This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Ciena Corporation (CIEN) on December 11, 2008.
Management:
Chief Communications Officer: Suzanne DuLong
CEO and President: Gary Smith
CFO: Jim Moylan
Chief Technology Officer: Steve Alexander
Key Investors Issues
- EPS were a loss of 28 cents a share compared to 30 cents a share last year.
- Profit was a loss of $25.4 million compared to year-earlier net income of $30.4 million.
- Revenue declined 17% to $179.7 million.
Fourth Quarter Highlights
Revenue was $179.7 million.
- This represents a decrease of 29% sequentially and 17% year over year. The company had three 10% plus customers that combined to represent 50% of total sales. Two of the 10% customers are North American based and one is international. All three were 10% customers in the third quarter as well.
- For the fiscal year AT&T and BT were 10% customers representing 25% and 13% of total revenue respectively. Combined they represented 38% of the fiscal years total revenue.
- Sales from international customers represented 47% of total revenue up from 38% in the third quarter.
Optical Service Delivery accounted for $137 million in revenue representing 76% of total revenue.
- Within Optical Service Delivery revenue from CN 4200 Advanced Services Platform increased 42% sequentially and was the largest single contributor to the quarter at $59 million. CN 4200 progress was offset by sequential declines in other areas. Core switching contributed $38 million in revenue. Long haul transport added $28 million.
- Second product group Carrier Ethernet Service Delivery includes service delivery and aggregation switches acquired from World Wide Packets as well as Ethernet access products, broadband access products and the related software.
- Carrier Ethernet Service Delivery contributed $12 million in revenue or 7% of total. Revenue from products gained through the acquisition of World Wide Packets contributed $4 million of the group’s total revenue.
- Global Network Services group which includes all of services related offerings was $30 million in revenue or 17% of the total.
GAAP gross margin was 45% adjusted for share based compensation and amortization of intangibles gross margin was 46%.
- GAAP product gross margin r was 49%. Services gross margin was 24% just below target mid 20s range as a result of the mix of service revenue in the quarter.
- On a GAAP basis operating expenses totaled $112 million. Included in these expenses is a restructuring charge of approximately $1.1 million principally associated with severance costs following a targeted headcount reduction of approximately 60 employees. Adjusted for the non-operating and/or non-recurring charges operating expenses totaled $96.2 million resulting in an as adjusted operating margin of -7%. As adjusted G&A operating expenses also include $2 million of non-recurring one time charges.
- GAAP net loss was $25.4 million or a loss of 28 cents per share. Adjusted for the unusual and/or non-operating items discussed previously net loss would have been $9.2 million or a loss of 10 cents per share.
- The company was cash flow negative using $4.6 million in cash from operations.
- The company repurchased $2 million in principal amount of outstanding 0.25% convertible senior notes in an open market transaction. The company used about $1 million of cash to affect this repurchase which resulted in a gain of approximately $0.9 million.
- The company has $1.1 billion in cash, short term and long term investments.
- Accounts receivable balance was $138 million. Day sales outstanding were 69 days, up from third quarter 49 days, as a result of product acceptances by customers that were weighted toward the back end of the quarter.
- Given revenue uncertainty the company is managing inventory position which resulted in a 14% sequential reduction to $93 million compared to $106 million in the third quarter. Product inventory turns were 3.2 times down from 4.1 times in the third quarter. The inventory breakdown was as follows: Raw materials $19 million, work in progress $2 million, finished goods $96 million and a reserve for excess and obsolescence of $23 million.
- Worldwide headcount was 2,203. This is down from the third quarter 2,210 reflecting the net affect of the headcount reduction as well as some strategic hiring.
- The company expanded global footprint, increasing international contribution to 35% of sales. The company attained an annual overall gross margin of 51%. The company maintained an as adjusted income from operations of 11% of revenue while investing in R&D and sales activities. The company generated $117 million in cash from operations.
First Quarter 2009 Outlook
- The company continues to expect DSO range to normalize between 55 and 65 days going forward.
- Revenue will be in a range of $170 to $185 million.
- Gross margin will be above the fourth quarter and within a mid to high 40s range.
- Reflecting declining interest rates the company expects other income and expense net in the first quarter will be around $2 million.
Key questions from the fourth quarter earnings call conducted by Ciena Corporation on December 11, 2008.
Scott Coleman (Morgan Stanley):
You do not expect the environment to worsen from here. What gives you the confidence to say that at this point in the cycle as carriers are just starting to set their CapEx budgets?
Gary Smith: I think amongst the larger Tier 1 carriers who are in good financial health they are focused on their strategic investments and I think we are well aligned with those. I think they are certainly at this stage committing to roll those out because I think that is their strategic direction in terms of new service creation and in terms of reducing their operating costs by moving to a more efficient way of carrying bandwidth. We are seeing amongst Tier 2, Tier 3 a more perhaps negative scenario around that. Some of them are focusing on using their legacy infrastructure more than shifting to next gen architecture. We are seeing a mixed environment.
Scott Coleman (Morgan Stanley):
Product gross margin is down four points, service gross margin is down about 1,000 basis points, 10 points this quarter. Do you expect both of them to improve in the first quarter?
