Delivers 5% Sequential and 24% Year-Over-Year Revenue Growth; Revises Q4 Outlook

LINTHICUM, Md.--(BUSINESS WIRE)--Ciena^® Corporation (NASDAQ:CIEN), the network specialist, today announced results for its fiscal third quarter ended July 31, 2008. Revenue for the third quarter totaled $253.2 million, representing a 5% sequential increase from fiscal second quarter 2008 revenue of $242.2 million, and an increase of 24% over the same period a year ago when Ciena reported revenue of $205 million. For the nine months ended July 31, 2008, Ciena reported revenue of $722.8 million, representing an increase of 28% over revenue of $563.6 million for the same nine-month period in fiscal 2007.

On the basis of generally accepted accounting principles (GAAP), Ciena’s net income for the fiscal third quarter 2008 was $11.7 million, or $0.12 per diluted common share. This compares to fiscal second quarter GAAP net income of $23.8 million, or $0.23 per diluted common share, and a reported GAAP net income of $28.3 million, or $0.29 per diluted share, for the same period a year ago. For the nine months ended July 31, 2008, Ciena’s reported GAAP net income was $64.3 million, or $0.63 per diluted common share. This compares to a GAAP net income of $52.4 million, or $0.57 per diluted common share, for the same period in fiscal 2007.

Ciena’s adjusted (non-GAAP) net income for the fiscal third quarter 2008 was $39.8 million, or $0.37 per diluted common share. This compares to fiscal second quarter adjusted (non-GAAP) net income of $42.3 million, or $0.40 per diluted common share, and adjusted (non-GAAP) net income of $40.0 million or $0.41 per diluted common share in the fiscal third quarter 2007. A reconciliation between the GAAP and adjusted (non-GAAP) measures contained in this release is provided in the table in Appendix A.

“Our fiscal third quarter performance was solid,” said Gary Smith, Ciena’s president and CEO. “We delivered our eighteenth quarter of sequential revenue growth, gross and operating margins in-line with our targets, and improvement across several key balance sheet metrics.”

“In addition to existing customer-specific challenges, we have recently begun to experience order delays from many of our Tier One service provider customers, which we attribute to their guarded approach to capital expenditures given the uncertain macroeconomic environment,” said Smith. “While we’ve seen no project or order cancellations, sales cycles are lengthening and some deployments are slowing. As a result, we now expect fiscal fourth quarter revenue in a range of $190 to $210 million.”

“While current economic conditions warrant a cautious near-term outlook, the fundamental drivers of our business – growing capacity demands and the transition to more efficient, more powerful, automated networks – remain sound. We are confident that our portfolio and value propositions are differentiated, positioning us to take advantage of what is predicted to be a longer-term investment cycle in the transition from SONET/SDH to Ethernet-based networks,” said Smith.

Ciena will host a discussion of its fiscal third quarter results with investors and financial analysts today, Thursday, September 4, 2008 at 8:30 a.m. (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: http://www.ciena.com/investors.

Forward-looking statements. This press release contains certain forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties. These statements are based on information available to the Company as of the date hereof; and Ciena’s actual results could differ materially from those stated or implied, due to risks and uncertainties associated with its business, which include the risk factors disclosed in its Report on Form 10-Q filed with the Securities and Exchange Commission on June 6, 2008. 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: while we’ve seen no project or order cancellations, sales cycles are lengthening and some deployments are slowing; as a result, we now expect fiscal fourth quarter revenue in a range of $190 to $210 million; while current economic conditions warrant a cautious near-term outlook, the fundamental drivers of our business – growing capacity demands and the transition to the more efficient, more powerful, automated networks – remain sound; and we are confident that our portfolio and value propositions are differentiated, positioning us to take advantage of what is predicted to be a longer-term investment cycle in the transition from SONET/SDH to Ethernet-based networks. Ciena assumes no obligation to update the information included in this press release, whether as a result of new information, future events or otherwise.

Non-GAAP Presentation of Quarterly Results. This release includes non-GAAP measures of Ciena’s gross profit, operating expense, income from operations and net income. 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. For a complete GAAP to non-GAAP reconciliation of the non-GAAP measures contained in this release, see Appendix A.

Ciena specializes in the transition to service-driven networks. We provide flexible platforms, intelligent software and professional services to help our customers use their networks to fundamentally change the way they compete. With a growing global presence, Ciena leverages its heritage of practical innovation to deliver maximum performance and economic value in communications networks worldwide. We routinely post recent news, financial results and other important announcements and information about Ciena on our website at www.ciena.com.


CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

	Quarter Ended July 31,						Nine Months Ended July 31,
	2007			2008			2007			2008
Revenues:
Products	$	182,143		$	223,661		$	501,637		$	641,632
Services		22,808			29,518			61,942			81,162
Total revenue		204,951			253,179			563,579			722,794

Costs:
Products		84,383			107,953			250,681			295,381
Services		22,903			19,595			59,775			57,617
Total cost of goods sold		107,286			127,548			310,456			352,998
Gross profit		97,665			125,631			253,123			369,796
Operating expense:
Research and development		31,671			47,809			93,166			127,881
Selling and marketing		30,303			39,440			85,360			111,639
General and administrative		14,564			14,758			36,562			54,036
Amortization of intangible assets		6,295			8,671			18,885			23,901
Restructuring recoveries		(1,196	)		-			(2,396	)		-
Total operating expense		81,637			110,678			231,577			317,457
Income from operations		16,028			14,953			21,546			52,339
Interest and other income, net		19,464			5,342			51,206			32,911
Interest expense		(6,931	)		(1,855	)		(19,227	)		(11,074	)
Gain on equity investments, net		592			-			592			-
Realized loss on marketable debt investments		-			(5,114	)		-			(5,114	)
Income before income taxes		29,153			13,326			54,117			69,062
Provision for income taxes		841			1,603			1,739			4,772
Net income	$	28,312		$	11,723		$	52,378		$	64,290
Basic net income per common share	$	0.33		$	0.13		$	0.61		$	0.72
Diluted net income per potential common share	$	0.29		$	0.12		$	0.57		$	0.63
Weighted average basic common shares outstanding		85,651			90,216			85,268			88,871
Weighted average dilutive potential common shares outstanding		101,568			111,681			96,189			110,654


CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

ASSETS
	October 31,			July 31,
Current assets:	2007			2008
Cash and cash equivalents	$	892,061		$	873,103
Short-term investments		822,185			155,818
Accounts receivable, net		104,078			138,142
Inventories		102,618			106,343
Prepaid expenses and other		47,817			38,624
Total current assets		1,968,759			1,312,030
Long-term investments		33,946			57,155
Equipment, furniture and fixtures, net		46,671			58,723
Goodwill		232,015			455,721
Other intangible assets, net		67,144			102,262
Other long-term assets		67,738			75,808
Total assets	$	2,416,273		$	2,061,699

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	55,389		$	61,780
Accrued liabilities		90,922			90,877
Restructuring liabilities		1,026			687
Income taxes payable		7,768			2,140
Deferred revenue		33,025			37,896
Convertible notes payable		542,262			-
Total current liabilities		730,392			193,380
Long-term deferred revenue		30,615			38,469
Long-term restructuring liabilities		3,662			3,350
Other long-term obligations		1,450			7,938
Convertible notes payable		800,000			800,000
Total liabilities		1,566,119			1,043,137
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; 140,000,000 and 290,000,000 shares authorized; 86,752,069 and 90,297,280 shares issued and outstanding		868			903
Additional paid-in capital		5,519,741			5,621,630
Changes in unrealized gains on investments, net		350			43
Translation adjustment		(1,593	)		768
Accumulated deficit		(4,669,212	)		(4,604,782	)
Total stockholders' equity		850,154			1,018,562
Total liabilities and stockholders' equity	$	2,416,273		$	2,061,699


CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
	Nine Months Ended July 31,
	2007			2008
Cash flows from operating activities:
Net income	$	52,378		$	64,290
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discount on marketable securities		(8,093	)		(1,827	)
Loss from equity investments and marketable securities		-			5,114
Depreciation and amortization of leasehold improvements		9,407			13,345
Share-based compensation		14,258			24,406
Amortization of intangibles		21,788			27,942
Deferred tax provision		-			1,640
Provision for inventory excess and obsolescence		8,860			13,841
Provision for warranty		8,910			11,234
Other		1,754			3,510
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable		(10,634	)		(32,070	)
Inventories		(7,916	)		(4,694	)
Prepaid expenses and other		(16,776	)		(616	)
Accounts payable and accruals		3,316			(7,927	)
Income taxes payable		695			(5,515	)
Deferred revenue and other obligations		19,448			9,554
Net cash provided by operating activities		97,395			122,227
Cash flows from investing activities:
Payments for equipment, furniture, fixtures and intellectual property		(21,442	)		(22,947	)
Restricted cash		(11,904	)		1,420
Purchase of available for sale securities		(564,399	)		(180,613	)
Proceeds from maturities of available for sale securities		539,663			820,177
Minority equity investments, net		411			-
Acquisition of business, net of cash acquired		-			(210,016	)
Net cash (used in) provided by investing activities		(57,671	)		408,021
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes		500,000			-
Repayment of 3.75% convertible notes payable at maturity		-			(542,262	)
Debt issuance costs		(11,431	)		-
Purchase of call spread option		(42,500	)		-
Repayment of indebtedness of acquired business		-			(12,363	)
Proceeds from issuance of common stock		18,314			5,246
Net cash provided by (used in) financing activities		464,383			(549,379	)
Effect of exchange rate changes on cash and cash equivalents		-			173
Net increase (decrease) in cash and cash equivalents		504,107			(19,131	)
Cash and cash equivalents at beginning of period		220,164			892,061
Cash and cash equivalents at end of period	$	724,271		$	873,103

