Ciena® Corporation (NASDAQ:CIEN), the network specialist, today announced results for its fiscal third quarter ended July 31, 2008. Revenue for the third quarter totaled $253.2 million, representing a 5% sequential increase from fiscal second quarter 2008 revenue of $242.2 million, and an increase of 24% over the same period a year ago when Ciena reported revenue of $205 million. For the nine months ended July 31, 2008, Ciena reported revenue of $722.8 million, representing an increase of 28% over revenue of $563.6 million for the same nine-month period in fiscal 2007.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal third quarter 2008 was $11.7 million, or $0.12 per diluted common share. This compares to fiscal second quarter GAAP net income of $23.8 million, or $0.23 per diluted common share, and a reported GAAP net income of $28.3 million, or $0.29 per diluted share, for the same period a year ago. For the nine months ended July 31, 2008, Ciena’s reported GAAP net income was $64.3 million, or $0.63 per diluted common share. This compares to a GAAP net income of $52.4 million, or $0.57 per diluted common share, for the same period in fiscal 2007.
Ciena’s adjusted (non-GAAP) net income for the fiscal third quarter 2008 was $39.8 million, or $0.37 per diluted common share. This compares to fiscal second quarter adjusted (non-GAAP) net income of $42.3 million, or $0.40 per diluted common share, and adjusted (non-GAAP) net income of $40.0 million or $0.41 per diluted common share in the fiscal third quarter 2007. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is provided in the table in Appendix A.
“Our fiscal third quarter performance was solid,” said Gary Smith, Ciena’s president and CEO. “We delivered our eighteenth quarter of sequential revenue growth, gross and operating margins in-line with our targets, and improvement across several key balance sheet metrics.”
Third Quarter 2008 Performance Highlights
- Achieved sequential quarterly revenue growth of 5% and year-over-year revenue growth of 24%.
- Drove 38% revenue contribution from non-U.S. customers.
- Attained overall GAAP gross margin of 49.6% with product gross margin of 52% and services gross margin of 34%. Exclusive of a $4.3 million fair value adjustment of acquired inventory, amortization of intangible assets and share-based compensation, adjusted (non-GAAP) gross margin was 52%.
- Delivered GAAP income from operations of 6% of revenue and adjusted (non-GAAP) income from operations of 15% of revenue.
- Generated $33.7 million cash from operations.
- Ended the quarter with cash, cash equivalents and short- and long-term investments of $1.1 billion.
Third Quarter 2008 Customer and Product Highlights
- Sprint, Cisco and Ciena announced implementation of 40-gigabits-per-second (Gbps) network capabilities on the Global Sprint Tier 1 IP Network using Ciena’s CoreStream® Agility Optical Transport System.
- Ciena’s G10 and G10X Ethernet Service Modules received 4 out of 5 diamonds in Broadband Gear Report’s2008 Diamond Technology Reviews.
- VTR Global Com S.A. deployed the CN 4200®RS FlexSelect™ Advanced Services Platform with ROADM functionality, throughout its Santiago, Chile network to enhance the delivery of its triple play offering.
- American Fiber Systems selected Ciena’s CN 4200 Advanced Services Platform Family, for deployment across multiple networks in Atlanta, Alpharetta and Marietta.
- Mzima Networks implemented Ciena’s CN 5060™ Multiservice Carrier Ethernet Platform across its networks in North America and Europe.
- Telx deployed Ciena’s CN 4200 FlexSelect Advanced Services Platform in Dallas and New York as part of its Metro Cross Connect service to facilitate interconnections between dual ColoXchange facilities within a city.
- Ciena’s CN 4200 FlexSelect Advanced Services Platform was integrated into EMC® Smarts® Service Assurance Manager offering enterprise customer’s end-to-end infrastructure visibility and providing efficient and cost-effective network services management.
- Ciena’s CN 4200 FlexSelect Advanced Services Platform, CoreDirector® Multiservice Optical Switch and CoreStream Agility Optical Transport System passed Joint Interoperability Test Command testing for optical standards and interoperability in Department of Defense networks.
