I thought it would be good. But even I didn't imagine it would be this good.
Mr. Chinnici, feel free to leave. Your job is done.
Reviewing the earnings news released Thursday, I saw all the things that convinced investors to bid the shares up 17% in a day (and climbing). The 45% year-over-year growth in sales. The 17% sequential growth. The $0.14 per share in quarterly profits, a reversal of last year's $0.02-per-share loss.
I was most impressed that Ciena managed to reverse its cash burn entirely, turning free cash flow-positive just halfway through its fiscal year. By this time last year, the business had already burnt through $54.1 million in cash. Mid-fiscal year 2007 sees it firmly in the black on a cash profits basis, banking $18.9 million in cash after paying for all of its capital expenses.
In fact, about the only bad news that Ciena reported this quarter was the news that got its shares slapped down last quarter -- its slide in gross margins. Although management (ever the spinners, these guys) predictably declined to highlight the fact, the company's Q2 gross margin of 42.3% represents a 610-basis-point dive year over year.
But even here, the news wasn't all bad. Peering a few months into the future, CEO Gary Smith sees continued sequential growth in revenue (5% better than Q2, or about $203 million). If he's right, that will make for about 33% sales growth versus last year's fiscal Q3, bringing Ciena a bit closer to its new goal of 36% annual sales growth year over year.
Moreover, as greater sales translate into greater economies of scale, the slide in gross margins appears to be easing. Smith foresees "gross margin in a mid-40s range" during the current quarter. While that sounds like a decline from last year's Q3 gross (47.4%), it's not nearly as steep as this quarter's year-over-year decline, and it would mark the kind of sequential improvement that management loves to brag about. Here's hoping that, with time and continued improvement, the firm will one day be able to boast the 60%-plus gross margins that the uber-rivals of the industry, Juniper
What did we expect out of Ciena last quarter, and what did we get? Find out in:
Fool contributor Rich Smith does not own shares of any company named above.