Ciena reports fiscal third quarter 2019 financial results
Hanover, md.--(business wire)--ciena® corporation (nyse: cien), a networking systems, services and software company, today announced unaudited financial results for its fiscal third quarter ended july 31, 2019. q3 revenue: $960.6 million, increasing 17.3% year over year q3 net income per share: $0.55 gaap; $0.71 adjusted (non-gaap) share repurchases: repurchased approximately 1.1 million shares of common stock for an aggregate price of $45.4 million during the quarter "we delivered another quarter of outstanding financial results as we benefit from our strong competitive position within the industry and continue to gain market share," said gary smith, president and ceo, ciena. "looking ahead, fiscal 2019 will be an extraordinary year for ciena, including substantial revenue growth and increased profitability." for the fiscal third quarter 2019, ciena reported revenue of $960.6 million as compared to $818.8 million for the fiscal third quarter 2018. ciena's gaap net income for the fiscal third quarter 2019 was $86.7 million, or $0.55 per diluted common share, which compares to a gaap net income of $50.8 million, or $0.34 per diluted common share, for the fiscal third quarter 2018. ciena's adjusted (non-gaap) net income for the fiscal third quarter 2019 was $112.3 million, or $0.71 per diluted common share, which compares to an adjusted (non-gaap) net income of $74.3 million, or $0.48 per diluted common share, for the fiscal third quarter 2018. fiscal third quarter 2019 performance summary the tables below (in millions, except percentage data) provide comparisons of certain quarterly results to the prior year. appendix a and b set forth reconciliations between the gaap and adjusted (non-gaap) measures contained in this release. gaap results q3 q3 fy 2019 fy 2018 y-t-y* revenue $ 960.6 $ 818.8 17.3 % gross margin 44.2 % 42.9 % 1.3 % operating expense $ 299.1 $ 266.3 12.3 % operating margin 13.0 % 10.4 % 2.6 % non-gaap results q3 q3 fy 2019 fy 2018 y-t-y* revenue $ 960.6 $ 818.8 17.3 % adj. gross margin 44.7 % 43.4 % 1.3 % adj. operating expense $ 273.2 $ 241.0 13.4 % adj. operating margin 16.2 % 14.0 % 2.2 % * denotes % change, or in the case of margin, absolute change revenue by segment q3 fy 2019 q3 fy 2018 revenue %** revenue %** networking platforms converged packet optical $ 724.3 75.4 $ 592.8 72.4 packet networking 71.8 7.5 84.6 10.4 total networking platforms 796.1 82.9 677.4 82.8 software and software-related services platform software and services 37.3 3.9 36.8 4.5 blue planet automation software and services 10.5 1.1 4.4 0.5 total software and software-related services 47.8 5.0 41.2 5.0 global services maintenance support and training 65.9 6.9 60.9 7.4 installation and deployment 39.8 4.1 31.3 3.8 consulting and network design 11.0 1.1 8.0 1.0 total global services 116.7 12.1 100.2 12.2 total $ 960.6 100.0 $ 818.8 100.0 additional performance metrics for fiscal third quarter 2019 revenue by geographic region q3 fy 2019 q3 fy 2018 revenue % ** revenue % ** north america $ 617.0 64.2 $ 497.0 60.7 europe, middle east and africa 169.5 17.6 122.2 14.9 caribbean and latin america 39.3 4.1 27.5 3.4 asia pacific 134.8 14.1 172.1 21.0 total $ 960.6 100.0 $ 818.8 100.0 ** denotes % of total revenue two 10%-plus customers represented a total of 25% of revenue cash and investments totaled $842.9 million cash flow from operations totaled $83.1 million average days' sales outstanding (dsos) were 82 accounts receivable balance was $798.9 million unbilled contract asset balance was $74.3 million inventories totaled $356.8 million, including: raw materials: $102.2 million work in process: $15.5 million finished goods: $193.5 million deferred cost of sales: $93.4 million reserve for excess and obsolescence: $(47.8) million raw materials: $102.2 million work in process: $15.5 million finished goods: $193.5 million deferred cost of sales: $93.4 million reserve for excess and obsolescence: $(47.8) million product inventory turns were 5.1 headcount totaled 6,368 supplemental materials and live web broadcast of unaudited fiscal third quarter 2019 results today, thursday, september 5, 2019, 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 2019 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 another quarter of outstanding financial results as we benefit from our strong competitive position within the industry and continue to gain market share. looking ahead, fiscal 2019 will be an extraordinary year for ciena, including substantial revenue growth and increased profitability.” 