(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This report contains statements that discuss future events or expectations, projections of results of operations or financial condition, changes in the markets for our products and services, trends in our business, business prospects and strategies and other "forward-looking" information. In some cases, you can identify "forward-looking statements" by words like "may," "will," "can," "should," "could," "expects," "future," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "projects," "targets," or "continue" or the negative of those words and other comparable words. These statements may relate to, among other things: our competitive landscape; market conditions and growth opportunities;
factors impacting our industry and markets; factors impacting the businesses of network operators and their network architectures; adoption of next-generation network technology and software programmability and automation of networks; our strategy, including our research and development, supply chain and go-to-market initiatives; efforts to increase application of our solutions in customer networks and to increase the reach of our business into new or growing customer and geographic markets; our backlog and seasonality in our business; expectations for our financial results, revenue, gross margin, operating expense and key operating measures in future periods; the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures, and other liquidity requirements; business initiatives including information technology (IT) transitions or initiatives; the impact of the Tax Cuts and Jobs Act and changes in our effective tax rates; market risks associated with financial instruments and foreign currency exchange rates; and future responses to and effects of the COVID-19 pandemic on our business, operations, liquidity and financial results. These statements are subject to known and unknown risks, uncertainties and other factors, and actual events or results may differ materially due to factors such as:
our ability to execute our business and growth strategies;
fluctuations in our revenue, gross margin and operating results and our financial results generally;
the loss of our customers, including the loss of a single large customer, a significant reduction in one or more customers' spending, or a material change in their networking or procurement strategies;
the duration and severity of the COVID-19 pandemic and the impact of countermeasures taken to mitigate its spread on macroeconomic conditions, economic activity, demand for our technology solutions, short- and long-term changes in customer or end user needs, continuity of supply chain, our business operations, liquidity and financial results;
the competitive environment in which we operate;
market acceptance of products and services currently under development and delays in product or software development;
lengthy sales cycles and onerous contract terms with communications service providers, Web-scale providers and other large customers;
product performance or security problems and undetected errors;
our ability to diversify our customer base beyond our traditional customers and to broaden the application for our solutions in communications networks;
the level of growth in network traffic and bandwidth consumption and the corresponding level of investment in network infrastructures by network operators;
the international scale of our operations;
fluctuations in currency exchange rates;
our ability to forecast accurately demand for our products for purposes of inventory purchase practices;
the impact of pricing pressure and price compression that we regularly encounter in our markets;
our ability to enforce our intellectual property rights, and costs we may incur in response to intellectual property right infringement claims made against us;
the continued availability, on commercially reasonable terms, of software and other technology under third-party licenses;
the potential failure to maintain the security of confidential, proprietary or otherwise sensitive business information or systems or to protect against cyber attacks;
the performance of our third-party contract manufacturers;
changes or disruption in components or supplies provided by third parties, including sole and limited source suppliers;
our ability to manage effectively our relationships with third-party service partners and distributors;
unanticipated risks and additional obligations in connection with our resale of complementary products or technology of other companies;
our ability to grow and to maintain our new distribution relationships under which we will make available certain technology as a component;
our exposure to the credit risks of our customers and our ability to collect receivables;
modification or disruption of our internal business processes and information systems;
the effect of our outstanding indebtedness on our liquidity and business;
fluctuations in our stock price and our ability to access the capital markets to raise capital;
unanticipated expenses or disruptions to our operations caused by facilities transitions or restructuring activities;
our ability to attract and retain experienced and qualified personnel;
disruptions to our operations caused by strategic acquisitions and investments or the inability to achieve the expected benefits and synergies of newly-acquired businesses;
our ability to commercialize and to grow our software business and address networking strategies including software-defined networking and network function virtualization;
changes in, and the impact of, government regulations, including with respect to: the communications industry generally; the business of our customers; the use, import or export of products; and the environment, potential climate change, and other social initiatives;
the impact of the Tax Cuts and Jobs Act, future legislation or executive action in the U.S. relating to tax policy, changes in tax regulations and related accounting, and changes in our effective tax rates;
future legislation or executive action in the U.S. or foreign counties relating to trade regulations, including the imposition of tariffs and duties or efforts to withdraw from or materially modify international trade agreements;
factors beyond our control such as natural disasters, acts of war or terrorism, and public health emergencies, including the COVID-19 pandemic;
the write-down of goodwill, long-lived assets, or our deferred tax assets;
our ability to maintain effective internal controls over financial reporting and liabilities that result from the inability to comply with corporate governance requirements; and
adverse results in litigation matters.
These are only some of the factors that may affect the forward-looking statements contained in this report. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in this report. For a more complete understanding of the risks associated with an investment in our securities, you should review these factors and the rest of this report in combination with the more detailed description of our business and management's discussion and analysis of financial condition and risk factors described in our annual report on Form 10-K for fiscal 2019, which we filed with the SEC on December 20, 2019 (the "2019 Annual Report"). However, we operate in a very competitive and rapidly changing environment and new risks and uncertainties emerge, are identified or become apparent from time to time. We cannot predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report. You should be aware that the forward-looking statements contained in this report are based on our current views and assumptions. We undertake no obligation to revise or to update any forward-looking statements made in this report to reflect events or circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events, except as required by law. The forward-looking statements in this report are intended to be subject to protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Unless the context requires otherwise, references in this report to "Ciena," the "Company," "we," "us" and "our" refer to Ciena Corporation and its consolidated subsidiaries.
