Market Overview

Ciena Reports Fiscal Fourth Quarter 2018 and Year-End Financial Results

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Announces new share repurchase program of up to $500 million

Ciena® Corporation
(NYSE:CIEN), a network strategy and technology company, today announced
unaudited financial results for its fiscal fourth quarter and year ended
October 31, 2018.

  • Q4 Revenue: $899.4 million, increasing 20.8% year over year
  • Q4 Net Income per Share: $0.34 GAAP; $0.53 adjusted (non-GAAP)
  • Share Repurchases: Repurchased approximately 1.3 million shares
    of common stock for an aggregate price of $36.2 million during the
    quarter

"We achieved outstanding financial results in our fourth quarter and
fiscal 2018 due to continued execution of our proven strategy," said
Gary B. Smith, president and CEO, Ciena. "The combination of our
innovation strength, successful interception of market trends and
sustained ability to take share and outperform the market, along with a
thriving industry environment, gives us tremendous confidence in both
the near and longer term outlook for our business."

For the fiscal fourth quarter 2018, Ciena reported revenue of $899.4
million as compared to $744.4 million for the fiscal fourth quarter
2017. For fiscal year 2018, Ciena reported revenue of $3.09 billion, as
compared to $2.80 billion for fiscal year 2017.

Ciena's GAAP net income for the fiscal fourth quarter 2018 was $64.0
million or $0.34 per diluted common share, which compares to a GAAP net
income of $1,160.1 million, or $7.32 per diluted common share, for the
fiscal fourth quarter 2017. For fiscal year 2018, Ciena's GAAP net loss
was $(344.7) million, or $(2.49) per diluted common share, as compared
to a GAAP net income of $1,262.0 million, or $7.53 per diluted common
share for fiscal year 2017.

Ciena's adjusted (non-GAAP) net income for the fiscal fourth quarter
2018 was $81.0 million, or $0.53 per diluted common share, which
compares to an adjusted (non-GAAP) net income of $48.5 million, or $0.32
per diluted common share, for the fiscal fourth quarter 2017. For fiscal
year 2018, Ciena's adjusted (non-GAAP) net income was $210.6 million, or
$1.39 per diluted common share, as compared to an adjusted (non-GAAP)
net income of $177.7 million, or $1.14 per diluted common share for
fiscal year 2017.

Fiscal Fourth Quarter 2018 Performance Summary

The tables below (in millions, except percentage data) provide
comparisons of certain quarterly results to prior periods, including
sequential quarterly and year over year changes. A reconciliation
between the GAAP and adjusted (non-GAAP) measures contained in this
release is included in Appendix A and B to this release.

 
GAAP Results (unaudited)
    Period
Q4 Q4 Change
FY 2018 FY 2017 Y-T-Y*
Revenue $ 899.4 $ 744.4 20.8 %
Gross margin 44.3 % 43.7 % 0.6 %
Operating expense $ 302.2 $ 269.9 12.0 %
Operating margin 10.7 % 7.5 % 3.2 %
 
Non-GAAP Results (unaudited)
Period
Q4 Q4 Change
FY 2018 FY 2017 Y-T-Y*
Revenue $ 899.4 $ 744.4 20.8 %
Adj. gross margin 44.7 % 44.2 % 0.5 %
Adj. operating expense $ 277.7 $ 240.9 15.3 %
Adj. operating margin 13.9 % 11.9 % 2.0 %
 

* Denotes % change, or in the case of margin, absolute change

 
               
Revenue by Segment (unaudited)
Q4 FY 2018   Q4 FY 2017
Revenue   % Revenue   %
Networking Platforms
Converged Packet Optical $ 646.4 71.9 $ 506.4 68.0
Packet Networking 66.5   7.4   92.5   12.5
Total Networking Platforms 712.9 79.3 598.9 80.5
 
Software and Software-Related Services
Platform Software and Services 56.6 6.3 35.9 4.8
Blue Planet Automation Software and Services 10.7   1.2   5.9   0.8
Total Software and Software-Related Services 67.3 7.5 41.8 5.6
 
