Item 1. Financial Statements

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Item 1. Financial Statements

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Revenue:
Products	$	865,197	$	684,284	$	2,678,242	$	2,109,239
Services	202,689		183,697		578,820		552,412
Total revenue	1,067,886		867,981		3,257,062		2,661,651
Cost of goods sold:
Products	516,900		434,756		1,559,120		1,259,378
Services	102,045		92,446		305,372		275,526
Total cost of goods sold	618,945		527,202		1,864,492		1,534,904
Gross profit	448,941		340,779		1,392,570		1,126,747
Operating expenses:
Research and development	189,392		150,025		561,115		457,758
Selling and marketing	118,266		105,880		367,156		344,700
General and administrative	49,349		41,121		151,184		131,191
Significant asset impairments and restructuring costs	4,174		7,692		16,625		20,203
Amortization of intangible assets	9,487		8,919		26,773		26,757
Acquisition and integration costs	59		35		3,474		598

Total operating expenses	370,727		313,672		1,126,327		981,207
Income from operations	78,214		27,107		266,243		145,540
Interest and other income, net	10,187		366		50,711		4,860
Interest expense	(24,060)		(12,642)		(63,819)		(33,275)

Income before income taxes	64,341		14,831		253,135		117,125
Provision for income taxes	34,608		4,319		89,507		21,868
Net income	$	29,733	$	10,512	$	163,628	$	95,257
Basic net income per common share	$	0.20	$	0.07	$	1.09	$	0.63
Diluted net income per potential common share	$	0.20	$	0.07	$	1.09	$	0.62
Weighted average basic common shares outstanding	149,690		149,862		149,472		152,083
Weighted average dilutive potential common shares outstanding	149,977		150,463		149,867		153,209

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Net income	$	29,733	$	10,512	$	163,628	$	95,257
Change in unrealized gain (loss) on available-for-sale securities, net of tax	378		(79)		2,075		(2,184)
Change in unrealized gain (loss) on foreign currency forward contracts, net of tax	5,124		(91)		9,314		(6,776)

Change in unrealized gain (loss) on interest rate swaps, net of tax	12,324		(1,613)		5,497		9,425
Change in cumulative translation adjustments	10,151		(4,037)		17,981		(22,783)
Other comprehensive gain (loss)	27,977		(5,820)		34,867		(22,318)
Total comprehensive income	$	57,710	$	4,692	$	198,495	$	72,939

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	July 29, 2023		October 29, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	1,117,922	$	994,352
Short-term investments	141,843		153,989
Accounts receivable, net of allowance for credit losses of $11.2 million and $11.0 million as of July 29, 2023 and October 29, 2022, respectively.	997,373		920,772
Inventories, net	1,192,522		946,730
Prepaid expenses and other	361,692		370,053
Total current assets	3,811,352		3,385,896
Long-term investments	21,098		35,385
Equipment, building, furniture and fixtures, net	287,455		267,779
Operating right-of-use assets	40,482		45,108
Goodwill	446,596		328,322
Other intangible assets, net	219,085		69,517
Deferred tax asset, net	792,299		824,008
Other long-term assets	104,847		113,617
Total assets	$	5,723,214	$	5,069,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	393,144	$	516,047
Accrued liabilities and other short-term obligations	355,622		360,782
Deferred revenue	188,104		137,899
Operating lease liabilities	16,941		18,925
Current portion of long-term debt	11,930		6,930
Total current liabilities	965,741		1,040,583
Long-term deferred revenue	71,873		62,336
Other long-term obligations	156,893		150,335
Long-term operating lease liabilities	37,800		42,392
Long-term debt, net	1,543,900		1,061,125
Total liabilities	2,776,207		2,356,771
Commitments and contingencies (Note 23)
Stockholders’ equity:
Preferred stock – par value $0.01; 20,000,000 shares authorized; zero shares issued and outstanding	—		—
Common stock – par value $0.01; 290,000,000 shares authorized; 148,772,513 and 148,412,943 shares issued and outstanding	1,488		1,484
Additional paid-in capital	6,425,899		6,390,252
Accumulated other comprehensive loss	(11,778)		(46,645)
Accumulated deficit	(3,468,602)		(3,632,230)
Total stockholders’ equity	2,947,007		2,712,861
Total liabilities and stockholders’ equity	$	5,723,214	$	5,069,632

