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CIENA CORP - Quarter Report: 2021 January (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    
Commission File Number: 001-36250
Ciena Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)
7035 Ridge Road, Hanover, MD
(Address of principal executive offices)

23-2725311
(IRS Employer Identification No.)
21076
(Zip Code)

(410) 694-5700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueCIENNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
ClassOutstanding at March 5, 2021
common stock, $0.01 par value155,003,312



CIENA CORPORATION
INDEX
FORM 10-Q
 PAGE
NUMBER
 
 
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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended
 January 30,February 1,
 20212020
Revenue: 
Products$597,220 $687,215 
Services159,910 145,697 
Total revenue757,130 832,912 
Cost of goods sold: 
Products315,098 389,013 
Services84,141 73,364 
Total cost of goods sold399,239 462,377 
Gross profit357,891 370,535 
Operating expenses: 
Research and development132,741 130,900 
Selling and marketing97,278 107,066 
General and administrative39,993 42,468 
Amortization of intangible assets5,910 5,853 
Significant asset impairments and restructuring costs5,867 4,472 
Acquisition and integration costs307 1,819 
Total operating expenses282,096 292,578 
Income from operations75,795 77,957 
Interest and other income (loss), net(1,121)3,646 
Interest expense(7,360)(8,815)
Loss on extinguishment and modification of debt— (646)
Income before income taxes67,314 72,142 
Provision for income taxes11,966 9,814 
Net income$55,348 $62,328 
Basic net income per common share$0.36 $0.40 
Diluted net income per potential common share$0.35 $0.40 
Weighted average basic common shares outstanding155,174 154,334 
Weighted average dilutive potential common shares outstanding156,583 155,738 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME GAIN (LOSS)
(in thousands)
(unaudited)
Quarter Ended
 January 30,February 1,
 20212020
Net income $55,348 $62,328 
Change in unrealized loss on available-for-sale securities, net of tax (49)(86)
Change in unrealized gain (loss) on foreign currency forward contracts, net of tax6,617 (1,079)
Change in unrealized gain (loss) on forward starting interest rate swaps, net of tax1,382 (1,480)
Change in cumulative translation adjustments15,861 (2,982)
Other comprehensive gain (loss)23,811 (5,627)
Total comprehensive income$79,159 $56,701 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
January 30,
2021
October 31,
2020
ASSETS 
Current assets: 
Cash and cash equivalents$1,029,237 $1,088,624 
Short-term investments151,434 150,667 
Accounts receivable, net of allowance for credit losses of $11.1 million and $10.6 million as of January 30, 2021 and October 31, 2020, respectively.
700,025 719,405 
Inventories, net389,733 344,379 
Prepaid expenses and other326,110 308,084 
Total current assets2,596,539 2,611,159 
Long-term investments102,364 82,226 
Equipment, building, furniture and fixtures, net281,228 272,377 
Operating right-of-use assets54,244 57,026 
Goodwill311,294 310,847 
Other intangible assets, net91,516 96,647 
Deferred tax asset, net647,232 647,805 
Other long-term assets102,480 102,830 
      Total assets$4,186,897 $4,180,917 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$247,241 $291,904 
Accrued liabilities and other short-term obligations275,003 334,132 
Deferred revenue136,229 108,700 
Operating lease liabilities19,364 19,035 
Current portion of long-term debt6,930 6,930 
Total current liabilities684,767 760,701 
Long-term deferred revenue54,371 49,663 
Other long-term obligations128,764 123,185 
Long-term operating lease liabilities57,626 61,415 
Long-term debt, net674,856 676,356 
Total liabilities$1,600,384 $1,671,320 
Commitments and contingencies (Note 20)
Stockholders’ equity:
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding
— — 
Common stock – par value $0.01; 290,000,000 shares authorized; 155,187,945 and 154,563,005 shares issued and outstanding
1,552 1,546 
Additional paid-in capital6,826,488 6,826,531 
Accumulated other comprehensive loss(11,547)(35,358)
Accumulated deficit(4,229,980)(4,283,122)
Total stockholders’ equity2,586,513 2,509,597 
Total liabilities and stockholders’ equity$4,186,897 $4,180,917 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
 January 30,February 1,
 20212020
Cash flows provided by (used in) operating activities: 
Net income$55,348 $62,328 
Adjustments to reconcile net income to net cash provided by (used in) operating activities: 
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements23,188 25,782 
Share-based compensation costs18,964 15,602 
Amortization of intangible assets9,642 9,687 
Deferred taxes(905)10,788 
Provision for inventory excess and obsolescence5,905 6,699 
Provision for warranty3,239 7,898 
Other4,277 4,540 
Changes in assets and liabilities: 
Accounts receivable18,862 64,938 
Inventories(51,020)(4,481)
Prepaid expenses and other(13,835)(29,792)
Operating lease right-of-use assets4,103 4,176 
Accounts payable, accruals and other obligations(112,170)(142,229)
Deferred revenue31,917 8,926 
Short- and long-term operating lease liabilities(4,834)(5,098)
Net cash provided by (used in) operating activities(7,319)39,764 
Cash flows used in investing activities: 
Payments for equipment, furniture, fixtures and intellectual property(20,868)(26,820)
Purchase of available for sale securities(71,756)(29,733)
Proceeds from maturities of available for sale securities51,266 30,000 
Settlement of foreign currency forward contracts, net2,357 (73)
Acquisition of business, net of cash acquired— (28,300)
Proceeds from sale of equity investment4,678 — 
Net cash used in investing activities(34,323)(54,926)
Cash flows used in financing activities: 
Payment of long-term debt(1,732)— 
Payment of debt issuance costs— (382)
Payment of finance lease obligations(702)(722)
Shares repurchased for tax withholdings on vesting of stock unit awards(19,242)(12,572)
Repurchases of common stock - repurchase program(12,406)(49,203)
Proceeds from issuance of common stock13,447 11,862 
Net cash used in financing activities(20,635)(51,017)
Effect of exchange rate changes on cash, cash equivalents and restricted cash2,879 (643)
Net decrease in cash, cash equivalents and restricted cash(59,398)(66,822)
Cash, cash equivalents and restricted cash at beginning of period1,088,708 904,161 
Cash, cash equivalents and restricted cash at end of period$1,029,310 $837,339 
Supplemental disclosure of cash flow information 
Cash paid during the period for interest$7,566 $9,325 
Cash paid during the period for income taxes, net$8,798 $8,325 
Operating lease payments$5,387 $5,642 
Non-cash investing and financing activities 
Purchase of equipment in accounts payable$5,935 $5,905 
Repurchase of common stock in accrued liabilities from repurchase program$800 $1,501 
Operating lease right-of-use assets subject to lease liability $555 $1,157 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(unaudited)
Common Stock
Shares
Par ValueAdditional
Paid-in-Capital
Accumulated Other
Comprehensive Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at October 31, 2020154,563,005 $1,546 $6,826,531 $(35,358)$(4,283,122)$2,509,597 
Net income— — — — 55,348 55,348 
Other comprehensive income— — — 23,811 — 23,811 
Repurchase of common stock - repurchase program(251,578)(3)(13,203)— — (13,206)
Issuance of shares from employee equity plans1,252,120 12 13,435 — — 13,447 
Share-based compensation expense— — 18,964 — — 18,964 
Shares repurchased for tax withholdings on vesting of stock unit awards(375,602)(3)(19,239)— — (19,242)
Effect of adoption of new accounting standard (Note 2)— — — — (2,206)(2,206)
Balance at January 30, 2021155,187,945 $1,552 $6,826,488 $(11,547)$(4,229,980)$2,586,513 
Common Stock
Shares
Par ValueAdditional
Paid-in-Capital
Accumulated Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at November 2, 2019154,403,850 $1,544 $6,837,714 $(22,084)$(4,644,413)$2,172,761 
Net income— — — — 62,328 62,328 
Other comprehensive loss— — — (5,627)— (5,627)
Repurchase of common stock - repurchase program(1,288,111)(13)(50,691)— — (50,704)
Issuance of shares from employee equity plans1,128,096 11 11,851 — — 11,862 
Share-based compensation expense— — 15,602 — — 15,602 
Shares repurchased for tax withholdings on vesting of stock unit awards(297,002)(3)(12,569)— — (12,572)
Balance at February 1, 2020153,946,833 $1,539 $6,801,907 $(27,711)$(4,582,085)$2,193,650 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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CIENA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) INTERIM FINANCIAL STATEMENTS
The interim financial statements included herein for Ciena Corporation and its wholly owned subsidiaries (“Ciena”) have been prepared by Ciena, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Ciena to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. The inputs into certain of Ciena’s judgments, assumptions, and estimates reflect, among other things, the information available to Ciena regarding the economic implications of the COVID-19 pandemic, and expectations as to its impact on Ciena’s business. 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 Ciena’s estimates and actual results, Ciena’s consolidated financial statements will be affected. In addition, including because the duration and severity of COVID-19 pandemic are uncertain, certain of such estimates could require further judgment or modification and therefore carry a higher degree of variability and volatility. As events continue to evolve, Ciena’s estimates may change materially in future periods.
In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of the results of operations of Ciena for the interim periods covered and of the financial position of Ciena at the date of the interim balance sheets. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The Condensed Consolidated Balance Sheet as of October 31, 2020 was derived from audited financial statements, but does not include all disclosures required by GAAP. However, Ciena believes that the disclosures are adequate to understand the information presented herein. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with Ciena’s audited consolidated financial statements and the notes thereto included in Ciena’s annual report on Form 10-K for fiscal 2020 (the “2020 Annual Report”).
Ciena has a 52 or 53-week fiscal year, with quarters ending on the Saturday nearest to the last day of January, April, July and October, respectively, of each year. Fiscal 2021 and 2020 are 52-week fiscal years.

