Ciena CEO Discusses F4Q10 Results - Earnings Call Transcript
Ciena (CIEN)
F4Q10
Earnings Call
December 9, 2010 8:30 a.m. ET
Executives
Gregg Lampf, VP, Investor Relations
Gary Smith – President and CEO
Jim Moylan – SVP, Finance and CFO
Tom Mock - SVP, Corporate Marketing and Communications
Analysts
John Marchetti - Cowen & Company
Nikos Theodosopoulos – UBS
Rod Hall – JPMorgan
Paul Silverstein – Credit Suisse
George Notter – Jefferies
Mark Sue – RBC Capital
Cobb Sadler - Catamount Advisors
Alex Henderson - Miller Tabak
Kevin Dennean - Citi
Subu Subrahmanyan – Sanders Morris
Ehud Gelblum - Morgan Stanley
Tal Liani – Bank of America
Presentation
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Good day ladies and gentlemen, and welcome to the Ciena's fiscal fourth quarter 2010 results conference call. [Operator Instructions.] I'd now like to turn the conference over to your host, Mr. Gregg Lampf, VP of investor relations. Please go ahead.
Gregg Lampf
Thanks, operator. Good morning and welcome, everyone. I’m pleased to have with me Gary Smith, Ciena’s CEO and president, and Jim Moylan, CFO. In addition, Tom Mock, senior vice president, corporate marketing and communications will be with us for the Q&A portion of today’s call.
This morning’s prepared remarks will be presented in three segments. Gary will briefly look back at the year, provide a high-level review of the financial performance in the fourth quarter, and then discuss our view of the market environment. Jim will then detail our Q4 financial results and provide our guidance for Q1 2011. We’ll then open the call to questions from the sell-side analysts. This morning’s press release is available on National Business Wire and on Ciena’s website at ciena.com.
Before I turn the call over to Gary, I’ll remind you that during this call, we will be making certain forward-looking statements. Such statements are based on current expectations, forecasts, and assumptions regarding the company that include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in our 10-Q filed with the SEC on September 8, 2010. Our 10-K is required to be filed with the SEC by December 29, and we expect to file on or before that date.
Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events, or otherwise. Today’s discussion includes certain adjusted or non-GAAP measures of Ciena’s results of operations. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today’s press release available on our website at ciena.com.
Lastly, as a reminder, this call is being recorded and will be available for replay from the Investors’ portion of our Web site. Gary?
Gary Smith
Thanks Gregg, and good morning everyone. Since 2010 was such a transformative year for Ciena, I will start by spending a few moments recapping our progress. The company's come a long way in 2010, and I am extremely proud of our employees and grateful for the support of our customers, our investors, and our partners.
In acquiring the Nortel MEN assets, we took a bold strategic move that significantly improved the market position of the company. Today, as a result, Ciena is a focused player with both global scale and industry-leading solutions that are well-aligned to high-growth markets and customer network priorities.
And we've moved quickly and decisively to bring Ciena and the Nortel MEN business together and begin to realize the strategic value of the combination. This has resulted in several significant achievements during the year. Our rationalized portfolio is being positively received by the market, we've finalized our combined organization with strong leadership, we've migrated off certain MBS transition services, and we're on track to come off all critical TSAs during the second fiscal quarter of 2011.
We're experiencing strong customer reengagement from historical MEN customers and have already had a number of early successes with respect to cross-selling. And finally, we've strengthened our balance sheet and are on track to achieve additional operating synergies.
Realizing that more work lies ahead, I am pleased with the speed and the quality of the integration so far. In 2011, we will be focused on leveraging the solid foundation that has been built by delivering on the value of the combination. We are on track to get the company entirely on its own business systems, complete the integration of our portfolio, exploit our market position and technology leadership to take share, and maximize our operating leverage as we move to profitability.
We're in a good position to do this because of the strategic investments we've made, and we're bringing new industry-leading platforms to market and beginning to penetrate new geographies and market verticals. So we have much to be optimistic about as we head into 2011.
Looking at how we performed during the fourth quarter, overall we're pleased with our progress, particularly given that it is only the second full quarter of the combined business following the acquisition of the Nortel MEN assets. There are many moving parts, but we're growing more confident as we gain experience with the dynamics of the combined business.
And one of the clearest barometers of the value of the combination is how customers view the integration is our revenue performance. Ciena's fourth quarter revenue came in strong at $417.6 million, representing about a 7% sequential growth.
Notably, this quarter the portion of our business outside the U.S. has grown to 50%, and while this percentage can obviously fluctuate, we believe this quarter's composition speaks to our expanded global reach and customer diversity.
Our Q4 adjusted gross margin was 43.7%, and while we're pleased with our margin this quarter, we expect customer and product mix, specifically within our packet optical transport segment, to cause near-term results to be more consistent with our guidance of a low-forties range.
Moving on, our non-GAAP operating expense was $195 million, and op ex in the fourth quarter came in higher than anticipated, which I'll remind you followed a better-than-planned third quarter. Jim will discuss this in more detail, but I'll highlight that the spend in Q4 was largely driven by a couple of positive items.
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