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Ciena Reports Fiscal Second Quarter 2020 Financial Results

Ciena® Corporation (NYSE:CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal second quarter ended May 2, 2020.

  • Q2 Revenue: $894.1 million, increasing 3.4% year over year
  • Q2 Net Income per Share: $0.59 GAAP; $0.76 adjusted (non-GAAP)
  • Share Repurchases: Prior to suspending repurchases during the quarter, we repurchased approximately 0.6 million shares of common stock for an aggregate price of $23.8 million during the quarter

"In this uncertain environment, we delivered industry leading financial performance during our second quarter, including strong revenue and outstanding profitability," said Gary Smith, President and CEO, Ciena. "Our strategy, centered around innovation, diversification and global scale, has resulted in a resilient business capable of navigating challenging times and delivering strong shareholder value over the long-term."

For the fiscal second quarter 2020, Ciena reported revenue of $894.1 million as compared to $865.0 million for the fiscal second quarter 2019.

Ciena's GAAP net income for the fiscal second quarter 2020 was $91.7 million, or $0.59 per diluted common share, which compares to a GAAP net income of $52.7 million, or $0.33 per diluted common share, for the fiscal second quarter 2019.

Ciena's adjusted (non-GAAP) net income for the fiscal second quarter 2020 was $117.4 million, or $0.76 per diluted common share, which compares to an adjusted (non-GAAP) net income of $76.2 million, or $0.48 per diluted common share, for the fiscal second quarter 2019.

Fiscal Second 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

Q2

Q2

FY 2020

FY 2019

Y-T-Y*

Revenue

$

 

894.1

 

$

 

865.0

 

3.4

%

Gross margin

 

46.2

%

 

 

43.3

%

 

2.9

%

Operating expense

$

 

285.8

 

$

 

294.4

 

(2.9

)%

Operating margin

 

14.3

%

 

 

9.3

%

 

5.0

%

Non-GAAP Results

Q2

Q2

FY 2020

FY 2019

Y-T-Y*

Revenue

$

 

894.1

 

$

 

865.0

 

3.4

%

Adj. gross margin

 

46.9

%

 

 

43.9

%

 

3.0

%

Adj. operating expense

$

 

258.7

 

$

 

269.7

 

(4.1

)%

Adj. operating margin

 

17.9

%

 

 

12.7

%

 

5.2

%

Adj. EBITDA

$

 

183.0

 

$

 

131.4

 

39.3

%

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

Revenue by Segment

Q2 FY 2020

Q2 FY 2019

Revenue

%**

Revenue

%**

Networking Platforms

Converged Packet Optical

$

654.3

73.2

$

623.9

72.1

Packet Networking

64.2

7.2

73.1

8.5

Total Networking Platforms

718.5

80.4

697.0

80.6

Platform Software and Services

45.0

5.0

35.2

4.0

Blue Planet Automation Software and Services

15.0

1.7

12.5

1.4

Global Services

Maintenance Support and Training

71.5

8.0

68.8

8.0

Installation and Deployment

34.2

3.8

41.3

4.8

Consulting and Network Design

9.9

1.1

10.2

1.2

Total Global Services

115.6

12.9

120.3

14.0

Total

$

894.1

100.0

$

865.0

100.0

** Denotes % of total revenue

Additional Performance Metrics for Fiscal Second Quarter 2020

Revenue by Geographic Region

Q2 FY 2020

Q2 FY 2019

Revenue

% **

Revenue

% **

Americas

$

650.4

72.7

$

615.5

71.1

Europe, Middle East and Africa

141.4

15.8

115.0

13.3

Asia Pacific

102.3

11.5

134.5

15.6

Total

$

894.1

100.0

$

865.0

100.0

** Denotes % of total revenue

  • One 10%-plus customer represented a total of 12% of revenue
  • Cash and investments totaled $988.5 million
  • Cash flow from operations totaled $91.2 million
  • Average days' sales outstanding (DSOs) were 79
  • Accounts receivable balance was $694.0 million
  • Unbilled contract asset balance was $87.7 million
  • Inventories totaled $325.8 million, including:
    • Raw materials: $106.2 million
    • Work in process: $11.5 million
    • Finished goods: $194.5 million
    • Deferred cost of sales: $56.9 million
    • Reserve for excess and obsolescence: $(43.3) million
  • Product inventory turns were 5.0
  • Headcount totaled 6,684

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

Today, Thursday, June 4, 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 second 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: "In this uncertain environment, we delivered industry leading financial performance during our second quarter, including strong revenue and outstanding profitability. Our strategy, centered around innovation, diversification and global scale, has resulted in a resilient business capable of navigating challenging times and delivering strong shareholder value over the long-term.”