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)


	Nine Months Ended
	July 29,		July 30,
	2023		2022
Cash flows used in operating activities:
Net income	$	163,628	$	95,257
Adjustments to reconcile net income to net cash used in operating activities:




Depreciation of equipment, building, furniture and fixtures, and amortization of leasehold improvements	69,213		68,280
Share-based compensation costs	95,405		77,827
Amortization of intangible assets	36,274		36,521
Deferred taxes	(64,005)		(19,824)
Provision for inventory excess and obsolescence	18,767		12,038
Provision for warranty	18,860		12,416

Gain on cost method equity investments, net	(26,368)		(4,120)
Other	13,694		3,678
Changes in assets and liabilities:
Accounts receivable	(80,399)		74,478
Inventories	(262,345)		(464,664)
Prepaid expenses and other	72,062		(39,805)
Operating lease right-of-use assets	11,003		12,504
Accounts payable, accruals and other obligations	(133,880)		(37,587)
Deferred revenue	57,547		34,949
Short- and long-term operating lease liabilities	(16,596)		(15,197)
Net cash used in operating activities	(27,140)		(153,249)
Cash flows used in investing activities:
Payments for equipment, furniture, fixtures and intellectual property	(83,422)		(66,908)

Purchases of investments	(119,240)		(614,333)
Proceeds from sales and maturities of investments	150,646		460,000
Settlement of foreign currency forward contracts, net	(3,272)		4,450

Purchase of cost method equity investments	—		(8,000)


Acquisition of business, net of cash acquired	(230,048)		(62,043)

Net cash used in investing activities	(285,336)		(286,834)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of senior notes	—		400,000

Proceeds from issuance of term loan, net	497,500		—
Payment of long-term debt	(6,448)		(3,465)

Payment of debt issuance costs	(5,422)		(5,159)
Payment of finance lease obligations	(2,830)		(2,555)

Shares repurchased for tax withholdings on vesting of stock unit awards	(29,794)		(41,280)
Repurchases of common stock - repurchase program, net	(57,736)		(487,792)
Proceeds from issuance of common stock	31,276		30,224
Net cash provided by (used in) financing activities	426,546		(110,027)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	9,501		(12,780)
Net increase (decrease) in cash, cash equivalents and restricted cash	123,571		(562,890)
Cash, cash equivalents and restricted cash at beginning of period	994,378		1,422,604
Cash, cash equivalents and restricted cash at end of period	$	1,117,949	$	859,714
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	56,709	$	24,823
Cash paid during the period for income taxes, net	$	68,058	$	28,593
Operating lease payments	$	18,038	$	16,342
Non-cash investing and financing activities
Purchase of equipment in accounts payable	$	4,579	$	9,320

Repurchase of common stock in accrued liabilities from repurchase program	$	3,500	$	5,000



Operating right-of-use assets subject to lease liability	$	9,771	$	8,226
Gain on cost method equity investments, net	$	26,368	$	4,120

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 29, 2022	148,412,943	$	1,484	$	6,390,252	$	(46,645)	$	(3,632,230)	$	2,712,861

Net income	—	—		—		—		163,628		163,628
Other comprehensive income	—	—		—		34,867		—		34,867
Repurchase of common stock - repurchase program, net	(1,441,435)	(14)		(61,222)		—		—		(61,236)
Issuance of shares from employee equity plans	2,429,069	24		31,252		—		—		31,276
Share-based compensation expense	—	—		95,405		—		—		95,405
Shares repurchased for tax withholdings on vesting of stock unit awards	(628,064)	(6)		(29,788)		—		—		(29,794)

