Ciena Reports Fiscal Second Quarter 2008 Results
Delivers 7% sequential, 25% year-over-year revenue growth; Generates $75 million in cash from operations
Linthicum, MD — 06/05/2008 — Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced results for its fiscal second quarter ended April 30, 2008. Revenue for the second quarter totaled $242.2 million, representing a 7% sequential increase from fiscal first quarter revenue of $227.4 million, and an increase of 25% over the same period a year ago when Ciena reported revenue of $193.5 million. For the six months ended April 30, 2008, Ciena reported revenue of $469.6 million, representing an increase of 31% over revenue of $358.6 million for fiscal 2007.On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal second quarter 2008 was $23.8 million, or $0.23 per diluted common share. This compares to fiscal first quarter GAAP net income of $28.8 million, or $0.28 per diluted common share, and a reported GAAP net income of $13.0 million, or $0.14 per diluted share, for the same period a year ago. For the six months ended April 30, 2008, Ciena’s reported GAAP net income was $52.6 million, or $0.51 per diluted common share. This compares to a GAAP net income of $24.1 million, or $0.27 per diluted common share, for the same period in fiscal 2007.
“Ciena continues to execute against a business plan and strategy that has driven faster–than-market growth while delivering solid operating margin and net income,” said Gary Smith, Ciena’s president and CEO. “In a highly competitive market, Ciena differentiates itself with targeted, innovative solutions and our implementation of automated, software-centric networks that power new applications and help our customers realize the economic benefits of a single, converged network infrastructure.”
Non-GAAP Presentation of Quarterly Results
In evaluating the operating performance of its business, Ciena’s management excludes certain charges and credits that are required by GAAP. These items, which are identified in the table that follows (in thousands, except per share data) and further described in Appendix A, 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 useful information and meaningful insight to the operating performance of the business.
Quarter Quarter
Ended Ended
Apr 30, 2007 Apr 30, 2008
-------------- --------------
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 81,830 $ 127,596
-------------- --------------
Share-based compensation-product 362 742
Share-based compensation-services 285 392
Fair value adjustment of acquired inventory - 1,066
-------------- --------------
Total Adjustments related to gross profit $ 647 $ 2,200
-------------- --------------
Adjusted (non-GAAP) gross profit $ 82,477 $ 129,796
============== ==============
Adjusted (non-GAAP) gross margin 43% 54%
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 79,092 $ 108,629
-------------- --------------
Share-based compensation-research and development 1,085 2,286
Share-based compensation-sales and marketing 1,866 3,022
Share-based compensation-general and administrative 1,892 2,233
Amortization of intangible assets 6,295 8,760
Restructuring recoveries (734) -
-------------- --------------
Total adjustments related to operating expense $ 10,404 $ 16,301
-------------- --------------
Adjusted (non-GAAP) operating expense $ 68,688 $ 92,328
============== ==============
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations $ 2,738 $ 18,967
Total adjustments related to gross profit 647 2,200
Total adjustments related to operating expense 10,404 16,301
-------------- --------------
Adjusted (non-GAAP) income from operations $ 13,789 $ 37,468
============== ==============
Adjusted (non-GAAP) operating margin 7.1% 15.5%
Net Income Reconciliation (GAAP/non-GAAP)
GAAP net income $ 13,010 $ 23,760
Total adjustments related to gross profit 647 2,200
Total adjustments related to operating expense 10,404 16,301
-------------- --------------
Adjusted (non-GAAP) net income $ 24,061 $ 42,261
============== ==============
Weighted average basic common shares outstanding 85,198 89,102
Weighted average dilutive potential common
shares outstanding 93,737 110,770
Net Income per Common Share1
GAAP diluted net income per common share $ 0.14 $ 0.23
Adjusted (non-GAAP) diluted net income per
common share $ 0.26 $ 0.40
1Note that calculating diluted earnings per common share for the fiscal second quarters 2007 and 2008 requires adding interest expense of approximately $0.5 million associated with Ciena’s 0.25% convertible senior notes in 2007 and $1.9 million associated with Ciena’s 0.25% and 0.875% convertible senior notes in 2008, to GAAP and adjusted net income in order to arrive at the numerator for the earnings per common share calculation.
Adjusting Ciena’s fiscal second quarter 2008 GAAP net income of $23.8 million for the items noted above would increase adjusted (non-GAAP) net income in the quarter to $42.3 million, or $0.40 per diluted common share (non-GAAP). This compares with an adjusted (non-GAAP) net income of $24.1 million, or $0.26 per diluted common share (non-GAAP), in the same year-ago period.
Second Quarter 2008 Performance Highlights
• Achieved sequential quarterly revenue growth of 7% and year-over-year revenue growth of 25%.
• Delivered overall GAAP gross margin of 53% with product gross margin of 56% and services gross margin of 29%. Exclusive of a $1.1 million fair value adjustment of acquired inventory and share-based compensation, adjusted (non-GAAP) gross margin was 54%.