Business Outlook
“In addition to existing customer-specific challenges, we have recently begun to experience order delays from many of our Tier One service provider customers, which we attribute to their guarded approach to capital expenditures given the uncertain macroeconomic environment,” said Smith. “While we’ve seen no project or order cancellations, sales cycles are lengthening and some deployments are slowing. As a result, we now expect fiscal fourth quarter revenue in a range of $190 to $210 million.”
“While current economic conditions warrant a cautious near-term outlook, the fundamental drivers of our business – growing capacity demands and the transition to more efficient, more powerful, automated networks – remain sound. We are confident that our portfolio and value propositions are differentiated, positioning us to take advantage of what is predicted to be a longer-term investment cycle in the transition from SONET/SDH to Ethernet-based networks,” said Smith.
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, September 4, 2008 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.
Note to Investors
Forward-looking statements. 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 6, 2008. 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’ve seen no project or order cancellations, sales cycles are lengthening and some deployments are slowing; as a result, we now expect fiscal fourth quarter revenue in a range of $190 to $210 million; while current economic conditions warrant a cautious near-term outlook, the fundamental drivers of our business – growing capacity demands and the transition to the more efficient, more powerful, automated networks – remain sound; and we are confident that our portfolio and value propositions are differentiated, positioning us to take advantage of what is predicted to be a longer-term investment cycle in the transition from SONET/SDH to Ethernet-based networks. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena’s gross profit, operating expense, income from operations and net income. In evaluating the operating performance of Ciena’s business, management excludes certain charges and credits that are required by GAAP. These items, 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 Ciena’s control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena’s GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena’s non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena’s results of operations in conjunction with our corresponding GAAP results. For a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release, see Appendix A.
About Ciena
Ciena specializes in the transition to service-driven networks. We provide flexible platforms, intelligent software and professional services 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. We routinely post recent news, financial results and other important announcements and information about Ciena on our website at www.ciena.com.
EMC and Smarts are registered trademarks of EMC Corporation.
| CIENA CORPORATION | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| (unaudited) | ||||||||||||||||
Quarter Ended July 31, | Nine Months Ended July 31, | |||||||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||||||
| Revenues: | ||||||||||||||||
| Products | $ | 182,143 | $ | 223,661 | $ | 501,637 | $ | 641,632 | ||||||||
| Services | 22,808 | 29,518 | 61,942 | 81,162 | ||||||||||||
| Total revenue | 204,951 | 253,179 | 563,579 | 722,794 | ||||||||||||
| Costs: | ||||||||||||||||
| Products | 84,383 | 107,953 | 250,681 | 295,381 | ||||||||||||
| Services | 22,903 | 19,595 | 59,775 | 57,617 | ||||||||||||
| Total cost of goods sold | 107,286 | 127,548 | 310,456 | 352,998 | ||||||||||||
| Gross profit | 97,665 | 125,631 | 253,123 | 369,796 | ||||||||||||
| Operating expense: | ||||||||||||||||
| Research and development | 31,671 | 47,809 | 93,166 | 127,881 | ||||||||||||
| Selling and marketing | 30,303 | 39,440 | 85,360 | 111,639 | ||||||||||||