(2) SIGNIFICANT ACCOUNTING POLICIES
Except for the changes in certain policies described below, there have been no material changes to Ciena’s significant accounting policies, compared to the accounting policies described in Note 1, Ciena Corporation and Significant Accounting Policies and Estimates, in Notes to Consolidated Financial Statements in Item 8 of Part II of the 2020 Annual Report.

Newly Issued Accounting Standards - Effective

In June 2016, the Financial Accounting Standards Board (”FASB”) issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments - Credit Losses, which requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Ciena adopted ASU 2016-13 on a modified retrospective basis in the first quarter of fiscal year 2021 through a cumulative-effect adjustment at the beginning of the period of adoption and did not restate prior periods. The standard primarily impacts the value of Ciena’s accounts receivable, net and contract assets, net. Adoption of ASU 2016-13 did not have a material effect on Ciena’s financial position or results of operations.

Ciena’s significant accounting policies updated as a result of adopting this standard are as follows:

Allowance for Credit Losses for Accounts Receivable and Contract Assets

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
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probability 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 are published by third-party credit rating agencies. Adjustments to Ciena’s exposure probability may take into account 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.

Newly Issued Accounting Standards - Not Yet Effective

In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional guidance on contract modifications and hedging accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. In January 2021, the FASB issued ASU 2021-01, which refines the scope of Topic 848 and clarifies some of its guidance as part of the FASB’s monitoring of global reference rate activities. The new guidance was effective upon issuance, and Ciena is allowed to elect to apply the amendments prospectively through December 31, 2022. Ciena is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12 (“ASU 2019-12”), Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects related to accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for Ciena beginning in the first quarter of fiscal year 2022, and early adoption is permitted. Most amendments within this standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. Ciena is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

(3)REVENUE
Disaggregation of Revenue

Ciena’s disaggregated revenue represents similar groups that depict the nature, amount, and timing of revenue and cash flows for Ciena’s various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies may differ for each of its product lines, resulting in different economic risk profiles for each line. Effective as of the beginning of fiscal 2021, Ciena renamed its “Packet Networking” product line to “Routing and Switching.” This change, affecting only the presentation of such information, was made on a prospective basis and does not impact comparability of previous financial results. References to prior reported “Packet Networking” product line have been changed to“Routing and Switching” for this product line reported herein.

The tables below set forth Ciena’s disaggregated revenue for the respective period (in thousands):
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Quarter Ended January 30, 2021
Networking PlatformsPlatform Software and ServicesBlue Planet Automation Software and ServicesGlobal ServicesTotal
Product lines:
Converged Packet Optical
$512,324 $— $— $— $512,324 
Routing and Switching64,307 — — — 64,307 
Platform Software and Services
— 49,839 — — 49,839 
Blue Planet Automation Software and Services
— — 16,934 — 16,934 
Maintenance Support and Training
— — — 67,630 67,630 
Installation and Deployment
— — — 39,611 39,611 
Consulting and Network Design
— — — 6,485 6,485 
Total revenue by product line
$576,631 $49,839 $16,934 $113,726 $757,130 
Timing of revenue recognition:
Products and services at a point in time
$576,631 $16,062 $5,173 $1,857 $599,723 
Services transferred over time
— 33,777 11,761 111,869 157,407 
Total revenue by timing of revenue recognition
$576,631 $49,839 $16,934 $113,726 $757,130 
Quarter Ended February 1, 2020
Networking PlatformsPlatform Software and ServicesBlue Planet Automation Software and ServicesGlobal ServicesTotal
Product lines:
Converged Packet Optical
$591,549 $— $— $— $591,549 
Routing and Switching67,508 — — — 67,508 
Platform Software and Services
— 51,888 — — 51,888 
Blue Planet Automation Software and Services
— — 15,466 — 15,466 
Maintenance Support and Training
— — — 61,793 61,793 
Installation and Deployment
— — — 34,954 34,954 
Consulting and Network Design
— — — 9,754 9,754 
Total revenue by product line
$659,057 $51,888 $15,466 $106,501 $832,912 
Timing of revenue recognition:
Products and services at a point in time
$659,057 $13,114 $3,736 $4,197 $680,104 
Services transferred over time
— 38,774 11,730 102,304 152,808 
Total revenue by timing of revenue recognition
$659,057 $51,888 $15,466 $106,501 $832,912 

Ciena reflects its sales geographically around the following markets: (i) Americas; (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia Pacific, Japan and India (“APAC”). Americas includes activities in North America and South America. 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.
For the periods below, Ciena’s geographic distribution of revenue was as follows (in thousands):
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Quarter Ended
January 30,February 1,
20212020
Geographic distribution:
Americas
$496,611 $574,004 
EMEA
155,418 129,965 
APAC
105,101 128,943 
Total revenue by geographic distribution
$757,130 $832,912 
Ciena’s revenue includes $439.4 million and $524.3 million of United States revenue for the first quarter of fiscal 2021 and 2020, respectively. No other country accounted for 10% or more of total revenue for the periods presented above.
For the first quarter of fiscal 2021, there were no customers that accounted for at least 10% of Ciena’s revenue. The table below shows the customers that accounted for at least 10% of Ciena’s revenue for the first quarter of fiscal 2020: (in thousands):
Quarter Ended
 January 30,February 1,
 20212020
AT&Tn/a$84,010 
Verizonn/a114,548 
Totaln/a$198,558 
n/aDenotes revenue representing less than 10% of total revenue for the period
The customers identified above for the first quarter of fiscal 2020 purchased products and services from each of Ciena’s operating segments.

Networking Platforms revenue reflects sales of Ciena’s Converged Packet Optical and Routing and Switching product lines.
Converged Packet Optical - includes the 6500 Packet-Optical Platform, Waveserver® stackable interconnect system, the 6500 Reconfigurable Line System (RLS) and the 5400 family of Packet-Optical Platforms. This product line also includes sales of the Z-Series Packet-Optical Platform.
Routing and Switching - includes the 3000 family of service delivery switches and service aggregation switches and the 5000 family of service aggregation switches. This product line also includes the 8700 Packetwave Platform, the Ethernet packet configuration for the 5410 Service Aggregation Switch, and the 6500 Packet Transport System (PTS), which combines packet switching, control plane operation, and integrated optics.
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 Condensed 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.

Platform Software and Services provides analytics, data, and planning tools to assist customers in managing Ciena’s Networking Platforms products in their networks. Ciena’s platform software includes its Manage, Control and Plan (MCP) domain controller solution, OneControl Unified Management System, as well as planning tools and a number of legacy software solutions that support our installed base of network solutions. 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 Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Blue Planet® Automation Software and Services is a comprehensive, micro-services, standards-based open software suite, together with related services, that enables customers to implement large-scale software and IT-led operations support system (OSS) transformations by transforming legacy networks into “service ready” networks, accelerating the
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creation, delivery and lifecycle management of new, cloud-based services. Ciena’s Blue Planet Automation Platform includes multi-domain service orchestration (MDSO), inventory management (BPI), route optimization and analysis (ROA), network function virtualization orchestration (NFVO), 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 Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Ciena’s software platform revenue typically reflects either perpetual or term-based software licenses, and these sales are considered a distinct performance obligation where revenue is generally recognized upfront at a point in time upon transfer of control. Revenue from software subscription and support are 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 are recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period.

Global Services 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 Condensed 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 are 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.

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities (deferred revenue) from contracts with customers (in thousands):
Balance at January 30, 2021Balance at October 31, 2020
Accounts receivable, net$700,025 $719,405 
Contract assets for unbilled accounts receivable, net$85,461 $85,843 
Deferred revenue$190,600 $158,363 

Our 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 current assets in the Condensed Consolidated Balance Sheets. See Note 10 below.

Contract liabilities consist of deferred revenue and represent advanced payments against non-cancelable customer orders received prior to revenue recognition. Ciena recognized approximately $46.4 million and $49.0 million of revenue during the first three months of fiscal 2021 and 2020 that was included in the deferred revenue balance at October 31, 2020 and November 2, 2019, respectively. Revenue recognized due to changes in transaction price from performance obligations satisfied or partially satisfied in previous periods was immaterial during the three months ended January 30, 2021 and February 1, 2020.

Capitalized Contract Acquisition Costs

Capitalized contract acquisition costs consist of deferred sales commissions, were $15.7 million and $15.3 million as of January 30, 2021 and October 31, 2020, respectively, and were included in prepaid expenses and other and other long-term assets. The amortization expense associated with these costs was $5.5 million and $5.6 million during the first three months of fiscal 2021 and 2020, respectively, and was included in sales and marketing expense.

