Ciena® Corporation (NASDAQ:CIEN - News), the network specialist, today announced unaudited financial results for its fiscal third quarter ended July 31, 2011.
For the fiscal third quarter 2011, Ciena reported revenue of $435.3 million. On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal third quarter 2011 was $(31.5) million, or $(0.33) per common share, which compares to a GAAP net loss of $(109.9) million, or $(1.18) per common share, for the fiscal third quarter 2010. Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2011 was $8.3 million, or $0.08 per common share, which compares to an adjusted (non-GAAP) net loss of $(8.0) million, or $(0.09) per common share, for the fiscal third quarter 2010.
“Our third quarter results, which included a favorable product mix and reduced operating expense to achieve an as-adjusted operating profit, demonstrate our early progress in delivering additional operating leverage from the business,” said Gary Smith, president and CEO of Ciena. “Despite current macroeconomic headwinds that could cause the rate of market growth to be moderated, we believe that we are well-positioned to capitalize on the continued modernization of today's networks and to grow faster than the market.”
Fiscal Third Quarter 2011 Performance Summary
The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarterly and year over year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendix A.
GAAP Results
Q3 Q2 Q3 Period Change
FY 2011 FY 2011 FY 2010 Q-T-Q Y-T-Y
Revenue $ 435.3 $ 417.9 $ 389.7 4.2% * 11.7% *
Gross margin 42.5% 39.7% 37.0% 2.8 ** 5.5 **
Operating expense $ 202.3 $ 221.5 $ 243.6 -8.7% * -17.0% *
Operating margin -4.0% -13.3% -25.5% 9.3 ** 21.5 **
* Denotes % change
** Denotes absolute change in margin
Non-GAAP Results
Q3 Q2 Q3 Period Change
FY 2011 FY 2011 FY 2010 Q-T-Q Y-T-Y
Revenue $ 435.3 $ 417.9 $ 389.7 4.2% * 11.7% *
Adj. gross margin 44.1% 41.3% 45.2% 2.8 ** -1.1 **
Adj. operating expense $ 175.2 $ 186.0 $ 178.0 -5.8% * -1.6% *
Adj. operating margin 3.8% -3.2% -0.5% 7.0 ** 4.3 **
* Denotes % change
** Denotes absolute change in margin
Revenue by Segment
Q3 FY 2011 Q2 FY 2011 Q3 FY 2010
Revenue %* Revenue %* Revenue %*
Packet-Optical Transport $ 266.5 61.3% $ 272.6 65.2% $ 242.1 62.1%
Packet-Optical Switching 40.7 9.3% 31.3 7.5% $ 34.8 8.9%
Carrier Ethernet Service Delivery 40.5 9.3% 30.9 7.4% $ 33.8 8.7%
Software and Services 87.6 20.1% $ 83.1 19.9% $ 79.0 20.3%
Total $ 435.3 100.0% $ 417.9 100.0% $ 389.7 100.0%
Additional Performance Metrics for Fiscal Third Quarter 2011
Non-U.S. customers contributed 48% of total revenue
One 10%-plus customer represented a total of 17% of revenue
Cash and investments totaled $536.6 million
Average days’ sales outstanding (DSOs) were 86
Accounts receivable balance was $414.8 million
Inventories totaled $243.8 million, including:
Raw materials: $42.0 million
Work in process: $12.3 million
Finished goods: $154.1 million
Deferred cost of sales: $66.7 million
Reserve for excess and obsolescence: $31.3 million
Product inventory turns were 3.3
Headcount totaled 4,339
Business Outlook for Fiscal Fourth Quarter 2011
Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of the Notes to Investors below.
Ciena expects fiscal fourth quarter 2011 financial performance to include:
Revenue in the range of $440 to $460 million
Adjusted gross margin percentage in the low 40s range
Adjusted operating expense in the upper $170s million range
Live Web Broadcast of Unaudited Fiscal Third Quarter 2011 Results
Ciena will host a discussion of its unaudited fiscal third quarter 2011 results with investors and financial analysts today, Thursday, September 1, 2011 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: www.ciena.com/investors.
