CIEN - Earnings call transcript Q4 2018

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Operator

Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to Ciena Fiscal Fourth Quarter and Year-end 2018 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator President, you Vice conference. begin Investor Lampf, may Relations, your Gregg

Gregg Lampf

of is and will you, welcome Scott Products year-end Services, of quarter today and Good McFeely, President review. Senior Vice and us Smith, Ciena’s me Thank for today’s President morning, the and fourth our to Senior Sharon. call. of Moylan, and Q&A CEO; Jim XXXX join Vice fiscal portion With Rick Planet Gary CFO. our President Global Blue and Hamilton,

In made the report addition section press release, includes prepared this call to and today Investors this remarks available the website. morning’s that on our were of earlier

fiscal posted discussion, accompanying certain from as year. have presentation that and items an as also well reflects this highlighted We quarter Investor the

our discussion current how on financial today our Our our market opportunity front to included comments are targets we near-term and of speak and of and QX performance, in us, the addressing outlook. long-term and XXXX dynamics fiscal view

in differ XX-K the call making certain uncertainties Before and recent cause upcoming that the be its detailed remind include guidance including expectations, These such statements that on are during statements, and and current XX-Quarter Company risks we’ll the our actual over materially results our filling that regarding based in I’ll filing. turning markets forecast financial statements should viewed our could call the forward-looking in factors of risk targets this to be from and to statements assumptions today. discussed the context Gary, long-term and you

non-GAAP obligation update Ciena’s of over as turn release. call to in measures we these to this in Ciena by Today’s results to the of or January XX-K date. information new the whether of and certain that, to our detailed with A I’ll of it to With includes discussed no that included by today’s measures results required press SEC future non-GAAP operations. reconciliation result is Our adjusted or assumes GAAP file events information, otherwise. a expect discussion be is filed conference Gary. Xnd,

Gary Smith

and good that outstanding results fiscal a we particularly reported margin operating margin year strong. in Gregg, quarter Thanks, Today, including of morning, revenue, XXXX and performance were everyone. gross with fourth remarkable

we consistent For full differentiated growth strategy. gains execution percentage industry-leading our year, XX% fiscal adjusted This is including delivered growth and of sustained driven the revenue profitability, in the by performance and EPS. double-digit

drive business remain position very we’re and position. Our unique successfully strong, the ability and providers scale the our webscale of specifically than drive XX% The to their strength, business. here, leadership carry with to and a our continue has innovation market. network accelerating demand a DCI business, market diversify to fundamental share drivers clear out a us design strategy global for in to leverage the assets of pace global more And the plus market cloud invest in infrastructure operating given

Asia-Pacific positive, of with very strength set drivers in markets. continued for outlook in the Our remains and growth region key the broadening

operators alike. continue strategies drive cable we’re increased service service Additionally, XG And, new to providers fiber for Fiber like initiatives to providers of densification, from new these software and seeing interest investment from automation Deep networks. and related

end-state and on operators. the vision for is includes new leadership strategy coherent that that target that to This our Network, pressing Peak a made technology investment and our believe to in forward. investment, vision on and includes WaveLogic, network of will Executing and long do are years needs programmable Adaptive these have industry-leading strategy going several infrastructure result, leverages term that high-growth And customer over so down from the of our capacity. We address applications. technology. significant markets benefitting as we investments continue we

purposeful multiple which to which Packet addresses heavily aggregation, full includes networks current Networking the this IP access delivering optics to modem extends while Network automation and cost hardware software portfolio. service the planned factors, away our support that bending form by Network also the automation our our new roadmap, The and often a and you as in shift are Also multiple roadmap. capability in infrastructure build comprehensive will that execute and our on as wins towards delivers we the know, curves. control here of platforms delivery addition Planet. driven and suite core the coherent confidence Adaptive Blue in customers’ Adaptive down gig of scale our we’ve critical technology, their our and of enables capabilities software customers is beyond their In potential invested And to XXX from

clarity this now where discuss of enter we see hardware our This further independently release. business And its formation allowing is as to to review targets. more customers in support greater the our results sense. enhances Network by to evolve range having will and their within our we long-term to turn can business. change, Jim? own detail us see business to operate conversations allowing makes today’s Blue transforming into software they Adaptive Ciena. demonstrate networks. over in holistic of XXXX, of more to automation Along of value to ability performance the clearly As With consumption division enabling can segment this portfolio fiscal the the today’s the I’ll it revenue how our models Planet we’re a will that, our The provide you and in with this operating down break press our vision customers, Jim with operate