Global Services
Maintenance Support and Training 67.4 7.5 56.2 7.5
Installation and Deployment 39.3 4.4 33.5 4.5
Consulting and Network Design 12.5   1.3   14.0   1.9
Total Global Services 119.2 13.2 103.7 13.9
       
Total $ 899.4   100.0   $ 744.4   100.0
 

Additional Performance Metrics for Fiscal Fourth Quarter 2018

 
Revenue by Geographic Region (unaudited)
Q4 FY 2018   Q4 FY 2017
Revenue   % Revenue   %
North America $ 555.3 61.7 $ 440.5 59.2
Europe, Middle East and Africa 123.1 13.7 110.7 14.9
Caribbean and Latin America 53.0 5.9 43.5 5.8
Asia Pacific 168.0   18.7   149.7   20.1
Total $ 899.4   100.0   $ 744.4   100.0
 
  • Three 10%-plus customers represented a total of 33.1% of revenue
  • Cash and investments totaled $953.4 million
  • Cash flow from operations totaled $68.0 million
  • Average days' sales outstanding (DSOs) were 79
  • Accounts receivable balance was $786.5 million
  • Inventories totaled $262.8 million, including:

    • Raw materials: $67.5 million
    • Work in process: 9.5 million
    • Finished goods: $188.6 million
    • Deferred cost of sales: $48.1 million
    • Reserve for excess and obsolescence: $(50.9) million
  • Product inventory turns were 6.4
  • Headcount totaled 6,013

Share Repurchase Program

During fiscal year 2018, Ciena repurchased approximately 4.3 million
shares of its common stock at an average price of $25.86 per share for
an aggregate purchase price of $111.0 million. Highlighting its ongoing
commitment to returning capital to shareholders, Ciena today announced
that its Board of Directors has authorized a new program to repurchase
up to $500 million of its common stock, replacing the previous targeted
repurchase plan.

Ciena may purchase shares at management's discretion in the open market,
in privately negotiated transactions, in transactions structured through
investment banking institutions, or a combination of the foregoing.
Ciena may also, from time to time, enter into Rule 10b5-1 plans to
facilitate repurchases of its shares under this authorization. The
amount and timing of repurchases are subject to a variety of factors
including liquidity, cash flow, stock price, and general business and
market conditions. The program may be modified, suspended or
discontinued at any time.

Supplemental Materials and Live Web Broadcast of Unaudited Fiscal
Fourth Quarter 2018 Results

Today, Thursday, December 13, 2018, in conjunction with this
announcement, Ciena has posted to the Quarterly
Results page
of the Investor Relations section of its website
certain prepared remarks of management and related supporting materials
for its unaudited fiscal fourth quarter and fiscal 2018 results.

Ciena's management will also host a discussion today with investors and
financial analysts that will include the Company's fiscal first quarter
2019 outlook. The live audio web broadcast beginning at 8:30 a.m.
Eastern will be accessible via www.ciena.com.
An archived replay of the live broadcast will be available shortly
following its conclusion on the Investor
Relations page
of Ciena's website.

Notes to Investors

Forward-Looking Statements. You are encouraged to
review the Investors section of our website, where we routinely post
press releases, SEC filings, recent news, financial results,
supplemental financial information, and other announcements. From time
to time we exclusively post material information to this website along
with other disclosure channels that we use. This press release contains
certain forward-looking statements that involve risks and uncertainties.
These statements are based on current expectations, forecasts,
assumptions and other information available to the Company as of the
date hereof. Forward-looking statements include statements regarding
Ciena'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. Forward-looking
statements in this release include: "The combination of continued
execution against our strategy and robust, broad-based customer demand
resulted in outstanding fiscal third quarter performance."; "With our
diversification, global scale and innovation leadership, we remain
confident in our business model and our ability to achieve our
three-year financial targets."

