First full quarter of acquired MEN Business shows strong performance; Integration remains on track
Linthicum, MD — 09/08/2010
Ciena® Corporation (NASDAQ:CIEN, news, filings), the network specialist, today announced unaudited results for its fiscal third quarter ended July 31, 2010.
Revenue for the fiscal third quarter 2010 totaled $389.7 million. Fiscal third quarter performance includes $221.8 million in revenue from the acquired assets of the Metro Ethernet Networks business of Nortel* (the “MEN Business”), reflecting the first full quarter of those operations since the close of the transaction on March 19, 2010.
“We’re pleased with our progress and believe our financial performance this quarter is evidence of both the strategic value and market acceptance of the combined company. Our focus remains on the execution of our integration plan, and in the third quarter we were able to achieve certain integration milestones sooner than expected,” said Gary Smith, Ciena president and CEO. “We are confident in the strength of our market position and believe we are well-positioned to capitalize on future growth opportunities.”
On the basis of generally accepted accounting principles (GAAP), Ciena’s net loss for the fiscal third quarter 2010 was $(109.9) million, or $(1.18) per common share, which compares to a GAAP net loss of $(26.5) million, or $(0.29) per common share, for the fiscal third quarter of 2009. The fiscal third quarter 2010 included $17.0 million in acquisition and integration-related costs associated with Ciena’s acquisition of the MEN Business.
Ciena’s adjusted (non-GAAP) net loss for the fiscal third quarter 2010 was $(8.0) million, or $(0.09) per common share, which compares to an adjusted (non-GAAP) net loss of $(4.8) million, or $(0.05) per common share for the fiscal third quarter 2009. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is provided in the table in Appendix A.
Fiscal Third Quarter 2010 Performance Summary
• $389.7 million in revenue, reflecting approximately $221.8 million from the Nortel MEN Business.
• Non-U.S. customers contributed 41% of total revenue.
• Two customers each accounted for greater than 10% of revenue, and 34% of total revenue in the aggregate.
• As-adjusted operating expense of $178 million.
• GAAP gross margin of 37%.
• Adjusted (non-GAAP) gross margin of 45.2% excludes share-based compensation costs, amortization of intangible assets, and fair value adjustment of acquired inventory.
• GAAP net loss of $(109.9) million or $(1.18) per common share.
• Adjusted (non-GAAP) net loss of $(8.0) million or $(0.09) per common share.
• Ended the quarter with cash, cash equivalents and short-term investments of $470.4 million. We used $130 million in cash for operations during the quarter, which reflects $109 million for changes in working capital and $21 million in net losses (adjusted for non-cash charges), which includes payments of $17 million for acquisition and integration costs.
• Incurred $17.0 million in acquisition and integration-related costs, and $2.2 million in restructuring costs.
Business Outlook
“We see increasing levels of customer activity and continued strength in the fundamental demand drivers of our business; however, we remain cautious in the face of continuing macroeconomic uncertainties,” stated Smith. “We currently expect a sequential increase in our fiscal fourth quarter revenue of up to 5%, and expect as-adjusted gross margin to be in the low 40s range.”
Live Web Broadcast of Unaudited Fiscal Third Quarter 2010 Results
Ciena will host a discussion of its unaudited fiscal third quarter 2010 results with investors and financial analysts today, Wednesday, September 8, 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: www.ciena.com/investors.
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except per share data) | ||||||||
| (unaudited) | ||||||||
| Quarter Ended July 31, | ||||||||
| 2009 | 2010 | |||||||
| Revenue: | ||||||||
| Products | $ | 139,903 | $ | 312,378 | ||||
| Services | 24,855 | 77,297 | ||||||
| Total revenue | 164,758 | 389,675 | ||||||
| Cost of goods sold: | ||||||||
| Products | 72,842 | 201,559 | ||||||
| Services | 17,251 | 44,107 | ||||||
| Total cost of goods sold | 90,093 | 245,666 | ||||||
| Gross profit | 74,665 | 144,009 | ||||||
| Operating Expenses | ||||||||
| Research and development | 44,442 | 100,869 | ||||||
| Selling and marketing | 31,468 | 52,127 | ||||||
| General and administrative | 11,524 | 32,649 | ||||||
| Amortization of intangible assets | 6,224 | 38,727 | ||||||
| Acquisition and integration costs | – | 17,033 | ||||||
| Restructuring costs | 3,941 | 2,157 | ||||||
| Total operating expenses | 97,599 | 243,562 | ||||||
| Loss from operations | (22,934) | (99,553) | ||||||
| Interest and other income (loss), net | 999 | (2,668) | ||||||
| Interest expense | (1,856) | (5,990) | ||||||
| Loss on cost method investments | (2,193) | – | ||||||
| Loss before income taxes | (25,984) | (108,211) | ||||||
| Provision for income taxes | 470 | 1,644 | ||||||
