Ciena (CIEN) Posts Strong Q2, Earnings & Revenues Beat - Analyst Blog

Ciena Corp. CIEN reported second-quarter fiscal 2015 results. Adjusted earnings came in at 27 cents per share (excluding share-based compensation and other one-time items), surpassing the Zacks Consensus Estimate of 15 cents. Earnings also improved from 6 cents reported in the prior-year quarter.!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^https:/.test(d.location)?'https':'http';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://cdn1.findthebest.com/rx/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","ftb-widgetjs");

Quarterly Details

Revenues surged 11% year over year to $621.6 million and also beat the Zacks Consensus Estimate of $606 million. Revenues also surpassed the guidance of $585 million to $615 million.

Product revenues (82.3% of revenues) increased 11.1% on a year-over-year basis to $511.9 million. Services revenues (17.7% of revenues) climbed 10.6% year over year to $109.7 million.

Converged Packet Optical revenues (69.6% of total revenue) rose 21.3% year over year to $432.9 million. Packet Networking (8.6% of total revenue) however plummeted 20% from the year-ago quarter to $53.3 million. Optical Transport revenues (2.7% of total revenue) also decreased 44.3% year over year to $16.5 million. Software and services revenues (19.1% of total revenue) increased 11% from the year-ago quarter to $118.9 million.

United States contributed 59.1% of the revenues in the quarter, while international customers contributed the rest. One customer represented 19% of the revenues.

Gross margin (including share-based compensation) increased 130 basis points (bps) on a year-over-year basis to 44.2%. Operating margin (including share-based compensation) increased 530 bps from the year-ago quarter to 7.7%.

Balance Sheet

At the end of the quarter, cash and cash equivalents (including short-term and long-term investments) were $731.4 million compared with $726.9 million as on Oct 31, 2014. Ciena’s long-term debt stands at approximately $1.3 billion.

Cash flow from operations for the six-month period ended Apr 30 was $59.9 million compared with $35.2 million cash used in the prior-year period.

Guidance

Ciena forecasts revenues in the range of $610 million to $640 million for the third quarter of fiscal 2015.

Non-GAAP gross margin is projected to be about 43%. Ciena expects non-GAAP operating expense of approximately $210 million for the third quarter.

Our Take

We believe higher spending on optical upgrades and higher number of orders from international customers will boost Ciena’s top line going forward. Additionally, the diversification of its customer base and expansion of the addressable market will be major growth drivers. Growing demand for cloud-based on-demand networking capabilities is also likely to bode well for the company. Mobile bandwidth consumption is expected to rise phenomenally, thereby providing more growth opportunities for the company.

Nonetheless, Ciena’s highly leveraged balance sheet may adversely affect its profitability, going forward. Moreover, we believe that any further decline in the top line, particularly amid stiff competition from Cisco CSCO, Juniper Networks JNPR, Alcatel-Lucent ALU and others can weigh on its financials.

Ciena sports a Zacks Rank #1 (Strong Buy).

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