• Delivered GAAP income from operations of 8% of revenue and adjusted (non-GAAP) income from operations of 15% of revenue.
• Generated $74.9 million cash from operations.
• Ended the quarter with cash, cash equivalents and short- and long-term investments of $1.1 billion.
• Completed the acquisition of privately-held World Wide Packets, Inc., a leading supplier of solutions for enabling the cost-effective delivery of a wide variety of Carrier Ethernet-based services. The acquisition was completed on March 3, 2008.
Second Quarter 2008 Customer and Product Highlights
• EMBARQ selected Ciena’s 4200® FlexSelect™ Advanced Services Platform for deployment throughout its network.
• Hitachi Data Systems, a wholly-owned subsidiary of Hitachi, Ltd. (NYSE: HIT) and the only provider of Services Oriented Storage Solutions, signed an agreement to resell the CN 4200 FlexSelect Advanced Services Platform and CN 2000® Storage and LAN Extension Platform.
• Ciena announced its FiberFinder service, a unique fiber locating solution powered by NEF, one of the nation’s top telecommunications consulting firms, which offers enterprises and carriers the ability to identify available fiber resources while developing optimal network connectivity.
• NTELOS Holdings Corp. selected the CN 4200 FlexSelect Advanced Services Platform family for its access and metro networks to support growing customer demand for high-bandwidth, Ethernet-based services such as broadband data, IPTV and evolving on-demand services.
• Ciena’s CN 5060™ Multiservice Carrier Ethernet Platform secured Carrier Ethernet certification from the Metro Ethernet Forum (MEF) for Carrier Ethernet Services.
Business Outlook
“Ciena’s strategy to focus on targeted, fast growing market segments in our role as the network specialist has enabled us to outperform our peers, even in an environment of macroeconomic uncertainty and in the face of ever-present customer-specific challenges,” said Smith. “We remain optimistic about our outlook for the year and reiterate our expectation for annual revenue growth of up to 27% in fiscal 2008. In addition, we remain focused on steering toward our target of 15% as-adjusted income from operations.”z
Live Web Broadcast of Fiscal Second Quarter Results
Ciena will host a discussion of its fiscal second quarter results with investors and financial analysts today, Thursday, June 5, 2008 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: http://www.ciena.com/investors/investors.htm.
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended Six Months Ended
April 30, April 30,
------------------ ------------------
2007 2008 2007 2008
-------- -------- -------- --------
Revenues:
Products $ 173,212 $ 216,181 $ 319,494 $ 417,971
Services 20,315 26,018 39,134 51,644
-------- -------- -------- --------
Total revenue 193,527 242,199 358,628 469,615
-------- -------- -------- --------
Costs:
Products 91,319 96,041 166,298 187,428
Services 20,378 18,562 36,872 38,022
-------- -------- -------- --------
Total cost of goods sold 111,697 114,603 203,170 225,450
-------- -------- -------- --------
Gross profit 81,830 127,596 155,458 244,165
-------- -------- -------- --------
Operating expense:
Research and development 31,642 44,628 61,495 80,072
Selling and marketing 30,182 38,591 55,057 72,199
General and administrative 11,707 16,650 21,998 39,278
Amortization of intangible assets 6,295 8,760 12,590 15,230
Restructuring recoveries (734) - (1,200) -
-------- -------- -------- --------
Total operating expense 79,092 108,629 149,940 206,779
-------- -------- -------- --------
Income from operations 2,738 18,967 5,518 37,386
Interest and other income, net 16,897 8,487 31,742 27,569
Interest expense (6,148) (1,861) (12,296) (9,219)
-------- -------- -------- --------
Income before income taxes 13,487 25,593 24,964 55,736
Provision for income taxes 477 1,833 898 3,169
-------- -------- -------- --------
Net income $ 13,010 $ 23,760 $ 24,066 $ 52,567
======== ======== ======== ========
Basic net income per common share $ 0.15 $ 0.27 $ 0.28 $ 0.60
======== ======== ======== ========
Diluted net income per potential
common share $ 0.14 $ 0.23 $ 0.27 $ 0.51
======== ======== ======== ========
Weighted average basic common shares
outstanding 85,198 89,102 85,076 88,155
======== ======== ======== ========
Weighted average dilutive potential
common shares outstanding 93,737 110,770 93,491 110,046
======== ======== ======== ========
CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
October 31, April 30,
Current assets: 2007 2008
-------------- --------------
Cash and cash equivalents $ 892,061 $ 963,852
Short-term investments 822,185 69,768
Accounts receivable, net 104,078 132,065
Inventories 102,618 125,406
Prepaid expenses and other 47,817 42,291
-------------- --------------
Total current assets 1,968,759 1,333,382
Long-term investments 33,946 25,641
Equipment, furniture and fixtures, net 46,671 55,593
Goodwill 232,015 455,138
Other intangible assets, net 67,144 113,383
Other long-term assets 67,738 72,634
-------------- --------------
Total assets $ 2,416,273 $ 2,055,771
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55,389 $ 69,953
Accrued liabilities 90,922 94,489
Restructuring liabilities 1,026 761
Income taxes payable 7,768 1,999
Deferred revenue 33,025 43,535
Convertible notes payable 542,262 -
