Business Wire | Sep 3, 2020 07:00AM EDT

Ciena Reports Fiscal Third Quarter 2020 Financial Results

Sep. 03, 2020

HANOVER, Md.--(BUSINESS WIRE)--Sep. 03, 2020--Ciena(r) Corporation (NYSE: CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal third quarter ended August 1, 2020.

Q3 Revenue $976.7 million, increasing 1.7% year over year

Q3 Net Income per Share: $0.91 GAAP; $1.06 adjusted (non-GAAP), increasing 49% year over year

"We delivered outstanding financial results in the third quarter, reflecting our continued innovation, market leadership and strong competitive position in an uncertain macro environment," said Gary Smith, President and CEO, Ciena. "Although COVID-related market dynamics have resulted in an orders slowdown and are likely to adversely impact our revenue for a few quarters, we are confident in our ability to continue executing on our strategy and expanding our market leadership."

For the fiscal third quarter 2020, Ciena reported revenue of $976.7 million as compared to $960.6 million for the fiscal third quarter 2019.

Ciena's GAAP net income for the fiscal third quarter 2020 was $142.3 million, or $0.91 per diluted common share, which compares to a GAAP net income of $86.7 million, or $0.55 per diluted common share, for the fiscal third quarter 2019.

Ciena's adjusted (non-GAAP) net income for the fiscal third quarter 2020 was $166.4 million, or $1.06 per diluted common share, which compares to an adjusted (non-GAAP) net income of $112.3 million, or $0.71 per diluted common share, for the fiscal third quarter 2019.

Fiscal Third 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

Q3 Q3

FY 2020 FY 2019 Y-T-Y*

Revenue $ 976.7 $ 960.6 1.7 %

Gross margin 47.6 % 44.2 % 3.4 %

Operating expense $ 276.6 $ 299.1 (7.5) %

Operating margin 19.3 % 13.0 % 6.3 %

Non-GAAP Results

Q3 Q3

FY 2020 FY 2019 Y-T-Y*

Revenue $ 976.7 $ 960.6 1.7 %

Adj. gross margin 48.2 % 44.7 % 3.5 %

Adj. operating expense $ 251.2 $ 273.2 (8.1) %

Adj. operating margin 22.4 % 16.2 % 6.2 %

Adj. EBITDA $ 241.1 $ 178.0 35.4 %

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

Revenue by Segment

Q3 FY 2020 Q3 FY 2019

Revenue %** Revenue %**

Networking Platforms

Converged Packet Optical $ 722.5 74.0 $ 724.3 75.4

Packet Networking 79.8 8.1 71.8 7.5

Total Networking Platforms 802.3 82.1 796.1 82.9



Platform Software and Services 46.4 4.8 37.3 3.9



Blue Planet Automation Software and 11.3 1.1 10.5 1.1 Services



Global Services

Maintenance Support and Training 69.1 7.1 65.9 6.9

Installation and Deployment 39.8 4.1 39.8 4.1

Consulting and Network Design 7.8 0.8 11.0 1.1

Total Global Services 116.7 12.0 116.7 12.1



Total $ 976.7 100.0 $ 960.6 100.0

** Denotes % of total revenue

Additional Performance Metrics for Fiscal Third Quarter 2020

Revenue by Geographic Region

Q3 FY 2020 Q3 FY 2019

Revenue % ** Revenue % **

Americas $ 713.3 73.0 $ 656.3 68.3

Europe, Middle East and Africa 162.5 16.6 169.5 17.6

Asia Pacific 100.9 10.4 134.8 14.1

Total $ 976.7 100.0 $ 960.6 100.0

** Denotes % of total revenue

* One 10%-plus customer represented a total of 12% of revenue * Cash and investments totaled $1,164.2 million * Cash flow from operations totaled $175.4 million * Average days' sales outstanding (DSOs) were 75 * Accounts receivable balance was $715.2 million * Unbilled contract asset balance was $97.4 million * Inventories totaled $363.6 million, including: Raw materials: $133.6 million Work in process: $12.6 million Finished goods: $215.3 million Deferred cost of sales: $45.1 million Reserve for excess and obsolescence: $(43.0) million

