Press release

Ciena Reports Fiscal Fourth Quarter 2019 and Year-End Financial Results

0
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Ciena® Corporation (NYSE: CIEN), a networking systems, services and software company, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2019.

  • Q4 Revenue: $968.0 million, increasing 7.6% year over year
  • Q4 Net Income per Share: $0.51 GAAP; $0.58 adjusted (non-GAAP)
  • Share Repurchases: Repurchased approximately 1.0 million shares of common stock for an aggregate price of $38.2 million during the quarter

“Our outstanding Q4 financial performance rounded out an extraordinary year of industry-leading growth and profitability,” said Gary Smith, President and CEO, Ciena. “Our innovation, diversification and scale uniquely position us to continue taking share while delivering improved operating margin and driving sustained EPS growth in 2020.”

For the fiscal fourth quarter 2019, Ciena reported revenue of $968.0 million as compared to $899.4 million for the fiscal fourth quarter 2018. For fiscal year 2019, Ciena reported revenue of $3.57 billion, as compared to $3.09 billion for fiscal year 2018.

Ciena’s GAAP net income for the fiscal fourth quarter 2019 was $80.3 million or $0.51 per diluted common share, which compares to a GAAP net income of $64.0 million, or $0.34 per diluted common share, for the fiscal fourth quarter 2018. For fiscal year 2019, Ciena’s GAAP net income was $253.4 million, or $1.61 per diluted common share, as compared to a GAAP net loss of $(344.7) million, or $(2.49) per diluted common share for fiscal year 2018.

Ciena’s adjusted (non-GAAP) net income for the fiscal fourth quarter 2019 was $90.4 million, or $0.58 per diluted common share, which compares to an adjusted (non-GAAP) net income of $81.0 million, or $0.53 per diluted common share, for the fiscal fourth quarter 2018. For fiscal year 2019, Ciena’s adjusted (non-GAAP) net income was $331.8 million, or $2.11 per diluted common share, as compared to an adjusted (non-GAAP) net income of $210.6 million, or $1.39 per diluted common share for fiscal year 2018.

Performance Summary for the Fiscal Fourth Quarter and the Year Ended October 31, 2019

The tables below (in millions, except percentage data) provide comparisons of certain quarterly and annual 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 (unaudited)

 

 

Quarter Ended

October 31,

 

Period

Change

 

Year Ended

October 31,

 

Period

Change

 

 

2019

 

2018

 

Y-T-Y*

 

2019

 

2018

 

Y-T-Y*

Revenue

 

$

968.0

 

 

$

899.4

 

 

7.6

%

 

$

3,572.1

 

 

$

3,094.3

 

 

15.4

%

Gross margin

 

43.4

%

 

44.3

%

 

(0.9

)%

 

43.2

%

 

42.5

%

 

0.7

%

Operating expense

 

$

326.5

 

 

$

302.2

 

 

8.0

%

 

$

1,195.3

 

 

$

1,084.7

 

 

10.2

%

Operating margin

 

9.6

%

 

10.7

%

 

(1.1

)%

 

9.7

%

 

7.4

%

 

2.3

%

 

 

 

Non-GAAP Results (unaudited)

 

 

Quarter Ended

October 31,

 

Period

Change

 

Year Ended

October 31,

 

Period

Change

 

 

2019

 

2018

 

Y-T-Y*

 

2019

 

2018

 

Y-T-Y*

Revenue

 

$

968.0

 

 

$

899.4

 

 

7.6

%

 

$

3,572.1

 

 

$

3,094.3

 

 

15.4

%

Adj. gross margin

 

43.8

%

 

44.7

%

 

(0.9

)%

 

43.7

%

 

43.0

%

 

0.7

%

Adj. operating expense

 

$

295.3

 

 

$

277.7

 

 

6.3

%

 

$

1,091.8

 

 

$

993.6

 

 

9.9

%

Adj. operating margin

 

13.3

%

 

13.9

%

 

(0.6

)%

 

13.1

%

 

10.9

%

 

2.2

%

 

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

 

 

Revenue by Segment (unaudited)

 

 

Quarter Ended October 31,

 

 

2019

 

2018

 

 

Revenue

 

% **

 

Revenue

 

% **

Networking Platforms

 