Jim Moylan

backlog. income million in And billion we significantly Adjusted EPS than to was XXXX. finished margin XX.X%, the orders quarter strong expense was greater gross year we to in operating a morning. tied adjusted with revenue, quarter Thanks, was was due the Adjusted again end Gary. XX.X% with in was operating $X.XX. million, $XXX our variable higher operating adjusted adjusted compensation margin. had fiscal or $XXX.X Good revenue QX the and $X.XX QX record to performance. $XXX a million. Total bookings strong was

in the QX result direct of our across was business. performance a continued momentum Our

approximately a which operating was XXXX full above revenue we business which of results of future With to Also, We targets. fiscal more how $XX in to expect growth in to rate been XXXX, absent the rate. million year quarter, in will of Adjusted and from time, XX% dynamic benefit this or expect continue XX% be was for three last terms our gross one-time, was XXXX, X%. above certain revenue clear, This we was adjusted from to to And targeted fiscal, XX% XXXX, of and at next going annual a generation of significantly exceeded which adjusted in of from target fiscal XXX the our would revenue quarter. growth to in XX% we’ve leading fiscal both and guidance the and customer $X.XX, In intend to we fourth financial have our performance X% we targets. respect this be years of the adoption our still to than contracts. income. outstanding $XXX one-time repeated This up through what shared to for our are the Free long-term range. margin our not fiscal periods. Annual for market million flow year a in resulted ASC EPS cash forward. results strong achieved conditions our those manage benefiting anticipation of both a set over number position demand, against the

on is XX%. and of long-term was This technology range, While for share incumbency approximately an slightly adjusted annualized finally, target confident and confident new drive fiscal our leading long-term XXXX margin this our on market achieving was our an our gains. overall in Performance below margin basis that XX% footprint are And a and direct is operating operating leveraging we achievable remain And goal. customer win adjusted goal. to focus our relationships result we

we market performance, targets Following of of during our estimates new of growth. XXXX as reflect a well set that provide our three-year strong current business now will our performance as XXXX

both will growth growth footprint indicators EPS be continue believe progress market will that line and With continue share. we adjusted we believe revenue important our and to take performance, and top-line mind, on going to As we of forward the in we most focus growth. bottom gain

result, growth achieve annual revenue approximately next operating target growth. through margin, X% we the revenue revenue for expense respect fiscal disciplined XX% a at margin We to projected expect year over average to adjusted higher and X% expect growth As now a to operating new, XXXX. to we three operating have for years. With management, least

profitability. increased driving on focused remain will We

operating expectations over for three share an per and target EPS than at higher have next years. our our grow expect growth. increased our We continued average XX% margin improvement, now greater the to year for growth of earnings adjusted Given per we

the over associated the revised flow generation cash adjusted we target We’ve XX% three next continue XX% also summary years. income with drivers be to free our of of targets three-year operating to annual underpin financial Finally, targets. to that approximately each strategic the

we business Specifically, revenue next over years. three growth X% for be our target systems to the to optical annual continue to X% approximately

years. three changes long-term business, revenue it segment what this new that organizing be two our we In X% we we and software we Networking align services, annual earlier Software continue given approximately Planet software targets Blue our will providing three portfolio Packet we next global business, annual to over also in morning, call target Services. In down over for growth will our target to revenue Platform revenue this with next into We Software services that this lines, the are published And, X% Services, to how our printed and of business. expectations increasing break for the and are business, services growth our attached XX% our going are and script, forward the approximately network which and to to X% we book reporting we Automation stated years.

targets each elements. these revenue We’re giving for of

rate revenue Software annual systems from X% Platform targeting Services three consistent of growth are next years, we the with over growth to correlated optical Specifically, X% business. the of expected our and

targeting Services, For fiscal expectations Software million $XXX to in to our are I’d for revenue fiscal to our also into provide a million view XXXX. in approximately like Blue and in annual million XXXX, $XX XXXX. with million $XXX Planet Automation $XX we year beginning

We expect target to at annual X% of of X% midpoint to three-year the revenue range generate our growth. approximately

deliver we For of the a year, adjusted range XX%. gross XX% expect to margin to in

adjusted expense approximately majority the with in We being XX% $XXX review balance adjusted of million. settled upon conversion. XX% allocation to report capital in of XXXX convertible expect million sheet finally, to we $XXX to in a $XXX And adjust range fiscal to first adjusted $XXX also to -- the for We in deliver to quarter. our million and of revenue paid range, the I’ll notes range million the activities. margin $XXX our now OpEx XXXX per operating and gross our performance, expect cash quarter million,

stock convert With the our the our convertible exercised combination of notes, XXXX and settling recent performance option of a to we price, cash. shares with also them

have a balance As debt we our on sheet. now no result, convertible

increasing also it the XXXX our our existing and $XXX We to million, term maturity cost refinanced to loan, of borrowing. reducing extending

In executed return capital addition, successfully to our to we shareholders. plan

X.X million. aggregate shares we million for During repurchased XXXX, an approximately of fiscal $XXX price