* Product inventory turns were 4.8 * Headcount totaled 6,934

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

Today, Thursday, September 3, 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 third 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: "We delivered outstanding financial results in the third quarter, reflecting our continued innovation, market leadership and strong competitive position in an uncertain macro environment. Although COVID-related market dynamics have resulted in an orders slowdown and are likely to adversely impact our revenue for a few quarters, we are confident in our ability to continue executing on our strategy and expanding our market leadership."

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(tm) 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 Nine Months Ended

August 1, August 3, August 1, August 3,

2020 2019 2020 2019

Revenue:

Products $ 819,022 $ 810,588 $ 2,246,129 $ 2,163,808

Services 157,690 150,018 457,548 440,336

Total revenue 976,712 960,606 2,703,677 2,604,144

Cost of goods sold:

Products 436,227 454,921 1,230,378 1,246,413

Services 75,804 81,333 224,757 235,361

Total cost of 512,031 536,254 1,455,135 1,481,774 goods sold

Gross profit 464,681 424,352 1,248,542 1,122,370

Operating expenses:

Research and 130,221 139,880 392,651 406,482 development

Selling and 94,763 104,230 303,043 305,845 marketing

General and 41,635 42,695 126,133 124,092 administrative

Amortizationof intangible 5,840 5,529 17,532 16,586 assets

Significantassetimpairments 6,515 5,355 14,798 11,696 andrestructuringcosts

Acquisitionandintegration (2,329 ) 1,362 904 4,105 costs(recoveries)

Totaloperating 276,645 299,051 855,061 868,806 expenses

Income from 188,036 125,301 393,481 253,564 operations

Interest andother income, 232 1,050 1,213 5,059 net

Interest (7,251 ) (9,404 ) (23,926 ) (28,316 ) expense

Loss onextinguishmentand - - (646 ) - modificationof debt

Income before 181,017 116,947 370,122 230,307 income taxes

Provision for 38,750 30,198 73,872 57,204 income taxes

Net income $ 142,267 $ 86,749 $ 296,250 $ 173,103



Net Income per Common Share

Basic netincome per $ 0.92 $ 0.56 $ 1.92 $ 1.11 common share

Diluted netincome per $ 0.91 $ 0.55 $ 1.90 $ 1.10 potentialcommon share



Weightedaverage basic 154,184 155,488 154,136 156,013 common sharesoutstanding

Weightedaveragedilutive 156,318 157,455 155,741 157,949 potentialcommon sharesoutstanding^ 1

1 Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the third quarter of fiscal 2020 includes 2.1 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 nine months of fiscal 2020 includes 1.6 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 third quarter of fiscal 2019 includes 2.0 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 nine months of fiscal 2019 includes 1.9 million shares underlying certain stock option and stock unit awards.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

August 1, November 2, 2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 1,093,749 $ 904,045

Short-term investments 70,404 109,940

Accounts receivable, net 715,195 724,854

Inventories 363,600 345,049

Prepaid expenses and other 324,935 297,914

Total current assets 2,567,883 2,381,802

Long-term investments - 10,014

Equipment, building, furniture and fixtures, 266,996 286,884 net

Operating lease right-of-use assets 48,573 -

Goodwill 310,772 297,937

Other intangible assets, net 106,182 112,781

Deferred tax asset, net 655,320 714,942

Other long-term assets 99,462 88,986

Total assets $ 4,055,188 $ 3,893,346

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 297,163 $ 344,819

Accrued liabilities and other short-term 301,030 382,740 obligations

Deferred revenue 95,951 111,381

Operating lease liabilities 19,417 -

Current portion of long-term debt 6,930 7,000

Total current liabilities 720,491 845,940

Long-term deferred revenue 40,919 45,492

Other long-term obligations 134,914 148,747

Long-term operating lease liabilities 52,141 -

Long-term debt, net 677,856 680,406

Total liabilities $ 1,626,321 $ 1,720,585

Stockholders' equity:

