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Press Release -- August 30th, 2012
Source: Ciena
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Ciena Reports Fiscal Third Quarter 2012 Financial Results

Increases revenue 9% year-over-year

LINTHICUM, Md.--(BUSINESS WIRE)--

Ciena® Corporation (CIEN), the network specialist, today announced unaudited financial results for its fiscal third quarter ended July 31, 2012.

For the fiscal third quarter 2012, Ciena reported revenue of $474.1 million.

On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal third quarter 2012 was $(29.8) million, or $(0.30) per common share, which compares to a GAAP net loss of $(31.5) million, or $(0.33) per common share, for the fiscal third quarter 2011.

Ciena's adjusted (non-GAAP) net loss for the fiscal third quarter 2012 was $(4.1) million, or $(0.04) per common share, which compares to an adjusted (non-GAAP) net income of $8.3 million, or $0.08 per common share, for the fiscal third quarter 2011.

“We continue to win in the market and take share as demonstrated by a solid operating performance in the third quarter,” said Gary Smith, president and CEO of Ciena. “We are experiencing the effects of ongoing macroeconomic challenges and slower than expected roll-outs of new design wins. However, our approach to the market is working, our OPn architecture vision is gaining traction with customers globally, and our view of the long-term opportunity is unchanged.”

Fiscal Third Quarter 2012 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 2012 FY 2012 FY 2011 Q-T-Q* Y-T-Y*
Revenue $ 474.1 $ 477.6 $ 435.3 (0.7 )% 8.9 %
Gross margin 38.2 % 38.3 % 42.5 % (0.1 )% (4.3 )%
Operating expense $ 196.6 $ 194.4 $ 202.3 1.1 % (2.8 )%
Operating margin (3.2 )% (2.4 )% (4.0 )% (0.8 )% 0.8 %
Non-GAAP Results
Q3 Q2 Q3 Period Change
FY 2012 FY 2012 FY 2011 Q-T-Q* Y-T-Y*
Revenue $ 474.1 $ 477.6 $ 435.3 (0.7 )% 8.9 %
Adj. gross margin 39.6 % 39.6 % 44.1 % % (4.5 )%
Adj. operating expense $ 175.6 $ 172.9 $ 175.2 1.6 % 0.2 %
Adj. operating margin 2.5 % 3.4 % 3.8 % (0.9 )% (1.3 )%
Revenue by Segment
Q3 FY 2012 Q2 FY 2012 Q3 FY 2011
Revenue % Revenue % Revenue %
Packet-Optical Transport $ 298.5 63.0 $ 318.0 66.6 $ 266.6 61.2
Packet-Optical Switching 37.8 8.0 31.0 6.5 40.7 9.3
Carrier-Ethernet Solutions 31.3 6.6 30.6 6.4 40.5 9.3
Software and Services 106.5 22.4 98.0 20.5 87.5 20.2
Total $ 474.1 100.0 $ 477.6 100.0 $ 435.3 100.0
* Denotes % change, or in the case of margin, absolute change

Additional Performance Metrics for Fiscal Third Quarter 2012

  • Non-U.S. customers contributed 50% of total revenue
  • Cash and investments totaled $667.3 million
  • Cash flow from operations totaled $23.1 million
  • Free cash flow totaled $6.3 million
  • Average days' sales outstanding (DSOs) were 72
  • Accounts receivable balance was $379.1 million
  • Inventories totaled $245.0 million, including:
    • Raw materials: $38.0 million
    • Work in process: $12.6 million
    • Finished goods: $185.7 million
    • Deferred cost of sales: $46.1 million
    • Reserve for excess and obsolescence: $(37.4) million
  • Product inventory turns were 3.7
  • Headcount totaled 4,463

Business Outlook for Fiscal Fourth Quarter 2012

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 2012 financial performance to include:

  • Revenue in the range of $455 to $480 million
  • Adjusted (non-GAAP) gross margin of approximately 40 percent
  • Adjusted (non-GAAP) operating expense in the low $180s million range

