Nortel MEN transaction expected to close by end of March
Linthicum, MD — 03/04/2010
Ciena® Corporation (NASDAQ:CIEN, news, filings), the network specialist, today announced unaudited results for its fiscal first quarter ended January 31, 2010. Revenue for the fiscal first quarter 2010 totaled $175.9 million, which compares to $167.4 million for the fiscal first quarter 2009.
On the basis of generally accepted accounting principles (GAAP), Ciena’s net loss for the fiscal first quarter 2010 was $(53.3) million, or $(0.58) per common share, which compares to a GAAP net loss of $(24.8) million, or $(0.27) per diluted common share for the fiscal first quarter of 2009. The fiscal first quarter 2010 included $27.0 million in acquisition and integration-related expenses associated with the pending acquisition of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks (MEN) business. Ciena’s adjusted (non-GAAP) net loss for the fiscal first quarter 2010 was $(11.4) million, or $(0.12) per common share, which compares to an adjusted (non-GAAP) net loss of $(8.3) million, or $(0.09) per diluted common share for the fiscal first quarter 2009. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is provided in the table in Appendix A.
“Revenue recognition delays associated with initial deployments of new platforms with certain customers adversely impacted fiscal first quarter revenue,” said Gary Smith, Ciena’s CEO and president. “However, with strong order flow in the quarter we remain encouraged by continued signs of an improving market environment.”
First Quarter 2010 Performance Summary
• $175.9 million in fiscal first quarter revenue.
• Non-U.S. customers contributed 29.6% of total quarterly revenue.
• At 24% of total revenue, one customer accounted for greater than 10% of revenue.
• GAAP gross margin of 45.6%.
• Adjusted (non-GAAP) gross margin of 46.4%, excluding share-based compensation costs and amortization of intangible assets.
• GAAP net loss of $(53.3) million, or $(0.58) per common share.
• Adjusted (non-GAAP) net loss of $(11.4) million or $(0.12) per common share.
• Generated $4.5 million in cash from operations during the quarter, which includes the effect of $11.4 million of cash spent on acquisition and integration-related costs.
• Incurred $27.0 million in acquisition and integration related expenses.
Business Outlook
Until the Nortel transaction has closed, any guidance provided by Ciena will be limited to Ciena as a standalone entity and will not include pro-forma estimates for combined company expectations.
“Based on our current view of the business, we anticipate that our fiscal second quarter revenue will be in the range of $185 million to $195 million,” stated Smith. “We also expect that as-adjusted gross margin will be within our target range of mid to high 40s, and as-adjusted operating expense exclusive of integration costs will be roughly flat with that of our first fiscal quarter.”
Nortel MEN Acquisition
“With respect to our pending acquisition of Nortel’s MEN business, our ongoing customer interactions indicate strong validation of the value of the combined company, and the integration planning activities are proceeding well and on schedule,” said Smith. “We continue to expect the transaction to close later this month, and will soon be providing updates on several important milestones related to the integration timeline, including the organizational structure of the new company and its leadership team as well as detail on our combined product portfolio.”
The assets to be acquired generated revenue of approximately US $798 million in the first nine months of Nortel’s fiscal 2009. As previously disclosed, prior to the closing of the Nortel transaction, Ciena may elect to replace some or all of the US $239 million in convertible notes that are to be issued as part of the total purchase price with cash equal to 102% of the face amount of such notes replaced. Ciena regularly assesses the conditions in the capital markets and will consider opportunities to make this election, which could include accessing the capital markets through an equity-linked issuance.
Live Web Broadcast of Unaudited Fiscal First Quarter Results
Ciena will host a discussion of its unaudited fiscal first quarter 2010 results with investors and financial analysts today, Thursday, March 4, 2010 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.
