Ciena Corporation

Good day and welcome to the Seattle fiscal fourth quarter and year end 2024 financial results conference call. All participants will be in a 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. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Greg Lance, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Ciena's 2024 Fiscal Fourth Quarter and Year-End Results Conference Call. On the call today is Gary Smith, President and CEO, and Jim Moylan, CFO. Scott McFeely, Executive Advisor, 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 fiscal quarter and year. Our comments today speak to our recent performance, our view on current market dynamics, and drivers of our business, as well as the discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP metrics as a result 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 targets, commentary on market dynamics, and the discussion of our 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-Q filing and in our upcoming 10-K filing, which we expect to file with the SEC by December 24th. Sienna assumes no obligation to update the information discussed in this conference call, whether as a result of information, future events, or otherwise. As always, we'll allow for as much Q&A as possible today, though ask that you limit yourselves to one question and one follow-up. Before we get started, I wanted to remind everyone of our webinar entitled Expanding Leadership in Optical, Sienna's Strategy for Growth in AI and Data Center Markets. This can be found on the events and presentation page of the investor section of our website. Both the webinar and recorded Q&A have been very well received and should be helpful resources as you consider Ciena's positioning and opportunities. With that, I'll turn it over to Gary.

Good morning, everyone. Today, we reported strong fiscal fourth quarter results, including revenue of $1.12 billion. Notably, orders in the quarter were once again above revenue, representing the second quarter in a row of book-to-bill above one. and recall that we had expected orders to be below revenue when we spoke with you in September. We had several significant achievements in the quarter. First and foremost, WaveLogic 6 Extreme became generally available, locking in our position as the only provider of 1.6 terabit capable coherent modems in the market today. Further extending our technology leadership, We also took revenue for WaveLogic 6E in Q4, having shipped to multiple customers, many of which have announced their trials and deployments, including Verizon, EU Networks, and One New Zealand. Notably, Q4 was our largest quarter ever for shipments of line systems, led by our next generation intelligent line system, RLS, primarily to large cloud providers. We also, in the quarter, continued to gain strong momentum with pluggables. At the end of Q4, total shipments to date of WaveLogic 5 Nano were more than 43,000. And also in Q4, we announced our WaveLogic 6 Nano 1.6 terabit coherent light pluggable, which is designed to optimize performance and efficiency of data center and campus networks, as they scale to support traffic from growth in cloud, machine learning, and AI. Moving back to our Q4 financials, we reported adjusted gross margin of 41.6, which was lower than expected due to a larger than typical provision for excess and obsolescence in our inventory. Jim will provide additional detail on this momentarily. The full fiscal year, we delivered revenues of $4 billion. Also in both the fourth quarter and fiscal year, we had two 10% customers, a Tier 1 North American service provider and a major cloud provider. I think this is further evidence that purchasing patterns of North American service providers continue to improve, with supply and demand coming into balance as they work through inventory buildup from prior periods. During Q4, service provider orders in North America actually outpaced revenue for the first time in nearly two years. Also, in addition to our 10% cloud customers in Q4, four of our top 10 customers for the year were indeed cloud providers. Let me now touch on the broader market landscape and really what's driving our business today and going forward. As always, bandwidth demand remains the most consistent driver for our business and growing at about 30% per year over the last couple of decades consistently. With cloud and AI now the lead drivers of demand, we believe bandwidth growth will rise above those historical levels over the coming years. And to be clear, AI is not just a data center phenomenon. To monetize the massive AI super cycle of compute investments, traffic is already flowing out of the data center and impacting all parts of the network today. And we are beginning to see evidence of this in our business today in several ways across service providers and cloud providers. Our strategy is to take full advantage of the growth of cloud and AI traffic across multiple network segments and is threefold. First of all, we continue to extend our leadership and grow market share in our core business, inclusive of sub-C, long-haul, metro, DCI, and increasingly MOFON opportunities. Today, cloud providers are making significant investments in large-scale infrastructure projects to support AI growth and deliver the necessary scaling and densification of fiber infrastructure across the network. For this, they require a next generation of intelligent line systems, like our RLS photonic platform. and wavelength solutions such as Wave Server, really to address the need for scalability, resilience, and automation. And in fact, we support every major cloud provider with our RLS platform, which we co-designed with our cloud provider customers and is now their line system of choice. On service providers, we have won every major next-generation optical infrastructure RFP recently issued by North American service providers, proving that our coherent optics and optical systems are increasingly the de facto choice in these advanced network architectures as well. This is in part in the service provider world driven by the increase in two significant opportunities for them, MOFAN and multi-cloud networks. As a reminder, with MOFON, service providers are building dedicated private optical networks for cloud providers, enabling them to quickly extend their reach and better service customer demand. For multi-cloud networks, service providers are building out the robust networks that connect to and between cloud providers, enterprises, and other service providers. Secondly, we aim to grow our addressable market into adjacencies where our foundational optical technologies provide a significant competitive advantage. And let me start with data center applications, which is a significant growth opportunity for Ciena with respect to AI within the Metro data center campus, as well as over time inside the data center itself for our interconnects portfolio. As a general industry term, interconnects are really the infrastructure technologies that provide the critical connectivity between and within data centers and include both pluggables and component technologies. This is an area where we are once again collaborating directly with cloud providers, just as we did very successfully with RLS. help them address their data center traffic flows. A large near-term opportunity for our interconnects portfolio exists around the data center or in the metro data center campus for coherent technology. By this, we mean opportunities beyond our traditional DCI capabilities that extend into campus and short-reach applications typically in the 2 to 20 kilometer range. Our pluggables, including our recently announced 1.6 terabit coherent light, are a strong technology fit for these applications. In the coming years, we will also expect to see coherent optics begin playing a role inside the data center. where we can address this need with our interconnects portfolio in the form of plugs and components as legacy IMDD technology begins to reach certain limitations. And we are obviously recognized as having the world's leading coherent technology, and we are therefore incredibly well positioned to drive its adoption and capture these future opportunities as they materialize. We also anticipate growing opportunities in metro routing and broadband access, again, leveraging our optical expertise and foundation. In the metro IP and optical convergence, this will become essential for some service providers to achieve greater scale and cost efficiencies. And our coherent routing solution is ideally suited to address these needs. In broadband access, as public funding and deployments begin to materialize in the next few years, PON technologies like our industry-first pluggable OLT will be key to offering customers more deployment flexibility and scale. And the last dimension of our strategy is really around operational transformation. As service providers continue to evolve in the cloud and AI era, they are accelerating their digital transformation strategies in order to automate and optimize their network and service lifecycle operations. We see evidence of this opportunity for us with the recent performance of our Blue Planet intelligent automation portfolio. Blue Planet had its strongest ever financial performance in FY24. including several key wins for which initial deployments helped drive a strong increase in revenue in the second half. We are confident this momentum will continue. Before handing over to Jim, I'd summarize by saying that we are incredibly confident in our future, both in terms of our technology leadership position and the industry dynamics that are playing to our strengths. Specifically, we have been investing to address long-term opportunities, particularly those associated with the growth of cloud and AI. And these investments are proving to be fully aligned with market dynamics and our customers' priorities, both now and into the future. As a result, we expect to deliver accelerated revenue growth and improved operating leverage over the next few years. With that, I'll hand it over to Jim for a more detailed readout of our financial performance in Q4 and FY24, as well as our outlook for next year and an update on our three-year targets. Jim.