We dilution. method selling cash, employee withholding tax of have to further of changed shares, on awards use shareholder instead also which the equity reduces

sheet to stock the generation expectations repurchase our three three $XXX program balance and Directors extending today, and common up authorized over Board the strong years years, next our Given or our in that next of a so. over we cash for new XXXX of million announced starting our to

and XXXX. million stated $XXX driving not This that the business closing, us the on demonstrated our current it expected expect to approximately to we overall We from our built in XXXX priorities trends side take will continued repurchase range. in replaces to capital or liquidity positions million for and in is during the sell ability Sharon, well fiscal the focused both extremely expect questions allocation invest increased the our we market able but now are share, sustained minimum the analysts. capture Ciena’s does into existing in $XXX in and our be market previously execution, Through beyond. will drive environment. million We’ve the profitability $XXX retain and change stock and to business, revenue grow intent program market the today to In future. that the we strategy and our

Operator

Your comes with [Operator Jefferies. instructions] Notter from first question George

open. is line Your

George Notter

with the the and dislocation out guys. some love about ask results. been share I competitive Hi, environment, your think I very If I share, and think I’d in robust. seems even Chinese on and look that much very relationships. potentially America are wanted there. congrats your Thanks at step see to on there’s U.S. obviously competitors into to to look competitive North Obviously, what some think looking environment guess, some forward. the are translates of at with are the of thoughts they going market mean I I gains opportunity And guys I issues take front some back have to you just I that it how terrific your

Gary Smith

George. frankly. a quality, appreciate show an elements, of and and think Thanks, to We're beginning our to little both and are those, continue that global that from large continue in forecast would I that their for I last and to innovation couple support for the in of and years, up term, view folks of the sort had this dealing that through. it. can and a you’re that data play dynamics to we’ve these for I see carriers, nothing kind connect they will to in innovate say, strong revision I what both player want point around It's clearly -- have And that scale webscale been in sort performance the of understand want while. has with flight that. three of sustainability them. And years. Frankly, next really of encompassed of a the rather sort in centers think try the position, I in over targets a would of point very view, to that to

our think there showing for our up year. us positive So, financial and results that the incredibly in I are in for dynamics are forecast

George Notter

I balance guys M&A table anticipate are some the perspective to just is been the have I'm changes at just with should one then assume repurchase off also the looking I looking degree, program. and of nothing forward. that you at assume that then, we and sheet follow-up. converts, guys going some from you And new M&A

Gary Smith

for we now, now. it's at if Jim, it. kind about And balance balance to at that. talking wouldn't on a our -- we're But, look we approach I flexibility know appropriate. look that with those don't have our out nothing as sort thoughts point still we take where can a of you any rule retain opportunities, I we're sheet, sheet that. Obviously I think to if of balanced they're

Jim Moylan

times of sheet has stands in the over upgraded I'd agencies in last been it say, the balance our never by been We've today. couple shape also which years. the rating several

sheet, flexibility to lot on in addition down have a to to we capital if showing we opportunities. take of So, of what’s balance our a choose and lot ability for

And to so, we'll continue look.

Operator

Next question comes from John Marchetti with Stifel.

Your line is open.

John Marchetti

a pricing and can more bit? a benefit a environment or bit just you that of that wanted puts just little sort some margin we're may bit touch like that from gross on the of revenue like through base little that on be upside I to And much. very those to of in curious, gross lines. Thanks we things real if the takes quick margin that on things the would some seeing outlook I and side. with the and weighing there, you're walk that seeing a what get think

Gary Smith

per to costs unit just variable. capacity clear, be are Well, of our

two don't to is, really the effect get get At effect on prices. gross But our what for over most get contractual margin determined or on lot we've we we've the we our a take margin. volume margin, by the year margin of So, a we big done part, as last And yes, is seen gross our slight gross opportunities a share. volumes.

we've And that. done so,

out by a we those And and idea stage done margins large, or good incumbent, get back over particularly we're margin gross on early over taking again. with we're some that lower if gross we've over the going sometimes that contracts. will to and to take onetime time, we're when And share taking an costs

look year, early won more into the we As we see And, we to margins stage the this enjoying year. we of year. from gross some are this still effects some wins last deals of the expect

range, we've XX% the I'd what say gross is So, guided that's to. our XX% in margin right that now to and

John Marchetti

quick and change optical market relative about that? margin-wise DCI a a group? networking Okay. that. push in you think a to something the on like to And mix the things that maybe continue Is there should we on, perspective weighing follow-up How as big maybe in margins just as from to

Gary Smith

margins the dissimilar. companies, not software, all gross same are Our verticals things and our do These optical services. have gross that in and purchase and competitive higher and have But, dissimilar. related dynamic choices of big not those Networking verticals all the margins like too Networking are across from, Packet they Packet are to on applies We verticals. across those margin

gross of stage stage early margins. later margins lower are projects than Now, gross

mix the So, do see, that there. issue we

John Marchetti

Thank you.

