- Revenue: $911 million for fiscal Q2 2024.
- Adjusted Gross Margin: 43.5%.
- Adjusted Operating Margin: 6.8%.
- Adjusted EPS: $0.27.
- Free Cash Flow: $42 million.
- Cash from Operations: $59 million.
- Adjusted EBITDA: $86 million.
- Adjusted Net Income: $39 million.
- Adjusted Operating Expense: $334 million.
- Cash and Investments: Approximately $1.4 billion.
- Share Repurchase: 1.1 million shares for $57 million during the quarter.
- WaveLogic 5 Extreme Customers: 20 new customers in Q2, total of 209 customers.
- WaveLogic 5 Extreme Shipments: More than 123,000 units shipped.
- Reconfigurable Line System (ROS) Revenue: Up 12% year-over-year.
- WaveLogic 5 Nano 400ZR and ZR+ Customers: 18 new customers in Q2.
- WaveLogic 6 Extreme Orders: Orders from 14 customers globally.
- Platform Software and Services Revenue Growth: 23% year-over-year.
- Global Services Business Growth: 5% year-over-year, 6% sequentially.
- Fiscal Year 2024 Revenue Guidance: Approximately $4 billion.
- Fiscal Year 2024 Adjusted Gross Margin Guidance: Mid 40%s range.
- Fiscal Year 2024 Adjusted Operating Expense Guidance: $340 million to $345 million per quarter.
- Fiscal Q3 2024 Revenue Guidance: $880 million to $960 million.
- Fiscal Q3 2024 Adjusted Gross Margin Guidance: Low to mid 40%s range.
- Fiscal Q3 2024 Adjusted Operating Expense Guidance: Approximately $345 million.
Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ciena Corp (CIEN, Financial) reported fiscal second quarter revenue of $911 million and an adjusted gross margin of 43.5%.
- The company generated $42 million in free cash flow during the quarter.
- Ciena Corp (CIEN) secured significant design wins with both service providers and cloud providers, including a multiyear network evolution project with a leading North American Tier 1 service provider.
- The company added 20 new customers for WaveLogic 5 Extreme in Q2, bringing the total customer count to 209.
- Ciena Corp (CIEN) has strong and expanding relationships with both service providers and cloud providers, positioning it well for future growth.
Negative Points
- Service providers are taking longer than expected to absorb and deploy accumulated inventory, impacting short-term revenue.
- The recovery of service provider order patterns is slower than initially expected due to macroeconomic concerns, particularly internationally.
- Despite positive secular demand, the current operating environment remains challenging with cautious spending from service providers.
- Ciena Corp (CIEN) expects fiscal year 2024 revenue to be at the low end of the previously provided range, approximately $4 billion.
- The company's inventory levels increased sequentially, which may indicate slower-than-expected inventory turnover.
Q & A Highlights
Q: Maybe if you could talk a little bit about kind of order book in the fiscal Q2. I'm not sure if you gave that. And then, it sounds like the telco continues to push out getting you to the lower end of the range, what confidence do you have that we'll see that in October or January? When do you think we'll start to really see and that telco business is fully recovering? Thank you.
A: Yeah, I'll speak to the backlog, Tim. We ended the quarter at about $1.9 billion in backlog. And based on what we see for the rest of the year, we do think our backlog will be down a bit at the -- by the end of the year, maybe not in Q3, but by the end of the year, it will be down a bit. Probably not based on what we see now to as low as the long-term trend we had pre all of the COVID and supply chain situation. So Tim, let me take the second part of that. What gives us confidence to it? First of all, we've seen sort of a steady increase in the first half in orders from service providers. We expect that to jump a little more in a little bit of a step function in Q3. As Jim said in his commentary, we expect meaningful order increases in Q3, primarily led by the cloud, but also we expect an improvement in the service provider piece. And we're also seeing in awards, the pipeline, the whole activity level is increasing. And sort of just as importantly, I think to talk to your question, we're seeing the inventory levels come down and they are deploying, particularly in North America. We have good visibility into that. So I think as we get out of the year, I think you will -- you'll see service providers in a more balanced supply demand inventory situation as we come out of our fiscal year.
