Ciena CIEN Q2 2025 Earnings Call Transcript

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ETCALL PARTICIPANTSPresident and Chief Executive Officer — Gary SmithChief Financial Officer — Jim MoylanExecutive Advisor — Scott McFeelyVice President, Investor Relations — Gregg Lampf Need a quote from one of our analysts. [ tected]RISKSGross Margin Headwinds: Jim Moylan stated that "demand for two ducts, in particular, have greatly exceeded our expectations, the RLS systems and our plugs

As I discussed, both of those are currently below corporate average gross margins," resulting in annual gross margins are expected to be at the low end of the 42%-44% range for FY2025

Tariff Costs: Jim Moylan noted, "as a result of the dynamic conditions, as well as the need to adjust our billing systems and our customers' systems, we absorbed a net impact to our bottom line in the mid-single-digit millions of dollars in the quarter. "TAKEAWAYSTotal Revenue: $1. 13 billion, at the high end of guidance, with three out of the top five customers being cloud viders

WaveLogic 6 Extreme: 24 new customers added, totaling 49 since general availability in the first two quarters

SUMMARYCiena Corporation (CIEN 2. 34%) reported high-end revenue results of $1. 13 billion, driven by record cloud vider demand and further customer diversification

Strong direct cloud revenue growth, along with sizable new awards from global cloud and service viders, highlight rapid infrastructure investment in AI and data center connectivity

Jim Moylan stated, "We now expect to der revenue growth of apximately 14%. " Gary Smith indicated, "We have new awards with three additional major cloud viders this quarter alone. "Quarterly tariff costs are expected to remain around $10 million per quarter, with mitigation measures outlined by management for future quarters

The company's new cohort of wins includes both a strategic deployment for regional GPU cluster connectivity and a solution for out-of-band network management inside data centers

Duct mix—particularly the early ramp of RLS and pluggables—will weigh on margins in the near term, but management jects margin imvement as these ducts mature and cost efficiencies are realized

Backlog is expected to increase by year-end, with more orders converting to revenue over the next fiscal period

INDUSTRY GLOSSARYRLS (Reconfigurable Line System): An optical networking platform enabling dynamic configuration of optical channels for imved scalability and efficiency in high-capacity networks

DCI (Data Center Interconnect): nology enabling high-capacity connections between data centers, often used to support cloud and AI workloads

MoFEN: Middle-of-Fiber Edge Networks; carrier partnerships and architectures that expand connectivity between core and edge or cloud infrastructure across geographies

Pluggables (Coherent Pluggable Optics): Optical transceivers that can be modularly inserted into networking equipment to vide high-speed data transmission over varying distances

WDM (Wavelength Division Multiplexing): A method of increasing the bandwidth of fiber-optic networks by combining multiple wavelengths onto a single fiber strand

Navigator: Ciena's multilayer domain network control suite viding planning, visioning, monitoring, and troubleshooting capabilities in complex networks

Blue Planet: Ciena's software platform for service orchestration, inventory management, and automation—focused on enabling digital transformation and integration of AI-driven operations for network operators

AGENTIC AI: Applied AI systems capable of autonomous decision-making and management actions within network operations

All participants will be in listen-only mode

Please note this event is being recorded

I would now to turn the conference over to Gregg Lampf, Vice President of Investor Relations

Gregg Lampf: Thank you, Michael

On the call today is Gary Smith, President and CEO, and Jim Moylan, CFO

Scott McFeely, Executive Advisor, is also with us for Q&A

In addition to this call and the press release, we have posted to the investors section of our website an accompanying investor presentation that reflects this discussion, as well as certain highlighted items from the quarter

Our s today speak to our recent performance, our view on current market dynamics, and drivers of our, as well as a discussion of our financial outlook

Today's discussion includes certain adjusted or non-GAAP measures of Ciena Corporation's results of operations

