Ciena Reports Fiscal Third Quarter 2013 Financial Results Achieves 8% adjusted operating margin and 14% year-over-year revenue growth Business Wire HANOVER, Md. -- September 4, 2013 Ciena^® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited financial results for its fiscal third quarter ended July31, 2013. For the fiscal third quarter 2013, Ciena reported revenue of $538.4 million. On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal third quarter 2013 was $(1.2) million, or $(0.01) per common share, which compares to a GAAP net loss of $(29.8) million, or $(0.30) per common share, for the fiscal third quarter 2012. Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2013 was $26.2 million, or $0.23 per common share, which compares to an adjusted (non-GAAP) net loss of $(4.1) million, or $(0.04) per common share, for the fiscal third quarter 2012. "Differentiated by our specialist strategy, we have increased our market share, achieved steady growth, and delivered improved and more consistent financial performance over the last several quarters," said Gary Smith, president and CEO. "We believe that by expanding our role in the industry and extending our reach within our markets, we will be positioned to deliver greater profitability that is more sustainable over time." Fiscal Third Quarter 2013 Performance Summary The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarterly and year-over-year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendix A. GAAP Results Q3 Q2 Q3 Period Change FY 2013 FY 2013 FY 2012 Q-T-Q* Y-T-Y* Revenue $ 538.4 $ 507.7 $ 474.1 6.0 % 13.6 % Gross margin 42.4 % 41.3 % 38.2 % 1.1 % 4.2 % Operating expense $ 213.4 $ 220.1 $ 196.6 (3.0 )% 8.5 % Operating margin 2.8 % (2.1 )% (3.2 )% 4.9 % 6.0 % Non-GAAP Results Q3 Q2 Q3 Period Change FY 2013 FY 2013 FY 2012 Q-T-Q* Y-T-Y* Revenue $ 538.4 $ 507.7 $ 474.1 6.0 % 13.6 % Adj. gross margin 43.6 % 42.5 % 39.6 % 1.1 % 4.0 % Adj. operating $ 190.4 $ 197.4 $ 175.6 (3.5 )% 8.4 % expense Adj. operating margin 8.2 % 3.7 % 2.5 % 4.5 % 5.7 % Revenue by Segment Q3 FY 2013 Q2 FY 2013 Q3 FY 2012 Revenue % Revenue % Revenue % Converged $ 302.0 56.1 $ 294.3 57.9 $ 246.5 52.0 Packet Optical Packet 61.6 11.4 54.2 10.7 30.2 6.4 Networking Optical 66.2 12.3 57.4 11.3 89.8 18.9 Transport Software and 108.6 20.2 101.8 20.1 107.6 22.7 Services Total $ 538.4 100.0 $ 507.7 100.0 $ 474.1 100.0 * Denotes % change, or in the case of margin, absolute change Additional Performance Metrics for Fiscal Third Quarter 2013 *Non-U.S. customers contributed 37% of total revenue *Two customers accounted for greater than 10% of revenue and represented 31.8% of total revenue *Cash and investments totaled $493.2 million *Cash flow from operations totaled $42.0 million *Free cash flow totaled $31.6 million *Average days' sales outstanding (DSOs) were 72 *Accounts receivable balance was $430.4 million *Inventories totaled $235.5 million, including: *Raw materials: $51.5 million *Work in process: $7.9 million *Finished goods: $147.8 million *Deferred cost of sales: $71.0 million *Reserve for excess and obsolescence: $(42.7) million *Product inventory turns were 4.2 *Headcount totaled 4,680 Business Outlook for Fiscal Fourth Quarter 2013 Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of the Notes to Investors below. Ciena expects fiscal fourth quarter 2013 financial performance to include: *Revenue in the range of $550 to $580 million *Adjusted (non-GAAP) gross margin in the low 40s percent range *Adjusted (non-GAAP) operating expense in the high $190s million range Live Web Broadcast of Unaudited Fiscal Third Quarter 2013 Results Ciena will host a discussion of its unaudited fiscal third quarter 2013 results with investors and financial analysts today, Wednesday, September 4, 2013 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena's homepage at http://www.ciena.com/. To accompany its live broadcast, Ciena has posted to the Investor Relations page of its website at: www.ciena.com/investors a presentation for investors that includes certain highlighted information to be discussed on the call and certain historical results of operation. An archived transcript of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at: www.ciena.com/investors. Notes to Investors Forward-looking statements. This press release contains certain forward-looking statements that involve risks and uncertainties. These