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Press Release -- September 4th, 2020
Source: Ciena
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Ciena Reports Fiscal Third Quarter 2020 Financial Results

HANOVER, Md.--(BUSINESS WIRE)-- Ciena® Corporation (NASDAQ:CIEN, news, filings), a networking systems, services and software company, today announced unaudited financial results for its fiscal third quarter ended August 1, 2020.

Q3 Revenue: $976.7 million, increasing 1.7% year over year

Q3 Net Income per Share: $0.91 GAAP; $1.06 adjusted (non-GAAP), increasing 49% year over year

"We delivered outstanding financial results in the third quarter, reflecting our continued innovation, market leadership and strong competitive position in an uncertain macro environment,“ said Gary Smith, President and CEO, Ciena. “Although COVID-related market dynamics have resulted in an orders slowdown and are likely to adversely impact our revenue for a few quarters, we are confident in our ability to continue executing on our strategy and expanding our market leadership."

For the fiscal third quarter 2020, Ciena reported revenue of $976.7 million as compared to $960.6 million for the fiscal third quarter 2019.

Ciena's GAAP net income for the fiscal third quarter 2020 was $142.3 million, or $0.91 per diluted common share, which compares to a GAAP net income of $86.7 million, or $0.55 per diluted common share, for the fiscal third quarter 2019.

Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2020 was $166.4 million, or $1.06 per diluted common share, which compares to an adjusted (non-GAAP) net income of $112.3 million, or $0.71 per diluted common share, for the fiscal third quarter 2019.

Fiscal Third Quarter 2020 Performance Summary

The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to the prior year. Appendices A and B set forth reconciliations between the GAAP and adjusted (non-GAAP) measures contained in this release.

GAAP Results

Q3

Q3

FY 2020

FY 2019

Y-T-Y*

Revenue

$

976.7

$

960.6

1.7

%

Gross margin

47.6

%

44.2

%

3.4

%

Operating expense

$

276.6

$

299.1

(7.5)

%

Operating margin

19.3

%

13.0

%

6.3

%

Non-GAAP Results

Q3

Q3

FY 2020

FY 2019

Y-T-Y*

Revenue

$

976.7

$

960.6

1.7

%

Adj. gross margin

48.2

%

44.7

%

3.5

%

Adj. operating expense

$

251.2

$

273.2

(8.1)

%

Adj. operating margin

22.4

%

16.2

%

6.2

%

Adj. EBITDA

$

241.1

$

178.0

35.4

%

* Denotes % change, or in the case of margin, absolute change

Revenue by Segment

Q3 FY 2020

Q3 FY 2019

Revenue

%**

Revenue

%**

Networking Platforms

Converged Packet Optical

$

722.5

74.0

$

724.3

75.4

Packet Networking

79.8

8.1

71.8

7.5

Total Networking Platforms

802.3

82.1

796.1

82.9

Platform Software and Services

46.4

4.8

37.3

3.9

Blue Planet Automation Software and Services

11.3

1.1

10.5

1.1

Global Services

Maintenance Support and Training

69.1

7.1

65.9

6.9

Installation and Deployment

39.8

4.1

39.8

4.1

Consulting and Network Design

7.8

0.8

11.0

1.1

Total Global Services

116.7

12.0

116.7

12.1

Total

$

976.7

100.0

$

960.6

100.0

** Denotes % of total revenue

Additional Performance Metrics for Fiscal Third Quarter 2020

Revenue by Geographic Region

Q3 FY 2020

Q3 FY 2019

Revenue

% **

Revenue

% **

Americas

$

713.3

73.0

$

656.3

68.3

Europe, Middle East and Africa

162.5

16.6

169.5

17.6

Asia Pacific

100.9

10.4

134.8

14.1

Total

$

976.7

100.0

$

960.6

100.0

** Denotes % of total revenue

  • One 10%-plus customer represented a total of 12% of revenue
  • Cash and investments totaled $1,164.2 million
  • Cash flow from operations totaled $175.4 million
  • Average days' sales outstanding (DSOs) were 75
  • Accounts receivable balance was $715.2 million
  • Unbilled contract asset balance was $97.4 million
  • Inventories totaled $363.6 million, including:
    • Raw materials: $133.6 million
    • Work in process: $12.6 million
    • Finished goods: $215.3 million
    • Deferred cost of sales: $45.1 million
    • Reserve for excess and obsolescence: $(43.0) million
  • Product inventory turns were 4.8
  • Headcount totaled 6,934

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Third Quarter 2020 Results

Today, Thursday, September 3, 2020, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website an accompanying investor presentation for its unaudited fiscal third quarter 2020 results.

