UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 | ||
FORM 8‑K | ||
CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
Date of report (Date of earliest event reported): September 3, 2015 | ||
Ciena Corporation (Exact Name of Registrant as Specified in Its Charter) | ||
Delaware (State or Other Jurisdiction of Incorporation) | ||
001-36250 | 23-2725311 | |
(Commission File Number) | (IRS Employer Identification No.) | |
7035 Ridge Road, Hanover, MD | 21076 | |
(Address of Principal Executive Offices) | (Zip Code) | |
(410) 694-5700 | ||
(Registrant's Telephone Number, Including Area Code) | ||
Not Applicable | ||
(Former Name or Former Address, if Changed Since Last Report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): | ||
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
On September 3, 2015, Ciena Corporation ("Ciena") issued a press release announcing its financial results for its third fiscal quarter ended July 31, 2015. The text of the press release is furnished as Exhibit 99.1 to this Report. The information in this Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended. |
As discussed in the press release above, Ciena will be hosting an investor call to discuss its results of operations for its third quarter of fiscal 2015. Ciena is making available on its corporate website at http://investor.ciena.com/financials.cfm an investor presentation to accompany this call. This presentation includes certain highlighted items from the third quarter of fiscal 2015 to be discussed on the call and certain historical results. |
Investors are encouraged to review the “Investors” page of our website at www.ciena.com because, as with the other disclosure channels that we use, from time to time we may post material information exclusively on that site. |
(b)(c) On September 3, 2015, Ciena announced that its Board of Directors has approved the appointment of François Locoh-Donou to serve as Ciena’s Senior Vice President and Chief Operating Officer effective as of November 1, 2015. Mr. Locoh-Donou has served in his current role as Ciena’s Senior Vice President, Global Products Group since August 2011. In this new role, Mr. Locoh-Donou, 43, will assume responsibility for Ciena’s Global Field Organization, including the global sales and services functions, while retaining his existing responsibility for the research and development, product line management, supply chain and network integration functions. Mr. Locoh-Donou joined Ciena in August 2002 and previously served as Ciena’s Vice President and General Manager, EMEA, from June 2005 to July 2011. Additional information regarding Mr. Locoh-Donou’s appointment is included in the press release filed as Exhibit 99.2 to this Form 8-K. The current compensation arrangements for Mr. Locoh-Donou were not changed at the time of his appointment and are materially consistent with those described in Ciena’s proxy statement for its 2015 Annual Meeting of Stockholders under the headings “Compensation Discussion and Analysis” and “Executive Compensation Tables.” Upon the effectiveness of Mr. Locoh-Donou's appointment as Ciena’s Senior Vice President and Chief Operating Officer he shall cease to serve as Ciena’s Senior Vice President, Global Products Group. |
Upon the August 3, 2015 closing of Ciena’s acquisition of Cyan, Inc. (“Cyan”), Ciena assumed Cyan’s $50.0 million in outstanding principal amount of 8.0% Convertible Senior Secured Notes due 2019 (the "2019 Notes"). Under the terms of the indenture governing the 2019 Notes, following the closing of the acquisition, the note holders were given the right to convert the 2019 Notes at an increased conversion rate of approximately 91.79 shares of Ciena common stock and $290.08 in cash for each $1,000 principal amount of 2019 Notes surrendered for conversion. As of September 3, 2015, holders representing 100% of the outstanding aggregate principal amount of 2019 Notes have made such conversion election and, accordingly, there are no remaining 2019 Notes outstanding. In satisfaction of such conversion elections, Ciena issued, in the aggregate, approximately 4.6 million shares of common stock and paid $14.5 million in cash. |