Operator

with Next question Raymond Leopold comes Simon James. from

Your open. line is

Simon Leopold

taking things I wanted Two Thanks question. Great. on. my to for check

XXXX can been perspective, a it's to if competitors been XXX on kind any that do offer pivot longer XXX guess XXXX that's Thanks. well on you've with out number quite. and gig First, time market at gig. playing I publicized advantage gig availability even enjoyed your progress market see particular XXX you to changing competition? from dynamic CenturyLink of a that that with coming you And solutions. during term [Ph] from update How in perhaps of Clearly, are

Gary Smith

Thanks, Simon.

first on Let I the me of to comment specific Obviously, customer take want that. don't RFPs. part

However, that to is relationship we with our continue network. that and well-aligned vision with where wants we we've in is that our Adaptive would contract also about incredibly take say expanding them. that to CenturyLink talked reflected I add today. Network outlook recently I our with its expect them, our refreshed And would

Scott McFeely

for And Simon, the it’s question. Scott Thanks McFeely.

this. landscape, optical the I maybe just offer competitive On

optics. coherent think, we I track when delivering have of rearview mirror, it in record capabilities back a to the looking comes market-leading

to Taking aware in of customers optical to competitive share marketplace confident future We the going in continue our have their well. how than is and the business, feel account, that we're in take our of part we're that our competitors very into very, terms we claims more forward-looking roadmaps we're of as extremely probably all roadmap, feel. the very of and how important

this make but aware set buying decisions, in So, of very group customer those and towards roadmaps couple sophisticated not voting which on if is very of last is a the the I'd ability and criteria, in top of forward roadmaps mind point more roadmaps. folks and sophisticated they're more execute more they to buyers; say, And of set belief you on over look much the industry; of time particular, just are a quarters those in of Ciena. their

Simon Leopold

to just some gross that And you've margin forces? competitive pressure gross offered, clarify, assume these the guidance from does margin

Jim Moylan

trying market We're the everything view best our we're of to give forward, account today, margin that gross taking Simon. going in seeing into

Operator

Your comes Silverstein with Paul next from question Cowen.

is line open. Your

Paul Silverstein

Thanks, questions. I guys. had three just

you environment, got can Gary, First including Huawei being and earnings you [ph] you from guys. outlook? investment I make of behavior in have of any touch and on seen appreciated. is concerns trust recognize about the But your political the U.S. guidance there’s are made all talking call, recent Europe any China in and your too it in you datacenter, AT&T seeing And elsewhere guidance carriers and the no embedded webscale regions. in with actions [indiscernible]? Thanks, have think from that change. DCI, insight a And guidance? change up Japan you've commented I finally, pricing can pull and any I in intra expectations beyond off, in early? Verizon. comment you by but you’ve CapEx. the the environment any of on other Secondly, there are what are comments -- your number pricing and or -- year been have past community your you in in some about above comment UK, last terms current benefit past be What is we're would Can and not you then, what

Jim Moylan

was four questions. that Paul,

Paul Silverstein

Yes, but all very they're discrete, Jim.

Gary Smith

run Let one. let me through take me first the -- the

I'd -- pricing environment. the not pricing no we're of dynamics environment, the know, of overall real sort and On say so, overall, that changes the seeing in sort

flight Scott You’ve some play. now in scale. are going I and competitors around and think quality. still And it's their global commented, sustain out that roadmap got is to that But be desperate there, folks to as very have dynamic can a about got still

changed. particularly So, has that dynamic not

and commentary us sort in that notwithstanding Regarding of play of the the competitors, quite around for of of sort actually weeks. China of last the European that I as the sort publicity few say been while, again, dynamic to then you a would it has some know relates

wins And and are that innovation. as the of what so, in baked I those flight really been I some that sustainability this dimensions, customers really combined with describe of has market into have, already would of and the quality some and we the rebalancing about sort of to think

in So, we of sort that. change any particular haven't seen

I a think that's been while. underway for

and expand year a I Verizon, Regarding strong this relationship them. we expect would as in we a had with Verizon with strong our XXXX year, year

Operator

with comes question Liani Next from Bank of America. Tal

Your line is open.

Dan Bartus

Bartus for you Hey, I guys. appreciate on Tal. This Dan is taking questions. the

just to One you're went markets just related? from in X% folks it’s maybe what routing. the what versus the business very other to can Maybe seeing XG instance And networking outlook about that's that, also, increase in strong speak on areas, of growth seeing Packet we're color, generally, in for then, somewhat you X% your the Networking X% any to the XX%. and to raise

why anything that’d helpful terms networking other of well. there's you be growth you. in if can from Thank out call is that as market So, deviating trends rate

Scott McFeely

I we're business, well. important a Networking think understand from forward probably you if coming it's from as Packet look where to actually

actually we've hard set outside to dependency of really that made fairly that working on concentrated diversify great been progress XXXX. we've on the business of and a in So, accounts,

we into new opportunity. space, the in platforms into and to a MSO these at broader and integrating drives that like our ‘XX. XG fiber the of forward into capabilities set that place if to market network, coherent access done new have where I more opportunity of dynamics, deep is strength. projection to optics a So, by move industry driven the densification work gives part platforms, advantage great That leverage take in drive us a we've fiber of set But, and look including starts that of things

