CIEN
$24.51
Ciena
($.11)
(.45%)
Earnings Details
1st Quarter January 2018
Tuesday, March 6, 2018 7:00:16 AM
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Summary

Ciena Misses

Ciena (CIEN) reported 1st Quarter January 2018 earnings of $0.13 per share on revenue of $646.1 million. The consensus earnings estimate was $0.13 per share on revenue of $643.2 million. The Earnings Whisper number was $0.14 per share. Revenue grew 4.0% on a year-over-year basis.

The company said during its conference call it expects second quarter revenue of $710.0 million to $740.0 million. The current consensus revenue estimate is $722.9 million for the quarter ending April 30, 2018.

Ciena Corp is a network specialist providing networking solutions. It provides equipment, software & services supporting the transport, switching, aggregation, service delivery & management of voice, video and data traffic on communications networks.

Results
Reported Earnings
$0.13
Earnings Whisper
$0.14
Consensus Estimate
$0.13
Reported Revenue
$646.1 Mil
Revenue Estimate
$643.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Ciena Reports Fiscal First Quarter 2018 Financial Results

Ciena(R) Corporation (CIEN):

-- Q1 Revenue: $646.1 million, increasing 4% year over year

Q1 Net Income (Loss) per Share: $(3.29) GAAP; $0.15 adjusted (non-GAAP) -- GAAP loss primarily due to significant non-cash charges related to the Tax Cuts and Jobs Act, which resulted in an estimated $476.9 million of additional tax expense

Share Repurchase: Commenced repurchase activity on three-year, $300 million repurchase program during Q1

Ciena, a network strategy and technology company, today announced unaudited financial results for its fiscal first quarter ended January 31, 2018.

"We demonstrated a strong start toward achieving our long-term financial goals with our fiscal first quarter results, including year-over-year top-line growth, continued cash generation and a strengthening balance sheet," said Gary B. Smith, president and CEO, Ciena. "We also are confident in our ability to continue driving market share gains across key geographies and customer segments by intersecting the industry’s demand drivers with leading innovation."

For the fiscal first quarter 2018, Ciena reported revenue of $646.1 million as compared to $621.5 million for the fiscal first quarter 2017.

Ciena’s fiscal first quarter 2018 GAAP results include a non-cash $476.9 million charge related to the enactment of the Tax Cuts and Jobs Act. As a result, Ciena’s GAAP net loss for the fiscal first quarter 2018 was $(473.4) million, or $(3.29) per diluted common share, which compares to a GAAP net income of $3.9 million, or $0.03 per diluted common share, for the fiscal first quarter 2017.

Ciena’s adjusted (non-GAAP) net income for the fiscal first quarter 2018 was $21.9 million, or $0.15 per diluted common share, which compares to an adjusted (non-GAAP) net income of $24.6 million, or $0.17 per diluted common share, for the fiscal first quarter 2017.

Share Repurchase Program

On December 7, 2017, Ciena announced that its Board of Directors had authorized a program to repurchase up to $300 million of the Company’s common stock through the end of fiscal 2020. The Company commenced repurchases late in the fiscal first quarter 2018, and through March 5, 2018, has repurchased approximately 874,000 shares of its common stock, for an aggregate purchase price of $19.5 million at an average price of $22.34 per share.

