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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 27, 2024
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
(I.R.S. Employer Identification No.)
21076
(Zip Code)

(410694-5700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCIENNew 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 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 defined 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 as of March 1, 2024
Common Stock, par value $0.01 per share144,602,692



CIENA CORPORATION
INDEX
FORM 10-Q
 PAGE
NUMBER
 
 
2


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 27,January 28,
 20242023
Revenue: 
Products$835,777 $877,715 
Services201,932 178,806 
Total revenue1,037,709 1,056,521 
Cost of goods sold: 
Products466,472 500,337 
Services104,275 100,238 
Total cost of goods sold570,747 600,575 
Gross profit466,962 455,946 
Operating expenses: 
Research and development187,269 181,730 
Selling and marketing128,158 123,807 
General and administrative54,683 50,896 
Significant asset impairments and restructuring costs4,971 4,298 
Amortization of intangible assets7,252 7,441 
Acquisition and integration costs 2,558 
Total operating expenses382,333 370,730 
Income from operations84,629 85,216 
Interest and other income, net10,650 31,973 
Interest expense(23,776)(15,870)
Income before income taxes71,503 101,319 
Provision for income taxes21,956 25,078 
Net income$49,547 $76,241 
Basic net income per common share$0.34 $0.51 
Diluted net income per potential common share$0.34 $0.51 
Weighted average basic common shares outstanding145,291 149,081 
Weighted average dilutive potential common shares outstanding145,848 149,551 

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


3


CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
Quarter Ended
 January 27,January 28,
 20242023
Net income $49,547 $76,241 
Unrealized gain on available-for-sale securities, net of tax 895 1,050 
Unrealized gain on foreign currency forward contracts, net of tax7,156 5,342 
Unrealized loss on interest rate swaps, net of tax(9,474)(5,025)
Change in cumulative translation adjustments14,323 15,979 
Other comprehensive income12,900 17,346 
Total comprehensive income$62,447 $93,587 

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


4


CIENA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
January 27,
2024
October 28,
2023
ASSETS 
Current assets: 
Cash and cash equivalents$1,264,751 $1,010,618 
Short-term investments106,678 104,753 
Accounts receivable, net of allowance for credit losses of $14.3 million and $11.7 million as of January 27, 2024 and October 28, 2023, respectively.
865,239 1,003,876 
Inventories, net984,886 1,050,838 
Prepaid expenses and other387,193 405,694 
Total current assets3,608,747 3,575,779 
Long-term investments103,862 134,278 
Equipment, building, furniture and fixtures, net280,357 280,147 
Operating right-of-use assets35,679 35,140 
Goodwill445,084 444,765 
Other intangible assets, net195,682 205,627 
Deferred tax asset, net814,098 809,306 
Other long-term assets109,701 116,453 
        Total assets$5,593,210 $5,601,495 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$316,094 $317,828 
Accrued liabilities and other short-term obligations329,910 431,419 
Deferred revenue166,714 154,419 
Operating lease liabilities16,888 16,655 
Current portion of long-term debt11,700 11,700 
Total current liabilities841,306 932,021 
Long-term deferred revenue76,556 74,041 
Other long-term obligations176,313 170,407 
Long-term operating lease liabilities32,418 33,259 
Long-term debt, net1,543,118 1,543,406 
Total liabilities2,669,711 2,753,134 
Commitments and contingencies (Note 19)
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; 144,946,510 and 144,829,938 shares issued and outstanding
1,449 1,448 
Additional paid-in capital6,274,773 6,262,083 
Accumulated other comprehensive loss(24,867)(37,767)
Accumulated deficit(3,327,856)(3,377,403)
Total stockholders’ equity2,923,499 2,848,361 
Total liabilities and stockholders’ equity$5,593,210 $5,601,495 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5


