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Executives

Patrick H. Nettles - Executive Chairman and Member of Government Advisory Board

David M. Rothenstein - Senior Vice President, Secretary and General Counsel

Gary B. Smith - Chief Executive Officer, President and Director

James E. Moylan - Chief Financial Officer and Senior Vice President of Finance

CIENA Corporation (CIEN) 2012 Annual Meeting March 21, 2012 3:00 PM ET

Patrick H. Nettles

Good afternoon. I'm Patrick Nettles, Executive Chairman of the Board of Directors of Ciena. On behalf of the entire board, I'd like to welcome you to Ciena's 2012 Annual Meeting. To our stockholders here in person and those of you listening via the Internet webcast, thank you for your participation and for your continued support of Ciena. At this time, I'll call the meeting to order. In just a minute, we'll consider the 5 proposals on the agenda for today's meeting. After reviewing these proposals, we'll briefly discuss the current state of Ciena's business, industry and markets, and we will review key elements of our corporate strategy.

First, however, I'd like to introduce a number of members of the Ciena team, starting with my fellow directors on the board. All of them are in attendance today. Berry Cash, please stand. Where's Berry? Oh, we’re missing Berry. Lawton Fitt, Judy O'Brien, Michael Rowny and the 2 directors who are also nominees for election today, Bruce Claflin and Patrick Gallagher. I'd also like to introduce Gary Smith, our President and CEO. You will be hearing more from Gary later in the meeting. Also members of our executive team here with us today include Jim Moylan, Senior Vice President and Chief Financial Officer. The board has appointed Jim to act as Inspector of Elections for this meeting, and he has signed the required oath to act as Inspector. David Rothenstein, Senior Vice President and General Counsel; Andy Petrik, Vice President and Controller; and also here is Gregg Lampf, our Vice President of Investor Relations.

Let me also introduce Matt Cotter [ph], representing PricewaterhouseCoopers, our independent auditors; and William Intner of Hogan Lovells, our principal outside counsel.

At this time, I'll turn the meeting over to our General Counsel, David Rothenstein, who will conduct the formal business of today's annual meeting. David?

David M. Rothenstein

Thank you, Pat. The 5 items of business under consideration today are: one, the election of 2 members of the board to serve as Class III directors; two, the approval of the amendment of our 2008 Omnibus Incentive Plan; three, the approval of the amendment and restatement of our employee stock purchase plan or ESPP; four, the ratification of the appointment of PricewaterhouseCoopers as our independent auditors for fiscal year 2012; and five, the stockholder advisory vote on our executive compensation.

Before proceeding to a vote on each of these proposals, I'd like to address some procedural matters. For those stockholders attending the meeting here in person, copies of the agenda and rules of conduct for today's meeting were available to guests when you arrived. In order to conduct an orderly meeting, we ask the participants not address the meeting until you've been recognized by the chair. Stockholders who are here at the meeting will have an opportunity to ask questions following Mr. Smith's presentation. If you'd like to ask a question at that time, please raise your hand, and we'll bring you a microphone so the stockholders listening via the webcast can hear you.

I’ve been advised that we properly mailed a Notice of Internet Availability of Proxy Materials on February 2, 2012, to stockholders as of our record date, January 24, 2012, and I’ve received an affidavit of distribution to that effect from our proxy distribution agent. Also, a list of Ciena stockholders as of the record date is available for examination here at the meeting. According to a preliminary count conducted just prior to the commencement of this meeting, approximately 80.5 million shares are represented at this meeting in person or by proxy. That represents approximately 82% of Ciena's shares outstanding as of the record date, which is sufficient for a quorum under our bylaws. This meeting is now duly convened for the purpose of transacting business.

The voting will be opened during the business portion of the meeting, and the polls will close following consideration of the 5 proposals on the agenda. If you're a holder of record and haven't already voted or if you wish to change your previous vote, we will provide you with a ballot. If you hold your shares in street names with a bank or broker, you must have a legal written proxy from that bank or broker in order to vote your shares at today's meeting. If anyone would like to vote in person, please raise your hand, and Ms. Jackson will provide you with a ballot.

Any proxies and ballots will be collected after the 5 items of business on the agenda have been presented. Following the conclusion of this meeting, Mr. Moylan will then do a formal report on the voting results.

As you've heard, the first item of business is the election of directors. Today, we will be electing 2 Class III directors who will serve in office until 2015’s annual meeting. The board has nominated and recommended the election of Bruce Claflin and Patrick Gallagher. Information about each of these individuals was included in your proxy materials, including descriptions of their business experience and other qualities or characteristics considered by our board in nominating these individuals.