Balance at July 29, 2023	148,772,513	$	1,488	$	6,425,899	$	(11,778)	$	(3,468,602)	$	2,947,007


	Common Stock Shares	Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
Balance at October 30, 2021	154,858,981	$	1,549	$	6,803,162	$	439	$	(3,785,132)	$	3,020,018
Net income	—	—		—		—		95,257		95,257
Other comprehensive loss	—	—		—		(22,318)		—		(22,318)
Repurchase of common stock - repurchase program, net	(8,279,710)	(83)		(491,909)		—		—		(491,992)
Issuance of shares from employee equity plans	2,359,326	23		30,201		—		—		30,224
Share-based compensation expense	—	—		77,827		—		—		77,827

Shares repurchased for tax withholdings on vesting of stock unit awards	(645,240)	(6)		(41,274)		—		—		(41,280)

Balance at July 30, 2022	148,293,357	$	1,483	$	6,378,007	$	(21,879)	$	(3,689,875)	$	2,667,736

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CIENA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) INTERIM FINANCIAL STATEMENTS

The interim financial statements included herein for Ciena Corporation and its wholly owned subsidiaries (“Ciena”) have been prepared by Ciena, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires Ciena to make judgments, assumptions, and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Among other things, these estimates form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. To the extent that there are material differences between Ciena’s estimates and actual results, Ciena’s consolidated financial statements will be affected.

In the opinion of management, the financial statements included in this report reflect all normal recurring adjustments that Ciena considers necessary for the fair statement of the results of operations of Ciena for the interim periods covered and of the financial position of Ciena at the date of the interim balance sheets. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The Condensed Consolidated Balance Sheet as of October 29, 2022 was derived from audited financial statements, but does not include all disclosures required by GAAP. However, Ciena believes that the disclosures are adequate to understand the information presented herein. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. These financial statements should be read in conjunction with Ciena’s audited consolidated financial statements and the notes thereto included in Ciena’s annual report on Form 10-K for fiscal 2022 (the “2022 Annual Report”).

Ciena has a 52 or 53-week fiscal year, with quarters ending on the Saturday nearest to the last day of January, April, July, and October, respectively, of each year. Fiscal 2023 and 2022 are 52-week fiscal years.

(2) SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to Ciena’s significant accounting policies, compared to the accounting policies described in Note 1, Ciena Corporation and Significant Accounting Policies and Estimates, in Notes to Consolidated Financial Statements in Item 8 of Part II of the 2022 Annual Report.

Newly Issued Accounting Standards - Not Yet Effective

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers to improve the accounting for acquired revenue contracts with customers in a business combination to address recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 is effective for annual periods beginning after December 15, 2022 on a prospective basis. Early adoption is permitted. Ciena is currently evaluating the impact of this ASU on its condensed consolidated financial statements and related disclosures.

**(3)**REVENUE

Disaggregation of Revenue

Ciena’s disaggregated revenue as presented below depicts the nature, amount, and timing of revenue and cash flows for similar groupings of Ciena’s various offerings. The sales cycle, contractual obligations, customer requirements, and go-to-market strategies may differ across Ciena’s product lines, resulting in different economic risk profiles for each line.

The tables below set forth Ciena’s disaggregated revenue for the periods indicated (in thousands):


	Quarter Ended July 29, 2023
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	718,997	$	—	$	—	$	—	$	718,997
Routing and Switching	127,563		—		—		—		127,563
Platform Software and Services	—		78,880		—		—		78,880
Blue Planet Automation Software and Services	—		—		13,167		—		13,167
Maintenance Support and Training	—		—		—		72,887		72,887
Installation and Deployment	—		—		—		46,840		46,840
Consulting and Network Design	—		—		—		9,552		9,552
Total revenue by product line	$	846,560	$	78,880	$	13,167	$	129,279	$	1,067,886

Timing of revenue recognition:
Products and services at a point in time	$	846,560	$	15,980	$	2,832	$	11,886	$	877,258
Services transferred over time	—		62,900		10,335		117,393		190,628
Total revenue by timing of revenue recognition	$	846,560	$	78,880	$	13,167	$	129,279	$	1,067,886