CIENA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
 January 27,January 28,
 20242023
Cash flows provided by (used in) operating activities: 
Net income$49,547 $76,241 
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 improvements22,808 22,208 
Share-based compensation costs37,827 30,512 
Amortization of intangible assets10,016 10,325 
Deferred taxes(4,368)(7,247)
Provision for inventory excess and obsolescence10,350 5,503 
Provision for warranty4,841 8,230 
Gain on cost method equity investments, net (26,455)
Other5,051 7,325 
Changes in assets and liabilities:
Accounts receivable135,160 (133,067)
Inventories56,157 (235,059)
Prepaid expenses and other17,116 4,667 
Operating lease right-of-use assets3,084 3,891 
Accounts payable, accruals and other obligations(90,915)(56,979)
Deferred revenue14,022 29,459 
Short- and long-term operating lease liabilities(4,620)(5,193)
Net cash provided by (used in) operating activities266,076 (265,639)
Cash flows provided by (used in) investing activities: 
Payments for equipment, furniture, fixtures and intellectual property(16,599)(30,030)
Purchases of investments(21,213)(35,411)
Proceeds from sales and maturities of investments53,674 123,249 
Settlement of foreign currency forward contracts, net2,271 (4,001)
Acquisition of business, net of cash acquired (230,048)
Net cash provided by (used in) investing activities18,133 (176,241)
Cash flows provided by (used in) financing activities: 
Proceeds from issuance of term loan, net 497,500 
Payment of long-term debt (1,732)
Payment of debt issuance costs(2,402)(3,996)
Payment of finance lease obligations(981)(913)
Shares repurchased for tax withholdings on vesting of stock unit awards(10,076)(12,980)
Repurchases of common stock - repurchase program, net(38,195) 
Proceeds from issuance of common stock16,934 14,315 
Net cash provided by (used in) financing activities(34,720)492,194 
Effect of exchange rate changes on cash, cash equivalents and restricted cash4,646 9,884 
Net increase in cash, cash equivalents and restricted cash254,135 60,198 
Cash, cash equivalents and restricted cash at beginning of period1,010,786 994,378 
Cash, cash equivalents and restricted cash at end of period$1,264,921 $1,054,576 
Supplemental disclosure of cash flow information 
Cash paid during the period for interest, net$18,582 $10,536 
Cash paid during the period for income taxes, net$8,260 $8,383 
Operating lease payments$5,080 $5,638 
Non-cash investing and financing activities 
Purchase of equipment in accounts payable$4,225 $7,354 
Repurchase of common stock in accrued liabilities from repurchase program$3,110 $ 
Operating right-of-use assets subject to lease liability $3,498 $6,244 
Gain on cost method equity investments, net$ $26,455 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6


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 Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at October 28, 2023144,829,938 $1,448 $6,262,083 $(37,767)$(3,377,403)$2,848,361 
Net income— — — — 49,547 49,547 
Other comprehensive income— — — 12,900 — 12,900 
Repurchase of common stock - repurchase program, net(691,088)(7)(31,987)— — (31,994)
Issuance of shares from employee equity plans1,039,765 10 16,924 — — 16,934 
Share-based compensation expense— — 37,827 — — 37,827 
Shares repurchased for tax withholdings on vesting of stock unit awards(232,105)(2)(10,074)— — (10,076)
Balance at January 27, 2024144,946,510 $1,449 $6,274,773 $(24,867)$(3,327,856)$2,923,499 
Common Stock
Shares
Par ValueAdditional
Paid-in-Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Balance at October 29, 2022148,412,943 $1,484 $6,390,252 $(46,645)$(3,632,230)$2,712,861 
Net income— — — — 76,241 76,241 
Other comprehensive income— — — 17,346 — 17,346 
Issuance of shares from employee equity plans1,009,649 11 14,304 — — 14,315 
Share-based compensation expense— — 30,512 — — 30,512 
Shares repurchased for tax withholdings on vesting of stock unit awards(265,004)(3)(12,977)— — (12,980)
Balance at January 28, 2023149,157,588 $1,492 $6,422,091 $(29,299)$(3,555,989)$2,838,295 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7


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. 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 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 28, 2023 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 the fiscal year ended October 28, 2023 (the “2023 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 2024 is a 53-week fiscal year with the additional week occurring in the fourth quarter. Fiscal 2023 was a 52-week fiscal year.

