CIENA CORP Q2 FY2025 earnings call

• Gary Smith noted strong Q2 results with revenue at the high end of guidance, driven by strong demand across all customer segments, geographic regions, and diversified portfolio. • Cloud providers were a key driver, with record direct cloud provider revenue growing 85% YOY, and three of top five customers being cloud providers. • Service providers showed improving trend with growth in core optical transport, routing and switching, and software. • Introduced new wins in data center-related applications, including connection of regional GPU clusters and out-of-band network management for a cloud provider. • WaveLogic technology remains a cornerstone, with WaveLogic Xstream 1.6T WAN technology maintaining a competitive lead, and interconnects business ramping. • Software business momentum with Navigator orders up over 30% YOY and Blue Planet's record revenue.

In fiscal second quarter, revenue was $1.13 billion. Revenue from cloud providers was a key driver, achieving record direct cloud provider revenue of over $400 million in Q2, comprising 38% of total revenue and growing 85% year over year. Optical segment: WaveLogic technology remains a competitive advantage, with WaveLogic Xstream 1.6T WAN technology maintaining a competitive lead. Routing and switching business saw growth with new customer wins and introduction of new routers. Software business: Navigator orders increased over 30% YOY in first half of fiscal 2025, and Blue Planet had record quarterly revenue of just under $30 million.

• Fiscal third quarter revenue expected in range of $1.13 to $1.21 billion. • Q3 adjusted gross margin expected roughly in line with Q2. • Adjusted operating expense expected approximately $370 million to $375 million for Q3. • Revised annual revenue growth for fiscal 2025 to approximately 14%. • Annual gross margins expected at lower end of previously assumed range of 42% to 44%. • Expected operating expense to average $360 million to $370 million per quarter for the year.

• Tariff environment remains challenging, with net impact to bottom line in mid-single-digit millions in Q2 due to dynamic conditions and need to adjust billing systems. • Geopolitical environment has fluctuated, though strong demand dynamics continue to drive momentum.

Q: Samik Chatterjee from JPMorgan asked about linearity of cloud orders through the quarter, visibility beyond FY25, and sustainability of growth.

A: Gary Smith said strong order flows continued in Q2, with cloud showing step function in demand, service providers having steady increases, and momentum continuing into Q3. Visibility beyond FY25 will be revised at year end, but trend is long-term positive.

Q: Simon Leopold from Raymond James asked about top customers, percentage contributions, and longer-term trend of cloud contributions.

A: Jim Moylan mentioned largest customer was 13.4%, second was AT&T at 10.4%, top five customers were 45% of revenue. Gary Smith said cloud has broadening application base and set of players, giving confidence in sustainability.

Q: Amit Daryanani from Evercore asked about growth breakdown between cloud and telco for FY25, and if auto momentum converts to revenues in fiscal 2026.

A: Gary Smith said growth is sustainable, with a lot of momentum converting to revenues in 2026, and increased backlog expected. On pluggable opportunity, Gary and Scott McFeely discussed large size and substantial opportunity in regional GPU clusters using pluggables and line systems.

Q: Ruben Roy from Stifel asked about uniqueness of Ciena in GPU cluster opportunity and growth of Blue Planet.

A: Scott McFeely said Ciena is uniquely positioned with aligned systems and pluggables, and Gary Smith discussed Blue Planet's momentum in OSS with potential for leveraging into AGENTIC AI through inventory and network management.

Q: Meta Marshall from Morgan Stanley asked about routing wins and installation capacity.

A: Scott McFeely said routing wins are result of investment, and there's increased need for installation capacity with ramping supply chain and demand.

Q: Adrian Colby from Citi asked about gross margin outlook change and MoFEN opportunities.

A: Jim Moylan said gross margin is at low end of previous range due to high demand for RLS and plugs, with improvement expected next year. Gary Smith said MoFEN opportunities are global, seen in North America, Europe, and Asia outside India, tied to cloud build-out.

Q: Tim Savageaux from Northland Capital Markets asked about customer diversification within cloud.

A: Gary Smith said there's step function increases in all four cloud players directly, with focus on network scaling as part of compute investment, leading to diversified and sustainable growth.

Q: Ryan Koontz from Needham and Company asked about tariff mitigation and service provider traction in pluggables.

A: Jim Moylan discussed tariff mitigation strategies with net effect immaterial going forward. Scott McFeely said ZR pluggable volume is dominated by cloud, though plugs are shipped to service providers.

Q: Karl Ackerman from BNP Paribas asked about backlog and pluggable integration.

A: Jim Moylan said increased backlog assumes higher mix of transponder blades. Scott McFeely said Ciena owns IPR and will ramp components for cost improvement.

Q: David Vogt from UBS asked about margin trajectory and impact of pluggables/RLS on gross margin.

A: Jim Moylan said gross margin will move back to mid-forties with new pluggables and cost improvements, and Q3 gross margin expected similar to Q2 with improvement in Q4.