Ciena Corporation

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I'd like to welcome everyone to the Siena Fiscal Q1 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It's now my pleasure to turn the call over to Mr. Greg Lamp, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Brent. Good morning, and welcome to Ciena's 2022 Fiscal First Quarter Results Conference Call. Our call today is scheduled for up to 45 minutes. With me today is Gary Smith, President and CEO, Jim Moylan, CFO, and Scott McFeely, Senior Vice President of Global Products and Services. 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 views on current market dynamics and drivers of our business, as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A 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 guidance, discussion of market opportunities and strategy, and commentary about the impact of COVID-19, supply chain constraints, and geopolitical dynamics 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 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'll allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up. And as a reminder, we will be hosting investor meetings with the sell side at OFC tomorrow and Wednesday. We look forward to seeing many of you there. With that, I'll turn the call over to Gary.

Thanks, Greg, and good morning, everyone. Before I speak to our results, I would like to express our care, concern, and support for the people of the Ukraine. Those with friends and family in the region, and with all of our employees, customers, and partners, who are feeling the weight of this situation. This conflict in the region is leading to tragic outcomes for the Ukrainian people, and with a significant and growing humanitarian crisis underway. We will be making a corporate donation to Ukrainian relief efforts, in addition to reinforcing with our employees our Siena Cares matching program. Whilst the company has very limited exposure in the region, and we do not expect there to be a material impact on our global business, we are complying with all US and international sanctions and export control requirements imposed on Russia, including having already stopped shipments upon the escalation of the conflict. When combining those actions with our strong position to stand in solidarity with Ukraine, we have made the decision to immediately suspend our business operations in Russia. Like everyone, we will continue to monitor the situation and specifically the potential for broader geopolitical and global economic consequences. Moving to our Q1 results. Today, we reported fiscal first quarter revenue of $844.4 million, adjusted gross margin of 46.2%, and adjusted operating expense of $290 million, in line with the revised expectations we communicated a few weeks ago. As a reminder, these quarterly results reflect specific supply chain disruptions that happened late in our first quarter, and occurred within an already challenged logistics environment that was worsened by the Omicron surge. To be clear, we have subsequently managed through those specific disruptions that occurred in Q1. Importantly, long-term secular demand is very strong, driven by the acceleration of cloud adoption and traffic growth and the desire to get higher capacity and more bandwidth closer to the end user. As a result, we're seeing extraordinary demand that is generating significant momentum in our business, including unprecedented levels of order bookings for our products and services. This is broad-based across our portfolio and geographic regions. Our order volumes are also benefiting, to some extent, from security of supply behaviors, with customers giving us extended visibility into their needs, as well as some demand catch-up type spending. As we mentioned a few weeks ago, we are sharing additional metrics this quarter that we don't typically provide. These metrics illustrate the demand environment and help form the basis of our confidence in the year. Specifically, our book-to-bill ratio in Q1 was in excess of 2.5 of quarterly revenue. This ultimately resulted in a backlog of more than 3 billion exiting the quarter. providing exceptional visibility for the full fiscal year. Another highlight from the first quarter is strong revenue diversification. As we maintain our clear leadership position in web scale, we continue to benefit from prioritized spending in DCI. In Q1, this resulted in non-Telco revenue now composing nearly 41% of our business, up 16% year-over-year. Direct web scale revenue of 20%, an increase of 10% year over year. In addition, we had a solid contribution from cable MSOs in Q1, driven by both our long-standing customers as well as many smaller customers with whom we've been gaining momentum. MSOs overall comprised 10% of total quarterly revenue in Q1, up nearly 70% from a year ago. From a portfolio perspective, our core optical business remains incredibly strong, and we continue to win more than our fair share. We added 16 new customers for WaveLogic 5 Extreme in Q1, bringing our total to 156 customers globally. Also in Q1, revenue for our flagship 6500 platform increased 20% year-over-year. This performance reflects the monetization of some of the new deals that we secured over the past couple of years that are now beginning to deploy. It also includes activity with existing customers who are now building out additional capacity and new routes. As we indicated previously, we anticipated the shift in product mix for fiscal 22, and we expect it to continue throughout the year. We expect this to result in a higher percentage of revenue from line systems and common equipment than we've seen during the last two fiscal years, particularly in our core optical business. We also continue to win new business for next-gen Metro and Edge use cases. In fact, we reached a milestone of 150-plus total Adaptive IP customers during Q1. Overall in routing and switching, we had a strong first quarter with revenue up 33% year over year, including a 12 million contribution from the Viata platform that we recently acquired from AT&T. Our software and services business also continues to gain momentum. Revenue for Blue Planet Automation software and services was up 25% year over year. and revenue for our platform and services, software and services, was up nearly 50% from Q1 of last year. Within that business, revenue for our newly introduced MCP domain controller almost doubled from this time last year. Now, with respect to the supply chain environment, as we mentioned a few weeks ago, deliberate actions we've taken to invest in our growth will provide us greater flexibility, beginning in the second half of this year, basically to manage current supply chain challenges. Specifically, we made decisions roughly nine months ago to place significant orders with our suppliers to meet our expectations for a strong second half, similar to last year, and an outsized 22 revenue growth rate. We've been accumulating components that are not as scarce today in order to be efficient and prepared to produce finished goods more quickly when supply constraints ease for semiconductors and integrated circuits. Additionally, we've invested in manufacturing capacity that we expect to come online later this year. Overall, we are very positive about the strong demand environment, aligned with additional supply chain capacity and flexibility, and increased visibility into the remainder of the year based on our order flow and backlog. With that being said, I'll hand it over to Jim to review additional financial details of Q1, as well as provide our outlook for Q2 in the context of our expectations for the full fiscal year. Jim.