(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 2023 Annual Report.

Newly Issued Accounting Standards - Effective

In October 2021, the FASB issued ASU No. 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination to address recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 was effective for Ciena beginning in the first quarter of fiscal 2024 without any material impact on its consolidated financial position, results of operations and related disclosures.

Newly Issued Accounting Standards - Not Yet Effective

In November 2023, the FASB issued ASU No. 2023-07 (“ASU 2023-07”), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 on a retrospective basis. Early adoption is permitted. Ciena is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024; however, early adoption is permitted. ASU 2023-09 allows for
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adoption using either a prospective or retrospective method. 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 as presented below depicts the nature, amount, and timing of revenue and cash flows for similar groupings of Ciena’s various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies may differ for each of its product categories, resulting in different economic risk profiles for each category.

The tables below set forth Ciena’s disaggregated revenue for the respective periods (in thousands):
Quarter Ended January 27, 2024
Networking PlatformsPlatform Software and ServicesBlue Planet Automation Software and ServicesGlobal ServicesTotal
Product lines:
Optical Networking$695,849 $ $ $ $695,849 
Routing and Switching111,387    111,387 
Platform Software and Services
 89,745   89,745 
Blue Planet Automation Software and Services
  13,942  13,942 
Maintenance Support and Training
   74,115 74,115 
Installation and Deployment
   42,723 42,723 
Consulting and Network Design
   9,948 9,948 
Total revenue by product line
$807,236 $89,745 $13,942 $126,786 $1,037,709 
Timing of revenue recognition:
Products and services at a point in time
$807,236 $27,694 $1,069 $9,638 $845,637 
Services transferred over time 62,051 12,873 117,148 192,072 
Total revenue by timing of revenue recognition
$807,236 $89,745 $13,942 $126,786 $1,037,709 


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Quarter Ended January 28, 2023
Networking PlatformsPlatform Software and ServicesBlue Planet Automation Software and ServicesGlobal ServicesTotal
Product lines:
Optical Networking$735,634 $ $ $ $735,634 
Routing and Switching119,505    119,505 
Platform Software and Services
 73,445   73,445 
Blue Planet Automation Software and Services
  15,405  15,405 
Maintenance Support and Training
   67,891 67,891 
Installation and Deployment
   34,575 34,575 
Consulting and Network Design
   10,066 10,066 
Total revenue by product line
$855,139 $73,445 $15,405 $112,532 $1,056,521 
Timing of revenue recognition:
Products and services at a point in time
$855,139 $18,864 $3,982 $9,255 $887,240 
Services transferred over time
 54,581 11,423 103,277 169,281 
Total revenue by timing of revenue recognition
$855,139 $73,445 $15,405 $112,532 $1,056,521 


Ciena reports its sales geographically using the following markets: (i) the United States, Canada, the Caribbean and Latin America (“Americas”); (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia Pacific, Japan and India (“APAC”). Within each geographic area, Ciena maintains specific teams or personnel that focus on a particular region, country, customer, or market vertical. These teams include sales management, account salespersons, and sales engineers, as well as services professionals and commercial management personnel. The following table reflects Ciena’s geographic distribution of revenue based principally 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):
Quarter Ended
January 27,January 28,
20242023
Geographic distribution:
Americas
$718,198 $765,096 
EMEA
207,413 152,804 
APAC
112,098 138,621 
Total revenue by geographic distribution
$1,037,709 $1,056,521 
Ciena’s revenue includes $677.6 million and $693.6 million of United States revenue for the first quarter of fiscal 2024 and 2023, respectively. No other country accounted for 10% or more of total revenue for the periods presented above.
For the periods below, the only customers that accounted for at least 10% of Ciena’s revenue were as follows (in thousands):
Quarter Ended
 January 27,January 28,
 20242023
Cloud provider A$166,008 n/a
Cloud provider B109,098 121,327 
AT&Tn/a149,981 
Total$275,106 $271,308 
_____________________________________
n/a    Denotes revenue representing less than 10% of total revenue for the period
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The cloud providers noted in the above table purchased products from each of Ciena’s operating segments excluding Blue Planet® Automation Software and Services. AT&T purchased products and services from each of Ciena’s operating segments for the period presented.

