Ciena Shares Tumble Following Q4 Results, Outlook; Here Are Some Highlights From Conference Call

Shares of Ciena rebounded higher by nearly 2 percent Friday morning after selling off sharply on Thursday. The stock has now lost nearly 20 percent over the past five days, as investors and traders reacted negatively to the company's outlook.

Ciena reported on Thursday that it earned $0.42 per share on revenue of $692 million in its fourth quarter – a top and bottom line beat. However, the company guided its first quarter revenue to a range of $555 million to $590 million.

Following the quarterly release, Ciena's management, led by its CEO Gary Smith and CFO Jim Moylan discussed its quarter and provided additional commentary on its outlook.

Related Link: Argus: Selloff In Ciena Shares Are Overdone

Fourth-Quarter Review

• Non-telco customers now account for around a third of total revenues versus less than a quarter five years ago.
• The company continues to build a "strong" DCI position with Waveserver with four new customers, including one top-five web-scale customer.
• The distribution agreement with Ericsson (ADR) ERIC was expanded on in the quarter with a new tier-one client in Europe and a new customer in the Middle East.
• Ciena added two new Blue Planet customers during the quarter, bringing its total to eight.
• Revenue from the former Cyan products and services of $84 million was higher than expected.
• The company gained "momentum" outside of the United States, with "particular strength" coming from the Indian market.
• Ciena's backlog totaled $1 billion at the end of the quarter.
• The company generated $85 million in cash from operations and ended the quarter with just over $1 billion in cash and investments.

Outlook And Guidance

• Ciena expects to grow its full year fiscal 2016 revenue by 8 to 9 percent.
• The company's first quarter revenue guidance of $555 million to $590 million is "consistent with the seasonal reductions in order volume and customer deployment activity."
• As of the first quarter, management will begin reported its results across three new segments: networking platforms, software/software related services and global services.
• A new "next-stage milestone" estimate was introduced: The company expects to target an adjusted operating margin of 15 percent within the next three to four years.
• Packet networking is expected to be a "big growth driver" in 2016 and beyond following five new tier-one design wins in 2015.
• Blue Planet will "not be a significant revenue driver" in 2016 – rather the upcoming year will be a "foundational year."
• Revenue from the former Cyan products and services will "normalize" around $30 million for the near term.

Notable Quotes

On the importance of a quarter, Smith stated, "In this industry quarterly performance is not always indicative of the underlying business trends. But looking at our annual performance over this five-year span, we are clearly showing steady, consistent progress that validates our business model and our ability to execute against it."

Regarding revenue guidance falling short of expectations, Smith commented, "I think the other thing to remember is that we're also looking a bit through the lens of our fiscal year which ends at the end of October, that's the other thing I remind people, and the revenue recognition that we have to take from that. So, whilst all the signs in terms of order flow and the dashboard look good in the pipeline and the ramp-ups are on track, when we translate that into our fiscal and the timing that we expect with that, this is a bottoms-up view that we get."

On Wall Street's expectations, Smith stated, "I think that possibly some people including the industry analysts might have gotten ahead of themselves. But I just think that we're going to continue to grow and as we look out ahead and some of these big projects come on track, our growth will resume."

On the importance of Blue Planet, Smith said, "We see Blue Planet as a strategic growth driver enhancing revenue, gross margin and the overall business value that we offer our customers."

Moylan commented on the company's new reporting structure, saying, "This change is a natural evolution of our business that is consistent with our open and converged architecture. And we expected these changes will give you a better view both of our performance and of how we are measuring our own progress as we move through time."