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except per share data) | ||||||||
| (unaudited) | ||||||||
| Quarter Ended January 31, | ||||||||
| 2009 | 2010 | |||||||
| Revenue: | ||||||||
| Products | $ | 139,717 | $ | 149,054 | ||||
| Services | 27,683 | 26,822 | ||||||
| Total revenue | 167,400 | 175,876 | ||||||
| Cost of goods sold: | ||||||||
| Products | 76,367 | 76,669 | ||||||
| Services | 19,190 | 19,047 | ||||||
| Total cost of goods sold | 95,557 | 95,716 | ||||||
| Gross profit | 71,843 | 80,160 | ||||||
| Operating expenses: | ||||||||
| Research and development | 46,700 | 50,033 | ||||||
| Selling and marketing | 33,819 | 34,237 | ||||||
| General and administrative | 11,585 | 12,763 | ||||||
| Acquisition and integration costs | – | 27,031 | ||||||
| Amortization of intangible assets | 6,404 | 5,981 | ||||||
| Restructuring costs | 76 | (21) | ||||||
| Total operating expenses | 98,584 | 130,024 | ||||||
| Loss from operations | (26,741) | (49,864) | ||||||
| Interest and other income (loss), net | 4,660 | (773) | ||||||
| Interest expense | (1,844) | (1,828) | ||||||
| Loss on cost method investments | (565) | – | ||||||
| Loss before income taxes | (24,490) | (52,465) | ||||||
| Provision for income taxes | 341 | 868 | ||||||
| Net loss | $ | (24,831) | $ | (53,333) | ||||
| Basic net loss per common share | $ | (0.27) | $ | (0.58) | ||||
| Diluted net loss per potential common share | $ | (0.27) | $ | (0.58) | ||||
| Weighted average basic common shares outstanding | 90,620 | 92,321 | ||||||
| Weighted average dilutive potential common shares outstanding | 90,620 | 92,321 | ||||||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands, except share data) | ||||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| October 31, | January 31, | |||||||
| Current assets: | 2009 | 2010 | ||||||
| Cash and cash equivalents | $ | 485,705 | $ | 573,180 | ||||
| Short-term investments | 563,183 | 428,409 | ||||||
| Accounts receivable, net | 118,251 | 105,624 | ||||||
| Inventories | 88,086 | 95,431 | ||||||
| Prepaid expenses and other | 50,537 | 75,423 | ||||||
| Total current assets | 1,305,762 | 1,278,067 | ||||||
| Long-term investments | 8,031 | 8,048 | ||||||
| Equipment, furniture and fixtures, net | 61,868 | 64,351 | ||||||
| Other intangible assets, net | 60,820 | 53,433 | ||||||
| Other long-term assets | 67,902 | 77,208 | ||||||
| Total assets | $ | 1,504,383 | $ | 1,481,107 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 53,104 | $ | 76,211 | ||||
| Accrued liabilities | 103,349 | 97,560 | ||||||
| Restructuring liabilities | 1,811 | 1,566 | ||||||
| Income tax payable | – | 1,306 | ||||||
| Deferred revenue | 40,565 | 43,722 | ||||||
| Total current liabilities | 198,829 | 220,365 | ||||||
| Long-term deferred revenue | 35,368 | 37,177 | ||||||
| Long-term restructuring liabilities | 7,794 | 7,184 | ||||||
| Other long-term obligations | 8,554 | 8,330 | ||||||
| Convertible notes payable | 798,000 | 798,000 | ||||||
| Total liabilities | 1,048,545 | 1,071,056 | ||||||
| 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; 92,038,360 and 92,566,178 shares issued and outstanding | 920 | 926 | ||||||
| Additional paid-in capital | 5,665,028 | 5,673,387 | ||||||
| Accumulated other comprehensive income | 1,223 | 404 | ||||||
| Accumulated deficit | (5,211,333) | (5,264,666) | ||||||
| Total stockholders’ equity | 455,838 | 410,051 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,504,383 | $ | 1,481,107 | ||||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (in thousands) | ||||||||
| (unaudited) | ||||||||
| Three Months Ended January 31, | ||||||||
| 2009 | 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (24,831) | $ | (53,333) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Amortization of (discount) premium on marketable securities | (863) | 365 | ||||||
| Loss on cost method investments | 565 | – | ||||||
| Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements | 5,097 | 5,871 | ||||||
| Share-based compensation costs | 8,494 | 8,282 | ||||||
| Amortization of intangible assets | 8,055 | 7,631 | ||||||
| Provision for inventory excess and obsolescence | 6,548 | 950 | ||||||
| Provision for warranty | 2,541 | 3,060 | ||||||
| Other | 271 | 471 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 7,922 | 12,627 | ||||||
| Inventories | (4,379) | (8,295) | ||||||
| Prepaid expenses and other | (147) | 9,204 | ||||||
| Accounts payable, accruals and other obligations | (8,781) | 11,366 | ||||||
| Income taxes payable | 1,162 | 1,306 | ||||||
| Deferred revenue | (2,533) | 4,966 | ||||||
| Net cash provided by (used in) operating activities | (879) | 4,471 | ||||||
| Cash flows from investing activities: | ||||||||
| Payments for equipment, furniture, fixtures and intellectual property | (6,140) | (7,009) | ||||||
| Restricted cash | (84) | (5,520) | ||||||
| Purchase of available for sale securities | (195,538) | (63,591) | ||||||
| Proceeds from maturities of available for sale securities | 186,853 | 179,739 | ||||||
| Proceeds from sales of available for sale securities | – | 18,000 | ||||||
| Deposit on pending business acquisition | – | (38,450) | ||||||
| Net cash provided by (used in) investing activities | (14,909) | 83,169 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock and warrants | 58 | 83 | ||||||
| Net cash provided by financing activities | 58 | 83 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 46 | (248) | ||||||
| Net increase (decrease) in cash and cash equivalents | (15,730) | 87,723 | ||||||
| Cash and cash equivalents at beginning of period | 550,669 | 485,705 | ||||||
| Cash and cash equivalents at end of period | $ | 534,985 | $ | 573,180 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid (refunded) during the period for: | ||||||||
| Interest | $ | 2,188 | $ | 2,560 | ||||
| Income taxes, net | $ | (695) | $ | 737 | ||||
| Non-cash investing and financing activities | ||||||||
| Purchase of equipment in accounts payable | $ | 641 | $ | 3,294 | ||||
| APPENDIX A – Reconciliation of Adjusted (Non-GAAP) Quarterly Measurements | ||||||||
