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Ciena Reports Fiscal Fourth Quarter 2012 and Year-End Financial Results

Ciena® Corporation (NASDAQ: CIEN), the network specialist, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2012.

For the fiscal fourth quarter 2012, Ciena reported revenue of $465.5 million as compared to $455.5 million for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena reported revenue of $1.8 billion, as compared to $1.7 billion for fiscal year 2011.

On the basis of generally accepted accounting principles (GAAP), Ciena's net loss for the fiscal fourth quarter 2012 was $(38.8) million, or $(0.39) per common share, which compares to a GAAP net loss of $(22.3) million, or $(0.23) per common share, for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena had a GAAP net loss of $(144.0) million, or $(1.45) per common share, which compares to a GAAP net loss of $(195.5) million or $(2.04) per common share for fiscal year 2011.

Ciena's adjusted (non-GAAP) net loss for the fiscal fourth quarter 2012 was $(6.7) million, or $(0.07) per common share, which compares to an adjusted (non-GAAP) net income of $3.3 million, or $0.03 per common share, for the fiscal fourth quarter 2011. For fiscal year 2012, Ciena's adjusted (non-GAAP) net loss was $(23.5) million, or $(0.24) per common share, as compared to $(24.2) million, or $(0.25) per common share for fiscal year 2011.

“With five percent annual revenue growth and fourth quarter financial performance in line with our expectations, we continued to significantly outpace the market and take share in 2012 despite the challenging environment. That momentum resulted in record order flow and year-end backlog,” said Gary Smith, president and CEO of Ciena. “Customers require more network convergence with greater programmability to deliver more services, and we believe our portfolio is leading the transformation to next-generation intelligent networks.”

Fiscal Fourth Quarter 2012 Performance Summary

The tables below (in millions, except percentage data) provide comparisons of certain quarterly results to prior periods, including sequential quarterly and year over year changes. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is included in Appendices A and B.

GAAP Results
Q4 Q3 Q4 Period Change
FY 2012 FY 2012 FY 2011 Q-T-Q* Y-T-Y*
Revenue $ 465.5 $ 474.1 $ 455.5 (1.8 )% 2.2 %
Gross margin 41.3 % 38.2 % 41.7 % 3.1 % (0.4 )%
Operating expense $ 214.1 $ 196.6 $ 206.2 8.9 % 3.8 %
Operating margin (4.7 )% (3.2 )% (3.6 )% (1.5 )% (1.1 )%
Non-GAAP Results
Q4 Q3 Q4 Period Change
FY 2012 FY 2012 FY 2011 Q-T-Q* Y-T-Y*
Revenue $ 465.5 $ 474.1 $ 455.5 (1.8 )% 2.2 %
Adj. gross margin 42.7 % 39.6 % 43.2 % 3.1 % (0.5 )%
Adj. operating expense $ 191.8 $ 175.6 $ 180.8 9.2 % 6.1 %
Adj. operating margin 1.4 % 2.5 % 3.5 % (1.1 )% (2.1 )%
Revenue by Segment
Q4 FY 2012 Q3 FY 2012 Q4 FY 2011
Revenue % Revenue % Revenue %
Packet-Optical Transport $ 289.4 62.2 $ 298.5 63.0 $ 296.2 65.1
Packet-Optical Switching 20.5 4.4 37.8 8.0 41.2 9.0
Carrier-Ethernet Solutions 47.9 10.3 31.3 6.6 28.8 6.3
Software and Services 107.7 23.1 106.5 22.4 89.3 19.6
Total $ 465.5 100.0 $ 474.1 100.0 $ 455.5 100.0
* Denotes % change, or in the case of margin, absolute change

Additional Performance Metrics for Fiscal Fourth Quarter 2012

  • Non-U.S. customers contributed 46% of total revenue
  • One 10%-plus customer represented a total of 11% of revenue
  • Cash and investments totaled $692.5 million
  • Cash flow from operations totaled $10.6 million
  • Average days' sales outstanding (DSOs) were 72
  • Accounts receivable balance was $345.5 million
  • Inventories totaled $260.1 million, including:
    • Raw materials: $39.7 million
    • Work in process: $10.7 million
    • Finished goods: $178.2 million
    • Deferred cost of sales: $71.5 million
    • Reserve for excess and obsolescence: $(40.0) million
  • Product inventory turns were 3.3
  • Headcount totaled 4,481

Business Outlook for Fiscal First Quarter 2013

Statements relating to business outlook are forward-looking in nature and actual results may differ materially. These statements should be read in the context of the Notes to Investors below.