We are a networking systems, services and software company, providing solutions that enable a wide range of network operators to deploy and manage next-generation networks that deliver services to businesses and consumers. We provide hardware, software and services that support the transport, switching, aggregation, service delivery and management of video, data and voice traffic on communications networks. Our solutions are used by communications service providers, cable and multiservice operators, Web-scale providers, submarine network operators, governments, enterprises, research and education institutions and other emerging network operators.
Impact of the COVID-19 Pandemic
Employees. We have implemented travel bans and restrictions, temporarily closed offices and, as of June 10, 2020 approximately 96% of our employees globally were working from home on a regular basis. Given our long-standing practice of flexible working arrangements, our distributed workforce is accustomed to the digital platforms and virtual collaboration tools we use to maintain productivity and to remain in contact with one another and our business partners. For the small number of employees who need to be in offices, laboratory environments or at business partner sites to perform their roles, we are taking appropriate precautions to protect their health and safety. We have adopted new employee benefits and wellbeing initiatives to support our employees, including initiatives for those who are now working remotely. We also continue to hire and on-board new employees in a remote environment, including 229 new hires, which resulted in net headcount growth of approximately 96 employees, during the second quarter of fiscal 2020. We are proud of the way in which our employees have continued to productively execute on our innovation roadmap and operating goals, including achieving the commercial availability of our fifth-generation WaveLogic coherent modem technology. However, sustained restrictions on the ability of our research and development employees to work in our facilities as a result of restrictions imposed by governments, or us, could make it more difficult for them to collaborate as effectively in the development of new solutions.
Demand for Products & Services. As a result of the unique and increased demands placed on network infrastructures as a result of the COVID-19 pandemic and the related increase in remote working worldwide, we believe certain longer-term trends associated with cloud network adoption, networking resilience and flexibility, and the need to promote automation, may be accelerated. During the second quarter of fiscal 2020, we experienced higher than typical orders for our products and services among a concentrated set of larger customers with whom we have existing positions as a supplier. We believe some portion of these orders likely reflects short-term purchasing behaviors based on customer-specific considerations in the face of the pandemic, including: customer concerns about future continued availability of supply; implementation of customer business continuity actions; our desire for increased visibility into expected demand; customer consumption of existing inventory or spare equipment; additional network capacity requirements; acceleration of capital spending; and, possibly, increased bandwidth demands being placed on networks due to the pandemic. We cannot predict whether this increase in orders will continue and, if so, for how long. Due to the unprecedented nature of the COVID-19 pandemic, it is unclear whether the current bandwidth demand, or the increased demand for our solutions experienced in the second quarter of fiscal 2020, will continue or is sustainable during the pandemic or the remainder of fiscal 2020.
Available Information. Our quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, and any amendments thereto filed or furnished with the SEC are available through the SEC's website at www.sec.gov and are available free of charge on our website as soon as reasonably practicable after we file or furnish these documents. We routinely post the reports above, recent news and announcements, financial results and other information about Ciena that is important to investors in the "Investors" section of our website at www.ciena.com . Information on our website is not deemed to be incorporated by reference into this report. Investors are encouraged to review the "Investors" section of our website because, as
with the other disclosure channels that we use, from time to time we may post material information on that site that is not otherwise disseminated by us.
For additional information on our business, industry, market opportunity, competitive landscape, and strategy, see our 2019 Annual Report.
Consolidated Results of Operations
Our results of operations are presented based on the following operating segments: (i) Networking Platforms; (ii) Platform Software and Services; (iii) Blue Planet Automation Software and Services; and (iv) Global Services. See Note 20 to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report.
Quarter Ended Increase May 2, 2020 %* May 4, 2019 %* (decrease) %** Revenue: Networking Platforms Converged Packet Optical $ 654,294 73.2 $ 623,838 72.1 $ 30,456 4.9 Packet Networking 64,167 7.2 73,138 8.5 (8,971 ) (12.3 ) Total Networking Platforms 718,461 80.4 696,976 80.6 21,485 3.1 Platform Software and Services 44,985 5.0 35,229 4.0 9,756 27.7 Blue Planet Automation Software and Services 15,017 1.7 12,473 1.4 2,544 20.4 Global Services Maintenance Support and Training 71,479 8.0 68,788 8.0 2,691 3.9 Installation and Deployment 34,242 3.8 41,322 4.8 (7,080 ) (17.1 ) Consulting and Network Design 9,869 1.1 10,223 1.2 (354 ) (3.5 ) Total Global Services 115,590 12.9 120,333 14.0 (4,743 ) (3.9 )
Consolidated revenue $ 894,053 100.0 $ 865,011 100.0 $ 29,042 3.4
Networking Platforms segment revenue increased, reflecting a product line sales increase of $30.5 million of our Converged Packet Optical products, partially offset by a product line sales decrease of $9.0 million of our Packet Networking products.
Converged Packet Optical sales increased, primarily reflecting an increase of $42.2 million of our Waveserver products primarily to Web-scale providers and cable and multi service operators. This increase was partially offset by a sales decrease of $8.8 million of our 5430 Reconfigurable Switching Systems to communications service providers. Packet Networking sales decreased, primarily reflecting sales decreases of $11.2 million of our 6500 Packet Transport System (PTS) to communications service providers and $3.4 million of our 8700 Packetwave Platform to communication service providers. These sales decreases were partially offset by a sales increase of $6.1 million . . .
Jun 10, 2020
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