(d) | The following exhibit is being filed herewith: | |||
Exhibit Number | Description of Document | |||
Exhibit 99.1 | Text of Press Release dated September 3, 2015, issued by Ciena Corporation, reporting its results of operations for its third fiscal quarter ended July 31, 2015 | |||
Exhibit 99.2 | Text of Press Release dated September 3, 2015, issued by Ciena Corporation, announcing appointment of Senior Vice President and Chief Operating Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
Ciena Corporation | ||
Date: September 3, 2015 | By: | /S/ David M. Rothenstein |
David M. Rothenstein | ||
Senior Vice President, General Counsel and Secretary |
GAAP Results | ||||||||||||||||||
Q3 | Q2 | Q3 | Period Change | |||||||||||||||
FY 2015 | FY 2015 | FY 2014 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 602.9 | $ | 621.6 | $ | 603.6 | (3.0 | )% | (0.1 | )% | ||||||||
Gross margin | 44.8 | % | 43.8 | % | 43.7 | % | 1.0 | % | 1.1 | % | ||||||||
Operating expense | $ | 225.4 | $ | 230.0 | $ | 227.0 | (2.0 | )% | (0.7 | )% | ||||||||
Operating margin | 7.4 | % | 6.8 | % | 6.1 | % | 0.6 | % | 1.3 | % |
Non-GAAP Results | ||||||||||||||||||
Q3 | Q2 | Q3 | Period Change | |||||||||||||||
FY 2015 | FY 2015 | FY 2014 | Q-T-Q* | Y-T-Y* | ||||||||||||||
Revenue | $ | 602.9 | $ | 621.6 | $ | 603.6 | (3.0 | )% | (0.1 | )% | ||||||||
Adj. gross margin | 45.3 | % | 44.4 | % | 44.3 | % | 0.9 | % | 1.0 | % | ||||||||
Adj. operating expense | $ | 202.1 | $ | 207.9 | $ | 206.3 | (2.8 | )% | (2.0 | )% | ||||||||
Adj. operating margin | 11.8 | % | 10.9 | % | 10.1 | % | 0.9 | % | 1.7 | % |
Revenue by Segment | ||||||||||||||||||
Q3 FY 2015 | Q2 FY 2015 | Q3 FY 2014 | ||||||||||||||||
Revenue | % | Revenue | % | Revenue | % | |||||||||||||
Converged Packet Optical | $ | 408.0 | 67.7 | $ | 432.9 | 69.6 | $ | 382.0 | 63.3 | |||||||||
Packet Networking | 57.2 | 9.5 | 53.3 | 8.6 | 69.5 | 11.5 | ||||||||||||
Optical Transport | 17.5 | 2.9 | 16.5 | 2.7 | 31.0 | 5.1 | ||||||||||||
Software and Services | 120.2 | 19.9 | 118.9 | 19.1 | 121.1 | 20.1 | ||||||||||||
Total | $ | 602.9 | 100.0 | $ | 621.6 | 100.0 | $ | 603.6 | 100.0 |
Revenue by Geographic Region | ||||||||||||||||||
Q3 FY 2015 | Q2 FY 2015 | Q3 FY 2014 | ||||||||||||||||
Revenue | % | Revenue | % | Revenue | % | |||||||||||||
North America | $ | 389.6 | 64.6 | 397.2 | 63.9 | 403.3 | 66.8 | |||||||||||
Europe, Middle East and Africa | 93.2 | 15.5 | 102.2 | 16.4 | 99.9 | 16.6 | ||||||||||||
Caribbean and Latin America | 65.1 | 10.8 | 47.9 | 7.7 | 67.2 | 11.1 | ||||||||||||
Asia Pacific | 55.0 | 9.1 | 74.3 | 12.0 | 33.2 | 5.5 | ||||||||||||
Total | $ | 602.9 | 100.0 | $ | 621.6 | 100.0 | $ | 603.6 | 100.0 |
• | U.S. customers contributed 59.8% of total revenue |
• | One customer accounted for greater than 10% of revenue and represented 20% of total revenue |
• | Cash and investments totaled $927.3 million |
• | Cash flow from operations totaled $117.5 million |
• | Average days' sales outstanding (DSOs) were 79 |
• | Accounts receivable balance was $530.3 million |
• | Inventories totaled $194.0 million, including: |
◦ | Raw materials: $54.1 million |
◦ | Work in process: $8.9 million |
◦ | Finished goods: $119.7 million |
◦ | Deferred cost of sales: $59.6 million |
◦ | Reserve for excess and obsolescence: $(48.3) million |
• | Product inventory turns were 5.6 |
• | Headcount totaled 5,196 |
• | Revenue in the range of $665 to $700 million |
• | Adjusted (non-GAAP) gross margin of approximately 44 percent |
• | Adjusted (non-GAAP) operating expense of approximately $225 million |
Quarter Ended July 31, | Nine Months Ended July 31, | ||||||||||||||
2014 | 2015 | 2014 | 2015 | ||||||||||||
Revenue: | |||||||||||||||
