Ciena Corporation reports 127% Net Income decline in 2018 and 1.1 pp EBITDA Margin decline from 12.1% to 11.0%
12/13/2018 • About Ciena Corporation (
$CIEN) • By InTwits
Ciena Corporation reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:
- Ciena Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.9%. At the same time it's in pair with industry average of 7.6%
- CAPEX is quite volatile: $31m in 2018, $37m in 2017, $14m in 2016, $14m in 2015, $7m in 2014
- In the last 5 years the company invested considerably less than D&A: $380m vs. $623m. In FY2018 this situation was still the same: CAPEX was 68 while D&A was 110
- The company has business model with low profitability: ROIC is 7.6%
- It operates with medium-size leverage: Net Debt/EBITDA is 0.5x while industry average is -0.5x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Ciena Corporation's Revenue jumped on 10.4%. Revenue growth showed acceleration in FY18Q4 - it increased 20.8% YoY. During the last 5 years Revenue growth bottomed in FY2016 at 6.3% and was accelerating since that time. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 1.1 pp from 12.1% to 11.0% in FY2018. During the last 5 years EBITDA Margin topped in FY2017 at 12.1%.
Gross Margin decreased slightly on 2.0 pp from 44.5% to 42.5% in FY2018. During FY2014-FY2018 Gross Margin topped in FY2016 at 44.7% and was declining since that time. SG&A as a % of Revenue showed almost no change in FY2018. SG&A as a % of Revenue declined at -0.49 pp per annum in FY2014-FY2018. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. During FY2014-FY2018 SBC as a % of Revenue topped in FY2015 at 2.3% and was declining since that time.
Net Income margin dropped on 56.2 pp from 45.0% to -11.1% in FY2018. During the last 5 years Net Income margin topped in FY2017 at 45.0%.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 2.2% in FY2018. CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average CAPEX/Revenue for the last three years was 3.2%. During the last 5 years CAPEX as a % of Revenue topped in FY2016 at 4.1% and was declining since that time.
Accounts receivable as a % of Revenue increased on 3.2 pp from 22.2% to 25.4% in FY2018. Inventories as a % of Revenue decreased slightly on 1.0 pp from 9.5% to 8.5% in FY2018. Accounts payable as a % of Revenue increased on 2.4 pp from 16.7% to 19.1% in FY2018.
Ciena Corporation has spent
$83m on M&A in FY2018 which accounts for 2.7% of revenue.
Return on investment
The company operates at low but positive ROIC (7.6%) and negative ROE (-17.0%). ROIC decreased slightly on 0.65 pp from 8.3% to 7.6% in FY2018. ROE dropped on 104 pp from 87.0% to -17.0% in FY2018. During the last 5 years ROIC topped in FY2017 at 8.3%.
Leverage (Debt)
Debt level is 0.5x Net Debt / EBITDA and 2.7x Debt / EBITDA. Net Debt / EBITDA dropped on 0.6x from 1.1x to 0.5x in FY2018. Debt decreased on 8.3% while cash jumped on 16.4%. Net Debt/EBITDA followed a declining trend at -1.1x per annum in FY2014-FY2018.
Ciena Corporation has good short term financial stability: Interest coverage ratio (ICR) is 4.2x. Ciena Corporation has no short term refinancing risk: cash is higher than short term debt (426.5%).
Average interest expence charged on company's debt was 5.9% in FY2018.
Management team
Ciena Corporation's CEO is Gary B Smith. Gary B Smith is a founder and has 18 years tenure with the company. CEO total compensation was
$9,129,584 in FY2018 which included
$917,307 salary. The company's CFO is James E Moylan Jr. James E Moylan Jr has 11 years tenure at the company.
At the end of financial year the company had 1.6% shares owned by insiders. Insider ownership didn't change in 2018.
The company has 6,013 employees. The number of employees increased on 4.8%. Average revenue per employee in FY2018 was
$514,599 and it increased on 5.4%.
