Ciena
Annual Report 2016

Plain-text annual report

Annual Report 2016 Measured by outcomes Increased operating leverage and sustainable momentum s v e R % x E p O d n a M G d e t s u d A j 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 42.6% 41.6% 40.9% 39% 42.8% 37% 42.1% 35.7% 44.7% 45.5% 34.1% 11.4% 33.8% 10.9% 5.6% 6.5% 1.0% 1.4% FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 ADJ. OPEX (% REV) ADJ. GROSS MARGIN ADJ. OPERATING MARGIN % 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% i % n g r a M g n i t a r e p O d e t s u d A j Financial leadership Normalized Revenue Normalized Adjusted Operating Profit 1.6 1.4 1.2 1.0 0.8 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 15 12 9 6 3 0 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 Source: Companies’ financial reports *Industry Avg: ADTN, ADVA, CSCO, ERIC, INFN, JNPR and NOK CIENA INDUSTRY AVERAGE A Letter from Gary B. Smith President and Chief Executive Officer We have always believed that winners and losers would emerge as the telecommunications industry evolves toward converged solutions for the on-demand world and new network owners bring their new demands to the market. In fiscal 2016, Ciena emerged as one of the clear winners in this industry. We continued to diversify our business across products and customers, made strategic investments, gained market share and maintained a differentiated customer experience. In so doing, we delivered another year of outstanding financial performance, including a seventh consecutive year of growing revenue faster than the overall market as well as the highest adjusted net income in the company’s history. We also positioned ourselves to take advantage of the next wave of opportunities focused on enabling greater choice for buyers of network technology. Executing on Our Diversification Strategy In addition, we continued to diversify across our A cornerstone of our strategy in recent years has customer base, expanding our business with Web- been to diversify our business, and in fiscal 2016 scale providers, cable and multi-service operators, we executed extremely well against this strategy. data center operators and enterprise customers. In We broadened our portfolio by focusing on higher growth applications for our products, including metro networking, data center interconnect and submarine networks, as well as by integrating the Blue Planet software platform into our business and driving market adoption for the platform. We completed the strategic acquisition of the high-speed photonics components business of TeraXion, We continued to diversify across our customer base, expanding our business with Web- scale providers, cable and multi-service operators, data center operators and enterprise customers. fact, approximately 31 percent of fiscal 2016 revenue was derived from these non-service provider customers, representing an 11 percent year-over- year increase. And, we benefited from geographic diversification and growth of our business in the Asia Pacific region, which grew revenue more than 30 percent year-over-year as a result of sales to additional customers in India as well as submarine consortia and network operators. which provides us greater control over important component technologies used in our business and Winning with Our Customers helps accelerate the further development of our We are also relentlessly focused on delivering the coherent packet-optical solutions. best products, services and overall experience for Annual Report 2016 1 our customers, and these efforts paid off for us more than $1.1 billion—representing a 15 percent in fiscal 2016. We achieved numerous customer increase from fiscal 2015 year-end. wins and gained market share across our newest solution offerings, including more than 2X growth in customers for the 8700 Packetwave platform, 6X Becoming a Leading Enabler of Choice for the Future growth in customers for Waveserver, and 2X growth Looking at fiscal 2017 and beyond, we believe that in customers for the Blue Planet orchestration and the ability to make choices between various network control software platform. Further, our customers clearly recognize us as differentiated from our competitors in a number of key product segments. Ciena was recently named by IHS Markit as the overall leader in its 2016 Optical Equipment Vendor Leadership Service Provider Survey, which measures the perception of network equipment vendors by global service providers. We were proud to take the #1 position in Technology Innovation, R&D, Solution Breadth, Product Reliability, Service & Support, Management Software and Transport SDN & Control Plane. Delivering Record Financial Results As a result of the above, Ciena had an outstanding year of financial performance in fiscal 2016: • Revenue increased from $2.4 billion to a record $2.6 billion • Adjusted gross margin improved from 44.7% to 45.5% • Adjusted operating margin increased from 10.9% to 11.4% • Adjusted net income increased from $179 million to a record $215 million technologies will be an important element of our customers’ efforts to keep pace with increasing demands on network bandwidth, the shift to more automated and programmable networks, and the need to manage network costs. We anticipated this industry shift and have designed our business accordingly. Five years ago, we introduced our OPn Architecture, a focused approach to next-generation networks through scalability, programmability and network level applications. Today, OPn has evolved and expanded into our governing philosophy and broader belief system, which is rooted in enabling choice in the market through openness. We believe that the best way to enable choice for our customers is by developing and providing network technologies and strategies that facilitate openness through innovation, virtualization, automation and collaboration. Our OPn belief system guides our research and development strategy and solutions offerings, including: • With the introduction of WaveLogic Ai, our next- generation coherent optical chipset, we’re setting a new benchmark for scale, automation and analytics for a self-driving network; In addition, we significantly improved our balance • We’re leading the market for multi-vendor network sheet during the year. We generated $290 million in orchestration, management and control through our cash from operations, exited the year with more than Blue Planet software platform; $1.1 billion in cash and investments, and substantially reduced our debt position and improved our leverage by repurchasing more than $260 million of our convertible senior notes due 2017. • Our Waveserver platform embraces design principles that leverage open application programming interfaces, which facilitates openness and choice; and Our financial performance this year also gives us • We’ve launched collaborative tools and environments confidence as we head into fiscal 2017. We received a such as our Emulation Cloud and the DevOps Toolkit, record $2.7 billion in sales orders in fiscal 2016, which whereby we enable the development, testing and enabled us to exit the year with a record backlog of customization of services and applications. 