So, I the think looking those we forward. key dynamics are that see,

Operator

Suva question Next from with Citi. comes Jim

open. is line Your

Jim Suva

Can Thank saw you color think quarter all some related non-telecom you very much update webscale the last on bit growth us little far. the I give a and congratulations, markets? so of and an thanks there. very for strong and you

major of going. how a unrelated XG, that's to pause question different in There XG your past but And the XG. rollout. Thank on that you to from It to so, it about on And so curious if happen? results, expect we appears has kind before sense case. then, a Any is, cycles why the should be looks time. XG going just the different this that So, been like much. would

Gary Smith

let first part of the that. Jim, me take

think business and continues I largest obviously of folks the non-telco webscale is ended non-telco, our business to ‘XX, Our up at the expand. about XX% And being now element prosper -- of in that. total we

good markets, on as both that. perspective visibility strong, their sort -- and that we've connectivity to of the sustainability think be their also whole I Our continues touched webscale got was on submarine of CapEx, the and broadly strong in center in which And this, around Scott well. and terms to data that is

in So, it's And for have backlog roadmap with them, with discussions we have, having the that. we have the think we're CapEx I that that the them, visibility that good think pretty very I sustainable. I think order alignment we

Jim Moylan

optical question on technology. we've market been of is of first that I coherent with pausing, say generation And the what every to

moved we generation. any as to haven't generation seen from as big a consequence pauses so, And really we

in connections they have most -- guys worked consumers going hard other to as generation have and get of our us next the relatively seen dynamic many capability the they is webscale for metro we thing They competitors don't simple. market. probably pauses the And although because the of big networks their on that are the other that's optical yet, aggressive to the of of first Some are will. had whatever

And generations there so, of for just adopt and quicker. sort them it's to certification are cycles easier new

pause, we get any at path. WaveLogic a to in a As don't results sort expect of to least we our consequence, as see,

Gary Smith

say think The because different in other different the of well got And through geos playing at I spread evolutionary diversification thing as dynamic our is would I and play scale. as given well, markets parts lifecycle. here and of you've their markets very-diversified geographical that's

Jim Moylan

And XG this, bit also I XG side about in to a wireless asked the the wireless. think you of transition

about response it's actually For bandwidth And bit that our the that coherent fundamental fiber. need a to less user the behind is more experience. optics. which little drives that And is and more drivers the about business, and that, for

So, that's business the driving than what's necessarily more our really wireless standards.

Operator

Goldman from question Hall Sachs. Next comes Rod with

Your line open. is

Unidentified Analyst

year of How then, are throughout you looks thinking kind it in accelerated about America Yes. ‘XX. you question. that behalf if wondering can well? in This fiscal was next Ashwin Rod. revenue this next Hi. fiscal on And year? strong as North of on I my in year. Thanks guys obviously comment like year taking for How are growth thinking ‘XX, is that opportunity you about India fiscal

Gary Smith

Obviously, of India growth ‘XX. strong me forward. growing close XX% a out we very-diversified kind India. go in of we about base We've good think, as it's Let growth. up our there. with revenues close had expect in take to the -- Obviously, but that rate, to very growth now I probably run total still And of a actually can't India got we keep we've

All Defense the very fastest webscale world. much the of -- the activity major And it's growing carriers, of the government, the market of with the Network plus lot in and as there with a Department internet aligned well. the we're

as quarter. India. at look and think flows So, see we quarter I going ebbs growth. see going ‘XX, to still But we're out to absolutely from It's pretty we of to do good growth

Scott McFeely

‘XX up been in by we that don't had year But, are years. our but think will that providers service we've good continue, stronger good growth. North into rate a over think on GCN with come direct North It's sales I have that driven XXXX. America GCN we grow again, we as at we'll also GCNs ‘XX. on And in believe, strong come won't to America, We XXX% will mean, from that XXXX.

with year America. we expect XXXX in good So, -- a in North

Operator

Samik Chatterjee with JP from comes The next question Morgan.

Your line is open.

Samik Chatterjee

of just morning. I the upside, driving group a your to while into taking kind group, that Good fiscal to look of kind where had next you've seeing target, share of the performance, into spoken my market on year strong the kind front, I for dig performance new when about you be not this three-year when question. of optical at systems year. that forward appears increase into we the Hi. year. wins most Thanks And, kind wanted really ‘XX we're continuing look

there share there, remaining kind is probably to in kind why more this is is I'm market guidance increase wondering, of wins seen or you've of So, the of guidance -- just change upside there need in when you terms the same the the to see guidance FYXX? there

Jim Moylan

grew in it growth the X% overall was revenue continue. that's that think to a performance performance. going we But, growth And growth of GCNs. sustainable did rate you, those just Yes. X%. on optical. XX%, driven rate happen. X% can to increase for to good don't business And remind digits don't XX%, from optical long-term to had to think plus a We X% continue kinds growth we performance, We backs rates in of we GCN to at for We're great is have We'd optical. double ‘XX. XX%, love over just to XX% our XXX% It

we good see So, times ahead.