	Quarter Ended July 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	563,837	$	—	$	—	$	—	$	563,837
Routing and Switching	100,741		—		—		—		100,741
Platform Software and Services	—		63,483		—		—		63,483
Blue Planet Automation Software and Services	—		—		17,342		—		17,342
Maintenance Support and Training	—		—		—		72,760		72,760
Installation and Deployment	—		—		—		38,704		38,704
Consulting and Network Design	—		—		—		11,114		11,114
Total revenue by product line	$	664,578	$	63,483	$	17,342	$	122,578	$	867,981

Timing of revenue recognition:
Products and services at a point in time	$	664,578	$	15,230	$	4,632	$	9,408	$	693,848
Services transferred over time	—		48,253		12,710		113,170		174,133
Total revenue by timing of revenue recognition	$	664,578	$	63,483	$	17,342	$	122,578	$	867,981


	Nine Months Ended July 29, 2023
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	2,239,180	$	—	$	—	$	—	$	2,239,180
Routing and Switching	377,378		—		—		—		377,378
Platform Software and Services	—		221,768		—		—		221,768
Blue Planet Automation Software and Services	—		—		49,139		—		49,139
Maintenance Support and Training	—		—		—		213,938		213,938
Installation and Deployment	—		—		—		120,901		120,901
Consulting and Network Design	—		—		—		34,758		34,758
Total revenue by product line	$	2,616,558	$	221,768	$	49,139	$	369,597	$	3,257,062

Timing of revenue recognition:
Products and services at a point in time	$	2,616,558	$	48,290	$	14,143	$	36,553	$	2,715,544
Services transferred over time	—		173,478		34,996		333,044		541,518
Total revenue by timing of revenue recognition	$	2,616,558	$	221,768	$	49,139	$	369,597	$	3,257,062


	Nine months ended July 30, 2022
	Networking Platforms		Platform Software and Services		Blue Planet Automation Software and Services		Global Services		Total
Product lines:
Converged Packet Optical	$	1,730,066	$	—	$	—	$	—	$	1,730,066
Routing and Switching	295,638		—		—		—		295,638
Platform Software and Services	—		205,557		—		—		205,557
Blue Planet Automation Software and Services	—		—		55,334		—		55,334
Maintenance Support and Training	—		—		—		219,270		219,270
Installation and Deployment	—		—		—		120,504		120,504
Consulting and Network Design	—		—		—		35,282		35,282
Total revenue by product line	$	2,025,704	$	205,557	$	55,334	$	375,056	$	2,661,651

Timing of revenue recognition:
Products and services at a point in time	$	2,025,704	$	66,655	$	17,442	$	31,368	$	2,141,169
Services transferred over time	—		138,902		37,892		343,688		520,482
Total revenue by timing of revenue recognition	$	2,025,704	$	205,557	$	55,334	$	375,056	$	2,661,651

Ciena reports its sales geographically using the following markets: (i) the United States, Canada, the Caribbean and Latin America (“Americas”); (ii) Europe, Middle East and Africa (“EMEA”); and (iii) Asia Pacific, Japan and India (“APAC”). Within each geographic area, Ciena maintains specific teams or personnel that focus on a particular region, country, customer or market vertical. These teams include sales management, account salespersons, and sales engineers, as well as services professionals and commercial management personnel. The following table reflects Ciena’s geographic distribution of revenue based principally on the relevant location for Ciena’s delivery of products and performance of services.

For the periods indicated, Ciena’s geographic distribution of revenue was as follows (in thousands):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Geographic distribution:
Americas	$	749,479	$	617,366	$	2,308,934	$	1,913,350
EMEA	152,834		124,185		479,053		420,075
APAC	165,573		126,430		469,075		328,226
Total revenue by geographic distribution	$	1,067,886	$	867,981	$	3,257,062	$	2,661,651

Ciena’s revenue includes $685.8 million and $574.3 million of United States revenue for the third quarter of fiscal 2023 and 2022, respectively. For the nine months ended July 29, 2023 and July 30, 2022, United States revenue was $2.1 billion and $1.8 billion, respectively. No other country accounted for 10% or more of total revenue for the periods indicated in the above table.