Ciena's actual results, performance or events may differ materially from
these forward-looking statements made or implied due to a number of
risks and uncertainties relating to Ciena's business, including: the
effect of broader economic and market conditions on our customers and
their business; changes in network spending or network strategy by
customers; seasonality and the timing and size of customer orders,
including our ability to recognize revenue relating to such sales; the
level of competitive pressure we encounter; the product, customer and
geographic mix of sales within the period; supply chain disruptions and
the level of success relating to efforts to optimize Ciena's operations;
changes in foreign currency exchange rates affecting revenue and
operating expense; the impact of the Tax Cuts and Jobs Act, changes in
estimates of prospective income tax rates and any adjustments to Ciena's
provisional estimates whether related to further guidance, analysis or
otherwise, and the other risk factors disclosed in Ciena's periodic
reports filed with the Securities and Exchange Commission, including its
Quarterly Report on Form 10-Q filed with the SEC on September 5, 2018
and its Annual Report on Form 10-K to be filed with the SEC. Ciena
assumes no obligation to update any forward-looking information included
in this press release.

Non-GAAP Presentation of Quarterly and Annual Results. This
release includes non-GAAP measures of Ciena's gross profit, operating
expense, income from operations, earnings before interest, tax,
depreciation and amortization (EBITDA), Adjusted EBITDA, and measures of
net income and net income per share. In evaluating the operating
performance of Ciena's business, management excludes certain charges and
credits that are required by GAAP. These items share one or more of the
following characteristics: they are unusual and Ciena does not expect
them to recur in the ordinary course of its business; they do not
involve the expenditure of cash; they are unrelated to the ongoing
operation of the business in the ordinary course; or their magnitude and
timing is largely outside of Ciena's control. Management believes that
the non-GAAP measures below provide management and investors useful
information and meaningful insight to the operating performance of the
business. The presentation of these non-GAAP financial measures should
be considered in addition to Ciena's GAAP results and these measures are
not intended to be a substitute for the financial information prepared
and presented in accordance with GAAP. Ciena's non-GAAP measures and the
related adjustments may differ from non-GAAP measures used by other
companies and should only be used to evaluate Ciena's results of
operations in conjunction with our corresponding GAAP results. To the
extent not previously disclosed in a prior Ciena financial results press
release for the relevant period, Appendix A and B to this press release
set forth a complete GAAP to non-GAAP reconciliation of the non-GAAP
measures contained in this release.

About Ciena. Ciena (NYSE:CIEN) is a networking
systems, services, and software company. We provide solutions that help
our clients create more adaptive networks in response to the constantly
changing demands of their users. By delivering best-in-class networking
technology through high-touch consultative relationships, we build the
world's most sophisticated networks with automation and scale. For
updates on Ciena, follow us on Twitter @Ciena,
LinkedIn, the Ciena
Insights blog
, or visit www.ciena.com.

   
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 
Quarter Ended October 31, Year Ended October 31,
2018   2017 2018   2017
Revenue:
Products 743,867 616,216 2,565,460 2,318,581
Services 155,489   128,233   528,826   483,106  
Total revenue 899,356   744,449   3,094,286   2,801,687  
Cost of goods sold:
Products 421,583 352,992 1,507,157 1,308,295
Services 79,698   65,772   272,439   247,606  
Total cost of goods sold 501,281   418,764   1,779,596   1,555,901  
Gross profit 398,075   325,685   1,314,690   1,245,786  
Operating expenses:
Research and development 134,983 119,108 491,564 475,329
Selling and marketing 112,791 95,877 394,060 356,169
General and administrative 44,539 36,181 160,133 142,604
Amortization of intangible assets 4,654 3,661 15,737 33,029
Acquisition and integration costs 3,778 5,111
Significant asset impairments and restructuring costs 1,460   15,059   18,139   23,933  
Total operating expenses 302,205   269,886   1,084,744   1,031,064  
Income from operations 95,870 55,799 229,946 214,722
Interest and other income (loss), net (13,357 ) 1,344 (12,029 ) 913
Interest expense (14,873 ) (13,926 ) (55,249 ) (55,852 )
Loss on extinguishment and modification of debt (13,887 ) (692 ) (13,887 ) (3,657 )
Income before income taxes 53,753 42,525 148,781 156,126
Provision (benefit) for income taxes (10,224 ) (1,117,531 ) 493,471   (1,105,827 )
Net income (loss) $ 63,977   $ 1,160,056   $ (344,690 ) $ 1,261,953  
 