Networking Platforms revenue reflects sales of Ciena’s Optical Networking and Routing and Switching product lines.

Optical Networking - includes the 6500 Packet-Optical Platform, the Waveserver® modular interconnect system, the 6500 Reconfigurable Line System (RLS), the 5400 family of Packet-Optical Platforms, and the Coherent ELS open line system (OLS). This product line also includes the WaveLogic 5 Nano (WL5n) 100G-400G coherent pluggable transceivers.

Routing and Switching - includes the 3000 family of service delivery platforms and the 5000 family of service aggregation. This product line also includes the 6500 Packet Transport System (PTS), which combines packet switching, control plane operation, and integrated optics, the 8100 Coherent IP networking platforms, the 8700 Packetwave Platform, and virtualization software. This product line also includes SD-Edge software and our microplug Optical Line Terminal (OLT) transceiver. This product line also includes Ciena’s WaveRouterTM product, which was introduced during fiscal 2023, for which there have been no material sales to date.

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 offerings provide domain control management, analytics, data and planning tools and applications to assist customers in managing their networks, including by creating more efficient operations and providing more proactive visibility into their networks. Ciena’s platform software includes its Navigator Network Control SuiteTM (“Navigator NCS”) domain controller solution, its suite of Navigator NCS applications, which was previously referred to as “Manage, Control and Plan (MCP),” and its OneControl Unified Management System, as well as planning tools and legacy software solutions that support Ciena’s 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, cloud native, and standards-based software portfolio, together with related services, that enables customers to realize digital transformation through the automation of the services lifecycle. Ciena’s Blue Planet Automation Platform includes multi-domain service orchestration (MDSO), inventory management (BPI), route optimization and analysis (ROA), multi-cloud orchestration (MCO), 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 distinct performance obligations where revenue is generally recognized upfront at a point in time upon transfer of control. Revenue from software subscription and support is recognized ratably over the period during which the services are performed. Revenue from professional services for solution customization, software and solution support services, consulting and design, and build-operate-transfer services relating to Ciena’s software offerings is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period.

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.
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Ciena’s Global Services are considered a distinct performance obligation where revenue is generally recognized over time. Revenue from maintenance support is recognized ratably over the period during which the services are performed. Revenue from installation and deployment services and consulting and network design services is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period. Revenue from training services is generally recognized at a point in time upon completion of the service.

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 27, 2024Balance at October 28, 2023
Accounts receivable, net$865,239 $1,003,876 
Contract assets for unbilled accounts receivable, net$151,572 $150,312 
Deferred revenue$243,270 $228,460 

Ciena’s contract assets represent unbilled accounts receivable, net where transfer of a product or service has occurred but invoicing is conditional upon completion of future performance obligations. These amounts are primarily related to installation and deployment and professional services arrangements where transfer of control has occurred, but Ciena has not yet invoiced the customer. Contract assets are included in prepaid expenses and other on the 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 $70.6 million and $67.9 million of revenue during the first three months of fiscal 2024 and 2023, respectively, that was included in the deferred revenue balance at October 28, 2023 and October 29, 2022, 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 27, 2024 and January 28, 2023.

