Ciena Reports Fiscal Fourth Quarter 2012 and Year-End Financial Results

Annual revenue grew 5%; cash balance increased by $100M for the year

HANOVER, Md. — 12/13/2012

Ciena^® Corporation (NASDAQ:CIEN, news, filings), the network specialist, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2012.

For the fiscal fourth quarter 2012, Ciena reported revenue of $465.5 million as compared to $455.5 million for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena reported revenue of $1.8 billion, as compared to $1.7 billion for fiscal year 2011.

On the basis of generally accepted accounting principles (GAAP), Ciena’s net loss for the fiscal fourth quarter 2012 was $(38.8) million, or $(0.39) per common share, which compares to a GAAP net loss of $(22.3) million, or $(0.23) per common share, for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena had a GAAP net loss of $(144.0) million, or $(1.45) per common share, which compares to a GAAP net loss of $(195.5) million or $(2.04) per common share for fiscal year 2011.

Ciena’s adjusted (non-GAAP) net loss for the fiscal fourth quarter 2012 was $(6.7) million, or $(0.07) per common share, which compares to an adjusted (non-GAAP) net income of $3.3 million, or $0.03 per common share, for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena’s adjusted (non-GAAP) net loss was $(23.5) million, or $(0.24) per common share, as compared to $(24.2) million, or $(0.25) per common share for fiscal year 2011.

“With five percent annual revenue growth and fourth quarter financial performance in line with our expectations, we continued to significantly outpace the market and take share in 2012 despite the challenging environment. That momentum resulted in record order flow and year-end backlog,” said Gary Smith, president and CEO of Ciena. “Customers require more network convergence with greater programmability to deliver more services, and we believe our portfolio is leading the transformation to next-generation intelligent networks.”

Fiscal Fourth 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 Appendices A and B.

GAAP Results
		Q4				Q3				Q4				Period Change
		FY 2012				FY 2012				FY 2011				Q-T-Q*			Y-T-Y*
Revenue		$	465.5			$	474.1			$	455.5			(1.8) %			2.2 %
Gross margin		41.3 %				38.2 %				41.7 %				3.1 %			(0.4) %
Operating expense		$	214.1			$	196.6			$	206.2			8.9 %			3.8 %
Operating margin		(4.7) %				(3.2) %				(3.6) %				(1.5) %			(1.1) %

		Non-GAAP Results
		Q4				Q3				Q4				Period Change
		FY 2012				FY 2012				FY 2011				Q-T-Q*			Y-T-Y*
Revenue		$	465.5			$	474.1			$	455.5			(1.8) %			2.2 %
Adj. gross margin		42.7 %				39.6 %				43.2 %				3.1 %			(0.5) %
Adj. operating expense		$	191.8			$	175.6			$	180.8			9.2 %			6.1 %
Adj. operating margin		1.4 %				2.5 %				3.5 %				(1.1) %			(2.1) %

		Revenue by Segment
		Q4 FY 2012							Q3 FY 2012							Q4 FY 2011
		Revenue				%			Revenue				%			Revenue				%
Packet-Optical Transport		$	289.4			62.2			$	298.5			63.0			$	296.2			65.1
Packet-Optical Switching		20.5				4.4			37.8				8.0			41.2				9.0
Carrier-Ethernet Solutions		47.9				10.3			31.3				6.6			28.8				6.3
Software and Services		107.7				23.1			106.5				22.4			89.3				19.6
Total		$	465.5			100.0			$	474.1			100.0			$	455.5			100.0

