Ciena Corporation

Good day and thank you for standing by. Welcome to the Cine Fiscal Q3 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 will need to press star 1 on your telephone. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today, Greg Lance. Thank you. Please go ahead.

Thank you, Stephanie. Good morning, and welcome to Ciena's 2021 Fiscal Third Quarter 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 fiscal third quarter performance, our view on market dynamics, as well as a discussion of our outlook for the fourth quarter. Today's discussion includes certain adjusted or non-GAAP measures of standards 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 quarterly and annual financial guidance, discussion of market opportunities and strategy, and commentary about the impact of COVID-19 and supply constraints 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 September 9th. We expect to file by that date. Deanna 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'll allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up, please. This call is being recorded and will be available for replay on the investors' page of our website shortly. With that, I'll now turn the call over to Gary.

Thanks, Greg, and good morning, everyone. The strong third quarter performance we reported this morning reflects a combination of our increasingly differentiated position in the marketplace and our robust demand environment. We delivered a record $988 million in revenue and a particularly strong gross margin that drove a 19.1% adjusted operating margin and a $0.92 adjusted earnings per share. Overall, COVID-related challenges remain dynamic around the globe, but most of what we saw in the last several quarters is ameliorating. Importantly, the things we needed to happen in the market and for our business as we move through 2021 are materializing largely as predicted. Specifically, industry and economic conditions have improved noticeably. Service provider spend globally continues to improve, and our customers' network investments and operations are normalizing. And we had strong order flow in Q3, and that outpaced revenue again. And this allows us to continue growing our backlog and positions us to deliver the stronger than typical uptick in our second half performance that we expected. Secular demand is very strong, and we are taking full advantage of our leading position to address the opportunities that are driving network investment, including capacity adds to address bandwidth demand, the shift to the cloud with new architectures and network builds, intense focus on edge applications, and obviously the need for network automation, as well as Huawei replacement opportunities. Within the strong demand environment, however, there remain global and industry-wide supply chain constraints. And as we have consistently proven, we have best-in-class ability to manage through this challenge and to deliver outcomes for our customers better than anyone else in our industry. However, as we've said before, we are not immune, particularly if supply challenges persist. And as has been, I think, widely reported, conditions have somewhat deteriorated and are posing headwinds for Ciena, including difficulty to fully address demand. We have also seen some extension of our lead times and some increased costs. As we sit here today, we believe these challenges will likely persist through at least the middle of calendar 22. Moving to highlights from the quarter, our competitive position remains strong and we continue to take market share. With respect to innovation, we are investing across three key sectors. Optical, where we are the world leader in optical systems and its associated technologies, and we continue to drive our leadership in innovation and market share. Routing and switching, where we are leveraging our optical expertise to offer a new architectural approach to disrupt the market with next-gen Metro and Edge use cases. And in software, where we are executing on and accelerating our automation strategy to digitize both service delivery and networking layers. In optical, we are clearly the undisputed 800-gig leader, having been in the market for 18 months. We have secured the vast majority of opportunities globally and are now approaching 20,000 modems shipped. In the quarter, we added 11 customers for WaveLogic 5 Extreme, including Barti and Windstream, bringing our total count to 106 customers. In addition, WaveLogic 5 Nano, our 400 ZR product, is generally available and currently with several key customers as part of our certification and adoption process. We are also excited about the opportunity Next Generation Metro and Edge. where we expect to significantly expand our total addressable market from about $13 billion total currently to roughly $22 billion over the next several years. New use cases and technology disruption has created an important insertion point within this space for our architectural approach, and we have all of the critical elements required to win. including IP routing, switching, optics, automation software, and professional services. And as many of you know, we've been laying the groundwork for expansion in this area for quite some time, including significant investment in both product development and our go-to-market resources. And as you probably saw this morning, we announced an agreement with AT&T to acquire its Viata virtual routing and switching technology. The artist technology and software engineering team will bring additional resources to our routing and switching R&D team to address the growing market opportunity that we see with Metro and Edge use cases. This includes continued development of our adaptive IP capabilities, and that in part increases our exposure to certain 5G use cases. We also obviously look forward to extending our strategic relationship with AT&T, by directly supporting this key piece of their network in their transformation journey. Overall, as customers seek out new architectural approaches and alternatives to the status quo, we've secured several significant architectural wins around the world for switching and routing. In fact, in Q3, we had 10 new wins for our routing and switching portfolio. And finally, our Blue Planet software business continues to enjoy strong momentum. with our adaptive network vision that is well aligned to network operators' automation priorities. With increasing customer engagements, we continue to win new significant deals, resulting in quarterly revenue growth of 47% year-over-year in Q3. We expect to deliver a strong fiscal 2021, therefore, for Blue Planet, likely towards the high end of the 65 to 75 million annual revenue range we previously provided. Shifting to overall diversification in our business across customers and regions, we had three 10% customers in Q3, including two Tier 1 service providers and a web-scale customer. And highlighting our diversification, our top 10 customers in the quarter included four web-scale companies, three North American service providers, one international service provider, one MSO, and a wholesale company. Non-telco revenue in the quarter was strong at 42%. Web-scale revenue specifically grew 24% sequentially in Q3, with direct DCI business contributing 25% of total Q3 revenue. Regionally, strength in EMEA continued, driven by web scale, growing more than 16% year over year. EMEA represents our fastest-growing region in the quarter and, in fact, year-to-date as well. In India, we continue to navigate through COVID challenges and make progress, with revenue up 48% year-on-year and 26% year-to-date. And I think, importantly, We are seeing investment by key customers for network upgrades in India, as well as replacement of Huawei equipment. As I mentioned earlier, we are investing to capture ongoing secular demand for optical, routing and switching, and network automation solutions, and to considerably expand our addressable market over time. really as the shift to the cloud continues, driving additional traffic growth and a greater need for network transformation. As a result, we are confident in our strong market position and in our ability to continue to outperform the industry. With that, I'll turn over to Jim. Jim.