Net Income (Loss) per Common Share
Basic net income (loss) per common share $ 0.45   $ 8.11   $ (2.40 ) $ 8.89  
Diluted net income (loss) per potential common share1 $ 0.34   $ 7.32   $ (2.49 ) $ 7.53  
 
Weighted average basic common shares outstanding 143,659   143,097   143,738   141,997  
Weighted average diluted potential common shares outstanding 2 157,745   158,791   143,738   169,919  
 

1. The calculation of GAAP diluted net income per common share for the
fourth quarter of fiscal 2018 requires a) adding back interest expense
of approximately $0.4 million associated with Ciena's "Original" 3.75%
convertible senior notes, which were converted by holders thereof
immediately prior to maturity during the fourth quarter of fiscal 2018
and approximately $2.8 million associated with Ciena's 4.0% convertible
senior notes, which were converted at Ciena's election during the fourth
quarter of fiscal 2018, and b) reducing net income by $12.9 million for
a non-cash loss due to a mark to market fair value adjustment related to
the outstanding conversion feature of Ciena's "New" 3.75% senior
convertible notes, which were converted by holders thereof immediately
prior to maturity during the fourth quarter of fiscal 2018, in order to
derive the numerator for the diluted earnings per common share
calculation.

The calculation of GAAP diluted net loss per common share for fiscal
2018 requires an adjustment of $12.9 million for a non-cash loss due to
a mark to market fair value adjustment related to the outstanding
conversion feature of Ciena's "New" 3.75% senior convertible notes to
the GAAP net loss in order to derive the numerator for the diluted
earnings per common share calculation.

The calculation of GAAP diluted net income per common share for the
fourth quarter of fiscal 2017 requires adding back interest expense of
approximately $0.4 million associated with Ciena's "Original" 3.75%
convertible senior notes and approximately $2.3 million associated with
Ciena's 4.0% convertible senior notes to the GAAP net income in order to
derive the numerator for the diluted earnings per common share
calculation.

The calculation of GAAP diluted net income per common share for fiscal
2017 requires adding back interest expense of approximately $0.9 million
associated with Ciena's 0.875% convertible senior notes, approximately
$7.2 million associated with Ciena's "Original" 3.75% convertible senior
notes and approximately $8.7 million associated with Ciena's 4.0%
convertible senior notes to the GAAP net income in order to derive the
numerator for the diluted earnings per common share calculation.

2. Weighted average dilutive potential common shares outstanding used in
calculating GAAP diluted net income per common share for the fourth
quarter of fiscal 2018 includes 2.0 million shares underlying certain
stock option and stock unit awards, 0.7 million and 2.5 million shares
underlying Ciena's "New" and "Original" 3.75% convertible senior notes,
respectively, and 8.9 million shares underlying Ciena's 4.0% convertible
senior notes.

Weighted average dilutive potential common shares outstanding used in
calculating GAAP diluted net income per common share for the fourth
quarter of fiscal 2017 includes 1.2 million shares underlying certain
stock option and stock unit awards, 1.6 million and 3.7 million shares
underlying Ciena's "New" and "Original" 3.75% convertible senior notes,
respectively, and 9.2 million shares underlying Ciena's 4.0% convertible
senior notes.

Weighted average dilutive potential common shares outstanding used in
calculating GAAP diluted net income per common share for fiscal 2017
includes 1.4 million shares underlying certain stock option and stock
unit awards, 0.4 million and 13.9 million shares underlying Ciena's
"New" and "Original" 3.75% convertible senior notes, respectively, 3.0
million shares underlying Ciena's 0.875% convertible senior notes, and
9.2 million shares underlying Ciena's 4.0% convertible senior notes.

