Despite missing revenue estimates, network equipment specialist Ciena (Nasdaq: CIEN ) posted an unexpected non-GAAP quarterly profit this morning, sending shares up as much as 21% as of this writing.
Analysts were expecting a non-GAAP loss of $0.08 and the company delivered a profit of $0.08. Ciena CEO Gary Smith attributed the adjusted operating profit to a "favorable product mix and reduced operating expense." The numbers back up this statement, as revenue increased 11.7% from last year while operating expenses dropped 17% over the same period. The company's operating leverage is starting to kick in, and I prefer companies with operating leverage.
Gross margin has notably increased, from 37% last year to 42.5%. Shareholders are looking at the bright side; revenue came in at the short end of guidance at $435.3 million. Looking forward, management guided next-quarter revenue in the range of $440 million to $460 million, which is shy of consensus estimates. Last quarter's weak guidance contributed to a sell-off, but this quarter, the surprise profit is taking the show.
One problem I can't ignore is that Ciena continues to burn through cash. The company has $486.3 million in cash and equivalents, down from $688.7 million back in October of last year. For the first three quarters of its fiscal year, Ciena has used $132.5 million just in operating activities. This is an improvement from the $203.2 million used in operations for the same period last year.
There's been a lot of pessimism throughout the networking sector lately, in part sparked by misses from Juniper Networks (NYSE: JNPR ) and Riverbed Technology (Nasdaq: RVBD ) . Ciena has taken it worse than others and is down more than 30% this year. This quarter's unanticipated profit is an auspicious signal for Ciena's turnaround, although my personal networking pick remains Riverbed Technology.