Ciena Reports Fiscal First Quarter 2008 Results
Company delivers 5% sequential, 38% year-over-year revenue growth
Linthicum, MD — 03/07/2008Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced results for its fiscal first quarter ended January 31, 2008. Revenue for the first quarter totaled $227.4 million, representing an increase of 38% over the same period a year ago when the Company reported sales of $165.1 million.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal first quarter 2008 was $28.8 million, or $0.28 per diluted share. This compares to a reported GAAP net income of $11.1 million, or $0.12 per diluted share, for the same period a year ago.
“As a specialist player in our industry, Ciena is differentiating itself by harnessing innovation to deliver solutions that enhance the operational value of our customers' networks,” said Gary Smith, Ciena president and CEO. “Our revenue growth during the last several years reflects the investments we’ve made in our product portfolio, which have enhanced our ability to seize new opportunities, thereby enabling us to take share and gain additional customer traction.”
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
Jan 31, 2007 Jan 31, 2008
Share-based compensation-product $ 221 $ 565
Share-based compensation-services 193 246
Share-based compensation-research and
development 743 1,177
Share-based compensation-sales and marketing 1,040 2,464
Share-based compensation-general and
administrative 1,000 2,209
Amortization of intangible assets 6,295 6,470
Litigation settlement - 7,700
Restructuring recoveries (466) -
-------------- --------------
Total adjustments related to income from
operations $ 9,026 $ 20,831
============== ==============
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations $ 2,780 $ 18,419
Adjustments related to income from operations 9,026 20,831
-------------- --------------
Adjusted (non-GAAP) income from operations $ 11,806 $ 39,250
============== ==============
Net Income Reconciliation (GAAP/non-GAAP)
GAAP net income $ 11,056 $ 28,807
Adjustment for total adjustments noted above 9,026 20,831
-------------- --------------
Adjusted (non-GAAP) net income $ 20,082 $ 49,638
============== ==============
Weighted average basic common shares
outstanding 84,953 86,910
Weighted average dilutive potential common
shares outstanding 93,259 109,009
GAAP diluted net income per share $ 0.12 $ 0.28
Adjusted (non-GAAP) diluted net income
per share $ 0.22 $ 0.47
Please see Appendix A for additional information about this table.
Adjusting Ciena’s unaudited fiscal first quarter 2008 GAAP net income of $28.8 million for the items noted above would increase the Company’s adjusted (non-GAAP) net income in the first quarter to $49.6 million. Adding the interest expense of $1.8 million associated with the Company’s 0.25% and 0.875% convertible senior notes to the fiscal first quarter 2008’s adjusted (non-GAAP) net income in order to arrive at the numerator for the earnings per share calculation, results in an as-adjusted net income of $0.47 per adjusted diluted share. This compares with an adjusted (non-GAAP) net income of $20.1 million, or $0.22 per adjusted diluted share, in the same year-ago period. Note that calculating the as-adjusted diluted earnings per share for the fiscal first quarter 2007 requires that interest expense of approximately $0.5 million associated with the Company’s 0.25% convertible senior notes be added to GAAP net income in order to arrive at the numerator for the earnings per share calculation.
First Quarter 2008 Performance Highlights
• Achieved sequential quarterly revenue growth of 5% and year-over-year revenue growth of 38%.
• Delivered overall gross margin of 51% with product gross margin of 55% and services gross margin of 24%.
• Delivered GAAP income from operations of 8% of revenue and non-GAAP as-adjusted income from operations of 17% of revenue.
• Paid at maturity the remaining $542.3 million in aggregate principal amount on the Company’s 3.75% convertible notes.
• Ended the fiscal first quarter 2008 with cash, cash equivalents and short- and long-term investments of $1.2 billion.
• Announced the acquisition of privately-held World Wide Packets, Inc., a leading supplier of solutions for enabling the cost-effective delivery of a wide variety of Carrier Ethernet-based services. The acquisition was completed on March 3, 2008, subsequent to the close of the first fiscal quarter.
