FinanceLooker

Excrept from filing document 2024-11-02

The aggregate market value of the registrant s Common Stock held by non affiliates of the registrant as of April 26 2024 the last business day of the registrant s most recently completed second fiscal quarter was approximately 6 7 billion based on the closing price of the Common Stock on the New York Stock Exchange on that date
Part III of the Form 10 K incorporates by reference certain portions of the registrant s definitive proxy statement for its 2025 Annual Meeting of Stockholders which is expected to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this annual report
This annual report contains statements that discuss future events or expectations projections of results of operations or financial condition changes in the markets for our products and services trends in our business business prospects and strategies and other forward looking information In some cases you can identify forward looking statements by words like may will would can should could expects future plans anticipates believes estimates predicts intends potential projects targets or continue or the negative of those words and other comparable words These statements may relate to among other things our competitive landscape market conditions and growth opportunities factors impacting our industry and markets including macroeconomic conditions and global supply chain constraints factors impacting the businesses of network operators their network architectures and their adoption of next generation network infrastructures our strategy including our research and development supply chain and go to market initiatives and our efforts to increase the reach of our business into new or growing product customer and geographic markets our order volumes backlog and seasonality in our business expectations for our financial results revenue gross margin operating expense and key operating measures in future periods the adequacy of our sources of liquidity to satisfy our working capital needs capital expenditures and other liquidity requirements cybersecurity events business initiatives including information technology IT and environmental social and governance ESG initiatives the impact of changes in tax law and our effective tax rates and market risks associated with financial instruments and foreign currency exchange rates These statements are subject to known and unknown risks uncertainties and other factors and actual events or results may differ materially from any future results activity performance or achievements expressed or implied by these forward looking statements including due to factors such as those set forth below in Risk Factors Summary
For a discussion of additional important factors that could cause actual results to vary materially from those anticipated in the forward looking statements see Management s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors in this annual report We operate in a very competitive and dynamic environment and new risks and uncertainties emerge are identified or become apparent from time to time and therefore may not be identified in this annual report We cannot predict all risks and uncertainties that could have an impact on the forward looking statements contained in this annual report You should be aware that the forward looking statements contained in this annual report are based on our current views and assumptions We undertake no obligation to revise or update any forward looking statements made in this annual report to reflect events or circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events except as required by law The forward looking statements in this annual report are intended to be subject to protection afforded by the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995 Unless the context requires otherwise references in this annual report to Ciena the Company we us and our refer to Ciena Corporation
Investing in our securities involves a high degree of risk The following is a summary of the principal factors that make an investment in our securities speculative or risky as more fully described below in the section titled Risk Factors This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business In addition to this summary you should consider the information set forth in the Risk Factors section and the other information contained in this annual report before investing in our securities
A small number of customers account for a significant portion of our revenue The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations
We face intense competition that could impact our sales and results of operations We expect our competitive landscape to continue to broaden as we seek to expand our addressable market and solutions portfolio
Network equipment sales often involve lengthy sales cycles and protracted contract negotiations that may require us to agree to commercial terms or conditions that negatively affect pricing risk allocation payment and the timing of revenue recognition
Accurately matching necessary inventory levels to customer demand within the current environment is challenging and we may incur additional costs or be required to write off significant inventory that would adversely impact our results of operations
Our go to market activities and the distribution of our WaveLogic coherent modem technology within the market for high performance transceivers modems could expose us to increased competition and poses other risks that could adversely affect our existing systems business or results of operations
We rely on third party contract manufacturers and our business and results of operations may be adversely affected by risks associated with their businesses financial condition and the geographies in which they operate
Our reliance on third party component suppliers including sole and limited source suppliers exposes our business to additional risk including risk relating to our suppliers businesses and financial position and risks arising as a result of geopolitical events and could limit our sales increase our costs and harm our customer relationships
We rely on third party resellers distributors and service partners and our failure to manage these relationships effectively could adversely affect our business results of operations and relationships with our customers
Growth of our business is dependent on the proper functioning and scalability of our internal business processes and information systems Adoption of new systems modifications or interruptions of services may disrupt our business processes and internal controls
Our products incorporate software and other technology under license from third parties and our business would be adversely affected if this technology were no longer available to us on commercially reasonable terms
Data security breaches and cyber attacks targeting our enterprise technology environment and assets could compromise our intellectual property technology or other sensitive information and could cause significant damage to our business reputation and operational capacity
We are a party to legal proceedings investigations and other claims or disputes which are costly to defend and if determined adversely to us could require us to pay fines or damages undertake remedial measures or prevent us from taking certain actions any of which could adversely affect our business
Changes in trade policy including the imposition of tariffs and other import measures increased export control sanctions and investment restrictions and efforts to withdraw from or materially modify international trade agreements as well as other regulatory efforts impacting the import and sale of foreign equipment may adversely affect our business operations and financial condition
Investor and other stakeholder scrutiny related to our environmental social and governance practices and our disclosed performance and aspirations for these practices may increase costs and expose us to numerous risks
We are a network technology company providing hardware software and services to a wide range of network operators and enabling enhanced network capacity service delivery and automation Our solutions support network traffic across a wide range of applications including cloud video data artificial intelligence AI and voice Our network solutions are used globally by communications service providers cable and multiservice operators cloud providers submarine network operators governments and enterprises across multiple industry verticals
Our portfolio is designed to enable the Adaptive Network which is our vision for a network end state that leverages a programmable and scalable network infrastructure driven by software control and automation capabilities that is informed by network analytics and intelligence By using our network solutions to transform network infrastructures into dynamic programmable environments driven by automation and analytics we believe network operators can realize greater business agility adapt dynamically to changing end user service demands rapidly introduce new revenue generating services and scale networks to meet increased traffic demands Our solutions are also designed to enable network operators to gain valuable real time network insights allowing them to optimize network performance and maximize the return on their network infrastructure investment
Our solutions include Networking Platforms including our Optical Networking portfolio and our Routing and Switching portfolio which can be applied from the network core to end user access points and which allow network operators to scale capacity increase transmission speeds allocate traffic efficiently and adapt dynamically to changing end user service demands Our Optical Networking portfolio includes products that support long haul and regional networks submarine and data center interconnect networks and metro and edge networks Our Routing and Switching portfolio includes products and solutions that enable efficient Internet Protocol IP transport in next generation metro core aggregation and access networks including converged IP optical and fiber based broadband access applications
To complement our Networking Platforms we offer Platform Software which includes our Navigator Network Control Software Navigator NCS formerly known as Manage Control and Plan MCP and advanced applications that deliver multi layer domain control and operations for network operators
Automation Software we also enable complete service lifecycle management automation with productized operational support systems OSS including inventory orchestration and assurance solutions that help our customers to achieve closed loop automation across multi vendor and multi domain environments
In addition to our systems and software we also offer a broad range of services that help our customers build operate and improve their networks and associated operational environments These include network transformation consulting implementation systems integration maintenance network operations center NOC management learning and optimization services
The markets into which we sell are dynamic and characterized by a high rate of change Optical networks which carry video data and voice traffic by encoding digital information on multiple wavelengths of light traveling across fiber optic cables continue to experience strong demand for increased bandwidth due to traffic growth This network traffic growth is being driven by a diverse set of communications services that often require on demand service levels by enterprise and consumer end users as well as cloud based and AI services and applications
Enterprises and consumers continue to replace locally housed computing and storage by adopting a broad array of innovative cloud based models including Platform as a Service PaaS Software as a Service SaaS and Infrastructure as a Service IaaS and an expanding range of cloud based services that host key applications store data enable the viewing and downloading of content and utilize on demand computing resources In addition content is increasingly moving to the network edge creating capacity and traffic demands closer to the user
In recent periods Gen AI platforms have experienced rapid and unprecedented user adoption with a notable array of new offerings entering the market across a diverse set of use cases Gen AI presents significant opportunities for businesses and other users to automate tasks augment creativity and improve operational efficiency Given the Gen AI adoption trajectory to date and its potential to be a significant contributor to innovation and productivity Gen AI has been and will likely continue in future periods to be a significant stimulant or accelerator of network demand both inside and outside of the data center
OTT content refers to video multimedia and other applications provided directly from the content source to the viewer or end user across a third party network Traffic from streaming and OTT services including high definition and ultra high definition video has expanded with the increased availability of and end user demand for video content accessible through a variety of devices and media
Traffic from mobile web applications including video internet and data services has expanded with the continued proliferation of smartphones and other wireless devices Because much of wireless traffic ultimately travels across a wireline network to reach its destination growth in mobile communications continues to place higher demands upon wireline networks including the backhaul and fronthaul portions of networks emanating from cell sites 5G technology is further enabling meaningful increases in bandwidth and performance and enabling emerging applications and services that 4G LTE networks cannot support To fully capitalize on these opportunities network operators will need to consider the demands that 5G technology will place on their wireline infrastructures
By enhancing network intelligence and automation ML and AI can enable improvements in network planning operations user experience and trouble resolution Adoption of these technologies is expected to continue to increase as the IoT expands and additional services are created and ML and AI are expected to continue to serve as drivers of further network traffic and solutions innovation including driving bandwidth demands in various industries including manufacturing research and development robotics security healthcare and transportation
In recent years there has been a shift in bandwidth demands traffic patterns and computing functions to the edge of networks including due to increases in remote and hybrid working and distance learning With a higher percentage of data flows concentrating closer to the network edge more capacity and higher bandwidth to home and enterprise locations are required Network densification initiatives by cable and multiservice operators seek to push more digital fiber closer to the end user in an effort to increase potential bandwidth computing capability and data speeds to homes and enterprises while decreasing power space and operating costs Wireline service providers are responding to similar service and end customer demands by extending fiber to the home and deeper into access networks In addition a growing number of governments around the world are investing in rolling out access networks to underserved communities as part of an effort to bridge the digital divide
Emerging technologies services and applications are further impacting or are expected to impact network infrastructures particularly at the edge of networks where increased computing power and automation are required to meet the quality of experience required by end users Examples of these include
As networked connections between devices and servers grow machine to machine related traffic M2M is expected to represent an increasing portion of traffic These connections allow sharing of data that can be monitored and analyzed including in smart grid applications health care and safety monitoring resource and
Immersive technologies like virtual reality VR augmented reality AR interactive experiences gaming and 360 video as well as UHD 4K and 8K video are placing or likely to place further capacity demands on networks as adoption of these technologies grows Consumer electronics and other technology companies are rapidly advancing these applications which require high bandwidth and low latency and are making the associated devices more widely available and affordable to consumers
To provide end users with the required experience for a growing set of immersive cloud services network operators have increased and are expected to continue to increase the number and capabilities of edge computing locations to allow these latency sensitive workloads to be processed closer to users These changes at the edge of networks may affect network topologies demands and traffic patterns
We believe that increased adoption of these technologies services and applications and their performance requirements will further increase network traffic and place additional service challenges on network infrastructures We also believe that in turn network operators will be required to invest in their metro access and aggregation networks as well as their core networks
In the face of intense competition and disruptive business models communications service providers globally are engaging in large network transformation efforts that aim to simplify and reduce operational costs and create agile software driven platforms from which to develop new revenue generating services As part of these efforts providers are reimagining legacy processes and software in their business support systems BSS and operations support systems OSS and redefining how they want these software platforms to interact with network infrastructure The goal of these initiatives is to enhance customer loyalty create a more digital experience for their end users reduce operational complexity and costs and introduce greater service agility As a result we expect that network operators will continue to pursue strategies that better leverage AI automation consulting services analytics and software control capabilities in an effort to achieve this transformation
We expect that service providers will also pursue closed loop automation between their software operations platforms and network infrastructure Closed loop automation is a continuous cycle of communications between the programmable network infrastructure and software control elements to analyze network conditions traffic demands and resource availability to determine the best placement of traffic or network functions to deliver optimal service quality and resource utilization
We believe that adoption of these network transformation strategies around OSS and BSS and the related evolution of core metro aggregation and access network infrastructures will require network operators and their network solutions vendors increasingly to look to utilize an ecosystem of cloud native software consulting and delivery services and software optimized and controlled physical and virtual network resources We expect that these network architectural approaches in turn will require an increased degree of cooperation collaboration and interoperability among networking solutions vendors
Network operators are pursuing a diverse range of approaches or consumption models in their design and procurement of network infrastructure solutions In addition to purchasing fully integrated network solutions including hardware software and services from the same vendor new consumption models include the procurement or use of
Driven by the need to add capacity quickly and by restrictions in some jurisdictions on fiber ownership some cloud providers are using managed optical fiber networks MOFN through which they lease lit fiber pairs from advanced optical networks owned by communications service providers in order to expand their reach and better serve their end users In addition some network operators are pursuing network strategies that emphasize the deployment of smaller form factor
The consumption models that ultimately emerge and their level of adoption will depend in significant part on the circumstances and strategies of certain network operators While the adoption of these approaches has been limited to date we expect that continued customer consideration of a variety of consumption models will require network operators and vendors alike to assess and possibly broaden their offerings and commercial models over time We expect this dynamic will place a premium on a vendor s ability to provide a range of network solutions with the maximum amount of flexibility and choice
In the face of demand across a range of industries global supply for certain raw materials and components including in particular semiconductor integrated circuits and other electronic components experienced substantial constraint and disruption in recent prior periods Though supply conditions have stabilized from their highest levels of disruption they have yet to return to conditions experienced in the period prior to the COVID 19 pandemic In response governments and some of our network operator customers worldwide have intensified efforts to enhance supply chain resilience emphasizing the need for robust risk management strategies
During the most difficult periods of supply constraint companies across many industries including those of our end customers deployed risk mitigation strategies to ensure continued operations The strategies employed by some of our customers included increases in advance orders of networking equipment With the stabilizing supply chain environment experienced in recent periods customers strategies have shifted resulting in their need to digest their excess inventory of networking equipment purchased during that period which led to a period of lower demand for equipment
The United States and various foreign governments have established certain trade and tariff requirements and from time to time the U S government has indicated a willingness to revise renegotiate or terminate various existing multilateral trade agreements and to impose new taxes and restrictions on certain goods imported into the United States Current dynamics between the United States and China are playing a pivotal role in shaping the global supply chain landscape and have had an important impact on trade policies resiliency efforts and various domestic preference and investment initiatives This changing bilateral relationship which is marked by trade tensions and geopolitical complexities has prompted both nations to reassess their economic strategies creating a dynamic environment for many industries This environment characterized by tariffs and technological competition may introduce reconfiguration of global supply chains and prompt companies to diversify sourcing and manufacturing locations In addition the incoming U S administration has announced an intent to impose additional tariffs including on all imports from China Mexico and Canada Simultaneously there is a growing emphasis on domestic preference initiatives as countries seek to bolster their own manufacturing capabilities in an effort to ensure greater economic autonomy This evolving landscape presents challenges and opportunities for companies navigating the wide range of resulting regulatory economic and supply chain management complexities
As network traffic and service expansion continue to grow we believe network operators are seeking technology innovation to help support their business models in preparation for a low carbon future Network operators are also increasingly looking to their technology vendors to help them manage the environmental impact of their networks including energy use greenhouse gas emissions and waste Market transition to a low carbon future and greener technology presents meaningful opportunities for enhanced competitive positioning and business growth for technology innovation leaders capable of advancing a product development strategy that addresses network performance and sustainability outcomes
Our strategy is to leverage our optical technology leadership to drive the profitable growth of our business and to expand our addressable market into complementary and adjacent network applications in particular with respect to opportunities to apply coherent technologies inside and around the data center The key pillars of our strategy are set forth below
We are focused on using our significant research and development investment capacity to push the pace of innovation in our traditional markets We continue to innovate increase the performance of and enhance the capabilities for our leading WaveLogic
coherent modem technology in multiple form factors Specifically we have brought to market the sixth generation of this technology in our WaveLogic6 Extreme performance optimized form factor and we intend to bring to market our WaveLogic6 Nano WL6n pluggable offering for users that prioritize power and space considerations In addition to capture opportunities to expand our market inside and around the data center we intend to invest in photonic line systems and coherent pluggables for data center application
To address market trends toward disaggregated consumption models we offer a range of networking solutions to enable the evolution of next generation network infrastructures and promote choice in our markets We have made our coherent optical technology available in integrated systems pluggable form factors and components that together address a range of technical and economic requirements of network operators We are pursuing sales opportunities that leverage our WaveLogic technology in the form of high performance transceivers modems the combination of a Ciena designed optical chipset and application specific integrated circuit ASIC with other key optical components that are sold independently of integrated systems including to original equipment manufacturers OEMs original design manufacturers and value added resellers We are also pursuing opportunities with different go to market models for our passive optical network PON technology such as our microplug Optical Line Terminal OLT transceiver including through sales to network equipment manufacturers By addressing multiple consumption models including by offering component level solutions to the market we seek to secure a larger portion of the world s optical network wavelengths expand our addressable market and access new customer verticals and applications
To expand our addressable markets and capture additional opportunities in metro and edge applications we are making significant investments in our Routing and Switching solutions We are leveraging our optical expertise to offer new architectural approaches to address Metro and Edge network use cases To enable this strategy we offer solutions designed to integrate IP networking software with optical coherent transmission including WaveRouter a purpose built coherent metro router designed to converge IP and Optical layers in the metro network We also offer our Navigator NCS multi layer domain controller software which operationalizes converged IP optical platforms We are investing in broadband solutions including innovative PON transmission technology to intersect with public funding opportunities to bring broadband connectivity to underserved communities
To support our customers needs for rapid service introduction and optimized network operation we seek to improve network layer automation and programmability by advancing our Navigator NCS software and applications We are also focused on gaining adoption and expanding application for our Adaptive IP software leveraging our Service Aware Operating System SAOS embedded in our Routing and Switching products We also seek to promote broader adoption of our Blue Planet Automation Software highlighting its ability to automate the service management lifecycle Through this automation we believe that Blue Planet can help customers with their digital transformations by transitioning legacy networks into service ready networks accelerating the creation delivery and management of new services A key part of our strategy is to grow our software business as a portion of our total business through expanded customer adoption and broader applications and to build a strong automation business through the delivery of flexible modular and targeted automation solutions
Underpinning all aspects of our portfolio is our broad suite of value added global services that help our customers to build operate and improve their networks We are focused on broadening our advanced services capabilities with offerings to maximize our customers network infrastructure investment throughout the network lifecycle including systems integration multi vendor migration and transformation Key to our delivery of strong services offerings is our close collaboration with our customers which allows us to gain insight into the challenges they face and to provide services that meet their desired business outcomes
Our cloud provider customers also referred to in our markets as web scale or hyper scale providers include internet content providers and providers of internet services and infrastructure including data centers cloud compute SaaS storage AI and web hosting services In addition to their direct purchases these customers are also significant purchasers of capacity on submarine and wireline networks globally and they heavily influence networking solution alternatives by other network operators including communications service providers
Our portfolio of products and services which is designed to enable our Adaptive Network vision includes the solutions described below within our Networking Platforms Platform Software and Services Blue Planet Automation Software and Services and Global Services operating segments We also offer solutions that bring together multiple products and services from across our operating segments and portfolios to address key customer use cases and infrastructure needs with an aim to enable our customers to evolve their existing network environments
Our Optical Networking portfolio includes a range of products and solutions that use our WaveLogic coherent optical technology and our intelligent photonics solutions and are optimized for the convergence of coherent optical transport open optical networking Optical Transport Network OTN switching and IP routing and switching
Our 6500 Packet Optical Platform provides a flexible and scalable converged multi layer transport solution that adds capacity to core regional metro and submarine networks and enables efficient data transport at high transmission speeds This platform provides leading coherent wavelength capacities from 100 gigabits per second 100G to 1 6 terabits per second 1 6T along with a flexible photonic layer and multi layer control plane capabilities for scale and service differentiation This platform which includes several chassis sizes and a comprehensive set of line cards optimized for individual services or applications can be used throughout the network from customer premises to access and metropolitan networks regional and core networks and submarine cable landing sites
family of products consists of compact modular interconnect platforms that allow network operators to scale bandwidth and support high bandwidth interconnect applications such as high speed data transfer from 100G to 1 6T content delivery including encrypted data transfer between data centers Waveserver is purpose built to address disaggregated transponder data center and general space constrained applications using a small footprint and low power design With its modern software architecture open application programming interfaces APIs and common data models Waveserver is easy to operate and integrate into existing networks and facilitates deployment of on demand cloud and high capacity connectivity services
Our 6500 Reconfigurable Line System RLS is a compact disaggregated open intelligent photonic layer line system that improves scalability reduces footprint and offers flexibility and programmability Its applications include subsea long haul and metro networks and data center interconnection and general network modernization and simplification It offers increased fiber capacity through automated and integrated C and L band deployments and provides highly dense remote optical add drop multiplexing and switching features that enable network operators to react to unpredictable traffic requirements by scaling connectivity and capacity
Our coherent optimized edge line system Coherent ELS is a high capacity disaggregated line system that is designed to address next generation access photonic line system requirements including the transport of coherent wavelengths originating from pluggables through a compact hardened form factor designed to accommodate outside plant deployments With a focus on reducing operational complexity our Coherent ELS open line system OLS uses integrated intelligence and automation to simplify and scale deployments
Our O NID is a purpose built edge OTN demarcation device that modernizes OTN networks by delivering OTN to the edge in a compact hardened form factor that is designed to flexibly address a range of applications while reducing cost space and power The O NID allows network providers to seamlessly extend the reach of their OTN networks closer to the edge and customer premises where space and power are limited and can efficiently deliver gigabit ethernet 1GbE 10GbE 100GbE services and 100 200G waves to the customer premises with a solution that simplifies deployments service turn up and management
We also offer footprint optimized coherent pluggable transceivers which utilize our WaveLogic technology to address next generation access metro regional and data center interconnect network applications which are supported across both our systems and third party equipment Our opportunities with high performance coherent pluggable transceivers are reflected within the Optical Networking product line of our Networking Platforms segment
Our Routing and Switching portfolio includes products and solutions that enable next generation metro access and aggregation or edge networks including solutions that allow customers to simplify their network designs while delivering new revenue generating services These products route aggregate and switch IP based traffic to support applications including IP services Ethernet business services cell site routing mobile cross haul converged haul 5G fiber based access networks and residential broadband access Our Routing and Switching products are based on our Adaptive IP approach which delivers end to end IP based services in an automated and more simplified manner than traditional IP network designs Our Routing and Switching products enable operators to achieve improved network cost effectiveness including reduced costs associated with power and space as compared to more complex traditional IP routing
Central to our Routing and Switching platforms is our SAOS next gen IP network operating system which provides the software based capabilities to support 5G IP VPN services access PON converged interconnect network CIN architectures and coherent routing applications in our portfolio SAOS provides automation friendly intelligence and operational data to enable network level programmability supported by open standards
Our 3000 family of Service Delivery Platforms and our 5000 family of Service Aggregation Platforms support network access and aggregation respectively and have been principally deployed to support IP and Ethernet business services wireless front haul backhaul and mid backhaul applications and residential broadband applications Our 3000 family of platforms are purpose built to fit small to large customer sites as well as multi tenant offices residential buildings or homes and edge office or outside plant applications Our 5000 family provides aggregation to fill higher capacity links within both the metro access and aggregation tiers of networks allowing operators to reduce the number of router assets required in the core and to better implement edge cloud architectures
Our 8100 Coherent Routing platforms combine high capacity multi terabit IP routing and switching from 1 gigabit ethernet GbE to 400GbE with high capacity WaveLogic 5 Nano coherent optical transport from 100 200 400GbE for next generation metro and edge applications
Our WaveRouter is a purpose built coherent metro router designed to converge IP and Optical layers in the metro network WaveRouter can flexibly scale Wide Area Network WAN traffic from 6 192T with the ability to scale up and out delivering capacity when and where needed With optional WaveLogic capabilities WaveRouter can support dense high capacity coherent routing and switching metro applications
Our Vyatta virtual routing and switching technology and products include a cloud grade router and software for enterprise and cloud networks that enable hardware like routing performance for enterprises across multi cloud and virtualized edge networks This scalable and modular software can be deployed as a Virtual Machine VM application as well as in virtualized and disaggregated network environment
Our 6500 Packet Transport System PTS combines packet switching control plane operation and integrated optics Together with our 3900 platforms PTS enables our service provider customers to migrate their legacy TDM SONET SDH PDH services to a scalable lower operational cost packet solution
Our Routing and Switching portfolio includes our fiber based broadband access solutions Our microplug OLT transceiver combines PON hardware and software for integration into a router to support broadband and other applications Our Routing and Switching portfolio also includes cloud native software solutions including a virtual Broadband Network Gateway for access network Our 3800 family of ONUs support fiber based PON broadband access service delivery to residential or enterprise locations
Our software offerings also include our Platform Software which provides domain control management analytics data and planning tools and applications to assist customers in managing their networks including by creating more efficient operations and more proactive visibility into their networks Our Platform Software includes
Navigator NCS software provides intelligent multi layer network control of our routing switching and optical solutions enabling simplification acceleration and automation of multi layer network operations Our Navigator NCS domain controller provides fault configuration accounting performance and security management for multi layer multi vendor networks in combination with services management and online network planning Navigator NCS simplifies multi layer lifecycle operations including equipment commissioning service provisioning service assurance and performance monitoring Navigator NCS uses Generative AI applications and analytics to allow customers to adopt AI operations approaches in their management of their networks
Our suite of Navigator NCS applications integrate software control and analytics applications in a unified interface that provides network performance data Through our suite of Navigator NCS applications and open APIs Navigator NCS software can integrate into network operators OSS and business processes supporting our customers journeys towards automation of end to end operational workflows
To complement our Platform Software portfolio we offer a range of related services that include software subscription services consulting network migration and integration installation and upgrade support services and technical support relating to our Platform Software offerings These services are focused on enabling our customers to operate their Ciena networks most efficiently and to modernize their operations
Our Platform Software offering also includes planning tools as well as a number of legacy software solutions including our OneControl unified management system that support our installed base of network solutions As we achieve further customer adoption of our Navigator NCS software platform and as we transition features functionality and customers to that platform we expect revenue to decline for our legacy Platform Software solutions
Our Blue Planet Automation Software is a comprehensive cloud native standards based software portfolio that enables our service provider customers to accelerate their digital transformation We believe digital transformation is critical for service providers to reduce the cost and complexity of their OSS to reduce customizations and to help them monetize their networks by automating service delivery across multiple vendors and domains Our Blue Planet product applications are open and modular and can be deployed either individually or in any combination on a single cloud native platform These applications include
By integrating or federating data from multiple inventory systems and presenting it in a single dynamic view BPI allows real time visibility into the end to end topology and status of network cloud and service resources Integrating with legacy OSS BPI helps network providers simplify key operational processes such as service fulfillment network planning and service assurance Through its comprehensive inventory of network services devices and virtual functions BPI allows for observation of AI analytics assurance and other critical technologies in designing planning and operating a network
Network infrastructures are comprised of multiple technology layers and domains such as the radio access network RAN data center cloud access transport and mobile core networks With new 5G network implementations it is often complex for network operators to offer automated end to end services in this environment Blue Planet provides model driven intent based service orchestration across multiple physical and virtual network domains multiple layers Optical Ethernet IP SD WAN PON Mobile Core RAN and slicing across any set of hardware and software vendors
Operators are deploying a growing number of cloud based services to meet the needs of their customers Blue Planet MCO provides orchestration of Cloud Native Functions CNFs Virtual Network Functions VNFs and other cloud based resources MCO uses an open vendor agnostic approach that allows network operators to manage the lifecycle of cloud based resources within and across multiple clouds and cloud providers