Live Web Broadcast of Unaudited Fiscal Third Quarter 2012 Results

Ciena will host a discussion of its unaudited fiscal third quarter 2012 results with investors and financial analysts today, Thursday, August 30, 2012 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: “We continue to win in the market and take share as demonstrated by a solid operating performance in the third quarter.”; "We are experiencing the effects of ongoing macroeconomic challenges and slower than expected roll-outs of new design wins."; "However, our approach to the market is working, our OPn architecture vision is gaining traction with customers globally, and our view of the long-term opportunity is unchanged."; "Ciena expects fiscal fourth quarter 2012 financial performance to include: revenue in the range of $455 to $480 million, adjusted (non-GAAP) gross margin percentage of approximately 40 percent, adjusted (non-GAAP) operating expense in the low $180s 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; seasonality and 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; supply chain disruptions and 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 Annual Report on Form 10-Q filed with the Securities and Exchange Commission on June 6, 2012. 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 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Quarter Ended July 31, Nine Months Ended July 31,
2011 2012 2011 2012
Revenue:
Products $ 350,030 $ 373,418 $ 1,038,483 $ 1,091,817
Services 85,283 100,672 248,032 276,575
Total revenue 435,313 474,090 1,286,515 1,368,392
Cost of goods sold:
Products 198,217 225,238 615,283 657,362
Services 52,199 67,531 151,996 179,012
Total cost of goods sold 250,416 292,769 767,279 836,374
Gross profit 184,897 181,321 519,236 532,018
Operating expenses:
Research and development 93,216 88,315 288,630 268,378
Selling and marketing 61,895 65,397 180,755 192,325
General and administrative 28,172 27,870 98,966 84,350
Acquisition and integration costs 4,822 6 39,748 (140 )
Amortization of intangible assets 13,673 12,714 56,131 39,152
Restructuring costs 504 2,291 5,190 5,864
Change in fair value of contingent consideration (3,289 )
Total operating expenses 202,282 196,593 666,131 589,929
Loss from operations (17,385 ) (15,272 ) (146,895 ) (57,911 )
Interest and other income (loss), net (3,160 ) (2,458 ) 7,334 (11,732 )
Interest expense (9,470 ) (9,597 ) (28,426 ) (28,813 )
Loss before income taxes (30,015 ) (27,327 ) (167,987 ) (98,456 )
Provision for income taxes 1,435 2,490 5,205 6,794
Net loss $ (31,450 ) $ (29,817 ) $ (173,192 ) $ (105,250 )
Basic net loss per common share $ (0.33 ) $ (0.30 ) $ (1.82 ) $ (1.06 )
Diluted net loss per potential common share $ (0.33 ) $ (0.30 ) $ (1.82 ) $ (1.06 )
Weighted average basic common shares outstanding 96,313 99,530 95,389 98,922
Weighted average dilutive potential common shares outstanding 96,313 99,530 95,389 98,922
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
October 31, July 31,
2011 2012
ASSETS
Current assets:
Cash and cash equivalents $ 541,896 $ 617,232
Short-term investments 50,115
Accounts receivable, net 417,509 379,092
Inventories 230,076 245,043
Prepaid expenses and other 143,357 119,039
Total current assets 1,332,838 1,410,521
Long-term investments 50,264
Equipment, furniture and fixtures, net 122,558 118,568
Other intangible assets, net 331,635 275,670
Other long-term assets 114,123 110,502
Total assets $ 1,951,418 $ 1,915,261
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 157,116 $ 205,662
Accrued liabilities 197,004 199,970
Deferred revenue 99,373 78,319
Convertible notes payable 216,210
Total current liabilities 453,493 700,161
Long-term deferred revenue 24,425 23,408
Other long-term obligations 17,263 26,052
Long-term convertible notes payable 1,442,364 1,225,898
Total liabilities 1,937,545 1,975,519
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; 97,440,436 and 100,192,289 shares issued and outstanding 974 1,002
Additional paid-in capital 5,753,236 5,788,887
Accumulated other comprehensive income (loss) 31 (4,529 )
Accumulated deficit (5,740,368 ) (5,845,618 )
Total stockholders’ equity (deficit) 13,873 (60,258 )
Total liabilities and stockholders’ equity (deficit) $ 1,951,418 $ 1,915,261
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended July 31,