Remaining Performance Obligations

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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 January 30, 2021, the aggregate amount of RPO was $1.1 billion. As of January 30, 2021, Ciena expects approximately 80% of the RPO to be recognized as revenue within the next twelve months.

(4) RESTRUCTURING COSTS
Ciena has undertaken a number of restructuring activities intended to reduce expense and to better 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 Condensed Consolidated Balance Sheets, for the three months ended January 30, 2021 (in thousands):
Workforce
reduction
Consolidation
of excess
facilities and other restructuring activities
Total
Balance at October 31, 2020$2,915 $— $2,915 
Charges1,990 
(1)
3,877 
(2)
5,867 
Cash payments(2,994)(3,877)(6,871)
Balance at January 30, 2021$1,911 $— $1,911 
Current restructuring liabilities$1,911 $— $1,911 

(1) Reflects a global workforce reduction of 50 employees during the three months ended January 30, 2021 as part of a business optimization strategy to improve gross margin, constrain operating expense and redesign certain business processes.
(2) Primarily represents costs and imputed interest expense related to restructured facilities and the redesign of certain business processes.

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 Condensed Consolidated Balance Sheets for the three months ended February 1, 2020 (in thousands):
Workforce
reduction
Consolidation
of excess
facilities
Total
Balance at November 2, 2019$3,983 $11,160 $15,143 
Charges1,204 
(1)
3,268 
(2)
4,472 
Adjustments related to ASC 842— (11,160)
(3)
(11,160)
Cash payments(2,955)(3,268)(6,223)
Balance at February 1, 2020$2,232 $— $2,232 
Current restructuring liabilities$2,232 $— $2,232 
(1) Reflects a global workforce reduction of approximately 22 employees during the three months ended February 1, 2020 as part of a business optimization strategy to improve gross margin, constrain operating expense and redesign certain business processes.
(2) Primarily represents variable costs and imputed interest expense related to restructured facilities.
(3) Represents restructuring reserve liability recognized as a reduction to Operating right-of-use (“ROU”) assets, net in relation to adoption of ASC 842.

(5) INTEREST AND OTHER INCOME (LOSS), NET
The components of interest and other income (loss), net, are as follows (in thousands):
13


Quarter Ended
January 30,February 1,
20212020
Interest income$534 $3,390 
Gains on non-hedge designated foreign currency forward contracts4,530 637 
Foreign currency exchange losses(6,918)(771)
Other733 390 
Interest and other income (loss), net$(1,121)$3,646 

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 local currencies as their functional currencies. Ciena recorded $6.9 million and $0.8 million in foreign currency exchange rate losses during the first three months of fiscal 2021 and 2020, respectively, as a result of monetary assets and liabilities that were transacted in a currency other than the entity’s functional currency, and the related remeasurement adjustments were recorded in interest and other income (loss), net, on the Condensed Consolidated Statements of Operations. From time to time, Ciena uses foreign currency forwards to hedge this type of balance sheet exposure. 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 (loss), net, on the Condensed Consolidated Statements of Operations. During the first three months of fiscal 2021 and 2020, respectively, Ciena recorded gains of $4.5 million and $0.6 million from non-hedge designated foreign currency forward contracts.

(6) INCOME TAXES

On December 2, 2019, the U.S. Department of the Treasury released final regulations and proposed regulations under Section 59A of the Internal Revenue Code, the Base Erosion and Anti-Abuse Tax (“BEAT”). BEAT, which requires certain U.S. corporations to pay a minimum tax associated with deductible payments to non-U.S. related parties, was enacted as part of the Tax Cuts and Jobs Act (the “Tax Act”). Also, on December 2, 2019, the U.S. Department of the Treasury released final regulations that provide additional guidance with respect to the foreign tax credit regime under the Tax Act.

The effective tax rate for the three months ended January 30, 2021 was higher than the effective tax rate for the three months ended February 1, 2020, primarily due to the BEAT reduction in fiscal 2020 and the effect of the final regulations released on December 2, 2019.

Our 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 utilizability of tax attributes and changes in tax laws and business reorganizations. Ciena continues to monitor these items and will adopt strategies to address their impact as appropriate.

(7) SHORT-TERM AND LONG-TERM INVESTMENTS

As of the dates indicated, investments are comprised of the following (in thousands):
 January 30, 2021
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated Fair
Value
U.S. government obligations:
Included in short-term investments$151,420 $14 $— $151,434 
Included in long-term investments102,360 — 102,364 
$253,780 $18 $— $253,798 

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 October 31, 2020
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated Fair
Value
U.S. government obligations:
Included in short-term investments$150,559 $109 $(1)$150,667 
Included in long-term investments82,252 — (26)82,226 
$232,811 $109 $(27)$232,893 


The following table summarizes the final legal maturities of debt investments at January 30, 2021 (in thousands):
Amortized
Cost
Estimated
Fair Value
Less than one year$151,420 $151,434 
Due in 1-2 years102,360 102,364 
 $253,780 $253,798 

(8) FAIR VALUE MEASUREMENTS

    As of the date indicated, the following table summarizes the assets and liabilities that are recorded at fair value on a recurring basis (in thousands):
 January 30, 2021
 Level 1Level 2Level 3Total
Assets:    
Money market funds$810,289 $— $— $810,289 
Bond mutual fund50,348 — — 50,348 
Time deposits35,014 — — 35,014 
Deferred compensation plan assets10,669 — — 10,669 
U.S. government obligations— 253,798 — 253,798 
Foreign currency forward contracts— 8,397 — 8,397 
Total assets measured at fair value$906,320 $262,195 $— $1,168,515 
Liabilities:
Foreign currency forward contracts$— $417 $— $417 
Forward starting interest rate swaps— 26,248 — 26,248 
Total liabilities measured at fair value$— $26,665 $— $26,665 
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October 31, 2020
Level 1Level 2Level 3Total
Assets:
Money market funds$889,293 $— $— $889,293 
Bond mutual fund50,361 — — 50,361 
Deferred compensation plan assets8,213 — — 8,213 
U.S. government obligations— 232,893 — 232,893 
Foreign currency forward contracts— 82 — 82 
Total assets measured at fair value$947,867 $232,975 $— $1,180,842 
Liabilities:
Foreign currency forward contracts$— $681 $— $681 
Forward starting interest rate swaps— 28,513 — 28,513 
Total liabilities measured at fair value$— $29,194 $— $29,194 

As of the date indicated, the assets and liabilities above are presented on Ciena’s Condensed Consolidated Balance Sheets as follows (in thousands):
 January 30, 2021
 Level 1Level 2Level 3Total
Assets:    
Cash equivalents$895,651 $— $— $895,651 
Short-term investments— 151,434 — 151,434 
Prepaid expenses and other— 8,397 — 8,397 
Other long-term assets10,669 102,364 — 113,033 
Total assets measured at fair value$906,320 $262,195 $— $1,168,515 
Liabilities:
Accrued liabilities and other short-term obligations$— $417 $— $417 
Other long-term obligations— 26,248 — 26,248 
Total liabilities measured at fair value$— $26,665 $— $26,665 
 October 31, 2020
 Level 1Level 2Level 3Total
Assets:    
Cash equivalents$939,654 $— $— $939,654 
Short-term investments— 150,667 — 150,667 
Prepaid expenses and other— 82 — 82 
Other long-term assets8,213 82,226 — 90,439 
Total assets measured at fair value$947,867 $232,975 $— $1,180,842 
Liabilities:
Accrued liabilities and other short-term obligations$— $681 $— $681 
Other long-term obligations— 28,513 — 28,513 
Total liabilities measured at fair value$— $29,194 $— $29,194 

Ciena did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

(9) INVENTORIES
16


As of the dates indicated, inventories are comprised of the following (in thousands):
January 30,
2021
October 31,
2020
Raw materials$123,388 $119,481 
Work-in-process11,353 13,738 
Finished goods257,048 210,050 
Deferred cost of goods sold38,920 40,747 
Gross inventories430,709 384,016 
Provision for excess and obsolescence(40,976)(39,637)
Inventories, net$389,733 $344,379 

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 the first three months of fiscal 2021, Ciena recorded a provision for excess and obsolescence of $5.9 million, primarily related to a decrease in the forecasted demand for certain Networking Platforms products. Deductions from the provision for excess and obsolete inventory relate primarily to disposal activities.

(10) PREPAID EXPENSES AND OTHER
As of the dates indicated, prepaid expenses and other are comprised of the following (in thousands):
January 30,
2021
October 31,
2020
Contract assets for unbilled accounts receivable, net$85,461 $85,843 
Prepaid expenses76,462 70,647 
Prepaid VAT and other taxes73,767 72,838 
Product demonstration equipment, net44,707 44,793 
Other non-trade receivables26,099 21,981 
Capitalized contract acquisition costs10,712 11,296 
Derivative assets8,397 82 
Deferred deployment expense505 604 
 $326,110 $308,084 

Depreciation of product demonstration equipment was $2.6 million during the first three months of fiscal 2021 and $2.2 million during the first three months of fiscal 2020.

For further discussion on contract assets and capitalized contract acquisition costs, see Note 3 above.