A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release

Before turning the call over to Gary, I will remind you that during this call, we will be making certain forward-looking statements

Such statements, including our guidance, ary on market dynamics, and discussion of our opportunities and strategy, are based on current expectations, forecasts, and assumptions regarding the company and its, which include risks and uncertainties that could cause actual results to differ materially from the statements discussed today

Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation that we will post shortly after, are an important part of such forward-looking statements, and we encourage you to consider them

Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K and 10-Q, which we expect to file with the SEC by June 12th

Ciena Corporation assumes no obligation to the information discussed in this conference call, whether as a result of new information, future events, or otherwise

As always, we will allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and a -up

With that, I will turn the call over to Gary

Gary Smith: Thanks, Gregg

This performance reflects continued strong demand across all customer segments, geographic regions, and our diversified portfolio

Notably, revenue from cloud viders stood out as a key driver in Q2

This really highlights the accelerating investments in AI infrastructure and our leadership in addressing this demand

Indeed, three of our top five customers this quarter were cloud viders, underscoring their sustained investments in AI expansion

Over the past quarter, market dynamics have not only validated our previous assumptions customer network infrastructure spend but have also reflected an accelerating demand environment that continues to ramp and exceed our expectations

We believe this strength is differentiated for us as the market continues to evolve in our direction

Accordingly, orders in the quarter were, again, significantly greater than revenue

This outstanding performance showcases where we remain a very trusted partner for a wide range of network operators who are to scale their infrastructure for high-speed data center and cloud connectivity, including for emerging applications and use cases

To address this growing demand, we are deploying the entirety of our portfolio, including optical systems and interconnects, routing and switching solutions, software, and services

As the global leader in high-speed connectivity, our WaveLogic nology remains a cornerstone of our competitive advantage

Specifically, our WaveLogic X 1. 6T WAN nology maintains at least an 18 to 24-month competitive lead in the market, as our photonic line systems continue to be the de facto industry standard

Demand for our reconfigurable line system (RLS) continues to increase, and our interconnects is also ramping with tremendous activity and demand

We have new awards with three additional major cloud viders this quarter alone

In As cloud viders expand their data center architectures with scale-up and scale-out AI-related deployments, we are broadening and deepening our relationships with them

In fact, we are addressing new data center-related applications, a strategy that we have spoken publicly over the last few months, and where we recently secured two wins

The first is a very strategic win for an application involving the connection of regional GPU clusters, which is something the industry has been talking for some time

For context, to support the massive scale and power requirements of AI training and inference traffic, data centers must become more distributed

Historically, these traffic flows were primarily inside the data center, but they are now across multiple data centers over greater distances that require high capacity, low latency links

As one of the first vendors to address this application, and with our coherent optical nology ideally suited for this type of connectivity, we expect to see more of these types of opportunities emerge as cloud viders evolve their data center network architectures to support their AI strategies

The second win is for a focused application inside the data center for out-of-band network management

These networks operate separately from the main data traffic network and vide remote access to monitor and manage data center systems

We recently worked with a global cloud vider to co-develop a solution based on our existing nologies, designed to significantly reduce the complexities of these networks and line the management of its large-scale data center operations

Now turning to service viders, it has now been several quarters of an imving trend line with service viders as their network investments in high-speed infrastructure become more durable and sustainable ing a long period of underinvestment

We are seeing growth and strength across the board with service viders in core optical transport, routing and switching, and software to address the connectivity needs of their own customer base and to support cloud viders' growing bandwidth demands

As a result, our with Tier 1 North American service viders gained momentum in Q2

We also had several new customer wins in both the Americas and international regions, including Europe

This momentum is driven in part by new fiber builds as well as MoFEN

I also want to touch on the momentum of our software

I will start with the Navigator network control suite, which is our multilayer domain controller

This vides a comprehensive set of capabilities to help network operators plan, vision, monitor, and troubleshoot their networks

This milestone reflects the success of our.