 
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
October 31,
2018   2017
ASSETS  
Current assets:
Cash and cash equivalents $ 745,423 $ 640,513
Short-term investments 148,981 279,133
Accounts receivable, net 786,502 622,183
Inventories 262,751 267,143
Prepaid expenses and other 198,945   197,339  
Total current assets 2,142,602 2,006,311
Long-term investments 58,970 49,783
Equipment, building, furniture and fixtures, net 292,067 308,465
Goodwill 297,968 267,458
Other intangible assets, net 148,225 100,997
Deferred tax asset, net 745,039 1,155,104
Other long-term assets 71,652   63,593  
Total assets $ 3,756,523   $ 3,951,711  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 340,582 $ 260,098
Accrued liabilities and other short-term obligations 340,075 322,934
Deferred revenue 111,134 102,418
Current portion of long-term debt 7,000 352,293
Debt conversion liability 164,212    
Total current liabilities 963,003 1,037,743
Long-term deferred revenue 58,323 82,589
Other long-term obligations 119,413 111,349
Long-term debt, net 686,450   583,688  
Total liabilities $ 1,827,189   $ 1,815,369  
 
Stockholders' equity:
Preferred stock — par value $0.01; 20,000,000 shares authorized;
zero shares issued and outstanding
Common stock — par value $0.01; 290,000,000 shares authorized;
154,318,531 and 143,043,227 shares issued and outstanding
1,543 1,430
Additional paid-in capital 6,881,223 6,810,182
Accumulated other comprehensive loss (5,780 ) (11,017 )
Accumulated deficit (4,947,652 ) (4,664,253 )
Total stockholders' equity 1,929,334   2,136,342  
Total liabilities and stockholders' equity $ 3,756,523   $ 3,951,711  
 
 
CIENA CORPORATION
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended October 31,
2018   2017
Cash flows from operating activities:  
Net income (loss) $ (344,690 ) $ 1,261,953
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss on extinguishment of debt 10,039
Loss on fair value of debt conversion liability 12,070
Depreciation of equipment, furniture and fixtures, and amortization
of leasehold improvements
84,214 77,189
Share-based compensation costs 52,972 48,360
Amortization of intangible assets 25,806 45,713
Deferred taxes 463,631 (1,126,732 )
Provision for doubtful accounts 2,700 18,221
Provision for inventory excess and obsolescence 30,615 35,459
Provision for warranty 20,992 7,965
Other 21,685 22,417
Changes in assets and liabilities:
Accounts receivable (168,357 ) (66,123 )
Inventories (27,445 ) (91,567 )
Prepaid expenses and other (21,425 ) (33,834 )
Accounts payable, accruals and other obligations 85,798 33,897
Deferred revenue (19,344 ) 1,964  
Net cash provided by operating activities 229,261   234,882  
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property (67,616 ) (94,600 )
Restricted cash 117 (54 )
Purchase of available for sale securities (286,824 ) (299,038 )
Proceeds from maturities of available for sale securities 410,109 335,075
Settlement of foreign currency forward contracts, net 9,385 (2,810 )
Purchase of cost method investment (1,767 )
Acquisition of businesses, net of cash acquired (82,670 )  
Net cash used in investing activities (19,266 ) (61,427 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net 305,125
Payment of long-term debt (292,730 ) (233,554 )
Payment for make-whole provision upon conversion of long-term debt (13,453 )
Payment for modification of term loans (93,625 )
Payment of debt issuance costs (1,936 ) (722 )
Payment of capital lease obligations (3,624 ) (3,562 )
Shares repurchased for tax withholdings on vesting of restricted
stock units
(4,757 )
Repurchases of common stock-repurchase program (110,981 )
Proceeds from issuance of common stock 23,127   20,412  
Net cash used in financing activities (99,229 ) (311,051 )
Effect of exchange rate changes on cash and cash equivalents (5,856 ) 494  
Net increase (decrease) in cash and cash equivalents 104,910 (137,102 )
Cash and cash equivalents at beginning of fiscal year 640,513   777,615  
Cash and cash equivalents at end of fiscal year $ 745,423   $ 640,513  
Supplemental disclosure of cash flow information
Cash paid during the fiscal year for interest $ 44,750 $ 47,235
Cash paid during the fiscal year for income taxes, net $ 26,900 $ 22,136
Non-cash investing and financing activities
Purchase of equipment in accounts payable $ 5,118 $ 6,214
Building subject to capital lease $ $ 50,370
Contingent consideration for acquisition of business $ 10,900 $
Conversion of 3.75% convertible senior notes, due October 15, 2018
(Original) into 3,038,208 shares of common stock
$ 61,270 $
Conversion of 4.0% convertible senior notes, due December 15, 2020
into 9,197,943 shares of common stock, net
$ 214,286 $
 
