Ciena Corporation

Good morning, everyone, and welcome to Ciena's fiscal third quarter 2023 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one on your touchtone telephones. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Greg Lance, Vice President of Investor Relations. Please go ahead.

Thank you, Jamie. Good morning, and welcome to Ciena's 2023 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 recent performance, our view 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 nine 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 and discussion of market opportunities and strategy, 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, whether mentioned on this call or included in the investor presentation that we will post 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-K filing and in our upcoming 10-Q filing, which will be filed with the SEC by September 7th. Sienna 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 I ask that you limit yourselves to one question and one follow-up. Also, for those in the investment community who will be attending ECOC, Jim Mullen and I will be meeting with investors on October 2nd and 3rd. Please reach out to us if you're interested. With that, I'll turn the call over to Gary. Okay.

Thanks, Greg, and good morning, everyone. Today we reported strong fiscal third quarter results, including quarterly revenue of $1.07 billion, an increase of 23% year over year. Our results included solid profitability metrics with quarterly adjusted operating margin of 12% and adjusted EPS of 59 cents. We are delivering a very strong year with 22 percent revenue growth year to date as we continue to capture market share. And in fact, we are confident as we look forward, particularly given that secular demand for bandwidth continues to increase. In fact, bandwidth growth has remained consistent for years, even through the recent period of supply chain constraints. And the underlying drivers of that strong growth are very durable, over the long term. These include mobility, 5G, cloud, automation, and more recently, artificial intelligence applications as they move out towards the network. These market dynamics in turn drive direct demand for our industry-leading technology and services, which we measure through three indicators. Number one is customer pipeline and forecasts. Number two is orders. And number three, backlog and ultimately shipments, which collectively reflect demand in our business, not just a single element of these. So I thought it might be helpful for me to provide some insights into what we're seeing across each of these indicators of demand. Starting firstly with pipeline. We are very encouraged by the level of overall customer activity that we are seeing across all regions and segments. Most notably, we are seeing early signs of near-term requirements with our cloud customers as they work to ensure their network readiness for machine learning and AI traffic coming out of the data center and into the WAN. With respect to orders, the flow of new orders in recent quarters has been directly impacted by several factors. Specifically, customers ordering decisions in the prior supply constrained environment resulted in both large order backlog and then higher than typical customer inventory levels. In addition, the recent rapid compression of our lead times has reduced the need for customers to place advanced orders. As a result, new order flow over the past couple of quarters has been meaningfully below revenue. and we expect this to continue for another couple of quarters. Therefore, this order flow in isolation has not really been a good reflection of underlying demand. Now, however, we are starting to see an uptick in new orders led by cloud providers. Overall orders were slightly up in Q3, and we expect higher orders in Q4. Importantly, We believe that this recent uptick in orders from cloud customers is a leading indicator of a rebalancing of supply and demand, which we believe will begin to flow through to our service provider customers in the coming quarters. And finally, backlog. We have had and continue to have an outsized backlog, resulting from the previous period of supply constraints and the resulting elongation of lead times. I would remind everyone that our backlog is still larger in both absolute and relative terms than any of our competitors, which is testament to our increasing competitive advantage. And as we turn this backlog into revenue, it is translating into significant market share gains, which so far this year have been in approximately the mid-single digits. We now expect that we will exit FY23 with backlog that is approximately 2.7 billion, even with our strong revenue year. And I think this is very encouraging on several levels. Fundamental demand drivers for our business are strong and improving, customer activity is increasing, and supply versus demand is gradually coming into alignment. Against this backdrop, Ciena has never been better positioned to deliver faster than market growth through trusted customer relationships and increasing technology leadership, new platform introductions, and considerable market expansions over time. Before turning it over to Jim, I'll run through some quick highlights from the quarter. Optical revenue was 27% up year over year. As expected, much of the growth in the quarter was in our optical line systems. Specifically, Q3 was a record quarter in revenue and shipments for our 6500 reconfigurable line systems, RLS, driven by cloud and content provider network expansions. RLS is in fact the only next-gen line system in the industry that is shipping at scale. and serves as a strong indicator of future revenue growth and margin expansion opportunity. We added 18 new customers in Q3 for WaveLogic 5 Extreme, bringing our total customer count to 246. And we also received our first order for WaveLogic 6 in the quarter, well before it is even generally available. Routing and switching revenue was also up 27% year over year, with the addition of more than 30 new customers for the portfolio in the quarter, a clear example of our technology leadership and a growing pipeline. The increase in Q3 was primarily driven by sales of our access and aggregation platforms. We also continue to advance our TAM expansion efforts in this general technology area. and particularly around coherent routing, broadband access, and PON opportunities. We also secured our first customer for the Wave Router platform this quarter. Notably, our platform software and services revenue was up 24% year over year. This reflects strong growth in software maintenance services, primarily related to our domain controller MCP. And as we know, MCP is the industry's leading multi-layered domain controller, now with nearly 800 customers worldwide. And more than a quarter of those customers leverage the advanced apps on the platform. In fact, in Q3, we added 18 customers for these advanced apps. Shifting to customers, we had one 10% customer in the quarter, which was a cloud provider. Overall, direct cloud provider revenue increased 39% year-to-date, well above our overall revenue growth in the same period. Panning out a little further, total non-Telco revenue was 46% year-over-year in the quarter to 487 million, a record high. Further, sub-C revenue was up 21% year-over-year in the quarter to 76 million. Revenue from service provider customers was up 9% year over year, which included one Tier 1 customer that came in just under the 10% threshold in Q3. And we continue to win with this important segment. By way of example, we have recently secured a multi-year strategic expansion of our relationship with a major U.S. Tier 1 service provider for our full portfolio, including routing and switching, as they continue to enhance their network. another example of growing customer activity and pipeline. And finally, with respect to geographic regions, Asia Pacific was again a solid contributor at nearly 16% of total revenue in Q3, up more than 30% year-over-year. And in that region, India remains very strong, with year-to-year revenue in FY23 of just over $200 million, compared to just under 170 million for all of last fiscal year. And we expect this growth to continue. EMEA also continued to perform well. Importantly, as our pipeline grows, we secured several new design wins across the region in Q3, which we expect to begin taking revenue on in FY24. So in summary, we believe we are executing well and are confident as we look forward. We are benefiting from strong secular demand and growing our pipeline with increased customer activity. We are increasing our competitive advantage, bringing new platforms to market and expanding our TAM. And we are converting backlog to revenue and gaining market share. With that, I will turn it over to Jim to speak more about all of these elements and provide additional detail on the Q3 financial results. Jim.