First Quarter 2008 Customer and Product Highlights
• BT selected Ciena’s CN 3000™ Ethernet Access Series as one of its preferred Network Termination Equipment (NTE) platforms for its 21st Century Network (21CN).
• AT&T awarded a multi-year contract to Ciena to provide Carrier Ethernet solutions gained as a result of the acquisition of World Wide Packets.
• ENERGIE AG Data will deploy the CN 4200® and ON-Center® Network and Service Management Suite to improve multi-site connectivity. ENERGIE AG Data will also utilize Ciena’s CN 4200 to deliver Gigabit Ethernet and storage services to business customers in Upper Austria, when the division launches its enterprise and wholesale offerings.
• California Institute of Technology (Caltech) selected the CoreDirector® Multiservice Optical Switch for use in its multi-national research networking efforts.
• Neuf Cegetel deployed the CN 4200 RS FlexSelect™ Advanced Services Platform to increase capacity across its backbone network in the Ile de France region in response to strong customer demand for high-bandwidth IP services.
• Ciena announced new G10 and G10X Ethernet Service Modules that deliver Layer 2 Ethernet aggregation, switching and transport capabilities as simple plug-and-play upgrades to the Company’s CN 4200 FlexSelect Advanced Services Platform family.
Business Outlook
“While we are mindful of the macro economic environment, indications from our customers to date suggest no change in the fundamental drivers of Ciena’s business: the demand for increasing network capacity and the transition to Ethernet/IP-based network infrastructures. Accordingly, we remain optimistic about our outlook for the year,” said Smith. “Inclusive of revenue expected from our recently closed acquisition of World Wide Packets, we anticipate current demand trends will enable us to deliver annual revenue growth in a range, up to 27 percent in fiscal 2008.”
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, Friday, March 7, 2008 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 STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended January 31,
----------------------------
2007 2008
-------------- --------------
Revenues:
Products $ 146,282 $ 201,790
Services 18,819 25,626
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Total revenue 165,101 227,416
-------------- --------------
Costs:
Products 74,979 91,387
Services 16,494 19,460
-------------- --------------
Total cost of goods sold 91,473 110,847
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Gross profit 73,628 116,569
-------------- --------------
Operating expenses:
Research and development 29,853 35,444
Selling and marketing 24,875 33,608
General and administrative 10,291 22,628
Amortization of intangible assets 6,295 6,470
Restructuring recoveries (466) -
-------------- --------------
Total operating expenses 70,848 98,150
-------------- --------------
Income from operations 2,780 18,419
Interest and other income, net 14,845 19,082
Interest expense (6,148) (7,358)
Income before income taxes 11,477 30,143
Provision for income taxes 421 1,336
-------------- --------------
Net income $ 11,056 $ 28,807
============== ==============
Basic net income per common share $ 0.13 $ 0.33
============== ==============
Diluted net income per potential common share $ 0.12 $ 0.28
============== ==============
Weighted average basic common shares
outstanding 84,953 86,910
============== ==============
Weighted average dilutive potential common
shares outstanding 93,259 109,009
============== ==============
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
October 31, January 31,
-------------- --------------
Current assets: 2007 2008
Cash and cash equivalents $ 892,061 $ 922,306
Short-term investments 822,185 259,643
Accounts receivable, net 104,078 144,639
Inventories 102,618 103,520
Prepaid expenses and other 47,817 40,566
-------------- --------------
Total current assets 1,968,759 1,470,674
Long-term investments 33,946 33,946
Equipment, furniture and fixtures, net 46,671 48,878
Goodwill 232,015 232,015
Other intangible assets, net 67,144 59,235
Other long-term assets 67,738 68,668
-------------- --------------
Total assets $ 2,416,273 $ 1,913,416
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55,389 $ 66,385
Accrued liabilities 90,922 81,546
Restructuring liabilities 1,026 914
Income taxes payable 7,768 2,052
Deferred revenue 33,025 31,452
Convertible notes payable 542,262 -
