CIEN turns from loser to winner and it grows now, don’t miss it!

-CIENA CORPORATION-

Ciena does business in providing network hardware, software along with the service also. In the fisrt
quarter of 2018 its revenue increased 3.3% to $730 million, yet net income fell to $13.9million from $38
million in the first quarter a year ago. The Chief Executive Gary Smith says that "Gross margin was
impacted by several new, international service provider deployments in their early stages; however, we
are confident in our ability to return to our normalized gross margin levels,"

This is interesting because the recent drop in net income doesn’t affect the overall fundamental of the
company and this can be a good reason for you to prepare cash to start collecting CIEN at lower price.

Here’s why CIEN is attractive:

Sales and Income (in million)

$3,000,000.00
$2,500,000.00
$2,000,000.00
$1,500,000.00
$1,000,000.00 Revenue
$500,000.00 EBIT
$- Net Income

$(500,000.00)
$(1,000,000.00)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue $779,769. $902,448. $652,629. $1,236,63 $1,406,53 $1,454,99 $2,083,00 $2,288,00 $2,446,00 $2,601,00 $2,802,00
EBIT $48,666.0 $21,873.0 $(579,231 $(321,819 $(163,193 $(79,846. $(1,775.0 $45,704.0 $100,448. $156,169. $214,722.
Net Income $82,788.0 $38,894.0 $(581,154 $(333,514 $(195,521 $(144,021 $(85,000. $(41,000. $12,000.0 $73,000.0 $1,262,00

From the data above we may see that the end of 2017 amazing net income of CIEN exist, but PLEASE
don’t focus to it. Yes, it is great; 2017’s net income was $1.26 billion moreover if we compare it to
2016’s which is only $73 million. The matter is at Income Tax Return. There was a tax return benefit as
much as $1.1 billion that added to net income of 2017, so actually the real income is Income from
Operations or we can say Earnings Before Interests and Taxes (EBIT) is amounted only $214 million
(source: CIEN 2017 Form 10K; Consolidated Statements Of Operations). Okay, check the previous EBITs,
it’s still favorable though.
The EBIT grows from massive minus in 2009 ($-579 million) and turned around into positive EBIT in 2014
($45 million) and reach a favorable EBIT in 2017 ($214 million). We should see its effort in escaping from
near death experience to finally make profit and survive, grows bigger and stronger. It’s not easy to
thrive and struggle rise from its weakest point since 2009, grow since the weakest and finally really
turned around in 2015 when the business really began to profit. It might be small today but if it persists
to grow it may become a giant someday. When it’s already great everybody will regret for not having
CIEN earlier. Now let’s take a look a little bit deeper.

Balance Sheet
$4,500,000.00
$4,000,000.00
$3,500,000.00
$3,000,000.00
$2,500,000.00
$2,000,000.00
$1,500,000.00
$1,000,000.00
$500,000.00
$-
$(500,000.00)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Asset $2,416,27 $2,024,59 $1,504,38 $2,118,09 $1,951,41 $1,881,14 $1,803,00 $2,073,00 $2,695,00 $2,882,00 $3,952,00
Total Liabilities $1,566,11 $1,025,64 $1,048,54 $1,958,80 $1,937,54 $1,970,11 $1,885,00 $2,142,00 $2,074,00 $2,116,00 $1,815,00
Equity $850,154. $998,949. $455,838. $159,293. $13,873.0 $(88,972. $(82,000. $(69,000. $621,000. $766,000. $2,137,00

Total Asset Total Liabilities Equity

CIEN’s asset along with its equity and liability were better today, marked since 2015 when things were
better and began to profit as CIEN were benefited from its more diversified customer base and strong
alignment of solutions with increasing demand of the customers. We may see that from 2012 the asset
grows and in 2015 equity began to be positive and increasing until today. After gloomy days of CIEN, it is
growing stronger and greater now. We may also check that the company is really serious managing its
debt;
 Solvability Ratio
16000.00%
14000.00%
12000.00%
10000.00%
8000.00%
6000.00%
4000.00%
2000.00%
0.00%
-2000.00%
-4000.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Debt on Asset 34.59% 41.80% 56.48% 70.29% 76.05% 68.32% 70.44% 65.65% 52.21% 42.47% 19.66%
Debt on Equity 184.22% 102.67% 230.03% 1229.68% 13966.30% -2214.31% -2298.78% -3104.35% 333.98% 276.24% 84.93%
Interest Expense on Equity 0.03 0.01 0.02 0.12 2.73 (0.45) (0.54) (0.68) 0.08 0.07 0.03

