CIENA Reports Third Quarter Revenue of $458.1 Million, Adjusted Net Income of $0.17 per Diluted Share
New Market Analysis Confirms Shift in Spending From Legacy to Next-Generation Systems; CIENA Leads Intelligent Optical Networking Market According to The Aberdeen Group
FOR IMMEDIATE RELEASE
Linthicum, MD– August 16, 2001–
CIENA Corporation (NASDAQ: CIEN) today reported revenue of $458.1 million for its third fiscal quarter ended July 31, 2001, including revenue from six new customers. CIENA's third quarter sales represent sequential revenue growth of more than seven percent over the Company's fiscal second quarter revenue of $425.4 million, and an increase of more than 96 percent as compared to the same period a year ago when the Company reported revenue of $233.3 million.
Adjusted net income for the third quarter, which excludes deferred stock compensation charges, payroll taxes on stock option exercises, a benefit from receipt of a previously written down receivable, and amortization of intangibles and goodwill, was $58.0 million or, $0.17, earnings per diluted share. This represents an increase of approximately 100 percent and 70 percent respectively, when compared with adjusted net income for the same period a year ago of $28.8 million or, $0.10, earnings per diluted share, exclusive of payroll tax on stock option exercises, provision for a doubtful account, gain on settlement of an accrued contract obligation and amortization of intangibles and goodwill. Consolidated statements of operations showing net income inclusive of the aforementioned items have been included with this press release. Consensus of First Call estimates for CIENA's third quarter fiscal 2001 was $0.16, earnings per diluted share.
"In a difficult telecom equipment environment, CIENA continues to differentiate itself by demonstrating strong year-over-year revenue and net income growth, and by taking market share," said Gary Smith, CIENA's president and CEO. "The past year has been a challenging one for the industry, but seismic shifts in technology have historically caused market turmoil. This market turmoil, in turn, sets the stage for new market leaders to emerge and we believe CIENA is positioned to be one of these leaders."
Quarterly Highlights
CIENA continues to meaningfully diversify its growing customer base, adding revenue from six new customers in the third quarter. The Company's total revenue-generating optical networking equipment customer base now totals 55, of which, a record-high 45 contributed to CIENA's revenues during the most recent quarter. In addition, sales of CoreDirectorÔ, CIENA's industry-leading next-generation, intelligent optical core switching platform, surpassed ten percent of total revenue for the third sequential quarter and increased 20 percent over the previous quarter.
Market Outlook
Recent market studies by industry analyst firms, including The Aberdeen Group, have confirmed that service provider spending is shifting from legacy systems to next generation systems. Based on a survey of 74 carriers and service providers, Aberdeen published a report entitled Shining the Light on Intelligent Optical Networking, Redefining the Market Yields New Results: A Demand Side Study. In this report, Aberdeen indicates that CIENA, with its focus on next-generation intelligent optical networking systems, is the best positioned optical equipment vendor in the marketplace.
Aberdeen's research also discussed the following:
Money historically spent on circuit switching and Sonet/SDH transport gear will be increasingly used on next-generation "intelligent" optical systems.
Long-haul DWDM transport is the primary market for next-generation systems, but metro optical transport and core optical switching will be the fastest growing segments over the next five years.
CIENA is the overall intelligent optical networking leader with an estimated 25 percent market share.
CIENA also leads the long-haul transport and the core switch markets with 30 percent and 52 percent market share, respectively.
"While the optical networking industry is perceived to be in a serious downward spiral, our research shows that the market has, in fact, shifted into next-generation systems that are not offered by the traditional networking giants," said Andrew McCormick, senior analyst, optical communications at Aberdeen. "There remains significant opportunity for next-generation optical platforms as purchasing patterns shift away from traditional solutions."
"Aberdeen and others are uncovering additional evidence that points clearly to a shift in carrier spending from legacy equipment to next-generation systems," said CIENA's Smith. "We continue to believe that CIENA, with our exclusive focus on next-generation products, stands to be one of the primary beneficiaries of this major shift."