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 @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

Six Months Ended

May 2,

May 4,

May 2,

May 4,

2020

2019

2020

2019

Revenue:

Products

$

739,892

$

710,688

$

1,427,107

$

1,353,220

Services

154,161

154,323

299,858

290,318

Total revenue

894,053

865,011

1,726,965

1,643,538

Cost of goods sold:

Products

405,138

411,050

794,151

791,492

Services

75,589

79,284

148,953

154,028

Total cost of goods sold

480,727

490,334

943,104

945,520

Gross profit

413,326

374,677

783,861

698,018

Operating expenses:

Research and development

131,530

137,969

262,430

266,602

Selling and marketing

101,214

103,502

208,280

201,615

General and administrative

42,030

42,154

84,498

81,397

Amortization of intangible assets

5,839

5,529

11,692

11,057

Significant asset impairments and restructuring costs

3,811

4,068

8,283

6,341

Acquisition and integration costs

1,414

1,135

3,233

2,743

Total operating expenses

285,838

294,357

578,416

569,755

Income from operations

127,488

80,320

205,445

128,263

Interest and other income (loss), net

(2,665

)

(244

)

981

4,009

Interest expense

(7,860

)

(9,471

)

(16,675

)

(18,912

)

Loss on extinguishment and modification of debt

(646

)

Income before income taxes

116,963

70,605

189,105

113,360

Provision for income taxes

25,308

17,867

35,122

27,006

Net income

$

91,655

$

52,738

$

153,983

$

86,354

Net Income per Common Share

Basic net income per common share

$

0.60

$

0.34

$

1.00

$

0.55

Diluted net income per potential common share

$

0.59

$

0.33

$

0.99

$

0.55

Weighted average basic common shares outstanding

153,858

156,170

154,099

156,244

Weighted average dilutive potential common shares outstanding1

155,141

158,289

155,443

158,211

1. Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the second quarter of fiscal 2020 includes 1.3 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 second quarter of fiscal 2019 includes 2.1 million shares underlying certain stock option and stock unit awards.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

May 2,
2020

November 2,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

887,732

$

904,045

Short-term investments

100,742

109,940

Accounts receivable, net

693,963

724,854

Inventories

325,753

345,049

Prepaid expenses and other

332,021

297,914

Total current assets

2,340,211

2,381,802

Long-term investments

10,014

Equipment, building, furniture and fixtures, net

260,867

286,884

Operating lease right-of-use assets

47,864

Goodwill

310,269

297,937

Other intangible assets, net

115,536

112,781

Deferred tax asset, net

689,416

714,942

Other long-term assets

92,599

88,986

Total assets

$

3,856,762

$

3,893,346

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

292,164

$

344,819

Accrued liabilities and other short-term obligations

288,773

382,740

Deferred revenue

107,023

111,381

Operating lease liabilities

18,096

Current portion of long-term debt

6,930

7,000

Total current liabilities

712,986

845,940

Long-term deferred revenue

42,894

45,492

Other long-term obligations

129,850

148,747

Long-term operating lease liabilities

51,100

Long-term debt, net

679,356

680,406

Total liabilities

$

1,616,186

$

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; 153,641,565
and 154,403,850 shares issued and outstanding

1,536

1,544

Additional paid-in capital

6,790,856

6,837,714

Accumulated other comprehensive loss

(61,386

)

(22,084

)

Accumulated deficit

(4,490,430

)

(4,644,413

)

Total stockholders’ equity

2,240,576

2,172,761

Total liabilities and stockholders’ equity

$

3,856,762

$

3,893,346

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

 

Six Months Ended

May 2,

May 4,

2020

2019

Cash flows provided by operating activities:

Net income

$

153,983

$

86,354

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

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

48,381

42,995

Share-based compensation costs

33,579

29,362

Amortization of intangible assets

19,361

17,778

Deferred taxes

25,420

18,293

Provision for inventory excess and obsolescence

12,640

10,245

Provision for warranty

13,793

9,276

Other

16,190

(2,259

)

Changes in assets and liabilities:

Accounts receivable

15,865

43,174

Inventories

5,618

(109,554

)

Prepaid expenses and other

(54,839

)

(33,241

)

Operating lease right-of-use assets

8,642

Accounts payable, accruals and other obligations

(151,713

)

(26,971

)

Deferred revenue

(5,679

)

4,560

Short and long-term operating lease liabilities

(10,311

)

Net cash provided by operating activities

130,930

90,012

Cash flows provided by (used in) investing activities:

Payments for equipment, furniture, fixtures and intellectual property

(45,458

)

(35,289

)

Purchase of available for sale securities

(40,894

)

(97,897

)

Proceeds from maturities of available for sale securities

60,000

90,000

Proceeds from sales of available for sale securities

98,263

Settlement of foreign currency forward contracts, net

(3,836

)