Fiscal First Quarter 2018 Performance Summary

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

GAAP Results
Q1
Q1
Period
Change
FY 2018
FY 2017
Y-T-Y*
Revenue
$ 646.1
$ 621.5
4.0 %
Gross margin
42.1 %
44.1 %
(2.0 )%
Operating expense
$ 255.0
$ 254.7
0.1 %
Operating margin
2.6 %
3.1 %
(0.5 )%
Non-GAAP
Results
Q1
Q1
Period
Change
FY 2018
FY 2017
Y-T-Y*
Revenue
$ 646.1
$ 621.5
4.0 %
Adj. gross margin
42.6 %
44.9 %
(2.3 )%
Adj. operating expense
$ 234.4
$ 226.2
3.6 %
Adj. operating margin
6.3 %
8.5 %
(2.2 )%
Adj. EBITDA
$
61.8
$
69.9
(11.6 )%
* Denotes % change, or in the case of margin, absolute change
Revenue by Segment
Q1 FY 2018
Q1 FY 2017
Revenue
%**
Revenue
%**
Networking Platforms
Converged Packet Optical (1)
$
427.4
66.1
$
417.8
67.2
Packet Networking
68.6
10.6
72.2
11.6
Total Networking Platforms
496.0
76.7
490.0
78.8
Software and Software-Related Services
Software Platforms
29.6
4.6
17.0
2.7
Software-Related Services
23.9
3.7
22.3
3.6
Total Software and Software-Related Services
53.5
8.3
39.3
6.3
Global Services
Maintenance Support and Training
56.0
8.7
55.0
8.9
Installation and Deployment
30.0
4.7
27.9
4.5
Consulting and Network Design
10.6
1.6
9.3
1.5
Total Global Services
96.6
15.0
92.2
14.9
Total
$
646.1
100.0
$
621.5
100.0
1. As of the first fiscal quarter of 2018, sales of Optical
Transport products are reflected within the Converged Packet Optical
product line for all periods presented.

Additional Performance Metrics for Fiscal First Quarter 2018

Revenue by Geographic Region
Q1 FY 2018
Q1 FY 2017
Revenue
% **
Revenue
% **
North America
$ 402.9
62.4
$ 405.9
65.3
Europe, Middle East and Africa
97.8
15.1
91.5
14.7
Caribbean and Latin America
34.6
5.4
35.2
5.7
Asia Pacific
110.8
17.1
88.9
14.3
Total
$ 646.1
100.0
$ 621.5
100.0
** Denotes % of total revenue

U.S. customers contributed 59.3% of total revenue

Two customers each accounted for greater than 10% of revenue and in aggregate represented 25% of total revenue

-- Cash and investments totaled $986.8 million

-- Cash flow from operations totaled $35.7 million

-- Free cash flow totaled $10.0 million

-- Average days’ sales outstanding (DSOs) were 77

-- Accounts receivable balance was $553.7 million

Inventories totaled $255.3 million, including: -- Raw materials: $47.7 million

-- Work in process: $16.5 million

-- Finished goods: $176.5 million

-- Deferred cost of sales: $64.4 million

-- Reserve for excess and obsolescence: $(49.8) million

-- Product inventory turns were 4.9

-- Headcount totaled 5,712

Impact of the Tax Cuts and Jobs Act

The first fiscal quarter 2018 provision for income taxes includes the following significant non-cash charges related to the enactment of the Tax Cuts and Jobs Act:

$431.3 million charge related to the remeasurement of U.S. net deferred tax assets at the lower statutory rate under the Tax Cuts and Jobs Act; and

$45.6 million charge related to a transition tax on accumulated historical foreign earnings and its deemed repatriation to the U.S.

Ciena continues to evaluate the impact of the Tax Cuts and Jobs Act. At this time, Ciena does not expect to pay substantial cash taxes for U.S. federal income tax for the foreseeable future primarily due to its deferred tax asset balance. As of January 31, 2018, Ciena has net deferred tax assets of approximately $739.4 million, and consequently, over the near term, Ciena’s cash taxes will continue to be primarily related to the state taxes and tax expense of Ciena’s foreign subsidiaries, which amounts have not historically been significant. Ciena’s foreign and domestic income tax expense for the first quarter of fiscal 2018 and 2017 expected to be paid using cash was $1.0 million and $0.4 million, respectively.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal First Quarter 2018 Results

Today, Tuesday, March 6, 2018, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website supporting materials for its unaudited fiscal first quarter 2018 results, including prepared remarks from management and a related investor presentation.

