Ciena® Corporation (NASDAQ:CIEN), the network specialist, today announced results for its fiscal second quarter ended April 30, 2007. Revenue for the second quarter totaled $193.5 million, representing a 17.2% sequential increase from fiscal first quarter revenue of $165.1 million, and an increase of 47.5% over the same period a year ago when the Company reported sales of $131.2 million. For the six months ended April 30, 2007, Ciena reported revenue of $358.6 million, representing an increase of 42.5% over revenue of $251.6 million for the same six-month year-ago period.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal second quarter 2007 was $13.0 million, or net income of $0.14 per diluted share. This compares with a reported GAAP net loss of $1.9 million, or a net loss of $0.02 per share, for the same period a year ago. For the six-month period ended April 30, 2007, Ciena’s reported GAAP net income was $24.1 million, or net income of $0.26 per diluted share. This compares to a GAAP net loss of $8.2 million, or a net loss of $0.10 per share, for the same six-month year-ago period.
“Across all of our market segments, our customers’ key operational focus is making the cost-effective transition from multiple, disparate networks to a converged, multi-purpose network infrastructure while simultaneously managing escalating bandwidth and quality-of-service requirements,” said Gary Smith, Ciena president and CEO. “Several years ago, Ciena embarked on a strategy designed to position us to benefit from the network transition and convergence we’re seeing emerge today, and we believe our persistent execution of that strategy, articulated in our FlexSelect™ Architecture and vision, is what has enabled us to deliver better-than-market revenue growth.”
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 | |||
April 30, | April 30, | |||
2006 | 2007 | |||
| Stock-based compensation-product | $ 375 | $ 362 | ||
| Stock-based compensation-services | 205 | 285 | ||
| Stock-based compensation-research and development | 1,421 | 1,085 | ||
| Stock-based compensation-sales and marketing | 948 | 1,866 | ||
| Stock-based compensation-general and administrative | 1,007 | 1,892 | ||
| Amortization of intangible assets | 6,295 | 6,295 | ||
| Restructuring costs (recoveries) | 3,014 | (734) | ||
| Long-lived asset impairment | (3) | - | ||
| Recovery of doubtful accounts, net | (247) | - | ||
| Gain on lease settlement | (5,628) | - | ||
| Gain on extinguishment of debt | (362) | - | ||
| Total adjustments | $ 7,025 | $ 11,051 | ||
| GAAP net income (loss) | $ (1,910) | $ 13,010 | ||
| Adjustment for items above | 7,025 | 11,051 | ||
| Adjusted (non-GAAP) net income | $ 5,115 | $ 24,061 | ||
Weighted average basic common shares outstanding | 83,518 | 85,198 | ||
| Weighted average dilutive potential common shares outstanding | 87,457 | 93,737 | ||
| Adjusted (non-GAAP) net income per share | $ 0.06 | $ 0.26 |
Please see Appendix A for additional information about this table.
Adjusting Ciena’s unaudited fiscal second quarter 2007 GAAP net income of $13.0 million for the items noted above would increase the Company’s adjusted (non-GAAP) net income in the quarter to $24.1 million, or an adjusted (non-GAAP) net income of $0.26 per adjusted diluted share. This compares with an adjusted (non-GAAP) net income of $5.1 million, or an adjusted (non-GAAP) net income of $0.06 per adjusted diluted share, in the same year-ago period.
Second Quarter 2007 Performance Highlights
- Achieved sequential quarterly revenue growth of 17.2% and year-over-year revenue growth of 47.5%.
- Delivered overall gross margin of 42.3% and product gross margin of 47.3%.
- Achieved positive cash flow with cash generated from operations in the quarter.
- Ended the fiscal second quarter 2007 with cash, cash equivalents and short- and long-term investments of $1.2 billion.
Second Quarter 2007 Customer Highlights
- Star Telephone selected the CN 4200™ FlexSelect™ Advanced Services Platform for its core network infrastructure upgrade.
