Ciena Corp. CIEN reported fourth-quarter and fiscal 2015 results. Adjusted earnings for the quarter came in at 27 cents per share, missing the Zacks Consensus Estimate of 35 cents. In the prior-year quarter, the company had reported adjusted loss of 16 cents per share.
Following the results, the company shares declined nearly 17% in the after hours trading yesterday.
Quarterly Details
Revenues increased 13.7% year over year to approximately $672 million but missed the Zacks Consensus Estimate of $684 million. For fiscal 2015, the company reported revenues of $2.4 billion, up from $2.3 billion reported in the prior fiscal.
Product revenues (83% of revenues) surged 20.6% on a year-over-year basis to $574.3 million. Services revenues (17% of revenues) increased 2.5% year over year to $117.7 million.
Converged Packet Optical revenues (70% of total revenue) rose 18.7% year over year to $484.3 million. Packet Networking (9.2% of total revenue) increased 11.5% from the year-ago quarter to $63.8 million. Optical Transport revenues (2.4% of total revenue) plummeted 4.6% year over year to $16.7 million. Software and services revenues (18.4% of total revenue) decreased 5.8% from the year-ago quarter to $127.2 million.
United States contributed 65.5% of the revenues in the quarter, while international customers contributed the rest. Two customers together represented 29.6% of revenues, each contributing more than 10%.
The company reported adjusted gross margin of 44.9%, which increased 700 basis points (bps) on a year-over-year basis. Adjusted operating margin increased 960 bps from the year-ago quarter to 13%.
Balance Sheet
At the end of the quarter, cash and cash equivalents (including short-term and long-term investments) were $926.1 million compared with $726.9 million as on Oct 31, 2014. Ciena’s long-term debt stands at approximately $1.3 billion.
Ciena generated strong cash flow of $262.1 million in fiscal 2015 compared with approximately $89.8 million generated in the prior fiscal.
Guidance
Ciena also provided its guidance for first quarter and fiscal 2016.
Revenues in the first quarter of fiscal 2016 are forecast to be in the range of $555 million to $590 million. Non-GAAP gross margin is projected to be about 44%. Ciena expects non-GAAP operating expense of approximately $220 million for the quarter.
In fiscal 2016, Ciena projects revenue growth in the range of 8% to 9%. Non-GAAP gross margin is projected to be in mid-40% range. Ciena expects non-GAAP operating expense of approximately $225 million per quarter. Non-GAAP operating margin is expected in the range of 11% to 12%.
Our Take
We believe that despite the short-term headwinds, higher spending on optical upgrades and increasing orders from international customers will improve 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.
Moreover, Ciena’s focus on cost-cutting initiatives is expected to aid the bottom line.
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, and others can weigh on its financials.
Ciena carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Oclaro, Inc. OCLR, sporting a Zacks Rank #1 (Strong Buy).
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