| Net loss | $ | (26,454) | $ | (109,855) | ||||
| Basic net loss per common share | $ | (0.29) | $ | (1.18) | ||||
| Diluted net loss per potential common share | $ | (0.29) | $ | (1.18) | ||||
| Weighted average basic common shares outstanding | 91,364 | 92,906 | ||||||
| Weighted average dilutive potential common shares outstanding | 91,364 | 92,906 | ||||||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (in thousands, except share data) | ||||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| October 31, | July 31, | |||||||
| Current assets: | 2009 | 2010 | ||||||
| Cash and cash equivalents | $ | 485,705 | $ | 470,237 | ||||
| Short-term investments | 563,183 | 184 | ||||||
| Accounts receivable, net | 118,251 | 260,277 | ||||||
| Inventories | 88,086 | 222,164 | ||||||
| Prepaid expenses and other | 50,537 | 118,571 | ||||||
| Total current assets | 1,305,762 | 1,071,433 | ||||||
| Long-term investments | 8,031 | – | ||||||
| Equipment, furniture and fixtures, net | 61,868 | 118,755 | ||||||
| Goodwill | – | 38,086 | ||||||
| Other intangible assets, net | 60,820 | 470,610 | ||||||
| Other long-term assets | 67,902 | 112,587 | ||||||
| Total assets | $ | 1,504,383 | $ | 1,811,471 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 53,104 | $ | 118,972 | ||||
| Accrued liabilities | 103,349 | 178,427 | ||||||
| Restructuring liabilities | 1,811 | 3,021 | ||||||
| Income tax payable | – | 1,306 | ||||||
| Deferred revenue | 40,565 | 58,655 | ||||||
| Total current liabilities | 198,829 | 360,381 | ||||||
| Long-term deferred revenue | 35,368 | 32,122 | ||||||
| Long-term restructuring liabilities | 7,794 | 5,995 | ||||||
| Other long-term obligations | 8,554 | 10,098 | ||||||
| Convertible notes payable | 798,000 | 1,174,580 | ||||||
| Total liabilities | 1,048,545 | 1,583,176 | ||||||
| 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 93,567,775 shares issued and outstanding | 920 | 936 | ||||||
| Additional paid-in capital | 5,665,028 | 5,692,387 | ||||||
| Accumulated other comprehensive income (loss) | 1,223 | (498) | ||||||
| Accumulated deficit | (5,211,333) | (5,464,530) | ||||||
| Total stockholders’ equity | 455,838 | 228,295 | ||||||
| Total liabilities and stockholders’ equity | $ | 1,504,383 | $ | 1,811,471 | ||||
| CIENA CORPORATION | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (in thousands) | ||||||||
| (unaudited) | ||||||||
| Nine Months Ended July 31, | ||||||||
| 2009 | 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (554,495) | $ | (253,197) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Amortization of (discount) premium on marketable securities | (858) | 574 | ||||||
| Loss on cost method investments | 5,328 | – | ||||||
| Gain on embedded redemption feature | – | (2,570) | ||||||
| Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements | 16,270 | 28,146 | ||||||
| Impairment of goodwill | 455,673 | – | ||||||
| Share-based compensation costs | 26,075 | 26,451 | ||||||
| Amortization of intangible assets | 23,804 | 82,476 | ||||||
| Provision for inventory excess and obsolescence | 11,126 | 10,749 | ||||||
| Provision for warranty | 13,620 | 16,388 | ||||||
| Other | 1,529 | 1,955 | ||||||
| Changes in assets and liabilities, net of effect of acquisition: | ||||||||
| Accounts receivable | 18,128 | (134,844) | ||||||
| Inventories | (7,274) | (30,765) | ||||||
| Prepaid expenses and other | (1,696) | (29,528) | ||||||
| Accounts payable, accruals and other obligations | (5,799) | 83,580 | ||||||
| Income taxes payable | – | 1,306 | ||||||
| Deferred revenue | 4,073 | (3,957) | ||||||
| Net cash provided by (used in) operating activities | 5,504 | (203,236) | ||||||
| Cash flows from investing activities: | ||||||||
| Payments for equipment, furniture, fixtures and intellectual property | (17,630) | (34,646) | ||||||
| Restricted cash | (1,914) | (18,845) | ||||||
| Purchase of available for sale securities | (926,621) | (63,591) | ||||||
| Proceeds from maturities of available for sale securities | 321,554 | 454,141 | ||||||
| Proceeds from sales of available for sale securities | 523,137 | 179,380 | ||||||
| Acquisition of business | – | (693,247) | ||||||
| Net cash used in investing activities | (101,474) | (176,808) | ||||||
| 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 | 533 | 924 | ||||||
| Net cash provided by financing activities | 533 | 365,240 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 500 | (664) | ||||||
| Net decrease in cash and cash equivalents | (95,437) | (14,804) | ||||||
| Cash and cash equivalents at beginning of period | 550,669 | 485,705 | ||||||
| Cash and cash equivalents at end of period | $ | 455,732 | $ | 470,237 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 4,748 | $ | 4,748 | ||||
| Income taxes, net | $ | 250 | $ | 2,037 | ||||
| Non-cash investing and financing activities | ||||||||
| Purchase of equipment in accounts payable | $ | 1,205 | $ | 4,421 | ||||
| APPENDIX A – Reconciliation of Adjusted (Non-GAAP) Quarterly Measurements | ||||||||