2011 2012
Cash flows from operating activities:
Net loss $ (173,192 ) $ (105,250 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of discount on marketable securities (25 ) (39 )
Change in fair value of embedded redemption feature (3,380 ) 3,160
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements 44,765 43,514
Share-based compensation costs 27,919 23,656
Amortization of intangible assets 76,567 55,965
Deferred tax provision (benefit) (148 )
Provision for inventory excess and obsolescence 11,461 19,071
Provision for warranty 10,538 23,495
Other 2,170 5,441
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable (72,030 ) 37,223
Inventories 6,331 (34,038 )
Prepaid expenses and other (4,462 ) 10,890
Accounts payable, accruals and other obligations (81,388 ) 35,632
Deferred revenue 22,241 (22,071 )
Net cash provided by (used in) operating activities (132,485 ) 96,501
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property (41,138 ) (33,000 )
Restricted cash (8,727 ) 3,546
Purchase of available for sale securities (49,894 )
Proceeds from sale of cost method investment 524
Receipt of contingent consideration related to business acquisition 16,394
Net cash used in investing activities (83,365 ) (28,930 )
Cash flows from financing activities:
Repayment of capital lease obligations (1,231 )
Proceeds from issuance of common stock 13,183 12,022
Net cash provided by financing activities 13,183 10,791
Effect of exchange rate changes on cash and cash equivalents 312 (3,026 )
Net increase (decrease) in cash and cash equivalents (202,667 ) 78,362
Cash and cash equivalents at beginning of period 688,687 541,896
Cash and cash equivalents at end of period $ 486,332 $ 617,232
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 18,869 $ 18,978
Cash paid during the period for income taxes, net $ 1,781 $ 7,807
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ 5,186 $ 2,686
Fixed assets acquired under capital leases $ 1,268 $ 6,033
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
Quarter Ended
July 31,
2011 2012
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 184,897 $ 181,321
Share-based compensation-products 579 564
Share-based compensation-services 511 332
Amortization of intangible assets 5,826 5,385
Total adjustments related to gross profit 6,916 6,281
Adjusted (non-GAAP) gross profit $ 191,813 $ 187,602
Adjusted (non-GAAP) gross profit percentage 44.1 % 39.6 %
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 202,282 $ 196,593
Share-based compensation-research and development 2,423 1,841
Share-based compensation-sales and marketing 2,736 2,589
Share-based compensation-general and administrative 2,882 1,547
Acquisition and integration costs 4,822 6
Amortization of intangible assets 13,673 12,714
Restructuring costs 504 2,291
Total adjustments related to operating expense 27,040 20,988
Adjusted (non-GAAP) operating expense $ 175,242 $ 175,605
Income (Loss) from Operations Reconciliation (GAAP/non-GAAP)
GAAP loss from operations $ (17,385 ) $ (15,272 )
Total adjustments related to gross profit 6,916 6,281
Total adjustments related to operating expense 27,040 20,988
Adjusted (non-GAAP) income (loss) from operations $ 16,571 11,997
Adjusted (non-GAAP) operating margin percentage 3.8 % 2.5 %
Net Income (Loss) Reconciliation (GAAP/non-GAAP)
GAAP net loss $ (31,450 ) $ (29,817 )
Total adjustments related to gross profit 6,916 6,281
Total adjustments related to operating expense 27,040 20,988
Change in fair value of embedded redemption feature 5,780 (1,570 )
Adjusted (non-GAAP) net income (loss) $ 8,286 $ (4,118 )
Weighted average basic common shares outstanding 96,313 99,530
Weighted average dilutive potential common shares outstanding 104,146 99,530
Net Income (Loss) per Common Share
GAAP diluted net loss per common share $ (0.33 ) $ (0.30 )
Adjusted (non-GAAP) diluted net income (loss) per common share $ 0.08 $ (0.04 )

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.
  • 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.
  • Restructuring costs - 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.
  • 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, 877-857–7377
pr@ciena.com 
or
Investor Contact:
Gregg Lampf, 888-243–6223
ir@ciena.com 

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