Gary Smith

sort around the just I market. would optical that to context add Samik, of the

digits, market on X%, mid think of the something X% single the single optical -- like growth probably rate Sort the in that that. is we

share we going forward. taking planning market are here, still So, on

Samik Chatterjee

of or You gross Can to on your for quickly guidance specify year guidance? ‘XX ‘XX year building the XX%. for operating clarify ‘XX guided margin you guidance? fiscal margin your and Do XX% you fiscal

Jim Moylan

for you We guidance We've guidance. -- cash piece other EPS flow guidance what's given Revenue. given And but we years. the we’ve we three you of given you haven't given that have sort gave? that

So, a targets. about given we've of you facts lot our three-year

accomplished Now, we we of I so expected move believe XX% is range years operating will been rate next target had at say would our this the -- margin this that income at management getting expect very we we're the we about. sort going -- XX% we to to margins of say to that said be or gross XX% as in and some OpEx because I below that to higher through it operating that operating XXXX. talking a growth XX% can margin we disciplined few least be have than

we operating of So, we me, higher gross growth but get But, there operating revenue revenue. not by to by by to a and in -- -- XXXX, XX% XX%, OpEx XXXX. XX% excuse to lower there percent target again get a get still XX% we'll margin in won't margin

Operator

Morgan comes Next with Stanley. Meta from question Marshall

Your open. line is

Meta Marshall

there is a questions. the what about said line Blue Packet deals. bigger whether sight Design there think, -- margins that question sense particularly responding kind were you business. piece everybody of of then, or that? to whether high due be I the million gross it, a margins or and being contracts you're Great, a kind of thanks. of the to of maybe, to. to DonRiver second gross And just I wanted were contribution out depressed second inorganic on to -- is target, addition RFPs A that this would One, And to of the get $XXX of couple maybe new your quick Planet talked component in then, -- quarter. kind just And

is yet. deals haven't the those we We is little or When seen just so we some haven't to of compression because do deals seen yet? margin there's just because of see many that… it some kind Sorry, new that convoluted more -- the from it been of start really new

Jim Moylan

Planet. [Multiple speakers] Blue

and was the margin year in Our have gross the that for did margin we had -- effects our adjusted that QX. one-time gross XX%

all, XX% first to we in XXXX. of deals, are the of And seeing I why both all in sort XX% in XXXX we is of our So, because that's new effect -- of margin gross secondly, what believe that's and did XXXX. first

to we're to margin. we and between And So, XX% XX% trying gross I our for that believe do the it’s best outlook give can you today.

Rick Hamilton

digital sight to of opportunities. transformation that a super particular in. going This of carriers the activity is line but the to that, we're to in on million, $XXX specifically are not that through new a host Relative see generating confident comment pipeline we

And super incredibly confident space. think the I So, execute strong ability activity in is yes, to in there. that we're our

Meta Marshall

million do DonRiver question $XXX to the have million? $XXX of that Design to contribution what Packet and To

Jim Moylan

$XX say. Design I and rate, speaking. run what million DonRiver The something is million Packet like combined $XX were or this Well, roughly would

DonRiver going and a growth that's not we much year, comes two automation. next how probably combination And growth So, to to those be as in said important extending $XX in you going Blue million. to be is might it's that base from significant pretty how of in to much be possible identify from capabilities even going that $XX comes how combine space. forward, acquisitions Design Planet well our a is and One And services million our comes as Plant we for It's are be going that a we it because base the that be will solutions which in services selling say that I percentage higher capabilities, those would line. business it is thing revenue -- of much to not Blue from which. Packet

combination not to gross straight they're overall, whereas will be a margins; be accretive the margins. to services so, gross margins going software to just And software they're going margins; of base our and be

Operator

from MKM question Genovese Partners. comes Michael Next with

line open. is Your

Michael Genovese

thanks. Great,

clarify, to were last XX% they the First same customers, Three quarter? as

Jim Moylan

Yes, see. Let's were. Yes, they Yes. were. they

Michael Genovese

one [ph] hyperscale? was the So

Jim Moylan

Yes.

Michael Genovese

grabbed removed. say that and where then, And the difference gross And margins being lots mean, question, that where want and question. you're great. XX from -- XX be between this I think I'm I in my we're you, explained supposed XX seeing. land countries by big to to the saying and environment not Huawei XX wins it's revisit XX XXX% in new they’re or that hearing we're I of to -- Okay, grab

that's deals, the winning for the You difference. guys are big reason and

or or what XXX%, in? environment other there that there? other is the wondering are factors that's I'm one hearing. just we're Is besides there factors important So, how But, factors that And are or other two grab land I'm factors? in three other any those

Jim Moylan

it all the quarter our in Yes. that affected software. of we was million margin revenue, gross margin $XX gross in Mike, point. QX, and all was it percentage And onetime had because remember, by a about

the for actually So, we XX.X% -- onetime, mean, adjust adjusted margin. didn't we the on it out course, point XX it but -- a gross was of I

margin gross our year, was item. XX%, the including about onetime the For

account. saw gross it, is this I going are nothing hopefully, going else early So, because We margin, talked sort have for it taking this we're to are and project environment in seeing bigger. industry see Yes, all that. And our to to we going other there onetime of the market the to market that year good share going time, year. about. over than by the this is we're costs take lower be into going think and And and share you be There's forward next we item is improve to way, us. it

Michael Genovese

Okay.