Ciena’s management will also host a discussion today with investors and financial analysts that will include the Company’s fiscal second quarter 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 demonstrated a strong start toward achieving our long-term financial goals with our fiscal first quarter results, including year-over-year top-line growth, continued cash generation and a strengthening balance sheet"; "We also are confident in our ability to continue driving market share gains across key geographies and customer segments by intersecting the industry’s demand drivers with leading innovation".

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; 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; the impact of the Tax Cuts and Jobs Act, 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 Ciena’s Report on Form 10-K, which Ciena filed with the Securities and Exchange Commission on December 22, 2017. 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, Appendix 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 (CIEN) is a network strategy and technology company. We translate best-in-class technology into value through a high-touch, consultative business model - with a relentless drive to create exceptional experiences measured by outcomes. For updates on Ciena, follow us on Twitter @Ciena, LinkedIn, 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 January 31,
2018
2017
Revenue:
Products
$
525,609
$ 506,993
Services
120,526
114,504
Total revenue
646,135
621,497
Cost of goods sold:
Products
313,120
286,811
Services
61,250
60,901
Total cost of goods sold
374,370
347,712
Gross profit
271,765
273,785
Operating expenses:
Research and development
118,524
116,869
Selling and marketing
88,515
85,002
General and administrative
38,406
35,864
Amortization of intangible assets
3,623
14,551
Significant asset impairments and restructuring costs
5,961
2,395
Total operating expenses
255,029
254,681
Income from operations
16,736
19,104
Interest and other income (loss), net
1,575
370
Interest expense
(13,734 )
(15,203 )
Income before income taxes
4,577
4,271
Provision for income taxes (1)
477,940
410
Net income (loss)
$ (473,363 )
$
3,861
Net Income (Loss) per Common Share
Basic net income (loss) per common share
$
(3.29 )
$
0.03
Diluted net income (loss) per potential common share
$
(3.29 )
$
0.03
Weighted average basic common shares outstanding
143,922
140,682
Weighted average dilutive potential common shares outstanding(2)
143,922
142,184
1. The provision for income taxes for the first quarter of fiscal
2018 is primarily related to the enactment of the Tax Cuts and Jobs
Act. These amounts are provisional and reflect management’s current
estimates and current interpretations of the Tax Cuts and Jobs Act.
These amounts may require adjustment in future periods as additional
guidance under the Tax Cuts and Jobs Act becomes available and
analysis of its provisions is completed.
2. Weighted average dilutive potential common shares outstanding
used in calculating GAAP diluted net income per common share for the
first quarter of fiscal 2017 includes 1.5 million shares underlying
certain stock options and restricted stock units.
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
January 31,
October 31,
2018
2017
ASSETS
Current assets:
Cash and cash equivalents
$
648,867
$
640,513
Short-term investments
278,743
279,133
Accounts receivable, net
553,724
622,183
Inventories
255,251
267,143
Prepaid expenses and other
186,837
197,339
Total current assets
1,923,422
2,006,311
Long-term investments
59,151
49,783
Equipment, building, furniture and fixtures, net
318,835
308,465
Goodwill
267,899
267,458
Other intangible assets, net
96,485
100,997
Deferred tax asset, net
739,446
1,155,104
Other long-term assets
64,146
63,593
Total assets
$
3,469,384
$
3,951,711
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
209,243
$
260,098
Accrued liabilities and other short-term obligations
268,164
322,934
Deferred revenue
103,216
102,418
Current portion of long-term debt
352,753
352,293
Total current liabilities
933,376
1,037,743
Long-term deferred revenue
79,297
82,589
Other long-term obligations
115,970
111,349
Long-term debt, net
584,601
583,688
Total liabilities
$
1,713,244
$
1,815,369
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;
1,442
1,430
144,180,782
and 143,043,227 shares issued and outstanding
Additional paid-in capital
6,828,648
6,810,182
Accumulated other comprehensive income (loss)
2,375
(11,017 )
Accumulated deficit
(5,076,325 )
(4,664,253 )
Total stockholders’ equity
1,756,140
2,136,342
Total liabilities and stockholders’ equity
$
3,469,384
$
3,951,711
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended January 31,
2018
2017
Cash flows provided by (used in) operating activities:
Net income (loss)
$ (473,363 )
$
3,861
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation of equipment, building, furniture and fixtures, and
20,833
16,699
amortization of leasehold improvements
Share-based compensation costs
12,393
12,825
Amortization of intangible assets
5,912
18,864
Deferred taxes
476,897
--
Provision for inventory excess and obsolescence
6,804
5,431
Provision for warranty
4,657
553
Other
2,269
4,452
Changes in assets and liabilities:
Accounts receivable
72,439
(21,956 )
Inventories
5,199
(78,749 )
Prepaid expenses and other
16,120
(1,004 )
Accounts payable, accruals and other obligations
(111,476 )
4,037
Deferred revenue
(2,981 )
8,737
Net cash provided by (used in) operating activities
35,703
(26,250 )
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property
