Ciena Reports Unaudited Fiscal Fourth Quarter 2007 and Year-End Results
Linthicum, MD — 12/13/2007Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited results for its fiscal fourth quarter and year ended October 31, 2007. Revenue for the fourth quarter totaled $216.2 million, representing a 5.5% sequential increase from fiscal third quarter revenue of $205.0 million, and an increase of 35.2% over the same period a year ago when the Company reported revenue of $160.0 million. For the fiscal year ended October 31, 2007, Ciena reported revenue of $779.8 million, representing an increase of 38.2% over revenue of $564.1 million for fiscal 2006.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal fourth quarter 2007 was $30.4 million, or $0.30 per diluted share. This compares to fiscal third quarter GAAP net income of $28.3 million, or $0.29 per diluted share, and with a reported GAAP net income of $13.1 million, or $0.14 per diluted share, for the same period a year ago. For the fiscal year ended October 31, 2007, Ciena’s reported GAAP net income was $82.8 million, or $0.87 per diluted share. This compares to a GAAP net income of $0.6 million, or $0.01 per diluted share, for fiscal year 2006.
“By all accounts, 2007 was a momentous year for Ciena. In addition to achieving 38% annual revenue growth and delivering strong financial performance, we established ourselves as a leader in the emerging converged Ethernet infrastructure space with strong market validation for our FlexSelect Architecture and vision,” said Gary Smith, Ciena president and CEO. “Our strong 2007 performance is the direct result of the individual efforts of every single Ciena employee, and in 2008 everyone at Ciena will continue to focus on driving revenue growth while working toward further operating performance improvement.”
At October 31, 2007, Ciena had a $1.7 billion total cash position, which includes $892.1 million in cash and cash equivalents and $856.1 million in short-term and long-term investments in marketable debt securities. The Company’s fiscal fourth quarter and fiscal 2007 GAAP net income reflect a $13.0 million loss related to investments in commercial paper issued by SIV Portfolio plc (formerly known as Cheyne Finance plc) and Rhinebridge LLC, two structured investment vehicles (SIVs) that entered into receivership and failed to make payment at maturity. At the time of purchase, each investment had a rating of A1+ by Standard and Poor’s and P-1 by Moody’s, their highest ratings respectively. After giving effect to this loss, Ciena’s investment portfolio at October 31, 2007 included an estimated fair value of $33.9 million related to these two SIVs.
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) and further described in Appendix A, 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. Management believes that the non-GAAP measures below provide useful information and meaningful insight to the operating performance of the business.
Quarter Quarter
Ended Ended
Oct. 31, 2006 Oct. 31, 2007
------------- -------------
Stock-based compensation-product $ 204 $ 543
Stock-based compensation-services 206 217
Stock-based compensation-research and development 938 836
Stock-based compensation-sales and marketing 706 1,920
Stock-based compensation-general and administrative 963 1,824
Amortization of intangible assets 6,296 6,465
Restructuring costs (recoveries) (366) (39)
Long-lived asset impairment 6 -
Recovery of doubtful accounts, net (41) (4)
Gain on lease settlement - (4,871)
-------------- --------------
Adjustments related to income from operations $ 8,912 $ 6,891
Loss, other than temporary, on marketable
debt investments - 13,013
------------------------------
Adjustments related to net income $ 8,912 $ 19,904
============== ==============
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations $ 3,881 $ 27,120
Adjustments related to income from operations 8,912 6,891
-------------- --------------
Adjusted (non-GAAP) income from operations $ 12,793 $ 34,011
============== ==============
Net Income Reconciliation (GAAP/non-GAAP)
GAAP net income $ 13,081 $ 30,410
Adjustments related to net income 8,912 19,904
-------------- --------------
Adjusted (non-GAAP) net income $ 21,993 $ 50,314
============== ==============
Weighted average basic common shares outstanding 84,657 86,241
Weighted average dilutive potential common
shares outstanding 93,146 108,811
Net Income per Share1
GAAP diluted net income per share $ 0.14 $ 0.30
Adjusted (non-GAAP) diluted net income per share $ 0.24 $ 0.48
1 Note that calculating diluted earnings per share for the fiscal fourth quarters 2006 and 2007 requires adding interest expense of approximately $0.2 million associated with the Company’s 0.25% convertible senior notes in 2006 and $2.0 million associated with the Company’s 0.25% and 0.875% convertible senior notes in 2007, to GAAP and adjusted net income in order to arrive at the numerator for the earnings per share calculation.Adjusting Ciena’s unaudited fiscal fourth quarter 2007 GAAP net income of $30.4 million for the items noted above would increase the Company’s adjusted (non-GAAP) net income in the quarter to $50.3 million, or $0.48 per diluted share (non-GAAP). This compares with an adjusted (non-GAAP) net income of $22.0 million, or $0.24 per diluted share (non-GAAP), in the same year-ago period.