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; 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; the impact of the tax cuts and jobs act; changes in tax or trade regulations, including the imposition of tariffs and duties; 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 ciena's quarterly report on form 10-q filed with the sec on june 12, 2019 and its annual report on form 10-k filed with the sec on december 21, 2018. 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, appendix 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 clients create the adaptive network™ 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 july 31, nine months ended july 31, 2019 2018 2019 2018 revenue: products $ 810,588 $ 691,758 $ 2,163,808 $ 1,821,593 services 150,018 127,059 440,336 373,337 total revenue 960,606 818,817 2,604,144 2,194,930 cost of goods sold: products 454,921 399,886 1,246,413 1,085,574 services 81,333 67,388 235,361 192,741 total cost of goods sold 536,254 467,274 1,481,774 1,278,315 gross profit 424,352 351,543 1,122,370 916,615 operating expenses: research and development 139,880 121,133 406,482 356,581 selling and marketing 104,230 95,395 305,845 281,269 general and administrative 42,695 38,212 124,092 115,594 amortization of intangible assets 5,529 3,837 16,586 11,083 significant asset impairments and restructuring costs 5,355 6,359 11,696 16,679 acquisition and integration costs 1,362 1,333 4,105 1,333 total operating expenses 299,051 266,269 868,806 782,539 income from operations 125,301 85,274 253,564 134,076 interest and other income (loss), net 1,050 (1,543 ) 5,059 1,328 interest expense (9,404 ) (13,611 ) (28,316 ) (40,376 ) income before income taxes 116,947 70,120 230,307 95,028 provision for income taxes 30,198 19,280 57,204 503,695 net income (loss) $ 86,749 $ 50,840 $ 173,103 $ (408,667 ) net income (loss) per common share basic net income (loss) per common share $ 0.56 $ 0.35 $ 1.11 $ (2.84 ) diluted net income (loss) per potential common share 1 $ 0.55 $ 0.34 $ 1.10 $ (2.84 ) weighted average basic common shares outstanding 155,488 143,400 156,013 143,766 weighted average dilutive potential common shares outstanding 2 157,455 159,998 157,949 143,766 1. the calculation of gaap diluted net income per common share for the third quarter of fiscal 2018 requires adding back interest expense of approximately $0.5 million associated with ciena's "original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018 and approximately $2.6 million associated with ciena's 4.0% convertible senior notes, which were converted at ciena's election during the fourth quarter of fiscal 2018, to the gaap net income in order to derive the numerator for the diluted earnings per common share calculation. 2. 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 options 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 options 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 2018 includes 1.3 million shares underlying certain stock options and stock unit awards, 3.0 million shares underlying ciena's "new" 3.75% senior convertible notes, 3.0 million shares underlying ciena's "original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018 and 9.2 million shares underlying ciena's 4.0% convertible senior notes. ciena corporation condensed consolidated balance sheets (in thousands, except share data) (unaudited) july 31, 2019 october 31, 2018 assets current assets: cash and cash equivalents $ 723,229 $ 745,423 short-term investments 119,670 148,981 accounts receivable, net 798,884 786,502 inventories 356,818 262,751 prepaid expenses and other 292,631 198,945 total current assets 2,291,232 2,142,602 long-term investments — 58,970 equipment, building, furniture and fixtures, net 280,630 292,067 goodwill 297,884 297,968 other intangible assets, net 121,270 148,225 deferred tax asset, net 700,206 745,039 other long-term assets 84,486 71,652 total assets $ 3,775,708 $ 3,756,523 liabilities and stockholders’ equity current liabilities: accounts