| Quarter Ended July 31, | ||||||||
| 2009 | 2010 | |||||||
| Gross Profit Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP gross profit | $ | 74,665 | $ | 144,009 | ||||
| Share-based compensation-products | 460 | 548 | ||||||
| Share-based compensation-services | 419 | 432 | ||||||
| Amortization of intangible assets | 683 | 5,698 | ||||||
| Fair value adjustment of acquired inventory | – | 25,478 | ||||||
| Total adjustments related to gross profit | 1,562 | 32,156 | ||||||
| Adjusted (non-GAAP) gross profit | $ | 76,227 | $ | 176,165 | ||||
| Adjusted (non-GAAP) gross profit percentage | 46.27% | 45.21% | ||||||
| Operating Expense Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP operating expense | $ | 97,599 | $ | 243,562 | ||||
| Stock compensation research and development | 2,431 | 2,302 | ||||||
| Stock compensation sales and marketing | 2,640 | 2,902 | ||||||
| Stock compensation general and administrative | 2,621 | 2,473 | ||||||
| Amortization of intangible assets | 6,224 | 38,727 | ||||||
| Acquisition and integration costs | – | 17,033 | ||||||
| Restructuring costs | 3,941 | 2,157 | ||||||
| Total adjustments related to operating expense | 17,857 | 65,594 | ||||||
| Adjusted (non-GAAP) operating expense | $ | 79,742 | $ | 177,968 | ||||
| Loss from Operations Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP loss from operations | $ | (22,934) | $ | (99,553) | ||||
| Total adjustments related to gross profit | 1,562 | 32,156 | ||||||
| Total adjustments related to operating expense | 17,857 | 65,594 | ||||||
| Adjusted (non-GAAP) loss from operations | $ | (3,515) | $ | (1,803) | ||||
| Adjusted (non-GAAP) operating margin percentage | -2.13% | -0.46% | ||||||
| Net Loss Reconciliation (GAAP/non-GAAP) | ||||||||
| GAAP net loss | $ | (26,454) | $ | (109,855) | ||||
| Total adjustments related to gross profit | 1,562 | 32,156 | ||||||
| Total adjustments related to operating expense | 17,857 | 65,594 | ||||||
| Loss on cost method investments | 2,193 | – | ||||||
| Loss (gain) on fair value of embedded derivative on 4% convertible note | – | 4,070 | ||||||
| Adjusted (non-GAAP) net loss | $ | (4,842) | $ | (8,035) | ||||
| Weighted average basic common shares outstanding | 91,364 | 92,906 | ||||||
| Weighted average basic common and dilutive potential common shares outstanding | 91,364 | 92,906 | ||||||
| Net Loss per Common Share | ||||||||
| GAAP diluted net loss per common share | $ | (0.29) | $ | (1.18) | ||||
| Adjusted (non-GAAP) diluted net loss per common share | $ | (0.05) | $ | (0.09) | ||||
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:
• Fair value adjustment of acquired inventory – an infrequent charge required by acquisition accounting rules resulting from the required revaluation of finished goods inventory acquired from the MEN business to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and a $25.5 million increase in cost of goods sold during the third quarter of fiscal 2010.
• 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 technologies and customer-related intangibles that Ciena is required to amortize over its expected useful life. The amount of amortization cost increased significantly as a result of the MEN Business acquisition
• Acquisition and integration-related costs – reflects transaction expense, and consulting and third party service fees associated with the acquisition of the MEN business and the integration of this business into Ciena’s operations. Ciena expects to incur acquisition and integration-related costs of approximately $180 million, with the majority of these costs to be incurred in fiscal 2010. 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.
• Loss on cost method investment – a non-cash loss related to changes in the value of Ciena’s equity investments in technology companies that Ciena does not believe is reflective of its ongoing operating costs.
• Loss on fair value of embedded derivative – a non-cash loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena’s 4% senior convertible notes.
Ciena is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they compete. With focused innovation, Ciena brings together the reliability and capacity of optical networking with the flexibility and economics of Ethernet, unified by a software suite that delivers the industry’s leading network automation. 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.
*’Nortel’ is a trademark of Nortel Networks, used under license by Ciena.
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, which Ciena filed with the Securities and Exchange Commission on June 10, 2010. 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: based on our direct conversations with customers and supported by trends we are seeing currently in the business, including recently improved order flow, we expect to deliver sequential revenue growth in 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.
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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