Capitalized Contract Acquisition Costs

Capitalized contract acquisition costs consist of deferred sales commissions, and were $27.8 million and $30.2 million as of January 27, 2024 and October 28, 2023, respectively. Capitalized contract acquisition costs were included in (i) prepaid expenses and other and (ii) other long-term assets on the Condensed Consolidated Balance Sheets. The amortization expense associated with these costs was $7.7 million and $7.2 million during the first three months of fiscal 2024 and 2023, respectively, and was included in selling and marketing expense on the Condensed Consolidated Statements of Operations.

Remaining Performance Obligations

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 27, 2024, the aggregate amount of RPO was $1.7 billion. As of January 27, 2024, Ciena expects approximately 83% of the RPO to be recognized as revenue within the next 12 months.

(4)SIGNIFICANT ASSET IMPAIRMENT AND RESTRUCTURING COSTS

Restructuring Costs

Ciena has undertaken a number of restructuring activities intended to reduce expense and to 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 the Condensed Consolidated Balance Sheets, for the three months ended January 27, 2024 (in thousands):
12


Workforce
reduction
Other restructuring activitiesTotal
Balance at October 28, 2023$1,913 $ $1,913 
Charges2,861 
(1)
2,110 
(2)
4,971 
Cash payments(4,058)(2,110)(6,168)
Balance at January 27, 2024$716 $ $716 
Current restructuring liabilities$716 $ $716 

(1) Reflects employee costs associated with workforce reductions during the three months ended January 27, 2024 as part of a business optimization strategy to improve gross margin, constrain operating expense, and redesign certain business processes.
(2) Primarily represents costs related to restructured real estate facilities and the redesign of certain business processes associated with Ciena’s supply chain and distribution structure reorganization.

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 the Condensed Consolidated Balance Sheets for the three months ended January 28, 2023 (in thousands):
Workforce
reduction
Other restructuring activitiesTotal
Balance at October 29, 2022$1,215 $4,620 $5,835 
Charges704 
(1)
3,594 
(2)
4,298 
Cash payments(1,498)(8,214)(9,712)
Balance at January 28, 2023$421 $ $421 
Current restructuring liabilities$421 $ $421 
(1) Reflects employee costs associated with workforce reductions during the three months ended January 28, 2023 as part of a business optimization strategy to improve gross margin, constrain operating expense, and redesign certain business processes.
(2) Primarily represents the redesign of certain business processes associated with Ciena’s supply chain and distribution structure reorganization and costs related to restructured real estate facilities.

(5) INTEREST AND OTHER INCOME, NET
The components of interest and other income, net, are as follows for the periods indicated (in thousands):
Quarter Ended
January 27,January 28,
20242023
Interest income$15,177 $7,121 
Gains (losses) on non-hedge designated foreign currency forward contracts3,112 (1,769)
Foreign currency exchange losses(9,192)(1,889)
Gain on cost method equity investments, net 26,455 
Other1,553 2,055 
Interest and other income, net$10,650 $31,973 

During the first quarter of fiscal 2023, the acquisition of Tibit Communications, Inc. (“Tibit”) by Ciena triggered the remeasurement of Ciena’s previously held investment in Tibit to fair value, which resulted in Ciena recognizing a gain on its cost method equity investment of $26.5 million.
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 $9.2 million and $1.9 million during the first three months of fiscal 2024 and fiscal 2023, respectively, in foreign currency exchange rate losses as a result of monetary assets and liabilities that were transacted in a currency other than Ciena’s functional currency. The related remeasurement adjustments were recorded in interest and other income, 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
13


forwards are not designated as hedges for accounting purposes, and any net gain or loss associated with these derivatives is reported in interest and other income, net, on the Condensed Consolidated Statements of Operations. During the first three months of fiscal 2024, Ciena recorded gains of $3.1 million from non-hedge designated foreign currency forward contracts. During the first three months of fiscal 2023, Ciena recorded losses of $1.8 million from non-hedge designated foreign currency forward contracts.

