Ciena Reports Unaudited Fiscal Fourth Quarter and Year-End Results
Quarterly revenue of $160.0 million represents 35.3% year-over-year growth; Company achieves profitability for fiscal fourth quarter and fiscal 2006
Linthicum, MD — 12/14/2006Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited results for its fiscal fourth quarter and fiscal year ending October 31, 2006.
Ciena’s unaudited fiscal fourth quarter revenue was $160.0 million, representing a 4.9% sequential increase from fiscal third quarter revenue of $152.5 million and an increase of 35.3% over revenue of $118.2 million for the same period a year ago. For the fiscal year ending October 31, 2006, Ciena’s unaudited revenue was $564.1 million, representing an increase of 32.0 % over revenue of $427.3 million for the same year-ago period.
Ciena’s unaudited fiscal fourth quarter net income was $13.1 million, or a net income of $0.14 per diluted share. This compares to a net loss of $252.9 million, or a net loss of $3.06 per share, in the same period a year ago. Net loss for the fiscal fourth quarter 2005 reflects an aggregate charge of $222.3 million associated with impairment of goodwill and long-lived assets. For the fiscal year ending October 31, 2006, Ciena’s net income was $0.6 million, or a net income of $0.01 per diluted share. This compares to a net loss of $435.7 million, or a net loss of $5.30 per share, in the same twelve-month period a year ago.
“Ciena’s return to profitability in fiscal 2006 can be attributed to the focused, persistent execution of our strategy. Continuing to invest in innovation has enabled us to leverage our network specialist position, thereby driving strong revenue growth,” said Ciena CEO and President, Gary Smith. “As a result, our fiscal fourth quarter results represent our eleventh sequential quarterly increase in revenue, at a pace exceeding that of the overall market. Customers are embracing the value of our FlexSelect™ Architecture, a unique formula for facilitating network transition, and we are beginning to reap the benefits of bringing that vision to market.”
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 Generally Accepted Accounting Principles (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 ended Oct. 31, Year ended Oct. 31,
----------------------- -----------------------
Item 2005 2006 2005 2006
----------- ----------- ----------- -----------
Stock-based
compensation-product $ - $ 204 $ - $ 1,075
Stock-based
compensation-services - 206 - 810
Stock-based
compensation-research
and development 356 938 4,404 5,057
Stock-based
compensation-sales
and marketing 147 706 4,404 3,415
Stock-based
compensation-general
and administrative 128 963 633 3,385
Amortization of
intangible assets 8,514 6,296 38,782 25,181
Restructuring costs 2,773 (366) 18,018 15,671
Goodwill impairment 176,600 - 176,600 -
Long-lived asset
impairment 45,728 6 45,862 -
Provision for
(recovery of)
doubtful accounts,
net (2) (41) 2,602 (3,031)
Gain on lease
settlement - - - (11,648)
Contingent legal and
consulting fees upon
litigation settlement - - - 5,705
(Gain) loss on equity
investments, net 500 - 9,486 (215)
Gain on extinguishment
of debt - - (3,882) (7,052)
Income tax adjustment 6,477 (7,443) 49,435 (12,734)
----------- ----------- ----------- -----------
Total adjustments $ 241,221 $ 1,469 $ 346,344 $ 25,619
=========== =========== =========== ===========
GAAP net income (loss) $ (252,870) $ 13,081 $ (435,699) $ 595
Adjustment for the
items above 241,221 1,469 346,344 25,619
----------- ----------- ----------- -----------
Adjusted (non-GAAP)
net income (loss) $ (11,649) $ 14,550 $ (89,355) $ 26,214
=========== =========== =========== ===========
Numerator for Adjusted
(non-GAAP) diluted
EPS calculation
Adjusted (non-GAAP)
net income (loss) $ (11,649) $ 14,550 $ (89,355) $ 26,214
Add: Interest expense
associated with
convertible notes
(excluding anti-
dilutive expense)
adjusted for tax
effect - 122 - 272
----------- ----------- ----------- -----------
Adjusted (non-GAAP)
net income (loss)
used to calculate
Adjusted (non-GAAP)
diluted EPS $ (11,649) $ 14,672 $ (89,355) $ 26,486
=========== =========== =========== ===========
Denominator for
Adjusted (non-GAAP)
diluted EPS
calculation
Basic weighted average
shares issued and
outstanding 82,689 84,657 82,170 83,840
Add: Weighted average
shares issuable under
stock options,
warrants and
restricted stock
units - 899 - 1,171
Add: Weighted average
shares associated
with convertible
notes on an "if
converted" basis - 7,590 - -
-----------------------------------------------
-----------------------------------------------
Quarter ended Oct. 31, Year ended Oct. 31,
----------------------- -----------------------
Item 2005 2006 2005 2006
----------- ----------- ----------- -----------
Diluted weighted
average shares issued
and outstanding 82,689 93,146 82,170 85,011
Add: Weighted average
shares associated
with convertible
notes on an "if
converted" basis (1) - - - 4,203
----------- ----------- ----------- -----------
Adjusted (non-GAAP)
diluted weighted
average shares issued
and outstanding 82,689 93,146 82,170 89,214
=========== =========== =========== ===========
Adjusted (non-GAAP)
basic EPS $ (0.14) $ 0.17 $ (1.09) $ 0.31
Adjusted (non-GAAP)
diluted EPS $ (0.14) $ 0.16 $ (1.09) $ 0.30
Please see Appendix A for additional information about this table. (1) These shares, underlying Ciena's 0.25% convertible senior notes, are excluded from the calculation of GAAP net income per diluted share for the fiscal year ended October 31, 2006 because of their anti-dilutive effect.