ROA combines routing traffic and performance analytics for real time monitoring of IP services across domains and across the cloud These capabilities provide enhanced network observability capabilities and enable troubleshooting of latent or transient network problems and modeling to predict the impact of network infrastructure service and workload changes to build more resilient networks
UAA leverages multi layer multi domain assurance and AI powered analytics to provide insights into the health and performance of network resources and services ensuring an end customer quality of experience and availability to meet dynamic service demands
To complement our software portfolio we offer a range of related services that include professional services for solution customization and OSS integration software and solution support services consulting and design and technical support relating to our software offerings These services are focused on enhancing network automation and network analytics enabling multi vendor integration and support and implementing programmable multi domain next generation networks
The Blue Planet Automation Software portfolio allows operators to fulfill services rapidly and to meet end customer quality of experience expectations through an entire services lifecycle approach It also advances network operators towards
their vision of self healing and self optimizing networks through closed loop automation Our entrance into the market relating to these software automation capabilities remains in the early stages and accordingly revenue from our Blue Planet Automation Software and Services segment continues to represent a relatively small portion of our total revenue
We offer a broad suite of value added services that help our customers to build operate and improve their networks We believe that our services offerings and our close collaboration with our customers provide us with insight into the network and business challenges they face allowing us to provide services to meet their desired business outcomes We continue to broaden our advanced services capabilities with offerings including systems integration multi vendor migration and transformation
Consulting services to enhance network performance or plan migration to next generation infrastructures implementation services to deliver proper planning design and deployment services systems integration services to integrate third party solutions and migration services to help customers adopt new technologies and retire legacy equipment
To remain competitive we must continually invest in and enhance our solutions offerings addressing new market opportunities adding new features and functionality and ensuring alignment with market demand Our product development efforts seek to design and bring to market solutions that embrace our Adaptive Network vision through further advances in programmable systems and software analytics and control and automation Through our development efforts we seek to support network operators as they pursue new business models and sources of revenue from their network infrastructure We seek to develop products aimed at optimizing price for performance managing power consumption reducing lifecycle operating costs and space requirements and minimizing the environmental impact of our customers network operations Our approach is also focused on designing products that address a range of emerging consumption models for networking solutions Our current development efforts are focused on
Delivering on our Adaptive IP approach and extending the IP routing capabilities and use cases of our Routing and Switching solutions to include converged metro core routing and support for mobile network 5G routing and cross haul enterprise edge and fiber based access networks for enterprise and residential access service delivery
Our research and development efforts are also geared toward portfolio optimization and engineering changes intended to drive product and manufacturing cost reductions across our platforms and enable muti vendor sourcing of components We follow a structured development lifecycle process aiming to supply products that are compliant with emerging security standards Throughout certain phases of the development lifecycle including testing and quality assurance we leverage AI to increase productivity and to improve development efficiencies
We regularly review our existing solutions offerings and prospective development of new features components or products in order to determine their fit within our portfolio and broader corporate strategy We also assess the market demand technology evolution prospective return on investment and growth opportunities as well as the costs and resources necessary to develop and support these products To ensure that our product development investments and solutions offerings are closely aligned with market demand we regularly seek input from customers and promote collaboration among our product development marketing and sales organizations In some cases where we seek to utilize or gain access to complementary or emerging technologies or solutions we may obtain technology through an acquisition or alternatively through initiatives with third parties pursuant to technology licenses OEM arrangements or other strategic technology relationships or investments In addition we participate in industry and standards organizations and where appropriate incorporate information from these affiliations throughout the product development process
Our Global Customer Engagement organization includes a direct and indirect sales system engineering and services presence that is organized geographically around the following geographies and customer types i the United States Canada the Caribbean and Latin America Americas ii International which includes Europe Middle East and Africa EMEA and Asia Pacific Japan and India APAC and iii global cloud and content networking customers which include cloud provider content and data center companies Within each focus area we maintain specific teams or personnel that focus on a particular region country customer or market vertical These teams include sales management account salespersons and sales engineers as well as partner resources field marketing services professionals and commercial management personnel who are focused on maintaining a high touch consultative relationship with our customers
We also maintain a global partner program that includes distributors resellers systems integrators service providers OEMs original design manufacturers and other third party distributors who market and sell our products and services We utilize these third party channel partners to market and sell our solutions into specific geographies applications or customer verticals We believe there are opportunities to leverage these relationships to expand our addressable market while at the same time reducing the financial and operational risk of entering additional markets
To support our global customer engagement efforts we invest in marketing activities to generate demand for our products and services Our marketing strategy is highly focused on building our brand to create customer preference for Ciena engaging in thought leadership programs to illustrate how our innovations solve customer business problems and enabling our sales teams to drive customer adoption of our solutions Our marketing team supports our sales efforts through a variety of activities including direct customer interaction account based marketing campaigns portfolio marketing industry events media relations industry analyst relations social media trade shows our website and other marketing vehicles for our customers and channel partners
A small number of customers currently account for a significant portion of our revenue The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations For further discussion of this concentration and the related risk see the related discussion in Risk Factors under the heading A small number of customers account for a significant portion of our revenue The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations
Most of the manufacturing for our products is conducted through third party contract manufacturers Our supply chain personnel manage the relationships with these third party manufacturers and the global supply chain addressing component sourcing manufacturing product testing and quality fulfillment distribution and logistics relating to the support of our customers
We utilize a sourcing strategy that focuses on control over supplier selection and commercial terms of components and products that ultimately support our customers Our product manufacturing strategy is designed to support early life industrialization capabilities closer to our product engineering team as well as manufacturing in lower labor cost regions for volume We rely upon third party contract manufacturers including those with facilities in Canada Mexico Thailand India
and the United States to manufacture support and ship our products and therefore are exposed to risks associated with their businesses financial condition and the geographies in which they operate including political risk changes in tax and trade policy involving such countries including tariffs and physical risk including the impact of climate change We also rely upon contract manufacturers and other third parties to perform design and prototype development component procurement full production final assembly testing and distribution operations Our manufacturers and component distribution partners procure components necessary for assembly and manufacture of our products based on our specifications approved vendor lists bills of materials and testing and quality standards Our manufacturers and component distribution partners activity is based on rolling forecasts that we provide to them to estimate demand for our products We work closely with these partners and our suppliers to manage material quality cost and delivery times inventory levels and we continually evaluate their services in an effort to ensure performance on a reliable and cost effective basis Generally our agreements with our suppliers and contract manufacturers are frame agreements against which we place purchase orders and do not commit to long term volume purchases
We currently use partners and in some cases the same partners that support our manufacturing to fulfill and deliver our products to customers We believe that our sourcing manufacturing and distribution strategies allow us to conserve capital lower costs of product sales adjust quickly to changes in market demand and operate without dedicating significant resources to manufacturing related plant and equipment
We continue to focus on a range of initiatives that seek to optimize our operations improve our resiliency and drive cost reductions and efficiencies Our efforts include process optimization initiatives such as vendor managed inventory and other operational models and strategies designed to drive improved efficiencies in our sourcing production logistics and fulfillment To enhance operational efficiency and modernize our supply chain operations while driving long term sustainability and resilience in the face of dynamic market conditions we are pursuing a number of digital technology transformation efforts including advanced analytics automation and other digital supply chain management solutions We regularly assess and monitor our supply chain risks and have implemented various strategies to mitigate these risks and enhance resilience These measures include dual sourcing strategies inventory management initiatives multi geography operational capabilities and ongoing direct relationships with key suppliers to ensure transparency and alignment with our goals
We actively work with our third party vendors and business partners to promote socially responsible business practices within our global supply chain To that end we have adopted the principles set forth in the Responsible Business Alliance RBA Code of Conduct The RBA Code of Conduct establishes standards that aim to ensure that working conditions in the electronics industry or industries in which electronics are a key component and in their supply chains are safe that workers are treated with respect and dignity and that business operations are environmentally responsible and conducted ethically We promote these principles and require our suppliers to agree to adhere to these same standards We also publish a Sustainability Report and maintain a Human Rights Policy applicable to suppliers each of which includes more detail about our efforts to promote responsible business practices
We have historically experienced seasonal quarterly fluctuations in customer activity in both orders and revenue particularly with service provider customers We have experienced reductions in order volume toward the end of the calendar year as the procurement cycles of these customers slow and network deployment activity is curtailed This period coincides with the first quarter of our fiscal year This seasonality in our order flows has typically caused revenue for the first quarter of our fiscal year to be below that of the preceding quarter These seasonal effects may not apply consistently in future periods and may not be a reliable indicator of our future revenue or results of operations The effects of the dynamic demand environment we have experienced in recent periods together with our backlog have impacted and may continue to impact the traditional seasonality in our business In addition the growth as a percentage of our revenue of cloud provider customers who do not necessarily follow the same seasonal ordering pattern may also change this pattern in the future For a more detailed discussion of the current demand environment and our backlog see Management s Discussion and Analysis of Financial Condition and Results of Operations Overview in Item 7 of Part II of this annual report
Competition among networking solution vendors remains intense on a global basis The market in which we compete is characterized by rapidly advancing technology frequent introduction of new solutions and aggressive selling efforts including using significant pricing pressure to displace incumbent vendors and capture market share Competition for sales of networking solutions including our Networking Platforms and Platform Software and Services is dominated by a small number of very large multi national companies Our competitors include Nokia Huawei as defined below Cisco Juniper Networks and ZTE As compared to us many of these competitors have substantially greater financial operational and marketing resources significantly broader product offerings and more established relationships with customers Because of their scale and resources
they may be perceived to be a better fit for the procurement or network strategies of larger network operators We also continue to compete with several smaller but established companies that offer one or more products that compete directly or indirectly with our offerings or whose products address specific niches within the markets and customer segments we address These competitors include Infinera Ribbon Communications Marvell Technology Group and Adtran We also compete with a number of companies that provide significant competition for a specific product application service customer segment or geographic market
We also expect the competition in our industry to continue to broaden and to intensify as network operators pursue a diverse range of network strategies and consumption models As these changes occur we expect that our business will overlap more directly with additional networking solution suppliers including IP router vendors data center switch providers and other suppliers or integrators of networking technology traditionally geared toward different network applications layers or functions We may also face competition from system and component vendors including those in our supply chain who develop pluggable modem technology or other networking products based on off the shelf or commoditized hardware technology particularly where a customer s network strategy seeks to emphasize deployment of such product offerings or the adoption of a disaggregated approach to the procurement of hardware and software As we promote our corporate strategy and seek increased customer adoption of our Blue Planet Automation Software we expect to compete more directly with software vendors and traditional IT services vendors Competitors for our Blue Planet Automation Software include Cisco Nokia Amdocs ServiceNow Netcracker and Ericsson
Our competitive landscape has been and is likely to continue to be impacted by international trade and related matters in particular between the U S and China For example in 2019 the U S Department of Commerce amended the U S Export Administration Regulations EAR by adding Huawei Technologies Co Ltd Huawei and certain affiliates to the Entity List for actions contrary to the national security and foreign policy interests of the U S resulting in significant new restrictions on the export reexport and transfer of U S regulated technologies and products to Huawei In 2020 the U S Department of Commerce added additional Huawei affiliates to the Entity List confirmed the expiration of a temporary general license applicable to Huawei and amended the foreign direct product rule under the EAR in a manner that significantly expanded its application to Huawei Separately the U S government has taken steps to restrict federal agencies from doing business with and U S wireless carriers from using federal subsidies to buy equipment from Huawei and ZTE The U S government has also encouraged other governments to consider similar restrictions These actions among others have resulted in escalating tensions between the U S and China and retaliation by China including a recent prohibition on export of certain rare minerals and introduce a risk that the Chinese government may take further steps to retaliate against U S industries or companies Trade regulations limiting or banning sales into or purchases from certain countries or companies have also impacted and may in the future impact our ability to transact business in certain countries and with certain customers In addition the incoming U S administration has announced an intent to impose additional tariffs including tariffs on imports from Canada Mexico and China
The success of our business and technology leadership depends significantly on our proprietary and internally developed technology We rely upon the intellectual property protections afforded by patents copyrights trademarks and trade secret laws to establish maintain and enforce rights in our proprietary technologies and product branding We regularly file applications for patents and we have a significant number of patents in the United States and other countries in which we do business As of December 2 2024 we had approximately 2 300 issued patents and more than 700 pending patent applications worldwide
Enforcing proprietary rights especially patents can be costly and we cannot be certain that the steps that we are taking will detect prevent or minimize the risks of all unauthorized use The industry in which we compete is characterized by rapidly changing technology a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights We have been subject to several claims related to patent infringement and we have been requested to indemnify customers pursuant to contractual indemnity obligations relating to infringement claims made by third parties Intellectual property infringement assertions could cause us to incur substantial costs including settlement costs and legal fees in the defense of related actions If we are not successful in defending these claims our business could be adversely affected
Our operating system software Platform Software Blue Planet Automation Software and other solutions incorporate software and components under licenses from third parties including software subject to various open source software licenses Failure to obtain or maintain such licenses or other third party intellectual property rights could affect our development efforts and market opportunities or could require us to re engineer our products or to obtain alternate technologies Moreover there is a risk that open source and other technology licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products
Our environmental goals have been approved by the Science Based Target initiative and that align our decarbonization efforts with the Paris Climate Agreement goal to limit global warming to 1 5 degrees Celsius above pre industrial levels Our environmental strategy centers on continuing to innovate our products and services to help reduce the power space and materials required to operate them engaging our suppliers and driving operational efficiencies to reduce our environmental impact and promoting an employee experience that engages our workforce on sustainability
Our products and product development efforts pursue power and space improvements aimed to create more efficient and sustainable networks for our customers and enabling their climate ambitions We promote environmental sustainability through our efforts to improve the energy efficiency per gigabit of throughput in our networking solutions as well as our initiatives to reduce the total number of network elements required to operate a network We pursue opportunities to minimize the resource impacts in our product design and to manage the life cycle impact of our products including packaging and distribution support and end of life reuse refurbishment and recycling We voluntarily submit CDP climate change and water disclosures and Ecovadis sustainability disclosures annually and we are a member of the RBA We seek to ensure that our key direct suppliers adopt the standards and principles set forth in the RBA Code of Conduct
Our technology solutions are developed marketed sold and supported by our global workforce of 8 657 employees as of November 2 2024 over 99 of whom were full time employees We have a broad base of talent in 39 countries with approximately 56 in the Americas 36 in APAC and 8 in EMEA the majority of whom are in engineering operations or sales roles
We believe that our industry and innovation leadership is ultimately rooted in people Competition for qualified personnel in the technology space is intense and our success depends in large part on our ability to recruit develop and retain a productive and engaged workforce Accordingly investing in our employees and their well being offering competitive compensation and benefits and adopting progressive human capital management practices constitute a core element of our corporate strategy
Our Board of Directors oversees our corporate strategy which includes management s design and execution of our people strategy This strategy seeks to ensure that we continue to attract and retain the talent necessary to execute on our business plans and that we have programs initiatives rewards and recognition that are well aligned and support these goals Through our People Promise we promote a workplace environment where our employees are empowered feel included and have an opportunity to make a difference through their work at Ciena In doing so we seek to cultivate for employees a culture of belonging and happiness enabling us to be an attractive employer of choice within our markets Our executive team is actively involved in and sponsors key initiatives and employee resource groups intended to promote this corporate culture To that end our people strategy is focused on the following
We believe inclusivity and diversity contribute to business success We promote an inclusive and diverse workplace where all individuals are respected and feel they belong regardless of their age race national origin gender religion disability sexual orientation or gender identity We do this through recruiting outreach internal networking and resource groups inclusivity networks and mentoring programs We regularly monitor our recruitment process in consideration of the diversity of our workforce and candidate pool and continue to offer Conscious Inclusion workshops to deepen understanding within our diverse
groups In addition we support multiple active internal networking and resource groups including our Women at Ciena group Black African Heritage at Ciena group LatinX at Ciena group Asian at Ciena group Pride at Ciena group Vets at Ciena group and Next at Ciena early in career group In fiscal 2023 we continued to run a targeted development program aimed at strengthening underrepresented individuals sense of belonging and enhancing communication confidence self awareness and financial acumen
We prioritize supporting the overall wellbeing of our employees and their eligible dependents We provide a broad and diverse suite of programs that focus on physical mental and emotional financial and social wellbeing and have expanded our offerings to include a focus on key life events such as aging and retirement readiness Our wellbeing programs are deployed through a variety of means including expense reimbursement benefits wellbeing challenges and rewards 24x7 crisis support employee assistance resources mental health coaching and a library of resources accessible to participants digitally and through hosted webinars We regularly seek input from employees through employee engagement and pulse surveys on specific issues that are intended to assess our degree of success in promoting an environment that supports our People Promise and measures our culture of compliance Our fiscal 2024 employee engagement survey had a participation rate of approximately 84 and resulted in an engagement score that exceeded industry benchmarks Our global wellbeing program also includes a long standing practice of remote and flexible working arrangements and flexible paid time off in many of our geographies which allows us to broaden our potential talent pool for employees
We strive to ensure that our employees receive competitive fair and transparent compensation and progressive benefits offerings We conduct an annual pay equity assessment of gender globally and of ethnicity in the U S and take action to ensure that we are paying individuals performing similar work equitably We deploy Syndio s workplace equity platform to fine tune our methodology and enable regular global pay equity assessments To align performance and stockholder interest we base our annual incentive compensation on both business and individual performance We maintain an employee stock purchase plan and in recent years we have broadly expanded employee participation in equity compensation particularly within technology roles in engineering and sales and have increased the percentage of employees receiving equity awards from approximately 21 in fiscal 2020 to approximately 50 in fiscal 2024 We also offer comprehensive family leave including global family leave to support employees throughout various life stages carer s leave bereavement leave parental leave that includes a minimum of 18 weeks paid time off for new mothers including eight weeks recovery and ten weeks bonding and ten weeks paid time off for new fathers and adoptive parents and financial assistance for adoptive parents and offer flexible paid time off to more than 98 of our workforce globally We offer meaningful retirement benefits including a recently introduced post retirement equity vesting benefit for long tenured employees and programs to promote retirement readiness among our employees In recent years we have enhanced employer contributions to our North America retirement plans added our first ESG fund option for employees and as of November 2 2024 achieved greater than 99 participation of eligible employees in the U S and Canada in our defined contribution retirement plans
We also offer rewards and recognition programs to our employees including peer and management initiated awards to recognize employees who achieve noteworthy accomplishments and who best exemplify our core values as well as patent incentive and distinguished engineer awards We believe that providing these recognition programs helps drive strong employee performance
We focus on creating opportunities for employee growth development training and education at all career stages We provide opportunities to cultivate talent and identify candidates for new roles from within the Company and deliver early in career and new graduate networking and development programs management and leadership development programs coaching and mentoring programs and support for continuing education through tuition reimbursement We operate a leadership succession planning process that aims to develop and retain key talent and ensure business continuity for key roles We also recently launched a program to identify individuals throughout the organization who have been identified as having high potential for future growth and development so that this earlier in career talent can be nurtured for future leadership roles
We believe it is important to give back and promote community outreach and support through corporate giving charitable matching and employee volunteerism in the communities in which we live and work Through our Ciena Cares community program we provide corporate matching of employee charitable donations flexible volunteering during work time and corporate rewards for service hours that can be donated by employees to their charity of choice Our Digital Inclusion initiative aims to mobilize our global workforce leverage our innovation leadership and collaborate with customers suppliers and other partners to help bridge the
digital divide Through this initiative we have funded programs to support underserved students in communities across the globe by providing greater connectivity access to enabling technologies and digital skills development
We believe that commitments to good corporate governance and the highest ethical standards are essential to our long term success and we are dedicated to instilling in our employees a commitment to integrity and business ethics We maintain a Code of Business Conduct and Ethics that sets standards of conduct for Ciena s directors officers and employees All employees are required to complete training on our Code of Business Conduct and Ethics and we conduct recurring employee affirmations with respect to our Code of Business Conduct and Ethics and periodic training and communication related to specific topics contained therein In addition we maintain a Corporate Compliance Committee that promotes integrity and compliance leadership throughout Ciena and a dedicated function focused exclusively on Compliance and Ethics We also maintain several easily accessible internal and external methods by which our employees business partners and investors can report concerns relating to the ethical operation of our business including anonymously where permitted We conduct surveys of all employees on our compliance program and culture of integrity in order to assess and strengthen our culture and practices and received feedback from approximately 68 of our employees on these surveys in fiscal 2024
Environmental regulation is increasing across various jurisdictions and we expect that our domestic and international operations may be subject to additional environmental compliance requirements which could require us to incur additional costs To date our compliance actions and costs relating to environmental regulations have not resulted in a material cost or effect on our capital expenditures earnings or competitive position Our business and operations are currently subject to environmental laws in various jurisdictions around the world including the Waste Electrical and Electronic Equipment WEEE and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment RoHS regulations adopted by the EU We are also subject to disclosure and related requirements that apply to the presence of conflict minerals in our products or supply chain We seek to operate our business in compliance with applicable laws relating to the materials and content of our products and product takeback and recycling and have programs policies and customer offerings that help us to address these laws
As a company with global operations we are subject to complex foreign and U S laws and regulations including trade regulations tariffs import and export regulations anti bribery and corruption laws antitrust or competition laws data privacy laws and regulations such as the European Union EU General Data Protection Regulation the GDPR cybersecurity laws and regulations and environmental regulations among others We have policies and procedures in place to promote compliance with these laws and regulations To date our compliance actions and costs relating to these laws rules and regulations have not resulted in a material cost or effect on our capital expenditures earnings or competitive position Government regulations are subject to change and accordingly we are unable to assess the possible effect of compliance with future requirements or whether our compliance with such regulations will materially impact our business in the future For further discussion of how government regulations may affect our business see the related discussion in Risk Factors Risks Related to Intellectual Property Litigation Regulation and Government Policy
Our website address is www ciena com We make our annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports available free of charge in the Investors section of our website as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission the SEC We routinely post these reports recent news and announcements financial results and other important information about our business on our website at www ciena com Information contained on our website is not a part of this annual report
joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001 Mr Smith has served on Ciena s Board of Directors since October 2000 Prior to his current role his positions with Ciena included Chief Operating Officer and Senior Vice President Worldwide Sales Mr Smith previously served as Vice President of Sales and Marketing for INTELSAT and Cray Communications Inc Mr Smith previously served on the boards of directors of CommVault Systems Inc and Avaya Inc Mr Smith serves on the Wake Forest University Entrepreneurship Advisory Council and participates in initiatives with the Center for Corporate Innovation
has served as Senior Vice President and General Manager of Blue Planet a division of Ciena since January 2023 Mr Cumello is responsible for managing Ciena s Blue Planet Automation Software and Services portfolio From November 2020 to January 2023 Mr Cumello served as Ciena s Senior Vice President Global Marketing Communications from February 2017 to November 2020 served as Vice President Global Marketing and Partners and from August 2015 to February 2017 served as Vice President Portfolio Marketing Mr Cumello initially joined Ciena in 2004 through our acquisition of Internet Photonics Following that he held executive roles at Sidera Networks and SafeNet He then joined Cyan Inc in 2013 where he served as Chief Marketing Officer before rejoining Ciena in 2015 through our acquisition of Cyan Inc
joined Ciena in 2010 through our acquisition of Nortel s optical business and has served as Senior Vice President of Global Research and Development since October 2023 in which capacity he is responsible for directing the development of Ciena s portfolio of Optical Networking Network Control and Planning and Routing and Switching products and solutions From August 2013 to October 2023 Mr DiPerna served as Ciena s Vice President Converged Packet Optical Research Development and from March 2010 to July 2013 served as Vice President Optical Networks Research Development Prior to joining Ciena Mr DiPerna held senior engineering roles at Nortel for more than two decades
joined Ciena in 2010 through our acquisition of Nortel s optical business and has served as Senior Vice President of Global Products and Supply Chain since October 2023 in which capacity he oversees functions including Product Line Management Global Supply Chain and Solutions Engineering and Introduction From November 2017 to October 2023 Mr Gage served as Ciena s Vice President of Product Line Management and Solutions Prior to joining Ciena Mr Gage held global leadership roles across engineering marketing business development and product line management at Nortel
joined Ciena in 2010 and has served as Senior Vice President and General Counsel since January 2023 and as acting Chief People Officer since August 2023 From August 2020 to January 2023 Ms Kosaraju served as Vice President Deputy General Counsel and Head of International Legal from May 2017 to August 2020 served as Vice President International General Counsel Prior to joining Ciena Ms Kosaraju served as general counsel for two early stage companies HomeCom Communications and Closedloop Solutions
joined Ciena in 1996 and has served as Vice President Controller since August 1997 He also served as Treasurer from August 1997 to October 2008 Effective immediately following the filing of this annual report Mr Petrik will
joined Ciena in 2002 and has served as Senior Vice President Global Customer Engagement formerly titled Senior Vice President Global Sales and Marketing since February 2017 in which capacity he is responsible for Ciena s global sales systems engineering services and partner organization From January 2014 to February 2017 Mr Phipps served as Vice President and General Manager North America Sales during which time he also oversaw the Global Partners Channels practice and from March 2011 to December 2013 he served as Vice President Global Sales Operations Mr Phipps has also previously held a number of sales and marketing leadership positions with Ciena
joined Ciena in January 2001 and after serving as acting Chief Strategy Officer since March 2022 has served as Senior Vice President and Chief Strategy Officer since January 2023 From November 2008 to January 2023 he served as Senior Vice President General Counsel and Secretary Prior to that he served as Vice President and Associate General Counsel from July 2004 to October 2008 and previously as Assistant General Counsel
Investing in our securities involves a high degree of risk In addition to the other information contained in this annual report you should consider the following risk factors before investing in our securities
Our revenue gross margin and results of operations can fluctuate significantly from quarter to quarter Our budgeted expense levels are based on our intent to invest to maintain or increase our technology advantage our visibility into customer spending plans and our projections of future revenue and gross margin Visibility into customer spending levels can be uncertain spending patterns are subject to change and reductions in our expense levels can take significant time to implement Historically a significant portion of our quarterly revenue was generated from customer orders received during that same quarter which we refer to as book to revenue and was therefore less predictable and subject to fluctuation due to a quarterly shortfall in orders from expectations During fiscal 2022 however we generated a significant backlog of customer orders as a result of supply chain constraints and during fiscal 2023 our revenue grew as we consumed a significant portion of this backlog Customer order volumes began to moderate in the fourth quarter of fiscal 2022 and we experienced order levels below revenue during fiscal 2023 and the first half of fiscal 2024 and as a result our backlog decreased We expect our backlog to continue to reduce in fiscal 2025 As that happens we expect our reliance upon securing quarterly book to revenue orders to grow and those orders to represent a more typical composition of our quarterly revenue over time Our future revenue growth will depend in part on securing increased orders particularly book to revenue orders
Within these dynamics our results for a particular period can be difficult to predict and a range of factors including those set forth below can materially adversely affect quarterly revenue gross margin and operating results
As a result of these factors and other conditions affecting our business and operating results we believe that quarterly comparisons of our operating results are not necessarily a good indication of future performance Quarterly fluctuations from the above and other factors may cause our revenue gross margin and results of operations to underperform in relation to our
A small number of customers account for a significant portion of our revenue The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations
A significant portion of our revenue is concentrated among a small number of communications service provider and cloud provider customers For example our ten largest customers contributed 57 9 of our revenue for fiscal 2024 and 53 7 of our revenue for fiscal 2023 A cloud provider customer accounted for approximately 13 3 of our total revenue for fiscal 2024 and 12 8 of our total revenue for fiscal 2023 and AT T accounted for approximately 11 8 of our total revenue for fiscal 2024 and 10 6 of our total revenue for fiscal 2023 As a result of efforts in recent years to diversify our business the customer segments and geographies that comprise our customer base and top customers by revenue have changed During fiscal 2024 four cloud providers were among our top ten customers Cloud provider customers have been important contributors to our revenue through both our direct sales to them including for data center interconnection and their indirect impact on purchases by other network operators
Because of our concentration of revenue with communications service providers and cloud providers our business and results of operations can be significantly affected by market industry regulatory consolidation or competitive dynamics adversely affecting these customer segments These dynamics have in the past had an adverse effect on network spending levels by certain of our largest customers and they could materially adversely affect our business and results of operations Consequently our financial results and our ability to grow our business are closely correlated with the spending of a relatively small number of customers Our business and results of operations could be materially adversely impacted by the loss of a large customer within or outside of these customer segments as well as by reductions in spending or capital expenditure budgets changes in network deployment plans or changes in consumption models for acquiring networking solutions by our largest customers