Financial and operational results
FY ended 10/31/2018
Ciena Corporation ($CIEN) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 2,288 | 2,446 | 2,601 | 2,802 | 3,094 | 10.4% |
| Gross Profit | 948 | 1,076 | 1,162 | 1,246 | 1,315 | 5.5% |
| SG&A | 455 | 457 | 483 | 499 | 554 | 11.1% |
| EBITDA | 158 | 236 | 298 | 338 | 340 | 0.7% |
| EBIT | 46 | 100 | 156 | 215 | 230 | 7.1% |
| Interest expence | 47 | 51 | 57 | 56 | 55 | -1.1% |
| Tax | 14 | 12 | 14 | -1,106 | 493 | |
| Net Income | -41 | 12 | 73 | 1,262 | -345 | -127.3% |
| Stock Based Compensation | 43 | 55 | 52 | 48 | 53 | 9.5% |
Balance Sheet
|
|---|
| Cash | 587 | 791 | 778 | 641 | 745 | 16.4% |
| Accounts Receivable | 519 | 551 | 576 | 622 | 787 | 26.4% |
| Inventory | 255 | 191 | 211 | 267 | 263 | -1.6% |
| Accounts Payable | 210 | 222 | 236 | 260 | 341 | 30.9% |
| Short Term Debt | 190 | 3 | 237 | 356 | 175 | -50.9% |
| Long Term Debt | 1,275 | 1,272 | 1,026 | 657 | 755 | 14.9% |
Cash flow
|
|---|
| Capex | 48 | 62 | 107 | 95 | 68 | -28.5% |
| Acquisitions | | -37 | 32 | | 83 | |
Ratios
|
|---|
| Revenue growth | 9.9% | 6.9% | 6.3% | 7.7% | 10.4% | |
| EBITDA growth | 26.5% | 49.1% | 26.1% | 13.3% | 0.7% | |
|
|---|
| Gross Margin | 41.4% | 44.0% | 44.7% | 44.5% | 42.5% | -2.0% |
| EBITDA Margin | 6.9% | 9.7% | 11.5% | 12.1% | 11.0% | -1.1% |
| EBIT Margin | 2.0% | 4.1% | 6.0% | 7.7% | 7.4% | -0.2% |
| SG&A, % of revenue | 19.9% | 18.7% | 18.6% | 17.8% | 17.9% | 0.1% |
| SBC, % of revenue | 1.9% | 2.3% | 2.0% | 1.7% | 1.7% | -0.0% |
| Net Income Margin | -1.8% | 0.5% | 2.8% | 45.0% | -11.1% | -56.2% |
| CAPEX, % of revenue | 2.1% | 2.5% | 4.1% | 3.4% | 2.2% | -1.2% |
|
|---|
| ROIC | 3.6% | 6.1% | 7.9% | 8.3% | 7.6% | -0.6% |
| ROE | | | 10.5% | 87.0% | -17.0% | -103.9% |
| Net Debt/EBITDA | 5.5x | 2.0x | 1.6x | 1.1x | 0.5x | -0.6x |
| Interest coverage ratio (ICR) | 1.0x | 2.0x | 2.8x | 3.8x | 4.2x | 0.3x |
| Interest expence / Average debt | 3.2% | 3.7% | 4.5% | 4.9% | 5.9% | 1.0% |
People
|
|---|
| Insider ownership | 1.6% | 1.6% | 1.6% | 1.6% | 1.6% | 0.0% |
| Employees | 5,161 | 5,345 | 5,555 | 5,737 | 6,013 | 4.8% |
| Revenue/Employee, th. $ | 443 | 458 | 468 | 488 | 515 | 5.4% |
Ciena Corporation ($CIEN) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 646 | 730 | 819 | 899 | | 4.0% | 3.2% | 12.4% | 20.8% |
| EBITDA | 43 | 59 | 113 | 125 | | -20.5% | -35.9% | 4.4% | 49.9% |
| Net Income | -473 | 14 | 51 | 64 | | -12,360.1% | -63.6% | -15.3% | -94.5% |
Balance Sheet
|
|---|
| Cash | 649 | 652 | 726 | 745 | | -6.5% | 3.7% | 29.8% | 16.4% |
| Short Term Debt | 357 | 357 | 357 | 175 | | 87.5% | 88.7% | 4,492.0% | -50.9% |
| Long Term Debt | 658 | 659 | 660 | 755 | | -35.5% | -29.1% | -34.5% | 14.9% |
Ratios
|
|---|
| Gross Margin | 42.1% | 40.2% | 42.9% | 44.3% | | -2.0% | -4.8% | -2.1% | 0.5% |
| EBITDA Margin | 6.7% | 8.0% | 13.8% | 13.9% | | -2.1% | -4.9% | -1.1% | 2.7% |
| Net Income Margin | -73.3% | 1.9% | 6.2% | 7.1% | | -73.9% | -3.5% | -2.0% | -148.7% |
Peers in Communications Equipment
Below we provide Ciena Corporation benchmarking against other companies in Communications Equipment industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Ribbon Communications Inc. ($RBBN) | | | | 30.6% | 75.2% |
