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Ciena Reports Fiscal Fourth Quarter 2017 and Year-End Financial Results

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Ciena Reports Fiscal Fourth Quarter 2017 and Year-End Financial Results - on DefenceBriefing.net

Ciena® Corporation (NYSE: CIEN), a network strategy and technology company, today announced unaudited financial results for its fiscal fourth quarter and year ended October 31, 2017.



“Our fourth quarter and fiscal 2017 results reinforce our continued ability to adapt to changing market conditions by growing revenue and expanding profitability as we outperform the industry,” said Gary B. Smith, president and CEO, Ciena. “We are confident that our long-term strategy to scale and diversify our existing business and to expand our addressable market will enable us to continue to grow and generate cash.”

For the fiscal fourth quarter 2017, Ciena reported revenue of $744.4 million as compared to $716.2 million for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena reported revenue of $2.80 billion, as compared to $2.60 billion for fiscal year 2016.

Ciena's fiscal fourth quarter and fiscal year 2017 results reflect a tax benefit of $1.13 billion related to the reversal of a deferred tax asset valuation allowance. As a result, on the basis of generally accepted accounting principles (GAAP), Ciena's net income for the fiscal fourth quarter 2017 was $1.16 billion, or $7.32 per diluted common share, which compares to a GAAP net income of $36.6 million, or $0.25 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena had a GAAP net income of $1.26 billion, or $7.53 per diluted common share, which compares to a GAAP net income of $72.6 million or $0.51 per diluted common share for fiscal year 2016.

Consistent with Ciena's historical non-GAAP presentation ("Prior Method"), Ciena's adjusted (non-GAAP) net income for the fiscal fourth quarter 2017 was $68.8 million, or $0.46 per diluted common share, which compares to an adjusted (non-GAAP) net income of $69.4 million, or $0.44 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena's adjusted (non-GAAP) net income was $260.5 million, or $1.68 per diluted common share, as compared to an adjusted (non-GAAP) net income of $214.6 million, or $1.38 per diluted common share for fiscal year 2016.

Beginning this quarter, Ciena is changing how it calculates its adjusted (non-GAAP) provision for income taxes in accordance with the SEC's interpretive guidance on non-GAAP financial measures. In order to assist investors in understanding the change, Ciena is providing its calculations of adjusted (non-GAAP) net income under its "Prior Method" and the "New Method" in Appendix B. Under the "New Method," the Non-GAAP tax provision consists of current and deferred income tax expense commensurate with the level of adjusted (non-GAAP) income before income taxes using a current blended U.S. and foreign statutory tax rate (which was 36.5%). Under the "Prior Method," the Non-GAAP tax provision consisted of current and deferred income tax expense, primarily related to foreign income tax, which is paid using cash. This change in calculation methodology will not affect Ciena's adjusted (non-GAAP) income before income taxes, actual cash tax payments, or cash flows, but will result in significantly higher non-GAAP provisions for income taxes than our "Prior Method" presentation. However, Ciena does not expect to pay substantial cash taxes for the foreseeable future primarily due to its deferred tax asset balance. As of October 31, 2017, Ciena has deferred tax assets, net, of approximately $1.16 billion and, consequently, over the near term Ciena's cash taxes will continue to be primarily driven by the tax expense of its foreign subsidiaries, which amounts have not historically been significant.

Ciena's adjusted "New Method" (non-GAAP) net income for the fiscal fourth quarter 2017 was $48.5 million, or $0.32 per diluted common share, which compares to an adjusted (non-GAAP) net income of $48.1 million, or $0.30 per diluted common share, for the fiscal fourth quarter 2016. For fiscal year 2017, Ciena's adjusted (non-GAAP) net income was $177.7 million, or $1.14 per diluted common share, as compared to an adjusted (non-GAAP) net income of $145.3 million or $0.93 per diluted common share for fiscal year 2016.

Authorization of Share Repurchase Program

In a separate press release today, Ciena announced that its Board of Directors has authorized a program to repurchase up to $300 million of the company’s common stock through the end of fiscal 2020.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal Fourth Quarter 2017 Results

Today, Thursday, December 7, 2017, in conjunction with the issuance of this press release, Ciena has posted to the quarterly results page of the Investors section of www.ciena.com an audio recording of management commentary that provides greater context for Ciena's performance to date and its strategy, as well as certain long-term financial targets. Ciena has also posted a transcript of the recording and a related investor presentation to this page. Consistent with past practice, Ciena’s management will host a discussion with investors and financial analysts of its unaudited fiscal fourth quarter 2017 results and fiscal first quarter 2018 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 at www.ciena.com/investors.

Fiscal Fourth Quarter 2017 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 Appendix A and B to this release.