 

 

 

 

 

 

 

Converged Packet Optical

 

$

665.8

 

 

68.8

 

 

$

646.4

 

 

71.9

 

Packet Networking

 

131.9

 

 

13.6

 

 

66.5

 

 

7.4

 

Total Networking Platforms

 

797.7

 

 

82.4

 

 

712.9

 

 

79.3

 

 

 

 

 

 

 

 

 

 

Platform Software and Services

 

41.2

 

 

4.3

 

 

56.6

 

 

6.3

 

 

 

 

 

 

 

 

 

 

Blue Planet Automation Software and Services

 

16.6

 

 

1.7

 

 

10.7

 

 

1.2

 

 

 

 

 

 

 

 

 

 

Global Services

 

 

 

 

 

 

 

 

Maintenance Support and Training

 

65.3

 

 

6.7

 

 

67.4

 

 

7.5

 

Installation and Deployment

 

36.5

 

 

3.8

 

 

39.3

 

 

4.4

 

Consulting and Network Design

 

10.7

 

 

1.1

 

 

12.5

 

 

1.3

 

Total Global Services

 

112.5

 

 

11.6

 

 

119.2

 

 

13.2

 

 

 

 

 

 

 

 

 

 

Total

 

$

968.0

 

 

100.0

 

 

$

899.4

 

 

100.0

 

 

 

Revenue by Segment (unaudited)

 

 

Year Ended October 31,

 

 

2019

 

2018

 

 

Revenue

 

% **

 

Revenue

 

% **

Networking Platforms

 

 

 

 

 

 

 

 

Converged Packet Optical

 

$

2,562.8

 

 

71.8

 

 

$

2,194.6

 

 

70.9

 

Packet Networking

 

348.5

 

 

9.8

 

 

283.5

 

 

9.2

 

Total Networking Platforms

 

2,911.3

 

 

81.6

 

 

2,478.1

 

 

80.1

 

 

 

 

 

 

 

 

 

 

Platform Software and Services

 

155.3

 

 

4.3

 

 

174.0

 

 

5.6

 

 

 

 

 

 

 

 

 

 

Blue Planet Automation Software and Services

 

54.6

 

 

1.5

 

 

26.7

 

 

0.9

 

 

 

 

 

 

 

 

 

 

Global Services

 

 

 

 

 

 

 

 

Maintenance Support and Training

 

261.3

 

 

7.3

 

 

245.1

 

 

7.9

 

Installation and Deployment

 

148.2

 

 

4.1

 

 

128.8

 

 

4.2

 

Consulting and Network Design

 

41.4

 

 

1.2

 

 

41.6

 

 

1.3

 

Total Global Services

 

450.9

 

 

12.6

 

 

415.5

 

 

13.4

 

 

 

 

 

 

 

 

 

 

Total

 

$

3,572.1

 

 

100.0

 

 

$

3,094.3

 

 

100.0

 

Additional Performance Metrics for Fiscal Fourth Quarter and Year Ended October 31, 2019

 

 

Revenue by Geographic Region (unaudited)

 

Quarter Ended October 31,

 

2019

 

2018

 

Revenue

 

% **

 

Revenue

 

% **

North America

$

672.7

69.5

$

555.3

61.7

Europe, Middle East and Africa

 

153.0

15.8

 

123.1

13.7

Caribbean and Latin America

 

43.0

4.4

 

53.0

5.9

Asia Pacific

 

99.3

10.3

 

168.0

18.7

Total

$

968.0

100.0

$

899.4

100.0

 

 

Revenue by Geographic Region (unaudited)

 

Year Ended October 31,

 

2019

 

2018

 

Revenue

 

% **

 

Revenue

 

% **

North America

$

2,351.3

65.8

$

1,886.4

61.0

Europe, Middle East and Africa

 

566.7

15.9

 

464.9

15.0

Caribbean and Latin America

 

152.6

4.3

 

140.2

4.5

Asia Pacific

 

501.5

14.0

 

602.8

19.5

Total

$

3,572.1

100.0

$

3,094.3

100.0

 