(6) INCOME TAXES

The effective tax rate for the quarter ended January 27, 2024 was higher than the effective tax rate for the quarter ended January 28, 2023, primarily due to the tax benefit of a gain on a cost method equity investment in the first quarter of fiscal 2023.

(7) CASH EQUIVALENT, SHORT-TERM AND LONG-TERM INVESTMENTS

As of the dates indicated, investments are comprised of the following (in thousands):
 January 27, 2024
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated Fair
Value
U.S. government obligations$141,947 $759 $(82)$142,624 
Corporate debt securities57,604 40 (25)57,619 
Time deposits144,106 20  144,126 
$343,657 $819 $(107)$344,369 
Included in cash equivalents$133,829 $ $ $133,829 
Included in short-term investments106,603 143 (68)106,678 
Included in long-term investments103,225 676 (39)103,862 
$343,657 $819 $(107)$344,369 

 October 28, 2023
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated Fair
Value
U.S. government obligations$170,260 $28 $(379)$169,909 
Corporate debt securities59,683 1 (115)59,569 
Time deposits138,830 4 (5)138,829 
$368,773 $33 $(499)$368,307 
Included in cash equivalents$129,276 $ $ $129,276 
Included in short-term investments105,042 4 (293)104,753 
Included in long-term investments134,455 29 (206)134,278 
$368,773 $33 $(499)$368,307 


The following table summarizes the final legal maturities of debt investments as of January 27, 2024 (in thousands):
Amortized
Cost
Estimated
Fair Value
Less than one year$240,433 $240,507 
Due in 1-2 years103,224 103,862 
 $343,657 $344,369 

(8)FAIR VALUE MEASUREMENTS

14


    As of the dates indicated, the following tables summarize the assets and liabilities that are recorded at fair value on a recurring basis (in thousands):
 January 27, 2024
 Level 1Level 2Level 3Total
Assets:    
Money market funds$895,909 $ $ $895,909 
Bond mutual fund156,300   156,300 
Time deposits144,126   144,126 
Deferred compensation plan assets14,614   14,614 
U.S. government obligations 142,624  142,624 
Corporate debt securities 57,619  57,619 
Foreign currency forward contracts 3,020  3,020 
Interest rate swaps 12,501  12,501 
Total assets measured at fair value$1,210,949 $215,764 $ $1,426,713 
Liabilities:
Foreign currency forward contracts$ $6,184 $ $6,184 
Total liabilities measured at fair value$ $6,184 $ $6,184 

October 28, 2023
Level 1Level 2Level 3Total
Assets:
Money market funds$661,101 $ $ $661,101 
Bond mutual fund104,171   104,171 
Time deposits138,829   138,829 
Deferred compensation plan assets11,456   11,456 
U.S. government obligations 169,909  169,909 
Corporate debt securities 59,569  59,569 
Foreign currency forward contracts 1,119  1,119 
Interest rate swaps 24,953  24,953 
Total assets measured at fair value$915,557 $255,550 $ $1,171,107 
Liabilities:
Foreign currency forward contracts$ $14,509 $ $14,509 
Total liabilities measured at fair value$ $14,509 $ $14,509 

As of the dates indicated, the assets and liabilities above are presented on Ciena’s Condensed Consolidated Balance Sheets as follows (in thousands):
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 January 27, 2024
 Level 1Level 2Level 3Total
Assets:    
Cash equivalents$1,183,109 $2,929 $ $1,186,038 
Short-term investments13,226 93,452  106,678 
Prepaid expenses and other 3,020  3,020 
Long-term investments 103,862  103,862 
Other long-term assets14,614 12,501  27,115 
Total assets measured at fair value$1,210,949 $215,764 $ $1,426,713 
Liabilities:
Accrued liabilities and other short-term obligations$ $6,184 $ $6,184 
Total liabilities measured at fair value$ $6,184 $ $6,184 
 October 28, 2023
 Level 1Level 2Level 3Total
Assets:    
Cash equivalents$891,788 $2,760 $ $894,548 
Short-term investments12,313 92,440  104,753 
Prepaid expenses and other 1,119  1,119 
Long-term investments 134,278  134,278 
Other long-term assets11,456 24,953  36,409 
Total assets measured at fair value$915,557 $255,550 $ $1,171,107 
Liabilities:
Accrued liabilities and other short-term obligations$ $14,509 $ $14,509 
Total liabilities measured at fair value$ $14,509 $ $14,509 