Fourth Quarter 2007 Performance Highlights
• Achieved sequential quarterly revenue growth of 5.5% and year-over-year revenue growth of 35.2%.
• Delivered overall gross margin of 50.5% and product gross margin of 55.0%.
• Delivered GAAP income from operations of 12.5% of revenue and adjusted income from operations of 15.7% of revenue.
• Ended the fiscal fourth quarter 2007 with cash, cash equivalents and short- and long-term investments of $1.7 billion.
Fourth Quarter 2007 Customer and Product Highlights
• VSNL, a leading communications solutions provider and member of the Tata Group, deployed Ciena's CoreDirector® Multiservice Optical Switches to create the first nationwide intelligent optical mesh network in India.
• Ciena’s FlexSelect™ 40G Shelf was honored by the International Engineering Consortium (IEC) with an InfoVision Award for Network Core Innovation and Advances.
• AboveNet, Inc., a leader in fiber optic connectivity solutions, deployed Ciena's CN 4200™ FlexSelect Advanced Services Platform throughout its metro networks to power a variety of private networks transporting Ethernet, IP and other managed services.
• Ciena’s CN 4200 FlexSelect Advanced Services Platform was honored by R&D Magazine as one of the 100 most technologically significant products introduced to the marketplace in the past year.
New CFO Named
Ciena also announced today that it named James E. Moylan, Jr., 56, to succeed outgoing CFO, Joseph Chinnici. Most recently, Mr. Moylan was Executive Vice President and Chief Financial Officer at Swett & Crawford, a private equity-owned wholesale insurance broker. His diverse public company experience includes CFO roles at PRG – Shultz International and at SCI Systems, Inc. where he played a key role in the company’s merger with Sanmina. Mr. Moylan holds an M.B.A. from Harvard and a B.S. in Industrial Engineering from Georgia Tech Institute of Technology. Mr. Moylan will assume CFO responsibility at Ciena following the filing of the Company’s 2007 Form 10-K.
“I can’t thank Joe enough for his support and contribution to the business over the years. We wish him all the best in his future endeavors,” said Smith. “I am confident that Jim’s business acumen, global perspective and significant experience will be valuable assets to Ciena, and I look forward to working with him through the next phase of Ciena’s growth.”
Business Outlook
“As we look into fiscal 2008, we believe Ciena is poised to benefit not only from capacity-related growth but also from the transition to next-generation, converged Ethernet-based network infrastructures,” said Smith. “We believe that Ciena’s focus on targeted segments of growth markets will enable us to continue to grow faster than our overall market. We expect to deliver up to 5% sequential revenue growth in our fiscal first quarter and 20% annual revenue growth in fiscal 2008.”
Separately today, Ciena also announced that BT has selected the CN 3000™ Ethernet Access Series as one of its preferred Network Termination Equipment (NTE) platforms for its 21st Century Network (21CN). The agreement extends BT’s partnership with Ciena, which already supplies optical Ethernet transport and switching solutions for the 21CN transmission domain, by enabling BT to provide Ethernet access in the last mile to support the roll-out of new 21CN services and applications [see related announcement: “BT Selects Ciena’s CN 3000 Ethernet Access Series to Support its 21st Century Network”].