| Quarter Ended January 31, | ||||||||
| 2009 | 2010 | |||||||
| Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP gross profit | $ | 71,843 | $ | 80,160 | ||||
| Share-based compensation-product | 713 | 379 | ||||||
| Share-based compensation-services | 397 | 430 | ||||||
| Amortization of intangible assets | 683 | 683 | ||||||
| Total adjustments related to gross profit | 1,793 | 1,492 | ||||||
| Adjusted (non-GAAP) gross profit | $ | 73,636 | $ | 81,652 | ||||
| Adjusted (non-GAAP) gross profit percentage | 44% | 46% | ||||||
| Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP operating expense | $ | 98,584 | $ | 130,024 | ||||
| Stock compensation research and development | 2,566 | 2,387 | ||||||
| Stock compensation sales and marketing | 2,703 | 2,458 | ||||||
| Stock compensation general and administrative | 2,419 | 2,576 | ||||||
| Amortization of intangible assets | 6,404 | 5,981 | ||||||
| Acquisition and integration costs | – | 27,031 | ||||||
| Restructuring costs (recoveries) | 76 | (21) | ||||||
| Total adjustments related to operating expense | 14,168 | 40,412 | ||||||
| Adjusted (non-GAAP) operating expense | $ | 84,416 | $ | 89,612 | ||||
| Loss from Operations Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP loss from operations | $ | (26,741) | $ | (49,864) | ||||
| Total adjustments related to gross profit | 1,793 | 1,492 | ||||||
| Total adjustments related to operating expense | 14,168 | 40,412 | ||||||
| Adjusted (non-GAAP) loss from operations | $ | (10,780) | $ | (7,960) | ||||
| Adjusted (non-GAAP) operating margin percentage | -6% | -5% | ||||||
| Net Loss Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP net loss | $ | (24,831) | $ | (53,333) | ||||
| Total adjustments related to gross profit | 1,793 | 1,492 | ||||||
| Total adjustments related to operating expense | 14,168 | 40,412 | ||||||
| Loss on cost method investments | 565 | – | ||||||
| Adjusted (non-GAAP) net loss | $ | (8,305) | $ | (11,429) | ||||
| Weighted average basic common shares outstanding | 90,620 | 92,321 | ||||||
| Weighted average basic common and dilutive and potential common shares outstanding | 90,620 | 92,321 | ||||||
| Net Loss per Common Share | ||||||||
| GAAP diluted net loss per common share | $ | (0.27) | $ | (0.58) | ||||
| Adjusted (non-GAAP) diluted net loss per common share | $ | (0.09) | $ | (0.12) | ||||
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 cost – a non-cash expense incurred in accordance with share-based compensation accounting guidance.
• Amortization of intangible assets – a non-cash expense arising from acquisition of intangible assets, principally developed technology, which Ciena is required to amortize over its expected useful life.
• Restructuring costs – infrequent costs incurred as the 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.
• Acquisition and integration costs – reflects transaction expense, and consulting and third party service fees associated with the completion of our pending acquisition of the optical networking and carrier Ethernet assets of Nortel’s MEN business and the integration of this business into Ciena’s operations. Ciena expects to incur acquisition and integration costs of approximately $180 million, with the majority of these costs to be incurred in the first 12 months following the completion of the transaction. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
• Loss on cost method investment – a non-cash loss related to changes in the value of equity investments in technology companies which Ciena believes is not reflective of its ongoing operating costs.
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 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. For more information, visit www.ciena.com.
Forward-looking statements. This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. 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: “we remain encouraged by early signs of an improving market environment”; “based on our current view of the business, we anticipate that our fiscal second quarter revenue will be in the range of $185 million to $195 million”; “we also expect that as-adjusted gross margin will be within our target range of mid to high 40s, and as-adjusted operating expense exclusive of integration costs will be roughly flat with that of our first fiscal quarter”; “with respect to our pending acquisition Nortel’s MEN business, our ongoing customer interactions indicate strong validation of the value of the combined company, and the integration planning activities are proceeding well and on schedule”; “we continue to expect the transaction to close later this month, and will be soon providing updates on several important milestones related to the integration timeline, including the organizational structure of the new company and its leadership team as well as detail on our combined product portfolio.” Moreover, this release includes forward-looking statements and other information relating to our pending transaction with Nortel. Risks relating to this transaction include, but are not limited to: regulatory approvals may not be obtained or maintained; the anticipated benefits and synergies of the proposed transaction may not be realized; the integration could be materially delayed or may be more costly or difficult than expected; and the proposed transaction may not be consummated. The forward-looking statements in this press release are based on information available to Ciena 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 the Annual Report on Form 10-K filed by Ciena with the Securities and Exchange Commission on December 22, 2009. 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 expenses, income from operations, net income and net income 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. For a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release, see Appendix A.
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Lisa Jackson
Ciena Corporation
(888) 243-6223
ir@ciena.com
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