| Extreme Networks, Inc. ($EXTR) | | 6.4% | -4.4% | 13.2% | 64.4% |
| Optical Cable Corporation ($OCC) | | -11.3% | -12.2% | -0.8% | 37.0% |
| ParkerVision Inc ($PRKR) | | | 37,601.2% | -97.5% | 35.0% |
| Network-1 Technologies, Inc. ($NTIP) | | 34.6% | 292.9% | -74.7% | 34.4% |
| |
|---|
| Median (66 companies) | | -0.4% | 7.6% | 5.1% | 2.8% |
|---|
| Ciena Corporation ($CIEN) | | 6.9% | 6.3% | 7.7% | 10.4% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 82.1% | 82.7% | 83.1% | 83.1% | 83.3% |
| Radware Ltd. ($RDWR) | 82.1% | 82.4% | 81.8% | 81.3% | 82.2% |
| Radcom Ltd. ($RDCM) | 63.2% | 76.8% | 69.6% | 71.8% | 74.0% |
| Casa Systems, Inc. ($CASA) | | 70.8% | 69.1% | 73.4% | 73.4% |
| NetScout Systems, Inc. ($NTCT) | 78.7% | 79.2% | 65.6% | 70.2% | 72.4% |
| |
|---|
| Median (67 companies) | 42.4% | 41.3% | 43.7% | 41.0% | 40.5% |
|---|
| Ciena Corporation ($CIEN) | 41.4% | 44.0% | 44.7% | 44.5% | 42.5% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Network-1 Technologies, Inc. ($NTIP) | 35.5% | 33.7% | 50.6% | 37.8% | 42.8% |
| InterDigital, Inc. ($IDCC) | 50.8% | 58.1% | 73.6% | 67.3% | 41.9% |
| EchoStar Corporation ($SATS) | 25.7% | 39.7% | 40.3% | 38.1% | 37.4% |
| Ubiquiti Networks, Inc. ($UBNT) | 34.7% | 25.5% | 37.3% | 34.3% | 32.8% |
| Ituran Location and Control Ltd. ($ITRN) | 32.4% | 30.5% | 29.9% | 29.9% | 30.4% |
| |
|---|
| Median (65 companies) | 5.3% | 4.7% | 5.5% | 6.0% | 4.6% |
|---|
| Ciena Corporation ($CIEN) | 6.9% | 9.7% | 11.5% | 12.1% | 11.0% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Resonant Inc. ($RESN) | | | 132.5% | 124.8% | 245.2% |
| ViaSat, Inc. ($VSAT) | 22.8% | 26.5% | 26.7% | 33.0% | 32.1% |
| Applied Optoelectronics, Inc. ($AAOI) | 31.5% | 30.1% | 19.0% | 17.5% | 26.9% |
| EchoStar Corporation ($SATS) | 19.7% | 43.8% | 39.9% | 30.9% | 26.5% |
| Finisar Corporation ($FNSR) | 11.3% | 11.9% | 9.4% | 9.7% | 16.8% |
| |
|---|
| Median (65 companies) | 2.3% | 2.2% | 1.9% | 1.8% | 1.6% |
|---|
| Ciena Corporation ($CIEN) | 2.1% | 2.5% | 4.1% | 3.4% | 2.2% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| F5 Networks, Inc. ($FFIV) | 33.9% | 40.8% | 43.1% | 46.9% | 47.9% |
| Ubiquiti Networks, Inc. ($UBNT) | 61.4% | 31.5% | 41.5% | 38.5% | 39.1% |
| Motorola Solutions, Inc. ($MSI) | -16.1% | 18.9% | 26.4% | 39.5% | 35.3% |
| Ituran Location and Control Ltd. ($ITRN) | 50.9% | 46.8% | 50.1% | 48.5% | 35.1% |
| Casa Systems, Inc. ($CASA) | | | 43.2% | 39.7% | 21.9% |
| |
|---|
| Median (70 companies) | 1.2% | 2.0% | 2.2% | 2.1% | 0.3% |
|---|
| Ciena Corporation ($CIEN) | 3.6% | 6.1% | 7.9% | 8.3% | 7.6% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Extreme Networks, Inc. ($EXTR) | | | -2.2x | -1.5x | 7.1x |
| ViaSat, Inc. ($VSAT) | 3.4x | 2.5x | 3.2x | 2.5x | 5.8x |
| CommScope Holding Company, Inc. ($COMM) | 2.3x | 9.6x | 4.3x | 4.6x | 4.4x |
| Inseego Corp. ($INSG) | | | | | 3.9x |
| Finisar Corporation ($FNSR) | -0.3x | 0.2x | -0.5x | 1.6x | 3.8x |
| |
|---|
| Median (45 companies) | -0.8x | -0.8x | -0.9x | -0.8x | -0.3x |
|---|
| Ciena Corporation ($CIEN) | 5.5x | 2.0x | 1.6x | 1.1x | 0.5x |