So, though. just there written -- to in tie

is quote from mean, term, you mean is don’t normalized. what that I I that unquote your I put quote from not still mean in longer to unquote So, XX believe I would, I -- -- hear words mouth… being XX that want is

Jim Moylan

now was a didn't goals ultimate at that were getting two to maybe But, time, we margin it's XX% goal. that good for we're think gross a of But, that's XX%. above And doing so, even still not going be over We have think taking for of years margins years. or two lot because happening gross our we share. We to us.

Operator

Tejas with UBS. from question Venkatesh comes Next

open. Your line is

Tejas Venkatesh

Thank around of pluggable how it? the you. approaching Are in is you seeing use and Ciena thinking customer any change

Gary Smith

miniaturizing different the there a Yes. in out look optics theme move a perspective, coherent pluggable From application a spaces future. and the I the at of actually that's is think, take

into is service the specific push we short as subset move be the the data -- application see will the is market. And is reach a first interconnect. space I particular, it of you'll cap center in places has deeper move totally piece for And subset XG very I very and applicable the where think, of backs totally think a the coherent the optics That for things is on market network coherent optical space second access and business. way gets fiber of space new provider a and like the deep. network bandwidth into our access a the by fiber MSO access optics new

a term market new said, of make the longer I look motivations announcement for when pluggable available outside you very was DSP still at on space, that We be it we're TeraXion. which electro-optics positioned take coherent path. it our what to put opportunities. So, to in it's the and takes around owned if to together to things be of one us. perspective. these dimensions of our And space, technology remember takes of made capability also low transmission a technology we a knowledge think put opportunity a And of to successful two advantage we're for you business, how if around to from a of back system capability technology that takes those we our takes the much those it couple uniquely we that system able whole ago across of I’d through and acquisition kind years also of that

Tejas Venkatesh

past two to hoping so seeing? just And you've this it think an customers as Planet, in follow-up that have, the get Is how one or you're these traction update. driving I customers Blue the broad you on a are is? how or is disclosed broad how many

Rick Hamilton

we it’s providers across I applications as as worldwide. Yes. would business, say core broad have service the our Relative to as that

the end We we're some seeing have space. like and traction adjacent markets enterprise tier in top actually traction the datacenter higher space the into

the So, technology fairly applicable the is and broadly. need

Operator

Tim with comes Markets. BMO question from Next Capital Long

Your line open. is

Tim Long

you. Thank

it deal Just two as questions, Gary, to if activity gross I Jim, relates could. new margin. you mentioned

to Just two. year us a seeing there? with for little there next us seeing? And for in you're give what of there intentions for then, give then, any there, back more optical. the an applications? Thank integrate vertically what pipeline what update really just them on on Are on out color what the verticals deals product kind more the webscale, secondly, large are you are are you. you What ones think And or sets,

Gary Smith

Tim. the that, take first part of Let me

of there's do we ‘XX. more around we number that dynamic I in engaging We highlight be think but And doing the tier geographically the specifically, Europe. us. coming the talking flight carriers started of well around And of actually most there saw a have. dynamic There that into come play Many saw the us, ‘XX, particularly dispersed, has are X those our the are think, in think are in around world. play on, in out in I where mean, And this talking that dynamic a sort Japan as they I think that we I large going ‘XX. it very here are earlier of going ones is One and with to large secured ‘XX. that we world. by couple and about We're that not through tier way of quality Jim's new areas. to we're Tier what a absolutely I ones describe to Ciena to seeing of I And couple few would we're would with ‘XX.

including it one the seeing as as North child metro, in there data well connectivity regional, in well. there -- poster it America some others also as think, they for talk America but think are forward. centric predominantly you packet you're we've move North I of carriers partners talking Deutsche that It is that their Telekom, are when around a publicly And haul well. the long that are carefully think about transport, but as that now, I talked in is network you the I very manifested converged looking about is optical is optical about and large

So, it's very broadly based.

the and three in in it year seeing industry. that's I frankly to I guidance targets ‘XX a next And you're is a that great strong think, continuing the in in ’XX, play for our is sort upping years. ‘XX. shift that of think And reflected basically for

Jim Moylan

you the short span, very Then, we say talked piece, in conversation, the Tim, Yes. integration about the around think webscale I'd DCI. on in around optical. vertical campus, metro, this, asked I pluggable as

of back with the has the But, to that integration. a think if relationship that. driven of if is it step leadership consider about market And case technology we important a and pluggable, the webscale, will you of our moving share vertical aspect is Some them there. you interactions a take But, have consider an certainly multidimensional.