2 Annual Report 2016 Market Leadership #1 GLOBALLY • Data Center Interconnect • Data Center Interconnect For ICPs #1 NORTH AMERICA • Packet Optical • Next-Gen Optical • LH WDM • Metro WDM #2 GLOBALLY • Metro WDM • Next-Gen Optical Optical Networks Report, 3Q16 #1 NORTH AMERICA • Carrier Ethernet Access Devices #1 GLOBALLY • Data Center Interconnect Ethernet Access Devices Tracker, September 2016 Data Center Interconnect Market Share Report, 3Q16 #1 GLOBALLY • SLTE Upgrade Subsea Optoelectronics Market Share Report, 3Q16 A Network Strategy and Technology Company Ciena Holds 2,000+ Patents Worldwide • Packet-optical convergence platform • Coherent optics with 40G and 100G solutions • 100G transport SDN testbed adopting OpenFlow and an open source controller • Multi-layer, multi-vendor transport SDN controller based on OpenDaylight • Multi-vendor SDN/NFV ecosystem • Carrier SDN platform • Multi-domain orchestrator that integrates data center, NFV, and the WAN • Carrier Ethernet aggregation switch supporting a virtualized switching architecture • Intelligent optical core switch • OTN control plane on an optical switch Our OPn belief system also influences our go-to- market approach, as we expect to increasingly partner and positioning ourselves for the next wave of opportunities in a changing industry. As a result, we with an ecosystem of solutions vendors and virtual continue to believe that we can achieve our next-stage network function providers, and to integrate services financial milestone—15 percent adjusted operating and applications across multi-vendor and multi- margin—in the previously-established time frame of domain networks. the next two to three years. All of these offerings and approaches underscore our Finally, I would like to thank Ciena’s employees around ability to unite hardware and software strengths for the world for their dedication, our customers and greater customer value, and enable Ciena to address partners for entrusting their agendas to us, and our the industry’s need for a wider range of consumption shareholders for their continued engagement and models. Thereby, we have created a foundation that is support. We look forward to another successful year already separating us from the competition. together in fiscal 2017. In Closing Fiscal 2016 was another excellent year for Ciena. We executed on our strategy and delivered what we promised, while increasing our profitability 4 Annual Report 2016 Gary B. Smith President and Chief Executive Officer Corporate information Corporate Headquarters Operating Executive Officers Outside Board Members Patrick H. Nettles, Ph.D. Executive Chairman of the Board of Directors Gary B. Smith President, Chief Executive Officer and Director James E. Moylan, Jr. Senior Vice President, Chief Financial Officer Stephen B. Alexander Senior Vice President, Chief Technology Officer James Frodsham Senior Vice President, Chief Strategy Officer François Locoh-Donou Senior Vice President, Chief Operating Officer Andrew Petrik Vice President and Controller David M. Rothenstein Senior Vice President, General Counsel and Secretary Harvey B. Cash General Partner InterWest Partners Bruce L. Claflin Chairman AMD Corporation Lawton W. Fitt Retired Partner Goldman Sachs Patrick T. Gallagher Chairman Harmonic, Inc. Judith M. O’Brien Partner King & Spalding LLP Michael J. Rowny Chairman Rowny Capital T. Michael Nevens Senior Adviser Permira Advisers, LLC Ciena Corporation 7035 Ridge Road Hanover, MD 21076 Telephone: (800) 921-1144 or (410) 694-5700 www.Ciena.com Virtual Annual Meeting Ciena’s annual meeting of sharehold- ers will be held at 3:00 PM (Eastern) on Thursday, March 23, 2017. Please visit www.virtualshareholdermeeting.com/ ciena2017 at least 10 minutes prior to the start time. Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP Outside Counsel Hogan Lovells US LLP Transfer Agent Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 Stockholder Inquiries: (781) 575-2879 www.Computershare.com Common Stock Market Data NYSE: CIEN Investor Relations For additional copies of this report or other financial information, contact: Investor Relations Ciena Corporation 7035 Ridge Road Hanover, MD 21076 Telephone: (877) 243-6273 Additional information is available on Ciena’s website at www.Ciena.com/ investors Notes to Investors This Annual Report contains certain forward-looking statements regarding future events or results that involve risks and uncertainties. These statements are based on current expectations, estimates, forecasts, assumptions and other information available to the Company as of the date hereof. Forward-looking statements include statements regarding Ciena’s projections, expectations, beliefs, intentions or strategies and can be identified by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” and “would” or similar words. Ciena’s actual results or performance may differ materially from these forward-looking statements, including due to certain risks and uncertainties relating to Ciena’s business more fully disclosed in Ciena’s Annual Report on Form 10-K contained herein. Ciena assumes no obligation to revise or update any forward-looking information included in this Annual Report. This document includes certain adjusted or non-GAAP measures of Ciena’s results of operations. Detailed reconciliations of these non-GAAP measures to our GAAP results are included in the press release for the relevant period available on Ciena.com. m o c . e v i t a e r c i c f . w w w D M , a d s e h t e B , e v i t a e r C I C F : n g i s e D n o i t a r o p r o C a n e C 7 1 0 2 © i         7035 Ridge Road, Hanover, Maryland 21076 (410) 694-5700 (800) 921-1144 ciena.com 

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