** Denotes % of total revenue

  • One 10%-plus customer represented a total of 15.1% of revenue for the fiscal quarter
  • Three 10%-plus customers represented a total of 34.1% of revenue for the fiscal year
  • Cash and investments totaled $1,024.0 million
  • Cash flow from operations totaled $240.0 million and $413.1 million for the fiscal quarter and year, respectively
  • Average days’ sales outstanding (DSOs) were 75 and 82 for the fiscal quarter and year, respectively
  • Accounts receivable balance was $724.9 million
  • Unbilled contract asset balance was $84.0 million
  • Inventories totaled $345.0 million, including:

    • Raw materials: $99.0 million
    • Work in process: $13.7 million
    • Finished goods: $226.6 million
    • Deferred cost of sales: $53.0 million
    • Reserve for excess and obsolescence: $(47.3) million
  • Product inventory turns were 5.4 and 5.0 for the fiscal quarter and year, respectively
  • Headcount totaled 6,383

Share Repurchase Program

During fiscal year 2019, Ciena repurchased approximately 3.8 million shares of its common stock at an average price of $39.10 per share for an aggregate purchase price of $150.1 million.

Ciena may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. Ciena may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization. The amount and timing of repurchases are subject to a variety of factors including liquidity, cash flow, stock price, and general business and market conditions. The program may be modified, suspended or discontinued at any time.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2019 Results

Today, Thursday, December 12, 2019, in conjunction with this announcement, Ciena has posted to the Quarterly Results page of the Investor Relations section of its website certain related supporting materials for its unaudited fiscal fourth quarter and fiscal 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: “Our outstanding Q4 financial performance rounded out an extraordinary year of industry-leading growth and profitability.”; “Our innovation, diversification and scale uniquely position us to continue taking share while delivering improved operating margin and driving sustained EPS growth in 2020.”

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 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 periodic reports filed with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q filed with the SEC on September 11, 2019 and its Annual Report on Form 10-K to be filed with the SEC. 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 for the relevant period, 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 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

 

 

Quarter Ended October 31,

 

Year Ended October 31,

 

 

2019

 

2018

 

2019

 

2018

Revenue:

 

 

 

 

 

 

 

 

Products

 

$

820,007

 

 

$

743,867

 

 

$

2,983,815

 

 

$

2,565,460

 

Services

 

147,980

 

 

155,489

 

 

588,316

 

 

528,826

 

Total revenue

 

967,987

 

 

899,356

 

 

3,572,131

 

 

3,094,286

 

Cost of goods sold:

 

 

 

 

 

 

 

 

Products

 

469,945

 

 

421,583

 

 

1,716,358

 

 

1,507,157

 

Services

 

78,346

 

 

79,698

 

 

313,707

 

 

272,439

 

Total cost of goods sold

 

548,291

 

 

501,281

 

 

2,030,065

 

 

1,779,596

 

Gross profit

 

419,696

 

 

398,075

 

 

1,542,066

 

 

1,314,690

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

141,657

 

 

134,983

 

 

548,139

 

 

491,564

 

Selling and marketing

 

117,201

 

 

112,791

 

 

423,046

 

 

394,060

 

General and administrative

 

50,307

 

 

44,539

 

 

174,399

 

 

160,133

 

Amortization of intangible assets

 

5,222

 

 

4,654

 

 

21,808

 

 

15,737

 

Acquisition and integration costs

 

(735

)

 

3,778

 

 

3,370

 

 

5,111

 

Significant asset impairments and restructuring costs

 

12,842

 

 

1,460

 

 

24,538

 

 

18,139

 

Total operating expenses

 

326,494

 

 

302,205

 

 

1,195,300

 

 

1,084,744

 

Income from operations

 

93,202

 

 

95,870

 

 

346,766

 

 

229,946

 

Interest and other income (loss), net

 

(1,183

)

 

(13,357

)

 

3,876

 

 

(12,029

)

Interest expense

 

(9,136

)

 

(14,873

)

 

(37,452

)

 

(55,249

)

Loss on extinguishment and modification of debt

 

 

 

(13,887

)

 

 

 

(13,887

)

Income before income taxes

 

82,883

 

 

53,753

 

 

313,190

 

 

148,781

 

Provision (benefit) for income taxes

 

2,552

 

 

(10,224

)

 

59,756

 

 

493,471

 

Net income (loss)

 

$

80,331

 

 