| General and administrative | 14,564 | 14,758 | 36,562 | 54,036 | ||||||||||||
| Amortization of intangible assets | 6,295 | 8,671 | 18,885 | 23,901 | ||||||||||||
| Restructuring recoveries | (1,196 | ) | - | (2,396 | ) | - | ||||||||||
| Total operating expense | 81,637 | 110,678 | 231,577 | 317,457 | ||||||||||||
| Income from operations | 16,028 | 14,953 | 21,546 | 52,339 | ||||||||||||
| Interest and other income, net | 19,464 | 5,342 | 51,206 | 32,911 | ||||||||||||
| Interest expense | (6,931 | ) | (1,855 | ) | (19,227 | ) | (11,074 | ) | ||||||||
| Gain on equity investments, net | 592 | - | 592 | - | ||||||||||||
| Realized loss on marketable debt investments | - | (5,114 | ) | - | (5,114 | ) | ||||||||||
| Income before income taxes | 29,153 | 13,326 | 54,117 | 69,062 | ||||||||||||
| Provision for income taxes | 841 | 1,603 | 1,739 | 4,772 | ||||||||||||
| Net income | $ | 28,312 | $ | 11,723 | $ | 52,378 | $ | 64,290 | ||||||||
| Basic net income per common share | $ | 0.33 | $ | 0.13 | $ | 0.61 | $ | 0.72 | ||||||||
| Diluted net income per potential common share | $ | 0.29 | $ | 0.12 | $ | 0.57 | $ | 0.63 | ||||||||
| Weighted average basic common shares outstanding | 85,651 | 90,216 | 85,268 | 88,871 | ||||||||||||
| Weighted average dilutive potential common shares outstanding | 101,568 | 111,681 | 96,189 | 110,654 | ||||||||||||
CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands, except share data) | ||||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| October 31, | July 31, | |||||||
Current assets: | 2007 | 2008 | ||||||
| Cash and cash equivalents | $ | 892,061 | $ | 873,103 | ||||
| Short-term investments | 822,185 | 155,818 | ||||||
| Accounts receivable, net | 104,078 | 138,142 | ||||||
| Inventories | 102,618 | 106,343 | ||||||
| Prepaid expenses and other | 47,817 | 38,624 | ||||||
| Total current assets | 1,968,759 | 1,312,030 | ||||||
| Long-term investments | 33,946 | 57,155 | ||||||
| Equipment, furniture and fixtures, net | 46,671 | 58,723 | ||||||
| Goodwill | 232,015 | 455,721 | ||||||
| Other intangible assets, net | 67,144 | 102,262 | ||||||
| Other long-term assets | 67,738 | 75,808 | ||||||
| Total assets | $ | 2,416,273 | $ | 2,061,699 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 55,389 | $ | 61,780 | ||||
| Accrued liabilities | 90,922 | 90,877 | ||||||
| Restructuring liabilities | 1,026 | 687 | ||||||
| Income taxes payable | 7,768 | 2,140 | ||||||
| Deferred revenue | 33,025 | 37,896 | ||||||
| Convertible notes payable | 542,262 | - | ||||||
| Total current liabilities | 730,392 | 193,380 | ||||||
| Long-term deferred revenue | 30,615 | 38,469 | ||||||
| Long-term restructuring liabilities | 3,662 | 3,350 | ||||||
| Other long-term obligations | 1,450 | 7,938 | ||||||
| Convertible notes payable | 800,000 | 800,000 | ||||||
| Total liabilities | 1,566,119 | 1,043,137 | ||||||
| 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 and 290,000,000 shares authorized; 86,752,069 and 90,297,280 shares issued and outstanding | 868 | 903 | ||||||
| Additional paid-in capital | 5,519,741 | 5,621,630 | ||||||
| Changes in unrealized gains on investments, net | 350 | 43 | ||||||
| Translation adjustment | (1,593 | ) | 768 | |||||
| Accumulated deficit | (4,669,212 | ) | (4,604,782 | ) | ||||
| Total stockholders' equity | 850,154 | 1,018,562 | ||||||
| Total liabilities and stockholders' equity | $ | 2,416,273 | $ | 2,061,699 | ||||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (in thousands) | ||||||||
| (unaudited) | ||||||||
Nine Months Ended July 31, | ||||||||
| 2007 | 2008 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 52,378 | $ | 64,290 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Amortization of discount on marketable securities | (8,093 | ) | (1,827 | ) | ||||
| Loss from equity investments and marketable securities | - | 5,114 | ||||||
| Depreciation and amortization of leasehold improvements | 9,407 | 13,345 | ||||||