We face intense competition that could impact our sales and results of operations We expect our competitive landscape to continue to broaden as we seek to expand our addressable market and solutions portfolio
We face intense global competition on a global basis as we and our competitors aggressively seek to capture market share and displace incumbent equipment vendors Our industry has historically been dominated by a small number of very large vendors some of which have substantially greater financial marketing and research and development resources broader product offerings and more established relationships with service providers and other customer segments than we do Moreover acquisition activity among our competitors and peers has increased For example in 2024 Nokia announced its proposed acquisition of Infinera Consolidation in our industry may result in competitors with greater resources pricing flexibility or other competitive benefits We also compete with a number of smaller companies that provide significant competition for specific products applications customer segments or geographic markets Due to the narrower focus of their efforts these competitors may be more attractive to customers in a particular product niche or commercial opportunity
We expect the competition in our industry to continue to broaden and to intensify particularly as we seek to expand our addressable market opportunities and as network operators pursue a diverse range of network strategies sourcing practices and consumption models An increase in the breadth or intensity of competition we face may adversely impact our business and results of operations
The market for communications networking hardware and software solutions is characterized by rapidly evolving technologies changes in market demand and increasing adoption of software based networking solutions We continually invest in research and development to sustain or enhance our solutions and to develop or acquire new technologies There is often a lengthy period between commencing these development initiatives and bringing solutions to market Accordingly there is no guarantee that our new products or product enhancements will achieve market acceptance or that the timing of market adoption will be as predicted As a general matter there is a significant possibility that some of our development decisions including significant expenditures on acquisitions research and development or investments in technologies will not meet our expectations and that our investment in some projects will be unprofitable There is also a possibility that we may miss a market opportunity because we failed to invest or invested too late in a technology product or enhancement sought by our customers or the markets into which we sell Changes in market demand or investment priorities may also cause us to discontinue development for new products or features which can have a disruptive effect on our relationships with customers In addition failure to develop new innovative solutions that are attractive to customers and profitable to us could have a material adverse effect on our business results of operations financial condition and cash flows
Generally our customer contracts do not require customers to purchase any minimum or guaranteed volumes and we conduct sales through framework contracts under which customers place purchase orders for which they often have the right to modify or cancel We must regularly compete for and win business with existing customers across all of our customer segments In addition cloud providers tend to operate on shorter procurement cycles than some of our traditional customers which can require us to compete to re win business with these customers more frequently than required with other customers segments Accordingly there is no assurance that we will maintain our incumbency with any given customer or that our revenue levels from a customer in a particular period can be achieved in future periods Customer spending levels can be unpredictable and our sales to any customer could significantly decrease or cease at any time
Network equipment sales often involve lengthy sales cycles and protracted contract negotiations that may require us to agree to commercial terms or conditions that negatively affect pricing risk allocation payment and the timing of revenue recognition
Our sales efforts particularly with communications service providers cloud providers and other large customers often involve lengthy sales cycles These selling efforts often involve a significant commitment of time and resources that may include extensive product testing laboratory or network certification network or region specific product certification and homologation requirements for deployment in networks Even after a customer awards its business to us or decides to purchase our solutions the length of time before deployment can vary depending on the customer s schedule site readiness the size of the network deployment the degree of custom configuration required and other factors Additionally these sales also often involve protracted and sometimes difficult contract negotiations in which we may deem it necessary to agree to unfavorable contractual or commercial terms that adversely affect pricing expose us to penalties for delays or non performance and require us to assume a disproportionate amount of risk To maintain incumbency with key customers we have in the past and may in the future be required to offer discounted pricing make commercial concessions or offer less favorable terms as compared to our historical business arrangements with these customers We may also be requested to provide deferred payment terms vendor or third party financing or other alternative purchase structures that extend the timing of payment Alternatively customers may insist on terms and conditions that we deem too onerous or not in our best interest and we may be unable to reach a commercial agreement As a result we may incur substantial expense and devote time and resources to potential sales opportunities that never materialize or result in lower than anticipated sales and gross margin
Accurately matching necessary inventory levels to customer demand within the current environment is challenging and we may incur additional costs or be required to write off significant inventory that would adversely impact our results of operations
From the second quarter of fiscal 2021 through the third quarter of fiscal 2022 we received unprecedented orders for our products and services during a period when the supply environment was constrained We took a number of steps to mitigate these challenges including extending our purchase commitments and placing non cancellable advanced orders with or through suppliers particularly for long lead time components As of November 2 2024 we had 1 7 billion in outstanding purchase order commitments to our contract manufacturers and component suppliers for inventory We also expanded our manufacturing capacity and accumulated available raw materials inventory to prepare us to be able to produce finished goods more quickly as supply constraints eased for those components in shorter supply As a result of this strategy our inventory increased from 374 3 million at the end of fiscal 2021 to 1 1 billion at the end of fiscal 2023 While our inventory reduced to 820 4 million at the end of fiscal 2024 these inventory practices and their associated costs have had and could in the future continue to have an adverse impact on our cash from operations
These inventory practices particularly when considered in the context of our backlog further introduce obsolescence risk that can impact our results of operations and financial condition In addition during fiscal 2023 and fiscal 2024 certain customers including communications service providers and cable and multiservice operators in North America that had earlier placed significant advanced orders rescheduled deliveries for or cancelled a portion of such orders Accordingly our inventory needs for a particular period can fluctuate and be difficult to predict If our customers were to cancel or delay orders for extended periods inventory could become obsolete and we could be required to write off or write down the inventory associated with those orders In addition if customers were to cancel or delay existing or forecasted orders for which we have significant outstanding commitments to our contract manufacturers or suppliers we may be required to purchase inventory under these commitments that we are unable to sell If we are required to write off or write down a significant amount of inventory our results of operations for the applicable period would be materially adversely affected For example we recorded charges for excess and obsolete inventory of 77 3 million 29 5 million and 16 2 million in fiscal 2024 2023 and 2022 respectively primarily related to a decrease in the forecasted demand for certain Networking Platforms products primarily sold to communications service providers Our inability to effectively manage the matching of inventory with customer demand particularly within any supply constrained environment could adversely impact our results of operations and financial condition and could result in loss of revenue increased costs or delays that could adversely impact customer satisfaction
Growing bandwidth demands and network operator efforts to reduce costs are resulting in a diverse range of approaches to the design and procurement of network infrastructure We refer to these different approaches as consumption models These consumption models can include the traditional systems procurement of fully integrated solutions including acquiring hardware software and services from the same vendor the procurement of a fully integrated hardware solution from one vendor with the separate use of a network operator s own software denied network based controller the procurement of an integrated photonic line system with open interfaces from one vendor and the separate or disaggregated procurement of modem technology from a different vendor or the development and use of published reference designs and open source specifications for the procurement of white box hardware to be used with open source software In parallel network operators are also exploring procurement alternatives for software solutions ranging from integrated and proprietary software platforms to fully open source software Some network operators are pursuing the deployment of smaller form factor pluggable modem technology particularly within switching and routing solutions as an alternative to integrated optical networking platforms Other network operators including certain of our cloud provider customers are playing a leading role in the transition to software defined networking the standardization of communications network solutions and the assembly of their own hardware platforms based on enabling third party components We believe that the potential for different approaches to the procurement of networking infrastructure will require network operators and vendors to evolve and broaden their existing solutions and commercial models over time If we are unable to adapt our business to these new consumption models and offer attractive solutions and commercial models that meet our customers needs our competitive position and results of operations could be adversely affected
A key part of our strategy is to expand our addressable market into complementary and adjacent network applications by investing in new technologies including solutions related to data center PON routing and switching and automation software and services As we do so we expect to compete more directly with a broader range of suppliers including IP router vendors component vendors software vendors and integrators of networking technology We have a limited history in commercializing and selling these solutions and the market and competitive landscape for them is dynamic and it is difficult to predict important
trends including the potential growth if any of certain of these markets If the markets relating to these solutions do not develop as we anticipate or if we are unable to commercialize increase market awareness of or gain adoption of our solutions within those markets revenue from these products may not grow a key part of our strategy for growth would be adversely affected and our financial results may suffer
Our go to market activities and the distribution of our WaveLogic coherent modem technology within the market for high performance transceivers modems could expose us to increased competition and poses other risks that could adversely affect our existing systems business or results of operations
To expand our addressable market and address a range of customer consumption models we recently entered the market for high performance transceivers modems Making our critical coherent optical technology available in this manner could adversely impact the sale of products in our existing systems business For example our customers may choose to adopt disaggregated consumption models or third party solutions that embed Ciena designed optical modules instead of purchasing systems based solutions directly from us Accordingly we may encounter situations where we are competing for opportunities in the market directly against a system from one of our competitors that incorporates Ciena designed modules or other component technologies Making this key technology available and enabling third party sales of Ciena designed modules may adversely affect our competitive position and increase the risk that third parties misappropriate or attempt to use our technology or related intellectual property without our authorization These and other risks unanticipated liabilities or costs associated with the sales of our WaveLogic coherent technology could harm our reputation and adversely affect our business and our results of operations
In the face of demand across a range of industries global supply for certain raw materials and components including in particular semiconductor integrated circuits and other electronic components used in most of our products experienced substantial constraint and disruption in recent prior periods As a result we experienced significant component shortages extended lead times increased costs and unexpected cancellation or delay of previously committed supply of key components across our supplier base While reliability of supply has improved extended lead times and elevated component costs could continue to adversely impact our revenue our cost of goods sold and our ability to reduce the cost to produce our products in a manner consistent with prior periods It is unclear when the supply environment will fully stabilize and there can be no assurance that we will not experience similar supply challenges or constraints in future periods These challenges have affected and could adversely affect component availability lead times and cost which can adversely impact our revenue and have an impact on customer purchasing decisions Supply chain challenges could also impact customer satisfaction or future business opportunities with customers and result in increased use of cash engineering design changes and delays in new product introductions each of which could adversely impact our business and financial results
In the course of our sales to customers and resale channel partners we may have difficulty collecting receivables and our business and results of operations could be exposed to risks associated with uncollectible accounts Lack of liquidity in the capital markets macroeconomic weakness and market volatility may increase our exposure to these credit risks Our attempts to monitor customer payment capability and to take appropriate measures to protect ourselves may not be sufficient and it is possible that we may have to write down or write off accounts receivable Such write downs or write offs could negatively affect our operating results for the period in which they occur and if large could have a material adverse effect on our revenue and operating results
We have a number of significant assets on our balance sheet as of November 2 2024 the value of which can be adversely impacted by factors related to our business and operating performance as well as factors outside of our control As of November 2 2024 our balance sheet includes a net deferred tax asset of 885 9 million The value of our net deferred tax assets can be significantly impacted by changes in tax policy changes in future tax rates or by our tax planning strategy If any write downs are required our operating results may be materially adversely affected
of goodwill We test each reporting unit for impairment of goodwill on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value As of November 2 2024 our balance sheet also includes
in long lived assets which includes 165 0 million of intangible assets Valuation of our long lived assets requires us to make assumptions about future sales prices and sales volumes for our products These assumptions are used to forecast future undiscounted cash flows on which our estimates are based If market conditions or our forecasts for our
business or any particular operating segment change we may be required to reassess the value of these assets We could be required to record an impairment charge against our goodwill and long lived assets or a valuation allowance against our deferred tax assets Any write down of the value of these significant assets would have the effect of decreasing our earnings or increasing our losses in such period If we are required to take a substantial write down or charge our operating results would be materially adversely affected in such period
The development and production of sophisticated hardware and software for communications network equipment is highly complex Some of our products can be fully tested only when deployed in communications networks or when carrying traffic and software products may contain bugs that can interfere with expected performance As a result undetected defects or problems affecting quality interoperability reliability security and performance are often more acute for initial deployments of new products or enhancements We have recently launched or are in the process of launching a number of new hardware and software offerings including new evolutions of our WaveLogic coherent optical modem technology and new Routing and Switching platforms Unanticipated product performance problems can relate to the design manufacturing installation operation and interoperability of our products Undetected errors can also arise as a result of defects in third party technologies components or software including open source software or manufacturing installation or maintenance services supplied by third parties The introduction of new and complex technologies such as AI can also increase security risks and the risk of defects From time to time we have had to replace certain components provide software remedies or other remediation in response to defects or bugs and we may have to do so again in the future Such remediation costs could materially adversely impact our business and results of operations In addition we have encountered and may continue to encounter unanticipated security vulnerabilities relating to our technology including as a result of the activities of our supply chain and our use of third party software Communications technologies given their capability to transmit sensitive information have frequently been the target of attacks from a range of threat actors including nation states and other malicious parties Any actual or perceived exposure of our solutions to vulnerabilities malicious software or cyber attacks as well as any product performance reliability security and quality problems may result in some or all of the following effects
From time to time we acquire or make investments in other technology companies or enter into other strategic relationships to expand the markets we address diversify our customer base or acquire or accelerate the development of technology or products To do so we may use cash issue equity that could dilute our current stockholders or incur debt or assume indebtedness Strategic transactions can involve numerous additional risks including
As a result of these and other risks our acquisitions investments or strategic transactions may not realize the intended benefits and may ultimately have a negative impact on our business results of operation and financial condition
Our development and use of AI technology in our products and operations remains in the early phases While we aim to develop and use AI responsibly and attempt to mitigate ethical and legal issues presented by its use we may ultimately be unsuccessful in identifying or resolving issues before they arise AI technologies are complex and rapidly evolving and the technologies that we develop or use may ultimately be flawed Moreover AI technology is subject to rapidly evolving domestic and international laws and regulations which could impose significant costs and obligations on the Company For example in 2023 the U S government issued an executive order on safe secure and trustworthy AI and the EU s Artificial Intelligence Act which establishes EU wide rules on data quality transparency human oversight and accountability with respect to the use of AI was enacted in August 2024 Emerging regulations may also pertain to data privacy data protection and the ethical use of AI as well as clarifying intellectual property considerations Our use of AI could give rise to legal or regulatory action or increased scrutiny or liability and maydamage our reputation or otherwise materially harm our business
Our business and operating results depend significantly on general market and economic conditions Market volatility and weakness in the regions in which we operate have previously resulted in sustained periods of decreased demand that have adversely affected our operating results The current global macroeconomic environment is volatile and continues to be significantly and adversely impacted by inflation geopolitical trends impacting global supply chains and a dynamic environment for customer spending Market conditions could also be adversely affected by a variety of political economic or other factors in the United States and international markets that could in turn adversely affect spending levels of our customers and their end users and could create volatility or deteriorating conditions in the markets in which we operate Due to our concentration of revenue in the United States we would expect to incur a more significant impact from any adverse change in the capital spending environment or market weakness in the United States Macroeconomic uncertainty or weakness could result in
business and financial difficulties faced by our suppliers or other partners including impacts to material costs sales liquidity levels ability to continue investing in their businesses ability to import or export goods ability to meet development commitments and manufacturing capability and
Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market conditions globally or in a particular region where we operate would adversely affect our business results of operations and financial condition
We market sell and service our products globally maintain personnel in numerous countries and rely on a global supply chain for sourcing important components and manufacturing our products Our international sales and operations are subject to inherent risks including
significant changes to free trade agreements trade protection measures tariffs and other import measures such as those proposed by the incoming U S administration export compliance economic sanctions measures domestic preference procurement requirements qualification to transact business and additional regulatory requirements
uncertain economic legal and geopolitical conditions in Europe Asia and other regions where we do business including for example as a result of continued impacts of Brexit on the relationship between the United Kingdom and Europe the ongoing military conflicts between both Russia and Ukraine and Israel and groups based in surrounding regions including related maritime impacts in the Red Sea and changes in China Taiwan and U S China relations
We utilize a sourcing strategy that emphasizes global procurement of materials and that has direct or indirect dependencies upon a number of vendors with operations in the Asia Pacific region Our international operations are subject to complex foreign and U S laws and regulations including trade regulations anti bribery and corruption laws antitrust or competition laws and data privacy laws such as the GDPR among others In particular recent years have seen a substantial increase in anti bribery law enforcement activity by U S regulators and we currently operate and seek to operate in many parts of the world that are recognized or perceived as having greater potential for corruption Violations of any of these laws and regulations could result in fines and penalties criminal sanctions against us or our employees prohibitions on the conduct of our business and on our ability to offer our products and services in certain geographies and significant harm to our business reputation Our policies and procedures to promote compliance with these laws and regulations and to mitigate these risks may not protect us from all acts committed by our employees or third party vendors including contractors agents and services partners or from the misinterpretation or changing application of such laws Additionally the costs of complying with these laws including the costs of investigations auditing and monitoring could adversely affect our current or future business
Our business operations and financial results could also be adversely impacted by instability disruption or destruction in a significant geographic region including as a result of war terrorism riot civil insurrection or social unrest natural or man made disasters severe weather events public health emergencies or economic instability or weakness For example in February 2022 armed conflict escalated between Russia and Ukraine The United States and certain other countries have imposed sanctions on Russia and Belarus for its support of Russia and could impose further sanctions which could damage or disrupt international commerce and the global economy We are complying with a broad range of U S and international sanctions and export control requirements imposed on Russia and in March 2022 we announced our decision to suspend our business operations in Russia Although this decision did not materially impact our results of operations for fiscal 2022 or 2023 due to the limited amount of business that we conducted in Russia historically it is not possible to predict the broader or longer term consequences of this conflict which could include further sanctions export control and import restrictions embargoes regional instability geopolitical shifts and adverse effects on macroeconomic conditions security conditions currency exchange rates and financial markets In addition the conflict between Israel and groups based in surrounding regions and related regional impacts have resulted in damage to submarine cables in the Red Sea and disruption of networks using those cables which could impact future projects by our customers in this region Such geopolitical instability and uncertainty could have a negative impact on our ability to sell to ship products to collect payments from and support customers in certain countries and regions based on trade restrictions sanctions embargoes and export control law restrictions and logistics restrictions including closures of air space and could increase the costs risks and adverse impacts from supply chain and logistics challenges
The success of our International sales and operations will depend in large part on our ability to anticipate and manage these risks effectively Our failure to manage any of these risks could harm our international operations reduce our international sales and could give rise to liabilities costs or other business difficulties that could adversely affect our operations and financial results
Part of our business and growth strategy is to expand our geographic reach and increase market share in international markets through a combination of direct and indirect sales resources We are also aggressively pursuing opportunities with service provider customers in additional geographies including in Africa the Middle East and South Asia This diversification of our markets and customer base has been a significant component of the growth of our business in recent years Our efforts to continue to increase our sales and capture market share in international markets may ultimately be unsuccessful or may adversely impact our financial results including our gross margin Our failure to continue to increase our sales and market share in international markets could limit our growth and could harm our results of operations
As a company with global operations we face exposure to movements in foreign currency exchange rates Due to our global presence a portion of our revenue operating expense and assets and liabilities are non U S Dollar denominated and therefore subject to foreign currency fluctuation We face exposure to currency exchange rates as a result of the growth in our non U S Dollar denominated operating expense in Canada Europe Asia and Latin America An increase in the value of the U S Dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in U S Dollars and a weakened U S Dollar could increase the cost of local operating expenses and procurement of materials or service that we purchase in foreign currencies From time to time we hedge against currency exposure associated with anticipated foreign currency cash flows or assets and liabilities denominated in foreign currency Such attempts to offset the impact of currency fluctuations are costly and we cannot hedge against all foreign exchange rate volatility Losses associated with these hedging instruments and the adverse effect of foreign currency exchange rate fluctuation may negatively affect our results of operations
Our hardware and software networking solutions including our WaveLogic modem technology and the components thereof are based on complex technology and we can experience unanticipated delays in developing manufacturing and introducing these solutions to market Delays in product development efforts by us or our third party partners may affect our reputation with customers affect our ability to capture market opportunities and impact the timing and level of demand for our products We are regularly introducing new products and enhancements and each step in their development cycle presents serious risks of failure rework or delay any one of which could adversely affect the cost effectiveness and timely development of our products Reworks in particular if required can be a very expensive and time consuming effort We may encounter delays relating to engineering development activities and software design sourcing and manufacture of critical components and the development of prototypes The development of new technologies may increase the complexity of supply chain management or require the acquisition licensing or interworking with the technology of third parties In addition intellectual property disputes failure of critical design elements and other execution risks may delay or even prevent the release of these products If we do not successfully develop or produce products in a timely manner our competitive position may suffer and our business financial condition and results of operations could be harmed
We rely on third party contract manufacturers and our business and results of operations may be adversely affected by risks associated with their businesses financial condition and the geographies in which they operate
We rely on third party contract manufacturers including those with facilities in Canada Mexico Thailand and the United States to perform a substantial portion of our supply chain activities including component sourcing manufacturing product testing and quality and fulfillment and logistics relating to the distribution and support of our products There are a number of risks associated with our dependence on contract manufacturers including
risks and uncertainties associated with the locations or countries where our products are manufactured including disruption of manufacturing logistics or transit to final destinations caused by factors such as natural and man made disasters severe weather events information technology system failures commercial disputes economic business labor political social geopolitical environmental trade or public health
risks associated with data security incidents including disruptions interdiction or cyber attacks targeting or affecting our third party manufacturers including manufacturing disruptions or unauthorized access to or acquisition of information
changes in law or policy governing tax trade manufacturing development and investment in the countries where we currently manufacture our products including the World Trade Organization Information Technology Agreement or other free trade agreements
In addition a range of physical and transitional risks related to climate change in the regions in which our contract manufacturers operate could have short term or long term adverse impacts on our business Physical impacts could include severe weather events occurring more frequently or with more intensity or changing weather patterns This could impact the cost and availability of raw materials and other product inputs disrupt our supply chain operations manufacturing and distribution of our products result in facilities closures repairs or retrofitting that could have an adverse impact on our business operating results and financial condition
If our contract manufacturers are unable or unwilling to manufacture our products or components of our products to our expected level of performance or if we experience a disruption in manufacturing we may be required to identify and qualify alternative manufacturers The process of qualifying a new contract manufacturer and commencing volume production is complex and time consuming and such transitions can be disruptive and costly There can be no assurance that such transitions would not result in significant business disruption including shipment delays or inability to meet our customer requirements that impact our revenue These and other risks associated with our contract manufacturers businesses financial condition and the geographies in which they operate could impair our ability to fulfill orders harm our sales and impact our reputation with customers in ways that adversely impact our business and results of operations
Our reliance on third party component suppliers including sole and limited source suppliers exposes our business to additional risk including risk relating to our suppliers businesses and financial position and risks arising as a result of geopolitical events and could limit our sales increase our costs and harm our customer relationships
We maintain a global sourcing strategy and depend on a diverse set of third party suppliers in international markets that comprise our supply chain We rely on these third parties for activities relating to product design development and support and in the sourcing of products components subcomponents and related raw materials Our products include optical and electronic components for which reliable high volume supply is often available only from sole or limited sources We do not have any guarantees of supply from our third party suppliers and in certain cases we have limited contractual arrangements or are relying on standard purchase orders In recent periods delays and lower than expected deliveries from a small group of our suppliers of integrated circuit components that are essential for delivering finished products had a disproportionate adverse impact on our results of operations There is no assurance that we will be able to secure the components or subsystems that we require in sufficient quantity and quality within our preferred timelines and on reasonable terms
The loss of a source of supply or lack of sufficient availability of key components could require that we locate an alternate source or redesign our products either of which could result in business interruption and increased costs Increases in market demand or scarcity of raw materials or components have resulted and may in the future result in shortages in availability of important components for our solutions supply allocation challenges deployment delays and increased cost lead times and delivery cycle timelines There are a number of significant technology trends or developments underway or emerging including AI the IoT autonomous vehicles and advances in mobile communications such as 5G technologies that have previously resulted in and we believe will continue to result in increased market demand for key raw materials or components upon which we rely
A number of our key technology vendors rely upon sales to customers including our competitors in China for a material portion of their revenue There have been a number of significant geopolitical events including trade tensions and regulatory actions involving the governments of the United States and China In May 2019 the U S Department of Commerce amended the EAR by adding Huawei and certain affiliates to the Entity List for actions contrary to the national security and foreign
policy interests of the United States imposing significant new restrictions on export reexport and transfer of U S regulated technologies and products to Huawei In August 2020 the U S Department of Commerce added additional Huawei affiliates to the Entity List confirmed the expiration of a temporary general license applicable to Huawei and amended the foreign direct product rule in a manner that represents a significant expansion of its application to Huawei More recently the U S Department of Commerce has expanded the scope of the EAR by amending the foreign direct product rule resulting in more products made outside the United States becoming subject to the EAR for purposes of exports or transfers to certain countries and or parties which increases compliance risks and licensing obligations for companies dealing with such products Several of our third party component suppliers including certain sole and limited source suppliers sell products to Huawei and in some cases Huawei is a significant customer for such suppliers At this time there can be no assurance regarding the scope or duration of these restrictions including the foreign direct product rule or further actions imposed on Huawei and other companies located and operating in China and any future impact on our suppliers Any continued restriction on our suppliers ability to make sales to Huawei and other companies may adversely impact their businesses and financial position In addition China is in the midst of executing a five year plan to improve China s capabilities in the optoelectronics industry There can be no assurance that this initiative or similar efforts in China such as the Made in China 2025 initiatives and actions taken by the U S government in response to such efforts will not have an adverse impact on the business of our suppliers or our access to necessary components These and similar industry market and regulatory disruptions affecting our suppliers could in turn expose our business to loss or lack of supply or discontinuation of components that could result in lost revenue additional product costs increased lead times and deployment delays that could harm our business and customer relationships Our business and results of operations would be negatively affected if we were to experience any significant disruption or difficulties with key suppliers affecting the price quality availability or timely delivery of required components
on third party resellers distributors and service partners and our failure to manage these relationships effectively could adversely affect our business results of operations and relationships with our customers
To complement our global field resources we rely on a number of third party resellers distributors and sales agents both domestic and international and we believe that these relationships are an important part of our business There can be no assurance that we will successfully identify and qualify these resources or that we will realize the expected benefits of these sales relationships We also rely on a number of third party service partners both domestic and international to complement our global service and support resources We rely on these partners for certain installation maintenance and support functions and may increasingly use them for an expanding range of design construction integration and operation of networks to address customer requirements Certain service partners may provide similar services for other companies including our competitors We may not be able to manage our relationships with our service partners effectively and we cannot be certain that they will be able to perform necessary services in the manner or time required that we will be able to maintain the continuity of their services or that they will adhere to ethical business practices We may also be exposed to a number of risks or challenges relating to the performance of our service partners including
We must assess and qualify distribution partners third party resellers sales agents and service partners in order to ensure their understanding of and willingness and ability to adhere to our standards of conduct and business ethics Certain third party business partners may not have the same operational history financial resources and scale that we have We may be held responsible or liable for the actions or omissions of these third parties or their violations of law If we do not effectively manage our relationships with these third party business partners our business financial results and relationships with customers could be adversely affected