Ciena's management will also host a discussion today with investors and financial analysts that will include the Company's outlook. The live audio web broadcast beginning at 8:30 a.m. Eastern will be accessible via www.ciena.com. An archived replay of the live broadcast will be available shortly following its conclusion on the Investor Relations page of Ciena's website.

Notes to Investors

Forward-Looking Statements. You are encouraged to review the Investors section of our website, where we routinely post press releases, SEC filings, recent news, financial results, supplemental financial information, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use. 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 delivered outstanding financial results in the third quarter, reflecting our continued innovation, market leadership and strong competitive position in an uncertain macro environment. Although COVID-related market dynamics have resulted in an orders slowdown and are likely to adversely impact our revenue for a few quarters, we are confident in our ability to continue executing on our strategy and expanding our market leadership."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due to 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; our ability to execute our business and growth strategies; the duration and severity of the COVID-19 pandemic and the impact of countermeasures taken to mitigate its spread on macroeconomic conditions, economic activity, demand for our technology solutions, short- and long-term changes in customer or end user needs, continuity of supply chain, our business operations, liquidity and financial results; changes in network spending or network strategy by customers; 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; factors beyond our control such as natural disasters, acts of war or terrorism, and public health emergencies, including the COVID-19 pandemic; the impact of the Tax Cuts and Jobs Act; changes in tax or trade regulations, including the imposition of tariffs, duties or efforts to withdraw from or materially modify international trade agreements; changes in estimates of prospective income tax rates and any adjustments to Ciena's provisional estimates whether related to further guidance, analysis or otherwise; and the other risk factors disclosed in its Annual Report on Form 10-K filed with the SEC on December 20, 2019 and included in its Quarterly Report on Form 10-Q for the current quarter. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly and Annual Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income from operations, earnings before interest, tax, depreciation and amortization (EBITDA), Adjusted EBITDA, and measures of 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. To the extent not previously disclosed in a prior Ciena financial results press release, Appendices A and B to this press release set forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

About Ciena. Ciena (NYSE: CIEN) is a networking systems, services and software company. We provide solutions that help our customers create the Adaptive Network™ in response to the constantly changing demands of their users. By delivering best-in-class networking technology through high-touch consultative relationships, we build the world’s most agile networks with automation, openness and scale. For updates on Ciena, follow us on Twitter @CienaLinkedIn, the Ciena Insights blog, or visit www.ciena.com.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

Quarter Ended

Nine Months Ended

August 1,

August 3,

August 1,

August 3,

2020

2019

2020

 2019

Revenue:

Products

$

819,022

$

810,588

$

2,246,129

$

2,163,808

Services

157,690

150,018

457,548

440,336

Total revenue

976,712

960,606

2,703,677

2,604,144

Cost of goods sold:

Products

436,227

454,921

1,230,378

1,246,413

Services

75,804

81,333

224,757

235,361

Total cost of goods sold

512,031

536,254

1,455,135

1,481,774

Gross profit

464,681

424,352

1,248,542

1,122,370

Operating expenses:

Research and development

130,221

139,880

392,651

406,482

Selling and marketing

94,763

104,230

303,043

305,845

General and administrative

41,635

42,695

126,133

124,092

Amortization of intangible assets

5,840

5,529

17,532

16,586

Significant asset impairments and restructuring costs

6,515

5,355

14,798

11,696

Acquisition and integration costs (recoveries)

(2,329

)

1,362

904

4,105

Total operating expenses

276,645

299,051

855,061

868,806

Income from operations

188,036

125,301

393,481

253,564

Interest and other income, net

232

1,050

1,213

5,059

Interest expense

(7,251

)

(9,404

)

(23,926

)

(28,316

)

Loss on extinguishment and modification of debt

(646

)

Income before income taxes

181,017

116,947

370,122

230,307

Provision for income taxes

38,750

30,198

73,872

57,204

Net income

$

142,267

$

86,749

$

296,250

$

173,103

Net Income per Common Share

Basic net income per common share

$

0.92

$

0.56

$

1.92

$

1.11

Diluted net income per potential common share

$

0.91

$

0.55

$

1.90

$

1.10

Weighted average basic common shares outstanding

154,184

155,488

154,136

156,013

Weighted average dilutive potential common shares outstanding 1

156,318

157,455

155,741

157,949

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2020 includes 2.1 million shares underlying certain stock option and stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2020 includes 1.6 million shares underlying certain stock option and stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2019 includes 2.0 million shares underlying certain stock option and stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2019 includes 1.9 million shares underlying certain stock option and stock unit awards.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