(25,662 )
(25,706 )
Purchase of available for sale securities
(118,877 )
(89,897 )
Proceeds from maturities of available for sale securities
110,000
95,000
Settlement of foreign currency forward contracts, net
1,061
440
Net cash used in investing activities
(33,478 )
(20,163 )
Cash flows provided by (used in) financing activities:
Payment of long term debt
(1,000 )
(46,296 )
Payment of capital lease obligations
(914 )
(605 )
Repurchases of common stock-repurchase program
(4,103 )
--
Proceeds from issuance of common stock
11,008
9,708
Net cash provided by (used in) financing activities
4,991
(37,193 )
Effect of exchange rate changes on cash and cash equivalents
1,138
(156 )
Net increase (decrease) in cash and cash equivalents
8,354
(83,762 )
Cash and cash equivalents at beginning of period
640,513
777,615
Cash and cash equivalents at end of period
$
648,867
$
693,853
Supplemental disclosure of cash flow information
Cash paid during the period for interest
$
10,020
$
11,831
Cash paid during the period for income taxes, net
$
3,498
$
5,521
Non-cash investing activities
Purchase of equipment in accounts payable
$
2,014
$
5,293
Non-cash financing activities
Repurchase of common stock in accrued liabilities from repurchase
$
1,652
$ --
program
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly
Measures (unaudited)
Quarter Ended January 31,
2018
2017
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit
$
271,765
$ 273,785
Share-based compensation-products
672
561
Share-based compensation-services
625
628
Amortization of intangible assets
2,289
4,313
Total adjustments related to gross profit
3,586
5,502
Adjusted (non-GAAP) gross profit
$
275,351
$ 279,287
Adjusted (non-GAAP) gross profit percentage
42.6 %
44.9 %
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense
$
255,029
$ 254,681
Share-based compensation-research and development
3,255
3,209
Share-based compensation-sales and marketing
3,328
2,873
Share-based compensation-general and administrative
4,474
5,453
Amortization of intangible assets
3,623
14,551
Significant asset impairments and restructuring costs
5,961
2,395
Total adjustments related to operating expense
20,641
28,481
Adjusted (non-GAAP) operating expense
$
234,388
$ 226,200
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations
$
16,736
$
19,104
Total adjustments related to gross profit
3,586
5,502
Total adjustments related to operating expense
20,641
28,481
Total adjustments related to income from operations
24,227
33,983
Adjusted (non-GAAP) income from operations
$
40,963
$
53,087
Adjusted (non-GAAP) operating margin percentage
6.3 %
8.5 %
Net Income (Loss) Reconciliation (GAAP/non-GAAP)
GAAP net income (loss)
$
(473,363 )
$
3,861
Exclude GAAP provision for income taxes
477,940
410
Income before income taxes
$
4,577
$
4,271
Total adjustments related to income from operations
24,227
33,983
Loss on extinguishment of debt
--
41
Non-cash interest expense
749
513
Adjusted income before income taxes
$
29,553
$
38,808
Non-GAAP tax provision on adjusted income before income taxes
7,645
14,165
Adjusted (non-GAAP) net income
$
21,908
$
24,643
Weighted average basic common shares outstanding
143,922
140,682
Weighted average dilutive potential common shares outstanding (1)
145,558
165,104
Net Income (Loss) per Common Share
GAAP diluted net income (loss) per common share
$
(3.29 )
$
0.03
Adjusted (non-GAAP) diluted net income per common share (2)
$
0.15
$
0.17
1.
Weighted average dilutive potential common shares outstanding used
in calculating Adjusted (non-GAAP) diluted net income per common
share for the first quarter of fiscal 2018 includes 0.9 million
shares underlying certain stock options and restricted stock units
and 0.7 million shares underlying Ciena’s "New" 3.75% convertible
senior notes, due October 15, 2018.
Weighted average dilutive potential common shares outstanding used
in calculating Adjusted (non-GAAP) diluted net income per common
share for the first quarter of fiscal 2017 includes 1.5 million
shares underlying certain stock options and restricted stock units,
5.6 million shares underlying Ciena’s 0.875% convertible senior
notes, which were paid at maturity during the third quarter of
fiscal 2017 and 17.4 million shares underlying Ciena’s "Original"
3.75% convertible senior notes, due October 15, 2018.
2.
The calculation of Adjusted (non-GAAP) diluted net income per common
share for the first quarter of fiscal 2017 requires adding back
interest expense of approximately $0.4 million associated with
Ciena’s 0.875% convertible senior notes, which were paid at maturity
during the third quarter of fiscal 2017 and approximately $2.3
million associated with Ciena’s "Original" 3.75% convertible senior
notes, due October 15, 2018 to the Adjusted (non-GAAP) net income in
order to derive the numerator for the Adjusted earnings per common
share calculation.
APPENDIX B - Calculation of EBITDA and Adjusted EBITDA (unaudited)
Quarter Ended January 31,
2018
2017
Earnings Before Interest, Tax, Depreciation and Amortization
(EBITDA)
Net income (loss) (GAAP)
$ (473,363 )
$
3,861
Add: Interest expense
13,734
15,203
Less: Interest and other income (loss), net
1,575
370
Add: Provision for income taxes
477,940
410
Add: Depreciation of equipment, building, furniture and fixtures,
20,833
16,699
and amortization of leasehold improvements
Add: Amortization of intangible assets
5,912
18,864
EBITDA
$
43,481
$
54,667
Add: Shared-based compensation cost
12,393
12,825
Add: Significant asset impairments and restructuring costs
5,961
2,395
Adjusted EBITDA
$
61,835
$
69,887

