In an Uncertain World, Foresight Is Not Enough. It Takes Agility, Strength and Perseverance to Shape the Future. We Built Ciena
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2020 Annual Report In an uncertain world, foresight is not enough. It takes agility, strength and perseverance to shape the future. We built Ciena to be resilient to our core and created our Adaptive Network™ to give each customer the means to thrive. We are relentless in our pursuits. We lead. It’s all we know. Show us an obstacle and we will overcome. Tell us we can’t do something and we will defy the odds. Sure, we have the best technology. We also work hard to foster a strong and authentic culture, which has engendered a long track record of trust with our customers and encourages engagement with our communities. Simply put, Ciena’s success is rooted in our people. That’s what we deliver. At Ciena it’s our business to expand the limits of what’s possible for our customers. We own the enabling technologies on which our innovation flourishes. While others make announcements, we execute our roadmap and deploy solutions. And this year we deployed WaveLogicTM 5 Extreme, the industry’s first single- wavelengthHere, 800G at solution. Ciena. 01 Ciena At a Glance We are an industry-leading, global networking systems, services, and software company. We enable our customers to adapt and respond in real-time to ever-changing demands through the creation and deployment of the Adaptive Network. Who We Are # # 1 2 $3.5B 8.0% $1.3B 1 or 2 1,700+ Strong FY'20 Revenue 3-yr Revenue Cash Position Market Position Customers Governance CAGR Practices 1 As cited by Omdia, Dell’Oro Group and Cignal AI for different markets. 2 ISS QualityScore of 1 (out of 10) —Bloomberg. Our Portfolio Enabling the Adaptive Network Software Control Analytics and Programmable and Automation Intelligence Infrastructure Blue Planet® multi-domain orchestration, Ciena and Blue Planet® Unified Assurance Converged Packet-Optical Networking: federated inventory, and service order and Analytics: Open suite of software Software-programmable platforms, management solutions support the products that unifies multi-layer, multi- featuring Ciena’s award-winning WaveLogic broadest range of closed-loop automation domain assurance, with AI-powered Photonics with optional agnostic packet/ use cases across multi-layer, multi-vendor analytics to provide strategic insights to OTN switching, designed to maximize scale, networks. transform and simplify business, IT, and flexibility, and open networking. Optimizes network operations. network performance across applications Ciena’s Manage, Control and Plan from metro to submarine, and is the (MCP) domain controller provides MCP Advanced Apps: Applications dominant portfolio used globally for Data intelligent, data-driven software-defined designed to enhance operations and Center Interconnect. programmability to lifecycle operations simplify user experience for optimization of Ciena networks. of multi-layer network performance, Packet Networking: Purpose-built routing, featuring Liquid SpectrumTM for increased switching, and x86 VNF hosting platforms— optical network capacity and service using a common Service-Aware Operating availability, and Adaptive IPTM Apps for System (SAOS)—provide the building advanced real-time visualization and blocks for low-touch, high-velocity IP, analysis of IP networks. Segment Routing, Ethernet, MPLS, and 10G PON in access to metro networks. Ciena Services A consultative approach to build, operate, and continually improve customers’ networks to accelerate their unique journey to the Adaptive Network. We bring experienced technical personnel, best practices, and processes—along with the most effective tools for handling network complexities to work alongside customers every step of the way. 02 GARY B. SMITH President and Chief Executive Officer To Our Shareholders 2020 was a year unlike any in recent memory. The challenges brought on by the global pandemic tested us as individuals, companies, and entire industries. While Ciena was not immune to the unforeseen challenges, our commitment and perseverance proved out our long- term strategy as well as the strength and durability of our business model. I am extremely proud of how we performed, including how the Ciena team supported one another, our customers, and our communities. I have said for many years that the core of Ciena’s business is our people, and that was on full display in 2020, enabling us to thrive across many dimensions. 03 The year’s unique circumstances emphasized the critical Playing a Role in Our Communities role of our communications networks. The network and its ability to connect people has been essential in helping Of equal importance, in 2020 we gave back to our the world navigate and overcome the challenges of the communities in meaningful ways. As a key enabler global coronavirus pandemic. It is the strength of our of innovations that power the world’s networks, we customers’ networks that keeps us connected to loved do everything we can to ensure that network operators ones, friends, colleagues, and important services. can deliver connectivity for their customers at all At Ciena, we have been intently focused on delivering times, especially during this crisis. those networks that can successfully adapt to ever- changing demands, allowing people and companies to We have responded to our customers’ rapid growth maintain these critical connections. in bandwidth demand resulting from the dramatic shift in how we are living today, including the exponential rise in remote working, distance education, e-gaming, and streaming entertainment. Ciena’s technology is also COVID-19: Staying Safe and Connected essential to enabling the healthcare community to treat patients and work to contain the spread of COVID-19, Amidst an unusually dynamic market and significant as well as for governments to coordinate efforts and uncertainty in 2020, we focused our energy on our people communicate instructions to citizens. and our customers. From the very start, we acted quickly in closing our offices and implementing travel restrictions Ciena went above and beyond this responsibility in 2020. designed to protect our employees and customers. We donated PPE and utilized our engineering resources Our holistic approach to the wellbeing of our employees to design and produce face shields. As individuals and is underpinned by four pillars — physical, emotional, teams, the Ciena family served its communities around social, and financial. In this unique year, we emphasized the world like never before with thousands of volunteer and extended our support resources, including employee hours devoted to supporting local causes. Through assistance programs, pandemic leave and other benefits our Ciena Cares program, employee service hours and that provide additional time to focus on rest and recovery, charitable contributions were triple matched by the work-from-home reimbursement and support, and company to force multiply the positive impact. And we additional learning and development resources. announced our longer-term Digital Inclusion Commitment, under which we began working with business partners, We also focused on our customers, going to great lengths such as Verizon, Spark and others around the world, to to deliver on our roadmap commitments — an effort that enable greater opportunities for underserved students in was most evident in deployments of WaveLogic 5 Extreme, our communities through programs that promote greater our fifth-generation coherent modem technology and the access, technology, and skills. industry’s first single-wavelength 800G solution. We innovated with unique engagement approaches to support and interact with our customers in a world where Strong Business Model social distancing and other physical constraints posed limitations. We virtualized customer events, such as Of course, we remain keenly focused on delivering strong our mobile lab, innovation showcases, and e-learning and differentiated operating results and shareholder value. bundles. And we leveraged our robust business continuity Despite some impact of pandemic-related challenges plan, supported by supply chain diversification in recent on our business in fiscal 2020, including slowdowns in years, to continue delivering products and services when customer spending and business velocity in the second movement restrictions and lockdowns were put half of the year, we performed well overall in a difficult in place. These efforts, along with ongoing investments environment. We generated $3.53 billion in revenue, in productivity and efficiency, enabled us to meet and reflecting the valuable diversity in our business with a often exceed customer expectations and requirements strong contribution from non-telco customers of a record for them to succeed in a difficult environment. 40 percent as compared to 37.5 percent in fiscal 2019. The diversity was represented across several customer segments with a highlight being the direct government business, which grew almost 40 percent year over year. 04 As a result of higher gross margins and lower operating Continued Advances in Innovation expense due to business dynamics relating to the pandemic, we delivered outstanding profitability in 2020, Exemplifying our innovation leadership, in 2020 we including adjusted operating margin of 17.6 percent delivered significant advances across all three dimensions and adjusted EPS of $2.95. Free cash flow was $411 million, of our Adaptive Network vision. which represented 66 percent of adjusted operating income, and we ended the year with approximately In Programmable Infrastructure, customers began to $1.3