$

63,977

 

 

$

253,434

 

 

$

(344,690

)

 

 

 

 

 

 

 

 

 

Net Income (Loss) per Common Share

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

0.52

 

 

$

0.45

 

 

$

1.63

 

 

$

(2.40

)

Diluted net income (loss) per potential common share1

 

$

0.51

 

 

$

0.34

 

 

$

1.61

 

 

$

(2.49

)

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

154,852

 

 

143,659

 

 

155,720

 

 

143,738

 

Weighted average diluted potential common shares outstanding 2

 

156,612

 

 

157,745

 

 

157,612

 

 

143,738

 

1. The calculation of GAAP diluted net income per common share for the fourth quarter of fiscal 2018 requires a) adding back interest expense of approximately $0.4 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 $2.8 million associated with Ciena’s 4.0% convertible senior notes, which were converted at Ciena’s election during the fourth quarter of fiscal 2018, and b) reducing net income by $12.9 million for a non-cash loss due to a mark to market fair value adjustment related to the outstanding conversion feature of Ciena’s “New” 3.75% senior convertible notes, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, in order to derive the numerator for the diluted earnings per common share calculation.
 
The calculation of GAAP diluted net loss per common share for fiscal 2018 requires an adjustment of $12.9 million for a non-cash loss due to a mark to market fair value adjustment related to the outstanding conversion feature of Ciena’s “New” 3.75% senior convertible notes to the GAAP net loss 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 fourth quarter of fiscal 2019 includes 1.8 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 fiscal 2019 includes 1.9 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 fourth quarter of fiscal 2018 includes 2.0 million shares underlying certain stock option and stock unit awards, 0.7 million and 2.5 million shares underlying Ciena’s “New” and “Original” 3.75% convertible senior notes, respectively, and 8.9 million shares underlying Ciena’s 4.0% convertible senior notes.

CIENA CORPORATION

CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

October 31,

 

2019

 

2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

904,045

 

 

$

745,423

 

Short-term investments

109,940

 

 

148,981

 

Accounts receivable, net

724,854

 

 

786,502

 

Inventories

345,049

 

 

262,751

 

Prepaid expenses and other

297,914

 

 

198,945

 

Total current assets

2,381,802

 

 

2,142,602

 

Long-term investments

10,014

 

 

58,970

 

Equipment, building, furniture and fixtures, net

286,884

 

 

292,067

 

Goodwill

297,937

 

 

297,968

 

Other intangible assets, net

112,781

 

 

148,225

 

Deferred tax asset, net

714,942

 

 

745,039

 

Other long-term assets

88,986

 

 

71,652

 

Total assets

$

3,893,346

 

 

$

3,756,523

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

344,819

 

 

$

340,582

 

Accrued liabilities and other short-term obligations

382,740

 

 

340,075

 

Deferred revenue

111,381

 

 

111,134

 

Current portion of long-term debt

7,000

 

 

7,000

 

Debt conversion liability

 

 

164,212

 

Total current liabilities

845,940

 

 

963,003

 

Long-term deferred revenue

45,492

 

 

58,323

 

Other long-term obligations

148,747

 

 

119,413

 

Long-term debt, net

680,406

 

 

686,450

 

Total liabilities

$

1,720,585

 

 

$

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; 154,403,850 and 154,318,531 shares issued and outstanding

1,544

 

 

1,543

 

Additional paid-in capital

6,837,714

 

 

6,881,223

 

Accumulated other comprehensive loss

(22,084

)

 

(5,780

)

Accumulated deficit

(4,644,413

)

 

(4,947,652

)

Total stockholders’ equity

2,172,761

 

 

1,929,334

 

Total liabilities and stockholders’ equity

$

3,893,346

 

 

$

3,756,523

 

CIENA CORPORATION

CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

Year Ended October 31,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income (loss)

$

253,434

 

 

$

(344,690

)

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

 

 

 

Loss on extinguishment of debt

 

 

10,039

 

Loss on fair value of debt conversion liability

 

 

12,070

 

Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements

87,576

 

 

84,214

 

Share-based compensation costs

59,736

 

 

52,972

 

Amortization of intangible assets

35,136

 

 

25,806

 

Deferred taxes

19,865

 

 

463,631

 

