01—Abstract
Summary
Summary of the 10-Q filed March 7, 2018. Cited figures are marked; the original filing is the authoritative source.
Ciena Corporation's first quarter fiscal year 2018 filing reveals a mixed financial performance.
While total revenue saw a 4.0% increase year-over-year to $646.1 milliona, driven significantly by growth in the Software and Software-Related Services segment, the company reported a substantial net loss of $473.4 million. This loss was primarily attributable to a provisional tax expense of $477.9 million related to the recently enacted Tax Cuts and Jobs Act, which included a remeasurement of deferred tax assets and a transition tax on foreign earnings. Despite the net loss, operating cash flow was positive at $35.7 million, indicating resilient operational performance.
The company also highlighted strong growth in its Software and Software-Related Services segment, up 35.8%, suggesting a successful pivot towards higher-growth areas. Management reiterated its commitment to reinvesting foreign earnings, though the impact of the Tax Act remains a key factor to monitor. The company also announced a new $300 millionb stock repurchase program.
02—Key points
Key Highlights
- Total revenue increased by 4.0% to $646.1 million compared to the prior year's quarter.
- The Software and Software-Related Services segment showed significant growth, with revenue up 35.8% to $53.5 million.
- The company reported a substantial net loss of $473.4 million for the quarter, heavily impacted by a $477.9 million provisional tax charge related to the Tax Cuts and Jobs Act.
- Operating cash flow was positive at $35.7 million, demonstrating continued operational cash generation.
- Gross profit as a percentage of revenue decreased slightly due to reduced product gross profit, although service gross profit improved.
- Ciena announced a new stock repurchase program authorizing up to $300 million of common stock repurchases through fiscal year 2020.
- The Networking Platforms segment, while still the largest revenue contributor, saw a modest 1.2% increase in revenue.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q1 FY2018, Ciena Corp lost $0.73.
- Revenue$646.1M100.0%
- Cost of revenue−$374.4M57.9%
- Gross profit$271.8M42.1%
- Operating costs−$255.0M39.5%
- Operating income$16.7M2.6%
- Interest, other & tax−$490.1M75.9%
- Net income−$473.4M73.3%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed March 7, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $646.13M$621.50M | +4.0% |
| Cost of Revenue | $374.37M$347.71M | +7.7% |
| Gross Profit | $271.76M$273.79M | −0.7% |
| R&D Expenses | $118.52M$116.87M | +1.4% |
| Operating Expenses | $255.03M$254.68M | +0.1% |
| Operating Income | $16.74M$19.10M | −12.4% |
| Interest Expense | $13.73M$15.20M | −9.7% |
| Net Income | -$473.36M$3.86M | −12360.1% |
| EPS (Basic) | $-3.29$0.03 | −11066.7% |
| EPS (Diluted) | $-3.29$0.03 | −11066.7% |
| Shares Outstanding (Basic) | 143.92M140.68M | +2.3% |
| Shares Outstanding (Diluted) | 143.92M142.18M | +1.2% |
05—Questions
Frequently Asked Questions
What caused the significant net loss in the quarter?
The substantial net loss of $473.4 million was primarily driven by a provisional tax expense of $477.9 million recognized due to the enactment of the Tax Cuts and Jobs Act. This expense includes charges for the remeasurement of U.S. net deferred tax assets and a transition tax on accumulated foreign earnings.
How did the different business segments perform?
The Software and Software-Related Services segment was a standout performer, with revenue increasing by 35.8%. The Global Services segment also saw growth of 4.8%. The largest segment, Networking Platforms, experienced a modest revenue increase of 1.2%, while the Packet Networking sub-segment within it saw a decline.
What is the outlook for cash flow and liquidity?
The company generated positive operating cash flow of $35.7 million. Ciena reported $986.8 million in total cash, cash equivalents, and investments as of January 31, 2018. Management expects these resources, along with its ABL Credit Facility, to be sufficient to meet working capital and capital expenditure needs for at least the next 12 months.
What is the company's strategy regarding foreign earnings and the Tax Act?
Ciena currently intends to reinvest its foreign earnings indefinitely. However, the company is studying the impact of the Tax Cuts and Jobs Act and the costs of repatriation. If they decide to repatriate, there would be a provisional deferred income tax liability related to foreign withholding taxes of approximately $22.0 million.
06—Continue