Because Ciena has an advanced notice provision in its bylaws for stockholder nominations and because no other nominations were timely [ph] received, the nominations are closed. Is there a motion for election of these nominees?

Unknown Shareholder

I move for the elections of the [indiscernible].

David M. Rothenstein

Are there any questions or comments concerning the nominees? There being none, I'll declare the polls open at 3:08 p.m. on March 21, 2012, and we can proceed with the votes. Stockholders voting in person should now mark their ballots.

[Voting]

David M. Rothenstein

The second item of business is the approval of the amendment of our 2008 Omnibus Incentive Plan. Detailed information regarding this agenda item can be found in your proxy materials. Is there a motion to approve the amendment of our 2008 plan?

Unknown Shareholder

I move that the amendment of the 2008 plan be approved.

David M. Rothenstein

Are there any questions or comments concerning this agenda item? There being none, we'll proceed with the vote. Stockholders voting in person should now mark their ballots.

[Voting]

David M. Rothenstein

The third item of business is the approval of the amendment and restatement of our ESPP. Again, detailed information regarding this agenda item can be found in your proxy materials. Is there a motion to approve the amendment and the restatement of our ESPP?

Unknown Shareholder

I move that the amendment and the restatement of the [indiscernible].

David M. Rothenstein

Are there any questions or comments concerning this agenda item? There being none, we'll proceed with the vote. Stockholders voting in person should now mark their ballots.

[Voting]

David M. Rothenstein

The fourth item of business is ratification of the audit committee's appointment of PricewaterhouseCoopers to serve as our independent registered public accounting firm for fiscal 2012. Is there a motion to that effect?

Unknown Shareholder

I move that the appointment of PricewaterhouseCoopers [indiscernible].

David M. Rothenstein

Are there any questions or comments concerning the appointment of PricewaterhouseCoopers? There being none, we will now proceed with the vote. Stockholders voting in person should now mark their ballots.

[Voting]

David M. Rothenstein

The fifth and final item of business is our annual stockholders say-on-pay advisory vote on our executive compensation. Details of this agenda item can also be found in our proxy materials. Is there a motion regarding the advisory vote on our executive compensation?

Unknown Shareholder

I move that the approval of our executive [indiscernible].

David M. Rothenstein

Are there any questions or comments concerning this vote? If there are no questions, we'll proceed with the vote. Stockholders voting in person should now mark their ballots.

[Voting]

David M. Rothenstein

As this is the final item of business, please raise your hand if you have a ballot or proxy to submit at this time. Ms. Jackson, will you please collect any remaining ballots or proxies for the Inspector of Elections to tally? Having collected all proxies here at the meeting, I declare that voting is complete and the polls are now closed at 3:10 p.m. on March 21, 2012. Mr. Moylan, will you please tally any additional ballots submitted? We will receive a report on the preliminary voting results and complete the business of the annual meeting shortly. The final tally of the votes will be at [indiscernible] meeting will be filed with the SEC by March 27.

In the meantime, it's now my pleasure to introduce Gary Smith, Ciena's CEO and President, who will report on the state of our company. I'll ask that you please reserve any questions and comments for the Q&A session following Gary's presentation.

Before we proceed, however, I want to remind you that during the course of today's presentation or in answers to questions raised by stockholders, we may make forward-looking statements regarding future events or the future performance of Ciena. Such statements are based upon our current expectations, forecasts and assumptions and include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in Ciena's filings with the SEC, in particular, our most recent 10-Q for the first quarter of fiscal 2012. We do not assume any obligation to update any information discussed in this presentation, whether as a result of new information, future events or otherwise. Gary?

Gary B. Smith

David. I appreciate the opportunity to talk with folks this afternoon and to give a little overview on the business and updates on the business in general.

First of all, starting in 2011, I think we’d describe it as a transformative year for the business and particularly really completing, I think, the integration of the Nortel MEN business, probably the most notable element that permeated throughout the year. And the integration of that was completed certainly by the end of fiscal 2011 in all dimensions in terms of the integration of the people, the leadership team, customers, the portfolio, et cetera.

2011, we finished off the integration of the portfolio, and that now is a fully refreshed and integrated portfolio that we've gone to market with. Additionally, to that, we extended technology leadership in high-capacity networking control plane. And the network management integration, we now have a holistic network management for all of the platforms and markets, which was completed about 18 months after the acquisition. It was a high priority for us. And I think the point that I would make is, really, that the company is now very well positioned. We've laid the foundation, if you will, with the integration for us to take advantage of some of the market dynamics that I think are very positive for us moving forward.

