Telecommunications network specialist Ciena Corp. (CIEN - Analyst Report) reported a loss of 4 cents per share in the second quarter of 2012, much better than the Zacks Consensus Estimate of a loss of 14 cents. Reported loss per share also improved considerably from a loss of 33 cents per share in the year-ago quarter.
Total revenue increased 14.3% year over year to $477.6 million, well above management’s guided range of $435.0 million to $460.0 million and also exceeded the Zacks Consensus Estimate of $447.0 million. The strong growth was driven by higher demand during the quarter.
Product revenue, which comprised 80.0% of the total revenue, increased 14.0% from the year-ago quarter to $384.7 million. Services revenue also jumped 13.5% year over year to $92.9 million.
Adjusted gross profit was up 9.8% year over year to $188.4 million in the quarter, driven by strong revenue growth. Gross margin contracted 160 basis points (bps) to 39.5%, primarily due to unfavorable product mix.
Operating expenses decreased 7.2% year over year to $180.0 million. This decline was primarily due to a 9.3% year-over-year decrease in research and development expenses and a 16.6% decline in general and administrative expenses. However, selling and marketing expenses crept up 1.2% on a year-over-year basis.
Adjusted operating loss improved from $55.6 million in the year-ago quarter to $11.5 million, due to lower operating expenses.
Ciena exited the quarter with $635.7 million in cash and cash equivalents, up from $550.4 million in the previous quarter. The company had $73.4 million in cash from operations versus $12.9 million in the previous quarter.
Ciena expects third quarter 2012 revenues in the range of $455.0 million to $485.0 million. Adjusted gross margin is projected to be at 40%, consistent with the company’s near-term expectation. Management expects adjusted operating expenses to be approximately $180 million. The company expects operating expenses to increase slightly in the second half of 2012 as compared to the first half.
Delays in revenue recognition due to new project ramp ups, weak spending patterns from its customers, slowdown in carrier spending, continued losses and intensifying competition from Cisco Systems Inc. (CSCO - Analyst Report) and Alcatel-Lucent (ALU - Analyst Report) are the near-term headwinds.
Despite the near-term challenges, we anticipate a recovery based on favorable operational execution, strong product pipeline and new deal wins from Tier 1 service providers. These are expected to lead to a gradual improvement in results in 2012.
We have a long-term Neutral recommendation on Ciena, with a Zacks #3 Rank, implying a short-term Hold rating.