- Provided CN 4200 FlexSelect Advanced Services Platform to fortify Allen's TV Cable Service, Inc.’s (ATVC) services infrastructure that was damaged by Hurricanes Katrina and Rita.
- Named an outstanding supplier to AT&T Inc., one of the world's leading data, voice, wireless and Internet services providers, as a result of Ciena’s commitment to excellence over the past year.
Third Quarter 2006 Product Highlights
- Expanded CN 4200 FlexSelect Advanced Services Platform family with the CN 4200 MC, which extends the FlexSelect Architecture to the network edge and reduces the cost to deliver a variety of service backhaul and metro transport applications. Introduced the new Ethernet Services Line Module (ESLM), an enhancement to Ciena’s market-leading CoreDirector® multiservice switch, to further simplify migration to packet-based services while reducing the cost and complexity of existing SONET/SDH networks.
- Added Dynamic Wavelength Routing capabilities to the CN 4200 FlexSelect Advanced Services Platform, creating the only solution that uses a hybrid electrical and optical ROADM design to combine whole and sub-wavelength switching in one platform.
- CN 4200 FlexSelect Advanced Services Platform was awarded 4.5 out of 5 diamonds in Broadband Gear Report's 2006 Diamond Technology Reviews.
Business Outlook
“We continue to see positive indicators in overall market demand for next-generation solutions that maximize the business case for IP service delivery,” said Smith. “As a result of these market dynamics and strong traction across our product portfolio and customer landscape, we expect our fiscal fourth quarter revenue will trend upward sequentially by as much as 5% from our fiscal third quarter revenue.”
Smith continued, “We remain confident in our ability to balance prudent investment with operating efficiencies, enabling us to effectively grow and scale our business while preserving our innovation and focus on the technology areas we’ve chosen to pursue.”
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, August 31, 2006 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/investors.htm.
CIENA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS (unaudited)
October 31, July 31,
Current assets: 2005 2006
------------ ------------
Cash and cash equivalents $ 358,012 $ 552,234
Short-term investments 579,531 466,362
Accounts receivable, net 72,786 89,638
Inventories, net 49,333 95,821
Prepaid expenses and other 37,867 43,631
------------ ------------
Total current assets 1,097,529 1,247,686
Long-term investments 155,944 187,074
Equipment, furniture and fixtures, net 28,090 28,227
Goodwill 232,015 232,015
Other intangible assets, net 120,324 98,536
Other long-term assets 41,327 37,001
------------ ------------
Total assets $ 1,675,229 $ 1,830,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,868 $ 39,492
Accrued liabilities 76,491 88,205
Restructuring liabilities 15,492 9,413
Unfavorable lease commitments 9,011 8,008
Income taxes payable 5,785 5,855
Deferred revenue 27,817 22,689
------------ ------------
Total current liabilities 178,464 173,662
Long-term deferred revenue 15,701 19,912
Long-term restructuring liabilities 54,285 28,218
Long-term unfavorable lease commitments 41,364 34,880
Other long-term obligations 1,296 1,732
Convertible notes payable 648,752 842,262
------------ ------------
Total liabilities 939,862 1,100,666
------------ ------------
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 590,932,298 shares
issued and outstanding 5,803 5,909
Additional paid-in capital 5,489,613 5,491,942
Deferred stock compensation (2,286) -
Changes in unrealized gains on
investments, net (4,673) (2,402)
Translation adjustment (495) (495)
Accumulated deficit (4,752,595) (4,765,081)
------------ ------------
Total stockholders' equity 735,367 729,873
------------ ------------
Total liabilities and stockholders'
equity $ 1,675,229 $ 1,830,539
============ ============
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Nine Months Ended
July 31, July 31,
--------------------- ---------------------
2005 2006 2005 2006
---------- ---------- ---------- ----------
Revenues:
Products $ 97,448 $ 137,809 $ 271,366 $ 360,958
Services 13,032 14,690 37,708 43,146
---------- ---------- ---------- ----------
Total revenue 110,480 152,499 309,074 404,104
---------- ---------- ---------- ----------
Costs:
Products 62,756 70,356 189,447 189,712
Services 10,095 10,479 30,601 29,367
---------- ---------- ---------- ----------
Total cost of goods sold 72,851 80,835 220,048 219,079
---------- ---------- ---------- ----------
Gross profit 37,629 71,664 89,026 185,025
---------- ---------- ---------- ----------
Operating expenses:
Research and
development 34,814 26,190 105,084 84,508
Selling and marketing 30,209 24,903 86,697 78,132
General and
administrative 9,493 16,217 26,043 37,359
Amortization of
intangible assets 9,653 6,295 30,268 18,885
Restructuring costs 4,355 11,008 15,245 16,037
Long-lived asset
impairments (25) - 134 (6)
Provision for