Live Web Broadcast of Fiscal Fourth Quarter and Year-End Results
Ciena will host a discussion of its fiscal fourth quarter and year-end results with investors and financial analysts today, Thursday, December 13, 2007 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
October 31,
----------------------------
Current assets: 2006 2007
-------------- --------------
Cash and cash equivalents $ 220,164 $ 892,061
Short-term investments 628,393 822,185
Accounts receivable, net 107,172 104,078
Inventories 106,085 102,618
Prepaid expenses and other 36,372 47,817
-------------- --------------
Total current assets 1,098,186 1,968,759
Long-term investments 351,407 33,946
Equipment, furniture and fixtures, net 29,427 46,671
Goodwill 232,015 232,015
Other intangible assets, net 91,274 67,144
Other long-term assets 37,404 67,738
-------------- --------------
Total assets $ 1,839,713 $ 2,416,273
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 39,277 $ 55,389
Accrued liabilities 79,282 90,922
Restructuring liabilities 8,914 1,026
Unfavorable lease commitments 8,512 -
Income taxes payable 5,981 7,768
Deferred revenue 19,637 33,025
Convertible notes payable - 542,262
-------------- --------------
Total current liabilities 161,603 730,392
Long-term deferred revenue 21,039 30,615
Long-term restructuring liabilities 26,720 3,662
Long-term unfavorable lease commitments 32,785 -
Other long-term obligations 1,678 1,450
Convertible notes payable 842,262 800,000
-------------- --------------
Total liabilities 1,086,087 1,566,119
-------------- --------------
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; 84,891,656 and 86,752,069
shares issued and outstanding 849 868
Additional paid-in capital 5,505,853 5,519,741
Changes in unrealized gains on investments, net (496) 350
Translation adjustment (580) (1,593)
Accumulated deficit (4,752,000) (4,669,212)
-------------- --------------
Total stockholders' equity 753,626 850,154
-------------- --------------
Total liabilities and stockholders' equity $ 1,839,713 $ 2,416,273
============== ==============
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended October 31, Year Ended October 31
------------------------ ---------------------
2006 2007 2006 2007
---------- ---------- ---------- --------
Revenues:
Products $ 141,469 $ 193,652 $ 502,427 $ 695,289
Services 18,483 22,538 61,629 84,480
---------- ---------- ---------- ---------
Total revenue 159,952 216,190 564,056 779,769
---------- ---------- ---------- ---------
Costs:
Products 73,955 87,185 263,667 337,866
Services 13,241 19,859 42,608 79,634
---------- ---------- ---------- ---------
Total cost of goods sold 87,196 107,044 306,275 417,500
---------- ---------- ---------- ---------
Gross profit 72,756 109,146 257,781 362,269
---------- ---------- ---------- ---------
Operating Expenses:
Research and development 26,561 34,130 111,069 127,296
Selling and marketing 26,302 32,655 104,434 118,015
General and administrative 10,117 13,690 47,476 50,262
Amortization of intangible assets 6,296 6,465 25,181 25,350
Restructuring costs (recoveries) (366) (39) 15,671 (2,435)
Long-lived asset impairments 6 - - -
Gain on lease settlement - (4,871) (11,648) (4,871)
Recovery of doubtful accounts, net (41) (4) (3,031) (14)
---------- ---------- ---------- ---------
Total operating expenses 68,875 82,026 289,152 313,603
---------- ---------- ---------- ---------
Income (loss) from operations 3,881 27,120 (31,371) 48,666
Interest and other income, net 15,741 25,277 50,245 76,483
Interest expense (6,149) (7,769) (24,165) (26,996)
Loss, other than temporary, on
marketable debt investments - (13,013) - (13,013)
Gain on equity investments, net - - 215 592
Gain on extinguishment of debt - - 7,052 -
---------- ---------- ---------- ---------
Income before income taxes 13,473 31,615 1,976 85,732
Provision for income taxes 392 1,205 1,381 2,944
---------- ---------- ---------- ---------
Net income $ 13,081 $ 30,410 $ 595 $ 82,788
========== ========== ========== ==========
Basic net income per
common share $ 0.15 $ 0.35 $ 0.01 $ 0.97
========== ========== ========== ==========
Diluted net income per
common share2 $ 0.14 $ 0.30 $ 0.01 $ 0.87
========== ========== ========== ==========
Weighted average basic common
shares outstanding 84,657 86,241 83,840 85,525
========== ========== ========== ==========
Weighted average dilutive potential
common share outstanding 93,146 108,811 85,011 99,605
========== ========== ========== ==========
2 Note that calculating diluted earnings per share for the quarters ended October 31, 2006 and 2007 requires adding interest expense of $0.2 million associated with the Company’s 0.25% convertible senior notes in 2006 and $2.0 million associated with the Company’s 0.25% and 0.875% convertible senior notes in 2007, to GAAP net income in order to arrive at the numerator for the earnings per share calculation. For the fiscal year ended October 31, 2007, interest expense of $4.1 million associated with the Company’s 0.25% and 0.875% convertible senior notes must be added to GAAP net income in order to arrive at the numerator for the earnings per share calculation. CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year Ended October 31,