(11) OTHER BALANCE SHEET DETAILS
As of the dates indicated, accrued liabilities and other short-term obligations are comprised of the following (in thousands):
January 30,
2021
October 31,
2020
Compensation, payroll related tax and benefits (1)
$76,477 $135,462 
Warranty48,184 49,868 
Vacation28,414 26,945 
Finance lease obligations3,011 2,836 
Interest payable605 672 
Other118,312 118,349 
 $275,003 $334,132 

17


(1) Reduction is primarily due to the timing of bonus payments to employees under Ciena’s annual cash incentive compensation plan.

The following table summarizes the activity in Ciena’s accrued warranty for the fiscal periods indicated (in thousands):
Beginning BalanceCurrent Period ProvisionsSettlementsEnding Balance
Three Months Ended February 1, 2020$48,498 7,898 (5,206)$51,190 
Three Months Ended January 30, 2021$49,868 3,239 (4,923)$48,184 
As of the dates indicated, deferred revenue is comprised of the following (in thousands):
January 30,
2021
October 31,
2020
Products$15,374 $17,534 
Services175,226 140,829 
 190,600 158,363 
Less current portion(136,229)(108,700)
Long-term deferred revenue$54,371 $49,663 

(12) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives       

Ciena conducts business globally in numerous currencies, thus is exposed to adverse movements in foreign currency exchange rates. To limit the exposure related to foreign currency changes, Ciena enters into foreign currency contracts. Ciena does not enter into such contracts for speculative purposes.

As of January 30, 2021 and October 31, 2020, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce variability principally related to research and development activities. The notional amount of these contracts was approximately $248.3 million and $254.9 million as of January 30, 2021 and October 31, 2020, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as cash flow hedges.

As of January 30, 2021 and October 31, 2020, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce the variability in various currencies of certain balance sheet items. The notional amount of these contracts was approximately $210.4 million and $212.0 million as of January 30, 2021 and October 31, 2020, respectively. These foreign exchange contracts have maturities of 12 months or less and have not been designated as hedges for accounting purposes.

Interest Rate Derivatives

Ciena is exposed to floating rates of LIBOR interest on its term loan borrowings (see Note 15 below) and has hedged such risk by entering into floating to fixed interest rate swap arrangements (“interest rate swaps”). The interest rate swaps fix the LIBOR rate for $350.0 million of the 2025 Term Loan (as defined in Note 15 below) at 2.957% through September 2023. The total notional amount of interest rate swaps in effect was $350.0 million as of January 30, 2021 and October 31, 2020.

Ciena expects the variable rate payments to be received under the terms of the interest rate swaps to offset exactly the forecasted variable rate payments on the equivalent notional amounts of the term loan. These derivative contracts have been designated as cash flow hedges.

Other information regarding Ciena’s derivatives is immaterial for separate financial statement presentation. See Note 5 and Note 8 above.

(13) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income (“AOCI”), net of tax, for the three months ended January 30, 2021 (in thousands):
18


Unrealized Gain/(Loss) onCumulative
Available-for-sale SecuritiesForeign Currency Forward ContractsForward Starting Interest Rate SwapsForeign Currency
Translation Adjustment
Total
Balance at October 31, 2020$45 $(219)$(21,535)$(13,649)$(35,358)
Other comprehensive gain (loss) before reclassifications(49)7,848 (659)15,861 23,001 
Amounts reclassified from AOCI— (1,231)2,041 — 810 
Balance at January 30, 2021$(4)$6,398 $(20,153)$2,212 $(11,547)

The following table summarizes the changes in AOCI, net of tax, for the three months ended February 1, 2020 (in thousands):
Unrealized Gain/(Loss) onCumulative
Available-for-sale SecuritiesForeign Currency Forward ContractsForward Starting Interest Rate SwapsForeign Currency
Translation Adjustment
Total
Balance at November 2, 2019$152 $925 $(13,686)$(9,475)$(22,084)
Other comprehensive loss before reclassifications(86)(921)(1,718)(2,982)(5,707)
Amounts reclassified from AOCI— (158)238 — 80 
Balance at February 1, 2020$66 $(154)$(15,166)$(12,457)$(27,711)

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 Condensed Consolidated Statements of Operations. All amounts reclassified from AOCI related to settlement (gains) losses on forward starting interest rate swaps designated as cash flow hedges impacted interest and other income (loss), net, on the Condensed Consolidated Statements of Operations.

(14) LEASES

Ciena leases over 1.3 million square feet of facilities globally related to the ongoing operations of its business segments and related functions. Ciena’s principal executive offices are located in Hanover, Maryland. Ciena’s largest facilities are research and development centers located in Ottawa, Canada and Gurgaon, India. Ciena also has engineering and/or service delivery facilities located in San Jose, California; Alpharetta, Georgia; Quebec, Canada; Austin, Texas; and Pune and Bangalore, India. 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 11 years. Certain leases provide for options to extend up to 10 years and/or options to terminate within five years.

Leases included in the Condensed Consolidated Balance Sheets were as follows (in thousands):
ClassificationAs of January 30, 2021As of October 31, 2020
Operating leases:
Operating ROU assetsOperating right-of-use assets$54,244 $57,026 
Operating lease liabilities
Operating lease liabilities and Long-term operating lease liabilities76,990 80,450 
Finance leases:
Buildings, gross
Equipment, building, furniture and fixtures, net$73,776 $70,791 
Less: accumulated depreciation
Equipment, building, furniture and fixtures, net(19,764)(17,837)
Buildings, net
$54,012 $52,954 
Finance lease liabilities
Accrued liabilities and other short-term obligations and other long-term obligations$66,409 $64,401 

ROU assets that involve subleased or vacant space aggregate $4.7 million as of January 30, 2021. These assets may become impaired if tenants are unable to service their obligations under the sublease, and/or if the estimates as to occupancy are not realized, either of which may be more likely as COVID-19 impacts evolve.
19



The components of lease expense included in the Condensed Consolidated Statement of Operations were as follows (in thousands):
Three Months EndedThree Months Ended
ClassificationJanuary 30, 2021February 1, 2020
Operating lease costsOperating expense$4,229 $4,457 
Finance lease cost:
Amortization of finance ROU asset
Operating expense1,165 1,140 
Interest on finance lease liabilities
Interest expense1,221 1,244 
Total finance lease cost2,386 2,384 
Non-capitalized lease costOperating expense293 621 
Variable lease cost(1)
Operating expense1,599 1,311 
Net lease cost(2)
$8,507 $8,773 

(1) 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.
(2) Excludes other operating expense of $2.3 million and $4.3 million for the three months ended January 30, 2021 and February 1, 2020, respectively, related to amortization of leasehold improvements.

Future minimum lease payments and the present value of minimum lease payments related to operating and finance leases as of January 30, 2021 were as follows (in thousands):
Operating LeasesFinance LeasesTotal
Remaining fiscal 2021$16,077 $7,759 $23,836 
202219,112 8,215 27,327 
202315,747 8,294 24,041 
202413,237 8,310 21,547 
20258,900 8,494 17,394 
Thereafter9,367 58,427 67,794 
Total lease payments82,440 99,499 181,939 
Less: Imputed interest
(5,450)(33,090)(38,540)
Present value of lease liabilities76,990 66,409 143,399 
Less: Current portion of present value of minimum lease payments(19,364)(3,011)(22,375)
Long-term portion of present value of minimum lease payments$57,626 $63,398 $121,024 

The weighted average remaining lease terms and weighted average discount rates for operating and finance leases were as follows:
As of January 30, 2021
As of October 31, 2020
Weighted-average remaining lease term in years:
Operating leases
4.684.87
Finance leases
11.4611.71
Weighted-average discount rates:
Operating leases
2.82 %2.82 %
Finance leases
7.56 %7.56 %

(15) SHORT-TERM AND LONG-TERM DEBT
20



2025 Term Loan

On January 23, 2020, Ciena entered into a Refinancing Amendment to Credit Agreement pursuant to which Ciena refinanced the entire outstanding amount of its then existing senior secured term loan and incurred a new senior secured term loan in an aggregate principal amount of $693.0 million and maturing on September 28, 2025 (the “2025 Term Loan”).

The net carrying value of Ciena’s term loan was comprised of the following for the fiscal periods indicated (in thousands):
January 30, 2021October 31, 2020
Principal BalanceUnamortized DiscountDeferred Debt Issuance CostsNet Carrying ValueNet Carrying Value
2025 Term Loan$686,070 $(1,495)$(2,789)$681,786 $683,286 
    
Deferred debt issuance costs that were deducted from the carrying amounts of the term loan totaled $2.8 million at January 30, 2021 and $2.9 million at October 31, 2020. 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 term loan. The amortization of deferred debt issuance costs for this term loan is included in interest expense, and was $0.2 million during the first three months of each of fiscal 2021 and fiscal 2020. The carrying value of the term loan listed above is also net of any unamortized debt discounts.

As of January 30, 2021, the estimated fair value of the 2025 Term Loan was $686.1 million. Ciena’s term loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its term loan using a market approach based on observable inputs, such as current market transactions involving comparable securities.

