Ciena Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Siena Fisco Q1 2021 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll 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 would now like to hand the conference over to Mr. Greg Lamp.

Thank you, Sharon. Good morning and welcome to TNR's 2021 Fiscal First Board of Results conference call. On the call today is Gary Smith, President and CEO, and Jim Moylan, CFO. Scott McFeely, our Senior Vice President of Global Products and Services, is also with us for Q&A. 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 recent performance, our view on current market dynamics and drive of our business, as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP measures as soon as results of operations. A detailed reconciliation of these non-gap measures to our gap 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 voting statements. Such statements, including our quarterly and annual guidance, discussion of market opportunities, and commentary about the impact of COVID-19 on our business and our end results, 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 too early 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 at the SEC by March 11th. We expect to file by that date. CN assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events, or otherwise. As always, we will allow for as much Q&A as possible today, so ask that you limit yourselves to one question and one follow-up. With that, I'll turn the call over to Gary.

Thanks, Greg, and good morning, everyone. This morning, we reported solid revenue and strong profitability for our fiscal first quarter, including adjusted operating margin of nearly 15%. This quarterly performance once again demonstrates the strength and durability of our business model, which enabled us to perform well in Q1 despite continued challenging conditions due to COVID-19. With these results, our fiscal 2021 is starting off essentially as we'd anticipated. including, as we indicated during our Q320 earnings call in September, that pandemic-related challenges would likely persist for a few quarters. Specifically, we see continued operational caution and business velocity challenges, and really affecting prioritization by our service provider customers of new architectures and deployments. And more generally, Tier 1 service providers, primarily in North America, remain financially cautious. However, we are seeing some early encouraging signs of improvement. In fact, orders in Q1 slightly exceeded revenue for the first time since the first half of 2020. These indications are providing us increased confidence in a strong second half performance this year. Achieving our annual revenue target requires that our performance in the second half of fiscal 2021 be stronger than our typical first half versus second half growth. Obviously, the precise trajectory of this second half improvement is dependent upon the ongoing recovery in industry and economic conditions, specifically enabling continued growing order flow and building backlog as we move through the year. We remain very confident in our competitive position, and we continue to take share, winning more than our fair share of new business around the world. Turning now to highlights from the first quarter, our WaveLogic technology continues to lead the market, with the only generally available 800-gig capable platform in the market. We secured 14 new customers in Q1, bringing our total WaveLogic 5 Extreme customer count to 79. In just over nine months of commercial availability, we've shipped WaveLogic 5e coherent modems to more than 75 customers around the globe, all of whom are actively deploying the technology in their networks. In fact, the adoption rate of WaveLogic 5 Extreme is impressive. Based on available data, it has been faster than the combined ramp of all competitive 600G solutions that are in the market today. Moving to packet networking, we've recently renamed this portfolio Routing and Switching. This change we think better aligns to the language used in the industry and by our customers, and also reflects an increased strategic focus on IP technologies in our portfolio. We continue to grow our customer engagements in this area, particularly given the unique advantages we bring with our adaptive IP solution and ability to address key use cases in areas like 5G, the Internet of Things, and Edge Cloud. In fact, in Q1, we secured our first private 5G network win using our 5164 router for in-building XOR aggregation. Revenue for our Blue Planet automation software and services portfolio increased 10% year-over-year in Q1, and we now count more than 200 customers worldwide. With customer engagements continuing to expand, it is very clear that Blue Planet can disrupt the status quo and deliver a software-driven approach to digital transformation and service management and delivery. Our fiscal first quarter was also strong with respect to diversification across customer segments and geographies. Of particular note is the strength of our non-Telco business, which comprised nearly 40% of revenues in Q1. This was led by our continued market leadership in web scale. And in fact, direct web scale revenue increased 25% year over year and represented more than 20% of total revenue in Q1. And at this point, most of our large web scale customers are now deploying WaveLogic 5 Extreme in addition to prior generations of WaveLogic. Geographically, EMEA performed well in Q1, increasing 20% year-over-year, and we continued to see encouraging signs of recovery from India. Finally, our subsea business was also strong in the quarter at 9% of revenue and five new wins in the quarter, including the Southern Cross Next cable, as well as upgrades on two large international cable systems. Turning to the broader environment, Our fundamental drivers remain strong as demand for connectivity continues and the move towards cloud architectures has in fact accelerated. Our strategy is well aligned to these market dynamics and we continue to invest in our portfolio to address these key opportunities. The specific dynamics related to COVID-19 have accelerated bandwidth consumption in core networks. And while many customers are running these networks hotter right now, they ultimately will need to be augmented with additional capacity to maintain performance. And we are extremely well positioned to meet this demand, given our market leadership in high-performance optical platforms and systems, including pluggables that support the connection of content to content and users to content, particularly in DCI, submarine, and long-haul and regional networks. COVID-19 dynamics have also driven a focus on network operator investments in next-generation metro edge and access networks, due to the distributed nature of how connectivity is now being consumed. As this presents an opportunity for addressable market expansion, we are making investments to expand our IP and automation capabilities as well as our talent area for this particular opportunity. Digital transformation has also grown in importance for our largest customers. From 5G to content delivery to cloud applications, customers are directing CapEx towards automating and streamlining how they deliver new services to reduce operational inefficiency in their back office operations. Accordingly, we continue to invest in our Blue Planet business to build a market leadership position and deliver a software-driven approach to digital transformation. With these investments in focus, we believe we are well positioned to take advantage of the current market opportunities and intersect longer-term trends and transitions. In doing that, we believe that we will continue to drive strong financial performance over the long term. With that, I'll turn it over to Jim.