01—Abstract
Summary
Summary of the 10-Q filed June 6, 2018. Cited figures are marked; the original filing is the authoritative source.
Ciena Corporation's second quarter of fiscal year 2018 report (ending April 30, 2018) shows a revenue increase of 3.2% year-over-year to $729.98 milliona, driven by growth in Networking Platforms and Global Services segments.
However, gross profit saw a decline of 7.8%, primarily due to a reduction in product gross profit margin, which management attributes to a strategy focused on market share capture and early-stage network deployments. Operating expenses remained largely flat, though selling and marketing expenses saw an increase. The company reported a net income of $13.86 millionb, a significant decrease from $38.03 million in the prior year's comparable quarter.
This decline is heavily influenced by a substantial tax expense of $484.4 millionc recorded in the six-month period due to the Tax Cuts and Jobs Act of 2017, which included a $431.3 million charge for remeasuring deferred tax assets and a $45.6 million transition tax on foreign earnings. Excluding this significant tax impact, the underlying operational performance shows pressures on profitability despite revenue growth. Financially, Ciena maintained a solid liquidity position with $979.6 million in cash, cash equivalents, and investments.
The company also announced a definitive agreement to acquire Packet Design, LLC, aiming to enhance its Blue Planet software strategy. Investors should monitor gross margin trends, the effectiveness of the market share capture strategy, and the ongoing integration and impact of the new tax legislation.
02—Key points
Key Highlights
- Total revenue increased by 3.2% to $730.0 million for the quarter ended April 30, 2018, compared to the prior year.
- Gross profit decreased by 7.8% to $293.3 million, with product gross profit declining by 10.0%, indicating margin pressures.
- Net income for the quarter was $13.9 million, down from $38.0 million in the same period last year.
- A significant one-time tax expense of $484.4 million was recorded in the six-month period due to the Tax Cuts and Jobs Act.
- The company reported $979.6 million in cash, cash equivalents, and investments as of April 30, 2018, indicating strong liquidity.
- Ciena announced the agreement to acquire Packet Design, LLC to enhance its network performance management software capabilities.
- AT&T revenue continued to be a significant customer contribution, though it decreased year-over-year for the quarter and six-month periods.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Ciena Corp kept $0.02.
- Revenue$730.0M100.0%
- Cost of revenue−$436.7M59.8%
- Gross profit$293.3M40.2%
- Operating costs−$261.2M35.8%
- Operating income$32.1M4.4%
- Interest, other & tax−$18.2M2.5%
- Net income$13.9M1.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed June 6, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $729.98M$707.02M | +3.2% |
| Cost of Revenue | $436.67M$388.78M | +12.3% |
| Gross Profit | $293.31M$318.24M | −7.8% |
| R&D Expenses | $116.92M$121.62M | −3.9% |
| Operating Expenses | $261.24M$260.42M | +0.3% |
| Operating Income | $32.07M$57.82M | −44.5% |
| Interest Expense | $13.03M$13.31M | −2.1% |
| Net Income | $13.86M$38.03M | −63.6% |
| EPS (Basic) | $0.10$0.27 | −63.0% |
| EPS (Diluted) | $0.09$0.25 | −64.0% |
| Shares Outstanding (Basic) | 143.97M141.74M | +1.6% |
| Shares Outstanding (Diluted) | 147.97M165.27M | −10.5% |
05—Questions
Frequently Asked Questions
What drove the significant decrease in net income for the six-month period?
The primary driver for the significant decrease in net income for the six months ended April 30, 2018, was a substantial tax expense of $484.4 million related to the Tax Cuts and Jobs Act of 2017. This included a $431.3 million charge for remeasuring U.S. net deferred tax assets and a $45.6 million transition tax on historical foreign earnings.
How did the company's gross margin perform, and what were the key reasons cited for any changes?
Gross profit decreased by 7.8% year-over-year for the quarter. Product gross profit, in particular, decreased by 10.0%. Management attributed this to a strategy focused on capturing market share and displacing competitors, which may involve aggressive pricing, commercial concessions, and an increased mix of revenues from early-stage network deployments, leading to lower initial margins.
What is the strategic rationale behind the acquisition of Packet Design, LLC?
Ciena is acquiring Packet Design, LLC to accelerate its Blue Planet software strategy. Packet Design's expertise in network performance management software, particularly in Layer 3 optimization and route analytics, is expected to extend Ciena's intelligent automation capabilities and help customers optimize service delivery and network utilization.
How is Ciena managing its liquidity and capital resources?
Ciena maintains strong liquidity, with $979.6 million in cash, cash equivalents, and investments as of April 30, 2018. The company also has access to a $250 million ABL Credit Facility. They are also managing their capital structure by repurchasing stock under a $300 million authorization and intend to cash settle upcoming convertible note maturities.
06—Continue