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.

Non-cash loss on extinguishment of debt - related to certain private repurchases conducted with several holders of Ciena’s 0.875% convertible senior notes, which were paid at maturity during the third quarter of fiscal 2017.

Non-cash interest expense - a non-cash debt discount expense amortized as interest expense during the term of Ciena’s 4.0% senior convertible notes due December 15, 2020 relating to the required separate accounting of the equity component of these convertible notes.

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 25.87% for the first fiscal quarter of 2018, and 36.5% for the first fiscal quarter of 2017. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy. In calculating, the Non-GAAP tax provision for the first fiscal quarter of 2018, Ciena excluded certain significant non-cash charges resulting from the enactment of Tax Cuts and Jobs Act. Specifically, during the first quarter of fiscal 2018, Ciena recorded a provisional, non-cash charge of $476.9 million, consisting of a $431.3 million charge related to the re-measurement of net deferred tax assets at the lower statutory rate, and a $45.6 million charge related to the U.S. transition tax described above. These amounts are provisional in nature based on Securities and Exchange Commission Staff Accounting Bulletin No. 118 and therefore subject to adjustment in future periods, including as a result of the availability of additional guidance and further analysis by Ciena under the Tax Cuts and Jobs Act.

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SOURCE: Ciena Corporation

Ciena Corporation
Press Contact:
Nicole Anderson, 877-857-7377
pr@ciena.com
or
Investor Contact:
Gregg Lampf, 877-243-6273
ir@ciena.com