(16) EARNINGS PER SHARE CALCULATION
The following tables (in thousands, except per share amounts) reconcile basic net income per common share (“Basic EPS”) and diluted net income per potential common share (“Diluted EPS”). Basic EPS is computed using the weighted average number of common shares outstanding. 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.
Quarter Ended
 January 30,February 1,
Numerator20212020
Net income used to calculate Basic and Diluted EPS$55,348 $62,328 

Quarter Ended
 January 30,February 1,
Denominator20212020
Basic weighted average shares outstanding155,174 154,334 
Add: Shares underlying outstanding stock options and stock unit awards and issuable under employee stock purchase plan 1,409 1,404 
Dilutive weighted average shares outstanding156,583 155,738 

Quarter Ended
 January 30,February 1,
EPS20212020
Basic EPS$0.36 $0.40 
Diluted EPS$0.35 $0.40 

The following table summarizes the weighted average shares excluded from the calculation of the denominator for Diluted EPS due to their anti-dilutive effect for the periods indicated (in thousands):
21


Quarter Ended
 January 30,February 1,
 20212020
Shares underlying stock options and stock unit awards135 731 
Total shares excluded due to anti-dilutive effect135 731 

(17) STOCKHOLDERS’ EQUITY

Stock Repurchase Program

On December 13, 2018, Ciena announced that its Board of Directors authorized a program to repurchase up to $500 million of Ciena’s common stock. After temporarily suspending repurchases of Ciena’s common stock during fiscal 2020, Ciena reinstituted its stock repurchase program in the first quarter of 2021. 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.
The following table summarizes activity of the stock repurchase program, reported based on trade date:
 Shares RepurchasedWeighted-Average Price per ShareAmount Repurchased (in thousands)
Cumulative balance at October 31, 20205,710,912 $39.33 $224,611 
Repurchase of common stock under the stock repurchase program251,578 52.49 13,206 
Cumulative balance at January 30, 20215,962,490 $39.89 $237,817 

The purchase price for the shares of Ciena’s stock repurchased is reflected as a reduction of common stock and additional paid-in capital.

Stock Repurchases Related to Stock Unit Award Tax Withholdings
Ciena repurchases shares of common stock to satisfy employee tax withholding obligations due on vesting of stock unit awards. The purchase price of $19.2 million for the shares of Ciena’s stock repurchased during the first three months of fiscal 2021 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.

(18) SHARE-BASED COMPENSATION EXPENSE

The following table summarizes share-based compensation expense for the periods indicated (in thousands):
Quarter Ended
 January 30,February 1,
 20212020
Product costs$953 $671 
Service costs1,205 842 
Share-based compensation expense included in cost of goods sold2,158 1,513 
Research and development4,794 3,849 
Sales and marketing5,816 4,613 
General and administrative6,358 5,527 
Share-based compensation expense included in operating expense16,968 13,989 
Share-based compensation expense capitalized in inventory, net(162)100 
Total share-based compensation$18,964 $15,602 

As of January 30, 2021, total unrecognized share-based compensation expense was approximately $169.0 million, which relates to unvested stock unit awards and is expected to be recognized over a weighted-average period of 1.68 years.

(19) SEGMENTS AND ENTITY-WIDE DISCLOSURES
22


Segment Reporting
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.
Ciena's long-lived assets, including equipment, building, furniture and fixtures, 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 January 30, 2021, equipment, building, furniture and fixtures, net, totaled $281.2 million, and operating ROU assets totaled $54.2 million both of which support asset groups within Ciena’s four operating segments and unallocated selling and general and administrative activities. As of January 30, 2021, finite-lived intangible assets, goodwill and maintenance spares are assigned to asset groups within the following segments (in thousands):
January 30, 2021
Networking PlatformsPlatform Software and ServicesBlue Planet Automation Software and ServicesGlobal ServicesTotal
Other intangible assets, net$12,924 $— $78,592 $— $91,516 
Goodwill$66,054 $156,191 $89,049 $— $311,294 
Maintenance spares, net$— $— $— $63,008 $63,008 

Segment Profit (Loss)
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; amortization of intangible assets; significant asset impairments and restructuring costs; acquisition and integration costs; interest and other income (loss), net; interest expense; loss on extinguishment and modification of debt and provision for income taxes.
The table below sets forth Ciena’s segment profit (loss) and the reconciliation to consolidated net income during the respective periods indicated (in thousands):
Quarter Ended
 January 30,February 1,
 20212020
Segment profit (loss):
Networking Platforms$156,431 $168,270 
Platform Software and Services27,660 28,951 
Blue Planet Automation Software and Services(2,434)(3,113)
Global Services43,493 45,527 
Total segment profit225,150 239,635 
Less: Non-performance operating expenses 
  Selling and marketing97,278 107,066 
  General and administrative39,993 42,468 
  Amortization of intangible assets5,910 5,853 
  Significant asset impairments and restructuring costs5,867 4,472 
Acquisition and integration costs307 1,819 
Add: Other non-performance financial items
  Interest expense and other income (loss), net(8,481)(5,169)
Loss on extinguishment and modification of debt— (646)
Less: Provision for income taxes11,966 9,814 
Consolidated net income $55,348 $62,328 

Entity-Wide Reporting
23


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 U.S. 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):
January 30,
2021
October 31,
2020
Canada$226,331 $214,188 
United States62,980 65,321 
Other International46,161 49,894 
Total$335,472 $329,403 

(20) COMMITMENTS AND CONTINGENCIES

Canadian Grant

During fiscal 2018, Ciena entered into agreements related to the Evolution of Networking Services through a Corridor in Quebec and Ontario for Research and Innovation (“ENCQOR”) project with the Canadian federal government, the government of the province of Ontario and the government of the province of Quebec to develop a 5G technology corridor between Quebec and Ontario to promote research and development, small business enterprises and entrepreneurs in Canada. Under these agreements, Ciena can receive up to an aggregate CAD$57.6 million (approximately $45.1 million) in reimbursement from the three Canadian government entities for eligible costs over a period commencing on February 20, 2017 and ending on March 31, 2022. Ciena anticipates receiving recurring disbursements over this period. Amounts received under the agreements are subject to recoupment in the event that Ciena fails to achieve certain minimum investment, employment and project milestones. As of January 30, 2021, Ciena has recorded CAD$44.2 million (approximately $34.6 million) in cumulative benefits as a reduction in research and development expense of which CAD$3.6 million ($2.8 million) was recorded in the first three months of fiscal 2021. As of January 30, 2021, amounts receivable from this grant were CAD$3.2 million ($2.5 million).

Tax Contingencies

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.

Litigation

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.

(21) SUBSEQUENT EVENTS

Stock Repurchase Program

From the end of the first quarter of fiscal 2021 through March 5, 2021, Ciena repurchased an additional 188,169 shares of its common stock, for an aggregate purchase price of $10.1 million at an average price of $53.69 per share, inclusive of repurchases pending settlement. As of March 5, 2021, Ciena has repurchased an aggregate of 6,150,659 shares and has an aggregate of $252.1 million of authorized funds remaining under its stock repurchase program.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

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This 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. Forward-looking statements may appear throughout this report, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “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. You should be aware that the forward-looking statements contained in this report are based on our current views and assumptions, and are subject to known and unknown risks, uncertainties and other factors that may cause actual events or results to differ materially.

For a discussion identifying some of the 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 report. For a more complete understanding of the risks associated with an investment in our securities, you should review these factors and the rest of this report in combination with the more detailed description of our business and management’s discussion and analysis of financial condition and risk factors described in our annual report on Form 10-K for fiscal 2020, which we filed with the SEC on December 18, 2020 (our “2020 Annual Report”). However, we operate in a very competitive and rapidly changing environment and new risks and uncertainties emerge, are identified or become apparent from time to time. We cannot predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this report, and we undertake no obligation to revise or to update any forward-looking statements made in this 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 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 report to “Ciena,” the “Company,” “we,” “us” and “our” refer to Ciena Corporation and its consolidated subsidiaries.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our 2020 Annual Report and our Condensed Consolidated Financial Statements and the accompanying notes thereto included in Item 1 of Part I of this report.

We are a networking systems, services and software company, providing solutions that enable a wide range of network operators to deploy and manage next-generation networks that deliver services to businesses and consumers. We provide hardware, software and services that enable the transport, routing, switching, aggregation, service delivery and management of video, data and voice traffic on communications networks. Our solutions include Networking Platforms, including our Converged Packet Optical and Routing and Switching portfolios, 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 and adapt dynamically to changing end-user service demands. To complement these solutions, we offer Platform Software, which provides management, domain control and specialized applications that automate network lifecycle operations, including provisioning equipment and services, network data, analytics and policy-based assurance to achieve closed loop automation across multi-vendor and multi-domain network environments. Through our Blue Planet® Software suite, we enable customers to transform their business and operations support systems through software-based automation of their network and IT infrastructures. To complement our hardware and software products, we offer a broad range of services that help our customers build, operate and improve their networks and associated operational environments, including network optimization and migration offerings.

