Ciena(CIEN) - 2024 Q2 - Quarterly Results

Executive Summary Ciena's Q2 FY2024 saw decreased revenue and a GAAP net loss, with the CEO acknowledging market challenges while emphasizing optical technology leadership Q2 FY2024 Financial Highlights Ciena reported a decrease in revenue for Q2 FY2024 compared to the prior year, experiencing a GAAP net loss and a significant decline in adjusted non-GAAP net income, alongside share repurchases Q2 FY2024 Financial Highlights: | Metric | Q2 FY24 | Q2 FY23 | Change (YoY) | | :-------------------------------- | :------ | :------ | :----------- | | Revenue | $910.8 million | $1.13 billion | (19.6)% | | GAAP Net Income (Loss) | $(16.8) million | $57.7 million | (129.1)% | | GAAP Diluted EPS | $(0.12) | $0.38 | (131.6)% | | Adjusted (Non-GAAP) Net Income | $39.4 million | $110.4 million | (64.3)% | | Adjusted (Non-GAAP) Diluted EPS | $0.27 | $0.74 | (63.5)% | | Share Repurchases | $57.0 million | N/A | N/A | - Repurchased approximately 1.1 million shares of common stock for an aggregate price of $57.0 million during the quarter[25] CEO Statement Ciena's CEO acknowledged a challenging near-term environment due to service provider inventory, while highlighting business strength and focus on optical technology leadership - Fiscal second quarter performance underscores business strength amid a challenging near-term environment as service providers work through existing inventory[36] - Focus remains on extending leadership in optical as a foundation for expanding the addressable market, driven by robust growth in bandwidth demand[36] Company Overview Ciena is a global leader in networking systems, services, and software, focused on building adaptive networks through innovation and collaborative relationships About Ciena Ciena is a global leader in networking systems, services, and software, dedicated to building adaptive networks that meet increasing digital demands, emphasizing innovation and collaboration - Ciena (NYSE: CIEN) is a global leader in networking systems, services, and software[19] - The company builds adaptive networks, enabling customers to anticipate and meet ever-increasing digital demands, prioritizing innovation and collaborative relationships[19] Financial Performance (GAAP) This section presents Ciena's GAAP financial statements, including condensed consolidated statements of operations, balance sheets, and cash flows, reflecting its financial position and performance Condensed Consolidated Statements of Operations Ciena's GAAP income statement for Q2 FY2024 shows a significant decline in total revenue and a shift from operating income to an operating loss, resulting in a net loss for the quarter Revenue (in thousands) | Metric | Q2 FY24 | Q2 FY23 | YTD FY24 | YTD FY23 | | :----- | :------ | :------ | :------- | :------- | | Products | $701,316 | $935,330 | $1,537,093 | $1,813,045 | | Services | $209,510 | $197,325 | $411,442 | $376,131 | | Total Revenue | $910,826 | $1,132,655 | $1,948,535 | $2,189,176 | Gross Profit (in thousands) | Metric | Q2 FY24 | Q2 FY23 | YTD FY24 | YTD FY23 | | :----- | :------ | :------ | :------- | :------- | | Gross Profit | $388,661 | $487,683 | $855,623 | $943,629 | Income (Loss) from Operations and Net Income (Loss) (in thousands) | Metric | Q2 FY24 | Q2 FY23 | YTD FY24 | YTD FY23 | | :----- | :------ | :------ | :------- | :------- | | Income (Loss) from Operations | $(3,965) | $102,813 | $80,664 | $188,029 | | Net Income (Loss) | $(16,849) | $57,654 | $32,698 | $133,895 | | Basic EPS | $(0.12) | $0.39 | $0.23 | $0.90 | | Diluted EPS | $(0.12) | $0.38 | $0.22 | $0.89 | Condensed Consolidated Balance Sheets As of April 27, 2024, Ciena's total assets remained stable compared to October 28, 2023, with a slight increase in cash and short-term investments, while total liabilities saw a minor reduction Assets (in thousands) | Metric | April 27, 2024 | October 28, 2023 | | :------------------------------------ | :------------- | :--------------- | | Cash and cash equivalents | $1,091,289 | $1,010,618 | | Short-term investments | $165,620 | $104,753 | | Accounts receivable, net | $840,131 | $1,003,876 | | Inventories, net | $1,022,615 | $1,050,838 | | Total current assets | $3,541,347 | $3,575,779 | | Total assets | $5,614,803 | $5,601,495 | Liabilities and Stockholders' Equity (in thousands) | Metric | April 27, 2024 | October 28, 2023 | | :------------------------------------ | :------------- | :--------------- | | Accounts payable | $332,106 | $317,828 | | Accrued liabilities and other short-term obligations | $355,258 | $431,419 | | Deferred revenue (current) | $196,989 | $154,419 | | Total current liabilities | $912,191 | $932,021 | | Long-term debt, net | $1,540,639 | $1,543,406 | | Total liabilities | $2,734,547 | $2,753,134 | | Total stockholders' equity | $2,880,256 | $2,848,361 | Condensed Consolidated Statements of Cash Flows For the six months ended April 27, 2024, Ciena generated significant net cash from operating activities, a substantial improvement from the prior year, while investing and financing activities resulted in net cash outflows Cash Flow Summary (in thousands, Six Months Ended) | Metric | April 27, 2024 | April 29, 2023 | | :-------------------------------------------------- | :------------- | :------------- | | Net cash provided by (used in) operating activities | $324,549 | $(35,828) | | Net cash used in investing activities | $(138,702) | $(277,270) | | Net cash provided by (used in) financing activities | $(107,837) | $479,575 | | Net increase in cash, cash equivalents and restricted cash | $80,669 | $173,344 | | Cash, cash equivalents and restricted cash at end of period | $1,091,455 | $1,167,722 | Financial Performance (Non-GAAP) This section provides an overview of Ciena's non-GAAP financial performance, including key metrics and detailed reconciliations from GAAP to non-GAAP measures Non-GAAP Financial Highlights Ciena's non-GAAP financial results for Q2 FY2024 show a year-over-year decline across all key metrics, including revenue, adjusted gross margin, adjusted operating expense, adjusted operating margin, and adjusted EBITDA Non-GAAP Key Metrics (in millions, except percentages) | Metric | Q2 FY24 | Q2 FY23 | Period Change Y-T-Y* | | :-------------------- | :------ | :------ | :------------------- | | Revenue | $910.8 | $1,132.7 | (19.6)% | | Adj. gross margin | 43.5 % | 43.7 % | (0.2)% | | Adj. operating expense | $333.9 | $338.1 | (1.2)% | | Adj. operating margin | 6.8 % | 13.8 % | (7.0)% | | Adj. EBITDA | $85.8 | $180.6 | (52.5)% | Reconciliation of Adjusted (Non-GAAP) Measurements This section provides detailed reconciliations from GAAP to non-GAAP measures for gross profit, operating expense, income from operations, net income, and EBITDA, highlighting key adjustments - Non-GAAP measures exclude certain charges and credits that are unusual, non-cash, unrelated to ongoing operations, or largely outside Ciena's control, such as share-based compensation, significant asset impairments and restructuring costs, amortization of intangible assets, and acquisition and integration costs[30][45] Gross Profit Reconciliation This reconciliation details the adjustments made to GAAP gross profit to arrive at the adjusted (non-GAAP) gross profit and percentage Gross Profit Reconciliation (in thousands) | Metric | April 27, 2024 | April 29, 2023 | | :-------------------------------------- | :------------- | :------------- | | GAAP gross profit | $388,661 | $487,683 | | Total adjustments related to gross profit | $7,867 | $7,245 | | Adjusted (non-GAAP) gross profit | $396,528 | $494,928 | | Adjusted (non-GAAP) gross profit percentage | 43.5 % | 43.7 % | Operating Expense Reconciliation This reconciliation outlines the adjustments applied to GAAP operating expense to derive the adjusted (non-GAAP) operating expense Operating Expense Reconciliation (in