payable $ 356,716 $ 340,582 accrued liabilities and other short-term obligations 325,137 340,075 deferred revenue 102,182 111,134 current portion of long-term debt 7,000 7,000 debt conversion liability — 164,212 total current liabilities 791,035 963,003 long-term deferred revenue 42,848 58,323 other long-term obligations 140,523 119,413 long-term debt, net 681,918 686,450 total liabilities $ 1,656,324 $ 1,827,189 stockholders’ equity: 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; 155,113,012 and 154,318,531 shares issued and outstanding 1,551 1,543 additional paid-in capital 6,866,341 6,881,223 accumulated other comprehensive loss (23,764 ) (5,780 ) accumulated deficit (4,724,744 ) (4,947,652 ) total stockholders’ equity 2,119,384 1,929,334 total liabilities and stockholders’ equity $ 3,775,708 $ 3,756,523 ciena corporation condensed consolidated statements of cash flows (in thousands) (unaudited) nine months ended july 31, 2019 2018 cash flows provided by operating activities: net income (loss) $ 173,103 $ (408,667 ) adjustments to reconcile net income (loss) to net cash provided by operating activities: depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements 65,071 63,104 share-based compensation costs 44,446 38,896 amortization of intangible assets 26,610 18,196 deferred taxes 35,949 491,863 provision for inventory excess and obsolescence 18,833 19,942 provision for warranty 15,933 15,715 other 743 18,164 changes in assets and liabilities: accounts receivable (2,517 ) (112,696 ) inventories (115,427 ) 17,751 prepaid expenses and other (85,039 ) (11,163 ) accounts payable, accruals and other obligations (9,005 ) 14,840 deferred revenue 4,427 (4,710 ) net cash provided by operating activities 173,127 161,235 cash flows provided by (used in) investing activities: payments for equipment, furniture, fixtures and intellectual property (49,063 ) (50,386 ) purchase of available for sale securities (127,601 ) (217,715 ) proceeds from maturities of available for sale securities 120,000 290,000 proceeds from sales of available for sale securities 98,263 — settlement of foreign currency forward contracts, net (3,155 ) 4,759 acquisition of business, net of cash acquired — (40,412 ) purchase of equity investment (2,667 ) (1,433 ) net cash provided by (used in) investing activities 35,777 (15,187 ) cash flows used in financing activities: payment of long term debt (5,250 ) (3,000 ) payment of capital lease obligations (2,599 ) (2,811 ) payment for debt conversion liability (111,268 ) — shares repurchased for tax withholdings on vesting of restricted stock units (23,234 ) — repurchases of common stock - repurchase program (110,484 ) (73,512 ) proceeds from issuance of common stock 22,895 22,735 net cash used in financing activities (229,940 ) (56,588 ) effect of exchange rate changes on cash, cash equivalents and restricted cash 392 (3,759 ) net increase (decrease) in cash, cash equivalents and restricted cash (20,644 ) 85,701 cash, cash equivalents and restricted cash at beginning of period 745,434 640,513 cash, cash equivalents and restricted cash at end of period $ 724,790 $ 726,214 supplemental disclosure of cash flow information cash paid during the period for interest $ 29,921 $ 31,561 cash paid during the period for income taxes, net $ 21,573 $ 20,099 non-cash investing activities purchase of equipment in accounts payable $ 4,328 $ 5,677 non-cash financing activities repurchase of common stock in accrued liabilities from repurchase program $ 1,441 $ 1,275 conversion of debt conversion liability into 1,585,140 shares of common stock $ 52,944 $ — appendix a - reconciliation of adjusted (non- gaap) quarterly measures (unaudited) quarter ended july 31, 2019 2018 gross profit reconciliation (gaap/non-gaap) gaap gross profit $ 424,352 $ 351,543 share-based compensation-products 781 783 share-based compensation-services 783 618 amortization of intangible assets 3,303 2,534 total adjustments related to gross profit 4,867 3,935 adjusted (non-gaap) gross profit $ 429,219 $ 355,478 adjusted (non-gaap) gross profit percentage 44.7 % 43.4 % operating expense reconciliation (gaap/non-gaap) gaap operating expense $ 299,051 $ 266,269 share-based compensation-research and development 3,560 3,082 share-based compensation-sales and marketing 4,192 