Impact of the COVID-19 Pandemic

Demand for Products & Services. The demand environment continues to be adversely impacted by the COVID-19 pandemic, resulting in lower order volumes and revenue in the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020. We expect this more cautious spending environment to continue through at least the second quarter of fiscal 2021 and expect these conditions to adversely affect order volumes and revenue in the short term, as compared to our first half of fiscal 2020.

Services and Customer Fulfillment. We continue to experience some disruption in our ability to provide installation, professional and fulfillment services to customers due to site readiness and access limitations, limited customer availability, project delays or re-prioritization by customers, and travel bans or restrictions on movement or gatherings. We expect these conditions to persist in the short term and, as a result, to continue to adversely impact our revenue and results of operations.
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Sales & Marketing. Restrictions on travel due to COVID-19 and limitations on interactions with customers, such as field and lab trials, have continued to negatively impact our ability to carry out certain sales and marketing activities, including our ability to secure new customers, to qualify and sell new products, and to grow sales with customers. Delays in customers operationalizing new network projects that we anticipated occurring on their original timelines continue to adversely affect our revenue. Conversely, our recent gross margin performance has benefited from these dynamics, with a larger percentage of our revenue comprised of existing business, as compared to new design wins and early in life projects, which tend to have lower margins.

Market Growth & Conditions. As a result of the impact of the COVID-19 pandemic on market dynamics, particularly in the enterprise business segments of our communications service provider customers, the growth rates in our addressable markets have been adversely impacted. We expect these market dynamics, including constrained customer spending and the decreased velocity of new business execution, to persist through at least the first half of fiscal 2021.

The COVID-19 pandemic and countermeasures taken to contain its spread have caused economic and financial disruptions globally. We continue to monitor the situation and actively assess further implications to our business, supply chain, fulfillment operations and customer demand. However, the COVID-19 situation remains dynamic, and the duration and severity of its impact on our business and results of operations in future periods remains uncertain. If the COVID-19 pandemic or its adverse effects become more severe or prevalent or are prolonged in the locations where we, our customers, suppliers or manufacturers conduct business, or we experience more pronounced disruptions in our business or operations, or in economic activity and demand for our products and services generally, our business and results of operations in future periods could be materially adversely affected.
For additional information regarding our business, industry, market opportunity, competitive landscape, and strategy, see our 2020 Annual Report, including the discussion in that report of the impact of the COVID-19 pandemic on our business, supply chain, and market conditions.

Consolidated Results of Operations

Operating Segments

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. Effective as of the beginning of fiscal 2021, we renamed our “Packet Networking” product line “Routing and Switching.” This change was made on a prospective basis and does not impact comparability of previous financial results or the composition of this product line. References to our “Packet Networking” product line in prior periods have been changed to “Routing and Switching” in this report. See Note 19 to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report.

Quarter ended January 30, 2021 as compared to the quarter ended February 1, 2020
Revenue
During the first quarter of fiscal 2021, approximately 17.9% of our revenue was non-U.S. Dollar-denominated, primarily including sales in Euros, Canadian Dollars, Japanese Yen, British Pounds, and Brazilian Reais. During the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, the U.S. Dollar fluctuated against these currencies. Consequently, our revenue reported in U.S. Dollars slightly increased by approximately $2.6 million, or 0.4%, as compared to the first quarter of fiscal 2020. The table below sets forth the changes in our operating segment revenue for the periods indicated (in thousands, except percentage data):
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 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Revenue:    
Networking Platforms
Converged Packet Optical$512,324 67.7 $591,549 71.0 $(79,225)(13.4)
Routing and Switching64,307 8.5 67,508 8.1 (3,201)(4.7)
Total Networking Platforms576,631 76.2 659,057 79.1 (82,426)(12.5)
Platform Software and Services49,839 6.6 51,888 6.2 (2,049)(3.9)
Blue Planet Automation Software and Services16,934 2.2 15,466 1.9 1,468 9.5 
Global Services
Maintenance Support and Training67,630 8.9 61,793 7.4 5,837 9.4 
Installation and Deployment39,611 5.2 34,954 4.2 4,657 13.3 
Consulting and Network Design6,485 0.9 9,754 1.2 (3,269)(33.5)
Total Global Services113,726 15.0 106,501 12.8 7,225 6.8 
Consolidated revenue$757,130 100.0 $832,912 100.0 $(75,782)(9.1)
_____________________________
*    Denotes % of total revenue
**    Denotes % change from 2020 to 2021

Networking Platforms segment revenue decreased, reflecting product line sales decreases of $79.2 million of our Converged Packet Optical products and $3.2 million of our Routing and Switching products.
Converged Packet Optical sales decreased, primarily reflecting sales decreases of $98.4 million of our 6500 Packet-Optical Platform, primarily to communications service providers and cable and multiservice operators, and $41.9 million of our 5400 family of Packet-Optical Platforms primarily to communication service providers. These sales decreases were partially offset by a sales increase of $53.8 million of our Waveserver® products, primarily to communications service providers and Web-scale providers.
Routing and Switching sales decreased, primarily reflecting sales decreases of $5.8 million of our 8700 Packetwave Platform to enterprise and government customers and $4.0 million of our 3000 and 5000 families of service delivery and aggregation switches to communication service providers. These decreases were offset by a sales increase of $7.3 million of our platform independent software to a communication service provider.
Platform Software and Services segment revenue decreased, reflecting a decrease of $8.8 million in software sales. offset by an increase of $6.8 million related to services.
Blue Planet Automation Software and Services segment revenue increased, primarily reflecting an increase of $1.2 million in sales of software platforms. Our entrance into the software automation market is in the early stages and, as such, revenue from our Blue Planet Automation Software platform has not been significant to date and may fluctuate.
Global Services segment revenue increased, reflecting sales increases of $5.8 million of our maintenance support and training services and $4.7 million of our installation and deployment services, offset by a sales decrease of $3.3 million of our consulting and network design services, in part due to impacts of COVID-19 as described above.

Our operating segments engage in business and operations across three geographic regions: Americas; EMEA; and APAC. The increase in our EMEA region for the quarter ended January 30, 2021 was primarily driven by increased sales in the Netherlands and France. The decrease in our APAC region for the quarter ended January 30, 2021 was primarily driven by decreased sales in Japan. The decrease in our Americas region for the quarter ended January 30, 2021 was primarily driven by decreased sales in the United States.The following table reflects our geographic distribution of revenue principally based on the relevant location for our delivery of products and performance of services. Our revenue, when considered by geographic
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distribution, can fluctuate significantly, 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 table below sets forth the changes in geographic distribution of revenue for the periods indicated (in thousands, except percentage data):
Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Americas$496,611 65.6 $574,004 68.9 $(77,393)(13.5)
EMEA155,418 20.5 129,965 15.6 25,453 19.6 
APAC105,101 13.9 128,943 15.5 (23,842)(18.5)
Total$757,130 100.0 $832,912 100.0 $(75,782)(9.1)
_____________________________________
*    Denotes % of total revenue
**    Denotes % change from 2020 to 2021
Americas revenue decreased, primarily reflecting sales decreases of $78.5 million within our Networking Platforms segment and $5.7 million within our Platform Software and Services segment, offset by sales increases of $5.1 million within our Global Services segment and $1.7 million within our Blue Planet Automation Software and Services segment. The decrease within our Networking Platforms segment primarily reflects a product line sales decrease of $73.6 million of our Converged Packet Optical products, primarily related to a sales decrease of $77.3 million of our 6500 Packet-Optical Platform to communication service providers.
EMEA revenue increased, primarily reflecting sales increases of $19.0 million within our Networking Platforms segment, $3.5 million within our Global Services segment and $2.2 million within our Platform Software and Services segment. The revenue increase within our Networking Platforms segment reflects a product line sales increase of $17.7 million of Converged Packet Optical products, primarily related to a sales increase of $19.9 million of our Waveserver products to communication service providers and Web-scale providers.
APAC revenue decreased, primarily reflecting a sales decrease of $22.9 million within our Networking Platforms segment. Our Networking Platforms segment revenue decrease primarily reflects a decrease of $27.6 million in sales of our 6500 Packet-Optical Platform to communications service providers in Japan, partially offset by an increase of 7.6 million in sales of our Waveserver products, primarily to communication service providers.

