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Ciena (CIEN) Swings to Earnings in Q1 on Higher Revenues

Zacks Equity Research

Ciena Corporation CIEN reported healthy first-quarter fiscal 2019 (ended Jan 31, 2019) financial results wherein both the top line and bottom line improved year over year. This was driven by solid execution of operational strategies, including diversifying business and leveraging global scale.

Net Income

On a GAAP basis, net income for the quarter was $33.6 million or 21 cents per share against net loss of $473.4 million or loss of $3.29 per share in the year-ago quarter. The year-over-year improvement was primarily backed by top-line growth and lower provision for income tax. Non-GAAP net income came in at $52.8 million or 33 cents per share compared with $21.9 million or 15 cents per share in the prior-year quarter.

Ciena Corporation Price, Consensus and EPS Surprise

Ciena Corporation Price, Consensus and EPS Surprise | Ciena Corporation Quote

Revenues

Quarterly total revenues increased 20.5% year over year to $778.5 million, primarily due to higher product sales. Ciena had three 10% customers in the quarter, of which one was a webscale customer. Notably, orders in the quarter were more than revenues, leading to rise in the company’s backlog. Ciena’s webscale business accounted for 22% of total revenues, reflecting an increase of 64% year over year. It expects this key customer segment to remain a growth driver in the quarters ahead.

Geographically, revenues from North America were $485.5 million, up 20.5% year over year, driven by additional share gains across diverse customer base, including new wins and increasing traction of packet and software portfolios. Revenues from Europe, Middle East and Africa were $129.2 million, up 32.1% due to new market share capture opportunities. Caribbean and Latin America totaled $30.9 million, down 10.7%. Asia Pacific revenues were $132.9 million, up 19.9% including a significant contribution from Japan.

Segmental Performance

Revenues from Networking Platforms increased 25.1% year over year to $620.5 million. Software and Software-Related Services revenues were $56.6 million compared with $53.5 million in the prior-year quarter. Revenues from Global Services were $101.4 million compared with $96.6 million a year ago.

Other Quarterly Details

Gross margin was 41.5% compared with 42.1% in the year-ago quarter. Operating expenses were $275.4 million, up from $255 million. Operating margin was 6.2% compared with 2.6% in the prior-year quarter. EBITDA was $78.4 million, up from $43.5 million.

Share Repurchases

During the reported quarter, Ciena repurchased nearly 0.6 million shares for an aggregate amount of $21.2 million. It aims to buy back around $150 million worth of shares by the end of fiscal 2019.

Cash Flow and Liquidity

During the fiscal first quarter, Ciena utilized $14.1 million of cash from operating activities against a cash generation of $35.7 million a year ago. As of Jan 31, 2019, the company had $668.8 million in cash and equivalents with $684.9 million of net long-term debt.

Fiscal Q2 Outlook

On the back of solid industry position and positive dynamics to gain additional market share, Ciena has provided guidance for the fiscal second quarter. The company expects revenues to be between $800 million and $830 million. While adjusted gross margin is anticipated to be 42-43%, adjusted operating expenses are projected to be $255-$260 million.

Zacks Rank and Stocks to Consider

Ciena currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Harris Corporation HRS, Motorola Solutions, Inc. MSI and Comtech Telecommunications Corp. CMTL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Harris has a long-term earnings growth expectation of 8%.

Motorola has a long-term earnings growth expectation of 8%.

Comtech has a long-term earnings growth expectation of 5%.

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