Adjusting Ciena’s unaudited fiscal fourth quarter 2006 GAAP net income of $13.1 million for the items noted above would increase the Company’s adjusted (non-GAAP) net income in the quarter to $14.6 million, or an adjusted (non-GAAP) net income of $0.16 per adjusted diluted share. This compares with an adjusted (non-GAAP) net loss of $11.6 million, or an adjusted (non-GAAP) net loss of $0.14 per share, in the same year-ago period.
Adjusting Ciena’s unaudited fiscal year 2006 GAAP net income of $0.6 million for the items noted above would increase the Company’s adjusted (non-GAAP) net income for the year to $26.2 million, or an adjusted (non-GAAP) net income of $0.30 per adjusted diluted share. This compares with an adjusted (non-GAAP) net loss of $89.4 million, or an adjusted (non-GAAP) net loss of $1.09 per share, in the same year-ago period.
To aid investors’ understanding of Ciena’s results and the effect of SFAS 123(R)-related share-based compensation expenses, the following table (in thousands, except per share data) summarizes the presentation of Ciena’s financial results covered in this press release for both the Company’s fiscal fourth quarter 2005 and fiscal fourth 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.
Quarter ended Oct. 31,
--------------------------------------------
2005 2006
--------------------- ----------------------
Net loss Net loss Net Net income
per share income per diluted
share
--------------------- ----------------------
GAAP
-------------------------
1. GAAP results as
reported $(252,870) $(3.06) $13,081 $0.14
========== ========== ========== ===========
Non-GAAP
-------------------------
1. GAAP results less SFAS
123R-related share-
based compensation
expense N/A N/A $16,098 $0.17
========== ========== ========== ===========
2. GAAP results less APB
25-related share-
based compensation
expense $(252,239) $(3.05) 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) $(11,649) $(0.14) $14,550 $0.16
========== ========== ========== ===========
Fourth Quarter 2006 Financial Highlights
- Ciena delivered fiscal fourth quarter sequential revenue growth of 4.9% and year-over-year revenue growth of 35.3%.
- Ciena used $15.0 million (including $10.2 million of semi-annual interest payments on the Company’s outstanding 3.75% convertible notes) in cash for operations in the fiscal fourth quarter.
- Ciena ended the fiscal fourth quarter 2006 with cash and short- and long-term investments of $1.2 billion.
- Ciena reduced operating expenses to $68.9 million in the fiscal fourth quarter 2006.
Fourth Quarter 2006 Customer and Product Highlights
- Swisscom and Ciena announced that Swisscom's Carrier Optical Service (COS) and Ciena's optical Ethernet platforms -- the CN 4200™ FlexSelect™ Advanced Services Platform and CN 2300™ Managed Optical Services Multiplexer-- have been certified by the Metro Ethernet Forum for carrier Ethernet Services at the User Network Interface (UNI).
- Interoute and Ciena expanded existing relationship to upgrade and extend the operator's Eastern European network, positioning Interoute as the first service provider to offer carrier-class 10-Gigabit wavelength and 10-Gigabit Ethernet services on-demand to enterprise customers in emerging European Union countries.