Q: In your deck today, you highlighted an emerging opportunity for coherent pluggables, both inside and around the data center. For inside the data center, are you suggesting these would be used in 7 to 10 kilometer lengths? Or would there be shorter reach links also possible? And I have a follow-up.
A: Hey, Karl, it's Scott, I think both opportunities are there. I think the more near one is the shorter kilometer reach links sort of around the data center, if you like. Think of it as a 2 to 10 kilometer type opportunity. I think second one that you mentioned is as the data rates between GPUs are increasing and because of the power usage and the restrictions on power forcing more distributed architectures in these GPU clusters, the lengths of the links that need to get communicated. Those coherent technologies in our belief are going to start to make their way inside sort of more of the traditional clusters. That's a longer-term opportunity. But our position of strength from a coherent technology is pulling us into many of those dialogues around future architectures, both with the end cloud customers, but also with ecosystem providers that service those customers.
Q: You indicated that orders -- you've already received orders for WaveLogic 6 E products, but do you expect WaveLogic 6 E and 6 Nano will be [GA] in the second half of this calendar year? And I guess as you address that, does a muted outlook for telecom impede in any way the near term demand uplift you see of these new products? Thank you.
A: Yes. So first of all, you have -- to your timing question, yes, both the 6 E and 6 N will be in market generally available this year, this calendar year. We made the comment actually that we had multiple orders for 6 E. That's absolutely true. And it comes across both service provider and cloud segments. We also have awards as well for 6 N, not just 6 E. So to your question of does the service provider sort of get in the -- the service provider dynamics of inventory will not get in the way of the ramp on those technology, I would say not because the early movers in those tend to be the folks that are most -- have the highest bandwidth demand growth and have the tightest constraint on their fibers. So think of the web scalers, think of the MOFN networks that are serving those web scalers, and think of submarine networks.
Q: My question is about the non-service provider. Two questions. First, cloud went down from 33% to 25% of this non-cloud portion. And I'm trying -- I want to understand what is driving the trends right now in the cloud, meaning they're investing heavily inside the data center, doesn't it translate into more traffic outside that requires your solutions? And if that's the case, it means that they had tons of inventory before. So where are we on the absorption of cloud inventories? The second question is about the government and enterprise; this portion is growing. And can you talk about trends there? What's driving it et cetera? Thanks.
A: Okay. Let me take the first part of that, on the cloud, Tal. You if you look at what we've done in the cloud space, we were up 50% -- 57% last year. If you look at the first half of this year we're up 14%. Revenues were down slightly in Q2. That's just normal sort of ebbs and flows, frankly. And the order flows we expect in Q3 and we're seeing in Q4, we expect both orders and revenue to increase in the second half of the year. The other thing I would say about it is, yes, they're investing heavily inside the data center right now. And their cloud business is growing as witnessed by those numbers that I just gave you. That's really before all of the AI stuff hits and comes out of the data center. That's really all in front of us. We are now seeing specific plans and engagements around network deployments in the second half and moving into early '25 to deal with what they expect to be an increase in AI traffic as well. So I think we're very positive around the whole cloud space. And if you look at the first half, we took market share. Even though we have a very high market share in cloud, and we're very specific about this. We took market share in the first half. And that's before you've got WaveLogic 6 coming online, which has a massive technology advantage. You heard us talk about the orders. Just in the last couple of quarters, you've got multiple strategic awards for our 400-gig ZR+ and we talked about the new 800-gig ZR+ as well, which is obviously for WaveLogic Nano. So -- and that's an incremental market opportunity for us, as Scott was just saying around the short reach WAN and then eventually into the actual data center itself. On the government and enterprise, Tal, we are showing a growth in that sector, particularly on the government side. We were up last year, 23%. Year to date, we're up about 6%. We see a lot of opportunity, particularly on the government side, and we're pushing hard to make
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