Provision for doubtful accounts

6,740

 

 

2,700

 

Provision for inventory excess and obsolescence

28,085

 

 

30,615

 

Provision for warranty

23,105

 

 

20,992

 

Other

(910

)

 

21,685

 

Changes in assets and liabilities:

 

 

 

Accounts receivable

65,712

 

 

(168,357

)

Inventories

(112,941

)

 

(27,445

)

Prepaid expenses and other

(96,618

)

 

(21,425

)

Accounts payable, accruals and other obligations

27,740

 

 

85,798

 

Deferred revenue

16,480

 

 

(19,344

)

Net cash provided by operating activities

413,140

 

 

229,261

 

Cash flows used in investing activities:

 

 

 

Payments for equipment, furniture, fixtures and intellectual property

(62,579

)

 

(67,616

)

Purchase of available for sale securities

(158,074

)

 

(286,824

)

Proceeds from maturities of available for sale securities

248,748

 

 

410,109

 

Settlement of foreign currency forward contracts, net

(1,351

)

 

9,385

 

Purchase of equity investment

(2,667

)

 

(1,767

)

Acquisition of businesses, net of cash acquired

 

 

(82,670

)

Net cash provided by (used in) investing activities

24,077

 

 

(19,383

)

Cash flows from financing activities:

 

 

 

Proceeds from issuance of long-term debt, net

 

 

305,125

 

Payment of long-term debt

(7,000

)

 

(292,730

)

Payment for debt conversion liability

(111,268

)

 

 

Payment for make-whole provision upon conversion of long-term debt

 

 

(13,453

)

Payment of debt issuance costs

(1,191

)

 

(1,936

)

Payment of capital lease obligations

(3,319

)

 

(3,624

)

Shares repurchased for tax withholdings on vesting of restricted stock units

(29,059

)

 

(4,757

)

Repurchases of common stock – repurchase program

(150,076

)

 

(110,981

)

Proceeds from issuance of common stock

22,947

 

 

23,127

 

Net cash used in financing activities

(278,966

)

 

(99,229

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

476

 

 

(5,856

)

Net increase (decrease) in cash, cash equivalents and restricted cash

158,727

 

 

104,793

 

Cash, cash equivalents and restricted cash at beginning of fiscal year

745,434

 

 

640,641

 

Cash, cash equivalents and restricted cash at end of fiscal year

$

904,161

 

 

$

745,434

 

Supplemental disclosure of cash flow information

 

 

 

Cash paid during the fiscal year for interest

$

39,579

 

 

$

44,750

 

Cash paid during the fiscal year for income taxes, net

$

33,570

 

 

$

26,900

 

Non-cash investing and financing activities

 

 

 

Purchase of equipment in accounts payable

$

16,549

 

 

$

5,118

 

Contingent consideration for acquisition of business

$

 

 

$

10,900

 

Conversion of 3.75% convertible senior notes, due October 15, 2018 (Original) into 3,038,208 shares of common stock

$

 

 

$

61,270

 

Conversion of 4.0% convertible senior notes, due December 15, 2020 into 9,197,943 shares of common stock, net

$

 

 

$

214,286

 

Conversion of debt conversion liability into 1,585,140 shares of common stock

$

52,944

 

 

$

 

APPENDIX A- Reconciliation of Adjusted (Non- GAAP) Measurements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year Ended

 

 

October 31,

 

October 31,

 

 

2019

 

2018

 

2019

 

2018

Gross Profit Reconciliation (GAAP/non-GAAP)

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

419,696

 

 

$

398,075

 

 

$

1,542,066

 

 

$

1,314,690

 

Share-based compensation-products

 

748

 

 

705

 

 

2,868

 

 

2,984

 

Share-based compensation-services

 

715

 

 

651

 

 

3,175

 

 

2,616

 

Amortization of intangible assets

 

3,303

 

 

2,957

 

 

13,327

 

 

10,069

 

Total adjustments related to gross profit

 

4,766

 

 

4,313

 

 

19,370

 

 

15,669

 

Adjusted (non-GAAP) gross profit

 

$

424,462

 

 

$

402,388

 

 

$

1,561,436

 

 

$

1,330,359

 

Adjusted (non-GAAP) gross profit percentage

 