thousands) | Metric | April 27, 2024 | April 29, 2023 | | :----------------------------------------- | :------------- | :------------- | | GAAP operating expense | $392,626 | $384,870 | | Total adjustments related to operating expense | $58,709 | $46,809 | | Adjusted (non-GAAP) operating expense | $333,917 | $338,061 | Income (Loss) from Operations Reconciliation This reconciliation shows the adjustments from GAAP income (loss) from operations to adjusted (non-GAAP) income from operations and operating margin percentage Income (Loss) from Operations Reconciliation (in thousands) | Metric | April 27, 2024 | April 29, 2023 | | :------------------------------------------------ | :------------- | :------------- | | GAAP income (loss) from operations | $(3,965) | $102,813 | | Total adjustments related to income (loss) from operations | $66,576 | $54,054 | | Adjusted (non-GAAP) income from operations | $62,611 | $156,867 | | Adjusted (non-GAAP) operating margin percentage | 6.8 % | 13.8 % | Net Income (Loss) Reconciliation This reconciliation details the adjustments from GAAP net income (loss) to adjusted (non-GAAP) net income and diluted EPS, including the non-GAAP tax provision Net Income (Loss) Reconciliation (in thousands, except per share data) | Metric | April 27, 2024 | April 29, 2023 | | :-------------------------------------------------- | :------------- | :------------- | | GAAP net income (loss) | $(16,849) | $57,654 | | Total adjustments related to income from operations | $66,576 | $54,054 | | Non-GAAP tax provision on adjusted income before income taxes | $11,120 | $31,136 | | Adjusted (non-GAAP) net income | $39,427 | $110,393 | | GAAP diluted net income (loss) per potential common share | $(0.12) | $0.38 | | Adjusted (non-GAAP) diluted net income per potential common share | $0.27 | $0.74 | EBITDA and Adjusted EBITDA Calculation This section presents the calculation of EBITDA and Adjusted EBITDA, starting from GAAP net income (loss) and incorporating various adjustments EBITDA and Adjusted EBITDA Calculation (in thousands) | Metric | April 27, 2024 | April 29, 2023 | | :------------------------------------------------------------------------------------------------------------------- | :------------- | :------------- | | Net income (loss) (GAAP) | $(16,849) | $57,654 | | EBITDA | $29,953 | $139,783 | | Adjusted EBITDA | $85,819 | $180,561 | Revenue Breakdown This section provides a detailed breakdown of Ciena's revenue by geographic region and by product segment for the reported periods Revenue by Geographic Region In Q2 FY2024, the Americas remained Ciena's largest revenue contributor, increasing its percentage of total revenue despite an absolute decline, while other regions also saw decreases Revenue by Geographic Region (in millions) | Region | Q2 FY24 Revenue | % of Total | Q2 FY23 Revenue | % of Total | | :----------------------------- | :-------------- | :--------- | :-------------- | :--------- | | Americas | $662.9 | 72.8 | $794.4 | 70.1 | | Europe, Middle East and Africa | $155.8 | 17.1 | $173.4 | 15.3 | | Asia Pacific | $92.1 | 10.1 | $164.9 | 14.6 | | Total | $910.8 | 100.0 | $1,132.7 | 100.0 | Revenue by Segment Networking Platforms, particularly Optical Networking, remained the largest segment but experienced a significant revenue decline in Q2 FY2024, while Platform Software and Services showed growth Revenue by Segment (in millions) | Segment | Q2 FY24 Revenue | % of Total | Q2 FY23 Revenue | % of Total | | :------------------------------------------ | :-------------- | :--------- | :-------------- | :--------- | | Networking Platforms | | | | | | Optical Networking | $560.2 | 61.5 | $784.5 | 69.3 | | Routing and Switching | $116.1 | 12.7 | $130.4 | 11.5 | | Total Networking Platforms | $676.3 | 74.2 | $914.9 | 80.8 | | Platform Software and Services | $85.4 | 9.4 | $69.4 | 6.1 | | Blue Planet Automation Software and Services | $14.4 | 1.6 | $20.6 | 1.8 | | Global