over to it So, as in sophisticated submarine to time, as their good grow that able network put around they relationship as back move get of they have and in integration office multidimensional position more be go leadership relationship that, has technology in having get as networks, they terms becomes we us a position international, forward. and a involved that

Operator

comes with Next Nomura. Kvaal Jeff question from

open. is line Your

Jeff Kvaal

Yes. clean leftover. up hoping couple things to a Thanks. I'm of

and about talk progressing? you. And the you things seem statement? on no then, you don't We in income how's packet journey I that It's to you, the what statement this Jim, for XX-year maybe need particular. the a strength means for lumpy anymore. convert. walk follow-up through the Could closing the help on the can a of some congratulations, income that some wonderful. for time bit us implications think, Could out like been you obviously, one to That's last help sweat good, to business quarter little the of that you America convert also I guess last a us little in and quarter, have first, bit Latin -- had

Jim Moylan

Thanks.

first Let me one take one. Scott can the the take then maybe second and

no more our think in bonds capital with what's and our and is great of going more balance about I carefully having happen. that to capital can benefit we convertible certainty longer plan our structure structure the sheet

uncertainty be second thing there share about count. any is is going to no the that longer The

of do bit know slightly the shares, the down information, share will around your for starting distributing maybe higher, You shares. that and average will XXX shares count going a in And we think count. what XXX year just million and share buying we next as million combination

implications statement on EPS. -- our that's income are the So,

will a books our that we we going Reform years the may is be several there that other tax our to the forward. be NOLs. year; sorry, we for next are that GAAP to I'll big the There going tax rate XX% believe say in just not close I'm because our tax Tax this have a XX about out remind tied But -- be tax forward will you thing comments around non-GAAP some the is are modeling I'd at Act. rate least entries lot are of that The payer

are of related that lot so, in the And GAAP entries -- are of fact, all a the entries mostly items. non-cash

the are Gary? questions. those modeling two So,

Gary Smith

we've nice markets, we've deal as is of in now thing the with and of product think, strength I customers, a talked diversified I can terms we and in flows QX, got very times, mean, So, ebbs sort of many business, lines.

at cable the like, quarter-on-quarter you you If to of strong trying sort strong highlight, type And in if recovering also, QX, had from the QX, continues years very fiber couple space, in Japan. closer particularly a think to QX proxy I of is webscale [ph] MSO some very would relative had of in the I had look a get which customer, the sort to quarter QX, Waveserver a steadily the a CALA, the area, of grow to we to from QX. connectivity. ago. challenges in for of Bit we to we quarter also strength

stronger -- quarter QX. packets packet quarter well strong a in in as had we think I

Jeff Kvaal

Great. Jim, And interest the would ask -- could be what interest penciling you then? in I kind just of

Jim Moylan

million X.X% $XX interest Well, probably our minor we're coming expense relating term little a million the are The the what upon $XXX for interest where depending only does. debt There going plus of debt the be on is But, or in X% costs. to books is our some is so. year to loan. that rate amortization LIBOR on entries roughly to of

Operator

Dougherty. from Next with Trebnick Catharine question comes

open. is line Your

Catharine Trebnick

you XX% last did Europe growth was it This XX%. in quarter, year-over-year and quarter

some Chinese So, -- on you. feel give opportunity Thank in I you've away the quantify of going view you want don't much moving much conquered? back vendors, know can pretty do, to you but -- the which your from to discussing do carriers you your how

Gary Smith

it. answer would I

absolutely, like various it we're split the dynamic it's in the think we seeing that's point in couple of our strength will is I ‘XX. couple very but I it's that to me overall, over the dynamics. encapsulated last forecast. a not Europe, view, of to difficult flight it this. new. in continue saw and quality of think with I it’d of continue And its answer do dynamic This from And And through sort -- forms. think years. in it you're do about particularly dealing out, I You're be will think let Catherine, sort it the Europe do And of

the of dealing for we X also also, as are the there the X underinvestment years. seeing Europe Europe into trying And to marketplace, And that. I benefitting think is been in That's some and -- and addressed. building out in market. the folks from also into is areas in I rebalance certainly last concentration also you're the I strength You're to webscale supply vendor And frankly submarine space being are about European carrier think the this think and well. providing that with

So, business we I I think pretty it's of around a dynamics confluence moving as our But, always. think feel forward. good European

Catharine Trebnick

Europe particular? in the during in I you any see you Do new quarter. announced opportunities TeleX know

Gary Smith

We new invest their for we're think yes. Europe, number wins will to with Yes, in engaged that additional to expand of the opportunities very do. carriers And we be you, see and in specific networks. we

to are new And some customers those of Ciena.

Gregg Lampf

Year. New everybody up several Thanks, happy weeks. everybody's we've And We're next the to a happy Catherine. and come X:XX. interest. We on appreciate holiday up looking forward catching with over Have

Operator

today's This call. conference concludes

disconnect. now may You

Ciena (CIEN) 13 Dec 182018 Q4 Earnings call transcript