From a financial point of view, we were profitable for 2011. We laid a target out there that we aimed for to be profitable as we turned out of 2011, and we were profitable on an operating basis for the last 2 quarters of fiscal 2011. And also, from a cash point of view, we generated cash from operations in the last 2 quarters, as well as the year. So I think from a trajectory point of view, we're on a pretty good path, and I think it also talks to the strategy of the integration in the first place. I mean, we've lain the foundation for it now. Now it's about accruing the value and driving the bottom line of the business.

On a like-for-like basis, we managed our operating expenses, as well, down 7%, as we saw some of the synergies between the integration of the 2 businesses. So I think some of the financials are beginning to flow through in terms of the rationale for the combination of these businesses. And even during this integration, we continued to grow the business. We expanded the geographic reach and footprint and customer base that we had. We had a lot of new customer wins in the year, both domestically and in international markets. Now about 50% of our business, we actually accrue from outside of North America. And we also entered into some new vertical markets, probably the most obvious one being the submarine space, where we had a number of wins in the submarine market. Again, that's an incremental new business for Ciena and one that we think will be attractive for us going forward.

Overall, if we look at the numbers for 2011, we grew about 25% faster than the overall market, which, I think, does attest to the value proposition and the strategy that we're putting into market.

And I think just to that point, this is the Dell'Oro, whose analysis -- who basically look at the market share statistics. We are #1 in the space that we're in in North America and #2 globally. And again, that was lot of the rationale for the integration of these 2 businesses, was to get to critical mass and scale and to take #1 market share in the spaces that we're in. And a number of customers -- customer wins contributed to that. These are some of the ones that we announced in the various areas of switching and transport and Carrier Ethernet. So we expanded the relationship with some large existing customers such as Verizon and BT and also won a number of new customers in each of these spaces as well. So overall and particularly considering we were going through the integration, it’s a pretty good performance, I think, bodes well for the future. But equally as important to the actual market share is mind share as well, and I think the strategy as a specialist player that we've pursued, I think, is beginning to resonate with the customer base. And these are really the results of a global survey that was just completed by Infonetics. It's basically where they go out to all the major carriers around the world and ask them their views around the suppliers that they like to do business with, and there are actual ratings to it. And again, I think that it's important both to have market share and to have leadership, and it bodes, I think, well for the future of the business. But we were extremely well positioned. We scored #1 in most of the key attributes that are valued by the large carriers around the world, like the way through from the technology, through to the service and support. So again, I think this gives us a good platform on which to grow and develop the business.

And I think if we look to the trends in the business, the overall macro trends, clearly, the 3 things that are going on are around the virtualization. Typically, when we talk about this, it's about server capacity and the virtualization of that, but also things like the virtualization of fiber, which you argue Ciena pioneered. Clearly, everything’s mobile, all the time, any place, anywhere. People expect mobility to continue to increase, and in fact, I think 2012 is the first year where, actually, the number of mobile devices will outstrip the number of human beings on the planet. So there'll be over 8 billion mobile devices in the world by the time we leave 2012. And the virtualization of everything really drives a lot of traffic, and we had 1.8 zettabytes of data created and replicated in 2011. To give you a personal view of that, that's about 17 gigabytes per person for every person that's on the planet. That's an enormous amount of data, and this is statistics for 2011. And again, as that increases, that creates the need for capacity and for the transport of data.

And then what I call smart everything, which is really machine-to-machine, some people refer to this as the Internet of things as opposed to people, and that's really where machine-to-machine communications is required. Again, to try and ground this in something that we all individually understand, if you do a search on Google, you only see about 10% of that search. The other 90% is typically machine interrogating machine. So you get an idea for the extrapolation of growth as search and things like that continue.

So I think what I take away from all of these major trends is that we're still really at the very early stages of these major dynamics that are impacting the industry. And I think the takeaway that I have from it as well is that the underpinning network that is going to deliver these kinds of trends and talk to them is becoming more and more important, and not just about the sheer capacity but also about the intelligence that's required to deliver the right capacity at the right time and at the right place. So it's about scaling the networks dramatically in terms of capacity, but it's also about optimizing the network and putting intelligence on the network so it knows how to go and do that. And I think those are the trends that I think talk to the strategy of Ciena. We're totally focused on scaling these networks up and providing the right kind of intelligence for them.

So I think these kind of dynamics, as they play out, Ciena should be well positioned to take advantage of them.