Ciena expects financial performance for fiscal first quarter 2013, a quarter in which we typically experience seasonal reductions in order volume and customer deployment activity, to include:

  • Revenue in the range of $435 to $460 million
  • Adjusted (non-GAAP) gross margin percentage in the low 40s range
  • Adjusted (non-GAAP) operating expense in the high $180s million range

Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2012 Results

Ciena will host a discussion of its unaudited fiscal fourth quarter 2012 and year-end results with investors and financial analysts today, Thursday, December 13, 2012 at 8:30 a.m. (Eastern). The live broadcast of the discussion will be available via Ciena's homepage at http://www.ciena.com/. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of Ciena's website at: www.ciena.com/investors.

About Ciena

Ciena is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they perform and compete. Ciena leverages its deep expertise in packet and optical networking and distributed software automation to deliver solutions in alignment with OPn, its approach for building open next-generation networks. We enable a high-scale, programmable infrastructure that can be controlled and adapted by network-level applications, and provide open interfaces to coordinate computing, storage and network resources in a unified, virtualized environment. We routinely post recent news, financial results and other important announcements and information about Ciena on our website. For more information, visit www.ciena.com.

Notes to Investors

Forward-looking statements. 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: "With five percent annual revenue growth and fourth quarter financial performance in line with our expectations, we continued to significantly outpace the market and take share in 2012 despite the challenging environment"; "That momentum resulted in record order flow and year-end backlog"; "Customers require more network convergence with greater programmability to deliver more services, and we believe our portfolio is leading the transformation to next-generation intelligent networks"; "Ciena expects financial performance for fiscal first quarter 2013, a quarter in which we typically experience seasonal reductions in order volume and customer deployment activity, to include revenue in the range of $435 to $460 million, adjusted (non-GAAP) gross margin percentage in the low 40s range, adjusted (non-GAAP) operating expense in the high $180s million range."

Ciena's actual results, performance or events may differ materially from these forward-looking statements made or implied due 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 large communication service providers; 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; and the other risk factors disclosed in Ciena's Report on Form 10-Q filed with the Securities and Exchange Commission on September 5, 2012. Ciena assumes no obligation to update any forward-looking information included in this press release.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena's gross profit, operating expense, income (loss) from operations, net income (loss) and net income (loss) 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, Appendixes A and B to this press release sets forth a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release.

CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Quarter Ended October 31,Year Ended October 31,
2011201220112012
Revenue:
Products $ 368,049 $ 363,174 $ 1,406,532 $ 1,454,991
Services 87,406 102,357 335,438 378,932
Total revenue 455,455 465,531 1,741,970 1,833,923
Cost of goods sold:
Products 210,686 211,443 825,969 868,805
Services 54,859 61,882 206,855 240,894
Total cost of goods sold 265,545 273,325 1,032,824 1,109,699
Gross profit 189,910 192,206 709,146 724,224
Operating expenses:
Research and development 91,232 95,801 379,862 364,179
Selling and marketing 71,235 74,013 251,990 266,338
General and administrative 27,276 29,772 126,242 114,122
Acquisition and integration costs 2,340 20 42,088 (120 )
Amortization of intangible assets 13,534 12,545 69,665 51,697
Restructuring costs 591 1,990 5,781 7,854
Change in fair value of contingent consideration (3,289 )
Total operating expenses 206,208 214,141 872,339 804,070
Loss from operations (16,298 ) (21,935 ) (163,193 ) (79,846 )
Interest and other income (loss), net (1,312 ) (3,468 ) 6,022 (15,200 )
Interest expense (9,500 ) (10,840 ) (37,926 ) (39,653 )
Gain on cost method investments 7,249 7,249
Loss before income taxes (19,861 ) (36,243 ) (187,848 ) (134,699 )
Provision for income taxes 2,468 2,528 7,673 9,322
Net loss $ (22,329 ) $ (38,771 ) $ (195,521 ) $ (144,021 )
Basic net loss per common share $ (0.23 ) $ (0.39 ) $ (2.04 ) $ (1.45 )
Diluted net loss per potential common share $ (0.23 ) $ (0.39 ) $ (2.04 ) $ (1.45 )
Weighted average basic common shares outstanding 97,197 100,506 95,854 99,341
Weighted average dilutive potential common shares outstanding 97,197 100,506 95,854 99,341
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
October 31,
20112012
ASSETS
Current assets:
Cash and cash equivalents $ 541,896 $ 642,444
Short-term investments 50,057
Accounts receivable, net 417,509 345,496
Inventories 230,076 260,098
Prepaid expenses and other 143,357 117,595
Total current assets 1,332,838 1,415,690
Long-term investments 50,264
Equipment, furniture and fixtures, net 122,558 123,580
Other intangible assets, net 331,635 257,137
Other long-term assets 114,123 84,736
Total assets $ 1,951,418 $ 1,881,143
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 157,116 $ 179,704
Accrued liabilities 197,004 209,540
Deferred revenue 99,373 79,516
Convertible notes payable 216,210
Total current liabilities 453,493 684,970
Long-term deferred revenue 24,425 27,560
Other long-term obligations 17,263 31,779
Long term convertible notes payable 1,442,364 1,225,806
Total liabilities 1,937,545 1,970,115
Commitments and contingencies
Stockholders’ equity (deficit):
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; 97,440,436 and 100,601,792 shares issued and outstanding 974 1,006
Additional paid-in capital 5,753,236 5,797,765
Accumulated other comprehensive income (loss) 31 (3,354 )
Accumulated deficit (5,740,368 ) (5,884,389 )
Total stockholders’ equity (deficit) 13,873 (88,972 )
Total liabilities and stockholders’ equity (deficit) $ 1,951,418 $ 1,881,143
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended October 31,
20112012
Cash flows from operating activities:
Net loss $ (195,521 ) $ (144,021 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Gain on cost method investments (7,249 )
Change in fair value of embedded redemption feature (2,800 ) 6,600
Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements 60,154 59,099
Share-based compensation costs 37,930 32,394
Amortization of intangible assets 95,927 74,497
Provision for inventory excess and obsolescence 17,334 23,438
Provision for warranty 18,451 33,418
Other 5,541 7,122
Changes in assets and liabilities:
Accounts receivable (75,623 ) 70,366
Inventories 14,209 (53,460 )
Prepaid expenses and other (18,302 ) 1,748
Accounts payable, accruals and other obligations (59,285 ) 12,610
Deferred revenue 18,749 (16,722 )
Net cash provided by (used in) operating activities (90,485 ) 107,089
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property (52,367 ) (48,098 )
Restricted cash 10,751 35,597
Purchase of available for sale securities (49,892 )
Proceeds from sale of cost method investment 6,544 524
Receipt of contingent consideration related to business acquisition 16,394
Net cash used in investing activities (68,570 ) (11,977 )
Cash flows from financing activities:
Repayment of capital lease obligations (1,895 )
Debt issuance costs (2,331 )
Proceeds from issuance of common stock 13,202 12,166
Net cash provided by financing activities 13,202 7,940
Effect of exchange rate changes on cash and cash equivalents (938 ) (2,504 )
Net increase (decrease) in cash and cash equivalents (146,791 ) 100,548
Cash and cash equivalents at beginning of period 688,687 541,896
Cash and cash equivalents at end of period $ 541,896 $ 642,444
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 32,931 $ 33,511
Cash paid during the period for income taxes, net $ 3,204 $ 9,603
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ 6,431 $ 5,202
Debt issuance costs in accrued liabilities $ $ 319
Fixed assets purchased under capital leases $ 1,106 $ 6,736
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements
Quarter Ended
October 31,
20112012
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 189,910 $ 192,206
Share-based compensation-products 611 647
Share-based compensation-services 365 326
Amortization of intangible assets 5,827 5,384
Total adjustments related to gross profit 6,803 6,357
Adjusted (non-GAAP) gross profit $ 196,713 $ 198,563
Adjusted (non-GAAP) gross profit percentage 43.2 % 42.7 %
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 206,208 $ 214,141
Share-based compensation-research and development 2,558 2,500
Share-based compensation-sales and marketing 3,312 3,048
Share-based compensation-general and administrative 3,117 2,205
Acquisition and integration costs 2,340 20
Amortization of intangible assets 13,534 12,545
Restructuring costs 591 1,990
Total adjustments related to operating expense 25,452 22,308
Adjusted (non-GAAP) operating expense $ 180,756 $ 191,833
Income (Loss) from Operations Reconciliation (GAAP/non-GAAP)
GAAP loss from operations $ (16,298 ) $ (21,935 )
Total adjustments related to gross profit 6,803 6,357
Total adjustments related to operating expense 25,452 22,308
Adjusted (non-GAAP) income from operations $ 15,957 6,730
Adjusted (non-GAAP) operating margin percentage 3.5 % 1.4 %
Net Income (Loss) Reconciliation (GAAP/non-GAAP)
GAAP net loss $ (22,329 ) $ (38,771 )
Total adjustments related to gross profit 6,803 6,357
Total adjustments related to operating expense 25,452 22,308
Gain on cost method investment (7,249 )
Change in fair value of embedded redemption feature 580 3,440
Adjusted (non-GAAP) net income (loss) $ 3,257 $ (6,666 )
Weighted average basic common shares outstanding 97,197 100,506
Weighted average dilutive potential common shares outstanding 97,857 100,506
Net Income (Loss) per Common Share
GAAP diluted net loss per common share $ (0.23 ) $ (0.39 )
Adjusted (non-GAAP) diluted net income (loss) per common share $ 0.03 $ (0.07 )
APPENDIX B - Reconciliation of Adjusted (Non- GAAP) Annual Measurements
Year Ended
October 31,
20112012
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 709,146 $ 724,224
Share-based compensation-products 2,269 2,156
Share-based compensation-services 1,881 1,462
Amortization of intangible assets 23,307 22,032
Fair value adjustment of acquired inventory 5,735
Total adjustments related to gross profit 33,192 25,650
Adjusted (non-GAAP) gross profit $ 742,338 $ 749,874
Adjusted (non-GAAP) gross profit percentage 42.6 % 40.9 %
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 872,339 $ 804,070
Share-based compensation-research and development 10,149 8,567
Share-based compensation-sales and marketing 12,182 11,558
Share-based compensation-general and administrative 11,140 8,691
Acquisition and integration costs 42,088 (120 )
Amortization of intangible assets 69,665 51,697
Restructuring costs 5,781 7,854
Change in fair value of contingent consideration (3,289 )
Settlement of patent litigation 500
Total adjustments related to operating expense 148,216 88,247
Adjusted (non-GAAP) operating expense $ 724,123 $ 715,823
Loss from Operations Reconciliation (GAAP/non-GAAP)
GAAP loss from operations $ (163,193 ) $ (79,846 )
Total adjustments related to gross profit 33,192 25,650
Total adjustments related to operating expense 148,216 88,247
Adjusted (non-GAAP) income from operations $ 18,215 34,051
Adjusted (non-GAAP) operating margin percentage 1.0 % 1.9 %
Loss Reconciliation (GAAP/non-GAAP)
GAAP net loss $ (195,521 ) $ (144,021 )
Total adjustments related to gross profit 33,192 25,650
Total adjustments related to operating expense 148,216 88,247
Gain on cost method investment (7,249 )
Change in fair value of embedded redemption feature (2,800 ) 6,600
Adjusted (non-GAAP) net loss $ (24,162 ) $ (23,524 )
Weighted average basic common shares outstanding 95,854 99,341
Weighted average dilutive potential common shares outstanding 95,854 99,341
Net Loss per Common Share
GAAP diluted net loss per common share $ (2.04 ) $ (1.45 )
Adjusted (non-GAAP) diluted net income (loss) per common share $ (0.25 ) $ (0.24 )

