10-QPeriod: Q1 FY2019

CIENA CORP Quarterly Report for Q1 Ended Jan 31, 2019

Filed March 11, 2019For Securities:CIEN

Summary

Ciena Corporation (CIEN) reported a significant turnaround in its financial performance for the quarter ended January 31, 2019, compared to the same period in the prior year. Total revenue surged by 20.5% to $778.5 million, driven by robust growth in the Networking Platforms segment, particularly Converged Packet Optical products, which saw a 28.5% increase. This top-line growth translated into a substantial improvement in profitability, with income from operations reaching $47.9 million, a significant increase from $16.7 million in the prior year quarter. The company also successfully moved from a net loss of $473.4 million to a net income of $33.6 million. The company's adoption of ASC 606, Revenue from Contracts with Customers, using the modified retrospective method, had a modest positive impact on reported revenue and net income for the current quarter. Key balance sheet items show a decrease in cash and equivalents, offset by strong equity growth. Ciena also announced a new stock repurchase program of up to $500 million, indicating confidence in its financial health and a commitment to returning value to shareholders.

Financial Highlights

55 data points
Beta

Revenue

$778.53M

41.5% Gross Margin

Net Income

$33.62M

4.3% Net Margin

EPS (Diluted)

$0.21

Total Assets

$3.62B

Cash & Equivalents

$668.81M

Free Cash Flow

-$29.45M

Financial Statements
Beta
Revenue$778.53M
Cost of Revenue$455.19M
Gross Profit$323.34M
R&D Expenses$128.63M
Operating Expenses$275.40M
Operating Income$47.94M
Interest Expense$9.44M
Net Income$33.62M
EPS (Basic)$0.22
EPS (Diluted)$0.21
Shares Outstanding (Basic)156.31M
Shares Outstanding (Diluted)158.17M

Key Highlights

  • 1Total revenue increased by 20.5% year-over-year to $778.5 million, driven by strong performance in the Networking Platforms segment.
  • 2Net income turned positive, reporting $33.6 million ($0.21 per diluted share) compared to a net loss of $473.4 million ($3.29 per diluted share) in the prior year period.
  • 3Gross profit margin improved to 41.5% from 42.1% in the prior year, with product gross margins increasing and service gross margins decreasing.
  • 4Operating expenses increased by 8.0% to $275.4 million, reflecting investments in R&D and acquisitions, partially offset by lower restructuring costs.
  • 5The adoption of ASC 606 for revenue recognition had a positive but modest impact on reported revenue and net income.
  • 6Ciena announced a new stock repurchase program of up to $500 million, replacing the previous program.
  • 7Cash and cash equivalents decreased by $76.6 million, while the company maintained a strong liquidity position with total cash, cash equivalents, and investments of $788.0 million.

Frequently Asked Questions

The primary driver of Ciena's revenue growth was the strong performance in its Networking Platforms segment, particularly the Converged Packet Optical product line, which saw significant sales increases. Sales of the Waveserver stackable interconnect system to Web-scale providers and increased sales of the 6500 Packet-Optical Platform to AT&T and other communications service providers were key contributors.

Ciena adopted ASC 606 using the modified retrospective method. This adoption resulted in a modest increase in reported revenue by $10.9 million and net income by $0.4 million for the quarter. The increase in revenue was primarily due to recognizing revenue for installation and deployment services over time rather than at a point in time, as was the practice under the prior standard.

The announcement of a new stock repurchase program of up to $500 million indicates management's confidence in the company's financial outlook and its commitment to enhancing shareholder value. This program replaces a previous authorization and provides flexibility for Ciena to return capital to its shareholders through open market repurchases or other methods.

While overall gross margin slightly decreased, product gross margins improved due to cost reductions and manufacturing efficiencies. However, service gross margins decreased primarily due to reduced margins on software-related services. This was attributed to increased costs for developing resources to support growth strategies and the impact of early stages of international network deployments.