statements are based on current expectations, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena's expectations, beliefs, intentions or strategies regarding the future and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would" or similar words. Forward-looking statements in this release include Ciena's "Business Outlook for Fiscal Fourth Quarter of 2013" as well as: "Differentiated by our specialist strategy, we have increased our market share, achieved steady growth, and delivered improved and more consistent financial performance over the last several quarters."; "We believe that by expanding our role in the industry and extending our reach within our markets, we will be positioned to deliver greater profitability that is more sustainable over time." Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due a number of risks and uncertainties relating to Ciena's business, including: the effect of broader economic and market conditions on our customers and their business; changes in network spending or network strategy by large communication service providers; seasonality and the timing and size of customer orders, including our ability to recognize revenue relating to such sales; the level of competitive pressure we encounter; the product, customer and geographic mix of sales within the period; supply chain disruptions and the level of success relating to efforts to optimize Ciena's operations; changes in foreign currency exchange rates affecting revenue and operating expense; and the other risk factors disclosed in Ciena's Report on Form 10-Q filed with the Securities and Exchange Commission on June 12, 2013. Ciena assumes no obligation to update any forward-looking information included in this press release. Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) per share. In evaluating the operating performance of Ciena's business, management excludes certain charges and credits that are required by GAAP. These items share one or more of the following characteristics: they are unusual and Ciena does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of Ciena's control. Management believes that the non-GAAP measures below provide management and investors useful information and meaningful insight to the operating performance of the business. The presentation of these non-GAAP financial measures should be considered in addition to Ciena's GAAP results and these measures are not intended to be a substitute for the financial information prepared and presented in accordance with GAAP. Ciena's non-GAAP measures and the related adjustments may differ from non-GAAP measures used by other companies and should only be used to evaluate Ciena's results of operations in conjunction with our corresponding GAAP results. To the extent not previously disclosed in a prior Ciena financial results press release, Appendix A to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release. AboutCiena. Ciena is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with OP^n, its approach for building open next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. For updates on Ciena news, follow us on Twitter @Ciena or on LinkedIn (http://www.linkedin.com/company/ciena). Investors are encouraged to review the Investors section of our website at www.ciena.com/investors, where we routinely post press releases, SEC filings, recent news, financial results, and other announcements. From time to time we exclusively post material information to this website along with other disclosure channels that we use. CIENA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Quarter Ended July 31, Nine Months Ended July 31, 2012 2013 2012 2013 Revenue: Products $ 373,418 $ 437,442 $ 1,091,817 $ 1,203,716 Services 100,672 100,914 276,575 295,445 Total revenue 474,090 538,356 1,368,392 1,499,161 Cost of goods sold: Products 225,238 247,768 657,362 683,730 Services 67,531 62,367 179,012 181,902 Total cost of 292,769 310,135 836,374 865,632 goods sold Gross profit 181,321 228,221 532,018 633,529 Operating expenses: Research and 88,315 93,069 268,378 282,981 development Selling and 65,397 75,613 192,325 216,676 marketing General and 27,876 32,066 84,210 91,157 administrative Amortization of 12,714 12,440 39,152 37,332 intangible assets Restructuring 2,291 202 5,864 6,741 costs Total operating 196,593 213,390 589,929 634,887 expenses Income (loss) from (15,272 ) 14,831 (57,911 ) (1,358 ) operations Interest and other (2,458 ) (3,167 ) (11,732 ) (6,020 ) income (loss), net Interest expense (9,597 ) (10,972 ) (28,813 ) (33,096 ) Loss on extinguishment of — — — (28,630 ) debt Income (loss) before income (27,327 ) 692 (98,456 ) (69,104 ) taxes Provision for 2,490 1,923 6,794 6,530 income taxes Net loss $ (29,817 ) $ (1,231 ) $ (105,250 ) $ (75,634 ) Basic net loss per $ (0.30 ) $ (0.01 ) $ (1.06 ) $ (0.74 ) common share Diluted net loss per potential $ (0.30 ) $ (0.01 ) $ (1.06 ) $ (0.74 ) common share Weighted average basic common 99,530 102,713 98,922 101,951 shares outstanding Weighted average dilutive potential 99,530 102,713 98,922 101,951 common shares outstanding CIENA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) October 31, July 31, 2012 2013 ASSETS Current assets: Cash and cash equivalents $ 642,444 $ 378,179 Short-term investments 50,057 99,981 Accounts receivable, net 345,496 430,424 Inventories 260,098 235,530 Prepaid expenses and other 117,595 160,363 Total current assets 1,415,690 1,304,477 Long-term investments — 15,022 Equipment, furniture and fixtures, net 123,580 114,041 Other intangible assets, net 257,137 203,652 Other long-term assets 84,736 90,163 Total assets $ 1,881,143 $ 1,727,355 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 179,704 $ 208,707 Accrued liabilities 209,540 240,140 Deferred revenue 79,516 92,277 Convertible notes payable 216,210 — Total current liabilities 684,970 541,124 Long-term deferred revenue 27,560 25,213 Other long-term obligations 31,779 33,279 Long-term convertible notes payable 1,225,806 1,210,907 Total liabilities $1,970,115 $1,810,523 Commitments and contingencies Stockholders’ equity (deficit): Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and — — outstanding Common stock – par value $0.01; 290,000,000 shares authorized; 100,601,792 and 103,121,807 1,006 1,031 shares issued and outstanding Additional paid-in capital 5,797,765 5,882,360 Accumulated other comprehensive loss (3,354 ) (6,536 ) Accumulated deficit (5,884,389 ) (5,960,023 ) Total stockholders’ equity (deficit) (88,972 ) (83,168 ) Total liabilities and stockholders’ equity $ 1,881,143 $ 1,727,355 (deficit) CIENA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended July 31, 2012 2013 Cash flows from operating activities: Net loss $ (105,250 ) $ (75,634 ) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on extinguishment of debt — 28,630 Depreciation of equipment, furniture and fixtures, and amortization of leasehold 43,514 42,613 improvements Share-based compensation costs 23,656 28,032 Amortization of intangible assets 55,965 53,485 Provision for inventory excess and obsolescence 19,071 15,301 Provision for warranty 23,495 15,148 Other 8,414 8,384 Changes in assets and liabilities: Accounts receivable 37,223 (86,808 ) Inventories (34,038 ) 9,267 Prepaid expenses and other 10,890 (56,958 ) Accounts payable, accruals and other obligations 35,632 49,253 Deferred revenue (22,071 ) 10,414 Net cash provided by operating activities 96,501 41,127 Cash flows used in investing activities: Payments for equipment, furniture, fixtures and (33,000 ) (31,884 ) intellectual property Restricted cash 3,546 1,921 Purchase of available for sale securities — (144,893 ) Proceeds from maturities of available for sale — 80,062 securities Proceeds from sale of cost method investment 524 — Net cash used in investing activities (28,930 ) (94,794 ) Cash flows from financing activities: Payment of long term debt — (216,210 ) Payment for debt and equity issuance costs — (3,670 ) Payment of capital lease obligations (1,231 ) (2,370 ) Proceeds from issuance of common stock 12,022 14,060 Net cash provided by (used in) financing 10,791 (208,190 ) activities Effect of exchange rate changes on cash and cash (3,026 ) (2,408 ) equivalents Net increase (decrease) in cash and cash 78,362 (261,857 ) equivalents Cash and cash equivalents at beginning of period 541,896 642,444 Cash and cash equivalents at end of period $ 617,232 $ 378,179 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 18,978 $ 21,674 Cash paid during the period for income taxes, net $ 7,807 $ 7,117 Non-cash investing and financing activities Purchase of equipment in accounts payable $ 2,686 $ 1,222 Fixed assets acquired under capital leases $ 6,033 $ 2,538 APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements Quarter Ended July 31, 2012 2013 Gross Profit Reconciliation GAAP gross profit $ 181,321 $ 228,221 Share-based compensation-products 564 658 Share-based compensation-services 332 461 Amortization of intangible assets 5,385 5,384 Total adjustments related to gross profit 6,281 6,503 Adjusted (non-GAAP) gross profit $ 187,602 $ 234,724 Adjusted (non-GAAP) gross profit percentage 39.6 % 43.6 % Operating Expense Reconciliation GAAP operating expense $ 196,593 $ 213,390 Share-based compensation-research and development 1,841 2,054 Share-based compensation-sales and marketing 2,589 3,562 Share-based compensation-general and 1,547 3,198 administrative Acquisition and integration costs 6 — Amortization of intangible assets 12,714 12,440 Restructuring costs 2,291 202 Settlement of patent litigation — 1,500 Total adjustments related to operating expense 20,988 22,956 Adjusted (non-GAAP) operating expense $ 175,605 $ 190,434 Income (Loss) from Operations Reconciliation GAAP income (loss) from operations $ (15,272 ) $ 14,831 Total adjustments related to gross profit 6,281 6,503 Total adjustments related to operating expense 20,988 22,956 Adjusted (non-GAAP) income from operations $ 11,997 44,290 Adjusted (non-GAAP) operating margin percentage 2.5 % 8.2 % Net Income (Loss) Reconciliation GAAP net loss $ (29,817 ) $ (1,231 ) Total adjustments related to gross profit 6,281 6,503 Total adjustments related to operating expense 20,988 22,956 Non-cash interest expense — 267 Change in fair value of embedded redemption (1,570 ) (2,290 ) feature Adjusted (non-GAAP) net income (loss) $ (4,118 ) $ 26,205 Weighted average basic common shares outstanding 99,530 102,713 Weighted average dilutive potential common shares 99,530 144,277 outstanding ^1 Net Income (Loss) per Common Share GAAP diluted net loss per common share $ (0.30 ) $ (0.01 ) Adjusted (non-GAAP) diluted net income (loss) per $ (0.04 ) $ 0.23 common share ^2 Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income (loss) per common share for the fiscal third quarter of 2013 includes 1.9 million shares 1. underlying certain stock options and restricted stock units, 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due March 15, 2015, 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017, and 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018. The calculation of Adjusted (non-GAAP) diluted net income (loss) per common share for the fiscal third quarter of 2013 requires adding back interest expense of approximately $2.1 million associated with Ciena's 4.0% convertible senior notes, due March 15, 2015, approximately $1.4 2. million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, and approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 to the Adjusted (non-GAAP) net income (loss) in order to derive the numerator for the Adjusted earnings per common share calculation. The adjusted (non-GAAP) measures above and their reconciliation to Ciena's GAAP results for the periods presented reflect adjustments relating to the following items: *Share-based compensation expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance. *Amortization of intangible assets - a non-cash expense arising from the acquisition of intangible assets, principally developed technologies and customer-related intangibles, that Ciena is required to amortize over its expected useful life. *Acquisition and integration costs -reflects transaction expense, and consulting and third party service fees associated with the acquisition of the Nortel MEN Business and the integration of this business into Ciena's operations. *Restructuring costs - costs incurred as a result of restructuring activities (or in the case of recoveries, previous restructuring activities) taken to align resources with perceived market opportunities. *Settlement of patent litigation - included in general and administrative expense during the third quarter of fiscal 2013 is a $1.5 million patent litigation settlement. *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. *Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes due March 15, 2015. Contact: Press Contact: Ciena Corporation Nicole Anderson, 877-857-7377 email@example.com or Investor Contact: Ciena Corporation Gregg Lampf, 877-243-6273 firstname.lastname@example.org
Ciena Reports Fiscal Third Quarter 2013 Financial Results
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