Ciena Corp. (CIEN) reported a wider fiscal first-quarter loss compared to the year-ago period due to increased expenses related to its pending acquisition of Nortel Network (NRTLQ). However, earnings topped the Zacks Consensus Estimate by 4 cents.
The quarter included $27.0 million in acquisition and integration-related expenses associated with the pending acquisition of the optical networking and carrier Ethernet assets of Nortel’s Metro Ethernet Networks (MEN) business. Ciena plans to complete the purchase of Nortel’s assets by the end of March. Ciena expects the deal to be significantly accretive to its operations in fiscal 2011.
The company also provided a conservative guidance for the second quarter due to macroeconomic concerns.
Revenue
Revenue of $175.9 million in the first quarter of 2010 was up 5.1% year over year. This was slightly lower than management’s expectation due to the adverse impact of recognition delays connected with initial deployments of new platforms with certain customers, partially offset by strong order flow.
Revenue for the quarter included $149.1 million in product revenue (84.7% of total revenue), which was up 6.7% from the year-ago period, and $26.8 million in services revenue (15.3% of total revenue), which was down 3.1% year over year. Sales to international customers represented 29.6% of total revenue in the quarter. The company had one 10.0% percent plus customer in the quarter at 24.0% of total sales.
The growth in the quarter was driven by improvement in its Carrier Ethernet Service Delivery products and growth in core switching platforms. By products, the Optical Service Delivery accounted for $108.6 million in revenue representing 62% of total revenue for the quarter. Within Optical Service Delivery, the CN4200 platform was the largest contributor in the quarter at $55 million. Core Switching contributed $23.4 million and Long Haul Transport added $23 million in the quarter.
The Carrier Ethernet Service Delivery or CESD had a strong quarter increasing more than 33% sequentially and contributed $40.4 million or 23% of total revenue in the first quarter. The Ciena Specialist Services Group reported $26.8 million in revenue.
Operating Performance
Ciena’s non-GAAP (excluding one-time and non-cash items) net loss for the quarter increased to $11.4 million or 12 cents per share versus a net loss of $8.3 million or 9 cents in the year-ago period. The increase in net loss was due to higher costs in the quarter. However, EPS came in ahead of the Zacks Consensus Estimate of a net loss of 16 cents per share.
Adjusted (non-GAAP) gross margin in the quarter was 46% versus 44% in the year-ago quarter and within the company’s mid to high 40% target range. Ciena’s operating expenses increased by 6.2% from the year-ago period. Adjusted operating margin for the quarter was -5% versus -6% last year.
Ciena exited the quarter with $1 billion in cash and short-term investments, up from $917.0 million in the previous quarter. Long-term debt (convertible notes payable) remained at $798.0 million. Cash-flow operations remained positive in the quarter, as the company generated $4.5 million in cash from operations versus $1.9 million in the previous quarter. Excluding the $11.4 million of cash spent on the acquisition and integration related costs, the company would have generated nearly $16 million in cash from operations during the quarter.
Guidance
Due to the pending acquisition of Nortel, Ciena provided second quarter guidance as a standalone entity and does not include pro-forma estimates for combined company expectations.
The company expects second quarter revenue to be in the range of $185 million to $195 million. Adjusted gross margin is expected to be within the company’s target range of mid to high 40%, and adjusted operating expense, excluding integration expenses is expected to be flat sequentially.
While consumer spending is expected to remain weak, the company expects increased order flow. Although we do not expect Ciena to become profitable in the next two quarters, we do expect a recovery in 2010 due to favorable operational execution and growth in data traffic.
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