Ciena Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Siena Fiscal Q1 2020 Financial Results Call. At this time, all participants are in listen-only mode, and after the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your presenters today. Vice President of Investor Relations, Greg Laff, please go ahead.

Thank you, James. Good morning, and welcome to Ciena's 2020 Fiscal First Quarter Review. With me today is Gary Smith, President and CEO, and Jim Moylan, CFO. Scott McFeely, our Senior Vice President of Global Products and Services, will join us for the Q&A portion of today's call. In addition to this call and the press release, we have posted to the investor section of our website an accompanying investor presentation that reflects this discussion, as well as certain highlighted items from the quarter. Our comments today speak to our fiscal Q1 2020 performance, developments in our business, our view on current market dynamics, as well as our outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today's press release. Before turning the call over to Gary, I'll remind you that during this call, we'll be making certain forward-looking statements. Such statements, including our guidance and long-term financial targets, are based on current expectations, forecasts, and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in our most recent 10-K filing and in our upcoming 10-Q filing, which is required to be filed with the SEC by March 12th. We expect to file by that date. Sienna assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events, or otherwise. With that, I'll turn it over to Gary.

Thanks, Craig, and good morning, everyone. Today, we delivered outstanding first quarter results. The diversification across our business combined with our technology leadership, including our fifth generation 800 gig WaveLogic modem technology that is available today, continue to set us apart in the market. Specifically, we reported Q1 revenue of 833 million, reflecting 7% growth year over year, and the high end of our guidance range. Q1 gross margin was also very strong, driven by a favorable product and customer mix in the quarter. And importantly, we performed very well with respect to profitability measures. Both operating margin and EPS in the quarter were higher than expected and cash performance was strong. Finally, our orders in the quarter were greater than revenue. As we previously mentioned, our unique degree of industry diversification across customer segments and regions, in particular, continues to provide resiliency and balance in our business and plays a significant role in our strong financial performance. This is particularly relevant as the broader economy is faced with a growing uncertainty surrounding the spread of coronavirus. Thus far, for our industry, the challenges currently presented by this situation have been largely contained to the China market, the supply chain, and logistics. For Siena, by design, we have among the lowest exposure in our industry to the China market and the Chinese supply chain. As a result, as we sit here today, we believe that we are better positioned than most of the industry players to manage through the current set of challenges presented by the coronavirus. However, The situation is obviously very fluid and uncertain at this time, and we are not immune to potential broader business implications as it evolves. Jim will give you additional color when he provides our guidance. Now I'll turn back to the highlights of our Q1 performance. Again, the comments I'm about to make regarding our regional performance and forward view are without any further impact of the coronavirus situation, but rather how we see things from where we are today. In Q1, Asia Pacific performed well, particularly Japan, and we continue to see opportunity for growth in APJ in 2020. In India, much as anticipated, we experienced softness as we started the year, but we continue to believe there is opportunity for modest growth in the second half of the year. In EMEA, we had a very solid contribution from service provider customers in Q1, And we continue to see opportunity to expand market share as many carriers in the region re-evaluate their infrastructure partners and their next generation builds. We had an excellent quarter in our Americas region in Q1. Our North American service provider business was strong, including two 10% customers in the quarter, Verizon and AT&T. And revenue from other verticals, including MSO customers like Comcast and Charter and the U.S. government, was up about 5% year-over-year in Q1. We expect material contribution from these service providers in 2020, as well as growth from CenturyLink later this year. And we also expect continued growth in the Americas to be driven by other customer verticals. WebScale was also a solid contributor in the quarter, as this vertical continues to perform well and as expected. We also anticipate a strong Q2 in WebScale. As a reminder, we anticipate this market to grow roughly 7% to 10% this year, and we believe that we can grow our WebScale revenue at roughly market rate and maintain our market share leadership in this position. We also continue to add new customers every quarter in this segment. There is no doubt that confidence in our technology leadership is a significant driver of our performance and continued strong customer engagement. As I mentioned at the start of the call, I'm pleased to confirm that WaveLogic 5 Extreme, our next generation coherent optical technology, is now available. In fact, by now you should have seen our numerous announcements with Southern Cross, Verizon, and Comcast, as well as Internet2, where we've begun initial field deployments. As evidenced in these customer networks, we have delivered on our promise to be the first to market with an 800 gig solution, well ahead of any competitive offerings. WaveLogic 5 Extreme is fully featured and performing better than anticipated across a multitude of applications. We continue to expect initial revenue in Q2, with more material revenue in the second half of the year. In addition to that milestone achievement, we also recently announced several new products and capabilities in our 5G network solutions. First, we added three 5G optimized routing platforms. designed to enable network operators to migrate from 4G to 5G and meet the low-latency, high-performance demands of front-haul, mid-haul, and back-haul transport. And we also introduced Blue Planet software automation enhancements comprised of dynamic planning capabilities and end-to-end network slicing in this solution. And with respect to Blue Planet, in Q1 we secured new wins with two major international Tier 1 service providers, both outside of the US. We also added four new logos for our route optimization and analysis products, and we took strong orders for our unified assurance and analytics software on the heels of closing the Centina acquisition. With rising macroeconomic concerns and uncertainty, Customers more so than ever are pursuing a flight to quality where they are seeking strategic vendors who offer long-term innovation leadership and financial stability. And we are clearly very well positioned with the financial strength, expanding technology leadership, diversification, and global scale to meet their needs now and into the future. And we are very focused on taking advantage of this opportunity. With that, I'll turn you over to Jim.