-------------- --------------
Total current liabilities 730,392 210,737
Long-term deferred revenue 30,615 36,478
Long-term restructuring liabilities 3,662 3,467
Other long-term obligations 1,450 7,827
Convertible notes payable 800,000 800,000
-------------- --------------
Total liabilities 1,566,119 1,058,509
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; 140,000,000
and 290,000,000 shares authorized; 86,752,069
and 90,129,543 shares issued and outstanding 868 901
Additional paid-in capital 5,519,741 5,612,310
Changes in unrealized gains on investments, net 350 146
Translation adjustment (1,593) 410
Accumulated deficit (4,669,212) (4,616,505)
-------------- --------------
Total stockholders' equity 850,154 997,262
-------------- --------------
Total liabilities and stockholders' equity $ 2,416,273 $ 2,055,771
============== ==============
CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended April 30,
---------------------------------
2007 2008
-------------- --------------
Cash flows from operating activities:
Net income $ 24,066 $ 52,567
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of discount on marketable
securities (3,052) (1,632)
Depreciation and amortization of leasehold
improvements 6,298 8,567
Share-based compensation 8,937 15,752
Amortization of intangibles 14,525 17,165
Deferred tax provision - 1,296
Provision for doubtful accounts receivable - 55
Provision for inventory excess and
obsolescence 6,385 10,540
Provision for warranty 7,111 7,083
Other 872 2,373
Changes in assets and liabilities, net of
effect of acquisition:
Accounts receivable (38,323) (25,990)
Inventories (19,090) (20,456)
Prepaid expenses and other (12,173) 5,816
Accounts payable and accruals 17,741 7,883
Income taxes payable 498 (5,656)
Deferred revenue and other obligations 19,492 13,202
-------------- -------------
Net cash provided by operating activities 33,287 88,565
-------------- -------------
Cash flows from investing activities:
Payments for equipment, furniture, fixtures
and intellectual property (14,438) (14,172)
Restricted cash (5,549) (4,929)
Purchase of available for sale securities (213,219) -
Proceeds from maturities of available for sale
securities 444,126 762,150
Minority equity investments, net (181) -
Acquisition of business, net of cash acquired - (209,965)
-------------- --------------
Net cash provided by investing activities 210,739 533,084
-------------- --------------
Cash flows from financing activities:
Repayment of 3.75% convertible notes payable
at maturity - (542,262)
Repayment of indebtedness of acquired business - (12,363)
Proceeds from issuance of common stock 6,116 4,578
-------------- --------------
Net cash provided by (used in) financing
activities 6,116 (550,047)
-------------- --------------
Effect of exchange rate changes on cash
and cash equivalents - 189
Net increase in cash and cash equivalents 250,142 71,602
Cash and cash equivalents at beginning of period 220,164 892,061
-------------- --------------
Cash and cash equivalents at end of period $ 470,306 $ 963,852
============== ==============
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ - $ 1,923
Value of common stock issued in acquisition $ - $ 62,359
Fair value of vested options assumed in
acquisition $ - $ 9,912
Appendix A
The adjustments management makes in analyzing Ciena’s fiscal second quarter 2008 GAAP results are as follows:
• Share-based compensation costs – a non-cash expense incurred in accordance with SFAS 123(R).
• Fair value adjustment of acquired inventory – an infrequent charge required by purchase accounting rules resulting from the revaluation of finished goods inventory acquired from World Wide Packets to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and a $1.1 million increase in cost of goods sold during the second quarter of fiscal 2008.
• Amortization of intangible assets – a non-cash expense arising from acquisitions of intangible assets, principally developed technology, which Ciena is required to amortize over its expected useful life.
• Restructuring recoveries – infrequent recoveries incurred as the result of previous restructuring activities taken to align resources with perceived market opportunities, including new segment opportunities within the overall market, which the Company believes are not reflective of its ongoing operating costs.
Ciena specializes in network transition. We provide the flexible platforms, intelligent software and professional services to build converged networks for enhanced services and applications. With a growing global presence, Ciena leverages its heritage of practical innovation to deliver maximum performance and economic value in communications networks worldwide. For more information, visit www.ciena.com.
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 filed with the Securities and Exchange Commission on March 7, 2008. 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 remain optimistic about our outlook for the year and reiterate our expectation for annual revenue growth of up to 27% in fiscal 2008. In addition, we remain focused on steering toward our target of 15% as-adjusted income from operations. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
Nicole Anderson
Ciena Corporation
(877) 857 -7377
pr@ciena.com
Marie Downing
Ciena Corporation
(888) 243-6223
ir@ciena.com