We have entered into agreements with strategic supply partners that permit us to distribute their products or technology We may rely on these relationships to add complementary products or technologies to diversify our product portfolio or to address a particular customer or geographic market We may enter into additional OEM resale or similar strategic arrangements in the future We may incur unanticipated costs or difficulties relating to our resale of third party products Our third party relationships could expose us to risks associated with the business financial condition intellectual property rights and supply chain continuity of such partners as well as delays in their development manufacturing or delivery of products or technology We may also be required by customers to assume warranty indemnity service and other commercial obligations including potential liability to customers These liabilities could exceed the commitments if any made to us by our technology partners
Some of our strategic supply partners are relatively small companies with limited financial resources If they are unable to satisfy their obligations to us or our customers we may have to expend our own resources to satisfy these obligations Exposure to these risks could harm our reputation with key customers and could negatively affect our business and our results of operations
Growth of our business is dependent on the proper functioning and scalability of our internal business processes and information systems Adoption of new systems modifications or interruptions of services may disrupt our business processes and internal controls
We rely on internal business processes and information systems to support key business functions and the efficient operation of these processes and systems is critical to managing our business Our business processes and information systems must be sufficiently scalable to support the growth of our business and may require modifications or upgrades that expose us to operational risks We regularly pursue initiatives to transform and optimize our business operations through the reengineering of certain processes investment in automation and engagement of strategic partners or resources to assist with certain business functions For example to enhance operational efficiency and modernize our supply chain operations we are pursuing a number of digital technology transformation efforts including advanced analytics automation and other digital solutions In addition our business may begin to operate in new markets and through new supply chain models that may require different internal processes to manage These changes require a significant investment of capital and human resources and may be costly and disruptive to our operations and they could impose substantial demands on management time These changes may also require changes in our information systems modification of internal control procedures and significant training of employees or third party resources Our IT systems and those of third party IT providers or business partners may also be vulnerable to damage or disruption caused by circumstances beyond our control including catastrophic events power anomalies or outages natural disasters severe weather events or impacts of climate change data security related incidents and computer system or network failures There can be no assurance that our business systems or those of our third party business partners will not be subject to similar incidents exposing us to significant cost reputational harm and disruption or damage to our business
We have taken steps including reductions in force office closures and internal reorganizations to reduce the cost of our operations improve efficiencies or realign our organization and staffing to better match our market opportunities and our technology development initiatives We may take similar steps in the future as we seek to realize operating synergies to achieve our target operating model and profitability objectives or to reflect more closely changes in the strategic direction of our business or the evolution of our site strategy and workplace These changes could be disruptive to our business including our research and development efforts and could result in significant expense including accounting charges for inventory and technology related write offs workforce reduction costs and charges relating to consolidation of excess facilities Substantial expense or charges resulting from restructuring activities could adversely affect our results of operations and use of cash in those periods in which we undertake such actions
Our future success and ability to maintain a technology leadership position depend upon our ability to recruit and retain the services of executive engineering sales and marketing and support personnel Competition to attract and retain highly skilled technical engineering and other personnel with experience in our industry is intense and our employees have been the subject of targeted hiring by our competitors Competition is particularly intense in certain jurisdictions where we have research and development centers including the Silicon Valley area of northern California and for engineering talent generally The lasting impact of the COVID 19 pandemic has resulted in higher employee costs increased attrition and significant shifts in the labor market and employee expectations We may experience difficulty retaining and motivating existing employees and attracting qualified personnel to fill key positions In addition labor shortages and employee mobility may make it more difficult to hire and retain employees None of our executive officers is bound by an employment agreement for any specific term Because we rely on equity awards as a significant component of compensation particularly for our executive team a lack of positive performance in our stock price reduced grant levels or changes to our compensation program may adversely affect our ability to attract and retain key employees If we are unable to attract and retain qualified personnel we may be unable to manage our business effectively and our operations and financial results could suffer
In addition a number of our team members are foreign nationals who rely on visas or work entry permits in order to legally work in the United States and other countries Changes in government policy and global events such as pandemics may interfere with our ability to hire or retain personnel who require these visas or entry permits Our business may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes or projects involving personnel who are not citizens of the country where the work is to be performed For example potential changes in U S immigration policy and regulations including potential changes following the recent U S federal elections such as the implementation of restrictive interpretations by the U S Citizenship and Immigration Services of
We generally rely on a combination of patents copyrights trademarks and trade secret laws to establish and maintain proprietary rights in our products and technology Although we own numerous patents and other patent applications are currently pending there can be no assurance that any of these patents or other proprietary rights will not be challenged invalidated or circumvented or that our rights will provide us with any competitive advantage In addition there can be no assurance that patents will be issued for our pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology Further the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States
We are subject to the risk that third parties may attempt to access divert or use our intellectual property without authorization We are also vulnerable to third parties who illegally distribute or sell counterfeit stolen or unfit versions of our products which could have a negative impact on our reputation and business Protecting against the unauthorized use of our products technology and other proprietary rights is difficult time consuming and expensive and we cannot be certain that the steps that we are taking will detect prevent or minimize the risks of such unauthorized use In addition our intellectual property strategy must continually evolve to protect our proprietary rights in new solutions including our software solutions Litigation may be necessary to enforce or defend our intellectual property rights or to determine the validity or scope of the proprietary rights of others Such litigation could result in substantial cost and diversion of management time and resources and there can be no assurance that we will obtain a successful result Any inability to protect and enforce our intellectual property rights could harm our ability to compete effectively
From time to time third parties may assert claims or initiate litigation or other proceedings related to patent copyright trademark and other intellectual property rights to technologies and related standards that are relevant to our business We have been subject to several claims related to patent infringement and we have been requested to indemnify customers pursuant to contractual indemnity obligations relating to infringement claims made by third parties The rate of infringement assertions by patent assertion entities remains high particularly in the United States Generally these patent owners neither manufacture nor use the patented invention directly and they seek to derive value from their ownership solely through royalties from patent licensing programs
We could be adversely affected by litigation other proceedings or claims against us as well as claims against our manufacturers suppliers or customers alleging infringement of third party proprietary rights by our products and technology or components thereof Regardless of the merit of these claims they can be time consuming divert the time and attention of our technical and management personnel and result in costly litigation or otherwise require us to incur substantial costs including legal fees These claims if successful could require us to
Any of these events could adversely affect our business results of operations and financial condition Our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions as we would have a lower level of visibility into the development process with respect to the acquired technology and the steps taken to safeguard against the risks of infringing the rights of third parties
Our products incorporate software and other technology under license from third parties and our business would be adversely affected if this technology were no longer available to us on commercially reasonable terms
We integrate third party software and other technology into our operating system network management and intelligent automation software and other products As a result we may be required to license certain software or technology from third parties including competitors Licenses for software or other technology may not be available or may not continue to be available to us on commercially reasonable terms Failure to obtain or maintain such licenses or other third party intellectual property rights could affect our development efforts and market opportunities or could require us to re engineer our products or to obtain alternate technologies Third party licensors may insist on unreasonable financial or other terms in connection with our use of such technology Our failure to comply with the terms of any license may result in our inability to continue to use such license which may result in significant costs harm our market opportunities and require us to obtain or develop a substitute technology
Some of our solutions including our operating system software Platform Software and Blue Planet Automation Software utilize elements of open source or publicly available software As network operators seek to enhance programmability and automation of networks we expect that we and other communications networking solutions vendors will increasingly contribute to and use technology or open source software developed by standards setting bodies or other industry forums that seek to promote the integration of network layers and functions The terms of such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products This increases our risks associated with our use of such software and may require us to seek licenses from third parties to re engineer our products or to discontinue the sale of such solutions Difficulty obtaining and maintaining technology licenses with third parties may disrupt development of our products increase our costs and adversely affect our business
Data security breaches and cyber attacks targeting our enterprise technology environment and assets could compromise our intellectual property technology or other sensitive information and could cause significant damage to our business reputation and operational capacity
In the ordinary course of our business our network environment and assets and the networks and assets of our third party business partners including our supply chain and other vendors maintain certain information that is confidential regulated proprietary or otherwise sensitive in nature to our business This information may include intellectual property and product information personal data financial information and other confidential business information relating to us and our employees customers suppliers and other business partners The frequency sophistication and unpredictability of cybersecurity events globally have increased and can be more acute during times of geopolitical tension or instability between countries In addition companies in the technology industry and in particular manufacturers of networking and communications products have been increasingly subjected to a wide variety of data security incidents including cyber attacks attacks against products and other attempts to gain unauthorized access to network assets infrastructure or sensitive information Our network systems devices storage and other business applications and those that we rely on and that are maintained by our third party providers have been in the past and may be in the future subjected to security incidents including attack exploitation intrusion disruption and other malfeasance or attempts to gain unauthorized access or conduct other unauthorized activities Further our network systems devices storage and other business applications may be targeted for data security incidents as a vicarious method to target our customers Such data security incidents may be caused by malice or negligence from either third party or internal actors These threats arise from actions by nation states independent hackers hacktivist groups organized cybercrime entities and other third parties as well as from malicious actors from within or supporting our organization Further evolving technologies including AI pose new threats In some cases it is difficult to anticipate detect or identify indicators of such incidents and assess the damage caused thereby If an actual or perceived data security incident affects our network or any of our third party providers networks we could incur significant costs our technology and operations could be impacted our customers and other stakeholders and or their network environments could be impacted our reputation could be harmed and we may become involved in litigation including with respect to allegations of breach of contract We may also be subject to increased regulatory oversight including governmental investigations enforcement actions and regulatory fines We could also experience delays in reporting our financial results and we may lose revenue and profits as a result of our inability to timely produce distribute invoice and collect payments for our products and services Additionally a data security incident may result in significant remediation expenses and increased cybersecurity protection and insurance costs
While we work to safeguard our enterprise network systems and products and to diligence the security of our third party providers to mitigate these potential risks including through information security policies employee awareness and training and other technical procedural and administrative controls there is no assurance that such actions will be sufficient to prevent future data security incidents or insider threats We have been subjected in the past and expect to be subjected in the future to a range of incidents including phishing emails purporting to come from a company executive or vendor seeking payment requests malware and communications from look alike corporate domains as well as security related risks created by malicious internal actors internally and our use of third party software and services We have also been subject to unauthorized access and exfiltration of confidential data as a result of the exploitation of vulnerabilities involving our use of third party applications While these types of incidents to which we have been subjected have not had a material effect on our business technology
operations or our network security to date future data security incidents could compromise material confidential or otherwise protected information seize destroy or corrupt data impact our customers data or systems through attacks on our products in our customers environments or otherwise disrupt our operations or impact our customers or other stakeholders We and our network environment may also be subject in the future to ransomware attacks nation state cyber attacks or other types of cyber attacks A failure to promptly disclose such material incidents as required by law may result in additional financial or regulatory consequences We have incurred and will continue to incur expenses to comply with cybersecurity privacy and data protection standards and protocols imposed by law regulation industry standards and contractual obligations Increased regulation of data collection use and retention practices and product security regulations including self regulation and industry standards changes in existing laws and regulations enactment of new laws and regulations increased enforcement activity and changes in interpretation of laws could increase our cost of compliance and operation And while we may be entitled to damages if our third party providers fail to satisfy their security related obligations to us any award may be insufficient to cover our damages or we may be unable to recover such award While we have purchased cybersecurity insurance there are no assurances that the coverage would be adequate in relation to any incurred losses or not subject to any exclusions Moreover as cyber attacks increase in frequency and magnitude we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations
We are a party to legal proceedings investigations and other claims or disputes which are costly to defend and if determined adversely to us could require us to pay fines or damages undertake remedial measures or prevent us from taking certain actions any of which could adversely affect our business
In the course of our business we are and in the future may be a party to legal proceedings investigations and other claims or disputes which have related and may relate to subjects including commercial transactions intellectual property securities employee relations or compliance with applicable laws and regulations Legal proceedings and investigations are inherently uncertain and we cannot predict their duration scope outcome or consequences There can be no assurance that these or any such matters that have been or may in the future be brought against us will be resolved favorably In connection with any government investigations in the event the government takes action against us or the parties resolve or settle the matter we may be required to pay substantial fines or civil and criminal penalties and or be subject to equitable remedies including disgorgement or injunctive relief Other legal or regulatory proceedings including lawsuits filed by private litigants may also follow as a consequence These matters are likely to be expensive and time consuming to defend settle and or resolve and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations They may also cause damage to our business reputation The unfavorable resolution of one or more of these matters could have a material adverse effect on our business results of operations financial condition or cash flows
Changes in trade policy including the imposition of tariffs and other import measures increased export control sanctions and investment restrictions and efforts to withdraw from or materially modify international trade agreements as well as other regulatory efforts impacting the import and sale of foreign equipment may adversely affect our business operations and financial condition
The United States and various foreign governments have established certain trade and tariff requirements under which we have implemented a global approach to the sourcing and manufacture of our products as well as distribution and fulfillment to customers around the world From time to time the U S government has indicated a willingness to revise renegotiate or terminate various existing multilateral trade agreements and to impose new taxes and restrictions on certain goods imported into the U S Because we rely on a global sourcing strategy and third party contract manufacturers in markets outside of the U S to perform substantially all of the manufacturing of our products such steps if adopted could adversely impact our business and operations increase our costs and make our products less competitive in the U S and other markets
For example our supply chain includes certain direct and indirect suppliers based in China who supply goods to us our manufacturers or our third party suppliers Recently there have been a number of significant geopolitical events including trade tensions and regulatory actions involving the governments of the United States and China The U S government has raised tariffs and imposed new tariffs on a wide range of imports of Chinese products including component elements of our solutions and certain finished goods products that we sell For example U S tariff policy involving imports from China was subject to a lengthy now completed review by the U S government in 2023 and the first three quarters of 2024 and the incoming U S administration has announced an intent to impose an additional 10 tariff on all imports from China The U S government has also introduced broad new restrictions on imports from China allegedly manufactured with forced labor and the EU and the UK have recently adopted similar restrictions China has retaliated by raising tariffs and imposing new tariffs on certain exports of U S goods to China introducing blocking measures to restrict the ability of domestic companies to comply with U S trade restrictions and recently prohibiting the export of certain rare minerals from China to the United States and could take further steps to retaliate against U S industries or companies In May 2020 the U S introduced significant further restrictions limiting access to controlled U S technology to additional Chinese government and commercial entities including certain of our
competitors based in China More recently in October 2022 the U S Department of Commerce imposed additional export control restrictions targeting the provision of certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business In addition the U S Federal Communications Commission the FCC in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported marketed or sold in the U S This prohibition currently includes telecommunications equipment produced by Huawei its affiliates and subsidiaries and four other Chinese companies and additional entities may be subsequently added to this list In addition U S Department of Treasury s Office of Foreign Assets Control has increasingly designated as Specially Designated Nationals and Blocked Persons SDNs companies in China for their alleged activities involving Russia Iran North Korea or forced labor practices in the Xinjiang province of China and such SDN designation includes not only an asset freeze but also broad prohibitions on any direct or indirect dealings with designated SDNs or non designated entities owned by one or more SDNs at 50 or greater level The situation involving U S China trade relations remains volatile and uncertain and there can be no assurance that further actions by either country will not have an adverse impact on our business operations and access to technology or components thereof sourced from China See also the risk factor with the caption beginning Our reliance on third party component suppliers above
At this time it remains unclear what additional actions if any will be taken by the U S or other governments with respect to international trade agreements the imposition of tariffs on goods imported into the U S tax policy related to international commerce increased export control sanctions and investment restrictions import or use of foreign communications equipment or other trade matters However the incoming U S administration announced an intent to impose tariffs on imports from Canada Mexico and China We estimate that products or components that make up a significant portion of our revenue are either manufactured in or distributed from Mexico Although the ultimate scope and timing of any such tariffs is indeterminable if implemented they could have a significant impact on our financial condition and results of operations Based on our manufacturing practices and locations there can be no assurance that any future executive or legislative action in the United States or other countries relating to tax policy and trade regulation would not adversely affect our business operations and financial results
Government regulation of usage import or export of our products or our technology within our products changes in that regulation or our failure to obtain required approvals for our products could harm our international and domestic sales and adversely affect our revenue and costs of sales Failure to comply with such regulations could result in enforcement actions fines penalties or restrictions on export privileges In addition costly tariffs on our equipment restrictions on importation trade protection measures and domestic preference requirements of certain countries could limit our access to these markets and harm our sales These regulations could adversely affect the sale or use of our products substantially increase our cost of sales and adversely affect our business and revenue
The FCC has jurisdiction over many companies in the U S telecommunications industry and similar agencies have jurisdiction over the communications industries in other countries Many of our largest customers including service providers and cable and multiservice network operators are subject to the rules and regulations of these agencies while others participate in and benefit from government funded programs that encourage the deployment of network infrastructures These regulatory requirements and funding programs and related laws are subject to changes that may adversely impact our customers with resulting adverse impacts on our business
In April 2024 the FCC reclassified broadband internet access service BIAS as a telecommunications service under Title II of the Communications Act and reinstated net neutrality obligations on BIAS providers States and localities are also increasingly proposing new regulations impacting communications services Any of these regulations could affect our customers and their legal and compliance costs with resulting adverse impacts on our business
Changes in regulatory requirements or uncertainty associated with the regulatory environment could delay or serve as a disincentive to investment in network infrastructures by network operators which could adversely affect the sale of our products and services Similarly changes in regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communications networks could slow the development or expansion of network infrastructures and adversely affect our business operating results and financial condition Legislators and regulators have also enacted and may in the future enact laws and rules that impose significant fines or other liability on communications companies that experience cyber attacks information or security breaches or technology disruptions or failures Such events may therefore have an adverse effect on our company or our customers businesses
Separately certain of our cloud provider customers have been the subject of regulatory and other government actions including inquiries and investigations formal or informal by competition authorities in the United States Europe and other
jurisdictions For example in July 2019 the U S Department of Justice announced that it would commence an antitrust review into significant online technology platforms and in September 2019 various state attorneys general announced antitrust investigations involving certain technology companies In addition certain committees of the U S Congress have held hearings and pursued investigations to consider the businesses associated with these platforms their impact on competition and their conduct Further in November 2024 reports emerged that the Federal Trade Commission opened an investigation into potentially anticompetitive practices by at least one large company in the cloud computing market There can be no assurance that these government actions will not adversely impact the network spending procurement strategies or business practices of our cloud provider customers in a manner adverse to us
Our operations are regulated under various federal state local and international laws and regulations relating to the environment and climate change and in many of the jurisdictions in which we operate governmental authorities are increasingly enacting new legislation and regulations relating to the environment and climate change These laws and regulations directly impact us and may indirectly impact our operations as a result of required compliance by our customers or supply chain Inconsistency across laws and regulations may affect the costs of compliance with such laws and regulations Assessments of the potential impact of future climate change legislation regulation and international treaties and accords are uncertain given the wide scope of potential regulatory change in countries in which we operate Increased public awareness and worldwide focus on environmental and climate changes may lead to new or strengthened regulations legislation or other governmental requirements or industry standards such as increased demand to meet voluntary criteria related to reduction of greenhouse gas emissions and increasing energy efficiency These requirements will and other increased regulation of climate change concerns could subject us to additional costs and restrictions and could require us to make certain changes to our manufacturing practices and product designs which could negatively impact our business results of operations financial condition and competitive position If we were to violate or become liable under these laws or regulations we could incur fines costs related to damage to property or personal injury and costs related to investigation or remediation activities
Our product design efforts and the manufacturing of our products are also subject to evolving requirements relating to the presence of certain materials or substances in our equipment including regulations that make producers for such products financially responsible for the collection treatment and recycling of certain products For example our operations and financial results may be negatively affected by environmental regulations such as the WEEE and RoHS regulations that have been adopted by the EU Compliance with these and similar environmental regulations may increase our cost of designing manufacturing selling and removing our products The SEC requires disclosure regarding the use of conflict minerals mined from the Democratic Republic of the Congo and adjoining countries the DRC and disclosure with respect to procedures regarding a manufacturer s efforts to prevent the sourcing of such minerals from the DRC Certain of these minerals are present in our products SEC rules implementing these requirements may have the effect of reducing the pool of suppliers that can supply conflict free components and parts and we may not be able to obtain conflict free products or supplies in sufficient quantities for our operations Because our supply chain is complex we may face reputational challenges with our customers stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are conflict free Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non compliant inventory which could have an adverse effect on our business and operating results
Investor and other stakeholder scrutiny related to our environmental social and governance practices and our disclosed performance and aspirations for these practices may increase costs and expose us to numerous risks
Investors media business partners employees legislators regulators and other stakeholders are increasingly focused on ESG matters including climate change and greenhouse gas emissions human and civil rights and diversity equity and inclusion As expectations have changed we have established and communicated various initiatives goals and aspirations related to ESG matters Any disclosed goals and aspirations reflect our current initiatives and plans and assumptions as of the date of their disclosure involve risks and uncertainties may require investments may depend in part on third party performance or data that is outside our control are subject to assumptions that could change over time and may not be achieved In addition the standards and laws by which ESG efforts are tracked and measured are in many cases new have not been harmonized and continue to evolve Our efforts to abide by these standards and laws and to accomplish and accurately report on our initiatives goals and aspirations present numerous operational reputational financial legal and other risks Our processes and controls may not always align with evolving standards our interpretation of standards may differ from others and standards may continue to change over time any of which could result in significant revisions to our goals our reported progress toward those goals or other ESG information we disclose In addition any failure or perceived failure to pursue further or fulfill our previously stated goals targets and objectives satisfy various reporting standards within the timelines we announce or at all
adhere to our public statements comply with environmental social and governance laws and regulations and meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business reputation results of operations financial condition and stock price
Our future effective tax rates could be subject to volatility or adversely affected by changes in tax laws regulations accounting principles or interpretations thereof The impact of income taxes on our business can also be affected by a number of items relating to our business These may include estimates for and the actual geographic mix of our earnings changes in the valuation of our deferred tax assets the use or expiration of net operating losses or research and development credit arrangements applicable to us in certain geographies and changes in our methodology for transfer pricing valuing developed technology or conducting intercompany arrangements
The Organization for Economic Co operation and Development the OECD has introduced a framework to implement a global minimum tax of 15 for certain highly profitable multinational companies referred to as Pillar Two or the minimum tax directive While it is uncertain whether the United States will enact legislation to adopt Pillar Two certain countries in which we operate have enacted legislation and other countries are in the process of introducing draft legislation to implement the minimum tax directive Many aspects of Pillar Two will be effective for Ciena beginning in fiscal 2025 with additional components becoming effective beginning in fiscal 2026 Pillar Two taxes are considered an alternative minimum tax accounted for as a period cost that will impact the effective tax rate in the year the Pillar Two tax obligation arises Therefore deferred taxes will not be recognized or adjusted for the estimated effects of future minimum taxes We have assessed the impact of Pillar Two and do not currently anticipate any material effect on our effective tax rate financial results or cash flows for fiscal 2025 based on currently enacted laws however our analysis is ongoing as the OECD continues to release additional guidance and countries enact legislation To the extent additional legislative changes take place in the countries in which we operate it is possible that these changes may yield an adverse impact on our effective tax rate financial results and cash flows
We are subject to the continuous examination of our income and other tax returns by the Internal Revenue Service and other tax authorities globally and we have a number of such reviews underway at any time It is possible that tax authorities may disagree with certain positions we have taken and an adverse outcome of such a review or audit could have a negative effect on our financial position and operating results There can be no assurance that the outcomes from such examinations or changes in tax law or regulation impacting our effective tax rates will not have an adverse effect on our business financial condition and results of operations
Section 404 of the Sarbanes Oxley Act of 2002 requires that we include in our annual report a report containing management s assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not such internal controls are effective Compliance with these requirements has resulted in and is likely to continue to result in significant costs and the commitment of time and operational resources Certain ongoing initiatives including efforts to transform business processes or to transition certain functions to third party resources or providers will necessitate modifications to our internal control systems processes and related information systems as we optimize our business and operations Our expansion into new regions could pose further challenges to our internal control systems We cannot be certain that our current design for internal control over financial reporting or any additional changes to be made will be sufficient to enable management to determine that our internal controls are effective for any period or on an ongoing basis If we are unable to assert that our internal controls over financial reporting are effective market perception of our financial condition and the trading price of our stock may be adversely affected and customer perception of our business may suffer
Our common stock price has experienced substantial volatility in the past and may remain volatile in the future Volatility in our stock price can arise as a result of a number of the factors discussed in this Risk Factors section From fiscal 2020 through fiscal 2024 our closing stock price ranged from a high of 77 60 per share to a low of 34 50 per share The stock market has experienced significant price and volume fluctuation that has affected the market price of many technology companies with such volatility often unrelated to the operating performance of these companies Divergence between our actual results and our forward looking guidance for such results the published expectations of investment analysts or the expectations of the market generally can cause significant swings in our stock price Our stock price can also be affected by market conditions in our industry as well as announcements that we our competitors vendors or our customers may make These may include
announcements by us or our competitors of financial results or changes in estimated financial results technological innovations the gain or loss of customers or other strategic initiatives Our common stock is also included in certain market indices and any change in the composition of these indices to exclude our company could adversely affect our stock price In addition if the market for technology stocks or the broader stock market experiences a loss of investor confidence the trading price of our common stock could decline for reasons unrelated to our business financial condition or results of operations These and other factors affecting macroeconomic conditions or financial markets may materially adversely affect the market price of our common stock in the future
due 2030 and an outstanding senior unsecured indenture pursuant to which we issued 400 million in aggregate principal amount of 4 00 senior notes due 2030 The agreements governing these credit facilities contain certain covenants that limit our ability among other things to incur additional debt create liens and encumbrances pay cash dividends redeem or repurchase stock enter into certain acquisition transactions or transactions with affiliates repay certain indebtedness make investments or dispose of assets The agreements also include customary remedies including the right of the lenders to take action with respect to the collateral securing the loans that would apply should we default or otherwise be unable to satisfy our debt obligations
We may also enter into additional debt transactions or credit facilities including equipment loans working capital lines of credit senior notes and other long term debt which may increase our indebtedness and result in additional restrictions on our business In addition major debt rating agencies regularly evaluate our debt based on a number of factors There can be no assurance that we will be able to maintain our existing debt ratings and failure to do so could adversely affect our cost of funds liquidity and access to capital markets
