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Ciena(CIEN) - 2023 Q2 - Quarterly Report
CIENCiena(CIEN)2023-06-06 16:00
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Revenue and Gross Profit - Total revenue for the quarter ended April 29, 2023, increased by 19.3% to 1,132.7millioncomparedto1,132.7 million compared to 949.2 million in the same quarter of 2022[98] - Gross profit for the quarter ended April 29, 2023, increased by 21.4% to 487.7million,withagrossmarginof43.1487.7 million, with a gross margin of 43.1%, up from 42.3% in the same quarter of 2022[98] - Product revenue for the quarter ended April 29, 2023, increased by 23.1% to 935.3 million, with product gross profit rising by 27.8% to 393.4million[98]−ServicesrevenueforthequarterendedApril29,2023,increasedby4.3393.4 million[98] - Services revenue for the quarter ended April 29, 2023, increased by 4.3% to 197.3 million, but services gross profit only increased by 0.4% to 94.2million[104]−Grossprofitonproductsincreasedby94.2 million[104] - Gross profit on products increased by 85.6 million, with product gross margin rising by 160 basis points due to improved manufacturing efficiencies and product cost reductions[105] - Gross profit on services increased by 0.3million,butservicesgrossmargindecreasedby180basispointsduetolowermarginsoncertainprojects[105]−Grossprofitincreasedby0.3 million, but services gross margin decreased by 180 basis points due to lower margins on certain projects[105] - Gross profit increased by 157.7 million, with gross margin decreasing by 70 basis points due to lower services margins and a higher concentration of lower margin product mix[106] - Product gross profit increased by 170.5million,withproductgrossmarginrisingby40basispointsduetocostreductionsandimprovedmanufacturingefficiencies[106]−Servicesgrossprofitdecreasedby170.5 million, with product gross margin rising by 40 basis points due to cost reductions and improved manufacturing efficiencies[106] - Services gross profit decreased by 12.8 million, with services gross margin declining by 440 basis points due to lower maintenance support revenue and losses on certain Blue Planet software service projects[106] Operating Expenses and Costs - Operating expenses decreased by 12.0million,or3.112.0 million, or 3.1%, in the second quarter of fiscal 2023 compared to the same period in fiscal 2022, primarily due to the strengthening of the U.S. Dollar against other currencies[102] - Research and development expenses increased by 64.0 million, reflecting higher employee headcount and related compensation costs, partially due to acquisitions of Benu and Tibit[109] - Selling and marketing expenses increased by 10.1million,primarilyduetohigherprofessionalservicesandtravelcosts,partiallyoffsetbylowersalescommissions[109]−Generalandadministrativeexpensesincreasedby10.1 million, primarily due to higher professional services and travel costs, partially offset by lower sales commissions[109] - General and administrative expenses increased by 11.8 million, driven by higher employee headcount, compensation costs, and bad debt expenses[109] - Research and development expenses increased by 30.7million,primarilyduetohigheremployeeheadcountandrelatedcompensationcosts,with30.7 million, primarily due to higher employee headcount and related compensation costs, with 7.3 million benefiting from foreign exchange rates[131] Financial Performance and Income - Net income for the six months ended April 29, 2023 was 133.895million,withadjustmentsfornon−cashchargesbringingtheadjustednetincometo133.895 million, with adjustments for non-cash charges bringing the adjusted net income to 274.780 million[118] - Interest and other income increased by 36.0million,primarilyduetoa36.0 million, primarily due to a 26.5 million gain from the remeasurement of the investment in Tibit and higher interest income[111] - Interest expense increased by 19.1millionduetohigherinterestratesonfloatingratedebtandadditionaloutstandingindebtedness[111]−Provisionforincometaxesincreasedby19.1 million due to higher interest rates on floating rate debt and additional outstanding indebtedness[111] - Provision for income taxes increased by 37.4 million, driven by higher pre-tax income and the mandatory capitalization of R&D expenses[111] - Cash used in operating activities was 35.8million,asworkingcapitalrequirementsof35.8 million, as working capital requirements of 310.6 million exceeded net income adjusted for non-cash charges of 274.8million[114]−Thecompanyused274.8 million[114] - The company used 310.6 million of cash for working capital during the period, with major components including 116.9millionusedinaccountsreceivableand116.9 million used in accounts receivable and 162.1 million used in inventories[118][139] - Cash paid for interest during the six months ended April 29, 2023 totaled 37.5million,including37.5 million, including 20.4 million for the Term Loan due September 28, 2025, 8.9millionfortheTermLoandueJanuary31,2030,and8.9 million for the Term Loan due January 31, 2030, and 8.0 million for the Senior Notes due January 31, 2030[140] Debt and Financing - The net carrying value of the 2025 Term Loan was 670.0millionasofthelatestreportingperiod[81]−Theinterestrateonthe2025TermLoanwas6.69670.0 million as of the latest reporting period[81] - The interest rate on the 2025 Term Loan was 6.69% at the end of the second quarter of fiscal 2023, while the 2030 Term Loan had an interest rate of 7.44%[121] - The company had 500.0 million outstanding principal associated with the 2030 Term Loan as of April 29, 2023, with 5.0millionpayablewithin12months[122]−Thecompanyhas5.0 million payable within 12 months[122] - The company has 300 million in a senior secured asset-based revolving credit facility, 672.2millioninaseniorsecuredtermloandue2025,672.2 million in a senior secured term loan due 2025, 500 million in a senior secured term loan due 2030, and 400millionin4.00400 million in 4.00% senior notes due 2030[172] - Outstanding indebtedness under credit facilities and senior notes may adversely affect liquidity, results