Organizational Update
In addition, the Company announced today that effective immediately, Jesús León, CIENA's senior vice president, metro transport division, also will assume leadership of the CIENA's Metro Switching Division, replacing Alnoor Shivji, who has left CIENA to pursue other interests.
Business Outlook
Commenting on CIENA's business outlook Smith said: "Though the overall telecom equipment market is likely to show continued slowdown over the next year, we believe that our portion of the market - next-generation systems - will continue to grow as carriers redirect capital expenditures toward solutions that lower costs and increase revenues. We expect that if we can continue to take market share from our legacy competitors, we will be able to deliver continued annual revenue growth."
Live Web Broadcast of Q3 Results Discussion
In conjunction with this announcement, as previously announced, CIENA will host a discussion of its third fiscal quarter results with investors and financial analysts on Thursday, August 16, 2001 at 8:30 AM (Eastern). The live broadcast of the discussion will be available via CIENA's homepage at www.CIENA.com. An archived version of the discussion will be available shortly following the conclusion of the live broadcast on the Investor Relations page of CIENA's website at: www.CIENA.com/investors.
ABOUT CIENA
CIENA Corporation's market-leading intelligent optical networking systems form the core for the new era of networks and services worldwide. CIENA's LightWorks™ architecture enables next-generation optical services and changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. Additional information about CIENA can be found at www.CIENA.com.
NOTE TO INVESTORS:
This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions of CIENA (the Company) that involve risks and uncertainties. Forward-looking statements in this release, including that market turmoil sets the stage for new market leaders to emerge and the belief that CIENA is positioned to be one of those leaders, that there remains a significant opportunity for next-generation optical platforms as purchasing patterns shift away from traditional solutions, the belief that CIENA, with its exclusive focus on next-generation systems, stands to be one of the primary beneficiaries of the major spending shift, that the overall telecom equipment market is likely to show continued slowdown over the next year, the belief that CIENA's portion of the market, next-generation systems, will continue to grow as carriers redirect capital expenditures toward solutions that lower costs and increase revenues, and if we can continue to take market share from its legacy competitors, CIENA will be able to deliver continued annual revenue growth, are based on information available to the Company as of the date hereof. The Company's actual results could differ materially from those stated or implied in such forward-looking statements, due to risks and uncertainties associated with the Company's business, which include the risk factors disclosed in the Company's Report on Form 10-Q filed with the Securities and Exchange Commission on August 16, 2001. Forward looking statements include statements regarding the Company'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. The Company assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.
(Consolidated Statements of Operations, Adjusted Consolidated Statement of Operations and Consolidated Balance Sheets follow)
CIENA CORPORATION
ADJUSTED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended
Nine Months Ended
July 31, 2000
July 31, 2001
July 31, 2000
July 31, 2001
Revenue
$ 233,268
$ 458,070
$ 571,160
$ 1,235,455
Cost of goods sold
128,172
259,649
319,380
682,995
Gross profit
105,096
198,421
251,780
552,460
Operating expenses (1):
Research and development
31,788
65,631
89,678
161,760
Sales and marketing
24,375
39,585
62,828
107,755
General and administrative
9,339
14,477
23,386
41,355
Total operating expenses
65,502
119,693
175,892
310,870
Income from operations
39,594
78,728
75,888
241,590
Interest and other income, net
3,100
19,820
9,503
44,823
Interest expense
(74)
(11,278)
(259)
(18,493)
Income before income taxes
42,620
87,270
85,132
267,920
Provision for income tax
13,852
29,235
27,668
89,753
Net income
$ 28,768