Non-cash investing and financing activities
Purchase of equipment in accounts payable	$	-		$	1,717
Value of common stock issued in acquisition	$	-		$	62,359
Fair value of vested options assumed in acquisition	$	-		$	9,912


APPENDIX A – Reconciliation of Adjusted (Non-GAAP) Measures

	Quarter Ended
	July 31,			April 30,			July 31,
	2007			2008			2008
Gross Profit Reconciliation (GAAP/non-GAAP)
GAAP gross profit	$	97,665		$	127,596		$	125,631
Share-based compensation - product		131			742			1,042
Share-based compensation - services		225			392			404
Amortization of intangible assets		-			-			1,139
Fair value adjustment of acquired inventory		-			1,066			4,278
Total adjustments related to gross profit		356			2,200			6,863
Adjusted (non-GAAP) gross profit	$	98,021		$	129,796		$	132,494
Adjusted (non-GAAP) gross margin		48	%		54	%		52	%

Operating Expense Reconciliation (GAAP/non-GAAP)
GAAP operating expense	$	81,637		$	108,629		$	110,678
Share-based compensation - research and development		985			2,286			2,198
Share-based compensation - sales and marketing		1,898			3,022			2,930
Share-based compensation - general and administrative		1,724			2,233			2,343
Amortization of intangible assets		6,295			8,760			8,671
Litigation settlement		2,250			-			-
Restructuring recoveries		(1,196	)		-			-
Total adjustments related to operating expense		11,956			16,301			16,142
Adjusted (non-GAAP) operating expense	$	69,681		$	92,328		$	94,536

Income from Operations Reconciliation (GAAP/non-GAAP)
GAAP income from operations	$	16,028		$	18,967		$	14,953
Total adjustments related to gross profit		356			2,200			6,863
Total adjustments related to operating expense		11,956			16,301			16,142
Adjusted (non-GAAP) income from operations	$	28,340		$	37,468		$	37,958
Adjusted (non-GAAP) operating margin		14	%		15	%		15	%

Net Income Reconciliation (GAAP/non-GAAP)
GAAP net income	$	28,312		$	23,760		$	11,723
Total adjustments related to gross profit		356			2,200			6,863
Total adjustments related to operating expense		11,956			16,301			16,142
Gain on equity investments, net		(592	)		-			-
Realized loss on marketable debt investments		-			-			5,114
Adjusted (non-GAAP) net income	$	40,032		$	42,261		$	39,842

Weighted average basic common shares outstanding		85,651			89,102			90,216
Weighted average basic common and dilutive potential common shares outstanding		101,568			110,770			111,681

Net Income per Common Share
GAAP diluted net income per common share¹	$	0.29		$	0.23		$	0.12
Adjusted (non-GAAP) diluted net income per common share¹	$	0.41		$	0.40		$	0.37

¹		Note that calculating GAAP and adjusted (non-GAAP) diluted earnings per common share for the fiscal third quarters 2007 and 2008 requires adding interest expense of approximately $1.3 and $1.9 million associated with Ciena's 0.25% and 0.875% convertible senior notes in 2007 and 2008 respectively, to GAAP and adjusted (non-GAAP) net income in order to arrive at the numerator for the earnings per common share calculation. Likewise calculating GAAP and adjusted (non-GAAP) diluted earnings per common share for the fiscal second quarter of 2008 requires adding interest expense of approximately $1.9 million associated with Ciena's 0.25% and 0.875% convertible senior notes.

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:

CONTACT:
Ciena Corporation
Press Contact:
Nicole Anderson, 410-694-5786
pr@ciena.com
or
Investor Contact:
Marie Downing, 888-243-6223
ir@ciena.com