So as we look to 2012, we are looking to extend our technology leadership as a specialist player. We have some recent announcements around our next generation of coherent chipsets, which is WaveLogic 3, which, again, particularly help scale the networks but also provide intelligence on the network. We launched those a couple of weeks ago, and that's our third generation of those technologies. Many of our competitors are just bringing their first-generation into market, so it's very important that we continue that technology leadership. We are enhancing a number of our packet networking capabilities, and we're also looking at further integrating the portfolio by putting our intelligent control plane typified by our history with CoreDirector onto our transport platform, things like 6500, so really an integrated portfolio that's able to both scale capacity and provide the necessary intelligence on it as well.

We're expanding our addressable market. There's a number of key partnerships, both global partnerships and within certain regions and verticals that we've nurtured over the last couple of years that, I think, will begin to have a material impact on the business going forward. And again, we're going to continue to invest in those. And also, some new geographic markets. We entered a number over the last 18 months that have been quite successful for us, places like the Middle East, Russia, et cetera, where we see good opportunities in that market going forward. And last but absolutely not least, as I said before, I think we've laid a good foundation. We've got a good opportunity for growth. But really, it's about now optimizing the business and getting leverage into -- the financial leverage into that business as we grow, so growing the business and dropping to the bottom line. So we see, as we put these companies together, it's been, I think, quite a smooth integration. But some of the decisions that we made were really based on speed over perfection and certain aspects to that. So it's certainly on the back office. So we see opportunities basically for increased efficiencies with the business, which, I think, will drop to the bottom line, things like supply chain and other cost reductions in it, design-based cost reductions as well and some of the business processes as well that we've identified that we think we can gain operating efficiencies on as well. So we see ourselves in a good position to continue to take market share and to outgrow the competition and also to drive to increased profitability.

As a sort of summary to it, I think, as I said, I think we've built a good platform. Now it's up to us to leverage that and to drive that value into the market place going forward. So with that, that's just a brief overview, I think, on 2011 and plans for 2012. If there are any questions, I will take them. Sir? There's a question at the back. Yes, we'll give you a microphone.

Question-and-Answer Session

Unknown Shareholder

Actually, I have a couple if you'd indulge me. You said you were #1 in North America and #2 globally. Who is #1? And do you have plans on becoming #1?

Gary B. Smith

Good question. The #1 in North America in WDM and switching is Ciena. #1 globally is a company called Huawei, which is based out of China. We are not active in the Chinese market, and that's a very deliberate decision on our part. So it's unlikely overall that we would aspire to be #1 in that particular context. We prefer to be profitable and #2.

Unknown Shareholder

And you basically answered my second question because I was going to ask about China, whether you had any plans of entering China.

Gary B. Smith

We have no plans at this time.

There are no further questions. I will hand the meeting back to David. Thank you.

Patrick H. Nettles

Thanks, Gary. Has the Inspector of Elections tallied all the votes?

James E. Moylan

I have. I can report that the count with respect to the election of Class III director nominee indicates that Mr. Claflin and Gallagher have each received a majority of the votes cast [indiscernible]. I'm also pleased to report that the count with respect to the 2008 plan, the amendment and restatement of the ESPP, and the ratification of the appointment of PricewaterhouseCoopers indicates that these proposals have also been approved [indiscernible]. Finally, [indiscernible] a count with respect to the advisory say-on-pay vote regarding our executive compensation indicates that a majority of the votes cast approve our executive compensation.

David M. Rothenstein

Thank you, Jim. Based on those votes, I declare that the 2 nominees have been duly elected as directors. I also declare that the amendment the 2008 plan, the amendment and restatement of the ESPP and the ratification of the appointment of PricewaterhouseCoopers have also been approved. As the say-on-pay matter is advisory in nature, it’s not binding on Ciena. However, the Board of Directors value stockholders’ opinions on these matters and will consider these voting results when considering executive compensation matters in the future. I'll now turn the meeting back to Ciena's Executive Chairman of the Board, Pat Nettles. Pat?

Patrick H. Nettles

Ladies and gentlemen, this concludes the business of this year's annual meeting. I will now entertain a motion to adjourn.

Unknown Shareholder

[indiscernible]

Patrick H. Nettles

It's been moved that this annual meeting be adjourned. All in favor, say aye.

[Voting]

Patrick H. Nettles

The motion is carried. Again, I'd like to express my sincere appreciation to the stockholders attending today, listening via the Internet and those of you who submitted proxies for today's meeting. Thank you for participating in this year's annual meeting and for your continued support.

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