Ciena(US:CIEN)2023-06-06 16:00Revenue and Gross Profit - Total revenue for the quarter ended April 29, 2023, increased by 19.3% to $1,132.7 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 $487.7 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 $393.4 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 $94.2 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 $0.3 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 $170.5 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 $12.0 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 $10.1 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 $30.7 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 $133.895 million, with adjustments for non-cash charges bringing the adjusted net income to $274.780 million[118] - Interest and other income increased by $36.0 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 $19.1 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 $35.8 million, as working capital requirements of $310.6 million exceeded net income adjusted for non-cash charges of $274.8 million[114] - The company used $310.6 million of cash for working capital during the period, with major components including $116.9 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 $37.5 million, including $20.4 million for the Term Loan due September 28, 2025, $8.9 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 $670.0 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 $5.0 million payable within 12 months[122] - The company has $300 million in a senior secured asset-based revolving credit facility, $672.2 million in a senior secured term loan due 2025, $500 million in a senior secured term loan due 2030, and $400 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 $2.2 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 $1.1 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 $4.2 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 $159.7 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]