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

(9) INVENTORIES
As of the dates indicated, inventories are comprised of the following (in thousands):
January 27,
2024
October 28,
2023
Raw materials$571,666 $664,797 
Work-in-process60,644 55,242 
Finished goods369,771 314,168 
Deferred cost of goods sold36,824 66,634 
Gross inventories1,038,905 1,100,841 
Reserve for inventory excess and obsolescence(54,019)(50,003)
Inventories, net$984,886 $1,050,838 

    Ciena has been expanding its manufacturing capacity and had been accumulating raw materials inventory of components that are available, in some cases with expanded lead times, in an effort to prepare Ciena to produce finished goods more quickly upon the easing of supply constraints for certain common components. During the first quarter of fiscal 2024 Ciena reduced its raw materials inventory of components due to the consumption of raw materials in excess of purchases. The increase in finished goods inventories resulted primarily from planned fulfillment of customer advance orders for which some deliveries have been rescheduled outside of the first quarter of fiscal 2024.

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Ciena makes estimates about future customer demand for its products when establishing the appropriate reserve for excess and obsolete inventory. For the periods presented, future demand was calculated using both customer backlog and future forecasted sales. Generally, Ciena’s customers may cancel or change their orders with limited advance notice, or they may decide not to accept its products and services, although instances of both cancellation and non-acceptance are rare. 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 2024, Ciena recorded a provision for inventory excess and obsolescence of $10.4 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 27,
2024
October 28,
2023
Contract assets for unbilled accounts receivable, net$151,572 $150,312 
Prepaid VAT and other taxes87,965 96,724 
Prepaid expenses60,495 58,954 
Product demonstration equipment, net40,294 40,682 
Capitalized contract acquisition costs20,824 23,326 
Other non-trade receivables20,910 33,408 
Derivative Assets3,020 1,118 
Deferred deployment expense2,113 1,170 
 $387,193 $405,694 

Depreciation of product demonstration equipment was $1.9 million during both the first three months of fiscal 2024 and fiscal 2023.

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 27,
2024
October 28,
2023
Compensation, payroll related tax and benefits$93,937 $159,530 
Warranty56,400 57,089 
Vacation29,700 29,503 
Interest payable8,856 4,514 
Income taxes payable8,153 16,341 
Foreign currency forward contracts6,184 14,509 
Finance lease liabilities4,169 3,953 
Other122,511 145,980 
 $329,910 $431,419 

The following table summarizes the activity in Ciena’s accrued warranty for the periods indicated (in thousands):
Beginning BalanceCurrent Period ProvisionsSettlementsEnding Balance
Three Months Ended January 28, 2023
$45,503 8,230 (5,190)$48,543 
Three Months Ended January 27, 2024
$57,089 4,841 (5,530)$56,400 
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As of the dates indicated, deferred revenue is comprised of the following (in thousands):
January 27,
2024
October 28,
2023
Products$24,415 $28,353 
Services218,855 200,107 
 Total deferred revenue243,270 228,460 
Less current portion(166,714)(154,419)
Long-term deferred revenue$76,556 $74,041 

(12) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives 

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

As of January 27, 2024 and October 28, 2023, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce variability in certain currencies for expenses principally related to research and development activities. The notional amount of these contracts was approximately $349.5 million and $367.3 million as of January 27, 2024 and October 28, 2023, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as cash flow hedges.