The operation of our business requires significant capital We have accessed the capital markets in the past and have successfully raised funds including through the issuance of equity convertible notes and other indebtedness to increase our cash position support our operations and undertake strategic growth initiatives We regularly evaluate our liquidity position debt obligations and anticipated cash needs to fund our long term operating plans and we may consider it necessary or advisable to raise additional capital or incur additional indebtedness in the future If we raise additional funds through further issuance of equity or securities convertible into equity or undertake certain transactions intended to address our existing indebtedness our existing stockholders could suffer dilution in their percentage ownership of our company or our leverage and outstanding indebtedness could increase At times capital market conditions including the impact of inflation have increased borrowing rates and could significantly increase our cost of capital should we seek additional funding Moreover global capital markets have undergone periods of significant volatility and uncertainty in the past and there can be no assurance that such financing alternatives will be available to us on favorable terms or at all should we determine it necessary or advisable to seek additional capital
Our Board of Directors and the Audit Committee of our Board of Directors the Audit Committee are responsible for overseeing and assessing management s execution of and approach to cybersecurity risk management Our Chief Information Security Officer CISO who reports directly to our Chief Financial Officer is primarily responsible for assessing cybersecurity risks and managing our cybersecurity program on a day to day basis with support from other members of senior management
Our CISO is an accomplished security professional with 20 years of experience in cybersecurity and risk management across numerous industries and holds degrees in computer science and information assurance and additional executive education in building and leading cybersecurity programs The CISO and his team the Security Team which includes trained cybersecurity professionals are responsible for implementing and maintaining our cybersecurity strategy and program and its related processes We also maintain a Security Advisory Committee SAC which is chaired by our Chief Financial Officer and composed of members of executive leadership and other functional leaders including our General Counsel CISO Chief Digital Information Officer and Vice President of Internal Audit The SAC meets regularly to among other things review cybersecurity program developments and serves as a path of escalation and decision making in certain situations including incident response
We and our managed security partners regularly monitor our environment for indicators of malicious or suspicious activity and security relevant events The potential risk and impact of any such event is evaluated by a cross functional team that includes members of our Security Team legal department and other business functions as necessary and appropriate Materiality determinations related to escalated events are made by the SAC without unreasonable delay The CISO on a quarterly basis generally provides the Audit Committee a summary of relevant cybersecurity events with certain events escalated to the Audit Committee outside of these quarterly meetings depending upon their nature
As part of our Board of Directors oversight of risk management they devote time and attention to cybersecurity related risks The Audit Committee is responsible for overseeing cybersecurity data privacy and information technology related programs policies and other efforts to manage or mitigate cybersecurity risks As part of its standing agenda the Audit Committee receives quarterly updates on cybersecurity risks and initiatives from our CISO These updates have included reviews of our cybersecurity risk management efforts including the development of relevant processes and policies the implementation of technologies and systems or use of third party partners to safeguard our information systems the conduct of education and training initiatives with employees and business partners and incident response preparedness including simulations and tabletop exercises The Audit Committee regularly updates the Board of Directors on such matters Separately and in addition to such quarterly reporting our Board of Directors also receives an annual update from our CISO on information and cybersecurity risks and related initiatives These Board updates have included briefings from our CISO as well as external counsel and third party security advisors which have included continuing education sessions as our Board of Directors seeks to enhance its understanding of cybersecurity risk leading practices and an evolving cyber threat landscape
The safeguarding of information systems that house employee and customer data and proprietary information are of paramount importance to us our business and our reputation We maintain a robust and proactive enterprise cybersecurity program designed to identify assess and manage cybersecurity risks that may impact our business or assets
Our cybersecurity strategy focuses on i maintaining a cybersecurity framework and set of controls to assess and manage security risks and ii protecting against threats by deploying and monitoring security controls and mitigating exposures and potential threats We maintain a security program designed to align with industry standards principles and frameworks such as those set by the National Institute of Standards and Technology NIST and the International Organization for Standardization ISO Our program is also informed by various legal requirements including contractual requirements from our customers In addition we maintain internal policies and procedures that govern the measures we take to secure our information technology environment These include a wide variety of capabilities designed to prevent detect or address risks to systems and data We
Our Security Team regularly assesses cybersecurity risks including their likelihood and potential impact to develop mitigation strategies The team utilizes enterprise governance risk and compliance solutions and tools licensed from third party vendors to conduct various analytic assessments including cloud and container security detection and response threat intelligence and application security assessments We also routinely evaluate and update our understanding of our cybersecurity threat landscape and evolve our related assessments and mitigation strategies accordingly
We regularly review our cybersecurity program for compliance with evolving regulations and to protect against emerging cyber threats Because we operate in a dynamic threat landscape we conduct regular reviews of our program and procedures and we periodically engage third parties to supplement and review our cybersecurity practices We also maintain a cybersecurity risk insurance policy as part of our risk management efforts and regularly engage and collaborate with peers industry groups and U S government partners relating to cybersecurity risk management and the evolving threat environment
We seek to identify and address cybersecurity threats and risks that can arise from our use of third parties including those that comprise our information systems supply chain operations or who have access to certain data We utilize supplier risk management practices including enhanced due diligence assessments that seek to identify cybersecurity risks associated with our use of third party providers and the scope and nature of their work with us These risks are assessed and prioritized based on among other things supplier assessments threat intelligence and industry practices We consider these risks at the time of supplier onboarding and endeavor to assess changes in risk throughout the lifecycle of our relationship with suppliers
Promoting an engaged and aware workforce is a key part of our cybersecurity defense program We carry out regular security awareness training for our personnel to help them better identify and address potential cybersecurity issues This includes regular exercises to simulate and detect phishing attempts various awareness and communication initiatives and required online security awareness training at the time of hire and generally on an annual basis thereafter
We utilize a combination of internal and third party resources to monitor for threats to our network systems and data To promote cybersecurity readiness and advance the preparedness of our teams our cross functional incident response teams maintain an incident response plan in addition to more technical response playbooks and meet regularly to assess these resources Among other things they perform tabletop simulation exercises internally and with third party experts to outline their roles and responsibilities during a cybersecurity event and to refine risk identification and management practices
We have in the past and may in the future utilize third party cyber security assessors or consultants to review our program to share their findings with our Board of Directors or leadership and to help identify opportunities for continuous improvement
Additional information about cybersecurity risks we face is discussed in Item 1A of Part I of this annual report Risk Factors including under the heading Data security breaches and cyber attacks targeting our enterprise technology environment and assets could compromise our intellectual property technology or other sensitive information and could cause significant damage to our business reputation and operational capacity which should be read in conjunction with the information above While we continue to monitor identify investigate respond to and manage cybersecurity threats risks and incidents to date we have not experienced cybersecurity risks including as a result of previous cybersecurity incidents that have had a material effect There can be no assurance that we will not experience such risks in the future
As of November 2 2024 all of our properties are leased and we do not own any real property We lease facilities globally related to the ongoing operations of our business segments and related functions Our corporate headquarters are located in one building in Hanover Maryland
Our largest facilities are our research and development centers located in Ottawa Canada and Gurgaon India We also lease smaller engineering facilities in the United States Canada and Europe In addition we lease various smaller offices in regions throughout the world to support our sales and services operations We believe the facilities we are now using are adequate and suitable for our business requirements
We entered into an agreement dated November 3 2011 with W2007 RDG Realty L L C relating to a 15 year lease of office space for our corporate headquarters in Hanover Maryland consisting of an agreed upon rentable area of approximately 88 000 square feet
On October 23 2014 Ciena Canada Inc entered into an 18 year lease agreement for the office building located at 5050 Innovation Drive Ottawa Canada consisting of a rentable area of approximately 170 000 square feet In addition on April 15 2015 Ciena Canada Inc entered into a 15 year lease agreement for two new office buildings adjacent to the building at 5050 Innovation Drive located at 383 and 385 Terry Fox Drive Ottawa Canada consisting of a rentable area of approximately 255 000 square feet
On August 13 2020 Ciena India Pvt Ltd extended our rental agreement for five years for an office building located at Plot No 13 Echelon Institutional Sector 32 Gurgaon which is adjacent to another building rented by Ciena India Pvt Ltd located at Plot No 14 Echelon Institutional Sector 32 Gurgaon The Gurgaon offices consist of a rentable area of approximately 282 000 square feet
As of December 13 2024 there were approximately 652 holders of record of our common stock and 142 115 595 shares of common stock outstanding We have never paid cash dividends on our capital stock We currently intend to retain earnings for use in our business and we do not anticipate paying any cash dividends in the foreseeable future
1 On December 9 2021 we announced that our Board of Directors had authorized a program to repurchase up to 1 0 billion of our common stock During the fourth quarter of fiscal 2024 we repurchased 132 0 million of our common stock under such stock repurchase program which completed the authorized repurchases contemplated thereunder See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Stock Repurchase Authorization in Item 7 of Part II of this annual report and Note 21 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for information regarding the stock repurchase programs authorized by our Board of Directors
The following graph shows a comparison of cumulative total returns for an investment in our common stock the S P North American Technology Multimedia Networking Index and the Russell 1000 Index from November 1 2019 to November 1 2024 The Russell 1000 Index comprises the stocks representing the 1 000 largest publicly traded American companies as measured by market capitalization The S P North American Technology Multimedia Networking Index includes stocks in the S P Total Market Index that are classified under the Global Industry Classification Standard communications equipment sub industry This graph is not deemed to be soliciting material or filed with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934 as amended the Exchange Act and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933 as amended or the Exchange Act
The graph tracks the performance of a 100 investment in our common stock and in each of the indices on November 1 2019 with the subsequent reinvestment of all dividends at month end This graph assumes 100 invested in Ciena Corporation the Russell 1000 and the S P North American Technology Multimedia Networking Index respectively on November 1 2019 with all dividends reinvested at month end Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns
We are a network technology company providing hardware software and services to a wide range of network operators and enabling enhanced network capacity service delivery and automation Our solutions support network traffic across a wide range of applications including cloud video data AI and voice Our network solutions are used globally by communications service providers cable and multiservice operators cloud providers submarine network operators governments and enterprises across multiple industry verticals Our portfolio is designed to enable the Adaptive Network which is our vision for a network end state that leverages a programmable and scalable network infrastructure driven by software control and automation capabilities that is informed by network analytics and intelligence Our solutions include Networking Platforms including our Optical Networking portfolio and our Routing and Switching portfolio which can be applied from the network core to end user access points and which allow network operators to scale capacity increase transmission speeds allocate traffic efficiently and adapt dynamically to changing end user service demands To complement our Networking Platforms we offer Platform Software which includes our Navigator NCS and advanced applications that deliver multi layer domain control and operations for network operators Through our Blue Planet Automation Software we also enable complete service lifecycle management automation with productized OSS including inventory orchestration and assurance solutions that help our customers to achieve closed loop automation across multi vendor and multi domain environments
The market into which we sell our communications networking solutions is dynamic and characterized by a high rate of change including rapid growth in bandwidth demand and network traffic the proliferation of cloud based services and new approaches or consumption models for designing and procuring networking solutions Drivers of increased bandwidth demand include enterprise and consumer cloud network adoption generative AI 5G high definition video and network operator focus on resilience and automation To address these growing service demands and manage network cost many network operators are looking to adopt next generation infrastructures that are more programmable and better capable of leveraging data for network insight analytics and automation
We believe that our investment capacity and our efforts to push the pace of innovation are important competitive differentiators in our markets Keeping pace with the market s demand for technology innovation requires considerable research and development investment capacity and expenditures and research and development spending represented 19 1 of our operating expenses in fiscal 2024 During fiscal 2024 we invested 767 5 million in research and development activities an increase of 2 3 compared to fiscal 2023 In particular in an effort to capture certain market opportunities created by the impact of AI on networks in fiscal 2024 we continued to innovate increase the performance of and enhance the capabilities for our leading WaveLogic coherent modem technology in multiple form factors Through this innovation we seek to extend our leadership in our core business and leverage this to expand our addressable market into complementary and adjacent network applications including inside and around the data center
Our business strategy to capitalize on these market dynamics and investment opportunities also include the initiatives set forth in the Strategy section of the description of our business in Item 1 of Part I of this annual report
During fiscal 2021 and fiscal 2022 we received an unprecedented volume of orders for our products and services We believe some portion of these orders reflected customer acceleration of future orders due to long lead times during the constrained supply environment of that period as well as orders that were delayed due to the dynamics of the COVID 19 pandemic These order volumes resulted in significant revenue growth in fiscal 2023 Our order volumes began to moderate in the fourth quarter of fiscal 2022 and we experienced order levels below revenue during fiscal 2023 and the first half of fiscal 2024 particularly from our communications service provider customers We believe this was in part due to communications service providers in North America working through relatively high levels of inventory previously acquired which was made more difficult due to challenges installing and deploying equipment In addition in certain international geographies we believe that caution driven by macroeconomic concerns and market specific issues contributed to lower than expected order volumes from communications service providers during fiscal 2024 As a result of these dynamics our revenue for fiscal 2024 was lower than our revenue in fiscal 2023 Notwithstanding these recent dynamics and their impact on fiscal 2024 revenue we
continue to believe that certain trends and shifts in business and consumer behaviors and the drivers of bandwidth demand described above under Market Opportunity and Investment in Technology Innovation represent long term opportunities for our business
Generally we make sales pursuant to purchase orders placed by customers under framework agreements that govern the general commercial terms and conditions of the sale of our products and services These agreements do not obligate customers to purchase any minimum or guaranteed order quantities In calculating backlog we only include i customer purchase orders for products that have not been shipped and for services that have not yet been performed and ii customer orders relating to products that have been delivered and services that have been performed but are awaiting customer acceptance under the applicable contract terms Backlog may be fulfilled several quarters following receipt of a purchase order or in the case of certain service obligations may relate to multi year support periods
Our backlog was 2 1 billion as of November 2 2024 as compared to 2 6 billion as of October 28 2023 Backlog includes product and service orders from commercial and government customers combined Backlog at November 2 2024 includes approximately 352 5 million primarily related to orders for products and services that are not expected to be filled or performed within fiscal 2025 Because backlog can be defined in different ways by different companies our presentation of backlog may not be comparable with figures presented by other companies in our industry In addition our customers may cancel delay or change their orders with limited advance notice or they may decide not to accept our products and services The timing of our fulfillment of backlog could cause some volatility in our results of operations
On October 2 2024 we announced that our Board of Directors authorized a program to repurchase up to 1 0 billion of our common stock commencing in fiscal 2025 and continuing through the end of fiscal 2027 Authorized purchases contemplated under our prior stock repurchase program which was authorized in fiscal 2022 were completed in fiscal 2024
The amount and timing of any further repurchases under our stock repurchase program are subject to a variety of factors including liquidity cash flow stock price and general business and market conditions The program may be modified suspended or discontinued at any time See Notes 21 and
A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented below A discussion of fiscal 2023 compared to fiscal 2022 can be found under Item 7 of Part II of our Annual Report on Form 10 K for the fiscal year ended October 28 2023 filed with the SEC on December 15 2023 which is available free of charge on the SEC s website at www sec gov and our Investor Relations website at investor ciena com
Our results of operations are presented based on the following operating segments i Networking Platforms ii Platform Software and Services iii Blue Planet Automation Software and Services and iv Global Services See Notes 2 and 24 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information on our segment reporting
As a result of the factors impacting order volumes described under Overview above our revenue declined by 8 5 in fiscal 2024 as compared to fiscal 2023 In addition during fiscal 2024 approximately 14 3 of our revenue was non U S Dollar denominated primarily including sales in Euros Indian Rupees and Canadian Dollars During fiscal 2024 as compared to fiscal 2023 the U S Dollar fluctuated against these and other currencies with minimal impact as compared to fiscal 2023
See Notes 2 and 24 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information on our segment reporting The table below sets forth the changes in our operating segment revenue for the periods indicated in thousands except percentage data
Packet Optical Platform primarily to communications service providers enterprise customers cable and multiservice operators and cloud providers and 17 2 million of our 5400 family of Packet Optical Platforms primarily to communications service providers These sales decreases were partially offset by sales increases of 63 1 million primarily of our coherent pluggable transceivers primarily to cloud providers 45 2 million of our 6500 RLS products primarily to communications service providers cable and multiservice operators and cloud providers and 35 8 million of our Waveserver
Routing and Switching sales decreased primarily reflecting sales decreases of 103 8 million of our 3000 and 5000 families of service delivery and aggregation switches primarily to communications service providers cable and multiservice operators and enterprise customers 8 9 million of our 8700 Packetwave Platform primarily to communications service providers and enterprise customers 5 4 million of our virtualization software primarily to communications service providers partially offset by increased sales to enterprise customers and 4 3 million of our passive optical network PON products primarily to communications service providers These sales decreases were partially offset by sales increases of 8 7 million of our platform independent software primarily to communications service providers and cloud providers 4 8 million of our WaveRouter products primarily to communications service providers and 3 6 million of our 8100 Coherent IP networking platforms primarily to enterprise customers and cloud providers
increased by 54 2 million reflecting sales increases of 32 3 million in sales of software platforms and 21 9 million in sales of our software maintenance services both primarily for our Navigator NCS software platform
increased by 8 4 million primarily reflecting a sales increase of 11 4 million in professional software services primarily for our BPI and ROA platforms partially offset by a sales decrease of 2 9 million in software platforms
Our operating segments engage in business and operations across three geographic regions Americas EMEA and APAC The geographic distribution of our revenue can fluctuate significantly from period to period and the timing of revenue recognition for large network projects particularly outside of the United States can result in large variations in geographic revenue results in any particular period The decrease in our Americas region revenue for fiscal 2024 was primarily driven by decreased sales in Canada and the United States The decrease in our APAC region revenue for fiscal 2024 was primarily driven by decreased sales in Australia India Singapore and South Korea The increase in our EMEA region revenue for fiscal 2024 was partially offset by sales decreases in Great Britain and the Netherlands The following table reflects our geographic distribution of revenue which is principally based on the relevant location for the delivery of our products and performance of services The table below sets forth the changes in geographic distribution of revenue for the periods indicated in thousands except percentage data
decreased by 158 4 million reflecting a sales decrease of 207 3 million within our Networking Platforms segment This sales decrease was offset by sales increases of 40 4 million within our Platform Software and Services segment 5 4 million within our Global Services segment and 3 1 million within our Blue Planet Automation Software and Services segment Our Networking Platforms segment revenue decrease reflects product line sales decreases of 126 9 million of Optical Networking products and 80 4 million of Routing and Switching products Our Optical Networking revenue primarily reflects a sales decrease of 248 7 million of our 6500 Packet Optical Platform primarily to communications service providers enterprise customers cable and multiservice operators and cloud providers This sales decrease was partially offset by sales increases of 57 1 million primarily of our coherent pluggable transceivers primarily to cloud providers 55 4 million of our 6500 RLS products primarily to cloud providers and cable and multiservice operators and 19 5 million of our Waveserver modular interconnect system primarily to communications service providers partially offset by decreased sales to cloud providers Routing and Switching product line sales primarily reflect a sales decrease of 83 9 million of our 3000 and 5000 families of service delivery and aggregation switches to communications service providers cable and multiservice operators and enterprise customers
increased by 5 7 million primarily reflecting sales increases of 12 2 million within our Global Services segment and 5 5 million within our Platform Software and Services segment These sales increases were partially offset by a sales decrease of 10 9 million within our Networking Platforms segment
decreased by 218 9 million primarily reflecting a sales decrease of 233 2 million within our Networking Platforms segment This sales decrease was partially offset by sales increases of 8 3 million within our Platform Software and Services segment and 6 4 million within our Blue Planet Automation Software and Services segment Our Networking Platforms segment revenue decrease primarily reflects a product line sales decrease of 237 0 million of Optical Networking products including a sales decrease of 198 3 million of our 6500 Packet Optical Platform primarily to communications service providers and enterprise customers
In fiscal 2024 and fiscal 2023 our top ten customers contributed 57 9 and 53 7 of our revenue respectively Consequently our financial results are closely correlated with the spending of a relatively small number of customers and can
be significantly affected by market industry or competitive dynamics affecting the businesses of those customers Our reliance on a relatively small number of customers increases our exposure to changes in their spending levels network priorities and purchasing strategies The loss of a significant customer could have a material adverse effect on our business and results of operations and our results of operations can fluctuate quarterly depending on sales volumes and purchasing priorities with these large customers Sales to one of our cloud provider customers were 532 3 million or 13 3 of total revenue in fiscal 2024 and 561 4 million or 12 8 of total revenue in fiscal 2023 Sales to AT T were 475 3 million or 11 8 of total revenue in fiscal 2024 and 464 7 million or 10 6 of total revenue in fiscal 2023 No other customer accounted for greater than 10 of our revenue in fiscal 2024 or fiscal 2023
While drivers of bandwidth growth and network evolution remain strong many of our service provider customers are under pressure to constrain their capital expenditure budgets and their businesses cannot grow their network spending at the rate of bandwidth growth As a result as we innovate and introduce new and more robust solutions that increase capacity or add features there is a market expectation for solutions that are more cost effective than existing or competing solutions and that new products consistently deliver lower price per bit performance The combination of this regular technology driven price compression price competition in our markets and ongoing customer efforts to manage network costs can impact our growth rates and requires that we increase our volume of product shipments to maintain and grow revenue
Product cost of goods sold consists primarily of amounts paid to third party contract manufacturers component costs employee related costs and overhead shipping and logistics costs associated with manufacturing related operations warranty and other contractual obligations royalties license fees amortization of intangible assets cost of excess and obsolete inventory and when applicable estimated losses on committed customer contracts
Services cost of goods sold consists primarily of direct and third party costs associated with our provision of services including installation deployment maintenance support consulting and training activities and when applicable estimated losses on committed customer contracts The majority of these costs relate to personnel including employee and third party contractor related costs
Our gross profit as a percentage of revenue or gross margin can fluctuate due to a number of factors particularly when viewed on a quarterly basis Our gross margin can fluctuate and be adversely impacted depending on our revenue concentration within a particular segment product line geography or customer as well as our success in selling software in a particular period Our gross margin remains highly dependent on our continued ability to drive annual product cost reductions relative to the price erosion that we regularly encounter in our markets Moreover we are often required to compete with aggressive pricing and commercial terms and to secure business with new and existing customers we may agree to pricing or other unfavorable commercial terms that adversely affect our gross margin Success in gaining market share and winning new business can result in additional pressure on gross margin from these pricing dynamics and the early stages of these network deployments Early stages of new network builds also often include an increased concentration of lower margin common equipment photonics sales and installation services with the intent to improve margin as we sell channel cards and maintenance services to customers as they add capacity and need to monitor their networks Gross margin can be impacted by technology based price compression and the introduction or substitution of new platforms with improved price for performance as compared to existing solutions that carry higher margins Gross margin can also be impacted by changes in expense for excess and obsolete inventory and warranty obligations
Service gross margin can be affected by the mix of customers and services particularly the mix between deployment and maintenance services geographic mix and the timing and extent of any investments in internal resources to support this business
increased by 35 6 million Service gross margin increased by 130 basis points primarily due to improved margins on Blue Planet software services due to improved efficiencies on delivery partially offset by lower margins on maintenance support and training
During fiscal 2024 approximately 48 7 of our operating expense was non U S Dollar denominated including Canadian Dollars Indian Rupees and Euros During fiscal 2024 as compared to fiscal 2023 the U S Dollar primarily strengthened against these and other currencies with minimal impact as compared to fiscal 2023
Operating expense increased in fiscal 2024 from the level reported for fiscal 2023 primarily due to increases in employee headcount We have also experienced and are continuing to experience increases in the cost of labor and other costs of doing business due to inflation and continued inflationary pressures could have an adverse impact on our profitability We expect operating expense to continue to increase from the level reported in fiscal 2024 primarily due to planned investment in research and development to advance our strategy and higher employee compensation costs
primarily consists of salaries and related employee expense including share based compensation expense prototype costs relating to design development product testing depreciation expense and third party consulting costs
primarily consists of salaries commissions and related employee expense including share based compensation expense and sales and marketing support expense including travel demonstration units trade show expense and third party consulting costs
primarily reflect actions we have taken to improve the alignment of our workforce facilities and operating costs with perceived market opportunities business strategies changes in market and business conditions the redesign of certain business processes and significant impairments of assets
primarily consist of expenses for financial legal and accounting advisors and severance and other employee related costs associated with our acquisition activity For more information on our acquisitions see Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
increased by 16 9 million net of hedging This increase primarily reflects increases in employee related compensation costs partially due to higher headcount and increases in salary and share based compensation costs In addition facility information technology costs and other technology related costs increased partially offset by decreased professional services and a lower provision associated with our annual cash incentive compensation plan
by 19 9 million This increase primarily reflects increases in employee related compensation costs due to higher variable compensation and share based compensation and increases in travel and entertainment costs
5 4 million This increase primarily reflects increases in employee related compensation costs primarily due to increases in salary and share based compensation costs In addition facility and information technology costs increased partially offset by a lower provision associated with our annual cash incentive compensation plan
slightly increased primarily reflecting an increase in workforce reduction costs of 8 5 million partially offset by a decline of 7 7 million in costs associated with actions to redesign certain business processes associated with our supply chain and distribution structure reorganization and costs related to restructured real estate facilities For more information on our restructuring costs see Note 4 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
in fiscal 2023 reflect financial legal and accounting advisors and employee related costs related to our acquisitions of Benu Networks Benu and Tibit Communications Inc Tibit during the first quarter of fiscal 2023
decreased by 11 7 million primarily resulting from the remeasurement of our previously held investment in Tibit to fair value in fiscal 2023 which resulted in a gain on our equity investment of 26 5 million and the impact of foreign exchange rates on assets and liabilities denominated in a currency other than the relevant functional currency net of hedging activity These decreases were partially offset by higher interest income on our investments For more information on our acquisition of Tibit see Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
increased primarily due to higher interest rates on our floating rate debt net of hedging activity and additional outstanding indebtedness including the 2030 Term Loan incurred in the first quarter of fiscal 2023 For more information on our short term and long term debt see Note 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
primarily reflects 1 9 million of extinguishment of debt costs and 6 0 million in debt modification costs both related to our term loan refinancing which occurred in the fourth quarter of fiscal 2023 For more information see Note 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
decreased by 32 9 million primarily due to the decrease in pre tax income in fiscal 2024 Similarly the effective tax rate for fiscal 2024 was higher than the effective tax rate for fiscal 2023 primarily due to the decrease in pre tax income
of cash from operations Net income adjusted for non cash charges provided cash of 411 8 million and our working capital provided cash of 102 7 million For additional details on our cash provided by operating activities see the discussion below under the caption Cash Provided by Operating Activities
Cash cash equivalents and investments increased by 82 5 million during fiscal 2024 Cash from operations was partially offset by the following i cash used for stock repurchases under our stock repurchase program of 254 5 million ii cash used to fund our investing activities for capital expenditures totaling 136 6 million iii stock repurchased upon vesting of our stock unit awards to employees relating to tax withholding of 46 6 million iv
totaled 1 3 billion as well as the unused portion of the Revolving Credit Facility as defined in Note 19 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report The Revolving Credit Facility which we and certain of our subsidiaries entered into on October 24 2023 replaced the ABL Credit Facility as defined in Note 19 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report and provides for a total commitment of 300 0 million with a maturity date of October 24 2028 We principally use the Revolving Credit Facility to support the issuance of letters of credit that arise in the ordinary course of our business and for general corporate purposes As of November 2 2024 letters of credit totaling 59 1 million were outstanding under our Revolving Credit Facility There were no borrowings outstanding under the Revolving Credit Facility as of November 2 2024
Approximately 93 0 million of future cash generated from these foreign subsidiaries is expected to be repatriated with any remaining amount continuing to be indefinitely reinvested A deferred tax liability related to the expected repatriation amount was accrued in fiscal 2023 There are no other significant temporary differences related to our investment in the foreign subsidiaries for which a deferred tax liability has not been recognized See Note 22 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
of our common stock During fiscal 2024 we repurchased an additional 250 0 million of our common stock under the stock repurchase program which completed the authorized repurchases contemplated under the current program
On October 2 2024 we announced that our Board of Directors authorized a program to repurchase up to 1 0 billion of our common stock commencing in fiscal 2025 and continuing through the end of fiscal 2027
Based on past performance and current expectations we believe that cash from operations cash cash equivalents investments and other sources of liquidity including our Revolving Credit Facility will satisfy our currently anticipated working capital needs capital expenditures and other liquidity requirements associated with our operations through the next 12 months and the reasonably foreseeable future We regularly evaluate our liquidity position debt obligations and anticipated cash needs to fund our operating or investment plans and we will continue to consider capital raising and other market opportunities that may be available to us We regularly evaluate alternatives to manage our capital structure and market opportunities to enhance our liquidity and provide further operational and strategic flexibility
The 9 9 million of cash provided by deferred revenue during fiscal 2024 represents an increase in advanced payments received on multi year maintenance contracts from customers prior to revenue recognition and
The 5 8 million of cash used in operating lease assets and liabilities net during fiscal 2024 represents cash paid for operating lease payments in excess of operating lease costs For more details see Note 17 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
Our days sales outstanding DSOs were 96 for fiscal 2024 as compared to 95 for fiscal 2023 The calculation of DSOs includes accounts receivable net and contract assets for unbilled receivables net included in prepaid expenses and other Our inventory turns
Interest on the 2030 New Term Loan is payable periodically based on the interest period selected for borrowing The 2030 New Term Loan bears interest at SOFR for the chosen borrowing period plus a spread of 2 00 subject to a minimum SOFR rate of 0 00 At the end of fiscal 2024 the interest rate on the 2030 New Term Loan was 6 76