| Share-based compensation | 14,258 | 24,406 | ||||||
| Amortization of intangibles | 21,788 | 27,942 | ||||||
| Deferred tax provision | - | 1,640 | ||||||
| Provision for inventory excess and obsolescence | 8,860 | 13,841 | ||||||
| Provision for warranty | 8,910 | 11,234 | ||||||
| Other | 1,754 | 3,510 | ||||||
| Changes in assets and liabilities, net of effect of acquisition: | ||||||||
| Accounts receivable | (10,634 | ) | (32,070 | ) | ||||
| Inventories | (7,916 | ) | (4,694 | ) | ||||
| Prepaid expenses and other | (16,776 | ) | (616 | ) | ||||
| Accounts payable and accruals | 3,316 | (7,927 | ) | |||||
| Income taxes payable | 695 | (5,515 | ) | |||||
| Deferred revenue and other obligations | 19,448 | 9,554 | ||||||
| Net cash provided by operating activities | 97,395 | 122,227 | ||||||
| Cash flows from investing activities: | ||||||||
| Payments for equipment, furniture, fixtures and intellectual property | (21,442 | ) | (22,947 | ) | ||||
| Restricted cash | (11,904 | ) | 1,420 | |||||
| Purchase of available for sale securities | (564,399 | ) | (180,613 | ) | ||||
| Proceeds from maturities of available for sale securities | 539,663 | 820,177 | ||||||
| Minority equity investments, net | 411 | - | ||||||
| Acquisition of business, net of cash acquired | - | (210,016 | ) | |||||
| Net cash (used in) provided by investing activities | (57,671 | ) | 408,021 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of convertible senior notes | 500,000 | - | ||||||
| Repayment of 3.75% convertible notes payable at maturity | - | (542,262 | ) | |||||
| Debt issuance costs | (11,431 | ) | - | |||||
| Purchase of call spread option | (42,500 | ) | - | |||||
| Repayment of indebtedness of acquired business | - | (12,363 | ) | |||||
| Proceeds from issuance of common stock | 18,314 | 5,246 | ||||||
| Net cash provided by (used in) financing activities | 464,383 | (549,379 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | - | 173 | ||||||
| Net increase (decrease) in cash and cash equivalents | 504,107 | (19,131 | ) | |||||
| Cash and cash equivalents at beginning of period | 220,164 | 892,061 | ||||||
| Cash and cash equivalents at end of period | $ | 724,271 | $ | 873,103 | ||||
| Non-cash investing and financing activities | ||||||||
| Purchase of equipment in accounts payable | $ | - | $ | 1,717 | ||||
| Value of common stock issued in acquisition | $ | - | $ | 62,359 | ||||
| Fair value of vested options assumed in acquisition | $ | - | $ | 9,912 | ||||
| APPENDIX A – Reconciliation of Adjusted (Non-GAAP) Measures | ||||||||||||
| Quarter Ended | ||||||||||||
| July 31, | April 30, | July 31, | ||||||||||
| 2007 | 2008 | 2008 | ||||||||||
| Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||||||
| GAAP gross profit | $ | 97,665 | $ | 127,596 | $ | 125,631 | ||||||
Share-based compensation - product | 131 | 742 | 1,042 | |||||||||
Share-based compensation - services | 225 | 392 | 404 | |||||||||
| Amortization of intangible assets | - | - | 1,139 | |||||||||
| Fair value adjustment of acquired inventory | - | 1,066 | 4,278 | |||||||||
| Total adjustments related to gross profit | 356 | 2,200 | 6,863 | |||||||||
| Adjusted (non-GAAP) gross profit | $ | 98,021 | $ | 129,796 | $ | 132,494 | ||||||
| Adjusted (non-GAAP) gross margin | 48 | % | 54 | % | 52 | % | ||||||
| Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||||||
| GAAP operating expense | $ | 81,637 | $ | 108,629 | $ | 110,678 | ||||||
| Share-based compensation - research and development | 985 | 2,286 | 2,198 | |||||||||
| Share-based compensation - sales and marketing | 1,898 | 3,022 | 2,930 | |||||||||
| Share-based compensation - general and administrative | 1,724 | 2,233 | 2,343 | |||||||||
| Amortization of intangible assets | 6,295 | 8,760 | 8,671 | |||||||||
| Litigation settlement | 2,250 | - | - | |||||||||
| Restructuring recoveries | (1,196 | ) | - | - | ||||||||
