Ciena Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Amit Daryanani - Evercore ISI - Analyst : I guess maybe just to start with the fiscal '25 guide for 8% to 11% growth, extremely impressive. We're setting what folks looking for. Maybe you folks would just help us understand how do you see the cloud market versus North America telco versus international kind of stacking up. Could you just dig into a little bit on what's embedded in this 8% to 11% assumption across the segments? That would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 1:30PM, CIEN.N - Q4 2024 Ciena Corp Earnings Call

Question: Amit Daryanani - Evercore ISI - Analyst : Got it. That's really helpful. And then if I just kind of focus on this gross margin, the obsolescence risk impact that you folks had in the quarter. Just say that after that one, is there any risk, there's a little bit more of that to happen in Q1 as well? Or are you doing that issue as well behind you at this point? And then as I think about the gross margin improvement in fiscal '25, starting that you do in Q1 to beyond, how much of that improvement is mix normalizing versus revenue leverage kind of kicking in? If there's a way to parse that out, that would be helpful. Thank you.

Question: Amit Daryanani - Evercore ISI - Analyst : Perfect. Thank you and congrats on a nice set of numbers here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 1:30PM, CIEN.N - Q4 2024 Ciena Corp Earnings Call

Question: Simon Leopold - Raymond James - Analyst : At first, I wanted to see if you could maybe unpack a little bit of the trending between your direct cloud sales and then the managed optical fiber network trend, MOFN. What I'm wondering here is what drives an operator to choose one option or the other? And how do you see, if at all, a divergence between those two buying patterns?

Question: Simon Leopold - Raymond James - Analyst : And then just as a follow-up, I appreciate you've told us a little bit about the 10% customers for the fiscal year in the quarter. What's your thinking on customer concentration in the forecast for fiscal '25? What are you assuming? Do you expect a similar top two? Or do you expect basically more diversification in the next fiscal year? Any color you can offer on how that's trending?

Question: George Notter - Jefferies - Analyst : I was thinking about your guidance for gross margins, 42% to 44%, I think, for fiscal '25. But when I adjust for E&O, looking at fiscal '24, I get you guys at about 44.5% gross margin. I hear what you're saying in terms of the mix shift of new systems versus line cards, but I think what you're telling us is this is going to be the heaviest mix towards new systems that you guys have ever been at in terms of a company. Is that the right interpretation here? Or is there just conservatism in the guide? Or what can we learn on that front?

Question: George Notter - Jefferies - Analyst : Got it. Okay. And the other one I had was just on headcount if I've got my math correct, I think you guys book head count down a pretty good chunk sequentially. First time we've seen head count come down by this magnitude in a very long time. Am I looking at that correctly? And if so, what's driving that?

Question: George Notter - Jefferies - Analyst : Super. Thanks so much and congrats on the results.

Question: Meta Marshall - Morgan Stanley - Analyst : Just as you were thinking about the three-year, I guess, I just wanted to get a sense of how are you judging customers' ability to kind of install all of this equipment kind of as quickly as kind of their purchasing it, I mean particularly on the part of the telcos where we've seen kind of some limits before kind of in their ability to install. Maybe that's the first question. And then the second question is -- as we look at kind of the OpEx step up, I know you guys have made some meaningful investments kind of in routing over the last couple of years. Just how are you judging some of those investments maybe versus some of the more nearer-term kind of opportunities you're seeing with the cloud? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 1:30PM, CIEN.N - Q4 2024 Ciena Corp Earnings Call

Question: David Vogt - UBS - Analyst : Two, if I may. Maybe, Gary, I missed it earlier, but I wanted to ask about the longer-term opportunities specifically short reach coherent, which you talked about, whether it's in campus or inside the data center. Can you kind of help us better understand sort of the timing and the magnitude of this opportunity? And if I would assume some of that revenue opportunity is embedded in the rolling three-year guide, and I'll give you my second comment as well our question. I heard Jim mention operating leverage in the out years. And to go back to George's question, should we expect gross margin expansion higher in fiscal '26 and fiscal '27 as well to support the 15% to 60% operating margin in the out year that you laid out earlier? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 1:30PM, CIEN.N - Q4 2024 Ciena Corp Earnings Call

Question: Adrienne Colby - Citi - Analyst : Hi. It's Adrienne Colby for Atif. Thank you for the question. I was hoping to go back to margins. I was wondering if you could comment about strategic opportunities for supply chain or portfolio optimization, if there's an opportunity for incremental benefits over the summer, one of Ciena's partners commented on standing relationship. So interested if there's a potential benefit to margins there.

Question: Adrienne Colby - Citi - Analyst : And as a quick follow-up, can you comment on exposure to tariffs with the incoming administration? I know that you use a lot of third-party contract manufacturers. But even if you can just talk about it qualitatively, that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 12, 2024 / 1:30PM, CIEN.N - Q4 2024 Ciena Corp Earnings Call

Question: Ruben Roy - Stifel Financial Corp. - Analyst : I just had one question, I guess, a quick follow-up for either Gary or Scott. Just following along to some of the previous questions around the data center or cloud service provider contribution to revenue. Gary had mentioned in and around coherent [twin] light optics, the plugs and components. And I think the component part of it is more of a recent potential road map extension. So just wondering if you could comment a little bit on how you're thinking about the components. I think, Gary, you mentioned as you think about getting into the data center, that could be an opportunity. Wondering if you're thinking about DSPs in kind of more standard DCI inside coherent DSPs as an opportunity over the near to medium term.

Question: Ruben Roy - Stifel Financial Corp. - Analyst : Got it. I guess just for a quick follow-up on that. In terms of -- we've been hearing more about DCI and contribution to revenue. Can you just give us a comment on competitive environment? Are you seeing kind of competitive modules becoming, I guess, more prevalent in the bake-offs? Or is that not the case?

Question: Samik Chatterjee - JPMorgan. - Analyst : Congrats on the results and the guide. I guess if I can start off with the fiscal '25 guide and just sort of ballparking here in terms of 10% revenue growth, which plus orders and revenue should be around this sort of $1.1 billion level every quarter that you did in 4Q. How -- maybe if you can sort of talk about the interplay between how you're thinking about interplay between old and backlog through the year? Because are you assuming that you continue to sort of build backlog through the year, and typically, your orders do sort of pick up towards the back half of the year. So if that means, do you have more upside for the year? And then I have a follow-up.

Question: Samik Chatterjee - JPMorgan. - Analyst : And for my follow-up, if I can just ask you on slide 10, I was looking at some of the TAM addressable market assumptions that you have. And I was curious on two things. One, I mean, as much as you're seeing accidented bandwidth growth and you have a lot more revenue coming from the market expansion opportunities that you're pursuing. Why isn't sort of the estimate for core business addressable market going higher, it is indicated to be 2% as it was before? Why aren't we seeing more of an uplift in the coal business addressable market? And then it seems like your addressable market expansion CAGRs came down by about a few percentage points because of a reduction of about $2 billion. So maybe if you can just parse out the impact there as well.

Question: Tal Liani - Bank of America - Analyst : I wanted just to ask about the margins. The orders you're talking about with cloud, is the proportion of pluggables higher than historical? I'm just -- my question is if the contribution of pluggables is going to go up over the next few years. What needs to happen to offset the margin pressure? Is it true that they carry lower margin? And what needs to happen to offset the margin pressure from pluggables. And that's my first question. My second question is, I'm trying to understand what drives -- I fully understand the cloud, cloud deployments, I know everyone knows what drives deployments of your solutions. I'm more struggling on the carrier side, on the telco side. They are under such pressure of spending and they talk about much lower spending cycle in the next few years. What drives their deployments?