 
APPENDIX A- Reconciliation of Adjusted (Non- GAAP) Measurements
(unaudited)
       
Quarter Ended Year Ended
October 31, October 31,
2018 2017 2018 2017
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit $ 398,075   $ 325,685   $ 1,314,690   $ 1,245,786  
Share-based compensation-products 705 694 2,984 2,672
Share-based compensation-services 651 561 2,616 2,487
Amortization of intangible assets 2,957   2,332   10,069   12,685  
Total adjustments related to gross profit 4,313   3,587   15,669   17,844  
Adjusted (non-GAAP) gross profit $ 402,388   $ 329,272   $ 1,330,359   $ 1,263,630  
Adjusted (non-GAAP) gross profit percentage 44.7 % 44.2 % 43.0 % 45.1 %
 
Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense $ 302,205   $ 269,886   $ 1,084,744   $ 1,031,064  
Share-based compensation-research and development 3,385 2,956 13,518 12,957
Share-based compensation-sales and marketing 3,741 3,218 14,246 12,846
Share-based compensation-general and administrative 5,588 4,130 19,709 17,321
Amortization of intangible assets 4,654 3,661 15,737 33,029
Acquisition and integration costs 3,778 5,111
Significant asset impairments and restructuring costs 1,460 15,059 18,139 23,933
Legal settlements 1,929     4,682    
Total adjustments related to operating expense $ 24,535   $ 29,024   $ 91,142   $ 100,086  
Adjusted (non-GAAP) operating expense $ 277,670   $ 240,862   $ 993,602   $ 930,978  
 
Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations $ 95,870   $ 55,799   $ 229,946   $ 214,722  
Total adjustments related to gross profit 4,313 3,587 15,669 17,844
Total adjustments related to operating expense 24,535   29,024   91,142   100,086  
Total adjustments related to income from operations 28,848   32,611   106,811   117,930  
Adjusted (non-GAAP) income from operations $ 124,718   $ 88,410   $ 336,757   $ 332,652  
Adjusted (non-GAAP) operating margin percentage 13.9 % 11.9 % 10.9 % 11.9 %
 
Net Income (Loss) Reconciliation (GAAP/non-GAAP)
GAAP net income (loss) $ 63,977 $ 1,160,056 $ (344,690 ) $ 1,261,953
Exclude GAAP provision (benefit) for income taxes (10,224 ) (1,117,531 ) 493,471   (1,105,827 )
Income before income taxes 53,753 42,525 148,781 156,126
Total adjustments related to income from operations 28,848 32,611 106,811 117,930
Loss on extinguishment and modification of debt 13,887 692 13,887 3,657
Non-cash interest expense 727 525 2,579 2,099
Change in fair value of debt conversion liability 12,070     12,070    
Adjusted income before income taxes 109,285 76,353 284,128 279,812
Non-GAAP tax provision on adjusted income before income taxes 28,272   27,869   73,504   102,131  
Adjusted (non-GAAP) net income $ 81,013   $ 48,484   $ 210,624   $ 177,681  
 
Weighted average basic common shares outstanding 143,659   143,097   143,738   141,997  
Weighted average dilutive potential common shares outstanding 1 157,745   158,791   158,884   169,919  
 