Cost of Goods Sold and Gross Profit

The component elements that comprise our product cost of goods and services costs of goods sold are set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2020 Annual Report. There are a number of important factors or conditions that can adversely affect or cause our gross profit as a percentage of product or service revenue, or “gross margin,” to fluctuate on a quarterly basis. These are similarly described in detail in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of our 2020 Annual Report.
The tables below set forth the changes in revenue, cost of goods sold and gross profit for the periods indicated (in thousands, except percentage data):
 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Total revenue$757,130 100.0 $832,912 100.0 $(75,782)(9.1)
Total cost of goods sold399,239 52.7 462,377 55.5 (63,138)(13.7)
Gross profit$357,891 47.3 $370,535 44.5 $(12,644)(3.4)
_____________________________________
*    Denotes % of total revenue
**    Denotes % change from 2020 to 2021
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 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Product revenue$597,220 100.0 $687,215 100.0 $(89,995)(13.1)
Product cost of goods sold315,098 52.8 389,013 56.6 (73,915)(19.0)
Product gross profit$282,122 47.2 $298,202 43.4 $(16,080)(5.4)
_____________________________________
*    Denotes % of product revenue
**    Denotes % change from 2020 to 2021
 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Service revenue$159,910 100.0 $145,697 100.0 $14,213 9.8 
Service cost of goods sold84,141 52.6 73,364 50.4 10,777 14.7 
Service gross profit$75,769 47.4 $72,333 49.6 $3,436 4.8 
_____________________________________
*    Denotes % of services revenue
**    Denotes % change from 2020 to 2021

Gross profit as a percentage of revenue increased, as our gross margin benefited significantly from a favorable mix of customers and products that we believe to be a short-term effect due to COVID-19 related factors. Due to the impact of COVID-19 and related restrictions on sales and marketing activities described in “Overview” above, during the first quarter of fiscal 2021, a higher proportion of our revenue consisted of sales of existing technology offerings deployed in the networks of existing customers, as compared to sales to new customers, early stage network deployments for recent design wins, or the introduction of new platforms, which tend to carry lower margins. We expect our gross margins to reduce from these elevated short-term levels as the adverse impact of the pandemic on new business lessens and our overall revenue resumes a more typical composition of revenue from existing and new business.
Gross profit on products as a percentage of product revenue increased, primarily due to a favorable mix of customers and products, as described above, and continued product cost reductions, partially offset by market-based price compression we encountered during the period.
Gross profit on services as a percentage of services revenue decreased, primarily due to lower installation and deployment margins and a lower mix of higher margin consulting and network design services. The lower margins on installation and deployment services were primarily due to certain customer site readiness delays that caused cost inefficiencies. These lower margins were partially offset by increased higher margin maintenance revenues.
Operating Expense
The component elements that comprise each of our operating expense categories in the table below are set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our 2020 Annual Report.

During the first quarter of fiscal 2021, approximately 51.9% of our operating expense was non-U.S. Dollar-denominated, including expenses in Canadian Dollars, Indian Rupees and British Pounds. During the first quarter of fiscal 2021 as compared to the first quarter of fiscal 2020, the U.S. Dollar fluctuated against these currencies. Consequently, our operating expense reported in U.S. Dollars slightly increased by approximately $1.4 million, or 0.5%, as compared to the first quarter of fiscal 2020, due to fluctuations in foreign currency. The table below sets forth the changes in operating expense for the periods indicated (in thousands, except percentage data):
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 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Research and development$132,741 17.5 $130,900 15.7 $1,841 1.4 
Selling and marketing97,278 12.8 107,066 12.9 (9,788)(9.1)
General and administrative39,993 5.3 42,468 5.1 (2,475)(5.8)
Amortization of intangible assets5,910 0.8 5,853 0.7 57 1.0 
Significant asset impairments and restructuring costs5,867 0.8 4,472 0.5 1,395 31.2 
Acquisition and integration costs307 — 1,819 0.2 (1,512)(83.1)
Total operating expenses$282,096 37.3 $292,578 35.1 $(10,482)(3.6)
_____________________________________
*    Denotes % of total revenue
**    Denotes % change from 2020 to 2021
Research and development expense increased by $1.8 million. This increase primarily reflects increases in employee and compensation costs and technology-related costs, partially offset by decreases in professional services costs.
Selling and marketing expense was adversely affected by $1.4 million as a result of foreign exchange rates, primarily due to fluctuations of the U.S. Dollar in relation to the Euro. Including the effect of foreign exchange rates, sales and marketing expenses decreased by $9.8 million. This decrease primarily reflects decreases in travel and entertainment costs due to restrictions on travel as a result of COVID-19, and professional services, partially offset by an increase in employee and compensation costs.
General and administrative expense decreased by $2.5 million primarily as a result of the recovery of bad debt, partially offset by an increase in employee and compensation costs.
Amortization of intangible assets remained relatively unchanged.
Significant asset impairments and restructuring costs reflect global workforce reductions as part of a business optimization strategy to improve gross margin and constrain operating expense, and redesign of certain business processes.
Acquisition and integration costs primarily reflect reduced acquisition compensation associated with a three-year earn-out arrangement related to the acquisition of DonRiver Holdings, LLC in fiscal 2018 and other fees related to the acquisition of Centina Systems, Inc. in the first quarter of fiscal 2020.
Other Items
The table below sets forth the changes in other items for the periods indicated (in thousands, except percentage data):
 Quarter Ended 
 January 30, 2021%*February 1, 2020%*Increase (decrease)%**
Interest and other income (loss), net$(1,121)(0.1)$3,646 0.4 $(4,767)(130.7)
Interest expense$7,360 1.0 $8,815 1.1 $(1,455)(16.5)
Loss on extinguishment and modification of debt$— 0.0 $646 0.0 $(646)— 
Provision for income taxes$11,966 1.6 $9,814 1.2 $2,152 21.9 
_____________________________________
*    Denotes % of total revenue
**    Denotes % change from 2020 to 2021
Interest and other income (loss), net decreased, primarily reflecting lower interest income due to reduced interest rates on our investments 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.
Interest expense decreased, primarily due to a reduction of LIBOR rates impacting our 2025 Term Loan.
Loss on extinguishment and modification of debt reflects the refinance of our 2025 Term Loan in the first quarter of fiscal 2020.
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Provision for income taxes increased, primarily due to the BEAT reduction in fiscal 2020 and the effect of the final regulations released on December 2, 2019. Consequently, the effective tax rate for the first quarter of fiscal 2021 increased as compared to the first quarter of fiscal 2020.

Segment Profit (Loss)

The table below sets forth the changes in our segment profit (loss) for the respective periods (in thousands, except percentage data):
 Quarter Ended  
 January 30, 2021February 1, 2020Increase (decrease)%*
Segment profit (loss):  
Networking Platforms$156,431 $168,270 $(11,839)(7.0)
Platform Software and Services$27,660 $28,951 $(1,291)(4.5)
Blue Planet Automation Software and Services$(2,434)$(3,113)$679 (21.8)
Global Services$43,493 $45,527 $(2,034)(4.5)
_____________________________________
*    Denotes % change from 2020 to 2021

Networking Platforms segment profit decreased, primarily due to lower sales volume as described above and higher research and development costs, offset by improved gross margin.
Platform Software and Services segment profit decreased, primarily due to lower sales volume as described above, offset by lower research and development costs.
Blue Planet Automation Software and Services segment loss decreased, primarily due to higher sales volume and lower research and development costs.
Global Services segment profit decreased, primarily due to reduced gross margin, as described above.

Liquidity and Capital Resources
Overview. For the three months ended January 30, 2021, we used $7.3 million of cash in operating activities, as our working capital requirements of $127.0 million exceeded our net income (adjusted for non-cash charges) of $119.7 million. For additional details, see “Cash Used In Operating Activities” below.
Cash, cash equivalents and investments decreased by $38.5 million during the first three months of fiscal 2021. In addition to the cash used in operations, the decrease in cash also included the following items: (i) cash used to fund our investing activities for capital expenditures totaling $20.9 million; (ii) cash used for stock repurchases under our stock repurchase program of $12.4 million; and (iii) stock repurchases on vesting of our stock unit awards to employees relating to tax withholding of $19.2 million. Partially offsetting these decreases in cash were proceeds from the issuance of equity under our employee stock purchase plan, which provided $13.4 million in cash during the three months ended January 30, 2021.
January 30,
2021
October 31,
2020
Increase
(decrease)
Cash and cash equivalents$1,029,237 $1,088,624 $(59,387)
Short-term investments in marketable debt securities151,434 150,667 767 
Long-term investments in marketable debt securities102,364 82,226 20,138 
Total cash and cash equivalents and investments in marketable debt securities$1,283,035 $1,321,517 $(38,482)

Principal Sources of Liquidity. Our principal sources of liquidity on hand include our cash, cash equivalents and investments, which as of January 30, 2021 totaled $1.3 billion, as well as the senior secured asset-backed revolving credit facility to which we and certain of our subsidiaries are parties (the “ABL Credit Facility”). The ABL Credit Facility provides for a total commitment of $300.0 million with a maturity date of October 28, 2024. We principally use the ABL Credit Facility to support the issuance of letters of credit that arise in the ordinary course of our business and thereby to reduce our use of cash
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required to collateralize these instruments. As of January 30, 2021, letters of credit totaling $81.7 million were collateralized by our ABL Credit Facility. There were no borrowings outstanding under the ABL Credit Facility as of January 30, 2021.
Foreign Liquidity. The amount of cash, cash equivalents, and short-term investments held by our foreign subsidiaries was $94.8 million as of January 30, 2021. We intend to reinvest indefinitely our foreign earnings. If we were to repatriate the accumulated historical foreign earnings, the estimated amount of unrecognized deferred income tax liability related to foreign withholding taxes would be approximately $25.0 million.
Stock Repurchase Authorization. On December 13, 2018, we announced that the Board of Directors authorized a program to repurchase up to $500.0 million of its common stock. After temporarily suspending repurchases of our common stock during fiscal 2020, we reinstituted our stock repurchase program in the first quarter of 2021 and are currently targeting repurchases in the range of $150 million of our common stock during fiscal 2021. We repurchased $13.2 million under this program during the first three months of fiscal 2021, and had $262.2 million remaining under the current authorization as of January 30, 2021. 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 reinstated, modified, suspended, or discontinued at any time.
Liquidity Position. Based on past performance and current expectations, we believe that cash from operations, cash, cash equivalents, investments, and other sources of liquidity, including our ABL Credit Facility, will satisfy our working capital needs, capital expenditures, and other liquidity requirements associated with our operations through at least the next 12 months. We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs to fund our operating or investment plans, and 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. While the COVID-19 pandemic has not materially impacted our liquidity and capital resources to date, it has led to disruptions and volatility in capital markets and credit markets. The duration and severity of any further economic or market impact of the COVID-19 pandemic remains uncertain and there can be no assurance that it will not have an adverse effect on our liquidity and capital resources, including our ability to access capital markets, in the future.
Cash Used In Operating Activities
The following sections set forth the components of our $7.3 million of cash used in operating activities during the first three months of fiscal 2021:
Net income (adjusted for non-cash charges)
The following table sets forth our net income (adjusted for non-cash charges) during the period (in thousands):
 Three Months Ended
 January 30, 2021
Net income$55,348 
Adjustments for non-cash charges: 
Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements23,188 
   Share-based compensation costs18,964 
   Amortization of intangible assets9,642 
   Deferred taxes(905)
   Provision for inventory excess and obsolescence5,905 
   Provision for warranty3,239 
   Other4,277 
Net income (adjusted for non-cash charges)$119,658 