------------- -------------
2006 2007
------------- -------------
Cash flows from operating activities:
Net income $ 595 $ 82,788
Adjustments to reconcile net income to net
cash provided by used in operating activities:
Early extinguishment of debt (7,052) -
Amortization of premium (discount) on marketable
securities (823) (14,191)
Non-cash loss from equity investments
and marketable securities 733 13,013
Depreciation and amortization of
leasehold improvements 16,401 12,833
Stock compensation 14,042 19,572
Amortization of intangibles 29,050 29,220
Provision for doubtful accounts - -
Provision for inventory excess and obsolescence 9,012 12,180
Provision for warranty and other contractual
obligations 14,522 12,743
Other 2,028 2,984
Changes in assets and liabilities:
Accounts receivable (34,386) 3,094
Inventories (65,764) (8,713)
Prepaid expenses and other 4,056 (20,568)
Accounts payable and accruals (59,161) (57,462)
Income taxes payable 196 1,787
Deferred revenue and other obligations (2,842) 22,964
------------- -------------
Net cash provided by (used in)
operating activities (79,393) 112,244
------------- -------------
Cash flows from investing activities:
Purchases of equipment, furniture,
fixtures and intellectual property (17,760) (35,167)
Restricted cash 4,552 (13,277)
Purchase of available for sale securities (1,090,409) (864,012)
Proceeds from maturities of available
for sale securities 851,084 989,705
Minority equity investments, net 948 (181)
------------- -------------
Net cash provided by (used in)
investing activities (251,585) 77,068
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of convertible
notes payable 300,000 500,000
Repurchase of 3.75% convertible
notes payable (98,410) -
Debt issuance costs (7,990) (11,750)
Purchase of call spread option (28,457) (42,500)
Proceeds from issuance of common stock
and warrants 27,987 36,835
------------- -------------
Net cash provided by financing activities 193,130 482,585
------------- -------------
Net increase (decrease) in cash and cash
equivalents (137,848) 671,897
------------- -------------
Cash and cash equivalents at beginning of period 358,012 220,164
Cash and cash equivalents at end of period $ 220,164 $ 892,061
============== ==============
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal fourth quarter 2007 and 2006 GAAP results are as follows:
• Stock-based compensation costs – a non-cash expense incurred in accordance with SFAS 123(R).
• 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.
• Restructuring costs (recoveries) – infrequent charges or recoveries incurred as the result of aligning the Company’s resources with perceived market opportunity, including new market segments within the overall market.
• 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.
• Recovery of doubtful accounts, net – an infrequent gain unrelated to normal operations resulting from the recovery of an amount due that was previously assessed a doubtful payment due to customer financial condition.
• Gain on lease settlement – an infrequent gain unrelated to normal operations resulting from the termination of lease obligations for an unused facility.
• Loss, other than temporary, on marketable debt investments – an infrequent loss related to Ciena’s investments in commercial paper issued by two structured investment vehicles (SIVs) exposed to market risks stemming from mortgage-related assets that they hold. After giving effect to estimated realized losses of $13.0 million, Ciena’s investment portfolio at October 31, 2007 included commercial paper with an estimated fair value of $33.9 million related to these two SIVs.
Ciena specializes in practical network transition. We offer leading network infrastructure solutions, intelligent software and a comprehensive services practice to help our customers use their networks to fundamentally change the way they compete. 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, 2007. 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: in 2008 everyone at Ciena will continue to focus on driving revenue growth while working toward further operating performance improvement; as we look into fiscal 2008, we believe Ciena is poised to benefit not only from capacity-related growth but also from the transition to next-generation, converged Ethernet-based network infrastructures; we believe that Ciena’s focus on targeted segments of growth markets will enable us to continue to grow faster than our overall market; and, we expect to deliver up to 5% sequential revenue growth in our fiscal first quarter and 20% annual revenue growth in fiscal 2008.. 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
