We surpassed a milestone with our financial performance in fiscal 2015, as we exceeded
the long-term financial targets that we set for ourselves five years ago.

During this period, we made significant progress in diversifying and solidifying our business across multiple dimensions, we strengthened our foundation by delivering steadily improving operating leverage and financial performance, and we made the necessary strategic decisions to ensure our continued momentum and success going forward.

Hitting Our Financial Targets

In 2010, following our acquisition of Nortel’s MEN business, we established a clear set of longer-term financial targets for the combined company. Specifically, we stated our intent to: grow revenues faster than the market; improve adjusted gross margin to the mid-40s percentage range; and reduce adjusted operating expense as a percentage of revenue to the low to mid-30s percentage range. As a result, we set a target to achieve adjusted operating margin in the range of 7–10%. These goals were aggressive at the time, particularly given that our adjusted operating margin in fiscal 2010 was below break-even.

In fiscal 2015, we exceeded that longer-term target, delivering 11% adjusted operating margin for the year. As planned, we achieved this by improving our performance on every key financial metric. During this five year period:

• We grew our revenues at a 14% compound annual growth rate, which was higher than market growth by 50%.*
• We improved our adjusted gross margin from 42% to 45%.
• We reduced our adjusted operating expense as a percentage of revenue from 42% to 34%.

In short, we did what we said we were going to do.

In addition, we’ve improved our balance sheet significantly during this period. We’ve gone from losing money in fiscal 2010 to generating more than $250 million in cash from operations in fiscal 2015, driven by higher profitability and solid balance sheet management. As we exited fiscal 2015, we had more than $1 billion in cash and investments.

We also have reason to be confident about our financial performance as we head into fiscal 2016. We had record order flow during fiscal 2015, enabling us to exit the year with backlog of approximately $1 billion. This is a particularly strong metric, given that we significantly increased our in-quarter book-to-revenue business in fiscal 2015, which we define as revenue on orders that were received in the same quarter.

This financial momentum is a direct result of our strategy to lead in the markets we serve as we diversify the business and continue to position Ciena for the emerging priorities of the industry.

Expanding Our Market Leadership

Leveraging our recognized strength in innovation, in fiscal 2015 we continued to introduce products and solutions that led the industry and expanded our market leadership. We increased our packet networking opportunity by entering the metro aggregation market with the 8700 Packetwave platform, a multi-terabit packet switching platform for high-density metro networks and inter-data center wide area networks. We had 25 customers for the 8700 at the end of 2015, and we now have over 350 customers purchasing products in our packet networking portfolio.

We also introduced Waveserver, a stackable data center interconnect (DCI) platform that allows network operators to scale bandwidth quickly and to support high-speed data transfer, virtual machine migration and disaster recovery between data centers. As a purpose-built solution for the DCI market, the dominant application of Web-scale providers, Waveserver extended our leadership position in this critical market vertical. We now serve four of the five largest Web-scale providers in the world, and we are gaining share in those accounts while winning new customers as well.

As a result of these and other solution advancements, we are #1 or #2 globally in every optical product category in which we compete. This reflects the trust that our customers place in our ability to address their needs today and in the future. In a global survey of networking equipment customers by Infonetics, a global technology market research firm, Ciena was named the “top leader” across several market segments, including optical, P-OTS and data center interconnect (DCI), and across other disciplines such as technology innovation and product reliability. And, in the emerging area of transport software-defined networking (SDN) and control place, we were ranked #2 globally. In fiscal 2015, we also took a significant step forward in further strengthening our role in this important latter market category.

Strengthening Our Role in On-Demand Networking

As I’ve noted in the past, we have designed our business over the past several years based on our view of the industry’s evolution toward the Cloud and on-demand networking. During fiscal 2015, it became even more clear from both our customers and their end-users that the network must become a software-enabled platform that is more capable of driving on-demand business models.

Consistent with this view and the principles of our OPn network architecture approach, in August we acquired Cyan, a leading provider of next-generation SDN and network functions virtualization (NFV) solutions that enable open, agile and scalable networks. Cyan’s expertise in multi-vendor network and service orchestration will help us accelerate the availability of a complete on-demand solution for virtualized networks and services in an open ecosystem.  This, in turn, will allow our customers to realize greater monetization capabilities through more efficient utilization of network assets and faster time-to-market with differentiated and profitable services. In fact, we added two new Tier 1 customers for Cyan’s next-generation Blue Planet platform in the first quarter following the acquisition.

The addition of Cyan represents a unique opportunity for us to strengthen and advance our role in the market. To ensure that we fully capitalize on this longer-term opportunity, we unified all of our new and existing software activities and solutions under a single brand and set of resources known as our Blue Planet division. This will enable us to focus on obtaining architecture-type customer wins in orchestration and virtualization to grow our software business with an open, multi-vendor approach.

Looking Ahead

We performed extremely well in fiscal 2015, a continuation of our efforts and strong results over the past five years. We’ve developed into a diversified, differentiated business, with a broad-based strategy and set of strategic investments in next-generation metro, packet and software. Our strategy and our operating model are working and proving to be both durable and sustainable. And our team is consistently executing against both at a very high level. We’ve delivered on exactly what we promised, and this has directly resulted in strong value creation for our shareholders.

As we enter fiscal 2016, we see additional opportunities to continue to grow and drive improved operating leverage and financial results from our business. And we intend to leverage those opportunities this year and beyond.

As always, we continue to be thankful to our customers, partners, employees and shareholders—all of whom are critical to our success.  We look forward to the next stage of our journey together.

​

Gary B. Smith

President and Chief Executive Officer

*Source: Infonetics, Dell’Oro, Ovum, and Heavy Reading with Ciena analysis.