Net Income (Loss) per Common Share
GAAP diluted net income (loss) per common share $ 0.34 $ 7.32 $ (2.49 ) $ 7.53
Adjusted (non-GAAP) diluted net income per common share 2 $ 0.53 $ 0.32 $ 1.39 $ 1.14
 

1. Weighted average dilutive potential common shares outstanding used in
calculating adjusted (non-GAAP) diluted net income per common share for
the fourth quarter of fiscal 2018 includes 2.0 million shares underlying
certain stock option and stock unit awards, 0.7 million and 2.5 million
shares underlying Ciena's "New" and "Original" 3.75% convertible senior
notes, respectively, which were converted by holders thereof immediately
prior to maturity during the fourth quarter of fiscal 2018, and 8.9
million shares underlying Ciena's 4.0% convertible senior notes, which
were converted at Ciena's election during the fourth quarter of fiscal
2018.

Weighted average dilutive potential common shares outstanding used in
calculating adjusted (non-GAAP) diluted net income per common share for
fiscal 2018 includes 1.4 million shares underlying certain stock option
and stock unit awards, 1.8 million and 2.9 million shares underlying
Ciena's "New" and "Original" 3.75% convertible senior notes,
respectively, and 9.1 million shares underlying Ciena's 4.0% convertible
senior notes.

Weighted average dilutive potential common shares outstanding used in
calculating adjusted (non-GAAP) diluted net income per common share for
the fourth quarter of fiscal 2017 includes 1.2 million shares underlying
certain stock option and stock unit awards, 1.6 million and 3.7 million
shares underlying Ciena's "New" and "Original" 3.75% convertible senior
notes, respectively, and 9.2 million shares underlying Ciena's 4.0%
convertible senior notes.

Weighted average dilutive potential common shares outstanding used in
calculating adjusted (non-GAAP) diluted net income per common share for
fiscal 2017 includes 1.4 million shares underlying certain stock option
and stock unit awards, 0.4 million and 13.9 million shares underlying
Ciena's "New" and "Original" 3.75% convertible senior notes,
respectively, 3.0 million shares underlying Ciena's 0.875% convertible
senior notes and 9.2 million shares underlying Ciena's 4.0% convertible
senior notes.

2. The calculation of adjusted (non-GAAP) diluted net income per common
share for the fourth quarter of fiscal 2018 requires adding back
interest expense of approximately $0.4 million associated with Ciena's
"Original" 3.75% convertible senior notes and approximately $2.3 million
associated with Ciena's 4.0% convertible senior notes to the adjusted
(non-GAAP) net income in order to derive the numerator for the adjusted
(non-GAAP) earnings per common share calculation.

The calculation of adjusted (non-GAAP) diluted net income per common
share for fiscal 2018 requires adding back interest expense of
approximately $1.8 million associated with Ciena's "Original" 3.75%
convertible senior notes and approximately $8.7 million associated with
Ciena's 4.0% convertible senior notes to the adjusted (non-GAAP) net
income in order to derive the numerator for the adjusted (non-GAAP)
earnings per common share calculation.

The calculation of adjusted (non-GAAP) diluted net income per common
share for the fourth quarter of fiscal 2017 requires adding back
interest expense of approximately $0.4 million associated with Ciena's
"Original" 3.75% convertible senior notes and approximately $1.9 million
associated with Ciena's 4.0% convertible senior notes to the adjusted
(non-GAAP) net income in order to derive the numerator for the adjusted
(non-GAAP) earnings per common share calculation.

The calculation of adjusted (non-GAAP) diluted net income per common
share for fiscal 2017 requires adding back interest expense of
approximately $0.9 million associated with Ciena's 0.875% convertible
senior notes, approximately $7.2 million associated with Ciena's
"Original" 3.75% convertible senior notes and approximately $7.4 million
associated with Ciena's 4.0% convertible senior notes to the adjusted
(non-GAAP) net income in order to derive the numerator for the adjusted
(non-GAAP) earnings per common share calculation.