Debt on Asset Debt on Equity Interest Expense on Equity

The negative DERs above in 2012, 2013 and 2014 are caused by negative equity, after 2014 CIEN
continued to make its operation more efficient; DER is pushed to down while it keeps pumping revenues
and lowering COGS and expense and shall result in better profitability ratios. We can see lower DER is
maintained since 2015 until the last DER in 2017 was below 100%. We can also check the interest
expense that the company spends is very little compared to its equity and it keeps smaller and smaller, I
see that company tries to not dependent on debt so that it may not interrupt its operations. The
management’s effort to make the company keeps breathing, survive, wake up and run is really catching
my eyes.

Liquidity Ratio
700.00%
600.00%
500.00%
400.00%
300.00%
200.00%
100.00%
0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Cash Ratio 122.13% 307.05% 244.28% 146.55% 121.43% 93.79% 56.26% 75.16% 118.59% 87.22% 61.75%
Current Ratio 269.55% 660.64% 656.73% 306.75% 293.90% 206.68% 226.99% 216.77% 279.46% 225.67% 193.26%

Cash Ratio Current Ratio

Cash ratio is still floating positively but decreasing, while current ratio is still above 100%. This is still
considered good. We may need to check this routine yet by far nothing is really problematic about debt.
 Overall, CIEN is a healthy company. CIEN is healthy (not going to bankrupt anytime soon); debt is not
interrupting its operations. Okay now we know that the company’s ability in survive is great, what
about its ability in making profit? Let’s check it out!

Profitability Ratio Highlight

400.00% 70.00%
200.00%
60.00%
0.00%
-200.00% 50.00%
-400.00% 40.00%
-600.00%
-800.00% 30.00%
-1000.00% 20.00%
-1200.00%
10.00%
-1400.00%
-1600.00% 0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2015 2016 2017
ROE 9.74% 3.89% -127.49% -209.37% -1409.36 161.87% 103.66% 59.42% 1.93% 9.53% 59.05% ROE 1.93% 9.53% 59.05%
ROA 3.43% 1.92% -38.63% -15.75% -10.02% -7.66% -4.71% -1.98% 0.45% 2.53% 31.93% ROA 0.45% 2.53% 31.93%

ROE ROA ROE ROA

Okay let’s move to profitability chapter; the ROE was really bad back in 2011. For 2012, 2013 and 2014 I
need to explain that the net profits and equities were negative at that time resulting in positive ROE, but
actually the company was not doing well during 2012-2014. The real thing started from 2015 when the
equity finally got better and positive.

What happen in 2012 to 2014?

From the segment profit table above we may see that CIEN spends operating expense more or less just
the same but the total segment profit increase every year! The expense raise is just a little while the
profit rises significantly! Previously in 2012-2014 the company’s spending was felt burdening, but then
they effort become fruitful. In 2015 it did really made profit and it grew greater and greater.
 Cash Flow
$800,000.00

$600,000.00

$400,000.00

$200,000.00

$-

$(200,000.00)

$(400,000.00)

$(600,000.00)

$(800,000.00) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Operating $108,742.0 $117,619.0 $7,421.00 $(229,010. $(90,485.0 $107,089.0 $45,000.00 $90,000.00 $262,000.0 $290,000.0 $235,000.0
Investing $80,130.00 $91,248.00 $(74,192.0 $(198,894. $(68,570.0 $(11,977.0 $(131,000. $(106,000. $(43,000.0 $(296,000. $(61,000.0
Financing $482,585.0 $(549,565. $1,107.00 $630,204.0 $13,202.00 $7,940.00 $(207,000. $259,000.0 $(8,000.00 $(4,000.00 $(311,000.