Notes to Investors
Forward-looking statements. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. 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: “Our third quarter results, which included a favorable product mix and solid operating expense controls to achieve an as-adjusted operating profit, demonstrate our early progress in delivering additional operating leverage for the business”; “While we believe that we are well-positioned to capitalize on the continued modernization of today's networks and to grow faster than the market, current macroeconomic and industry headwinds could cause the rate of market growth to be moderated”; “Ciena expects fiscal fourth quarter 2011 financial performance to include revenue in the range of $440 to $460 million, adjusted gross margin percentage in the low 40s range, adjusted operating expense in the upper $170s million range.”
Ciena’s actual results, performance or events may differ materially from these forward-looking statements made or implied due a number of risks and uncertainties relating to Ciena’s business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by large communication service providers; the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; the level of success relating to efforts to optimize Ciena’s operations; changes in foreign currency exchange rates affecting revenue and operating expense; and the other risk factors disclosed in Ciena’s Report on Form 10-Q filed with the Securities and Exchange Commission on March 10, 2011. Ciena assumes no obligation to update any forward-looking information included in this press release.
Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena’s gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) per share. 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. To the extent not previously disclosed in a prior Ciena financial results press release, Appendix A to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended July 31,
2010 2011
Revenue:
Products $ 312,378 $ 350,030
Services 77,297 85,283
Total revenue 389,675 435,313
Cost of goods sold:
Products 201,559 198,217
Services 44,107 52,199
Total cost of goods sold 245,666 250,416
Gross profit 144,009 184,897
Operating expenses:
Research and development 100,869 93,216
Selling and marketing 52,127 61,895
General and administrative 32,649 28,172
Acquisition and integration costs 17,033 4,822
Amortization of intangible assets 38,727 13,673
Restructuring costs 2,157 504
Total operating expenses 243,562 202,282
Loss from operations (99,553 ) (17,385 )
Interest and other income (loss), net (2,668 ) (3,160 )
Interest expense (5,990 ) (9,470 )
Loss before income taxes (108,211 ) (30,015 )
Provision for income taxes 1,644 1,435
Net loss $ (109,855 ) $ (31,450 )
Basic net loss per common share $ (1.18 ) $ (0.33 )
Diluted net loss per potential common share $ (1.18 ) $ (0.33 )
Weighted average basic common shares outstanding 92,906 96,313
Weighted average dilutive potential common shares outstanding 92,906 96,313
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
October 31, July 31,
Current assets: 2010 2011
Cash and cash equivalents $ 688,687 $ 486,332
Accounts receivable, net 343,582 414,826
Inventories 261,619 243,827
Prepaid expenses and other 147,680 141,401
Total current assets 1,441,568 1,286,386
Long-term investments - 50,227
Equipment, furniture and fixtures, net 120,294 126,174
Other intangible assets, net 426,412 349,845
Other long-term assets 129,819 125,801
Total assets $ 2,118,093 $ 1,938,433
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 200,617 $ 140,806
Accrued liabilities 193,994 182,563
Deferred revenue 75,334 100,988
Total current liabilities 469,945 424,357
Long-term deferred revenue 29,715 26,302
Other long-term obligations 16,435 16,754
Convertible notes payable 1,442,705 1,442,449
Total liabilities 1,958,800 1,909,862
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; 290,000,000 shares authorized; 94,060,300 and 96,883,868 shares issued and outstanding 941 969
Additional paid-in capital 5,702,137 5,743,211
Accumulated other comprehensive income 1,062 2,430
Accumulated deficit (5,544,847 ) (5,718,039 )
Total stockholders' equity 159,293 28,571
Total liabilities and stockholders' equity $ 2,118,093 $ 1,938,433
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended July 31,
2010 2011
Cash flows from operating activities:
Net loss $ (253,197 ) $ (173,192 )
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of premium (discount) on marketable securities 574 (25 )
Change in fair value of embedded redemption feature (2,570 ) (3,380 )
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements 28,146 44,765
Share-based compensation costs 26,451 27,919
Amortization of intangible assets 82,476 76,567
Provision for inventory excess and obsolescence 10,749 11,461
Provision for warranty 16,388 10,538
Other 1,955 2,170
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable (134,844 ) (72,030 )
Inventories (30,765 ) 6,331