3,417 share-based compensation-general and administrative 5,813 4,538 amortization of intangible assets 5,529 3,837 significant asset impairments and restructuring costs 5,355 6,359 acquisition and integration costs 1,362 1,333 legal settlement — 2,753 total adjustments related to operating expense 25,811 25,319 adjusted (non-gaap) operating expense $ 273,240 $ 240,950 income from operations reconciliation (gaap/non-gaap) gaap income from operations $ 125,301 $ 85,274 total adjustments related to gross profit 4,867 3,935 total adjustments related to operating expense 25,811 25,319 total adjustments related to income from operations 30,678 29,254 adjusted (non-gaap) income from operations $ 155,979 $ 114,528 adjusted (non-gaap) operating margin percentage 16.2 % 14.0 % net income reconciliation (gaap/non-gaap) gaap net income $ 86,749 $ 50,840 exclude gaap provision for income taxes 30,198 19,280 income before income taxes 116,947 70,120 total adjustments related to income from operations 30,678 29,254 non-cash interest expense — 793 adjusted income before income taxes 147,625 100,167 non-gaap tax provision on adjusted income before income taxes 35,282 25,913 adjusted (non-gaap) net income $ 112,343 $ 74,254 weighted average basic common shares outstanding 155,488 143,400 weighted average dilutive potential common shares outstanding 1 157,455 159,998 net income per common share gaap diluted net income per common share $ 0.55 $ 0.34 adjusted (non-gaap) diluted net income per common share2 $ 0.71 $ 0.48 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 2019 includes 2.0 million shares underlying certain stock options 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 2018 includes 1.3 million shares underlying certain stock options and stock unit awards, 3.0 million shares underlying ciena's "new" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, 3.0 million shares underlying ciena's "original" 3.75% convertible senior notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, and 9.2 million shares underlying ciena's 4.0% convertible senior notes, which were converted at ciena's election during the fourth quarter of fiscal 2018. 2. the calculation of adjusted (non-gaap) diluted net income per common share for the third quarter of fiscal 2018 requires adding back interest expense of approximately $0.5 million associated with ciena's "original" 3.75% convertible senior notes and $2.1 million associated with ciena's 4.0% convertible senior notes to the adjusted (non-gaap) net income in order to derive the numerator for the adjusted earnings per common share calculation. appendix b - calculation of ebitda and adjusted ebitda (unaudited) quarter ended july 31, 2019 2018 earnings before interest, tax, depreciation and amortization (ebitda) net income (gaap) $ 86,749 $ 50,840 add: interest expense 9,404 13,611 less: interest and other income (loss), net 1,050 (1,543 ) add: provision for income taxes 30,198 19,280 add: depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements 22,076 21,704 add: amortization of intangible assets 8,832 6,371 ebitda $ 156,209 $ 113,349 add: shared-based compensation cost 15,084 12,337 add: significant asset impairments and restructuring costs 5,355 6,359 add: acquisition and integration costs 1,362 1,333 add: legal settlement — 2,753 adjusted ebitda $ 178,010 $ 136,131 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 - consist of financial, legal and accounting advisors' costs and severance and other employment-related costs related to ciena's acquisition of packet design and donriver, including costs associated with a three-year earn-out arrangement related to the donriver acquisition. ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities. legal settlement - costs incurred as a result of a settlement, during the third quarter of fiscal 2018, of a commercial dispute with a former vendor. 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, which were converted during the fourth quarter of 2018, relating to the required separate accounting of the equity component of these convertible notes. 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 23.9% for the third fiscal quarter of 2019, and 25.87% for the third fiscal quarter of 2018. this rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy.
