Ciena Corporation

Good morning, everyone, and welcome to Ciena's Fiscal Third Quarter 2025 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 and then one using a touchstone telephone. To withdraw your questions, you may press star and two. Please also note, Today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Greg Lamp, Vice President of Investor Relations.

Sir, please go ahead. Thank you, Jamie. Good morning, and welcome to Ciena's 2025 Fiscal Third Quarter Conference Call. On the call today is Gary Smith, President and CEO, and with us here today for the first time is Mark Graff, who officially joined Ciena as CFO on August 1st. Welcome, Mark. We look forward to introducing you to our investment community in person over the coming weeks and months. 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 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 Siena'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, commentary on market dynamics, and discussion of our long-term 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 posted earlier today, are an important part of our 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 and our 10-Q, which we expect to file with the SEC later today. Jeanne 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 ask that you limit yourselves to one question and one follow-up. With that, I'll turn the call over to Gary.

Thanks, Greg, and good morning, everyone. I'd like to start by welcoming Mark to Ciena and to today's call. We're excited to have you on board and look forward to the value and experience you'll bring in leading our finance organization and our global financial strategy moving forward. Now let me turn to the quarter's results. We had another really strong quarter across the board. Q3 25 revenue was $1.22 billion above the top end of our guidance. Importantly, As we focus on driving increased profitability, we delivered quarterly adjusted EPS of 67 cents, up 60% sequentially, and 91% year over year. This really demonstrating our expanded operating leverage from our business. I would characterize demand during the quarter as continuing to be broad-based and durable across both cloud provider and service provider segments. In fact, we had two 10% customers in the quarter, including one global cloud provider and one tier one service provider, really underscoring our diversified strength and momentum. Further evidence of strong demand was in our Q3 order book, which was, again, considerably above revenue and, in fact, set a new quarterly record for us. The step function increase in orders we've seen in recent quarters really underscores how the network is now fundamental to the underpinning, growth, and monetization of AI. At a strategic level, for cloud providers to monetize their substantial AI investments in LLMs and GPUs and related data center infrastructure, they need to invest in the network infrastructure that interconnect data centers, or they risk stranding their massive investments. Quite simply, AI enablement and adoption is only achieved when data is moved beyond the data center by the network to end customers. Whether for training or inferring, these data center investments need to be interconnected by cutting edge, low latency, high speed connectivity solutions. This is a powerful combination that requires the scaling up of system rack density, scaling out between racks within the data center, and scaling across with connectivity between data centers. This will entail a multi-year investment effort on a truly global scale. And this growing focus on high-speed connectivity plays directly to our core strengths and value proposition. Our portfolio, as you know, including WaveLogic Technologies, the RLS platform, the Navigator domain controller, and our interconnect solutions continue to be recognized as the industry standard for AI network infrastructure. solidifying our role as a critical enabler in this transformation. And with an 18 to 24 month lead with WaveLogic 6 and RLS, we clearly have the world's most advanced technology. When coupled with our global customer relationships, this means that Ciena is best positioned to serve these opportunities. Now let's return to our customer highlights, starting with cloud providers. Cloud providers continue to invest in AI at an unprecedented pace, with many announcing over the past quarter their intent to increase their expected spend on AI for future quarters and years beyond. Here I'd like to update you on our progress with two industry-first wins with cloud providers that we signaled last quarter. The first win is for the scale across architecture that I just mentioned. More specifically, this is a dedicated AI infrastructure project related to training and the interconnection of geographically distributed regional GPU clusters. This North American-based project is the industry's first dedicated build for this use case and is comprised of our RLS platform and the WaveLogic 6 nano 800 gig ZR plug from our interconnects portfolio. Initial revenue shipments are underway, and we expect this to ramp to hundreds of millions of dollars over the next several quarters. The second of these wins that I'd like to highlight is for a focused application inside the data center for out-of-band network management, a solution we have shorthanded as DCOM. We co-developed this solution with a hyperscaler which allows them to streamline the installation and management of its large-scale data center operations, improving scalability and reducing power and space. We also now have significant orders in-house for this application. Overall, we have increasingly strong partnerships with all of the major hyperscalers, driving increased demand for our industry-leading technology in these AI infrastructure builds. In Q3, another major hyperscaler placed its first large order for 400 ZR plus pluggables, establishing Ciena as the lead supplier of this technology for this customer. Consequently, we are on track to meet our expectations to at least double revenue year over year for our InterConnex portfolio in 2025. We now also believe that we're likely to be in a position to at least double and more our InterConnex revenue again in FY26. I want to mention here that there is another sizable emerging group of cloud providers beyond the four to five large well-known hyperscalers. This diverse group of network operators is now generally being referred to as neo-scalers, a term which is inclusive of AI compute specialists such as GPU as a service providers, cloud and edge service providers, and smaller data center and co-location providers. As they build and scale their own infrastructure, Neoscalers are strategically positioned to leverage AI traffic growth, distributed compute and automation, creating significant opportunities for Ciena globally over time, and adding to the durability of the demand. In fact, we've already secured multiple new wins with these cutting-edge Neoscalers, and we see this as a rapidly expanding new market for Ciena. Turning now to service providers, really on trend with the last few quarters, we continue to see more steady and sustainable investment patterns, both in North America and internationally. And in fact, three of our top five customers in Q3 were service providers. This includes renewed investment in building out their core infrastructure, in part driven by strong demand from cloud providers for managed optical fiber networks, or MOFAN. It also reflects strong enterprise demand pull-through and service providers' increasing focus on the role they can play in delivering AI to the edge as more enterprises move workloads to the cloud and AI-driven applications get adopted over time. It is clear that both our cloud and service provider customers are focusing their network investments where bandwidth and network scale are critical to support and enable AI traffic growth to drive monetization and adoption. This dynamic is reinforcing the significance of the current and long-term opportunity for both our systems business and our interconnects portfolio, including over time for inside the data center. To ensure we can take full advantage of those growth opportunities and as part of our regular review of our overall product portfolio, we recently made decisions to align our strategic investments on our coherent optical systems, interconnects, coherent routing, and innovative solutions like our data center out of band management solution, which I mentioned earlier. To that end, we will be redirecting additional R&D investment into these technologies and away from our residential broadband access portfolio, given the larger customer priorities for AI-driven and cloud network investments over the next several years. To be clear, we will continue to sell and support our existing broadband access products. However, we will be limiting forward investments only to strategic areas such as DECOMP. I'll now hand over to Mark for a closer look at our Q3 performance and our business outlook.