* Denotes % change, or in the case of margin, absolute change Additional Performance Metrics for Fiscal Fourth Quarter 2012 Non-U.S. customers contributed 46% of total revenue One 10%-plus customer represented a total of 11% of revenue Cash and investments totaled $692.5 million Cash flow from operations totaled $10.6 million Average days’ sales outstanding (DSOs) were 72 Accounts receivable balance was $345.5 million Inventories totaled $260.1 million, including: Raw materials: $39.7 million Work in process: $10.7 million Finished goods: $178.2 million Deferred cost of sales: $71.5 million Reserve for excess and obsolescence: $(40.0) million Product inventory turns were 3.3 Headcount totaled 4,481 Business Outlook for Fiscal First Quarter 2013 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 financial performance for fiscal first quarter 2013, a quarter in which we typically experience seasonal reductions in order volume and customer deployment activity, to include: Revenue in the range of $435 to $460 million Adjusted (non-GAAP) gross margin percentage in the low 40s range Adjusted (non-GAAP) operating expense in the high $180s million range Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2012 Results Ciena will host a discussion of its unaudited fiscal fourth quarter 2012 and year-end results with investors and financial analysts today, Thursday, December 13, 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. CIENA CORPORATION CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Quarter Ended October 31, Year Ended October 31, 2011 2012 2011 2012 Revenue: Products $ 368,049 $ 363,174 $ 1,406,532 $ 1,454,991 Services 87,406 102,357 335,438 378,932 Total revenue 455,455 465,531 1,741,970 1,833,923 Cost of goods sold: Products 210,686 211,443 825,969 868,805 Services 54,859 61,882 206,855 240,894 Total cost of goods sold 265,545 273,325 1,032,824 1,109,699 Gross profit 189,910 192,206 709,146 724,224 Operating expenses: Research and development 91,232 95,801 379,862 364,179 Selling and marketing 71,235 74,013 251,990 266,338 General and administrative 27,276 29,772 126,242 114,122 Acquisition and integration costs 2,340 20 42,088 (120) Amortization of intangible assets 13,534 12,545 69,665 51,697 Restructuring costs 591 1,990 5,781 7,854 Change in fair value of contingent consideration — — (3,289) — Total operating expenses 206,208 214,141 872,339 804,070 Loss from operations (16,298) (21,935) (163,193) (79,846) Interest and other income (loss), net (1,312) (3,468) 6,022 (15,200) Interest expense (9,500) (10,840) (37,926) (39,653) Gain on cost method investments 7,249 — 7,249 — Loss before income taxes (19,861) (36,243) (187,848) (134,699) Provision for income taxes 2,468 2,528 7,673 9,322 Net loss $ (22,329) $ (38,771) $ (195,521) $ (144,021) Basic net loss per common share $ (0.23) $ (0.39) $ (2.04) $ (1.45) Diluted net loss per potential common share $ (0.23) $ (0.39) $ (2.04) $ (1.45) Weighted average basic common shares outstanding 97,197 100,506 95,854 99,341 Weighted average dilutive potential common shares outstanding 97,197 100,506 95,854 99,341 CIENA CORPORATION CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) October 31, 2011 2012 ASSETS Current assets: Cash and cash equivalents $ 541,896 $ 642,444 Short-term investments — 50,057 Accounts receivable, net 417,509 345,496 Inventories 230,076 260,098 Prepaid expenses and other 143,357 117,595 Total current assets 1,332,838 1,415,690 Long-term investments 50,264 — Equipment, furniture and fixtures, net 122,558 123,580 Other intangible assets, net 331,635 257,137 Other long-term assets 114,123 84,736 Total assets $ 1,951,418 $ 1,881,143 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 157,116 $ 179,704 Accrued liabilities 197,004 209,540 Deferred revenue 99,373 79,516 Convertible notes payable — 216,210 Total current liabilities 453,493 684,970 Long-term deferred revenue 24,425 27,560 Other long-term obligations 17,263 31,779 Long term convertible notes payable 1,442,364 1,225,806 Total liabilities 1,937,545 1,970,115 Commitments and contingencies Stockholders’ equity (deficit): 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 100,601,792 shares issued and outstanding 974 1,006 Additional paid-in capital 5,753,236 5,797,765 Accumulated other comprehensive income (loss) 31 (3,354) Accumulated deficit (5,740,368) (5,884,389) Total stockholders’ equity (deficit) 13,873 (88,972) Total liabilities and stockholders’ equity (deficit) $ 1,951,418 $ 1,881,143 CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended October 31, 2011 2012 Cash flows from operating activities: Net loss $ (195,521) $ (144,021) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Gain on cost method investments (7,249) — Change in fair value of embedded redemption feature (2,800) 6,600 Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements 60,154 59,099 Share-based compensation costs 37,930 32,394 Amortization of intangible assets 95,927 74,497 Provision for inventory excess and obsolescence 17,334 23,438 Provision for warranty 18,451 33,418 Other 5,541 7,122 Changes in assets and liabilities: Accounts receivable (75,623) 70,366 Inventories 14,209 (53,460) Prepaid expenses and other (18,302) 1,748 Accounts payable, accruals and other obligations (59,285) 12,610 Deferred revenue 18,749 (16,722) Net cash provided by (used in) operating activities (90,485) 107,089 Cash flows used in investing