- Internet2 and Ciena announced a partnership to deploy Ciena's CoreDirector® Multiservice Switch in the new Internet2 nationwide advanced research and education network. Ciena also became an Internet2 Corporate Partner, the highest level partnership offered, to further advance the exploration and development of next-generation optical switching technology.
- Ciena was selected by University of Tennessee at Knoxville for an optical control plane research collaboration to automate configuration and provisioning of lightpaths in support of grid computing applications.
- Ciena introduced Data Migration Managed Service (DMMS), a flexible, short-term solution for enterprise data migration needs built around Ciena's award winning CN 2000™ Storage Extension Platform and ON-Center® Network Management Suite.
Business Outlook
“We remain encouraged by the continued improvement in the strength of our addressable market, and are building momentum with customers as they transition their networks to Ethernet-centric, converged architectures in support of demand for a broader mix of services,” said Smith. “We’ve demonstrated progress in several strategic areas, and are confident that sustained execution of our strategy will enable us to become even more globally competitive and continue improving our overall financial performance in 2007 and beyond.”
Smith concluded: “We expect to deliver, on a percentage basis, low single-digit sequential revenue growth in our fiscal first quarter 2007. And, based on our current order pipeline we see growth improving during the balance of the year.”
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 14, 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
Year Ended October 31,
--------------------------
Current assets: 2005 2006
------------ ------------
Cash and cash equivalents $ 358,012 $ 220,164
Short-term investments 579,531 628,393
Accounts receivable, net 72,786 107,172
Inventories, net 49,333 106,085
Prepaid expenses and other 37,867 36,372
------------ ------------
Total current assets 1,097,529 1,098,186
Long-term investments 155,944 351,407
Equipment, furniture and fixtures, net 28,090 29,427
Goodwill 232,015 232,015
Other intangible assets, net 120,324 91,274
Other long-term assets 41,327 37,404
------------ ------------
Total assets $ 1,675,229 $ 1,839,713
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,868 $ 39,277
Accrued liabilities 76,491 79,282
Restructuring liabilities 15,492 8,914
Unfavorable lease commitments 9,011 8,512
Income taxes payable 5,785 5,981
Deferred revenue 27,817 19,637
------------ ------------
Total current liabilities 178,464 161,603
Long-term deferred revenue 15,701 21,039
Long-term restructuring liabilities 54,285 26,720
Long-term unfavorable lease commitments 41,364 32,785
Other long-term obligations 1,296 1,678
Convertible notes payable 648,752 842,262
------------ ------------
Total liabilities 939,862 1,086,087
------------ ------------
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;
140,000,000 shares authorized;
82,905,849 and 84,891,656 shares issued
and outstanding 829 849
Additional paid-in capital 5,494,587 5,505,853
Deferred stock compensation (2,286) -
Changes in unrealized gains on
investments, net (4,673) (496)
Translation adjustment (495) (580)
Accumulated deficit (4,752,595) (4,752,000)
------------ ------------
Total stockholders' equity 735,367 753,626
------------ ------------
Total liabilities and stockholders'
equity $ 1,675,229 $ 1,839,713
============ ============
CIENA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended October 31, Year Ended October 31,
------------------------- -------------------------
2005 2006 2005 2006
------------ ------------ ------------ ------------
Revenue:
Products $ 102,909 $ 141,469 $ 374,275 $ 502,427
Services 15,274 18,483 52,982 61,629
------------ ------------ ------------ ------------
Total revenue 118,183 159,952 427,257 564,056
------------ ------------ ------------ ------------
Costs:
Products 59,484 73,955 248,931 263,667
Services 11,535 13,241 42,136 42,608
------------ ------------ ------------ ------------
Total cost of
goods sold 71,019 87,196 291,067 306,275
------------ ------------ ------------ ------------
Gross profit 47,164 72,756 136,190 257,781
------------ ------------ ------------ ------------
Operating
expenses:
Research and
development 32,161 26,561 137,245 111,069
Selling and
marketing 28,325 26,302 115,022 104,434
General and
administrative 7,672 10,117 33,715 47,476
Amortization of
intangible
assets 8,514 6,296 38,782 25,181
Restructuring
costs 2,773 (366) 18,018 15,671
Goodwill
impairment 176,600 - 176,600 -
Long-lived
asset
impairments 45,728 6 45,862 -
Provision for
(recovery of)
doubtful
accounts, net (2) (41) 2,602 (3,031)
Gain on lease
settlement - - - (11,648)
------------ ------------ ------------ ------------
Total
operating
expenses 301,771 68,875 567,846 289,152
------------ ------------ ------------ ------------
Gain (loss) from
operations (254,607) 3,881 (431,656) (31,371)
Interest and other
income (expense),
net 9,236 15,741 31,294 50,245