August 1,
2020

November 2,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

1,093,749

$

904,045

Short-term investments

70,404

109,940

Accounts receivable, net

715,195

724,854

Inventories

363,600

345,049

Prepaid expenses and other

324,935

297,914

Total current assets

2,567,883

2,381,802

Long-term investments

10,014

Equipment, building, furniture and fixtures, net

266,996

286,884

Operating lease right-of-use assets

48,573

Goodwill

310,772

297,937

Other intangible assets, net

106,182

112,781

Deferred tax asset, net

655,320

714,942

Other long-term assets

99,462

88,986

Total assets

$

4,055,188

$

3,893,346

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

297,163

$

344,819

Accrued liabilities and other short-term obligations

301,030

382,740

Deferred revenue

95,951

111,381

Operating lease liabilities

19,417

Current portion of long-term debt

6,930

7,000

Total current liabilities

720,491

845,940

Long-term deferred revenue

40,919

45,492

Other long-term obligations

134,914

148,747

Long-term operating lease liabilities

52,141

Long-term debt, net

677,856

680,406

Total liabilities

$

1,626,321

$

1,720,585

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; 154,318,197

and 154,403,850 shares issued and outstanding

1,543

1,544

Additional paid-in capital

6,815,676

6,837,714

Accumulated other comprehensive loss

(40,189

)

(22,084

)

Accumulated deficit

(4,348,163

)

(4,644,413

)

Total stockholders’ equity

2,428,867

2,172,761

Total liabilities and stockholders’ equity

$

4,055,188

$

3,893,346

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

Nine Months Ended

August 1,

August 3,

2020

2019

Cash flows provided by operating activities:

Net income

$

296,250

$

173,103

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements

70,370

65,071

Share-based compensation costs

50,838

44,446

Amortization of intangible assets

29,035

26,610

Deferred taxes

57,636

35,949

Provision for inventory excess and obsolescence

20,176

18,833

Provision for warranty

19,172

15,933

Other

15,085

743

Changes in assets and liabilities:

Accounts receivable

(6,688

)

(2,517

)

Inventories

(39,568

)

(115,427

)

Prepaid expenses and other

(52,945

)

(85,039

)

Operating lease right-of-use assets

12,816

Accounts payable, accruals and other obligations

(131,647

)

(9,005

)

Deferred revenue

(19,039

)

4,427

Short and long-term operating lease liabilities

(15,132

)

Net cash provided by operating activities

306,359

173,127

Cash flows provided by (used in) investing activities:

Payments for equipment, furniture, fixtures and intellectual property

(61,333

)

(49,063

)

Purchase of available for sale securities

(39,859

)

(127,601

)

Proceeds from maturities of available for sale securities

90,000

120,000

Proceeds from sales of available for sale securities

98,263

Settlement of foreign currency forward contracts, net

3,067

(3,155

)

Acquisition of business, net of cash acquired

(28,300

)

Purchase of equity investment

(2,667

)

Net cash provided by (used in) investing activities

(36,425

)

35,777

Cash flows used in financing activities:

Payment of long term debt

(3,465

)

(5,250

)

Payment of debt issuance costs

(382

)

Payment of finance lease obligations

(2,030

)

(2,599

)

Payment for debt conversion liability

(111,268

)

Shares repurchased for tax withholdings on vesting of restricted stock units

(26,328

)

(23,234

)

Repurchases of common stock - repurchase program

(74,535

)

(110,484

)

Proceeds from issuance of common stock

27,986

22,895

Net cash used in financing activities

(78,754

)

(229,940

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(1,526

)

392

Net increase (decrease) in cash, cash equivalents and restricted cash

189,654

(20,644

)

Cash, cash equivalents and restricted cash at beginning of period

904,161

745,434

Cash, cash equivalents and restricted cash at end of period

$

1,093,815

$

724,790

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$

25,278

$

29,921

Cash paid during the period for income taxes, net

$

41,316

$

21,573

Operating lease payments

$

16,762

$

Non-cash investing and financing activities

Purchase of equipment in accounts payable

$

4,200

$

4,328

Repurchase of common stock in accrued liabilities from repurchase program

$

$

1,441

Conversion of debt conversion liability into 1,585,140 shares of common stock

$

$

52,944

Operating lease right-of-use assets subject to lease liability

$

11,404

$

APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measures (unaudited)

