Ciena Reports Fiscal Third Quarter 2013 Financial Results

  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
pr@ciena.com
or
Investor Contact:
Ciena Corporation
Gregg Lampf, 877-243-6273
ir@ciena.com
 
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