of operations, and ability to obtain additional financing[154][155] - The company's indebtedness could limit its ability to obtain additional financing, increase vulnerability to adverse economic conditions, and reduce flexibility in planning for business changes[173] - The company's credit agreements contain covenants that limit its ability to incur additional debt, pay cash dividends, and engage in certain acquisition transactions[172] Inventory and Supply Chain - The company's backlog decreased from 4.2 billion at the end of fiscal 2022 to a lower amount in the first half of fiscal 2023 due to improved supply chain conditions[95] - As of April 29, 2023, the company had 2.2billioninoutstandingpurchaseordercommitmentstocontractmanufacturersandcomponentsuppliersforinventory,thoughsomeorderscanbecanceledorrescheduled[141][152]−Inventoryincreasedfrom2.2 billion in outstanding purchase order commitments to contract manufacturers and component suppliers for inventory, though some orders can be canceled or rescheduled[141][152] - Inventory increased from 374.3 million at the end of fiscal 2021 to 1.1billionattheendofQ2fiscal2023duetoexpandedpurchasecommitmentsandadvancedorderstomitigatesupplychainchallenges[152]−Thecompany′sbackloggrewfrom1.1 billion at the end of Q2 fiscal 2023 due to expanded purchase commitments and advanced orders to mitigate supply chain challenges[152] - The company's backlog grew from 1.2 billion at the end of fiscal 2020 to 4.2billionattheendoffiscal2022butbeganmoderatinginQ4fiscal2022andisexpectedtocontinuenormalizingassupplychainconditionsimprove[167]−Thecompanyexpectsordervolumestomoderateandnormalizeovertime,withbacklogreducingassupplychainconditionsimprove[167]−Thecompany′sinventorymanagementischallenging,withrisksofobsolescenceandpotentialwrite−offsorwrite−downsthatcouldadverselyimpactresultsofoperations[168]−Thecompany′srelianceonsecuringquarterly"booktorevenue"ordersisexpectedtogrowasbacklogreduces,makingquarterlyresultsmoredifficulttopredict[166]MarketandOperationalRisks−Thecompanyfacesrisksrelatedtorelianceonthird−partycontractmanufacturers,includingpotentialdisruptions,qualityissues,andsupplychainconstraints[153][170]−Revenue,grossmargin,andoperatingresultscanfluctuatesignificantlyquarter−to−quarterduetofactorslikecustomerspendingpatterns,supplychainconstraints,andorderdeferrals[149][165]−Thecompanyisexposedtomarketrisksrelatedtointerestratesandforeigncurrencyexchangerates[146]−Thecompany′srelianceonthird−partycontractmanufacturersinCanada,Mexico,Thailand,andtheUnitedStatesposesrisks,includingpotentialmanufacturingdisruptionsandqualitycontrolissues[153]−Thecompany′srevenue,grossmargin,andoperatingresultscanfluctuatesignificantlyandunpredictablyfromquartertoquarterduetouncertaincustomerspendinglevelsandchangingspendingpatterns[165]−Thecompany′scontractmanufacturers′inabilityorunwillingnesstomanufactureproductscouldleadtosignificantbusinessdisruption,revenueloss,anddamagetocustomerrelationships[171]SegmentPerformance−NetworkingPlatformssegmentprofitincreasedby4.2 billion at the end of fiscal 2022 but began moderating in Q4 fiscal 2022 and is expected to continue normalizing as supply chain conditions improve[167] - The company expects order volumes to moderate and normalize over time, with backlog reducing as supply chain conditions improve[167] - The company's inventory management is challenging, with risks of obsolescence and potential write-offs or write-downs that could adversely impact results of operations[168] - The company's reliance on securing quarterly "book to revenue" orders is expected to grow as backlog reduces, making quarterly results more difficult to predict[166] Market and Operational Risks - The company faces risks related to reliance on third-party contract manufacturers, including potential disruptions, quality issues, and supply chain constraints[153][170] - Revenue, gross margin, and operating results can fluctuate significantly quarter-to-quarter due to factors like customer spending patterns, supply chain constraints, and order deferrals[149][165] - The company is exposed to market risks related to interest rates and foreign currency exchange rates[146] - The company's reliance on third-party contract manufacturers in Canada, Mexico, Thailand, and the United States poses risks, including potential manufacturing disruptions and quality control issues[153] - The company's revenue, gross margin, and operating results can fluctuate significantly and unpredictably from quarter to quarter due to uncertain customer spending levels and changing spending patterns[165] - The company's contract manufacturers' inability or unwillingness to manufacture products could lead to significant business disruption, revenue loss, and damage to customer relationships[171] Segment Performance - Networking Platforms segment profit increased by 62.0 million, primarily due to higher sales volume and higher gross margin[135] Cash and Investments - Total cash, cash equivalents, and investments increased by 159.7millionduringthefirstsixmonthsoffiscal2023,reflectingproceedsfromtheissuanceofthe2030TermLoanandequityundertheemployeestockpurchaseplan[136]DaysSalesOutstandingandInventoryTurns−Dayssalesoutstanding(DSOs)increasedfrom86to100,andinventoryturnsdecreasedfrom3.1to1.9forthefirstsixmonthsoffiscal2023[139]StockRepurchase−Thecompanyrepurchased159.7 million during the first six months of fiscal 2023, reflecting proceeds from the issuance of the 2030 Term Loan and equity under the employee stock purchase plan[136] Days Sales Outstanding and Inventory Turns - Days sales outstanding (DSOs) increased from 86 to 100, and inventory turns decreased from 3.1 to 1.9 for the first six months of fiscal 2023[139] Stock Repurchase - The company repurchased 22.0 million worth of its common stock during the first six months of fiscal 2023 to satisfy employee tax withholding obligations[86] Internal Controls - Disclosure controls and procedures were effective as of the end of the period covered by the report, with no material changes in internal control over financial reporting[147][163]