Services | | | | | | Maintenance Support and Training | $77.4 | 8.5 | $73.2 | 6.5 | | Installation and Deployment | $43.8 | 4.8 | $39.5 | 3.5 | | Consulting and Network Design | $13.5 | 1.5 | $15.1 | 1.3 | | Total Global Services | $134.7 | 14.8 | $127.8 | 11.3 | | Total | $910.8 | 100.0 | $1,132.7 | 100.0 | Key Performance Indicators & Operational Metrics This section outlines Ciena's key operational metrics, including customer concentration, cash and investment levels, cash flow from operations, inventory breakdown, and headcount Operational Metrics Ciena's Q2 FY2024 operational metrics indicate significant customer concentration, healthy cash and investment levels, positive cash flow from operations, and substantial inventory levels - One 10%-plus customer represented a total 13.8% of revenue[16] - Cash and investments totaled $1.42 billion[16] - Cash flow from operations totaled $58.5 million[16] - Average days' sales outstanding (DSOs) were 98[16] Inventory Breakdown (in millions) | Metric | Amount | | :-------------------------- | :----- | | Inventories totaled | $1,020 | | Raw materials | $638.9 | | Work in process | $68.2 | | Finished goods | $331.3 | | Deferred cost of sales | $43.7 | | Reserve for excess and obsolescence | $(59.5) | - Product inventory turns were 1.6[29] - Headcount totaled 8,627[29] Investor Information & Forward-Looking Statements This section provides details for investors regarding supplemental materials, web broadcasts, and important disclosures about forward-looking statements and non-GAAP financial measures Supplemental Materials and Web Broadcast Ciena provided details for investors and financial analysts regarding a live audio web broadcast of its Q2 FY2024 results discussion and the availability of related supporting materials - A live audio web broadcast of the discussion with investors and financial analysts, including the Company's outlook, was accessible via www.ciena.com at 8:30 a.m. Eastern on June 6, 2024[7] - An archived replay of the broadcast and related supporting materials for the unaudited fiscal second quarter 2024 results are available on the Investor Relations page of Ciena's website[7][39] Forward-Looking Statements and Risk Factors The press release contains forward-looking statements based on current expectations, which involve risks and uncertainties such as economic conditions, supply chain disruptions, and competitive pressures - The press release contains forward-looking statements based on current expectations, forecasts, assumptions, and information available to the Company[40] - Actual results may differ materially due to risks and uncertainties including: broader economic and market conditions, ability to execute business strategies, impact of macroeconomic conditions and global supply chain constraints, new technologies, seasonality, competitive pressure, product/customer/geographic mix, foreign currency exchange rates, factors beyond control (natural disasters, war, geopolitical tensions, public health emergencies), changes in tax/trade regulations, and cyberattacks[8][29] Notes to Investors (Non-GAAP Presentation) Ciena utilizes non-GAAP financial measures to provide additional insight into its operating performance by excluding certain unusual, non-cash, or non-recurring charges and credits, supplementing GAAP results - Non-GAAP measures are used to evaluate operating performance by excluding certain charges and credits that are unusual, non-cash, unrelated to ongoing operations, or largely outside Ciena's control[30] - These non-GAAP measures are considered in addition to GAAP results and are not intended to be a substitute for financial information prepared in accordance with GAAP[30] - Adjustments for non-GAAP measures include share-based compensation, significant asset impairments and restructuring costs, amortization of intangible assets, acquisition and integration costs, and a non-GAAP tax provision[45]