43.8

%

 

44.7

%

 

43.7

%

 

43.0

%

 

 

 

 

 

 

 

 

 

Operating Expense Reconciliation (GAAP/non-GAAP)

 

 

 

 

 

 

 

 

GAAP operating expense

 

$

326,494

 

 

$

302,205

 

 

$

1,195,300

 

 

$

1,084,744

 

Share-based compensation-research and development

 

3,287

 

 

3,385

 

 

14,321

 

 

13,518

 

Share-based compensation-sales and marketing

 

4,151

 

 

3,741

 

 

16,474

 

 

14,246

 

Share-based compensation-general and administrative

 

6,425

 

 

5,588

 

 

22,841

 

 

19,709

 

Amortization of intangible assets

 

5,222

 

 

4,654

 

 

21,808

 

 

15,737

 

Acquisition and integration costs

 

(735

)

 

3,778

 

 

3,370

 

 

5,111

 

Significant asset impairments and restructuring costs

 

12,842

 

 

1,460

 

 

24,538

 

 

18,139

 

Legal settlements

 

 

 

1,929

 

 

137

 

 

4,682

 

Total adjustments related to operating expense

 

$

31,192

 

 

$

24,535

 

 

$

103,489

 

 

$

91,142

 

Adjusted (non-GAAP) operating expense

 

$

295,302

 

 

$

277,670

 

 

$

1,091,811

 

 

$

993,602

 

 

 

 

 

 

 

 

 

 

Income from Operations Reconciliation (GAAP/non-GAAP)

 

 

 

 

 

 

 

 

GAAP income from operations

 

$

93,202

 

 

$

95,870

 

 

$

346,766

 

 

$

229,946

 

Total adjustments related to gross profit

 

4,766

 

 

4,313

 

 

19,370

 

 

15,669

 

Total adjustments related to operating expense

 

31,192

 

 

24,535

 

 

103,489

 

 

91,142

 

Total adjustments related to income from operations

 

35,958

 

 

28,848

 

 

122,859

 

 

106,811

 

Adjusted (non-GAAP) income from operations

 

$

129,160

 

 

$

124,718

 

 

$

469,625

 

 

$

336,757

 

Adjusted (non-GAAP) operating margin percentage

 

13.3

%

 

13.9

%

 

13.1

%

 

10.9

%

 

 

 

 

 

 

 

 

 

Net Income (Loss) Reconciliation (GAAP/non-GAAP)

 

 

 

 

 

 

 

 

GAAP net income (loss)

 

$

80,331

 

 

$

63,977

 

 

$

253,434

 

 

$

(344,690

)

Exclude GAAP provision (benefit) for income taxes

 

2,552

 

 

(10,224

)

 

59,756

 

 

493,471

 

Income before income taxes

 

82,883

 

 

53,753

 

 

313,190

 

 

148,781

 

Total adjustments related to income from operations

 

35,958

 

 

28,848

 

 

122,859

 

 

106,811

 

Loss on extinguishment and modification of debt

 

 

 

13,887

 

 

 

 

13,887

 

Non-cash interest expense

 

 

 

727

 

 

 

 

2,579

 

Change in fair value of debt conversion liability

 

 

 

12,070

 

 

 

 

12,070

 

Adjusted income before income taxes

 

118,841

 

 

109,285

 

 

436,049

 

 

284,128

 

Non-GAAP tax provision on adjusted income before income taxes

 

28,403

 

 

28,272

 

 

104,216

 

 

73,504

 

Adjusted (non-GAAP) net income

 

$

90,438

 

 

$

81,013

 

 

$

331,833

 

 

$

210,624

 

 

 

 

 

 

 

 

 

 

Weighted average basic common shares outstanding

 

154,852

 

 

143,659

 

 

155,720

 

 

143,738

 

Weighted average dilutive potential common shares outstanding 1

 

156,612

 

 

157,745

 

 

157,612

 

 

158,884

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) per Common Share

 

 

 

 

 

 

 

 

GAAP diluted net income (loss) per common share

 

$

0.51

 

 

$

0.34

 

 

$

1.61

 

 

$

(2.49

)

Adjusted (non-GAAP) diluted net income per common share 2

 

$

0.58

 

 

$

0.53

 