Products | $ | 495,889 | $ | 493,919 | $ | 1,389,651 | $ | 1,428,114 | |||||||
Services | 107,673 | 109,013 | 307,675 | 325,582 | |||||||||||
Total revenue | 603,562 | 602,932 | 1,697,326 | 1,753,696 | |||||||||||
Cost of goods sold: | |||||||||||||||
Products | 275,003 | 273,837 | 777,851 | 797,283 | |||||||||||
Services | 64,586 | 59,226 | 191,960 | 183,838 | |||||||||||
Total cost of goods sold | 339,589 | 333,063 | 969,811 | 981,121 | |||||||||||
Gross profit | 263,973 | 269,869 | 727,515 | 772,575 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 97,685 | 100,379 | 302,674 | 306,342 | |||||||||||
Selling and marketing | 81,919 | 81,650 | 243,929 | 240,833 | |||||||||||
General and administrative | 36,285 | 29,743 | 98,264 | 89,598 | |||||||||||
Acquisition and integration costs | — | 2,435 | — | 3,455 | |||||||||||
Amortization of intangible assets | 11,019 | 11,019 | 34,951 | 33,057 | |||||||||||
Restructuring costs | 63 | 192 | 178 | 8,260 | |||||||||||
Total operating expenses | 226,971 | 225,418 | 679,996 | 681,545 | |||||||||||
Income from operations | 37,002 | 44,451 | 47,519 | 91,030 | |||||||||||
Interest and other income (loss), net | (6,328 | ) | (5,491 | ) | (14,231 | ) | (19,273 | ) | |||||||
Interest expense | (11,508 | ) | (11,883 | ) | (33,556 | ) | (38,491 | ) | |||||||
Income (loss) before income taxes | 19,166 | 27,077 | (268 | ) | 33,266 | ||||||||||
Provision for income taxes | 3,006 | 3,452 | 9,666 | 7,767 | |||||||||||
Net income (loss) | $ | 16,160 | $ | 23,625 | $ | (9,934 | ) | $ | 25,499 | ||||||
Net Income (loss) per Common Share | |||||||||||||||
Basic net income (loss) per common share | $ | 0.15 | $ | 0.20 | $ | (0.09 | ) | $ | 0.23 | ||||||
Diluted net income (loss) per potential common share1 | $ | 0.15 | $ | 0.19 | $ | (0.09 | ) | $ | 0.22 | ||||||
Weighted average basic common shares outstanding | 106,236 | 118,413 | 105,404 | 113,189 | |||||||||||
Weighted average dilutive potential common shares outstanding2 | 120,809 | 133,233 | 105,404 | 114,549 |
1. | The calculation of GAAP diluted net income per common share for the third quarter of fiscal 2014 requires adding back interest expense of approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017 to the GAAP net income in order to derive the numerator for the diluted earnings per common share calculation. |
October 31, 2014 | July 31, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 586,720 | $ | 697,091 | |||
Short-term investments | 140,205 | 160,067 | |||||
Accounts receivable, net | 518,981 | 530,261 | |||||
Inventories | 254,660 | 194,017 | |||||
Prepaid expenses and other | 192,624 | 185,140 | |||||
Total current assets | 1,693,190 | 1,766,576 | |||||
Long-term investments | 50,057 | 70,161 | |||||
Equipment, building, furniture and fixtures, net | 126,632 | 159,592 | |||||
Other intangible assets, net | 128,677 | 89,019 | |||||
Other long-term assets | 74,076 | 78,347 | |||||
Total assets | $ | 2,072,632 | $ | 2,163,695 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 209,777 | $ | 201,774 | |||
Accrued liabilities | 276,608 | 272,691 | |||||
Deferred revenue | 104,688 | 114,902 | |||||
Current portion of long-term debt | 190,063 | 2,500 | |||||
Total current liabilities | 781,136 | 591,867 | |||||
Long-term deferred revenue | 40,930 | 53,731 | |||||
Other long-term obligations | 45,390 | 63,482 | |||||
Long-term debt, net | 1,274,791 | 1,276,761 | |||||
Total liabilities | $2,142,247 | $1,985,841 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity (deficit): | |||||||
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; 106,979,960 and 118,725,874 shares issued and outstanding | 1,070 | 1,187 | |||||
Additional paid-in capital | 5,954,440 | 6,187,759 | |||||
Accumulated other comprehensive loss | (14,668 | ) | (26,135 | ) | |||
Accumulated deficit | (6,010,457 | ) | (5,984,957 | ) | |||
Total stockholders’ equity (deficit) | (69,615 | ) | 177,854 | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 2,072,632 | $ | 2,163,695 |