(2,741

)

Acquisition of business, net of cash acquired

(28,300

)

Purchase of equity investment

(2,667

)

Net cash provided by (used in) investing activities

(58,488

)

49,669

Cash flows used in financing activities:

Payment of long term debt

(1,733

)

(3,500

)

Payment of debt issuance costs

(382

)

Payment of finance lease obligations

(1,381

)

(1,679

)

Payment for debt conversion liability

(111,268

)

Shares repurchased for tax withholdings on vesting of restricted stock units

(18,200

)

(15,865

)

Repurchases of common stock - repurchase program

(74,535

)

(65,103

)

Proceeds from issuance of common stock

12,290

11,235

Net cash used in financing activities

(83,941

)

(186,180

)

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

(4,876

)

224

Net decrease in cash, cash equivalents and restricted cash

(16,375

)

(46,275

)

Cash, cash equivalents and restricted cash at beginning of period

904,161

745,423

Cash, cash equivalents and restricted cash at end of period

$

887,786

$

699,148

Supplemental disclosure of cash flow information

Cash paid during the period for interest

$

17,590

$

19,978

Cash paid during the period for income taxes, net

$

22,011

$

9,258

Operating lease payments

$

11,409

$

Non-cash investing and financing activities

Purchase of equipment in accounts payable

$

4,480

$

2,793

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

$

4,887

$

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

Quarter Ended

May 2,

May 4,

2020

2019

Gross Profit Reconciliation (GAAP/non-GAAP)

GAAP gross profit

$

413,326

$

374,677

Share-based compensation-products

827

702

Share-based compensation-services

1,036

907

Amortization of intangible assets

3,835

3,303

Total adjustments related to gross profit

5,698

4,912

Adjusted (non-GAAP) gross profit

$

419,024

$

379,589

Adjusted (non-GAAP) gross profit percentage

46.9

%

43.9

%

Operating Expense Reconciliation (GAAP/non-GAAP)

GAAP operating expense

$

285,838

$

294,357

Share-based compensation-research and development

4,822

4,083

Share-based compensation-sales and marketing

5,264

4,346

Share-based compensation-general and administrative

5,975

5,491

Amortization of intangible assets

5,839

5,529

Significant asset impairments and restructuring costs

3,811

4,068

Acquisition and integration costs

1,414

1,135

Total adjustments related to operating expense

27,125

24,652

Adjusted (non-GAAP) operating expense

$

258,713

$

269,705

Income from Operations Reconciliation (GAAP/non-GAAP)

GAAP income from operations

$

127,488

$

80,320

Total adjustments related to gross profit

5,698

4,912

Total adjustments related to operating expense

27,125

24,652

Total adjustments related to income from operations

32,823

29,564

Adjusted (non-GAAP) income from operations

$

160,311

$

109,884

Adjusted (non-GAAP) operating margin percentage

17.9

%

12.7

%

Net Income Reconciliation (GAAP/non-GAAP)

GAAP net income

$

91,655

$

52,738

Exclude GAAP provision for income taxes

25,308

17,867

Income before income taxes

116,963

70,605

Total adjustments related to income from operations

32,823

29,564

Adjusted income before income taxes

149,786

100,169

Non-GAAP tax provision on adjusted income before income taxes

32,354

23,940

Adjusted (non-GAAP) net income

$

117,432

$

76,229

Weighted average basic common shares outstanding

153,858

156,170

Weighted average dilutive potential common shares outstanding 1

155,141

158,289

Net Income per Common Share

GAAP diluted net income per common share

$

0.59

$

0.33

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

$

0.76

$

0.48

  1. Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the second quarter of fiscal 2020 includes 1.3 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 second quarter of fiscal 2019 includes 2.1 million shares underlying certain stock option and restricted stock unit awards.

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

Quarter Ended

May 2,

May 4,

2020

2019

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

Net income (GAAP)

$

91,655

$

52,738

Add: Interest expense

7,860

9,471

Less: Interest and other income, net

(2,665

)

(244

)

Add: Provision for income taxes

25,308

17,867

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

22,599

21,482

Add: Amortization of intangible assets

9,674

8,832

EBITDA

$

159,761

$

110,634

Add: Share-based compensation cost

17,977

15,607

Add: Significant asset impairments and restructuring costs

3,811

4,068

Add: Acquisition and integration costs

1,414

1,135

Adjusted EBITDA

$

182,963

$

131,444

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 - consist of financial, legal and accounting advisors' costs and severance and other employment-related costs related to Ciena's acquisition of Centina in the first quarter of fiscal 2020 and costs associated with a three-year earn-out arrangement related to the deal consideration for Ciena's 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 second fiscal quarter of 2020 and 23.9% for the second 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.

Contacts:

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

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