 
APPENDIX B- Calculation of EBITDA and Adjusted EBITDA (unaudited)
       
Quarter Ended Year Ended
October 31, October 31,
2018 2017 2018 2017
Earnings Before Interest, Tax, Depreciation and Amortization
(EBITDA)
Net income (loss) (GAAP) $ 63,977 $ 1,160,056 $ (344,690 ) $ 1,261,953
Add: Interest expense 14,873 13,926 55,249 55,852
Less: Interest and other income (loss), net (13,357 ) 1,344 (12,029 ) 913
Add: Loss on extinguishment and modification of debt (13,887 ) (692 ) (13,887 ) (3,657 )
Add: Provision (benefit) for income taxes (10,224 ) (1,117,531 ) 493,471 (1,105,827 )
Add: Depreciation of equipment, building, furniture and fixtures,
and amortization of leasehold improvements
21,110 21,316 84,214 77,189
Add: Amortization of intangible assets 7,611   5,993   25,806   45,713  
EBITDA 124,591   83,108   339,966   337,624  
Add: Shared-based compensation cost 14,076 11,517 52,972 48,360
Add: Significant asset impairments and restructuring costs 1,460 15,059 18,139 23,933
Add: Acquisition and integration costs 3,778 5,111
Add: Legal settlement 1,929     4,682    
Adjusted EBITDA 145,834   109,684   420,870   409,917  
 

The adjusted (non-GAAP) measures above and their reconciliation to
Ciena's GAAP results for the periods presented reflect adjustments
relating to the following items:

  • Share-based compensation - a non-cash expense incurred in
    accordance with share-based compensation accounting guidance.
  • Amortization of intangible assets - a non-cash expense arising
    from the acquisition of intangible assets, principally developed
    technologies and customer-related intangibles, that Ciena is required
    to amortize over its expected useful life.
  • Acquisition and integration costs - consist of
    financial, legal and accounting advisors' costs and severance and
    other employment-related costs related to Ciena's acquisition of
    Packet Design and DonRiver. Ciena does not believe that these costs
    are reflective of its ongoing operating expense following its
    completion of these integration activities.
  • Significant asset impairments and restructuring costs - costs
    incurred as a result of restructuring activities taken to align
    resources with perceived market opportunities and in fiscal 2017, a
    significant asset impairment for a trade receivable for a customer in
    the Asia Pacific region.
  • Legal settlements - costs incurred as a result of settlements,
    during the third quarter of fiscal 2018, of a commercial dispute with
    a former vendor, and during the fourth quarter of fiscal 2018, of
    securities class action suit relating the initial public offering of
    Cyan.
  • Loss on extinguishment and modification of debt - reflects
    extinguishment of debt costs related to our conversion of Ciena's 4.0%
    convertible senior notes and debt modification expenses related to
    refinancing our then existing term loan, both of which occurred during
    the fourth quarter of fiscal 2018. For fiscal 2017, this reflects debt
    modification expenses related to our then existing term loans that
    were refinanced during the second quarter of fiscal 2017, the exchange
    offer of Ciena's "Original" 3.75% convertible senior notes and
    extinguishment of debt losses related to certain private repurchase
    transactions during fiscal 2017 of Ciena's then outstanding 0.875%
    convertible senior notes.
  • Non-cash interest expense - a non-cash debt discount expense
    amortized as interest expense during the term of Ciena's 4.0% senior
    convertible notes, which were converted during the fourth quarter of
    2018, relating to the required separate accounting of the equity
    component of these convertible notes.
  • Change in fair value of debt conversion liability - a non-cash
    loss reflective of a mark to market fair value adjustment related to
    the outstanding conversion feature of Ciena's "New" 3.75% senior
    convertible notes.
  • Non-GAAP tax provision - consists of current and deferred
    income tax expense commensurate with the level of adjusted income
    before income taxes and utilizes a current, blended U.S. and foreign
    statutory annual tax rate of 25.87% for the fourth fiscal quarter of
    2018, and 36.5% for the fourth fiscal quarter of 2017. This rate may
    be subject to change in the future, including as a result of changes
    in tax policy or tax strategy.

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