(recovery of)
doubtful accounts,
net 2,604 (139) 2,604 (2,990)
Gain on lease
settlement - - - (11,648)
---------- ---------- ---------- ----------
Total operating
expenses 91,103 84,474 266,075 220,277
---------- ---------- ---------- ----------
Loss from operations (53,474) (12,810) (177,049) (35,252)
Interest and other
income, net 7,522 14,045 22,058 34,504
Interest expense (7,163) (6,148) (21,619) (18,016)
Gain (loss) on equity
investments, net (1,708) 948 (8,986) 215
Gain on extinguishment of
debt 3,882 - 3,882 7,052
---------- ---------- ---------- ----------
Loss before income taxes (50,941) (3,965) (181,714) (11,497)
Provision for income
taxes 86 320 1,115 989
---------- ---------- ---------- ----------
Net loss $ (51,027) $ (4,285) $(182,829) $ (12,486)
========== ========== ========== ==========
Basic and diluted net
loss per common share
and dilutive potential
common share $ (0.09) $ (0.01) $ (0.32) $ (0.02)
========== ========== ========== ==========
Weighted average basic
common and dilutive
potential common shares
outstanding 576,331 589,381 573,939 584,977
========== ========== ========== ==========
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended July 31,
--------------------------
2005 2006
------------ ------------
Cash flows from operating activities:
Net loss $ (182,829) $ (12,486)
Adjustments to reconcile net loss to net
cash used in
operating activities:
Early extinguishment of debt (3,882) (7,052)
Amortization of premium on marketable
securities 12,344 2,058
Non-cash loss from equity investments 8,986 733
Non-cash impairment of long-lived assets 134 -
Depreciation and amortization of
leasehold improvements 26,803 13,173
Stock compensation 8,810 10,953
Amortization of intangibles 33,169 21,788
Provision for doubtful accounts 2,604 -
Provision for inventory excess and
obsolescence 3,396 6,158
Provision for warranty and other
contractual obligations 7,546 10,885
Other 2,072 1,236
Changes in assets and liabilities:
Accounts receivable (27,348) (16,852)
Inventories (7,229) (52,646)
Prepaid expenses and other 5,194 1,282
Accounts payable, accrued liabilities
and other
obligations (17,789) (42,744)
Income taxes payable 739 70
Deferred revenue 8,101 (917)
------------ ------------
Net cash used in operating activities (119,179) (64,361)
------------ ------------
Cash flows from investing activities:
Additions to equipment, furniture,
fixtures and
intellectual property (8,935) (13,332)
Proceeds from sale of equipment,
furniture and fixtures 266 -
Restricted cash (819) 1,347
Purchases of available for sale
securities (490,041) (403,664)
Maturities of available for sale
securities 755,320 485,916
Minority equity investments, net 4,882 948
------------ ------------
Net cash provided by investing activities 260,673 71,215
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of 0.25%
convertible senior notes
payable - 300,000
Repurchase of 3.75% convertible notes
payable (36,913) (98,410)
Debt issuance costs - (7,990)
Purchase of call spread option - (28,457)
Proceeds from issuance of common stock 5,498 22,225
Repayment of notes receivable from
stockholders 48 -
------------ ------------
Net cash (used) provided by financing
activities (31,367) 187,368
------------ ------------
Net increase in cash and cash equivalents 110,127 194,222
Cash and cash equivalents at beginning of
period 185,868 358,012
------------ ------------
Cash and cash equivalents at end of period $ 295,995 $ 552,234
============ ============
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal third 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.
-
Contingent legal and consulting fees upon litigation settlement – included in general and administrative expenses during our third quarter of fiscal 2006 were $5.7 million in contingent fees paid to outside counsel and advisors connected with the settlement of patent litigation with Nortel Networks.
• 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 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.
-
Provision for (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 (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 adjustment net loss – the income tax charge or benefit on the adjusted net loss or income, 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 June 1, 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 see positive indicators in overall market demand for next-generation solutions that maximize the business case for IP service delivery; as a result of these market dynamics and strong traction across our product portfolio and customer landscape, we expect our fiscal fourth quarter revenue will trend upward sequentially by as much as 5% from our fiscal third quarter revenue; and, we remain confident in our ability to balance prudent investment with operating efficiencies, enabling us to effectively grow and scale our business while preserving our innovation and focus on the technology areas we’ve chosen to pursue. 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
