Ciena (NYSE:CIEN) Q4 2025 Earnings Call December 11, 2025 08:30 AM ET Speaker4Good morning and welcome to Ciena's Fiscal Fourth Quarter and Year-End 2025 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdra ...

Core Insights - Ciena Corporation reported strong financial results for Q3 fiscal 2025, with adjusted EPS of 67 cents, exceeding estimates by 28.9%, and showing a 91% year-over-year increase [1][9] - Quarterly revenues reached $1.22 billion, a 30% increase year over year and surpassing estimates by 4%, driven by robust demand for RLS optical gear and Routing and Switching solutions [2][9] Financial Performance - The company's adjusted operating expenses were $380.2 million, a 13.2% increase year over year, exceeding guidance due to performance-linked incentives [12] - Non-GAAP adjusted gross margin was 41.9%, slightly below the previous year's 43.7%, but above management's guidance by 90 basis points [11] - Ciena's net cash flow from operating activities was $174.8 million, a significant improvement from an outflow of $159 million in the prior year [13] Segment Performance - Networking Platforms, which account for 77.2% of total revenues, saw a 34.6% year-over-year increase to $941.4 million, outperforming expectations [5] - Global Services revenues increased by 19.7% year over year to $160.2 million, exceeding estimates [6] - Non-telecom customer revenues represented 53% of total revenues, with direct Cloud Provider revenues surging 94% year over year [7] Market Position and Outlook - Ciena is well-positioned in high-speed connectivity, capitalizing on increased demand driven by AI growth [3] - The company expects revenue growth of 17% for fiscal 2026, reaching its three-year CAGR target a year early [17] - Ciena plans to continue investing in its roadmap while maintaining flat operating expenses around $1.5 billion [18] Stock Performance - Following the strong earnings report, Ciena's stock surged 23.3%, closing at $116.92, with a 128.5% increase over the past year compared to the industry growth of 69.7% [4]

Financial Data and Key Metrics Changes - Q3 2025 revenue was $1,220 million, exceeding guidance and up 8% sequentially and nearly 30% year over year [7][18] - Adjusted EPS for the quarter was $0.67, up 60% sequentially and 91% year over year, indicating expanded operating leverage [7][19] - Adjusted gross margin in Q3 was 41.9%, 90 basis points above guidance, driven by sales of previously reserved material and lower net tariff impacts [19] - Adjusted operating margin was 10.7%, up 270 basis points year on year [19] - Cash from operations was $174 million, with a free cash flow margin of 11% [20] Business Line Data and Key Metrics Changes - Strong demand was noted across both cloud provider and service provider segments, with two customers contributing over 10% of revenue [7][8] - The interconnects portfolio is expected to double revenue year over year in 2025 and likely again in FY 2026 [13] - Significant orders were received for the DCOM application, co-developed with a hyperscaler, indicating strong partnerships and demand [12][13] Market Data and Key Metrics Changes - Cloud providers are investing in AI at an unprecedented pace, with many increasing their expected spend on AI [11] - Service providers are seeing steady and sustainable investment patterns, with three of the top five customers in Q3 being service providers [15] - The emergence of Neo scalers, including AI compute specialists and smaller data center providers, is creating new market opportunities [14] Company Strategy and Development Direction - The company is redirecting R&D investments towards coherent optical systems, interconnects, and innovative solutions like DCOM, while limiting future investments in residential broadband access [16][23] - A reduction in headcount impacting approximately 4% to 5% of the workforce is being implemented to drive operational efficiencies [24] - The company expects to achieve approximately 17% year-on-year growth in fiscal 2026, with improving gross margins [25] Management's Comments on Operating Environment and Future Outlook - Management believes the network is critical for AI growth and monetization, with a multiyear investment effort required for high-speed connectivity [10][26] - The company anticipates durable demand over the midterm horizon, supported by a strong order backlog [24][25] - Management expressed confidence in achieving a 15% to 16% operating margin by 2026, accelerated by increased operating leverage and improving gross margins [25] Other Important Information - The company ended Q3 with approximately $1,400 million in cash and investments, including share repurchases totaling $245 million year to date [20] - A non-cash charge of approximately $90 million is expected in Q4 due to the redirection of R&D investments [23] Q&A Session Summary Question: Industry structure impact on gross margin - Management noted that the industry structure has improved, allowing for better pricing power and expectations for gross margin expansion [30][32] Question: Neoscaler opportunity and its contribution - Management indicated that Neoscalers represent a net incremental opportunity that will scale over time, contributing to growth in fiscal 2026 [41][42] Question: Contribution from DCOM opportunity - The DCOM application is expected to generate hundreds of millions in revenue, with initial orders already in place [118] Question: Customer additions for WaveLogic six - The company added 11 new customers for WaveLogic six, bringing the total to 60, with significant ramp-up in port shipments [98] Question: Supply chain constraints - Management acknowledged ongoing supply chain challenges but emphasized investments made to mitigate these issues and support growth [100] Question: Confidence in fiscal 2026 outlook - Confidence in fiscal 2026 is largely based on a strong backlog and sustained order growth, with expectations for continued strength in demand [121]