Preferred stock - par value $0.01; 20,000,000shares authorized; zero shares issued and - - outstanding

Common stock - par value $0.01; 290,000,000shares authorized; 154,318,197 1,543 1,544

and 154,403,850 shares issued and outstanding

Additional paid-in capital 6,815,676 6,837,714

Accumulated other comprehensive loss (40,189 ) (22,084 )

Accumulated deficit (4,348,163 ) (4,644,413 )

Total stockholders' equity 2,428,867 2,172,761

Total liabilities and stockholders' equity $ 4,055,188 $ 3,893,346

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

Nine Months Ended

August 1, August 3,

2020 2019

Cash flows provided by operating activities:

Net income $ 296,250 $ 173,103

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

Depreciation of equipment, building, furnitureand fixtures, and amortization of leasehold 70,370 65,071 improvements

Share-based compensation costs 50,838 44,446

Amortization of intangible assets 29,035 26,610

Deferred taxes 57,636 35,949

Provision for inventory excess and obsolescence 20,176 18,833

Provision for warranty 19,172 15,933

Other 15,085 743

Changes in assets and liabilities:

Accounts receivable (6,688 ) (2,517 )

Inventories (39,568 ) (115,427 )

Prepaid expenses and other (52,945 ) (85,039 )

Operating lease right-of-use assets 12,816 -

Accounts payable, accruals and other (131,647 ) (9,005 ) obligations

Deferred revenue (19,039 ) 4,427

Short and long-term operating lease liabilities (15,132 ) -

Net cash provided by operating activities 306,359 173,127

Cash flows provided by (used in) investing activities:

Payments for equipment, furniture, fixtures and (61,333 ) (49,063 ) intellectual property

Purchase of available for sale securities (39,859 ) (127,601 )

Proceeds from maturities of available for sale 90,000 120,000 securities

Proceeds from sales of available for sale - 98,263 securities

Settlement of foreign currency forward 3,067 (3,155 ) contracts, net

Acquisition of business, net of cash acquired (28,300 ) -

Purchase of equity investment - (2,667 )

Net cash provided by (used in) investing (36,425 ) 35,777 activities

Cash flows used in financing activities:

Payment of long term debt (3,465 ) (5,250 )

Payment of debt issuance costs (382 ) -

Payment of finance lease obligations (2,030 ) (2,599 )

Payment for debt conversion liability - (111,268 )

Shares repurchased for tax withholdings on (26,328 ) (23,234 ) vesting of restricted stock units

Repurchases of common stock - repurchase (74,535 ) (110,484 ) program

Proceeds from issuance of common stock 27,986 22,895

Net cash used in financing activities (78,754 ) (229,940 )

Effect of exchange rate changes on cash, cash (1,526 ) 392 equivalents and restricted cash

Net increase (decrease) in cash, cash 189,654 (20,644 ) equivalents and restricted cash

Cash, cash equivalents and restricted cash at 904,161 745,434 beginning of period

Cash, cash equivalents and restricted cash at $ 1,093,815 $ 724,790 end of period

Supplemental disclosure of cash flow information

Cash paid during the period for interest $ 25,278 $ 29,921

Cash paid during the period for income taxes, $ 41,316 $ 21,573 net

Operating lease payments $ 16,762 $ -

Non-cash investing and financing activities

Purchase of equipment in accounts payable $ 4,200 $ 4,328

Repurchase of common stock in accrued $ - $ 1,441 liabilities from repurchase program

Conversion of debt conversion liability into $ - $ 52,944 1,585,140 shares of common stock