 
GAAP Results (unaudited)
Q4   Q3   Q4   Period Change
FY 2017 FY 2017 FY 2016 Q-T-Q*   Y-T-Y*
Revenue $ 744.4 $ 728.7 $ 716.2 2.2 % 3.9 %
Gross margin 43.7 % 45.0 % 44.5 % (1.3 )% (0.8 )%
Operating expense $ 269.9 $ 246.1 $ 258.9 9.7 % 4.2 %
Operating margin 7.5 % 11.3 % 8.3 % (3.8 )% (0.8 )%
 
 
Non-GAAP Results (unaudited)
Q4 Q3 Q4 Period Change
FY 2017 FY 2017 FY 2016 Q-T-Q* Y-T-Y*
Revenue $ 744.4 $ 728.7 $ 716.2 2.2 % 3.9 %
Adj. gross margin 44.2 % 45.5 % 45.2 % (1.3 )% (1.0 )%
Adj. operating expense $ 240.9 $ 229.3 $ 232.4 5.1 % 3.7 %
Adj. operating margin 11.9 % 14.1 % 12.8 % (2.2 )% (0.9 )%

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

 
Revenue by Segment (unaudited)
Q4 FY 2017   Q3 FY 2017   Q4 FY 2016
Revenue   % Revenue   % Revenue   %
Networking Platforms
Converged Packet Optical $ 504.7 67.8 $ 506.5 69.5 $ 488.0 68.1
Packet Networking 92.5 12.5 82.1 11.3 72.4 10.1
Optical Transport 1.7   0.2   3.7   0.5   5.8   0.8  
Total Networking Platforms 598.9 80.5 592.3 81.3 566.2 79.0
 
Software and Software-Related Services
Software Platforms 17.3 2.3 18.4 2.5 16.3 2.3
Software-Related Services 24.5   3.3   23.9   3.3   21.3   3.0  
Total Software and Software-Related Services 41.8 5.6 42.3 5.8 37.6 5.3
 
Global Services
Maintenance Support and Training 56.2 7.5 57.9 7.9 59.8 8.3
Installation and Deployment 33.5 4.5 27.4 3.8 38.6 5.4
Consulting and Network Design 14.0   1.9   8.8   1.2   14.0   2.0  
Total Global Services 103.7 13.9 94.1 12.9 112.4 15.7
             
Total $ 744.4   100.0   $ 728.7   100.0   $ 716.2   100.0  
 

Additional Performance Metrics for Fiscal Fourth Quarter 2017

 
Revenue by Geographic Region (unaudited)
Q4 FY 2017   Q3 FY 2017   Q4 FY 2016
Revenue   % Revenue   % Revenue   %
North America $ 440.5 59.2 $ 465.2 63.8 $ 463.1 64.7
Europe, Middle East and Africa 110.7 14.9 96.1 13.2 112.5 15.7
Caribbean and Latin America 43.5 5.8 51.7 7.1 46.8 6.5
Asia Pacific 149.7   20.1   115.7   15.9   93.8   13.1  
Total $ 744.4   100.0   $ 728.7   100.0   $ 716.2   100.0  
 
  • U.S. customers contributed 56% of total revenue
  • Two 10%-plus customers represented a total of 27.6% of revenue
  • Cash and investments totaled $969.4 million
  • Cash flow from operations totaled $138.5 million
  • Average days' sales outstanding (DSOs) were 75
  • Accounts receivable balance was $622.2 million
  • Inventories totaled $267.1 million, including:
    • Raw materials: $52.9 million
    • Work in process: $18.6 million
    • Finished goods: $185.5 million
    • Deferred cost of sales: $61.3 million
    • Reserve for excess and obsolescence: $(51.2) million
  • Product inventory turns were 5.3
  • Headcount totaled 5,737

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 fourth quarter and fiscal 2017 results reinforce our continued ability to adapt to changing market conditions by growing revenue and expanding profitability as we outperform the industry." and "We are confident that our long-term strategy to scale and diversify our existing business and to expand our addressable market will enable us to continue to grow and generate cash."

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 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 Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) on September 6, 2017 and Ciena's 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, and measure of net income and net income per share, in each case, under our "Prior Method" and "New Method" as described above. 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. Under the "Prior Method" of calculating adjusted (non-GAAP) net income and net income per share, the Non-GAAP tax provision consists of current and deferred income tax expense, primarily related to foreign income tax, which is paid using cash. Under the "New Method" of calculating adjusted (non-GAAP) net income and net income per share, the Non-GAAP tax provision consists of current and deferred income tax expense commensurate with the level of adjusted (non-GAAP) income before income taxes using a current blended U.S. and foreign statutory tax rate (which was 36.5%). As such, the tax provision in our adjusted (non-GAAP) net income is presented as a separate and comparative reconciling item. To the extent not previously disclosed in a prior Ciena financial results press release, the Appendix 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.

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