- Dreamline Co., Ltd. chose the CN 4200 to support the delivery of new Ethernet services for its growing base of leased-line customers in South Korea.
- RENATER, the national research and education network in France, deployed the CN 4200 across the organization's new metropolitan area network (MAN) in Paris.
Second Quarter 2007 Product Highlights
- Announced FlexSelect™ for Ethernet, a comprehensive Ethernet strategy designed to make Ethernet a carrier-class, performance-grade convergence vehicle from the access network to the core.
- Introduced the 3000 Ethernet Access Series to provide access over any media for carrier Ethernet service delivery.
- Introduced the CN 5060™ Multiservice Carrier Ethernet Platform, a next-generation Ethernet-optimized platform that enables a cost-effective transition to converged Ethernet switching in metro and edge aggregation networks.
- Successfully completed interoperability testing and qualification of the CN 4200 FlexSelect Advanced Services Platform for both IBM's Geographically Dispersed Parallel Sysplex™ (GDPS®) business continuity solution and Server Time Protocol (STP), the new generation of technology for time synchronization of System Z™ mainframe server environments.
Business Outlook
“Given the demand pipeline we see today, we expect to deliver fiscal third quarter revenue growth of up to five percent from our fiscal second quarter, and we are increasing our fiscal 2007 annual growth expectations from between 27 to 30 percent growth to up to 36 percent growth,” Smith said.
“In addition, the visibility we have into anticipated product mix leads us to believe we will be able to achieve this growth while delivering gross margin in a mid-40s range in our fiscal third quarter,” said Smith. “Successfully achieving our revenue and gross margin goals would put us on track to achieve a significant milestone of 10 percent income from operations on an as-adjusted basis as soon as our fiscal third quarter 2007.”
Live Web Broadcast of Fiscal Second Quarter Results
Ciena will host a discussion of its fiscal second quarter results with investors and financial analysts today, Thursday, May 31, 2007 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.
NOTE TO INVESTORS
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 March 2, 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: Several years ago, Ciena embarked on a strategy designed to position us to benefit from the network transition and convergence we’re seeing emerge today, and we believe our persistent execution of that strategy, articulated in our FlexSelect™ Architecture and vision, is what has enabled us to deliver better-than-market revenue growth; given the demand pipeline we see today, we expect to deliver fiscal third quarter revenue growth of up to five percent from our fiscal second quarter, and we are increasing our annual growth expectations from between 27 to 30 percent growth to up to 36 percent growth for fiscal 2007; the visibility we have into anticipated product mix leads us to believe we will be able to achieve this growth while delivering gross margin in a mid-40s range in our fiscal third quarter; and successfully achieving our revenue and gross margin goals would put us on track to achieve a significant milestone of 10 percent income from operations on an as-adjusted basis as soon as our fiscal third quarter. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
(Unaudited Condensed Consolidated Balance Sheets, Statement of Operations and Cash Flows follow)
| CIENA CORPORATION | ||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
| (in thousands, except share data) | ||||
| (unaudited) | ||||
| ASSETS | ||||
| October 31, | April 30, | |||
| Current assets: | 2006 | 2007 | ||
| Cash and cash equivalents | $ 220,164 | $ 470,306 | ||
| Short-term investments | 628,393 | 646,653 | ||