Operating lease right-of-use assets subject to $ 11,404 $ - lease liability

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



Quarter Ended

August 1, August 3,

2020 2019

Gross Profit Reconciliation (GAAP/non-GAAP)

GAAP gross profit $ 464,681 $ 424,352

Share-based compensation-products 960 781

Share-based compensation-services 1,007 783

Amortization of intangible assets 3,834 3,303

Total adjustments related to gross profit 5,801 4,867

Adjusted (non-GAAP) gross profit $ 470,482 $ 429,219

Adjusted (non-GAAP) gross profit percentage 48.2 % 44.7 %



Operating Expense Reconciliation (GAAP/non-GAAP)

GAAP operating expense $ 276,645 $ 299,051

Share-based compensation-research and development 4,286 3,560

Share-based compensation-sales and marketing 5,180 4,192

Share-based compensation-general and administrative 5,940 5,813

Amortization of intangible assets 5,840 5,529

Significant asset impairments and restructuring 6,515 5,355 costs

Acquisition and integration costs (recoveries) (2,329) 1,362

Total adjustments related to operating expense 25,432 25,811

Adjusted (non-GAAP) operating expense $ 251,213 $ 273,240



Income from Operations Reconciliation (GAAP/ non-GAAP)

GAAP income from operations $ 188,036 $ 125,301

Total adjustments related to gross profit 5,801 4,867

Total adjustments related to operating expense 25,432 25,811

Total adjustments related to income from operations 31,233 30,678

Adjusted (non-GAAP) income from operations $ 219,269 $ 155,979

Adjusted (non-GAAP) operating margin percentage 22.4 % 16.2 %



Net Income Reconciliation (GAAP/non-GAAP)

GAAP net income $ 142,267 $ 86,749

Exclude GAAP provision for income taxes 38,750 30,198

Income before income taxes 181,017 116,947

Total adjustments related to income from operations 31,233 30,678

Adjusted income before income taxes 212,250 147,625

Non-GAAP tax provision on adjusted income before 45,846 35,282 income taxes

Adjusted (non-GAAP) net income $ 166,404 $ 112,343



Weighted average basic common shares outstanding 154,184 155,488

Weighted average dilutive potential common shares 156,318 157,455outstanding ^1



Net Income per Common Share

GAAP diluted net income per common share $ 0.91 $ 0.55

Adjusted (non-GAAP) diluted net income per common $ 1.06 $ 0.71 share

1 Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2020 includes 2.1 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 nine months of fiscal 2020 includes 1.6 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 third quarter of fiscal 2019 includes 2.0 million shares underlying certain stock option and restricted stock unit awards.

Weighted average dilutive potential common shares outstanding used in calculating GAAP diluted net income per common share for the first nine months of fiscal 2019 includes 1.9 million shares underlying certain stock option and stock unit awards.

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



Quarter Ended

August 1, August 3,

2020 2019

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

Net income (GAAP) $ 142,267 $ 86,749

Add: Interest expense 7,251 9,404

Less: Interest and other income, net 232 1,050

Add: Provision for income taxes 38,750 30,198

Add: Depreciation of equipment, building,furniture and fixtures, and amortization of 21,989 22,076 leasehold improvements

Add: Amortization of intangible assets 9,674 8,832

EBITDA $ 219,699 $ 156,209

Add: Share-based compensation cost 17,259 15,084

Add: Significant asset impairments and 6,515 5,355 restructuring costs

Add: Acquisition and integration costs (2,329 ) 1,362 (recoveries)

Adjusted EBITDA $ 241,144 $ 178,010

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 (recoveries) - consist of expenses for financial, legal and accounting advisors, severance and other employee-related costs associated with our acquisitions of DonRiver and Centina, including costs and recoveries of acquisition consideration associated with a three-year earn-out arrangement related to the 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 third fiscal quarter of 2020 and 23.9% for the third 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200903005423/en/

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

CONTACT: Investors: Gregg Lampf Ciena Corporation +1 (410) 694-5700 ir@ciena.com