Quarter Ended

August 1,

August 3,

2020

2019

Gross Profit Reconciliation (GAAP/non-GAAP)

GAAP gross profit

$

464,681

$

424,352

Share-based compensation-products

960

781

Share-based compensation-services

1,007

783

Amortization of intangible assets

3,834

3,303

Total adjustments related to gross profit

5,801

4,867

Adjusted (non-GAAP) gross profit

$

470,482

$

429,219

Adjusted (non-GAAP) gross profit percentage

48.2

%

44.7

%

Operating Expense Reconciliation (GAAP/non-GAAP)

GAAP operating expense

$

276,645

$

299,051

Share-based compensation-research and development

4,286

3,560

Share-based compensation-sales and marketing

5,180

4,192

Share-based compensation-general and administrative

5,940

5,813

Amortization of intangible assets

5,840

5,529

Significant asset impairments and restructuring costs

6,515

5,355

Acquisition and integration costs (recoveries)

(2,329)

1,362

Total adjustments related to operating expense

25,432

25,811

Adjusted (non-GAAP) operating expense

$

251,213

$

273,240

Income from Operations Reconciliation (GAAP/non-GAAP)

GAAP income from operations

$

188,036

$

125,301

Total adjustments related to gross profit

5,801

4,867

Total adjustments related to operating expense

25,432

25,811

Total adjustments related to income from operations

31,233

30,678

Adjusted (non-GAAP) income from operations

$

219,269

$

155,979

Adjusted (non-GAAP) operating margin percentage

22.4

%

16.2

%

Net Income Reconciliation (GAAP/non-GAAP)

GAAP net income

$

142,267

$

86,749

Exclude GAAP provision for income taxes

38,750

30,198

Income before income taxes

181,017

116,947

Total adjustments related to income from operations

31,233

30,678

Adjusted income before income taxes

212,250

147,625

Non-GAAP tax provision on adjusted income before income taxes

45,846

35,282

Adjusted (non-GAAP) net income

$

166,404

$

112,343

Weighted average basic common shares outstanding

154,184

155,488

Weighted average dilutive potential common shares outstanding 1

156,318

157,455

Net Income per Common Share

GAAP diluted net income per common share

$

0.91

$

0.55

Adjusted (non-GAAP) diluted net income per common share

$

1.06

$

0.71

Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2020 includes 2.1 million shares underlying certain stock option and stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2020 includes 1.6 million shares underlying certain stock option and stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2019 includes 2.0 million shares underlying certain stock option and restricted stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2019 includes 1.9 million shares underlying certain stock option and stock unit awards.

APPENDIX B - Calculation of EBITDA and Adjusted EBITDA (unaudited)

Quarter Ended

August 1,

August 3,

2020

2019

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

Net income (GAAP)

$

142,267

$

86,749

Add: Interest expense

7,251

9,404

Less: Interest and other income, net

232

1,050

Add: Provision for income taxes

38,750

30,198

Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements

21,989

22,076

Add: Amortization of intangible assets

9,674

8,832

EBITDA

$

219,699

$

156,209

Add: Share-based compensation cost

17,259

15,084

Add: Significant asset impairments and restructuring costs

6,515

5,355

Add: Acquisition and integration costs (recoveries)

(2,329

)

1,362

Adjusted EBITDA

$

241,144

$

178,010

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 -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, that Ciena is required to amortize over its expected useful life.
  • Significant asset impairments and restructuring costs -costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Acquisition and integration costs (recoveries)-consist of expenses for financial, legal and accounting advisors, severance and other employee-related costs associated with our acquisitions of DonRiver and Centina, including costs and recoveries of acquisition consideration associated with a three-year earn-out arrangement related to the DonRiver acquisition in fiscal 2018. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • Non-GAAP tax provision - consists of current and deferred income tax expense commensurate with the level of adjusted income before income taxes and utilizes a current, blended U.S. and foreign statutory annual tax rate of 21.6% for the third fiscal quarter of 2020 and 23.9% for the third fiscal quarter of 2019. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy.

Press:
Nicole Anderson
Ciena Corporation
+1 (410) 694-5761
pr@ciena.com

Investors:
Gregg Lampf
Ciena Corporation
+1 (410) 694-5700
ir@ciena.com

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