During fiscal 2024 we utilized the Revolving Credit Facility to issue certain standby letters of credit and paid nominal commitment fees interest expense and other administrative charges primarily relating to the Revolving Credit Facility
For additional information about our debt revolving credit facilities and interest rate swaps see Notes 15 18 and 19 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report and Item 7A of Part II of this annual report
As of November 2 2024 we had 1 2 billion outstanding principal associated with our 2030 New Term Loan with 11 7 million maturing within 12 months Interest payments on the 2030 New Term Loan and payments to be received under the interest rate swaps are variable and are calculated using the interest rate in effect as of November 2 2024 Future interest payments associated with the 2030 New Term Loan totaled 462 8 million with 78 9 million payable within 12 months As of November 2 2024 we had 400 0 million outstanding principal associated with the 2030 Notes payable January 31 2030 Future interest payments associated with the 2030 Notes totaled 88 0 million with 16 0 million payable within 12 months Future interest payments to be received net of payments under the interest rate swaps totaled 37 7 million with 10 8 million to be received within 12 months For additional information about our short term and long term debt and interest rate swaps see Notes 15 and 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report and Item 7A of Part II of this annual report
purchase order commitments to our contract manufacturers and component suppliers for inventory In certain instances we are permitted to cancel reschedule or adjust these orders Consequently only a portion of this amount relates to firm non cancelable and unconditional obligations
We have lease arrangements for facilities including research and development centers engineering facilities and smaller offices in regions throughout the world to support sales and services operations Office facilities are leased under various non cancelable operating or finance leases As of
we had fixed lease payment obligations of 106 7 million with 23 4 million payable within 12 months See Note 17 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
We do not engage in any off balance sheet financing arrangements In particular we do not have any equity interests in so called limited purpose entities which include special purpose entities SPEs and structured finance entities
The preparation of our consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets liabilities revenue and expense and related disclosure of contingent assets and liabilities Note 1 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements By their nature these estimates and judgments are subject to an inherent degree of uncertainty On an ongoing basis we reevaluate our estimates including those related to revenue recognition share based compensation bad debts inventories intangible and other long lived assets goodwill income taxes warranty obligations restructuring derivatives and hedging and contingencies and litigation We base our estimates on historical experience and on various other assumptions that we believe to be reasonable Among other things these estimates form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources Actual results may differ materially from these estimates under different assumptions or conditions To the extent that there are material differences between our estimates and actual results our consolidated financial statements will be affected
Revenue is allocated among performance obligations based on standalone selling price SSP SSP reflects the price at which we would expect to sell that product or service on a stand alone basis at contract inception and that we would expect to be entitled to receive for the promised products or services SSP is estimated for each distinct performance obligation and judgment may be required in its determination The best evidence of SSP is the observable price of a product or service when we sell the products separately in similar circumstances and to similar customers In instances where SSP is not directly observable we determine SSP using information that may include market conditions and other observable inputs
We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize Variable consideration can include various rebate cooperative marketing and other incentive programs that we offer to our distributors partners and customers When determining the amount of revenue to recognize we estimate the expected usage of these programs applying the expected value or most likely estimate and updates the estimate at each reporting period as actual utilization data becomes available We also consider any customer right of return and any actual or potential payment of liquidated damages contractual or similar penalties or other claims for performance failures or delays in determining the transaction price where applicable
When transfer of control is judged to be over time for installation and professional service arrangements we apply the input method to determine the amount of revenue to be recognized in a given period Utilizing the input method we recognize revenue based on the ratio of actual costs incurred to date to the total estimated costs expected to be incurred Revenue for software subscription and maintenance is recognized ratably over the period during which the services are performed
We record acquisitions using the purchase method of accounting The assets acquired liabilities assumed contractual contingencies and contingent consideration are recognized at their fair value as of the acquisition date The excess of the purchase price over the estimated fair values of the net tangible and net intangible assets acquired is recorded as goodwill The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to allocate purchase price consideration properly between assets that are depreciated and amortized from goodwill These assumptions and estimates include a market participant s use of the asset and the appropriate discount rates for a market participant Our estimates are based on historical experience information obtained from the management of the acquired companies and when appropriate include assistance from independent third party appraisal firms Our significant assumptions and estimates can include but are not limited to the cash flows that an asset is expected to generate in the future the appropriate weighted average cost of capital and the cost savings expected to be derived from acquiring an asset These estimates are inherently uncertain and unpredictable In addition unanticipated events and circumstances may occur that may affect the accuracy or validity of such estimates During fiscal 2022 we completed the acquisitions of AT T s Vyatta Software Technology Vyatta and Xelic Inc Xelic for an aggregate purchase price of 64 1 million During fiscal 2023 we completed the acquisitions of Benu and Tibit for an aggregate purchase price of 291 7 million See Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information regarding these transactions
We estimate the fair value of our restricted stock unit RSU awards based on the fair value of our common stock on the date of grant Our outstanding RSU awards are subject to service based vesting conditions and or performance based vesting conditions We recognize the estimated fair value of service based awards as share based expense ratably over the vesting period on a straight line basis Awards with performance based vesting conditions require the achievement of certain financial or other performance criteria or targets as a condition to the vesting or acceleration of vesting We recognize the estimated fair value of performance based awards as share based expense over the performance period using graded vesting which considers each performance period or tranche separately At the end of each reporting period for performance based awards not subject to total stockholder return we reassess the probability of achieving the performance targets and the performance period required to meet those targets and the expense is adjusted accordingly Determining whether the performance targets will be achieved involves judgment and the estimate of expense may be revised periodically based on changes in the probability of achieving the performance targets Revisions are reflected in the period in which the estimate is changed If any performance goals are not met no compensation cost is ultimately recognized against that goal and to the extent previously recognized compensation cost is reversed
Share based compensation expense is taken into account based on awards granted In the event of a forfeiture of an award the expense related to the unvested portion of that award is reversed Reversal of share based compensation expense based on forfeitures can materially affect the measurement of estimated fair value of our share based compensation See Note 23 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for information regarding our assumptions related to share based compensation and the amount of share based compensation expense we incurred for the periods covered in this annual report As of
We make estimates about future customer demand for our products when establishing the appropriate reserve for excess and obsolete inventory For fiscal 2024 and fiscal 2023 future demand was calculated using both customer backlog and future forecasted sales Generally our customers may cancel or change their orders with limited advance notice or they may decide not to accept our products and services We write down inventory that has become obsolete or unmarketable by an amount equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand which are affected by changes in our strategic direction discontinuance of a product or introduction of newer versions of our products declines in the sales of or forecasted demand for certain products and general market conditions Inventory write downs are a component of our product cost of goods sold Upon recognition of the write down a new lower cost basis for
that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis In an effort to limit our exposure to delivery delays and to satisfy customer needs we purchase inventory based on forecasted sales across our product lines Beginning in the second half of fiscal 2021 we started placing significant advanced orders for supply of certain long lead time components to address our expected customer demand for fiscal 2022 and the then emerging supply chain challenges During the second half of fiscal 2023 supply for certain long lead time components began to stabilize and the need to place advance orders decreased for these components As of November 2 2024 and October 28 2023 we had 1 7 billion for both fiscal periods in outstanding purchase order commitments to our contract manufacturers and component suppliers for inventory In addition part of our research and development strategy is to promote the convergence of similar features and functionalities across our product lines Each of these practices exposes us to the risk that our customers will not order products for which we have forecasted sales or will purchase less than we have forecasted
We recorded charges for excess and obsolete inventory of 77 3 million 29 5 million and 16 2 million in fiscal 2024 2023 and 2022 respectively primarily related to a decrease in the forecasted demand for certain Networking Platforms products primarily sold to communications service providers Our inventory net of allowance for excess and obsolescence was 820 4 million and 1 1 billion as of
We estimate our allowances for credit losses using relevant available information from internal and external sources This information is related to past events current conditions and reasonable and supportable forecasts Historical credit loss experience provides the basis for the estimation of expected credit losses When assessing for credit losses we determine collectability by pooling assets with similar characteristics The allowances for credit losses are each measured on a collective basis when similar risk characteristics exist The allowances for credit losses are each measured by multiplying the exposure probability of default the probability that the asset will default within a given time frame by the loss given default rate the percentage of the asset not expected to be collected due to default based on the pool of assets
Probability of default rates is published by third party credit rating agencies Adjustments to our exposure probability may take into account a number of factors including but not limited to various customer specific factors the potential sovereign risk of the geographic locations in which the customer is operating and macroeconomic conditions These factors are updated regularly or when facts and circumstances indicate that an update is deemed necessary
Our contract assets for unbilled accounts receivable net of allowance for credit losses was 127 9 million and 150 3 million as of November 2 2024 and October 28 2023 respectively Our allowance for credit losses was 0 4 million and 0 1 million as of November 2 2024 and
Our goodwill was generated from the acquisitions of i Cyan Inc during fiscal 2015 ii the high speed photonics components assets of TeraXion Inc during fiscal 2016 iii Packet Design LLC and DonRiver Holdings LLC during fiscal 2019 iv Centina Systems Inc during fiscal 2020 v Vyatta and Xelic during fiscal 2022 and vi Benu and Tibit during fiscal 2023 The goodwill from these acquisitions is primarily related to expected economic synergies Goodwill is the excess of the purchase price over the fair values assigned to the net assets acquired in a business combination We test goodwill for impairment on an annual basis which we have determined to be as of the last business day of fiscal September each year We also test goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value
We test goodwill impairment by comparing the fair value of the reporting unit with the unit s carrying amount including goodwill Goodwill is allocated to reporting units based on relative fair value using a discounted cash flow model If this test indicates that the fair value is less than the carrying value an impairment loss is recognized limited to the total amount of goodwill allocated to that reporting unit A non cash goodwill impairment charge would have the effect of decreasing earnings or increasing losses in such period If we are required to take a substantial impairment charge our operating results would be materially adversely affected in such period As of both
Our long lived assets include equipment building furniture and fixtures operating right of use assets finite lived intangible assets and maintenance spares As of November 2 2024 and October 28 2023 these assets totaled
net respectively We test long lived assets for impairment whenever triggering events or changes in circumstances indicate that the assets carrying amount is not recoverable from its undiscounted cash flows Our long lived assets are assigned to asset groups which represent the lowest level for which we identify cash flows We measure impairment loss as the amount by which the carrying amount of the asset or asset group exceeds its fair value
Pursuant to Accounting Standards Codification ASC Topic 740 Income Taxes we maintain a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the deferred tax asset will not be realized The ultimate realization of deferred tax assets is dependent on the generation of future taxable income including the reversals of deferred tax liabilities during the periods in which those deferred tax assets will become deductible In evaluating whether a valuation allowance is required under such rules we consider all available positive and negative evidence including prior operating results the nature and reason for any losses our forecast of future taxable income utilization of tax planning strategies and the dates on which any deferred tax assets are expected to expire These assumptions and estimates require a significant amount of judgment and are made based on current and projected circumstances and conditions
Quarterly we perform an analysis to determine the likelihood of realizing our deferred tax assets and whether sufficient evidence exists to support reversal of all or a portion of the valuation allowance The net deferred tax assets as of November 2 2024 and October 28 2023 were 885 9 million and 809 3 million respectively including valuation allowances of 192 4 million and 189 9 million respectively We will continue to evaluate future financial performance to determine whether such performance is both sustained and significant enough to provide sufficient evidence to support reversal of all or a portion of the remaining valuation allowance The value of our net deferred tax asset may be subject to change in the future depending on our generation or projections of future taxable income as well as changes in tax policy or our tax planning strategy
Our liability for product warranties included in accrued liabilities and other short term obligations was 55 3 million and 57 1 million as of November 2 2024 and October 28 2023 respectively Our products are generally covered by a warranty for periods ranging from one to five years We accrue for warranty costs as part of our cost of goods sold based on associated material costs technical support labor costs and associated overhead Material cost is estimated based primarily on historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment Technical support labor cost is estimated based primarily on historical trends and the cost to support customer repairs within the warranty period The provision for product warranties net of adjustments for previous years provisions was 25 6 million 31 7 million and 17 4 million for fiscal 2024 2023 and 2022 respectively The provision for warranty claims may fluctuate on a quarterly basis depending on the mix of products and customers in that period If actual product failure rates material replacement costs service or labor costs differ from our estimates revisions to the estimated warranty provision would be required See Note 14 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates The following discussion about these market risks includes forward looking statements Actual results could differ materially from those projected in these forward looking statements
We maintain an investment portfolio of various holdings types and maturities See Notes 6 and 7 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for information relating to investments and fair value These investments are sensitive to interest rate movements and their fair value will decline as interest rates rise and increase as interest rates decline The estimated impact on these investments of a 100 basis point 1 0 increase in interest rates across the yield curve from rates in effect as of the balance sheet date would be a 2 7 million decline in value
Our earnings and cash flows from operations would be exposed to changes in interest rates because of the floating rate of interest on our 2030 New Term Loan if such loan were not hedged using floating to fixed rate interest rate swaps See Note 15 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report We have entered into interest rate swaps that fix the floating rate for 350 0 million of our floating rate debt at 2 968 from September 2023 through September 2025 and another 350 0 million of our floating rate debt at 3 47 from January 2023 through January 2028 As such a 100 basis point 1 0 increase in the Secured Overnight Financing Rate SOFR rate as of our most recent SOFR rate setting would increase our annualized interest expense by approximately 4 6 million on the unhedged portion of our 2030 New Term Loan as recognized in our Consolidated Financial Statements See Notes 15 and 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for information relating to our 2030 New Term Loan
As a global concern our business and results of operations are exposed to and can be impacted by movements in foreign currency exchange rates Because we sell globally some of our sales transactions and revenue are non U S Dollar denominated with the Euro Indian Rupee and Canadian Dollar being our most significant foreign currency revenue exposures If the U S Dollar strengthens against these currencies our revenue for these transactions reported in U S Dollars would decline For our U S Dollar denominated sales an increase in the value of the U S Dollar would increase the real costs of our products to customers in markets outside the United States which could impact our competitive position During fiscal 2024 approximately 14 3 of revenue was non U S Dollar denominated During fiscal 2024 as compared to fiscal 2023 the U S Dollar fluctuated against a number of foreign currencies with minimal impact as compared to fiscal 2023
With regard to operating expense our primary exposure to foreign currency exchange risk relates to the Canadian Dollar Indian Rupee and Euro If these foreign currencies strengthen against the U S Dollar costs reported in U S Dollars will increase During fiscal 2024 approximately 48 7 of our operating expense was non U S Dollar denominated During fiscal 2024 as compared to fiscal 2023 the U S Dollar primarily strengthened against a number of foreign currencies with minimal impact as compared to fiscal 2023
From time to time we use foreign currency forward contracts to reduce variability in certain forecasted non U S Dollar denominated cash flows Generally these derivatives have maturities of 24 months or less and are designated as cash flow hedges At the inception of the cash flow hedge and on an ongoing basis we assess whether the forward contract has been effective in offsetting changes in cash flows attributable to the hedged risk during the hedging period The derivative s net gain or loss is initially reported as a component of accumulated other comprehensive loss and upon the occurrence of the forecasted transaction it is subsequently reclassified to the line item in the Consolidated Statements of Operations to which the hedged transaction relates
During fiscal 2024 we recorded 11 7 million in foreign currency exchange losses as a result of monetary assets and liabilities that were transacted in a currency other than the entity s functional currency and the re measurement adjustments were recorded in interest and other income net on our Consolidated Statements of Operations From time to time we use foreign currency forwards to hedge these balance sheet exposures These forwards are not designated as hedges for accounting purposes and any net gain or loss associated with these derivatives is reported in interest and other income net During fiscal 2024 we recorded gains on non hedge designated foreign currency forward contracts of 1 4 million See Notes 1 5 and 15 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report
We have audited the accompanying consolidated balance sheets of Ciena Corporation and its subsidiaries the Company as of November 2 2024 and October 28 2023 and the related consolidated statements of operations of comprehensive income of changes in stockholders equity and of cash flows for each of the three years in the period ended November 2 2024 including the related notes collectively referred to as the consolidated financial statements We also have audited the Company s internal control over financial reporting as of November 2 2024 based on criteria established in
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of November 2 2024 and October 28 2023 and the results of its operations and its cash flows for each of the three years in the period ended November 2 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of November 2 2024 based on criteria established in
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A Our responsibility is to express opinions on the Company s consolidated financial statements and on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that i pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and iii provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that i relates to accounts or disclosures that are material to the consolidated financial statements and ii involved our especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As described in Notes 1 and 9 to the consolidated financial statements the Company s consolidated inventory balance net of the allowance for excess and obsolescence was 820 4 million as of November 2 2024 Management records a provision for excess and obsolete inventory when an impairment has been identified and has a reserve for excess and obsolete inventory of 107 2 million as of November 2 2024 Management writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand which are affected by changes in the Company s strategic direction discontinuance of a product or introduction of newer versions of products declines in the sales of or forecasted demand for certain products and general market conditions
The principal considerations for our determination that performing procedures relating to the reserve for excess and obsolete inventory is a critical audit matter are the significant judgment by management when developing their estimate which in turn led to a high degree of auditor judgment subjectivity and effort to perform procedures and evaluate the audit evidence obtained relating to the assumptions regarding future demand
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements These procedures included testing the effectiveness of controls relating to the Company s evaluation of the reserve for excess and obsolete inventory including controls over the assumptions used within the model These procedures also included among others testing management s process for determining the reserve for excess and obsolete inventory This included evaluating the appropriateness of the inventory reserve model and the reasonableness of the significant assumptions relating to the future demand Evaluating the assumptions related to future demand involved evaluating whether the assumptions used were reasonable considering historical demand and expectations regarding future demand Testing management s process for determining future demand included procedures to evaluate the reliability completeness and relevance of management s data used in the future demand assumption Testing the relevance and reliability of the data included evaluating the reasonableness of the long term demand forecasts and historical activity
Ciena Corporation Ciena or the Company is a network technology company providing hardware software and services to a wide range of network operators and enabling enhanced network capacity service delivery and automation Our solutions support network traffic across a wide range of applications including cloud video data artificial intelligence AI and voice Ciena s network solutions are used globally by communications service providers cable and multiservice operators cloud providers submarine network operators governments and enterprises across multiple industry verticals
Ciena s portfolio is designed to enable the Adaptive Network which is Ciena s vision for a network end state that leverages a programmable and scalable network infrastructure driven by software control and automation capabilities that is informed by network analytics and intelligence By using Ciena s network solutions to transform network infrastructures into dynamic programmable environments driven by automation and analytics Ciena believes network operators can realize greater business agility adapt dynamically to changing end user service demands rapidly introduce new revenue generating services and scale networks to meet increased traffic demands Ciena s solutions are also designed to enable network operators to gain valuable real time network insights allowing them to optimize network performance and maximize the return on their network infrastructure investment
Ciena s solutions include Networking Platforms including its Optical Networking portfolio and Routing and Switching portfolio which can be applied from the network core to end user access points and which allow network operators to scale capacity increase transmission speeds allocate traffic efficiently and adapt dynamically to changing end user service demands Ciena s Optical Networking portfolio includes products that support long haul and regional networks submarine and data center interconnect networks and metro and edge networks Ciena s Routing and Switching portfolio includes products and solutions that enable efficient Internet Protocol IP transport in next generation metro core aggregation and access networks including converged IP optical and fiber based broadband access applications
To complement its Networking Platforms Ciena offers Platform Software which includes its Navigator Network Control Software Navigator NCS formerly known as Manage Control and Plan MCP and advanced applications that deliver multi layer domain control and operations for network operators Ciena through its Blue Planet
Automation Software also enables complete service lifecycle management automation with productized operational support systems OSS including inventory orchestration and assurance solutions that help its customers to achieve closed loop automation across multi vendor and multi domain environments
In addition to its systems and software Ciena also offers a broad range of services that help its customers build operate and improve their networks and associated operational environments These include network transformation consulting implementation systems integration maintenance network operations center NOC management learning and optimization services
Ciena records acquisitions using the purchase method of accounting The assets acquired liabilities assumed contractual contingencies and contingent consideration are recognized at their fair value as of the acquisition date The excess of the purchase price over the estimated fair values of the net tangible and net intangible assets acquired is recorded as goodwill The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill These assumptions and estimates include a market participant s use of the asset and the appropriate discount rates for a market participant Ciena s estimates are based on historical experience information obtained from the management of the acquired companies and when
appropriate include assistance from independent third party appraisal firms Significant assumptions and estimates can include but are not limited to the cash flows that an asset is expected to generate in the future the appropriate weighted average cost of capital and the cost savings expected to be derived from acquiring an asset These estimates are inherently uncertain and unpredictable In addition unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates
The preparation of the financial statements and related disclosures in conformity with Generally Accepted Accounting Principles GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes Estimates are used for selling prices for multiple element arrangements shared based compensation bad debts valuation of inventories and investments recoverability of intangible assets other long lived assets and goodwill income taxes warranty obligations restructuring liabilities derivatives contingencies and litigation Ciena bases its estimates on historical experience and assumptions that it believes are reasonable Actual results may differ materially from management s estimates
Ciena considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents Restricted cash collateralizing letters of credit are included in other current assets and other long term assets depending on the duration of the restriction
Ciena s investments in debt securities are classified as available for sale and reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive loss Ciena recognizes losses in the income statement when it determines that declines in the fair value of its investments below their cost basis are other than temporary In determining whether a decline in fair value is other than temporary Ciena considers various factors including market price when available investment ratings the financial condition and near term prospects of the investee the length of time and the extent to which the fair value has been less than Ciena s cost basis and Ciena s intent and ability to hold the investment until maturity or for a period of time sufficient to allow for any anticipated recovery in market value Ciena considers all marketable debt securities that it expects to convert to cash within one year or less to be short term investments with all others considered to be long term investments
Ciena has minority equity investments in privately held technology companies that are classified in other long term assets These investments are carried at cost because Ciena owns less than 20 of the voting equity and does not have the ability to exercise significant influence over the company Ciena monitors these investments for impairment and makes appropriate reductions to the carrying value when necessary As of
the combined carrying value of these investments was 21 7 million Ciena elects to estimate the fair value at cost minus impairment if any plus or minus observable price changes in orderly transactions for identical or similar investments of the same issuer Ciena evaluates these investments for impairment or observable price changes quarterly and records adjustments to interest and other income net on the Consolidated Statements of Operations
Inventories are stated at the lower of cost or market with cost computed using standard cost which approximates actual cost on a first in first out basis Ciena records a provision for excess and obsolete inventory when an impairment has been identified
Ciena s chief operating decision maker its chief executive officer evaluates the Company s performance and allocates resources based on multiple factors including measures of segment profit loss Operating segments are defined as components of an enterprise that engage in business activities that earn revenue and incur expense for which discrete financial information is available and for which such information is evaluated regularly by the chief operating decision maker for purposes of allocating resources and assessing performance Ciena has the following operating segments for reporting purposes i Networking Platforms ii Platform Software and Services iii Blue Planet Automation Software and Services and iv Global Services See Note 24 below
Goodwill is the excess of the purchase price over the fair values assigned to the net assets acquired in a business combination Ciena tests goodwill for impairment on an annual basis which it has determined to be the last business day of fiscal September each year Ciena also tests goodwill for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value
Annually Ciena tests goodwill impairment qualitatively or quantitatively by comparing the fair value of the reporting unit with the unit s carrying amount including goodwill If this test indicates that the fair value is less than the carrying value then an impairment loss is recognized limited to the total amount of goodwill allocated to that reporting unit A non cash goodwill impairment charge would have the effect of decreasing earnings or increasing losses in such period If Ciena is required to take a substantial impairment charge its operating results would be materially adversely affected in such period
Long lived assets include equipment building furniture and fixtures operating right of use ROU assets finite lived intangible assets and maintenance spares Ciena tests long lived assets for impairment whenever triggering events or changes in circumstances indicate that the asset s carrying amount is not recoverable from its undiscounted cash flows An impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds its fair value Ciena s long lived assets are assigned to asset groups that represent the lowest level for which cash flows can be identified
Equipment building furniture and fixtures are recorded at cost Depreciation and amortization are computed using the straight line method generally over useful lives of three years to five years for equipment and furniture and fixtures and the shorter of useful life or lease term for leasehold improvements
Qualifying internal use software and website development costs incurred during the application development stage which consist primarily of outside services and purchased software license costs are capitalized and amortized straight line over the estimated useful lives of two years to five years
At the inception of a contract Ciena must determine whether the contract is or contains a lease The contract is or contains a lease if the contract conveys the right to control the use of the property plant or equipment for a designated term in exchange for consideration Ciena s evaluation of its contracts follows the assessment of whether there is a right to obtain substantially all of the economic benefits from the use and the right to direct the use of the identified asset in the contract Operating leases are included in the Operating ROU assets Operating lease liabilities and Long term operating lease liabilities on the Consolidated Balance Sheets Finance leases are included in Equipment building furniture and fixtures net Finance ROU assets Accrued liabilities and other short term obligations and Other long term obligations on the Consolidated Balance Sheets
Ciena has operating and finance leases that primarily relate to real property Ciena has elected not to capitalize leases with a term of 12 months or less without a purchase option that it is likely to exercise Ciena has elected not to separate lease and non lease components of operating and finance leases Lease components are payment items directly attributable to the use of the underlying asset while non lease components are explicit elements of a contract not directly related to the use of the underlying asset including pass through operating expenses such as common area maintenance and utilities
Operating ROU assets and lease liabilities and Finance ROU assets and lease liabilities are recognized on the Consolidated Balance Sheets at the present value of the future lease payments over the life of the lease term Ciena uses discount rates based on incremental borrowing rates on a collateralized basis for the respective underlying assets for terms similar to the respective leases when implicit rates for leases are not determinable Operating lease costs are included as rent expense in the Consolidated Statements of Operations Fixed base payments on operating leases paid directly to the lessor are recorded as lease expense on a straight line basis Related variable payments based on usage changes in an index or market rate are expensed as incurred Finance ROU assets are generally amortized on a straight line basis over the lease term with the interest expense on the lease liability recorded using the interest method The amortization and interest expense are recorded separately in the Consolidated Statements of Operations
Ciena records finite lived intangible assets from acquisitions Finite lived intangible assets are carried at cost less accumulated amortization Amortization is computed using the straight line method over the expected economic lives of the respective assets up to seven years which approximates the use of intangible assets
Ciena capitalizes certain costs related to hosting arrangements that are service contracts cloud computing arrangements Capitalized costs are included in Other long term assets on the Consolidated Balance Sheets and are amortized on a straight line basis over the estimated useful life
Substantially all of Ciena s cash and cash equivalents are maintained at a small number of major U S financial institutions The majority of Ciena s cash equivalents consist of money market funds Deposits held with banks may exceed the amount of insurance provided on such deposits Because these deposits generally may be redeemed upon demand management believes that they bear minimal risk
Historically a significant percentage of Ciena s revenue has been concentrated among sales to a small number of large communications service providers and cloud providers Consolidation among Ciena s customers has increased this concentration Consequently Ciena s accounts receivable are concentrated among these customers See Note 2 below
Ciena s access to certain materials or components is dependent on sole or limited source suppliers The inability of any of these suppliers to fulfill Ciena s supply requirements or significant changes in supply cost could affect future results Ciena relies on a small number of contract manufacturers to perform the majority of the manufacturing for its products If Ciena cannot effectively manage these manufacturers or forecast future demand or if these manufacturers fail to deliver products or components on time Ciena s business and results of operations may suffer
Ciena recognizes revenue when control of the promised products or services is transferred to its customer in an amount that reflects the consideration to which Ciena expects to be entitled in exchange for those products or services
Generally Ciena makes sales pursuant to purchase orders placed by customers under framework agreements that govern the general commercial terms and conditions of the sale of Ciena s products and services These purchase orders under framework agreements are used to determine the identification of the contract or contracts with this customer Purchase orders typically include the description quantity and price of each product or service purchased Purchase orders may include one line bundled pricing for both products and services Accordingly purchase orders can include various combinations of products and services that are generally distinct and accounted for as separate performance obligations Ciena evaluates each promised product and service offering to determine whether it represents a distinct performance obligation In doing so Ciena considers among other things customary business practices whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether Ciena s commitment to transfer the product or service to the customer is separately identifiable from other obligations in the purchase order For transactions where Ciena delivers the product or services Ciena is typically the principal and records revenue and costs of goods sold on a gross basis
