CIENA's CEO Discusses Q1 2012 Results - Earnings Call Transcript

CIENA (CIEN)

Q1 2012 Earnings Call

March 07, 2012 8:30 am ET

Executives

Gregg M. Lampf - Vice President of Investor Relations

Gary B. Smith - Chief Executive Officer, President and Director

James E. Moylan - Chief Financial Officer and Senior Vice President of Finance

Thomas Mock - Senior Vice President of Corporate Marketing & Communications

Analysts

Kevin J. Dennean - Citigroup Inc, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Rod B. Hall - JP Morgan Chase & Co, Research Division

Tal Liani - BofA Merrill Lynch, Research Division

Victor W. Chiu - Morgan Keegan & Company, Inc., Research Division

Nikos Theodosopoulos - UBS Investment Bank, Research Division

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

Paul Silverstein - Crédit Suisse AG, Research Division

Blair King - Avondale Partners, LLC, Research Division

Vijay Bhagavath - Deutsche Bank AG, Research Division

Tim Long - BMO Capital Markets U.S.

Ehud Gelblum - Morgan Stanley, Research Division

Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc., Research Division

Catharine Anne Trebnick - Northland Securities Inc., Research Division

Natarajan Subrahmanyan - TheJudaGroup, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Ciena Corporation Unaudited Fiscal First Quarter 2012 Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ciena's Vice President of Investor Relations, Mr. Gregg Lampf. Mr. Lampf, please go ahead.

Gregg M. Lampf

Thank you, Ally. Good morning, and welcome to Ciena's First Quarter 2012 Review. With me today is Gary Smith, CEO and President; Jim Moylan, CFO; and Tom Mock, Senior Vice President, Corporate Communications.

This morning's press release is available on National Business Wire and ciena.com. In our prepared remarks, Gary will discuss management's view on the quarter, and Jim will offer some color on our Q1 results and provide guidance for Q2. We'll then open the call to questions from sell-side analysts taking one question per person with follow-ups as time allows.

Before turning 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 most recent 10-K filing.

Our 10-Q is required to be filed with the SEC by March 8, and we expect to file by 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 ciena.com. As a reminder, this call is being recorded and will be available for replay from the Investor section of our website.

Gary?

Gary B. Smith

Thanks, Gregg, and good morning, everyone. As you've seen in this morning's press release, we reported revenue of $417 million for our fiscal first quarter. As we stated 2 weeks ago, the first quarter's lower revenue was primarily the result of timing issues, so I'd like to take a moment to provide some details on that.

As we've discussed in recent quarters, our business is becoming increasingly more solutions-based and more geographically diverse with multiple new customer wins. And I think it's important to note that all of these dynamics are quite positive and part of our deliberate strategy to drive greater diversification of the business.

But this is resulting in longer time frames for project deployments, achieving customer acceptance and, therefore, revenue recognition. Specifically in the first quarter, we experienced revenue recognition delays on a few solutions-orientated projects with new customers, especially in international markets. This had a more significant effect than previously anticipated and was intensified by the impact of the seasonality of our business and, really, the calendar timing of our fiscal first quarter.

In the meantime, I would stress that all demand indicators around the business remain strong. We are winning deals and taking market share. We are seeing no drop in customer interest or orders and no significant change from that, that we've already described before in the competitive landscape or in the markets where we're focused.

In fact, most of the business metrics in Q1 came in as expected or better. Order flow continued its momentum with product orders strongly year -- up strongly year-on-year. Our backlog continued to grow as adjusted operating expense came in lower than expected. We generated cash from operations, and we achieved positive free cash flow for the quarter.

The bottom line is that we see no change in our opportunity. And in fact, having just returned from Mobile World Congress, it is clear to me that the networks in general are playing an increasingly important role in the user experience, requiring intelligence and economics of scale to underpin that experience.

The proliferation of services, devices and applications requires networks to be both bigger and smarter, and that requirement is driving our network vision and product architecture. As the one supplier in the industry with both market-leading technology and deep experience in transport, switching and carrier Ethernet, we are leveraging that leadership by cross-pollinating our core technologies across our complete portfolio to deliver a truly automated and converged network infrastructure.

Specifically, in transport, we've just launched WaveLogic 3, our newest generation chipset for high-speed coherent optics and the industry's first software programmable processor system. This technology, again a first for the industry, is how Ciena is delivering against the need for bigger and smarter bandwidth as we continue to move the goalposts in coherent optical transport.

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