Interest expense (6,794) (6,149) (28,413) (24,165)
Gain (loss) on
equity
investments, net (500) - (9,486) 215
Gain on
extinguishment of
debt - - 3,882 7,052
------------ ------------ ------------ ------------
Income (loss)
before income
taxes (252,665) 13,473 (434,379) 1,976
Provision for
income taxes 205 392 1,320 1,381
------------ ------------ ------------ ------------
Net income (loss) $ (252,870) $ 13,081 $ (435,699) $ 595
============ ============ ============ ============
Basic net income
(loss) per common
share $ (3.06) $ 0.15 $ (5.30) $ 0.01
============ ============ ============ ============
Diluted net income
(loss) per common
share and
dilutive
potential common
share $ (3.06) $ 0.14 $ (5.30) $ 0.01
============ ============ ============ ============
Weighted average
basic common
shares
outstanding 82,689 84,657 82,170 83,840
============ ============ ============ ============
Weighted average
basic common and
dilutive
potential common
shares
outstanding 82,689 93,146 82,170 85,011
============ ============ ============ ============
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year Ended October 31,
--------------------------
2005 2006
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (435,699) $ 595
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Early extinguishment of debt (3,882) (7,052)
Amortization of premium (discount) on
marketable securities 13,636 (823)
Non-cash loss from equity investments 9,486 733
Non-cash impairment of long-lived
assets 45,862 -
Depreciation and amortization of
leasehold improvements 33,377 16,401
Goodwill impairment 176,600 -
Stock-based compensation 9,441 14,042
Amortization of intangible assets 42,651 29,050
Provision for doubtful accounts 2,602 -
Provision for inventory excess and
obsolescence 5,232 9,012
Provision for warranty and other
contractual obligations 9,738 14,522
Other 3,218 2,028
Changes in assets and liabilities:
Accounts receivable (29,510) (34,386)
Inventories (6,951) (65,764)
Prepaid expenses and other 7,420 4,056
Accounts payable and accruals (19,633) (59,161)
Income taxes payable 2,431 196
Deferred revenue and other
obligations 5,942 (2,842)
------------ ------------
Net cash used in operating
activities (128,039) (79,393)
------------ ------------
Cash flows from investing activities:
Additions to equipment, furniture,
fixtures and intellectual property (11,315) (17,760)
Proceeds from sale of equipment,
furniture and fixtures 278 -
Restricted cash 1,986 4,552
Purchase of available for sale
securities (578,846) (1,090,409)
Maturities of available for sale
securities 910,505 851,084
Minority equity investments, net 4,882 948
------------ ------------
Net cash provided by (used in)
investing activities 327,490 (251,585)
------------ ------------
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
and warrants 9,558 27,987
Repayment of notes receivable from
stockholders 48 -
------------ ------------
Net cash provided by (used in)
financing activities (27,307) 193,130
------------ ------------
Net (decrease) increase in cash and
cash equivalents 172,144 (137,848)
Cash and cash equivalents at beginning of
period 185,868 358,012
------------ ------------
Cash and cash equivalents at end of period $ 358,012 $ 220,164
============ ============
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 25,817 $ 21,685
============ ============
Income taxes $ 977 $ 969
============ ============
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal fourth quarter and fiscal years-ended 2005 and 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.
- Goodwill impairment – non-cash expense resulting from the decline in the forecasted market demand for the Company’s products.
- Long-lived asset impairment – 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 an assessment of doubtful payment due to a customer’s financial condition.
- Gain on lease settlement – a non-recurring gain unrelated to normal operations resulting from termination of obligations under a lease for an unused facility.
- 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.
- 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 affect on adjusted net income (loss) – the income tax charge or benefit on the adjusted net income or 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 August 31, 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 remain encouraged by the continued improvement in strength of our addressable market, and are building momentum with customers as they transition their networks to Ethernet-centric, converged architectures in support of demand for a broader mix of services; we’ve demonstrated progress in several strategic areas, and are confident that sustained execution of our strategy will enable us to become even more globally competitive and continue improving our overall financial performance in 2007 and beyond; we expect to deliver, on a percentage basis, low single-digit sequential revenue growth in our fiscal first quarter 2007; based on our current order pipeline we see growth improving during the balance of the year. 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