| Total adjustments related to operating expense | 11,956 | 16,301 | 16,142 | |||||||||
| Adjusted (non-GAAP) operating expense | $ | 69,681 | $ | 92,328 | $ | 94,536 | ||||||
| Income from Operations Reconciliation (GAAP/non-GAAP) | ||||||||||||
| GAAP income from operations | $ | 16,028 | $ | 18,967 | $ | 14,953 | ||||||
| Total adjustments related to gross profit | 356 | 2,200 | 6,863 | |||||||||
| Total adjustments related to operating expense | 11,956 | 16,301 | 16,142 | |||||||||
| Adjusted (non-GAAP) income from operations | $ | 28,340 | $ | 37,468 | $ | 37,958 | ||||||
| Adjusted (non-GAAP) operating margin | 14 | % | 15 | % | 15 | % | ||||||
| Net Income Reconciliation (GAAP/non-GAAP) | ||||||||||||
| GAAP net income | $ | 28,312 | $ | 23,760 | $ | 11,723 | ||||||
| Total adjustments related to gross profit | 356 | 2,200 | 6,863 | |||||||||
| Total adjustments related to operating expense | 11,956 | 16,301 | 16,142 | |||||||||
| Gain on equity investments, net | (592 | ) | - | - | ||||||||
| Realized loss on marketable debt investments | - | - | 5,114 | |||||||||
| Adjusted (non-GAAP) net income | $ | 40,032 | $ | 42,261 | $ | 39,842 | ||||||
| Weighted average basic common shares outstanding | 85,651 | 89,102 | 90,216 | |||||||||
Weighted average basic common and dilutive potential common shares outstanding | 101,568 | 110,770 | 111,681 | |||||||||
| Net Income per Common Share | ||||||||||||
| GAAP diluted net income per common share1 | $ | 0.29 | $ | 0.23 | $ | 0.12 | ||||||
| Adjusted (non-GAAP) diluted net income per common share1 | $ | 0.41 | $ | 0.40 | $ | 0.37 | ||||||
1 | Note that calculating GAAP and adjusted (non-GAAP) diluted earnings per common share for the fiscal third quarters 2007 and 2008 requires adding interest expense of approximately $1.3 and $1.9 million associated with Ciena's 0.25% and 0.875% convertible senior notes in 2007 and 2008 respectively, to GAAP and adjusted (non-GAAP) net income in order to arrive at the numerator for the earnings per common share calculation. Likewise calculating GAAP and adjusted (non-GAAP) diluted earnings per common share for the fiscal second quarter of 2008 requires adding interest expense of approximately $1.9 million associated with Ciena's 0.25% and 0.875% convertible senior notes. | |
The adjusted (non-GAAP) measures above and their reconciliation to Ciena’s GAAP results for the periods presented reflect adjustments relating to the following items:
- Share-based compensation costs – a non-cash expense incurred in accordance with SFAS 123(R).
- Fair value adjustment of acquired inventory – an infrequent charge required by purchase accounting rules resulting from the revaluation of finished goods inventory acquired from World Wide Packets to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and a $1.1 million and $4.3 million increase in cost of goods sold during the fiscal second and fiscal third quarters of 2008, respectively.
- 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 recoveries – infrequent recoveries incurred as the result of previous restructuring activities taken to align resources with perceived market opportunities, including new segment opportunities within the overall market, which Ciena believes are not reflective of its ongoing operating costs.
- Realized loss 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. Ciena realized a $5.1 million loss in the fiscal third quarter 2008 related to these two SIVs.
- Gain on equity investments, net – a non-recurring loss or gain related to changes in the value of minority equity investments in privately held technology companies that Ciena believes are not reflective of its ongoing operating costs.
- Litigation settlement – included in general and administrative expenses during our third quarter of fiscal 2007 were $2.3 million in expenses associated with patent litigation settlements.
Contacts:
Press Contact:
Nicole Anderson,
410-694-5786
pr@ciena.com
or
Investor
Contact:
Marie Downing, 888-243-6223
ir@ciena.com