| Accounts receivable, net | 107,172 | 145,495 | ||
| Inventories, net | 106,085 | 118,790 | ||
| Prepaid expenses and other | 36,372 | 43,930 | ||
| Total current assets | 1,098,186 | 1,425,174 | ||
| Long-term investments | 351,407 | 105,556 | ||
| Equipment, furniture and fixtures, net | 29,427 | 37,567 | ||
| Goodwill | 232,015 | 232,015 | ||
| Other intangible assets, net | 91,274 | 76,749 | ||
| Other long-term assets | 37,404 | 45,995 | ||
| Total assets | $ 1,839,713 | $ 1,923,056 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Accounts payable | $ 39,277 | $ 69,942 | ||
| Accrued liabilities | 79,282 | 84,476 | ||
| Restructuring liabilities | 8,914 | 7,065 | ||
| Unfavorable lease commitments | 8,512 | 7,653 | ||
| Income taxes payable | 5,981 | 6,479 | ||
| Deferred revenue | 19,637 | 36,097 | ||
| Convertible notes payable | - | 542,262 | ||
| Total current liabilities | 161,603 | 753,974 | ||
| Long-term deferred revenue | 21,039 | 24,071 | ||
| Long-term restructuring liabilities | 26,720 | 22,694 | ||
| Long-term unfavorable lease commitments | 32,785 | 28,596 | ||
| Other long-term obligations | 1,678 | 1,594 | ||
| Long-term convertible notes payable | 842,262 | 300,000 | ||
| Total liabilities | 1,086,087 | 1,130,929 | ||
| 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 85,342,240 shares issued and outstanding | 849 | 853 | ||
| Additional paid-in capital | 5,505,853 | 5,520,902 | ||
| Unrealized gains on investments, net | (496) | (232) | ||
| Translation adjustment | (580) | (1,462) | ||
| Accumulated deficit | (4,752,000) | (4,727,934) | ||
| Total stockholders' equity | 753,626 | 792,127 | ||
| Total liabilities and stockholders' equity | $ 1,839,713 | $ 1,923,056 | ||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except per share data) | ||||||||
| (unaudited) | ||||||||
Quarter Ended |
Six Months Ended | |||||||
| 2006 | 2007 | 2006 | 2007 | |||||
| Revenues: | ||||||||
| Products | $ 117,208 | $ 173,212 | $ 223,149 | $ 319,494 | ||||
| Services | 13,967 | 20,315 | 28,456 | 39,134 | ||||
| Total revenue | 131,175 | 193,527 | 251,605 | 358,628 | ||||
| Costs: | ||||||||
| Products | 58,957 | 91,319 | 119,356 | 166,298 | ||||
| Services | 9,312 | 20,378 | 18,888 | 36,872 | ||||
| Total cost of goods sold | 68,269 | 111,697 | 138,244 | 203,170 | ||||
| Gross profit | 62,906 | 81,830 | 113,361 | 155,458 | ||||
| Operating expenses: | ||||||||
| Research and development | 28,856 | 31,642 | 58,318 | 61,495 | ||||
| Selling and marketing | 26,657 | 30,182 | 53,229 | 55,057 | ||||
| General and administrative | 11,246 | 11,707 | 21,142 | 22,008 | ||||
| Amortization of intangible assets | 6,295 | 6,295 | 12,590 | 12,590 | ||||
| Restructuring costs (recoveries) | 3,014 | (734) | 5,029 | (1,200) | ||||
| Long-lived asset impairments | (3) | - | (6) | - | ||||
| Recovery of doubtful accounts, net | (247) | - | (2,851) | (10) | ||||
| Gain on lease settlement | (5,628) | - | (11,648) | - | ||||
| Total operating expenses | 70,190 | 79,092 | 135,803 | 149,940 | ||||
| Income (loss) from operations | (7,284) | 2,738 | (22,442) | 5,518 | ||||
| Interest and other income, net | 11,197 | 16,897 | 20,459 | 31,742 | ||||
| Interest expense | (5,815) | (6,148) | (11,868) | (12,296) | ||||
| Loss on equity investments, net | - | - | (733) | - | ||||
| Gain on extinguishment of debt | 362 | - | 7,052 | - | ||||
| Income (loss) before income taxes | (1,540) | 13,487 | (7,532) | 24,964 | ||||
| Provision for income taxes | 370 | 477 | 669 | 898 | ||||
| Net income (loss) | $ (1,910) | $ 13,010 | $ (8,201) | $ 24,066 | ||||
| Basic net income (loss) per common share | $ (0.02) | $ 0.15 | $ (0.10) | $ 0.28 | ||||
| Diluted net income (loss) per potential common share | $ (0.02) | $ 0.14 | $ (0.10) | $ 0.26 | ||||
| Weighted average basic common shares outstanding | 83,518 | 85,198 | 83,251 | 85,076 | ||||