As of January 27, 2024 and October 28, 2023, Ciena had forward contracts designated as net investment hedges to minimize the effect of foreign exchange rate movements on its net investments in foreign operations. The notional amount of these contracts was approximately $48.1 million and $48.0 million as of January 27, 2024 and October 28, 2023, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as net investment hedges.

As of January 27, 2024 and October 28, 2023, Ciena had forward contracts in place 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 $190.8 million and $226.3 million as of January 27, 2024 and October 28, 2023, 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 interest on its term loan borrowings (see Note 13 below) and has hedged such risk by entering into floating-to-fixed interest rate swap arrangements.

In April 2022, Ciena entered into forward starting interest rate swaps to fix the Secured Overnight Financing Rate (“SOFR”) for the first $350.0 million of its floating rate debt at 2.968% from September 2023 through September 2025 (“2025 interest rate swaps”). The total notional amount of the 2025 interest swaps was $350.0 million as of January 27, 2024.

In January 2023, Ciena entered into interest rate swaps to fix SOFR for an additional $350.0 million of its floating rate debt at 3.47% through January 2028 (“2028 interest rate swaps”). The total notional amount of these interest rate swaps in effect as of January 27, 2024 was $350.0 million.

In December 2023, Ciena entered into forward starting interest rate swaps to fix SOFR for an additional $350.0 million of its floating rate debt at 3.287% from September 2025 through December 2028 (“2028 forward starting interest rate swaps”). The total notional amount of the 2028 forward starting interest rate swaps effective September 2025 was $350.0 million as of January 27, 2024.

Ciena expects the variable rate payments to be received under the terms of these interest rate swaps to offset exactly the forecasted variable rate payments on the equivalent notional amount of the 2030 New Term Loan (as defined in Note 13 below). 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.
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(13) SHORT-TERM AND LONG-TERM DEBT

Outstanding Term Loan Payable

2030 New Term Loan

On October 24, 2023, Ciena entered into an Incremental Amendment Agreement to its Credit Agreement to which Ciena incurred a new tranche of senior secured term loans in an aggregate principal amount of $1.2 billion maturing on October 24, 2030 (the “2030 New Term Loan”) and a new senior secured revolving credit facility of $300.0 million (the “Revolving Credit Facility”). The 2030 New Term Loan requires Ciena to make installment payments of $2.9 million quarterly, or $11.7 million annually, with the remaining balance payable at maturity.    

The net carrying value of the 2030 New Term Loan was comprised of the following as of the date indicated (in thousands):
January 27, 2024October 28, 2023
Principal BalanceUnamortized DiscountDeferred Debt Issuance CostsNet Carrying ValueNet Carrying Value
2030 New Term Loan$1,170,000 $(4,934)$(6,157)$1,158,909 $1,159,371 

Deferred debt issuance costs that were deducted from the carrying amount of the 2030 New Term Loan totaled $6.2 million as of January 27, 2024 and $5.5 million at October 28, 2023. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2030 New Term Loan. The amortization of deferred debt issuance costs for the 2030 New Term Loan is included in interest expense and was approximately $0.2 million during the first three months of fiscal 2024.

As of January 27, 2024, the estimated fair value of the 2030 New Term Loan was $1.2 billion. The 2030 New Term Loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2030 New Term Loan using a market approach based on observable inputs, such as current market transactions involving comparable securities.

Refinanced Term Loans

The proceeds of the 2030 New Term Loan, net of original issuance discount, was used to repay in full $1.2 billion of outstanding principal of the 2025 Term Loan (as defined below) and the 2030 Term Loan (as defined below), together the Refinanced Term Loans, including accrued interest.

2025 Term Loan

On January 19, 2023, pursuant to the Incremental Agreement (as defined below) to the Credit Agreement, the Credit Agreement was amended to replace LIBOR with SOFR for Ciena’s senior secured term loan maturing on September 28, 2025 (the “2025 Term Loan”) in response to pending impact of FASB Accounting Standards Codification 848, Reference Rate Reform. Deferred debt issuance costs are amortized usi