activities: Payments for equipment, furniture, fixtures and intellectual property (52,367) (48,098) Restricted cash 10,751 35,597 Purchase of available for sale securities (49,892) — Proceeds from sale of cost method investment 6,544 524 Receipt of contingent consideration related to business acquisition 16,394 — Net cash used in investing activities (68,570) (11,977) Cash flows from financing activities: Repayment of capital lease obligations — (1,895) Debt issuance costs — (2,331) Proceeds from issuance of common stock 13,202 12,166 Net cash provided by financing activities 13,202 7,940 Effect of exchange rate changes on cash and cash equivalents (938) (2,504) Net increase (decrease) in cash and cash equivalents (146,791) 100,548 Cash and cash equivalents at beginning of period 688,687 541,896 Cash and cash equivalents at end of period $ 541,896 $ 642,444 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 32,931 $ 33,511 Cash paid during the period for income taxes, net $ 3,204 $ 9,603 Non-cash investing and financing activities Purchase of equipment in accounts payable $ 6,431 $ 5,202 Debt issuance costs in accrued liabilities $ — $ 319 Fixed assets purchased under capital leases $ 1,106 $ 6,736 APPENDIX A – Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements Quarter Ended October 31, 2011 2012 Gross Profit Reconciliation (GAAP/non-GAAP) GAAP gross profit $     189,910 $     192,206 Share-based compensation-products 611 647 Share-based compensation-services 365 326 Amortization of intangible assets 5,827 5,384 Total adjustments related to gross profit 6,803 6,357 Adjusted (non-GAAP) gross profit $ 196,713 $ 198,563 Adjusted (non-GAAP) gross profit percentage 43.2 % 42.7 % Operating Expense Reconciliation (GAAP/non-GAAP) GAAP operating expense $     206,208 $     214,141 Share-based compensation-research and development 2,558 2,500 Share-based compensation-sales and marketing 3,312 3,048 Share-based compensation-general and administrative 3,117 2,205 Acquisition and integration costs 2,340 20 Amortization of intangible assets 13,534 12,545 Restructuring costs 591 1,990 Total adjustments related to operating expense 25,452 22,308 Adjusted (non-GAAP) operating expense $ 180,756 $ 191,833 Income (Loss) from Operations Reconciliation (GAAP/non-GAAP) GAAP loss from operations $     (16,298) $     (21,935) Total adjustments related to gross profit 6,803 6,357 Total adjustments related to operating expense 25,452 22,308 Adjusted (non-GAAP) income from operations $ 15,957 6,730 Adjusted (non-GAAP) operating margin percentage 3.5 % 1.4 % Net Income (Loss) Reconciliation (GAAP/non-GAAP) GAAP net loss $     (22,329) $     (38,771) Total adjustments related to gross profit 6,803 6,357 Total adjustments related to operating expense 25,452 22,308 Gain on cost method investment (7,249) — Change in fair value of embedded redemption feature 580 3,440 Adjusted (non-GAAP) net income (loss) $ 3,257 $ (6,666) Weighted average basic common shares outstanding 97,197 100,506 Weighted average dilutive potential common shares outstanding 97,857 100,506 Net Income (Loss) per Common Share GAAP diluted net loss per common share $ (0.23) $ (0.39) Adjusted (non-GAAP) diluted net income (loss) per common share $ 0.03 $ (0.07) APPENDIX B – Reconciliation of Adjusted (Non- GAAP) Annual Measurements Year Ended October 31, 2011 2012 Gross Profit Reconciliation (GAAP/non-GAAP) GAAP gross profit $     709,146 $     724,224 Share-based compensation-products 2,269 2,156 Share-based compensation-services 1,881 1,462 Amortization of intangible assets 23,307 22,032 Fair value adjustment of acquired inventory 5,735 — Total adjustments related to gross profit 33,192 25,650 Adjusted (non-GAAP) gross profit $ 742,338 $ 749,874 Adjusted (non-GAAP) gross profit percentage 42.6 % 40.9 % Operating Expense Reconciliation (GAAP/non-GAAP) GAAP operating expense $     872,339 $     804,070 Share-based compensation-research and development 10,149 8,567 Share-based compensation-sales and marketing 12,182 11,558 Share-based compensation-general and administrative 11,140 8,691 Acquisition and integration costs 42,088 (120) Amortization of intangible assets 69,665 51,697 Restructuring costs 5,781 7,854 Change in fair value of contingent consideration (3,289) — Settlement of patent litigation 500 — Total adjustments related to operating expense 148,216 88,247 Adjusted (non-GAAP) operating expense $ 724,123 $ 715,823 Loss from Operations Reconciliation (GAAP/non-GAAP) GAAP loss from operations $     (163,193) $     (79,846) Total adjustments related to gross profit 33,192 25,650 Total adjustments related to operating expense 148,216 88,247 Adjusted (non-GAAP) income from operations $ 18,215 $ 34,051 Adjusted (non-GAAP) operating margin percentage 1.0 % 1.9 % Loss Reconciliation (GAAP/non-GAAP) GAAP net loss $     (195,521) $     (144,021) Total adjustments related to gross profit 33,192 25,650 Total adjustments related to operating expense 148,216 88,247 Gain on cost method investment (7,249) — Change in fair value of embedded redemption feature (2,800) 6,600 Adjusted (non-GAAP) net loss $ (24,162) $ (23,524) Weighted average basic common shares outstanding 95,854 99,341 Weighted average dilutive potential common shares outstanding 95,854 99,341 Net Loss per Common Share GAAP diluted net loss per common share $ (2.04) $ (1.45) Adjusted (non-GAAP) diluted net income (loss) per common share $ (0.25) $ (0.24)

