Ciena Corporation

Good day, and welcome to the CNS Fiscal First Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Greg Lamps, Vice President of Investor Relations. Please go ahead.

Thank you, Jason. Good morning and welcome to Ciena's 2023 Fiscal First 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. As OFC begins today, our team today is taking calls from the different locations. We ask for your patience during Q&A as we coordinate our responses, please. 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 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 and our long-term financial outlook, discussion of market opportunities and strategy, commentary about our impacts of supply chain results on our business 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 materially from the statements discussed today. Assumptions relating to our outlook, which mentioned on this call or included in the investor presentation that will be posted shortly after, are an important part of such forward-looking statements and we encourage you to consider them. Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10 filing and in our upcoming 10 filing which is required to be filed with the SEC by March 9th, and 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 will allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up, please. As a reminder, we'll be hosting investor meetings with the sell side at OFC tomorrow and Wednesday, and 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. Today, we reported outstanding fiscal first quarter results, including higher than expected quarterly revenue of $1.06 billion and adjusted gross margin of 43.7%. And in fact, Q1 was our largest revenue quarter ever, up to 25% year over year. We also reported very strong profitability metrics with quarterly adjusted operating margin of 12.6% and an adjusted EPS of 64 cents. These results are a strong demonstration of our market leadership and continued demand for our market leading technology across our complete portfolio. While supply chain has not completely recovered, and there is still some volatility in component deliveries, we are encouraged by the component availability in Q1 and our related strong shipment performance. This is both, I think, a proof point of our mitigation efforts and a positive indicator of our expectation for continued gradual improvements in the supply environment as we move through the year. We are very pleased with this progress as we continue to work hard to fulfill our customers' network capacity needs. With this strong momentum, we remain confident in our ability to grow faster than the market in both the short and long term, and of course, take market share. This confidence is underpinned by three fundamental beliefs. First, the positive overall demand environment and the strength of our customer relationships. Second, the market-leading strength of our portfolio to best service customer demand. And lastly, the visibility particularly provided by our backlog. And with respect to demand, We remain positive about the fundamental drivers, including 5G, cloud, AI, and automation, and continue to believe that they are very durable over the long term. Indeed, these drivers require network operators to increase capacity, reduce latency, and optimize power consumption while also intelligently converging technologies. These are critical elements across the core, metro, and increasingly edge network segments. And our customers know that they must continue investing in key parts of their networks to address these areas of their business in order to remain competitive. And there are clear signs, including our Q1 order book, that point to be happening. To service these demand dynamics, we continue to leverage the strength of our business model and our investment capacity to remain at the forefront of innovation across our portfolio. And our leading technology and strategic focus on addressable market expansions are closely aligned with our customers' investment priorities. And in fact, you probably saw we just announced the sixth generation of our WaveLogic technology. which will once again set a new standard in coherent optics where we have led the market for generations of this technology. WaveLogic 6 will be the first to support up to 1.6 terabits single carrier wavelengths, 800 gig across the longest links, and footprint optimized 800 gig pluggables that yet again will have the lowest energy consumption. Our newest generation modem technology will be supported across a range of our optical and routing and switching platforms, and will also be made available for use in third-party solutions. These breakthrough innovations in WaveLogic 6 are made possible through our unique expertise in coherent DSP and high-bandwidth electro-optics, leveraging state-of-the-art 3-nanometer silicon technology. And in Metro and Edge, we continue to invest in market expansion and further solidify our role as the disruptive challenger in this space with a very compelling value proposition. These investments are positioning us to both pursue new opportunities and leverage our position with current customers to address use cases deeper in the network. And since we last spoke to you in December, We closed the acquisition of Tippit Communications, which further strengthens our solution in broadband access. Benefiting now from our vertical integration and a modern open architectural approach, we believe we are very well positioned to attack this rapidly growing market that is the focus of private and public investment across multiple regions. These portfolio investments will be supported by similar efforts on software and services designed to enable customers to realize additional benefits of network automation and execute on their network transformation strategies. And lastly, let me pick up on this point of we have a very strong visibility given our backlog. As a reminder, going into 2020, we had accumulated a multitude of new design wins. And WaveLogic 5 Extreme was only just beginning initial commercial deployments at that time. Now, given the dynamics of COVID and supply chain conditions, those wins only started to translate into orders during the last several quarters. As a result of these wins, and industry dynamics during this period. Our backlog grew from 1.2 billion at the end of fiscal 2020 to 4.2 billion as we entered fiscal 2023. With that, it is clear that in recent periods, our backlog has far exceeded historical levels. In Q1, our backlog came down slightly because we significantly outperformed our revenue expectations. And of course, this is good news on a variety of fronts. First and most importantly, it means that we are delivering more product to our customers. Second, it's an indicator that the supply chain challenges are improving. And lastly, our market share gains are becoming evident as we convert this backlog to revenue. And while we expect ebbs and flows with orders given the supply chain dynamics, As we move through 23, orders for the year are off to a pretty good start. And even with these expected fluctuations, we expect to finish the year with backlog that is higher than our historical levels, albeit down from the extraordinary level we had at the beginning of the year. Moving to additional highlights from the quarter that I think speak to our efforts to meet customer demand. In optical. WaveLogic 5 Extreme continues to be the world's most widely-deployed 800-gig coherent technology, including 13 new customers in Q1, bringing our total customer count to 214. And Q1 was our biggest modem shipment quarter ever overall, including for WaveLogic 5e, for which we've now surpassed 60,000 modems shipped to date. It was also, of course, our strongest WaveLogic 5E modem production quarter ever as well. In routing and switching, with a focus on next-gen Metro and Edge, we continued to press down our efforts and to expand our addressable market and gain market share. Overall, quarterly revenue for our routing and switching segment increased 39% year over year, and Q1 was, of course, also a record shipment quarter for these platforms. And within this portfolio, we secured new wins in Q1 for our broadband access solution, which includes the recently acquired technology from both Bennu Networks and Tibic Communications. Shifting to customer segments and regions in the quarter, non-telco revenue was 40% of total sales in Q1. This reflects a strong performance with web scale, which included a 10% customer in the quarter. Direct web scale was 24% of total revenue in the quarter and increased 47% year over year. We remain very positive about the year with this group of customers. In fact, in FY23, we expect record revenue in web scale and growth well above the corporate average. As we continue to focus on driving growth outside the US, Q1 revenue in the APAC region was up 41% year-over-year. This was largely driven by revenue growth in India, which was up 150% year-over-year in Q1 to 64 million, reflecting the strong demand environment in that market. And finally, we are placing an intense focus on customer experience. specifically the combination of our investment in inventory over the last 12 months and a ramp-up of our service team's readiness to deploy for our customers as fast as possible as we ship product. In summary, we have great momentum in the market today, supported by robust fundamental demand drivers, a market-leading set of technologies and platforms, and strong visibility with our backlog. And with that, we are confident that we will deliver outsized year-over-year revenue growth in FY23 and that we remain on track to achieve the three-year revenue CAGR outlook we previously provided. With that, I will now turn over to Jim to speak more on those items, as well as to provide additional detail on the Q1 financial results. Jim?