Nine Months Ended July 31, | |||||||
2014 | 2015 | ||||||
Cash flows provided by operating activities: | |||||||
Net income (loss) | $ | (9,934 | ) | $ | 25,499 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements | 41,463 | 41,601 | |||||
Share-based compensation costs | 34,204 | 32,402 | |||||
Amortization of intangible assets | 43,931 | 39,659 | |||||
Provision for inventory excess and obsolescence | 22,026 | 18,010 | |||||
Provision for warranty | 18,720 | 12,549 | |||||
Other | 21,254 | (1,220 | ) | ||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (55,688 | ) | (12,053 | ) | |||
Inventories | (66,015 | ) | 42,633 | ||||
Prepaid expenses and other | (26,698 | ) | (5,345 | ) | |||
Accounts payable, accruals and other obligations | (34,794 | ) | (39,266 | ) | |||
Deferred revenue | 27,498 | 23,015 | |||||
Net cash provided by operating activities | 15,967 | 177,484 | |||||
Cash flows used in investing activities: | |||||||
Payments for equipment, furniture, fixtures and intellectual property | (35,974 | ) | (39,729 | ) | |||
Restricted cash | 2,059 | (42 | ) | ||||
Purchase of available for sale securities | (195,259 | ) | (180,203 | ) | |||
Proceeds from maturities of available for sale securities | 150,000 | 140,000 | |||||
Settlement of foreign currency forward contracts, net | (10,796 | ) | 16,289 | ||||
Purchase of cost method investment | — | (2,000 | ) | ||||
Net cash used in investing activities | (89,970 | ) | (65,685 | ) | |||
Cash flows provided by financing activities: | |||||||
Proceeds from issuance of term loan, net | 248,750 | — | |||||
Payment of long term debt | — | (8,901 | ) | ||||
Payment for debt and equity issuance costs | (3,263 | ) | (420 | ) | |||
Payment of capital lease obligations | (2,275 | ) | (6,441 | ) | |||
Proceeds from issuance of common stock | 17,518 | 19,622 | |||||
Net cash provided by financing activities | 260,730 | 3,860 | |||||
Effect of exchange rate changes on cash and cash equivalents | (330 | ) | (5,288 | ) | |||
Net increase in cash and cash equivalents | 186,397 | 110,371 | |||||
Cash and cash equivalents at beginning of period | 346,487 | 586,720 | |||||
Cash and cash equivalents at end of period | $ | 532,884 | $ | 697,091 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 23,425 | $ | 31,566 | |||
Cash paid during the period for income taxes, net | $ | 9,051 | $ | 8,526 | |||
Non-cash investing activities | |||||||
Purchase of equipment in accounts payable | $ | 4,334 | $ | 16,717 | |||
Debt issuance costs in accrued liabilities | $ | 655 | $ | — | |||
Equipment acquired under capital lease | $ | — | $ | 464 | |||
Building subject to capital lease | $ | — | $ | 14,939 | |||
Construction in progress subject to build-to-suit lease | $ | — | $ | 8,770 | |||
Non-cash financing activities | |||||||
Conversion of 4.0% convertible senior notes, due March 15, 2015 into 8,898,387 shares of common stock | — | 180,645 |
APPENDIX A - Reconciliation of Adjusted (Non- GAAP) Quarterly Measurements | ||||||||
Quarter Ended | ||||||||
July 31, | ||||||||
2014 | 2015 | |||||||
Gross Profit Reconciliation | ||||||||
GAAP gross profit | $ | 263,973 | $ | 269,869 | ||||
Share-based compensation-products | 737 | 671 | ||||||
Share-based compensation-services | 572 | 490 | ||||||
Amortization of intangible assets | 2,201 | 2,200 | ||||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Adjusted (non-GAAP) gross profit | $ | 267,483 | $ | 273,230 | ||||
Adjusted (non-GAAP) gross profit percentage | 44.3 | % | 45.3 | % | ||||
Operating Expense Reconciliation | ||||||||
GAAP operating expense | $ | 226,971 | $ | 225,418 | ||||
Share-based compensation-research and development | 2,368 | 2,114 | ||||||
Share-based compensation-sales and marketing | 3,890 | 3,571 | ||||||
Share-based compensation-general and administrative | 3,376 | 3,516 | ||||||
Acquisition and integration costs | — | 2,435 | ||||||