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.
• Restructuring costs – costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
• Change in fair value of contingent consideration – a non-cash, unrealized gain during the periods identified related to Nortel’s intent to exercise its early termination right relating to the Carling, Canada facility lease entered into as part of the acquisition of the MEN Business.
• Settlement of patent litigation– included in general and administrative expense during our first quarter of fiscal 2011 is a $0.5 million patent litigation settlement.
• Gain on cost method investments –a non-cash gain related to the sale of a privately held technology company in which Ciena held a minority equity investment, which gain Ciena does not believe is 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.

About Ciena Ciena is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with OPⁿ, its approach for building open next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. 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.

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: “With five percent annual revenue growth and fourth quarter financial performance in line with our expectations, we continued to significantly outpace the market and take share in 2012 despite the challenging environment”; “That momentum resulted in record order flow and year-end backlog”; “Customers require more network convergence with greater programmability to deliver more services, and we believe our portfolio is leading the transformation to next-generation intelligent networks”; “Ciena expects financial performance for fiscal first quarter 2013, a quarter in which we typically experience seasonal reductions in order volume and customer deployment activity, to include revenue in the range of $435 to $460 million, adjusted (non-GAAP) gross margin percentage in the low 40s range, adjusted (non-GAAP) operating expense in the high $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 Report on Form 10-Q filed with the Securities and Exchange Commission on September 5, 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, Appendixes A and B to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

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