Prepaid expenses and other (29,528 ) (4,462 )
Accounts payable, accruals and other obligations 84,886 (81,388 )
Deferred revenue (3,957 ) 22,241
Net cash used in operating activities (203,236 ) (132,485 )
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property (34,646 ) (41,138 )
Restricted cash (18,845 ) (8,727 )
Purchase of available for sale securities (63,591 ) (49,894 )
Proceeds from maturities of available for sale securities 454,141 -
Proceeds from sales of available for sale securities 179,380 -
Acquisition of business (693,247 ) -
Receipt of contingent consideration related to business acquisition - 16,394
Net cash used in investing activities (176,808 ) (83,365 )
Cash flows from financing activities:
Proceeds from issuance of 4.0% convertible notes payable, net 364,316 -
Proceeds from issuance of common stock and warrants 924 13,183
Net cash provided by financing activities 365,240 13,183
Effect of exchange rate changes on cash and cash equivalents (664 ) 312
Net decrease in cash and cash equivalents (14,804 ) (202,667 )
Cash and cash equivalents at beginning of period 485,705 688,687
Cash and cash equivalents at end of period $ 470,237 $ 486,332
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 4,748 $ 18,869
Cash paid during the period for income taxes, net $ 2,037 $ 1,781
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ 4,421 $ 5,186
Fixed assets acquired under capital leases $ - $ 1,268
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
Quarter Ended July 31,
2010 2011
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 144,009 $ 184,897
Share-based compensation-products 548 579
Share-based compensation-services 432 511
Amortization of intangible assets 5,698 5,826
Fair value adjustment of acquired inventory 25,478 -
Total adjustments related to gross profit 32,156 6,916
Adjusted (non-GAAP) gross profit $ 176,165 $ 191,813
Adjusted (non-GAAP) gross profit percentage 45.21 % 44.06 %
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 243,562 $ 202,282
Share-based compensation-research and development 2,302 2,423
Share-based compensation-sales and marketing 2,902 2,736
Share-based compensation-general and administrative 2,473 2,882
Acquisition and integration costs 17,033 4,822
Amortization of intangible assets 38,727 13,673
Restructuring costs 2,157 504
Total adjustments related to operating expense 65,594 27,040
Adjusted (non-GAAP) operating expense $ 177,968 $ 175,242
Income (Loss) from Operations Reconciliation (GAAP/non-GAAP)
GAAP loss from operations $ (99,553 ) $ (17,385 )
Total adjustments related to gross profit 32,156 6,916
Total adjustments related to operating expense 65,594 27,040
Adjusted (non-GAAP) (loss) income from operations $ (1,803 ) $ 16,571
Adjusted (non-GAAP) operating margin percentage -0.46 % 3.81 %
Net Income (Loss) Reconciliation (GAAP/non-GAAP)
GAAP net loss $ (109,855 ) $ (31,450 )
Total adjustments related to gross profit 32,156 6,916
Total adjustments related to operating expense 65,594 27,040
Change in fair value of embedded redemption feature 4,070 5,780
Adjusted (non-GAAP) net income (loss) $ (8,035 ) $ 8,286
Weighted average basic common shares outstanding 92,906 96,313
Weighted average dilutive potential common shares outstanding 92,906 104,146
Net Income (Loss) per Common Share
GAAP diluted net loss per common share $ (1.18 ) $ (0.33 )
Adjusted (non-GAAP) diluted net income (loss) per common share $ (0.09 ) $ 0.08
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 expense – a non-cash expense incurred in accordance with share-based compensation accounting guidance.
• Amortization of intangible assets – a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles acquired from the MEN Business, that Ciena is required to amortize over its expected useful life.
• Fair value adjustment of acquired inventory – an infrequent charge required by acquisition accounting rules resulting from the required revaluation of inventory acquired from the MEN Business to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and an increase in cost of goods sold for the periods indicated.
• Acquisition and integration costs – reflects transaction expense, and consulting and third party service fees associated with the acquisition of the Nortel MEN Business and the integration of this business into Ciena's operations. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
• Restructuring costs – infrequent costs incurred as a result of restructuring activities (or in the case of recoveries, previous restructuring activities) taken to align resources with perceived market opportunities that Ciena believes are not reflective of its ongoing operating costs.
• Change in fair value of embedded redemption feature – a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes.
Contact:
Ciena Corporation
Press Contact:
Nicole Anderson, 410-694–5700
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or
Investor Contact:
Gregg Lampf, 888-243–6223
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