Amortization of intangible assets | 11,019 | 11,019 | ||||||
Restructuring costs | 63 | 192 | ||||||
Settlement of patent litigation | — | 500 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Adjusted (non-GAAP) operating expense | $ | 206,255 | $ | 202,071 | ||||
Income from Operations Reconciliation | ||||||||
GAAP income from operations | $ | 37,002 | $ | 44,451 | ||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Adjusted (non-GAAP) income from operations | $ | 61,228 | 71,159 | |||||
Adjusted (non-GAAP) operating margin percentage | 10.1 | % | 11.8 | % | ||||
Net Income Reconciliation | ||||||||
GAAP net income | $ | 16,160 | $ | 23,625 | ||||
Total adjustments related to gross profit | 3,510 | 3,361 | ||||||
Total adjustments related to operating expense | 20,716 | 23,347 | ||||||
Non-cash interest expense | 327 | 397 | ||||||
Change in fair value of embedded redemption feature | 190 | — | ||||||
Adjusted (non-GAAP) net income | $ | 40,903 | $ | 50,730 | ||||
Weighted average basic common shares outstanding | 106,236 | 118,413 | ||||||
Weighted average dilutive potential common shares outstanding 1 | 156,561 | 159,787 | ||||||
Net Income per Common Share | ||||||||
GAAP diluted net income per common share | $ | 0.15 | $ | 0.19 | ||||
Adjusted (non-GAAP) diluted net income per common share 2 | $ | 0.32 | $ | 0.37 |
1. | Weighted average dilutive potential common shares outstanding used in calculating Adjusted (non-GAAP) diluted net income per common share for the third quarter of fiscal 2014 includes 1.5 million shares underlying certain stock options and restricted stock units, 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due March 15, 2015, 13.1 million shares underlying Ciena's 0.875% convertible senior notes, due June 15, 2017, 17.4 million shares underlying Ciena's 3.75% convertible senior notes, due October 15, 2018 and 9.2 million shares underlying Ciena's 4.0% convertible senior notes, due December 15, 2020. |
2. | The calculation of Adjusted (non-GAAP) diluted net income per common share for the fiscal third quarter of 2014 requires adding back interest expense of approximately approximately $2.1 million associated with Ciena's 4.0% convertible senior notes, due March 15, 2015, approximately $1.4 million associated with Ciena's 0.875% convertible senior notes, due June 15, 2017, approximately $3.6 million associated with Ciena's 3.75% convertible senior notes, due October 15, 2018 and approximately $2.8 million associated with Ciena's 4.0% convertible senior notes, due December 15, 2020 to the Adjusted (non-GAAP) net income in order to derive the numerator for the Adjusted earnings per common share calculation. |
• | Share-based compensation expense - a non-cash expense incurred in accordance with share-based compensation accounting guidance. |
• | Acquisition and integration costs - consist of expenses for financial, legal and accounting advisors, facilities and systems consolidation costs associated with our acquisition of Cyan. Ciena does not believe that these costs are reflective of its ongoing operating expense following its completion of these integration activities. |
• | 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. |
• | Restructuring costs - costs incurred as a result of restructuring activities taken to align resources with perceived market opportunities. |
• | Settlement of patent litigation - included in general and administrative expense during the third quarter of fiscal 2015 is a $0.5 million patent litigation settlement. |
• | 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 due December 15, 2020 relating to the required separate accounting of the equity component of these convertible notes. |
• | Change in fair value of embedded redemption feature - a non-cash unrealized gain or loss reflective of a mark to market fair value adjustment of an embedded derivative related to the redemption feature of Ciena's outstanding 4.0% senior convertible notes due March 15, 2015. |