| Weighted average dilutive potential common shares outstanding | 83,518 | 93,737 | 83,251 | 93,491 | ||||
| CIENA CORPORATION | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
| (in thousands) | ||||
| (unaudited) | ||||
| Six Months Ended April 30, | ||||
| 2006 | 2007 | |||
| Cash flows from operating activities: | ||||
| Net income (loss) | $ (8,201) | $ 24,066 | ||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||
| Early extinguishment of debt | (7,052) | - | ||
| Amortization of premium on marketable securities | 1,955 | (3,052) | ||
| Non-cash loss from equity investments | 733 | - | ||
| Depreciation and amortization of leasehold improvements | 9,691 | 6,298 | ||
| Stock compensation | 8,118 | 8,937 | ||
| Amortization of intangibles | 14,525 | 14,525 | ||
| Provision for inventory excess and obsolescence | 4,376 | 6,385 | ||
| Provision for warranty and other contractual obligations | 6,815 | 7,111 | ||
| Other | 1,280 | 872 | ||
| Changes in assets and liabilities: | ||||
| Accounts receivable | (3,813) | (38,323) | ||
| Inventories | (34,119) | (19,090) | ||
| Prepaid expenses and other | 5,264 | (12,173) | ||
| Accounts payable, accrued liabilities and other obligations | (60,318) | 17,741 | ||
| Income taxes payable | (133) | 498 | ||
| Deferred revenue | 15,312 | 19,492 | ||
| Net cash provided by (used in) operating activities | (45,567) | 33,287 | ||
| Cash flows from investing activities: | ||||
| Additions to equipment, furniture, fixtures and intellectual property | (8,531) | (14,438) | ||
| Restricted cash | 1,837 | (5,549) | ||
| Purchases of available for sale securities | (130,837) | (213,219) | ||
| Maturities of available for sale securities | 299,657 | 444,126 | ||
| Minority equity investments, net | - | (181) | ||
| Net cash provided by investing activities | 162,126 | 210,739 | ||
| Cash flows from financing activities: | ||||
| Proceeds from issuance of 0.25% convertible senior notes payable | 300,000 | - | ||
| Repurchase of 3.75% convertible notes payable | (98,410) | - | ||
| Debt issuance costs | (7,652) | - | ||
| Purchase of call spread option | (28,457) | - | ||
Proceeds from exercise of stock options | 16,171 | 6,116 | ||
| Net cash provided by financing activities | 181,652 | 6,116 | ||
| Net increase in cash and cash equivalents | 298,211 | 250,142 | ||
| Cash and cash equivalents at beginning of period | 358,012 | 220,164 | ||
| Cash and cash equivalents at end of period | $ 656,223 | $ 470,306 | ||
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal second quarter 2007 GAAP results are as follows:
- Stock-based compensation costs – A non-cash expense incurred in accordance with SFAS 123R using the modified prospective application transition method.
- 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 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 impairment – infrequent 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 – an infrequent gain unrelated to normal operations resulting from the recovery of a previously assessed doubtful payment due to a customer’s financial condition.
- Gain on lease settlement – an infrequent gain unrelated to normal operations resulting from termination of obligations under a lease for an unused facility.
- Gain on extinguishment of debt – an infrequent gain related to the early extinguishment of outstanding debt.
About Ciena
Ciena Corporation is the network specialist, focused on expanding the possibilities for its customers’ networks while reducing their cost of ownership. The Company’s systems, software and services target and cure specific network pain points so that telcos, cable operators, governments and enterprises can best exploit the new applications that are driving their businesses forward. For more information, visit www.ciena.com.