Working Capital        
We used $127.0 million of cash for working capital during the period. The following table sets forth the major components of the cash used in working capital (in thousands):
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Three Months Ended
January 30, 2021
Cash provided by accounts receivable$18,862 
Cash used in inventories(51,020)
Cash used in prepaid expenses and other(13,835)
Cash used in accounts payable, accruals and other obligations(112,170)
Cash provided by deferred revenue31,917 
Cash used in operating lease assets and liabilities, net(731)
 Total cash used for working capital$(126,977)

As compared to the end of fiscal 2020:

The $18.9 million of cash provided by accounts receivable during the first three months of fiscal 2021 reflects increased cash collections;
The $51.0 million of cash used in inventories during the first three months of fiscal 2021 primarily reflects increases in finished goods to meet customer delivery schedules and related to some of the actions that we have taken since early fiscal 2020 to mitigate the risk of adverse supply chain impact on our business and operations due to COVID-19 related disruptions;
The $13.8 million of cash used in prepaid expense and other during the first three months of fiscal 2021 primarily reflects increases in foreign currency forward contracts and higher non-customer receivables;
The $112.2 million of cash used in accounts payable, accruals and other obligations during the first three months of fiscal 2021 primarily reflects the payment to employees under our annual cash incentive compensation plan in the first quarter, as well as inventory purchases;
The $31.9 million of cash provided by deferred revenue during the first three months of fiscal 2021 represents an increase in advanced payments received from customers prior to revenue recognition; and
The $0.7 million of cash used in operating lease assets and liabilities, net, during the first three months of fiscal 2021 represents cash paid for operating leases. For more details, see Note 14 to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report.
Our days sales outstanding (“DSOs”) for the first three months of fiscal 2021 were 93 days, and our inventory turns for the first three months of fiscal 2021 were 3.2. The calculation of DSOs includes accounts receivables, net and contract assets for unbilled receivables, net included in prepaid expenses and other.
Cash Paid for Interest
The following table sets forth the cash paid for interest during the period (in thousands):
Three Months Ended
January 30, 2021
Term Loan due September 28, 2025(1)
3,341 
Interest rate swaps(2)
2,511 
ABL Credit Facility(3)
494 
Finance leases1,220 
Cash paid during period$7,566 

(1) Interest on the 2025 Term Loan is payable periodically based on the interest period selected for borrowing. The 2025 Term Loan bears interest at LIBOR for the chosen borrowing period plus a spread of 1.75% subject to a minimum LIBOR rate of 0.00%. At the end of the first quarter of fiscal 2021, the interest rate on the 2025 Term Loan was 1.88%.
(2) The interest rate swaps fix the LIBOR rate for $350.0 million of the 2025 Term Loan at 2.957% through September 2023.
(3) During the first three months of fiscal 2021, we utilized the ABL Credit Facility to collateralize certain standby letters of credit and paid $0.5 million in commitment fees, interest expense and other administrative charges relating to the ABL Credit Facility.
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Contractual Obligations
There have been no material changes to our contractual obligations since October 31, 2020. For a summary of our contractual obligations, see Item 7 of Part II of our 2020 Annual Report.
Off-Balance Sheet Arrangements
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.

Critical Accounting Policies and Estimates

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. 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 under the circumstances. The inputs into certain of our judgments, assumptions, and estimates reflect, among other things, the information available to us regarding the economic implications of the COVID-19 pandemic, and expectations as to its impact on our business and on our critical and significant accounting estimates. 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. In addition, because the duration, severity, and impact of the COVID-19 pandemic remain uncertain, certain of our estimates could require further judgment or modification, and therefore carry a higher degree of variability and volatility. As events continue to evolve, our estimates may change materially in future periods.

Except for items listed below, our critical accounting policies and estimates have not changed materially since October 31, 2020. For a discussion of our critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of our 2020 Annual Report.

Allowance for Credit Losses for Accounts Receivable and Contract Assets

See Note 2 to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report for information regarding the change in our allowance for credit losses for accounts receivable and contract assets accounting policies as a result of our adoption of ASU 2016-13, Financial Instruments - Credit Losses.

Effects of Recent Accounting Pronouncements

See Note 2 to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report for information relating to our discussion of the effects of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. For a discussion of quantitative and qualitative disclosures about market risk, see Item 7A of Part II of our 2020 Annual Report.

Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this 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 Securities Exchange Act of 1934, as amended). Based upon 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 report.
Changes in Internal Control over Financial Reporting
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There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any significant impact to our internal control over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. The design of our processes and controls allow for remote execution with secure accessibility to data. We are continually monitoring and assessing the COVID-19 situation to minimize the impact, if any, on the design and operating effectiveness on our internal controls.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

    The information set forth under the heading “Litigation” in Note 20, Commitments and Contingencies, to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report, is incorporated herein by reference.

Item 1A. Risk Factors

Investing in our securities involves a high degree of risk. Before investing in our securities, you should consider carefully the information contained in this report and in our 2020 Annual Report, including the risk factors identified in Item 1A of Part I thereof (Risk Factors). This report contains forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” above. Our actual results could differ materially from those contained in the forward-looking statements. Any of the risks discussed in our 2020 Annual Report, in this report, in other reports we file with the SEC, and other risks we have not anticipated or discussed, could have a material adverse impact on our business, financial condition or results of operations. Except as set forth below, there has been no material change to our Risk Factors from those presented in our 2020 Annual Report.

Our reliance on third-party component suppliers, including sole and limited source suppliers, exposes our business to additional risk 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. As a result, there is no assurance that we will be able to secure the components or subsystems that we require, in sufficient quantity and quality, 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 and could negatively affect our product gross margin and results of operations. There are a number of significant technology trends or developments underway or emerging – including the Internet of Things, autonomous vehicles, and advances in mobile communications such as the emergence of 5G – that have previously resulted in, and can be expected in the future to result in, increased market demand for key raw materials or components upon which we rely. By way of example, due to increased demand across a range of industries, the global supply market for semiconductor components, which we use in most of our products, has experienced significant strain in recent periods. Partly in response to these dynamics, in February 2021, the Biden Administration issued an executive order on U.S. supply chains, implementing a 100-day review of certain supply chain risks, including with respect to semiconductor manufacturing and advanced packaging supply chains. 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, product allocation challenges, deployment delays and increased cost, lead times and delivery cycle time lines. These and other industry, market and regulatory disruptions and challenges affecting our suppliers could expose our business to increased costs, loss or lack of supply, or discontinuation of components, lost revenue, increased lead times and deployment delays that could harm our business, results of operations and customer relationships.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides a summary of repurchases of our common stock during the first quarter of fiscal 2021:
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Period
Total Number of Shares Purchase (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
November 1, 2020 to November 28, 2020— $— — $275,388 
November 29, 2020 to December 26, 202073,430 $50.42 73,430 $271,686 
December 27, 2020 to January 30, 2021178,148 $53.34 178,148 $262,183 
251,578 $52.49 251,578 

(1) On December 13, 2018, we announced that our Board of Directors authorized a program to repurchase up to $500.0 million of our common stock. After temporarily suspending repurchases of our common stock during fiscal 2020, we reinstituted our stock repurchase program in the first quarter of 2021. 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.

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

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Item 6. Exhibits
10.1
31.1
31.2
32.1
32.2
101.INSInline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Represents management contract or compensatory plan or arrangement.


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SIGNATURES
Pursuant to the requirements 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.
 Ciena Corporation
 
Date:March 10, 2021By:  /s/ Gary B. Smith  
  Gary B. Smith 
  President, Chief Executive Officer
and Director
(Duly Authorized Officer) 
  
Date:March 10, 2021By:  /s/ James E. Moylan, Jr.  
  James E. Moylan, Jr. 
  Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer) 
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