-------------- --------------
Total current liabilities 730,392 182,349
Long-term deferred revenue 30,615 30,812
Long-term restructuring liabilities 3,662 3,565
Other long-term obligations 1,450 7,629
Convertible notes payable 800,000 800,000
-------------- --------------
Total liabilities 1,566,119 1,024,355
-------------- --------------
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; 86,752,069 and 87,052,680
shares issued and outstanding 868 871
Additional paid-in capital 5,519,741 5,527,873
Changes in unrealized gains on
investments, net 350 888
Translation adjustment (1,593) (306)
Accumulated deficit (4,669,212) (4,640,265)
-------------- --------------
Total stockholders' equity 850,154 889,061
-------------- --------------
Total liabilities and stockholders' equity $ 2,416,273 $ 1,913,416
============== ==============
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended January 31,
-------------------------------
2007 2008
-------------- --------------
Cash flows from operating activities:
Net income $ 11,056 $ 28,807
Adjustments to reconcile net income to
net cash provided by used in operating
activities:
Amortization of premium (discount) on
marketable securities (1,249) (1,296)
Depreciation and amortization of
leasehold improvements 3,150 3,949
Share-based compensation 3,289 6,881
Amortization of intangibles 7,263 7,438
Deferred tax provision - 471
Provision for doubtful accounts - 25
Provision for inventory excess and
obsolescence 4,763 5,794
Provision for warranty 4,791 2,914
Other 715 1,118
Changes in assets and liabilities:
Accounts receivable (32,250) (40,586)
Inventories (2,226) (6,696)
Prepaid expenses and other (11,289) 5,413
Accounts payable and accruals (1,810) 6,383
Income taxes payable 317 (5,576)
Deferred revenue and other obligations 2,186 (1,376)
-------------- --------------
Net cash provided by (used in)
operating activities 11,294) 13,663
-------------- --------------
Cash flows from investing activities:
Payments for equipment, furniture, fixtures
and intellectual property (6,590) (6,666)
Restricted cash (521) (263)
Purchase of available for sale securities (88,632) -
Proceeds from maturities of available for a
sale securities 258,171 564,376
-------------- --------------
Net cash provided by investing activities 162,428 557,447
-------------- --------------
Cash flows from financing activities:
Repayment of 3.75% convertible notes payable - (542,262)
Proceeds from issuance of common stock and
warrants 2,781 1,254
-------------- --------------
Net cash provided by (used in) financing
activities 2,781 (541,008)
-------------- --------------
Effect of exchange rate changes on cost
and cash equivalents - 143
Net increase in cash and cash equivalents 153,915 30,102
Cash and cash equivalents at beginning of
period 220,164 892,061
-------------- --------------
Cash and cash equivalents at end of period $ 374,079 $ 922,306
============== ==============
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ - $ 1,355
============== ==============
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal first quarter 2008 GAAP results are as follows:
• Share-based compensation expense – 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.
• Litigation settlement – included in general and administrative expense during our first quarter of fiscal 2008 is a $7.7 million patent litigation settlement.
• Restructuring recoveries – infrequent recoveries incurred as the result of previous restructuring activities to align resources with perceived market opportunities, including new segment opportunities within the overall market, which the Company believes are not reflective of its ongoing operating costs.
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 December 27, 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: while we are mindful of the macro economic environment, indications from our customers to date suggest no change in the fundamental drivers of Ciena’s business: the demand for increasing network capacity and the transition to Ethernet/IP-based network infrastructures; we remain optimistic about our outlook for the year; and inclusive of revenue expected from our recently closed acquisition of World Wide Packets, we anticipate current demand trends will enable us to deliver annual revenue growth in a range, up to 27 percent 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
Marie Downing
Ciena Corporation
(888) 243-6223
ir@ciena.com