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 expense - 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 acquired from the MEN Business, that Ciena is required to amortize over its expected useful life.
  • Fair value adjustment of acquired inventory - an infrequent charge required by acquisition accounting rules resulting from the required revaluation of inventory acquired from the MEN Business to estimated fair value. This revaluation resulted in a net increase in inventory carrying value and an increase in cost of goods sold for the periods indicated.
  • Acquisition and integration costs - reflects transaction expense, and consulting and third party service fees associated with the acquisition of the Nortel MEN Business and the integration of this business into Ciena's operations.
  • Restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities.
  • Change in fair value of contingent consideration - a non-cash, unrealized gain during the periods identified related to Nortel's intent to exercise its early termination right relating to the Carling, Canada facility lease entered into as part of the acquisition of the MEN Business.
  • Settlement of patent litigation - included in general and administrative expense during our first quarter of fiscal 2011 is a $0.5 million patent litigation settlement.
  • Gain on cost method investments - a non-cash gain related to the sale of a privately held technology company in which Ciena held a minority equity investment, which gain Ciena does not believe is reflective of its ongoing operating costs.
  • Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes.

Contacts:

Ciena Corporation
Press Contact:
Nicole Anderson, 877-857–7377
pr@ciena.com
or
Investor Contact:
Gregg Lampf, 888-243–6223
ir@ciena.com
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