Operating Investing Financing

CIEN’s Operating Cash Flow is favorable that it rose from its lowest in 2010 and stays positively after
2012 until today. The last OCF (2017) was drop yet the revenue increase means nothing to worry about
as it only will be added to receivables. Positive and growing operating cash flow is something that we
want to hear that the company’s business really makes money!

Valuation

EPS VS Stock Price

$10.00 $40.00
$8.00 $35.00
$6.00 $30.00
$4.00 $25.00
$2.00 $20.00
$- $15.00
$(2.00) $10.00
$(4.00) $5.00
$(6.00) $-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Stock Price $34.11 $6.70 $10.84 $21.05 $12.10 $15.70 $23.93 $19.41 $20.69 $24.41 $20.93
EPS(Adjusted) $0.58 $0.27 $(4.06 $(2.33 $(1.37 $(1.01 $(0.59 $(0.29 $0.08 $0.51 $8.82

Stock Price EPS(Adjusted)

The above EPS vs Price chart, we can see that the price performance today is below the fundamental
position. But please remember that CIEN had just received tax return that will not recur every year,
means that the EPS could jump down next year. So, don’t be surprised if 2018’s net income is not so
favorable compared to 2017’s. I repeat again, 2017’s net profit has been benefited by tax return so the
next year’s net income would seem smaller compared to 2017’s, yet if we want to know the real thing
then we need to check the Segment Profit. But the previous EPSs were legit, and for me seeing the EPS
growing year by year is very favorable that I can be sure that the company really makes effort to be
profitable and growing even more.

With current shares outstanding; 142,827,652 the EPS is 6.75, and the last price is 24.32 that makes PE
ratio is now only 3.6! Very low indeed.

Dividend has never been shared as the company has just turned around in 2015 and is still expanding
right now but not impossible someday CIEN will give dividend to its shareholder. For now, I think it’s the
best time to enjoy the capital gain, the reason will be shown below:

Profit from Operations (in thousand $)

$300,000.00
$200,000.00
$100,000.00
$-
$(100,000.00)
$(200,000.00)
$(300,000.00) EBIT
$(400,000.00)
$(500,000.00)
$(600,000.00)
$(700,000.00)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
EBIT $48,666. $21,873. $(579,23 $(321,81 $(163,19 $(79,846 $(1,775. $45,704. $100,448 $156,169 $214,722

The net income in 2017 is $1.2 billion, actually the profit from operations is just $214.7 million, there
was interest and tax return added to its net income and the tax return is heavenly significant ($1.1
billion) so that the result was amazing. So, to be more precise let’s take away the tax and interest, then
we have $46 million in 2007 and $214 million in 2017. Therefore we can have the CAGR is 16%, then we
can assume if 2017s EBIT is $214.7 million, it means 2018’s EBIT should be $249.077 million, after that
add tax and interest then the new net income will be shown to you and then new EPS will come and I
am sure that the net income in 2018 will be lower than 2017’s, not because it suffers a loss but because
the tax return benefit don’t recur. At that time, when the stock price goes down that’s the best moment
to catch the opportunity.
Conclusion

CIEN is a turnaround stock (check the meaning by google it! It’s one of Peter Lynch terms). It turned to
be profit since 2015 as the profit grows significantly while operating expenses still remain the same
(grow slightly thin). Now CIEN is enjoying its glory that it’s effort previously has been fruitful now and it
is growing greater and greater.

CIEN is profitable, growing with awesome leverage management making it very trustful that it does
really make money and debt will not interrupt its own business especially in short term. The DER is going
down, recently it’s below 100%, year by year the DER is lower and lower giving more strength to the
company. The current and cash ratio is going down but still favorable.

The net income in 2017 is $1.2 billion, but the real profit (forget the benefit of provision for income tax
return and interest, focus to the profit made by the business core) is $214 million, previously in 2016 the
income from operations was $156 million. That will make 2018’s net income in 2018 Annual Report go
lower as tax return will not recur every time. If the stock price goes down after 2018’s AR released, you
may start to collect CIEN at low price.

CIEN is small today but it has a potential to grow in its industry. One day, when it’s big enough people
will regret to not realize its potential.