Purchase orders are invoiced based on the terms set forth either in the purchase order or the framework agreement as applicable Generally sales of products and software licenses are invoiced upon shipment or delivery Maintenance and
software subscription services are invoiced quarterly or annually in advance of the service term Ciena s other service offerings are generally invoiced upon completion of the service Payment terms and cash received typically range from 30 to 90 days from the invoicing date Historically Ciena has not provided any material financing arrangements to its customers As a practical expedient Ciena does not adjust the amount of consideration it will receive for the effects of a significant financing component as it expects at contract inception that the period between Ciena s transfer of the products or services to the customer and customer payment for the products or services will be one year or less Shipping and handling fees invoiced to customers are included in revenue with the associated expense included in product cost of goods sold Ciena records revenue net of any associated sales taxes
Ciena recognizes revenue upon the transfer of control of promised products or services to a customer Transfer of control occurs once the customer has the contractual right to use the product generally upon shipment or delivery to the customer Transfer of control can also occur over time for services such as software subscription maintenance installation and various professional services as the customer receives the benefit over the contract term
Revenue is allocated among performance obligations based on standalone selling price SSP SSP reflects the price at which Ciena would expect to sell that product or service on a stand alone basis at contract inception and that Ciena would expect to be entitled to receive for the promised products or services SSP is estimated for each distinct performance obligation and judgment may be required in its determination The best evidence of SSP is the observable price of a product or service when Ciena sells the products separately in similar circumstances and to similar customers In instances where SSP is not directly observable Ciena determines SSP using information that may include market conditions and other observable inputs
Ciena applies judgment in determining the transaction price as Ciena may be required to estimate variable consideration when determining the amount of revenue to recognize Variable consideration can include various rebate cooperative marketing and other incentive programs that Ciena offers to its distributors partners and customers When determining the amount of revenue to recognize Ciena estimates the expected usage of these programs applying the expected value or most likely estimate and updates the estimate at each reporting period as actual utilization data becomes available Ciena also considers any customer right of return and any actual or potential payment of liquidated damages contractual or similar penalties or other claims for performance failures or delays in determining the transaction price where applicable
When transfer of control is judged to be over time for installation and professional service arrangements Ciena applies the input method to determine the amount of revenue to be recognized in a given period Utilizing the input method Ciena recognizes revenue based on the ratio of actual costs incurred to date to the total estimated costs expected to be incurred Revenue for software subscription and maintenance is recognized ratably over the period during which the services are performed
Ciena capitalizes and amortizes incremental costs of obtaining a contract considering each customer purchase in combination with the corresponding framework agreement if applicable as a contract Ciena elected to implement the practical expedient which allows for incremental costs to be recognized as an expense when incurred if the period of the asset recognition is one year or less If the period of the asset recognition is greater than one year Ciena amortizes these costs over the period of performance Ciena considers sales commissions incurred upon receipt of purchase orders placed by customers as incremental costs to obtain such purchase orders The practical expedient method is applied to the purchase order as a whole and thus the capitalized costs of obtaining a purchase order is applied even if the purchase order contains more than one performance obligation In cases where a purchase order includes various distinct products or services with both short term one year or less and long term more than a year performance periods the cost of commissions incurred for the total value of the purchase order is capitalized and subsequently amortized as each performance obligation is recognized
Ciena provides for the estimated costs to fulfill customer warranty obligations upon recognition of the related revenue Estimated warranty costs include estimates for material costs technical support labor costs and associated overhead Warranty is included in cost of goods sold and is determined based on actual warranty cost experience estimates of component failure rates and management s industry experience Ciena s sales contracts do not permit the right of return of the product by the customer after the product has been accepted
Ciena estimates its allowances for credit losses using relevant available information from internal and external sources related to past events current conditions and reasonable and supportable forecasts Historical credit loss experience provides the basis for the estimation of expected credit losses When assessing for credit losses Ciena determines collectability by pooling assets with similar characteristics The allowances for credit losses are each measured on a collective basis when similar risk characteristics exist The allowances for credit losses are each measured by multiplying the exposure probability of default the probability that the asset will default within a given time frame by the loss given default rate the percentage of the asset not expected to be collected due to default based on the pool of assets
Probability of default rates is published by third party credit rating agencies Adjustments to Ciena s exposure probability may take into account a number of factors including but not limited to various customer specific factors the potential sovereign risk of the geographic locations in which the customer is operating and macroeconomic conditions These factors are updated regularly or when facts and circumstances indicate that an update is deemed necessary
Ciena has entered into factoring agreements to sell certain receivables to unrelated third party financial institution on a non recourse basis These transactions result in a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers Ciena s factoring agreements do not allow for recourse in the event of uncollectability and Ciena does not retain any interest in the underlying accounts receivable once sold Trade accounts receivables balances sold are removed from the consolidated balance sheets and cash received is reflected as cash provided by used in operating activities in the Consolidated Statements of Cash Flow Factoring related interest expense is recorded to interest and other income net on the Consolidated Statements of Operations See Note 8 below
Ciena charges all research and development costs to expense as incurred Types of expense incurred in research and development include employee compensation prototype equipment consulting and third party services depreciation facility costs and information technology
Ciena accounts for proceeds from government grants as a reduction of expense when there is reasonable assurance that Ciena has met the required conditions associated with the grant and that grant proceeds will be received Grant benefits are recorded to the particular line item of the Consolidated Statement of Operations to which the grant activity relates
Ciena measures and recognizes compensation expense for share based awards and employee stock purchases related to its Amended and Restated 2003 Employee Stock Purchase Plan the ESPP based on estimated fair values on the date of grant Ciena estimates the fair value of employee stock purchases related to the ESPP using the Black Scholes option pricing model Ciena recognizes the estimated fair value of restricted stock units subject only to service based vesting conditions by multiplying the number of shares underlying the award by the closing price per share of Ciena common stock on the grant date Share based compensation expense for service based restricted stock unit awards is recognized ratably over the vesting period on a straight line basis in the Consolidated Statements of Operations
Awards with performance based vesting conditions i require the achievement of certain operational financial or other performance criteria or targets or ii vest based on Ciena s total stockholder return as compared to an index of peer companies in whole or in part Ciena estimates the fair value of restricted stock units subject to performance based vesting conditions other than total stockholder return by assuming the satisfaction of any performance based objectives at the target level and multiplying the corresponding number of shares earned based upon such achievement by the closing price per share of Ciena common stock on the grant date Share based compensation expense for performance based restricted stock units other than total stockholder return is recognized over the performance period using graded vesting which considers each performance period or tranche separately based on Ciena s determination of whether it is probable that the performance targets will be achieved and is included in the Consolidated Statements of Operations At the end of each reporting period Ciena reassesses the probability of achieving the performance targets and the performance period required to meet those targets
Share based compensation expense for restricted stock units subject only to service based vesting conditions and restricted stock units subject to performance based vesting conditions other than total stockholder return is recognized only for those awards that ultimately vest In the event of a forfeiture of an award the expense related to the unvested portion of that award is reversed
Ciena estimates the fair value of performance based awards subject to total stockholder return as compared to an index of peer companies using a Monte Carlo simulation valuation model on the date of grant and recognizes the related share based compensation expense over the performance period Ciena reverses share based compensation expense on performance based awards subject to total stockholder return only when the requisite service period is not reached See Note 23 below
Shares repurchased pursuant to Ciena s stock repurchase program are immediately retired upon purchase Repurchased common stock is reflected as a reduction of stockholders equity Ciena s accounting policy related to its share repurchases is to reduce its common stock based on the par value of the shares and to reduce its capital surplus for the excess of the repurchase price over the par value Since the inception of its stock repurchase programs Ciena has had an accumulated deficit balance therefore the excess over the par value has been applied to additional paid in capital Once Ciena has retained earnings the excess will be charged entirely to retained earnings
Ciena accounts for income taxes using an asset and liability approach This approach recognizes deferred tax assets and liabilities DTA for the expected future tax consequences attributable to differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases and for operating loss and tax credit carryforwards In estimating future tax consequences Ciena considers all expected future events other than the enactment of changes in tax laws or rates Valuation allowances are provided if based on the weight of the available evidence it is more likely than not that some or all of the deferred tax assets will not be realized
In the ordinary course of business transactions occur for which the ultimate outcome may be uncertain In addition tax authorities periodically audit Ciena s income tax returns These audits examine significant tax filing positions including the timing and amounts of deductions and the allocation of income tax expenses among tax jurisdictions Ciena is currently under audit in India for 2020 through 2023 in Canada for 2014 and in the United Kingdom for 2016 through 2022 Management does not expect the outcome of these audits to have a material adverse effect on Ciena s consolidated financial position results of operations or cash flows Ciena s major tax jurisdictions and the earliest open tax years are as follows United States 2021 United Kingdom 2016 Canada 2014 and India 2020 Limited adjustments can be made to federal U S tax returns in earlier years in order to reduce net operating loss carryforwards Ciena classifies interest and penalties related to uncertain tax positions as a component of income tax expense
Ciena is subject to the possibility of various losses arising in the ordinary course of business These may relate to disputes litigation and other legal actions Ciena considers the likelihood of loss or the incurrence of a liability as well as Ciena s ability to estimate the amount of loss reasonably in determining loss contingencies An estimated loss contingency is accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated Ciena regularly evaluates current information available to it in order to determine whether any accruals should be adjusted and whether new accruals are required
The carrying value of Ciena s cash and cash equivalents accounts receivable accounts payable and accrued liabilities approximates fair market value due to the relatively short period of time to maturity For information related to the fair value of Ciena s short term and long term debt see Note 18 below
Fair value for the measurement of financial assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date As such fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability Ciena utilizes a valuation hierarchy for disclosure of the inputs for fair value measurement This hierarchy prioritizes the inputs into three broad levels as follows
Level 2 inputs are quoted prices for identical or similar assets or liabilities in less active markets or model derived valuations in which significant inputs are observable for the asset or liability either directly or indirectly through market corroboration for substantially the full term of the financial instrument and
Level 3 inputs are unobservable inputs based on Ciena s assumptions used to measure assets and liabilities at fair value The fair values are determined based on model based techniques using inputs Ciena could not corroborated with market data
By distinguishing between inputs that are observable in the marketplace and therefore more objective and those that are unobservable and therefore more subjective the hierarchy is designed to indicate the relative reliability of the fair value measurements A financial asset s or liability s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement
From time to time Ciena takes actions to align its workforce facilities and operating costs with perceived market opportunities business strategies and changes in market and business conditions and to redesign business processes Ciena recognizes a liability for the cost associated with an exit or disposal activity in the period in which the liability is incurred except for one time employee termination benefits related to a service period typically of more than 60 days which are accrued over the service period See Note 4 below
Certain of Ciena s foreign branch offices and subsidiaries use the U S Dollar as their functional currency because Ciena Corporation as the U S parent entity exclusively funds the operations of these branch offices and subsidiaries For those subsidiaries using the local currency as their functional currency assets and liabilities are translated at exchange rates in effect at the balance sheet date and the statement of operations is translated at a monthly average rate Resulting translation adjustments are recorded directly to a separate component of stockholders equity Where the monetary assets and liabilities are transacted in a currency other than the entity s functional currency re measurement adjustments are recorded in interest and other income net on the Consolidated Statements of Operations See Note 5 below
From time to time Ciena uses foreign currency forward contracts to reduce variability in certain forecasted non U S Dollar denominated cash flows Generally these derivatives have maturities of 24 months or less Ciena also has interest rate swap arrangements to reduce variability in certain forecasted interest expense associated with its term loans All of these derivatives are designated as cash flow hedges Ciena also uses foreign currency forward contracts to minimize the effect of foreign exchange rate movements on its net investments in foreign operations Generally these derivatives have maturities of 24 months or less These derivatives are designated as net investment hedges At the inception of these hedges and on an ongoing basis Ciena assesses whether the derivative has been effective in offsetting changes attributable to the hedged risk during the hedging period The derivative s net gain or loss is initially reported as a component of accumulated other comprehensive loss and upon occurrence of the forecasted transaction is subsequently reclassified to the line item in the Consolidated Statements of Operations to which the hedged transaction relates
From time to time Ciena uses foreign currency forward contracts to hedge certain balance sheet foreign exchange exposures These forward contracts are not designated as hedges for accounting purposes and any net gain or loss associated with these derivatives is reported in interest and other income net on the Consolidated Statements of Operations
Ciena calculates basic net income per common share Basic EPS by dividing earnings attributable to common stock by the weighted average number of common shares outstanding for the period Diluted net income per potential common share Diluted EPS includes other potential dilutive shares that would be outstanding if securities or other contracts to issue common stock were exercised or converted into common stock Ciena uses a dual presentation of Basic EPS and Diluted EPS on the face of its income statement A reconciliation of the numerator and denominator used for the Basic EPS and Diluted EPS computations is set forth in Note 20 below
Ciena develops software for sale to its customers GAAP requires the capitalization of certain software development costs that are incurred subsequent to the date that technological feasibility is established and prior to the date the product is generally available for sale The capitalized cost is then amortized using the straight line method over the estimated life of the product Ciena defines technological feasibility as being attained at the time a working model is completed To date the period between Ciena achieving technological feasibility and the general availability of such software has been short and software development costs qualifying for capitalization have been insignificant Accordingly Ciena has not capitalized any software development costs
to improve the accounting for acquired revenue contracts with customers in a business combination to address recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer ASU 2021 08 was effective for Ciena beginning in the first quarter of fiscal 2024 without any material impact on its consolidated financial position results of operations and related disclosures
to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses ASU 2023 07 is effective for fiscal years beginning after December 15 2023 on a retrospective basis Ciena is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures
to enhance the transparency and decision usefulness of income tax disclosures to decision makers ASU 2023 09 is effective for annual periods beginning in fiscal 2026 and will result in changes to certain of its income tax disclosures including substantially more information on a disaggregated basis but it does not affect recognition or measurement of income taxes and therefore is not expected to have a material effect on our consolidated financial statements
to improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods ASU 2024 03 is effective for annual periods beginning after December 15 2026 and interim reporting periods beginning after December 15 2027 however early adoption is permitted ASU 2023 09 allows for adoption using either a prospective or retrospective method Ciena is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures
to require registrants to provide certain climate related information in their registration statements and annual reports The rules would require information about a registrant s climate related risks that are reasonably likely to have a material impact on its business results of operations or financial condition The required information about climate related risks would also include disclosure of a registrant s greenhouse gas emissions Finally the rules would require registrants to present certain climate related financial metrics in their audited financial statements On April 12 2024 the final rules were indefinitely delayed pending the completion of judicial review in consolidated proceedings in the U S Court of Appeals Eighth Circuit
Ciena s disaggregated revenue as presented below depicts the nature amount and timing of revenue and cash flows for similar groupings of Ciena s various offerings The sales cycle contractual obligations customer requirements and go to market strategies may differ for each of its product categories resulting in different economic risk profiles for each category
Ciena reports its sales geographically in the following markets i the United States Canada the Caribbean and Latin America Americas ii Europe Middle East and Africa EMEA and iii Asia Pacific Japan and India APAC Within each geographic area Ciena maintains specific teams or personnel that focus on a particular region country customer or market vertical These teams include sales management account salespersons and sales engineers as well as services professionals and commercial management personnel The following table reflects Ciena s geographic distribution of revenue principally based on the relevant location for Ciena s delivery of products and performance of services
Ciena s revenue includes United States revenue of 2 8 billion for both fiscal 2024 and fiscal 2023 and 2 4 billion for fiscal 2022 No other country accounted for 10 or more of total revenue for the periods presented above
Automation Software and Services for each of the periods presented The other customers identified above purchased products and services from each of Ciena s operating segments for each of the periods presented
While Ciena has benefited from the diversification of its business and customer base its ten largest customers contributed 57 9 of fiscal 2024 revenue 53 7 of fiscal 2023 revenue and 56 3 of fiscal 2022 revenue
Optical Networking includes the 6500 Packet Optical Platform the Waveserver modular interconnect system the 6500 Reconfigurable Line System RLS the Coherent ELS open line system the O NID edge OTN demarcation device coherent pluggable transceivers and the 5400 family of Packet Optical Platforms
Routing and Switching includes the 3000 family of service delivery platforms and the 5000 family of service aggregation This product line also includes the 8100 Coherent IP networking platforms Ciena s WaveRouter
product virtualization software the 6500 Packet Transport System PTS which combines packet switching control plane operation and integrated optics and the 8700 Packetwave Platform This product line also includes SD Edge software and passive optical network PON routing and switching portfolio products
The Networking Platforms segment also includes sales of operating system software and enhanced software features embedded in each of the product lines above Revenue from this segment is included in product revenue on the Consolidated Statements of Operations Operating system software and enhanced software features embedded in Ciena hardware are each considered distinct performance obligations for which the revenue is generally recognized upfront at a point in time upon transfer of control
offerings provide domain control management analytics data and planning tools and applications to assist customers in managing their networks including by creating more efficient operations and providing more visibility into their networks Ciena s platform software includes its Navigator Network Control Suite
Navigator NCS domain controller solution its suite of Navigator NCS applications previously referred to as Manage Control and Plan MCP and legacy software solutions that support Ciena s installed base of network solutions including the OneControl Unified Management System Platform software related services revenue includes sales of subscription installation support and consulting services related to Ciena s software platforms operating system software and enhanced software features embedded in each of the Networking Platforms product lines above
Revenue from the software portion of this segment is included in product revenue on the Consolidated Statements of Operations Revenue from the services portions of this segment is included in services revenue on the Consolidated Statements of Operations
is a comprehensive cloud native and standards based software portfolio together with related services that enables customers to accelerate digital transformation Ciena s Blue Planet Automation Platform includes inventory management BPI multi domain service orchestration MDSO multi cloud orchestration MCO route optimization and analysis ROA and unified assurance and analytics UAA Services revenue includes sales of subscription installation support consulting and design services related to Ciena s Blue Planet Automation Platform Revenue from the software portion of this segment is included in product revenue on the Consolidated Statements of Operations Revenue from the services portions of this segment is included in services revenue on the Consolidated Statements of Operations
Ciena s software platform revenue typically reflects either perpetual or term based software licenses and these sales are considered distinct performance obligations where revenue is generally recognized upfront at a point in time upon transfer of control Revenue from software subscription and support is recognized ratably over the period during which the services are performed Revenue from professional services for solution customization software and solution support services consulting and design and build operate transfer services relating to Ciena s software offerings is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period
revenue reflects sales of a broad range of Ciena s services for maintenance support and training installation and deployment and consulting and network design activities Revenue from this segment is included in services revenue on the Consolidated Statements of Operations Ciena s Global Services are considered a distinct performance obligation where revenue is generally recognized over time Revenue from maintenance support is recognized ratably over the period during which the services are performed Revenue from installation and deployment services and consulting and network design services is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period Revenue from training services is generally recognized at a point in time upon completion of the service
Ciena s contract assets represent unbilled accounts receivable net where transfer of a product or service has occurred but invoicing is conditional upon completion of future performance obligations These amounts are primarily related to installation and deployment and professional services arrangements where transfer of control has occurred but Ciena has not yet invoiced the customer Contract assets are included in prepaid expenses and other on the Consolidated Balance Sheets See Note 10 below
Deferred Revenue represents contract liabilities and consists of advanced payments against non cancelable customer orders received prior to revenue recognition Ciena recognized approximately 153 9 million and 135 5 million of revenue during fiscal 2024 and 2023 respectively that was included in the deferred revenue balance at
respectively and are included in i prepaid expenses and other and ii other long term assets The amortization expense associated with these costs was 30 5 million and 34 2 million during fiscal 2024 and fiscal 2023 respectively and are included in selling and marketing expense on the Consolidated Statements of Operations
Remaining Performance Obligations RPO are comprised of non cancelable customer purchase orders for products and services that are awaiting transfer of control for revenue recognition under the applicable contract terms As of November 2 2024 the aggregate amount of RPO was 1 6 billion As of November 2 2024 Ciena expects approximately 77 of the RPO to be recognized as revenue within the next twelve months
On November 17 2022 Ciena acquired Benu a portfolio of cloud native software solutions including a virtual Broadband Network Gateway v BNG that complements Ciena s existing portfolio of broadband access solutions On December 30 2022 Ciena acquired Tibit a provider and developer of passive optical network PON specific hardware and operating software that can be integrated into a carrier grade Ethernet switch and will strengthen Ciena s portfolio of next generation PON solutions that support residential enterprise and mobility use cases These businesses were acquired for an aggregate of approximately 291 7 million of which 244 7 million was paid in cash and 47 0 million represents the fair value of Ciena s previously held cost method equity investment in Tibit The acquisition of Tibit triggered the remeasurement of Ciena s previously held investment in Tibit to fair value which resulted in Ciena recognizing a gain on its cost method equity investment of 26 5 million Each of these transactions has been accounted for as the acquisition of a business
Ciena incurred approximately 3 4 million in acquisition related costs associated with these acquisitions These costs and expenses primarily include fees associated with financial legal and accounting advisors and employment related costs These costs were recorded in acquisition and integration costs on the Consolidated Statements of Operations
Developed technology represents purchased technology that has reached technological feasibility and for which the acquired companies had substantially completed development as of the date of acquisition Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period Cash flows were discounted to their present value as of the closing date Developed technology is amortized on a straight line basis over its estimated useful life of five years
In process technology represents purchased technology that had not reached technological feasibility as of the date of acquisition Fair value was determined using future discounted cash flows related to the projected income stream of the in process technology for a discrete projection period Cash flows were discounted to their present value as of the closing date Upon completion of the in process technology it will be amortized on a straight line basis over its estimated useful life which will be determined on that date
The goodwill generated from these acquisitions is primarily related to expected economic synergies The total goodwill amount was recorded in the Networking Platforms segment The goodwill is not deductible for income tax purposes
Pro forma disclosures have not been included due to immateriality The amounts of revenue and earnings for these acquisitions since the acquisition dates which are included on the Consolidated Statements of Operations for the reporting period are immaterial
On November 1 2021 Ciena acquired AT T s Vyatta Software Technology Vyatta a provider of software based virtual routing and switching technology AT T is a customer of Ciena see Note 2 above On March 9 2022 Ciena acquired Xelic Inc a provider and developer of field programmable gate array FPGA and application specific integrated circuit ASIC technology and optical networking IP cores These businesses were acquired for an aggregate of approximately 64 1 million of which 63 3 million was paid in cash and 0 8 million represents a future payable arrangement These transactions have each been accounted for as the acquisition of a business
Ciena incurred approximately 1 7 million in acquisition related costs associated with these acquisitions These costs and expenses primarily include fees associated with financial legal and accounting advisors These costs were recorded in acquisition and integration costs in the Consolidated Statements of Operations
Developed technology represents purchased technology that has reached technological feasibility and for which the acquired companies had substantially completed development as of the date of acquisition Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period Cash flows were discounted to their present value as of the closing date Developed technology is amortized on a straight line basis over its estimated useful life of five years
The goodwill generated from these acquisitions is primarily related to expected economic synergies The total goodwill amount was recorded in the Networking Platforms segment Goodwill is not deductible for income tax purposes
Pro forma disclosures have not been included due to immateriality The amounts of revenue and earnings for these acquisitions since the acquisition dates which are included in the Consolidated Statements of Operations for the reporting period are immaterial
Ciena has undertaken a number of restructuring activities intended to reduce expense and align its workforce and costs with market opportunities product development and business strategies The following table sets forth the restructuring activity and balance of the restructuring liability accounts which are included in accrued liabilities and other short term obligations on Ciena s Consolidated Balance Sheets for the fiscal years indicated in thousands
Reflects employee costs associated with a global workforce reduction of approximately 420 120 and 60 employees during fiscal 2024 2023 and 2022 respectively as part of a business optimization strategy to improve gross margin constrain operating expense and redesign certain business processes
In February 2022 armed conflict escalated between Russia and Ukraine The United States and certain other countries have imposed sanctions on Russia and could impose further sanctions On March 7 2022 Ciena announced its decision to suspend its business operations in Russia As a result Ciena recorded impairment charges of approximately 3 8 million of which 1 8 million was a provision for credit losses
During the first quarter of fiscal 2023 the acquisition of Tibit triggered the remeasurement of Ciena s previously held investment in Tibit to fair value which resulted in Ciena recognizing a gain on its equity investment of 26 5 million See Note 3 above During fiscal 2022 Ciena recorded a net gain of 4 1 million on its equity investments
Ciena Corporation as the U S parent entity uses the U S Dollar as its functional currency however some of its foreign branch offices and subsidiaries use the local currency as their functional currency During fiscal 2024 and 2023 Ciena recorded 11 7 million and 0 4 million respectively in exchange rate losses as a result of monetary assets and liabilities that were transacted in a currency other than the entity s functional currency During fiscal 2022 Ciena recorded 2 5 million in exchange
rate gains as a result of monetary assets and liabilities that were transacted in a currency other than the entity s functional currency The related remeasurement adjustments were recorded in interest and other income net on the Consolidated Statements of Operations From time to time Ciena uses foreign currency forwards to hedge certain of these balance sheet exposures These forwards are not designated as hedges for accounting purposes and any net gain or loss associated with these derivatives is reported in interest and other income net on the Consolidated Statements of Operations During fiscal 2024 Ciena recorded a gain of 1 4 million from non hedge designated foreign currency forward contracts During fiscal 2023 and 2022 Ciena recorded losses of 3 9 million and 4 0 million respectively from non hedge designated foreign currency forward contracts
two customers accounted for 11 0 and 10 0 of net accounts receivable respectively Ciena has not historically experienced a significant amount of bad debt expense The following table summarizes the activity in Ciena s allowance for credit losses for the fiscal years indicated in thousands
On March 7 2022 Ciena announced its decision to suspend its business operations in Russia As a result Ciena s allowance for doubtful accounts includes a provision for a significant asset impairment of 1 8 million for a trade receivable related to this decision
In certain situations Ciena may service transferred receivables which qualify as sales Amounts sold through these arrangements during fiscal 2024 2023 and 2022 were 18 1 million 60 3 million and 11 8 million respectively Additionally in other situations Ciena may settle receivables through customer paying agent arrangements Amounts settled through these arrangements for fiscal 2024 2023 and 2022 were 32 5 million 41 9 million and 13 4 million respectively Factoring related expense recorded to interest and other income net was 1 2 million 3 8 million and 0 9 million for fiscal 2024 2023 and 2022 respectively
Ciena has expanded its manufacturing capacity and accumulating raw materials inventory of components that were available in some cases with expanded lead times in an effort to prepare Ciena to produce finished goods more quickly upon the easing of supply constraints for certain common components During fiscal 2024 Ciena reduced its raw materials inventory of components primarily due to the consumption of raw materials previously purchased
Ciena makes estimates about future customer demand for its products when establishing the appropriate reserve for excess and obsolete inventory For the periods presented future demand was calculated using both customer backlog and future forecasted sales Generally Ciena s customers may cancel or change their orders with limited advance notice or they may decide not to accept its products and services Ciena writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand which are affected by changes in Ciena s strategic direction discontinuance of a product or introduction of newer versions of products declines in the sales of or forecasted demand for certain products and general market conditions During fiscal 2024 fiscal 2023 and fiscal 2022 Ciena recorded a provision for excess and obsolescence of 77 3 million 29 5 million and 16 2 million respectively primarily related to a decrease in the forecasted demand for certain Networking Platforms products primarily sold to communications service providers Deductions from the provision for excess and obsolete inventory relate primarily to the sale of previously reserved items and disposal activities
Amount reflects refundable cash advances to a third party contract manufacturer for potential future inventory purchases and transition and logistic costs for future asset relocation Ciena has initiated a strategic reengineering and realignment of its supply chain including changes to its systems processes partners and people and this cash advance assists in facilitating such activities
During fiscal 2024 fiscal 2023 and fiscal 2022 Ciena recorded depreciation of equipment building furniture and fixtures and amortization of leasehold improvements of 84 5 million 84 6 million and 87 2 million respectively
The aggregate amortization expense of intangible assets was 40 6 million 49 6 million and 44 3 million for fiscal 2024 fiscal 2023 and fiscal 2022 respectively Expected future amortization of intangible assets for the fiscal years indicated is as follows in thousands
Deferred debt issuance costs relate to Ciena s senior secured revolving credit facility the Revolving Credit Facility entered into during fiscal 2023 and its predecessor asset backed credit facility described in Note 19 below The amortization of deferred debt issuance costs for the Revolving Credit Facility and its predecessor is included in interest expense and was 0 3 million for fiscal 2024 and 0 4 million for both fiscal 2023 and fiscal 2022
Ciena conducts business globally in many currencies and thus is exposed to foreign currency exchange rate changes To limit this exposure Ciena entered into foreign currency contracts Ciena does not enter into such contracts for speculative purposes
Ciena had forward contracts designated as net investment hedges to minimize the effect of foreign exchange rate movements on its net investments in foreign operations In April 2024 Ciena terminated a portion of its existing net investment hedges for a cash loss of 0 6 million which was recorded to other comprehensive income loss Ciena replaced its terminated net investment hedges with new net investment hedges The notional amount of these contracts was approximately 65 4 million and 48 0 million as of
Ciena is exposed to floating rates of interest on its term loan borrowings see Note 18 below and has hedged such risk by entering into floating to fixed interest rate swap arrangements interest rate swaps
In April 2022 Ciena entered into forward starting interest rate swaps to fix the Secured Overnight Financing Rate SOFR for the first 350 0 million its floating rate debt at 2 968 from September 2023 through September 2025 2025 interest rate swaps The total notional amount of the 2025 interest swaps was 350 million as of November 2 2024 and October 28 2023