$ 58,035
$ 57,464
$ 178,167
Basic net income per common share
$ 0.10
$ 0.18
$ 0.21
$ 0.58
Diluted net income per common share
and diluted potential common share
$ 0.10
$ 0.17
$ 0.19
$ 0.56
Weighted average basic common shares
outstanding
282,258
324,368
279,848
305,965
Weighted average basic common and
dilutive potential common shares
outstanding
299,790
337,877
298,576
319,722
(1) As adjusted is exclusive of the following
charges:
Settlement of accrued contract obligations
(8,538)
-
(8,538)
-
Payroll tax on stock options
-
507
-
2,528
Deferred stock compensation costs
-
22,231
-
24,966
Amortization of goodwill
799
75,642
2,397
101,913
Amortization of intangible asset
110
1,382
329
2,491
In-process research and development
-
-
-
45,900
Provision for doubtful accounts
8,538
(6,579)
8,538
(6,579)
Total
909
93,183
2,726
171,219
Net effect on adjusted net income
613
52,381
1,840
169,947
(more)
CIENA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended
Nine Months Ended
July 31, 2000
July 31, 2001
July 31, 2000
July 31, 2001
Revenue
$ 233,268
$ 458,070
$ 571,160
$ 1,235,455
Cost of goods sold
128,172
259,649
319,380
682,995
Gross profit
105,096
198,421
251,780
552,460
Operating expenses
Research and development (exclusive of $0,
31,788
65,788
89,678
162,636
$6,464, $0, $8,136 deferred stock compensation costs)
Sales and marketing (exclusive of $0, $6,928, $0,
24,375
39,622
62,828
108,040
$7,419 deferred stock compensation costs)
General and administrative (exclusive of $0,
9,339
14,790
23,386
42,722
$8,839, $0, $9,411 deferred stock compensation costs)
Settlement of accrued contract obligation
(8,538)
-
(8,538)
-
Deferred stock compensation costs
-
22,231
-
24,966
Amortization of goodwill
799
75,642
2,397
101,913
Amortization of intangible assets
110
1,382
329
2,491
In-process research and development
-
-
-
45,900
Provision for doubtful accounts
8,538
(6,579)
8,538
(6,579)
Total operating expenses
66,411
212,876
178,618
482,089
Income (loss) from operations
38,685
(14,455)
73,162
70,371
Interest and other income, net
3,100
19,820
9,503
44,823
Interest expense
(74)
(11,278)
(259)
(18,493)
Income (loss) before income taxes
41,711
(5,913)
82,406
96,701
Provision (benefit) for income tax
13,556
(11,567)
26,782
88,481
Net income
$ 28,155
$ 5,654
$ 55,624
$ 8,220
Basic net income per common share
$ 0.10
$ 0.02
$ 0.20
$ 0.03
Diluted net income per common share
and dilutive potential common share
$ 0.09
$ 0.02
$ 0.19
$ 0.03
Weighted average basic common shares
outstanding
282,258
324,368
279,848
305,965
Weighted average basic common and
dilutive potential common shares
outstanding
299,790
337,877
298,576
319,722
(more)
CIENA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
October 31,
July 31,
2000
2001
ASSETS
Current assets:
Cash and cash equivalents
$ 143,187
$ 869,604
Short-term investments
95,131
528,821
Accounts receivable, net
248,950
370,764
Inventories, net
141,279
306,568
Deferred income taxes
143,029
155,848
Prepaid expenses and other
41,438
63,696
Total current assets
813,014
2,295,301
Long-term investments
-
369,597
Equipment, furniture and fixtures, net
189,231
314,899
Goodwill, net
4,461
1,974,172
Other intangible assets, net
4,588
49,687
Other long-term assets
15,907
66,402
Total assets
$ 1,027,201
$ 5,070,058
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable
$ 70,250
$ 95,292
Accrued liabilities
84,163
135,973
Income taxes payable
7,483
6,286
Deferred revenue
10,731
30,768
Other current obligations
712
1,146
Total current liabilities
173,339
269,465
Deferred income taxes
39,145
39,145
Convertible notes and other long-term obligations
4,882
866,826
Total liabilities
217,366
1,175,436
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $0.01; 20,000,000 shares authorized;
zero shares issued and outstanding
-
-
Common stock - par value $0.01; 980,000,000 shares authorized;
286,530,631 and 327,242,187 shares issued and outstanding
2,865
3,272
Additional paid-in capital
557,257
3,708,802
Deferred stock compensation
-
(70,000)
Notes receivable from stockholders
(30)
(4,537)
Accumulated other comprehensive income (loss)
(903)
(1,781)
Retained earnings
250,646
258,866
Total stockholders' equity
809,835
3,894,622
Total liabilities and stockholders' equity
$ 1,027,201
$ 5,070,058
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