 

$

2.11

 

 

$

1.39

 

 

 

 

 

 

 

 

 

 

1. Weighted average dilutive potential common shares outstanding used in calculating adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2019 includes 1.8 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 fiscal 2019 includes 1.9 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 fourth quarter of fiscal 2018 includes 2.0 million shares underlying certain stock option and stock unit awards, 0.7 million and 2.5 million shares underlying Ciena’s “New” and “Original” 3.75% convertible senior notes, respectively, which were converted by holders thereof immediately prior to maturity during the fourth quarter of fiscal 2018, and 8.9 million shares underlying Ciena’s 4.0% convertible senior notes, which were converted at Ciena’s election during the fourth quarter of fiscal 2018.

 

Weighted average dilutive potential common shares outstanding used in calculating adjusted (non-GAAP) diluted net income per common share for fiscal 2018 includes 1.4 million shares underlying certain stock option and stock unit awards, 1.8 million and 2.9 million shares underlying Ciena’s “New” and “Original” 3.75% convertible senior notes, respectively, and 9.1 million shares underlying Ciena’s 4.0% convertible senior notes.

 

2. The calculation of adjusted (non-GAAP) diluted net income per common share for the fourth quarter of fiscal 2018 requires adding back interest expense of approximately $0.4 million associated with Ciena’s “Original” 3.75% convertible senior notes and approximately $2.3 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 (non-GAAP) earnings per common share calculation.

 

The calculation of adjusted (non-GAAP) diluted net income per common share for fiscal 2018 requires adding back interest expense of approximately $1.8 million associated with Ciena’s “Original” 3.75% convertible senior notes and approximately $8.7 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 (non-GAAP) earnings per common share calculation.

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

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year Ended

 

 

October 31,

 

October 31,

 

 

2019

 

2018

 

2019

 

2018

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

 

 

 

 

 

 

 

 

Net income (loss) (GAAP)

 

$

80,331

 

 

$

63,977

 

 

$

253,434

 

 

$

(344,690

)

Add: Interest expense

 

9,136

 

 

14,873

 

 

37,452

 

 

55,249

 

Less: Interest and other income (loss), net

 

(1,183

)

 

(13,357

)

 

3,876

 

 

(12,029

)

Add: Loss on extinguishment and modification of debt

 

 

 

(13,887

)

 

 

 

(13,887

)

Add: Provision (benefit) for income taxes

 

2,552

 

 

(10,224

)

 

59,756

 

 

493,471

 

Add: Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements

 

22,505

 

 

21,110

 

 

87,576

 

 

84,214

 

Add: Amortization of intangible assets

 

8,525

 

 

7,611

 

 

35,136

 

 

25,806

 

EBITDA

 

$

124,232

 

 

$

124,591

 

 

$

469,478

 

 

$

339,966

 

Add: Shared-based compensation cost

 

15,290

 

 

14,076

 

 

59,736

 

 

52,972

 

Add: Significant asset impairments and restructuring costs

 

12,842

 

 

1,460

 

 

24,538

 

 

18,139

 

Add: Acquisition and integration costs

 

(735

)

 

3,778

 

 

3,370

 

 

5,111

 

Add: Legal settlement

 

 

 

1,929

 

 

137

 

 

4,682

 

Adjusted EBITDA

 

$

151,629

 

 

$

145,834

 

 

$

557,259

 

 

$

420,870

 

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.
  • 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. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities.
  • Significant asset impairments and restructuring costs – costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Legal settlements – costs incurred as a result of settlements, during the first quarter of fiscal 2019, the third quarter of fiscal 2018 and the fourth quarter of fiscal 2018.
  • Loss on extinguishment and modification of debt – reflects extinguishment of debt costs related to our conversion of Ciena’s 4.0% convertible senior notes and debt modification expenses related to refinancing our then existing term loan, both of which occurred during the fourth quarter of fiscal 2018.
  • 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.
  • Change in fair value of debt conversion liability – a non-cash loss reflective of a mark to market fair value adjustment related to the outstanding conversion feature of Ciena’s “New” 3.75% senior 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 fiscal 2019, and 25.9% for fiscal 2018. This rate may be subject to change in the future, including as a result of changes in tax policy or tax strategy.