In January 2023 Ciena entered into interest rate swaps to fix the SOFR rate for an additional 350 0 million of its floating rate debt at 3 47 through January 2028 2028 interest rate swaps The total notional amount of the 2028 interest rate swaps in effect as of November 2 2024 and October 28 2023 was 350 0 million
In December 2023 Ciena entered into forward starting interest rate swaps to fix SOFR for an additional 350 0 million of its floating rate debt at 3 287 from September 2025 through December 2028 2028 forward starting interest rate swaps The total notional amount of the 2028 forward starting interest rate swaps effective September 2025 was 350 0 million as of
Ciena expects the variable rate payments to be received under the terms interest rate swaps to offset exactly the forecasted variable rate payments on the equivalent notional amount of the 2030 New Term Loan as defined in Note 18 below These derivative contracts have been designated as cash flow hedges
All amounts reclassified from AOCI related to settlement gains losses on foreign currency forward contracts designated as cash flow hedges impacted research and development expense on the Consolidated Statements of Operations All amounts reclassified from AOCI related to settlement gains losses on interest rate swaps designated as cash flow hedges impacted interest and other income net on the Consolidated Statements of Operations
Ciena leases approximately 1 1 million square feet of facilities globally Ciena s corporate headquarters are located in Hanover Maryland Ciena s largest facilities are research and development centers located in Ottawa Canada and Gurgaon India Ciena also leases smaller engineering facilities in the United States Canada and Europe In addition Ciena leases various smaller offices in regions throughout the world to support sales and services operations Office facilities are leased under various non cancelable operating or finance leases Ciena s current leases have remaining terms that vary up to 8 years Certain leases provide for options to extend up to 10 years and or options to terminate within 4 years
Variable lease costs include expenses relating to insurance taxes maintenance and other costs required by the applicable operating lease Variable lease costs are determined by whether they are to be included in base rent and if amounts are based on a consumer price index
On October 24 2023 Ciena together with certain of its domestic subsidiaries as guarantors entered into an Incremental Amendment Agreement the Amendment to its Credit Agreement dated July 15 2014 as amended the Credit Agreement by and among Ciena certain of its subsidiaries the lenders party thereto and Bank of America N A as administrative agent Bank of America to which Ciena incurred a new tranche of senior secured term loans in an aggregate principal amount of 1 2 billion the 2030 New Term Loan and a new senior secured revolving credit facility of
The proceeds of the 2030 New Term Loan net of original issuance discount replaced in full 668 7 million of outstanding principal of Ciena s prior senior secured term loan maturing September 28 2025 the 2025 Term Loan and 497 5 million of outstanding principal of Ciena s prior senior secured term loan maturing January 19 2030 the 2030 Term Loan and together with the 2025 Term Loan the Refinanced Term Loans including accrued interest and paid transaction fees and expenses resulting in proceeds of 0 8 million The 2030 New Term Loan requires Ciena to make installment payments of 2 9 million on a quarterly basis
Based on the continuation of existing lenders and the addition of new lenders this arrangement was primarily accounted for as a modification of debt and as such 6 0 million of debt issuance costs associated with the 2030 New Term Loan were expensed The aggregate balance of approximately 4 4 million of debt issuance costs and approximately 2 2 million of original discount from the Refinanced Term Loans 0 1 million of debt issuance costs associated with new lenders for the 2030 New Term Loan and approximately 2 9 million of original discount from the 2030 New Term Loan were included in the carrying value of the 2030 New Term Loan
amortize in equal quarterly installments in aggregate amounts equal to 0 25 of the principal amount of the 2030 New Term Loan as of January 19 2023 or 2 9 million or 11 7 million annually with the balance payable at maturity
be subject to mandatory prepayment upon the occurrence of certain specified events substantially similar to the Refinanced Term Loans including upon the occurrence of certain specified events such as asset sales debt issuances and receipt of annual Excess Cash Flow as defined in the Credit Agreement
bear interest at Ciena s election at a per annum rate equal to a SOFR subject to a floor of 0 00 plus an applicable margin of 2 00 or b a base rate subject to a floor of 1 00 plus an applicable margin of 1 00 and
Among other things the Amendment also amends the Credit Agreement by i modifying the accordion feature to provide for incremental term loan facilities the Incremental Term Loans in an aggregate amount not to exceed the sum of A the greater of 1 640 million and 2 an amount equal to consolidated EBITDA on a pro forma basis for the most recently ended four quarter period and B an amount 1 in the case of secured incremental term facilities that rank pari passu with or junior to the 2030 New Term Loan such that the Total Secured Net Leverage Ratio as defined in the Credit Agreement would not be greater than 3 00 to 1 00 at the time of incurrence and 2 in the case of unsecured incremental term facilities such that the Interest Coverage Ratio as defined in the Credit Agreement would not be less than 2 00 to 1 00 at the time of incurrence subject to certain conditions including obtaining commitments from any one or more lenders whether or not currently party to the Credit Agreement to provide such increased amounts and ii amending certain negative covenants
Deferred debt issuance costs are amortized using the straight line method which approximates the effect of the effective interest rate through the maturity of the 2030 New Term Loan The amortization of deferred debt issuance costs for the 2030 New Term Loan is included in interest expense and was 0 9 million during fiscal
As of November 2 2024 the estimated fair value of the 2030 New Term Loan was 1 2 billion The 2030 New Term Loan is categorized as Level 2 in the fair value hierarchy Ciena estimated the fair value of its 2030 New Term Loan using a market approach based on observable inputs such as current market transactions involving comparable securities
On January 19 2023 in connection with the Incremental Agreement as defined below to the Credit Agreement as defined below the Credit Agreement was amended to replace LIBOR with SOFR for the 2025 Term Loan in response to pending impact of FASB Accounting Standards Codification 848 Reference Rate Reform Deferred debt issuance costs are amortized using the straight line method which approximates the effect of the effective interest rate method through the maturity of the 2025 Term Loan The amortization of deferred debt issuance costs for the 2025 Term Loan is included in interest expense and was 0 6 million for fiscal 2023
On January 19 2023 Ciena entered into an Incremental Joinder and Amendment Agreement the Incremental Agreement to its Credit Agreement dated July 15 2014 as amended by and among Ciena the lenders party thereto and Bank of America N A as administrative agent pursuant to which Ciena incurred a new tranche of senior secured term loans in an aggregate principal amount of
and maturing on January 19 2030 the 2030 Term Loan Net of original issue discount and debt issuance costs the 492 5 million in proceeds from the 2030 Term Loan were intended to be used for general corporate purposes
be subject to mandatory prepayment on the same basis as the 2025 Term Loan including on the occurrence of certain specified events such as asset sales debt issuances and receipt of annual Excess Cash Flow as defined in the Credit Agreement
bear interest at Ciena s election at a per annum rate equal to a SOFR subject to a floor of 0 00 plus an applicable margin of 2 50 or b a base rate subject to a floor of 1 00 plus an applicable margin of 1 50 and
be repayable at any time at Ciena s election provided that repayment of the 2030 Term Loan with proceeds of certain indebtedness prior to July 19 2023 will require a prepayment premium of 1 00 of the aggregate principal amount of such prepayment
Deferred debt issuance costs are amortized using the straight line method which approximates the effect of the effective interest rate through the maturity of the 2030 Term Loan The amortization of deferred debt issuance costs for the 2030 Term Loan is included in interest expense and was 0 5 million for fiscal
On January 18 2022 Ciena entered into an Indenture among Ciena as issuer certain domestic subsidiaries of Ciena as guarantors and U S Bank National Association as trustee pursuant to which Ciena issued 400 0 million in aggregate principal amount of 4 00 senior notes due 2030 the 2030 Notes
Deferred debt issuance costs that were deducted from the carrying amount of the 2030 Notes totaled 3 6 million as of November 2 2024 and 4 3 million as of October 28 2023 Deferred debt issuance costs are amortized using the straight line method which approximates the effect of the effective interest rate through the maturity of the 2030 Notes The amortization of deferred debt issuance costs for the 2030 Notes is included in interest expense and was 0 7 million during fiscal
The 2030 Notes are categorized as Level 2 in the fair value hierarchy Ciena estimated the fair value of its 2030 Notes using a market approach based on observable inputs such as current market transactions involving comparable securities
On February 10 2023 pursuant to an ABL Credit Agreement dated October 28 2019 as amended the ABL Credit Agreement by and among Ciena certain of its subsidiaries the lenders party thereto and Bank of America as administrative agent Ciena modified its senior secured asset backed revolving credit facility the ABL Credit Facility which provided for a total commitment of 300 0 million to extend its maturity date to September 28 2025
On October 24 2023 the Closing Date pursuant to the Incremental Amendment Agreement to the Credit Agreement as defined in Note 18 above Ciena incurred a new senior secured revolving credit facility of 300 0 million the Revolving Credit Facility which replaced the ABL Credit Facility Ciena has the option to increase the total revolving commitments under the Revolving Credit Facility to 450 0 million subject to certain conditions including obtaining commitments from one or more lenders The Credit Agreement provides that 200 0 million of the Revolving Credit Facility is available for issuances of letters of credit and allows for swingline loans in an amount not to exceed 50 0 million On or about the Closing Date
Ciena transferred to the Revolving Credit Facility certain outstanding letters of credit initially issued under the ABL Credit Facility with an undrawn amount of approximately 65 1 million There were no borrowings outstanding under the ABL Credit Facility as of the Closing Date Ciena expects to use the Revolving Credit Facility to support the issuance of letters of credit that arise in the ordinary course of its business and for general corporate purposes
bear interest on outstanding borrowings at Ciena s election at a per annum rate equal to a SOFR subject to a floor of 0 00 plus a credit spread adjustment of 0 10 plus an applicable margin ranging from 1 375 to 2 00 or b a base rate subject to a floor of 1 00 plus an applicable margin ranging from 0 375 to 1 00 in each case with the actual margin determined according to the Total Net Leverage Ratio as defined in the Credit Agreement above
have a commitment fee payable on the unused portion of the Revolving Credit Facility at a per annum rate ranging from 0 225 to 0 300 with the actual rate determined according to the Total Net Leverage Ratio and
include a restriction on the aggregate amount of Incremental Term Loans and certain other indebtedness that can be incurred in the future equal to an amount that would not result in the Total Net Leverage Ratio exceeding 5 00 to 1 00 at the time of incurrence
The obligations under the Revolving Credit Facility are guaranteed by all of Ciena s subsidiaries that currently or in the future are required to guarantee the obligations of the 2030 New Term Loan including as of the Closing Date Ciena Communications Inc Ciena Government Solutions Inc Ciena Communications International LLC and Blue Planet Software Inc and are secured on a pari passu basis with the 2030 New Term Loan by a pledge of substantially all of the assets of Ciena and the guarantors Upon the occurrence of certain events related to the improvement of Ciena s credit rating and repayment of all secured term loans Investment Grade Events all collateral securing the obligations under the Revolving Credit Facility will be released at Ciena s election
prior to an Investment Grade Event a maximum Total Secured Net Leverage Ratio of no greater than 3 50 to 1 00 as of the end of any period of four fiscal quarters provided that in the event Ciena consummates a qualifying acquisition Ciena can elect to increase the maximum Total Secured Net Leverage Ratio level to 4 00 to 1 00 for the fiscal quarter in which such qualifying acquisition is consummated and for the next five consecutive fiscal quarters
Basic net income per common share Basic EPS is computed using the weighted average number of common shares outstanding Diluted net income per potential common share Diluted EPS is computed using the weighted average number of the following in each case to the extent the effect is not anti dilutive i common shares outstanding ii shares issuable upon vesting of stock unit awards and iii shares issuable under Ciena s employee stock purchase plan and upon exercise of outstanding stock options using the treasury stock method
On December 9 2021 Ciena announced that its Board of Directors replaced its previously authorized program with a program to repurchase up to 1 0 billion of its common stock On December 13 2021 Ciena entered into an accelerated share repurchase agreement the ASR Agreement with Goldman Sachs Co LLC Goldman to repurchase 250 0 million the Repurchase Price of its common stock as part of the repurchase program Under the terms of the ASR Agreement Ciena paid the Repurchase Price to Goldman and received approximately 3 6 million shares of its common stock from Goldman calculated based on the average of the volume weighted average prices of Ciena s common stock of 69 78 for the period from December 14 2021 to February 11 2022 less a discount which completed the repurchases contemplated by the ASR Agreement Shares repurchased pursuant to the ASR Agreement were immediately retired upon receipt During the remainder of fiscal 2022 Ciena repurchased an additional 4 8 million shares of its common stock for an aggregate purchase price of 250 0 million at an average price of 51 53 per share
During fiscal 2023 Ciena repurchased an additional 5 7 million shares of its common stock for an aggregate purchase price of 250 0 million at an average price of 44 08 per share During fiscal 2024 Ciena repurchased an additional 4 5 million shares of its common stock for an aggregate purchase price of 250 0 million at an average price of 55 07 per share which completed the authorized repurchases contemplated under the program In aggregate Ciena repurchased 18 6 million shares for an aggregate purchase price of 1 0 billion at an average price of 53 63 per share
On October 2 2024 Ciena announced that its Board of Directors authorized a program to repurchase up to 1 0 billion of its common stock commencing in Ciena s fiscal year 2025 and continuing through the end of Ciena s fiscal year 2027 Ciena may purchase shares at management s discretion in the open market in privately negotiated transactions in transactions structured through investment banking institutions or a combination of the foregoing Ciena may also from time to time enter into Rule 10b5 1 plans to facilitate repurchases of its shares under this authorization The amount and timing of repurchases are subject to a variety of factors including liquidity cash flow stock price and general business and market conditions The program may be modified suspended or discontinued at any time
Beginning fiscal 2023 a 1 excise tax on the market value of shares repurchased offset by 1 of the market value of shares issued was implemented During fiscal 2023 a net excise tax of 1 5 million was recorded to additional paid in capital on the Consolidated Balance Sheets During fiscal 2024 a net excise tax of 1 4 million was recorded to additional paid in capital on the Consolidated Balance Sheets
Ciena repurchases shares of common stock to satisfy employee tax withholding obligations due upon vesting of stock unit awards The related purchase price of 46 6 million for the shares of Ciena s stock repurchased during fiscal 2024 is reflected as a reduction to stockholders equity Ciena is required to allocate the purchase price of the repurchased shares as a reduction of common stock and additional paid in capital
Ciena s foreign income tax as a percentage of foreign income may appear disproportionate compared to the expected tax based on the U S federal statutory rate and is dependent on the mix of earnings and tax rates in foreign jurisdictions
For the periods indicated the tax provision reconciles to the amount computed by multiplying income before income taxes by the U S federal statutory rate of 21 for fiscal 2024 fiscal 2023 and fiscal 2022 as follows
Ciena s future income tax provisions and deferred tax balances may be affected by the amount of pre tax income the jurisdictions where it is earned the existence and ability to utilize tax attributes and changes in tax laws and business reorganizations
Ciena had accrued 16 3 million and 7 9 million of interest and penalties respectively related to unrecognized tax benefits included in other long term obligations on the Consolidated Balance Sheets Interest and penalties of 8 2 million 2 7 million and 1 7 million were recorded as a net expense to the provision for income taxes during fiscal 2024 fiscal 2023 and fiscal 2022 respectively If recognized the entire balance of unrecognized tax benefits would impact the effective tax rate
Changes in tax laws regulations administrative practices and interpretations may impact Ciena s tax contingencies Due to various factors the amounts ultimately paid if any upon the resolution of the issues raised by the taxing authorities may differ from the amounts accrued It is reasonably possible that within the next twelve months Ciena will receive additional assessments by various tax authorities or possibly reach resolution of income tax controversies in one or more various jurisdictions These factors could result in changes to our contingencies related to positions on prior years tax filings Ciena cannot currently provide an estimate of potential changes As statutes of limitation expire unrecognized tax benefits including interest and penalties related to contingencies may be reversed resulting in an income tax benefit Over the next twelve months
we have approximately 93 0 million of undistributed earnings at our foreign subsidiaries that we identified in fiscal 2023 as no longer indefinitely reinvested and 1 5 million of deferred tax liability remaining on Ciena s Consolidated Balance sheets for the income tax effects related to the future repatriation of these earnings No additional income tax expense has been provided for any remaining undistributed foreign earnings or any additional outside basis difference from investments in the foreign subsidiaries as these amounts continue to be indefinitely reinvested If remaining undistributed foreign earnings and profits of 415 0 million were repatriated to the U S the provisional amount of unrecognized deferred tax liability which is primarily related to foreign withholding taxes is an estimated 34 0 million however the amount may be lower depending on Ciena s ability to utilize tax credits associated with the distribution Additionally there are no other significant temporary differences for which a deferred tax liability or asset is not being recognized
Ciena continues to maintain a valuation allowance of 192 4 million against its gross deferred tax assets primarily The valuation allowance is primarily related to state and foreign net operating losses and credits that Ciena estimates that it will not be able to use
As of November 2 2024 Ciena had a 31 0 million net operating loss carry forward for U S federal income tax which does not expire and 150 0 million net operating loss carry forwards for U S state income taxes which begin to expire in fiscal 2027 As of November 2 2024 Ciena also had a 174 0 million net operating loss carry forward in non U S jurisdictions which begin to expire in fiscal 2029 Ciena s ability to use U S federal net operating losses is subject to limitations pursuant to the ownership change rules of the Internal Revenue Code Section 382
Ciena has outstanding equity awards issued under its 2017 Omnibus Incentive Plan the 2017 Plan its 2008 Omnibus Incentive Plan and certain legacy equity plans and equity plans assumed as a result of previous acquisitions All equity awards granted on or after March 23 2017 are made exclusively from the 2017 Plan Ciena also makes shares of its common stock available for purchase under the ESPP Each of the 2017 Plan and the ESPP is described below
At Ciena s 2024 Annual Meeting of Stockholders that was held on March 21 2024 Ciena s stockholders approved an amendment to the 2017 Plan effective as of such date to i increase the number of shares available for issuance thereunder by 10 1 million shares and ii increase the recoupment period for misconduct relating to accounting restatements from 12 months to three years
The 2017 Plan has a ten year term and authorizes the issuance of awards including stock options restricted stock units RSUs restricted stock unrestricted stock stock appreciation rights SARs and other equity and or cash performance incentive awards to employees directors and consultants of Ciena Subject to certain restrictions the Compensation Committee of the Board of Directors has broad discretion to establish the terms and conditions for awards under the 2017 Plan including the number of shares vesting conditions and the required service or performance criteria Options and SARs have a maximum term of ten years and their exercise price may not be less than 100 of fair market value on the date of grant Repricing of stock options and SARs is prohibited without stockholder approval Certain change in control transactions may cause awards granted under the 2017 Plan to vest unless the awards are continued or substituted for in connection with the transaction
The 2017 Plan authorizes and reserves 31 2 million shares for issuance The number of shares available under the 2017 Plan is also increased from time to time by i the number of shares subject to outstanding awards granted under Ciena s prior equity compensation plans that are forfeited expire or are canceled without delivery of common stock following the effective date of the 2017 Plan and ii the number of shares subject to awards assumed or substituted in connection with the acquisition
of another company As of November 2 2024 the total number of shares authorized for issuance under the 2017 Plan was 31 2 million and approximately 10 9 million shares remained available for issuance thereunder
Ciena recognizes the fair value of stock options as share based compensation expense on a straight line basis over the requisite service period Ciena did not grant any option based awards during fiscal 2024 fiscal 2023 or fiscal 2022
A restricted stock unit is a stock award that entitles the holder to receive shares of Ciena common stock as the unit vests Ciena s outstanding restricted stock unit awards are subject to service based vesting conditions and or performance based vesting conditions Awards subject to service based conditions typically vest in increments over a three or four year period However the 2017 Plan permits Ciena to grant service based stock awards with a minimum one year vesting period Awards with performance based vesting conditions i require the achievement of certain operational financial or other performance criteria or targets or ii vest based on Ciena s total stockholder return as compared to an index of peer companies in whole or in part
During fiscal 2023 Ciena introduced a benefit pursuant to which upon completion of ten years of service and reaching age 60 executive officers who are residents of the United States the United Kingdom or Canada and who provide 12 months notice of their retirement will receive continued vesting of all of their granted but unvested restricted stock unit RSU awards and a pro rated amount of their performance stock unit awards and market stock unit awards Other employees in these and certain other countries will be subject to the same eligibility and notice requirements but will receive acceleration of their granted but unvested RSU awards upon retirement This program accelerates the recognition of share based compensation expense
Ciena recognizes the estimated fair value of restricted stock units subject only to service based vesting conditions by multiplying the number of shares underlying the award by the closing price per share of Ciena common stock on the grant date Share based expense for service based restricted stock unit awards is recognized ratably over the vesting period on a straight line basis
Ciena recognizes the estimated fair value of restricted stock units subject to performance based vesting conditions other than total stockholder return by assuming the satisfaction of any performance based objectives at the target level and multiplying the corresponding number of shares earned based upon such achievement by the closing price per share of Ciena common stock on the grant date Share based compensation expense is recognized over the performance period using graded vesting which considers each performance period or tranche separately based on Ciena s determination of whether it is probable that the performance targets will be achieved At the end of each reporting period Ciena reassesses the probability of achieving the performance targets and the performance period required to meet those targets The estimation of whether the performance targets will be achieved involves judgment Revisions are reflected in the period in which the estimate is changed If any performance goals are not met no compensation cost is ultimately recognized against that goal and to the extent previously recognized compensation expense is reversed
Share based compensation expense for restricted stock units subject only to service based vesting conditions and restricted stock units subject to performance based vesting conditions other than total stockholder return is recognized only for those awards that ultimately vest In the event of a forfeiture of an award the expense related to the unvested portion of that award is reversed Reversal of share based compensation expense based on forfeitures can materially affect the measurement of estimated fair value of Ciena s share based compensation
Ciena estimates the fair value of performance based awards subject to total stockholder return as compared to an index of peer companies using a Monte Carlo simulation valuation model Ciena reverses share based compensation expense on performance based awards subject to total stockholder return only when the requisite service period is not reached Assumptions for awards granted during fiscal 2024 fiscal 2023 and fiscal 2022 included the following
For fiscal 2023 and fiscal 2022 reflects the volatility of the S P Networking Index as a whole For fiscal 2024 reflects the volatility of the median company within the S P Networking Index as of the date of the award measured as of the last day of fiscal 2023
The following table is a summary of Ciena s restricted stock unit activity for the period indicated with the aggregate fair value of the balance outstanding at the end of each period based on Ciena s closing stock price on the last trading day of the relevant period shares and aggregate fair value in thousands
0 3 million of the total restricted stock units outstanding are performance based awards subject to total stockholder return The total fair value of restricted stock units that vested and were converted into common stock during fiscal 2024 fiscal 2023 and fiscal 2022 was 116 9 million 98 2 million and 119 0 million respectively The weighted average fair value of each restricted stock unit granted by Ciena during fiscal 2024 fiscal 2023 and fiscal 2022 was 44 57 50 48 and 67 03 respectively
Ciena makes shares of its common stock available for purchase under the ESPP under which eligible employees may enroll in a twelve month offer period that begins in December and June of each year Each offer period includes two six month purchase periods Employees may purchase a limited number of shares of Ciena common stock at 85 of the fair market value on either the day immediately preceding the offer date or the purchase date whichever is lower The ESPP is considered compensatory for purposes of share based compensation expense Unless earlier terminated the ESPP will terminate on April 1 2031
During fiscal 2024 Ciena issued 0 9 million shares and during fiscal 2023 and fiscal 2022 Ciena issued 0 8 million and 0 7 million shares respectively under the ESPP At November 2 2024 10 4 million shares remained available for issuance under the ESPP
Ciena s long lived assets including equipment building furniture and fixtures operating ROU assets finite lived intangible assets and maintenance spares are not reviewed by Ciena s chief operating decision maker for purposes of evaluating performance and allocating resources As of
equipment building furniture and fixtures net totaled 337 7 million and operating ROU assets totaled 27 4 million both of which support asset groups within Ciena s four operating segments and unallocated selling and general and administrative activities As of
Segment profit loss is determined based on internal performance measures used by Ciena s chief executive officer to assess the performance of each operating segment in a given period In connection with that assessment the chief executive officer excludes the following items selling and marketing costs general and administrative costs significant asset impairments and restructuring costs amortization of intangible assets acquisition and integration costs interest and other income net interest expense loss on extinguishment and modification of debt and provision for income taxes
The following table reflects Ciena s geographic distribution of equipment building furniture and fixtures net and operating ROU assets with any country accounting for at least 10 of total equipment building furniture and fixtures net and operating ROU assets specifically identified Equipment building furniture and fixtures net and operating ROU assets attributable to geographic regions outside of the United States and Canada are reflected as Other International For the periods below Ciena s geographic distribution of equipment building furniture and fixtures net and operating ROU assets was as follows in thousands
Ciena has a Defined Contribution Pension Plan that covers a majority of its Canada based employees The plan covers all Canada based employees who are not part of an excluded group Total contributions employee and employer cannot exceed the lesser of 18 of participant earnings and an annual dollar limit of CAD 32 490 approximately 23 284 for 2024 This plan includes a required employer contribution of 1 for all participants and an employer matching contribution equal to 50 of the first 6 an employee contributes each pay period During fiscal 2024 2023 and 2022 Ciena made matching contributions of approximately CAD 11 6 million approximately 8 3 million CAD 10 6 million approximately 7 6 million and CAD 10 1 million approximately 7 2 million respectively
Ciena has a 401 k defined contribution profit sharing plan that covers a majority of its United States based employees Participants may contribute up to 60 of base pay through pre tax or Roth contributions subject to certain limitations The plan includes an employer matching contribution equal to 50 of the first 8 an employee contributes each pay period Ciena may also make discretionary annual profit contributions up to the IRS regulated limit Ciena has made no profit sharing contributions to date During fiscal 2024 2023 and 2022 Ciena made matching contributions of approximately 11 0 million 10 4 million and 9 2 million respectively
Ciena is subject to various tax liabilities arising in the ordinary course of business Ciena does not expect that the ultimate settlement of these tax liabilities will have a material effect on its results of operations financial position or cash flows
Ciena is subject to various legal proceedings claims and other matters arising in the ordinary course of business including those that relate to employment commercial tax and other regulatory matters Ciena is also subject to intellectual property related claims including claims against third parties that may involve contractual indemnification obligations on the part of Ciena Ciena does not expect that the ultimate costs to resolve such matters will have a material effect on its results of operations financial position or cash flows
purchase order commitments to contract manufacturers and component suppliers for inventory In certain instances Ciena is permitted to cancel reschedule or adjust these orders Consequently only a portion of this amount relates to firm non cancelable and unconditional obligations
From the end of the fourth quarter of fiscal 2024 through December 13 2024 Ciena repurchased 540 521 shares of its common stock for an aggregate purchase price of 38 3 million at an average price of 70 82 per share inclusive of repurchases pending settlement under its current stock repurchase program As of December 13 2024 Ciena has an aggregate of 961 7 million of authorized funds remaining under this repurchase program
As of the end of the period covered by this annual report we carried out an evaluation under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Exchange Act Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a 15 d and 15d 15 d of the Exchange Act that occurred during the most recently completed fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
The management of Ciena Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a 15 f and 15d 15 f under the Securities Exchange Act of 1934
The internal control over financial reporting at Ciena Corporation was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America Internal control over financial reporting includes those policies and procedures that
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of assets that could have a material effect on the consolidated financial statements
Management based this assessment on criteria for effective internal control over financial reporting described in COSO 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission Based on this assessment management determined that as of November 2 2024 Ciena Corporation maintained effective internal control over financial reporting Management reviewed the results of its assessment with the Audit Committee of our Board of Directors
PricewaterhouseCoopers LLP independent registered public accounting firm which audited and reported on the consolidated financial statements of Ciena Corporation included in this annual report has also audited the effectiveness of Ciena Corporation s internal control over financial reporting as of
that is either 1 a contract instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5 1 c a Rule 10b5 1 trading arrangement or 2 a non Rule 10b5 1 trading arrangement as defined in Item 408 c of Regulation S K
1 The aggregate number of shares of common stock to be sold pursuant to Mr DiPerna s arrangement is up to i 1 788 shares of common stock plus ii 25 of the net after tax shares of common stock to be received as a result of the vesting of an aggregate of 17 207 restricted stock units on September 20 2024 December 20 2024 March 20 2025 June 20 2025 and September 20 2025 plus iii 25 of the net after tax shares of common stock to be received as a result of the vesting of up to 2 615 performance stock units on December 20 2024 The actual number of net after tax shares to be received will vary based on the market price of our common stock at the time of settlement
2 The aggregate number of shares of common stock to be sold pursuant to Ms Kosaraju s arrangement is up to 100 of the net after tax shares of common stock to be received as a result of the vesting of an aggregate of 16 923 restricted stock units on December 20 2024 March 20 2025 June 20 2025 September 20 2025 and December 20 2025 The actual number of net after tax shares to be received will vary based on the market price of our common stock at the time of settlement
3 The aggregate number of shares of common stock to be sold pursuant to Mr Phipps s arrangement is up to i 14 381 shares of common stock plus ii 100 of the net after tax shares of common stock to be received as a result of the vesting of an aggregate of 28 736 restricted stock units on December 20 2024 March 20 2025 June 20 2025 September 20 2025 December 20 2025 March 20 2026 June 20 2026 and September 20 2026 The actual number of net after tax shares to be received will vary based on the market price of our common stock at the time of settlement
Additional information responsive to this item concerning our Audit Committee and regarding compliance with Section 16 a of the Exchange Act is incorporated herein by reference from our definitive proxy statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Form 10 K
As part of our system of corporate governance our Board of Directors has adopted a code of ethics that is specifically applicable to our chief executive officer and senior financial officers This Code of Ethics for Senior Financial Officers as well as our Code of Business Conduct and Ethics applicable to all directors officers and employees are available on the Corporate Governance page of our website at www ciena com We intend to satisfy any disclosure requirement under Item 5 05 of Form 8 K regarding an amendment to or waiver from a provision of the Code of Ethics for Senior Financial Officers by posting such information on our website at the address above
Information responsive to this Item is incorporated herein by reference from our definitive proxy statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this annual report
Exhibits See Index to Exhibits which is incorporated by reference in this Item The Exhibits listed in the accompanying Index to Exhibits are filed herewith or incorporated by reference as part of this annual report
Exhibits See Index to Exhibits which is incorporated by reference in this Item The Exhibits listed in the accompanying Index to Exhibits are filed herewith or incorporated by reference as part of this annual report
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 20th day of December 2024
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated
Indenture dated as of January 18 2022 by and among Ciena Corporation the subsidiary guarantors party thereto and U S Bank National Association as trustee including the Form of 4 00 Senior Notes due 2030 attached as Exhibit A thereto
Incremental Amendment Agreement dated October 24 2023 by and among Ciena Corporation Ciena Communications Inc Ciena Government Solutions Inc Ciena Communications International LLC Blue Planet Software Inc Bank of America N A as administrative agent and the lenders party thereto
Incremental Joinder and Amendment Agreement dated January 19 2023 by and among Ciena Corporation Ciena Communications Inc Ciena Government Solutions Inc Ciena Communications International LLC Blue Planet Software Inc Bank of America N A as administrative agent and the lenders party thereto
Incremental Joinder and Amendment Agreement under the Credit Agreement and Related Agreements dated as of April 25 2016 by and between Ciena Corporation Bank of America N A as Administrative Agent Ciena Communications Inc and Ciena Government Solutions Inc
Omnibus Amendment to Security Agreement and Pledge Agreement dated September 28 2018 by and among Ciena Corporation Ciena Communications Inc Ciena Government Solutions Inc and Bank of America N A as Administrative Agent
Representations and warranties included in these agreements as amended were made by the parties to one another in connection with a negotiated transaction These representations and warranties were made as of specific dates only for purposes of these agreements and for the benefit of the parties thereto These representations and warranties were subject to important exceptions and limitations agreed upon by the parties including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties rather than establishing these matters as facts These agreements are filed with this annual report only to provide investors with information regarding its terms and conditions and not to provide any other factual information regarding Ciena or any other party thereto Accordingly investors should not rely on the representations and warranties contained in these agreements or any description thereof as characterizations of the actual state of facts or condition of any party its subsidiaries or affiliates The information in these agreements should be considered together with Ciena s public reports filed with the SEC
Certain portions of this document have been omitted based on a request for confidential treatment submitted to the SEC The non public information that has been omitted from this document has been separately filed with the SEC Each redacted portion of this document is indicated by a and is subject to the request for confidential treatment submitted to the SEC The redacted information is confidential information of Ciena

Company Name	CIENA CORP Vist SEC web-site
Category	TELEPHONE & TELEGRAPH APPARATUS
Trading Symbol	CIEN