For the periods indicated, the only customers that accounted for at least 10% of Ciena’s revenue were as follows (in thousands):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Web-scale provider	$	124,897	n/a		$	369,678	n/a
AT&T	n/a		100,293		$	357,382	314,358
Verizon	n/a		108,495		n/a		273,158
Total	$	124,897	$	208,788	$	727,060	$	587,516

n/a Denotes revenue representing less than 10% of total revenue for the period

The Web-scale provider noted in the above table purchased products from each of Ciena’s operating segments excluding Blue Planet® Automation Software and Services for each of the periods presented. The other customers identified above purchased products and services from each of Ciena’s operating segments for each of the periods presented.

Networking Platforms revenue reflects sales of Ciena’s Converged Packet Optical and Routing and Switching product lines.
Converged Packet Optical - includes the 6500 Packet-Optical Platform, the Waveserver® modular interconnect system, the 6500 Reconfigurable Line System (RLS), the 5400 family of Packet-Optical Platforms, and the Coherent ELS open line system (OLS). This product line includes the WL5n 100G-400G

coherent pluggable transceivers. This product line also includes the Z-Series Packet-Optical Platform and Optical Microsystems products.

Routing and Switching - includes the 3000 family of service delivery platforms and the 5000 family of service aggregation. This product line also includes the 6500 Packet Transport System (PTS), which combines packet switching, control plane operation, and integrated optics, the 8100 Coherent IP networking platforms, the 8700 Packetwave Platform, and virtualization software. This product line also includes SD-Edge software and passive optical network (“PON”) routing and switching portfolio products from our recent acquisitions of Benu Networks, Inc. (“Benu”) and Tibit Communications, Inc. (“Tibit”) respectively, during the first quarter of fiscal 2023. This product line also includes Ciena’s WaveRouter® product, which was introduced during the second quarter of fiscal 2023, for which there have been no sales to date.

The Networking Platforms segment also includes sales of operating system software and enhanced software features embedded in each of the product lines above. Revenue from this segment is included in product revenue on the Condensed Consolidated Statements of Operations. Operating system software and enhanced software features embedded in Ciena hardware are each considered distinct performance obligations for which the revenue is generally recognized upfront at a point in time upon transfer of control.

Platform Software and Services offerings provide domain control management, analytics, data and planning tools, and applications to assist customers in managing their networks, including by creating more efficient operations and more

proactive visibility into their networks. Ciena’s platform software includes its Manage, Control and Plan (“MCP”) domain controller solution, its suite of MCP applications, and its OneControl Unified Management System, as well as planning tools and a number of legacy software solutions that support Ciena’s installed base of network solutions. Platform software-related services revenue includes sales of subscription, installation, support, and consulting services related to Ciena’s software platforms, operating system software and enhanced software features embedded in each of the Networking Platforms product lines above. Revenue from the software portion of this segment is included in product revenue on the Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Blue Planet Automation Software and Services is a comprehensive, cloud native, and standards-based software portfolio, together with related services, that enables customers to realize digital transformation through the automation of the services lifecycle. Ciena’s Blue Planet Automation Platform includes multi-domain service orchestration (MDSO), inventory management (BPI), route optimization and analysis (ROA), network function virtualization orchestration (NFVO), and unified assurance and analytics (UAA). Services revenue includes sales of subscription, installation, support, consulting and design services related to Ciena’s Blue Planet Automation Platform. Revenue from the software portion of this segment is included in product revenue on the Condensed Consolidated Statements of Operations. Revenue from services portions of this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Ciena’s software platform revenue typically reflects either perpetual or term-based software licenses, and these sales are considered distinct performance obligations in which revenue is generally recognized upfront at a point in time upon transfer of control. Revenue from software subscription and support is recognized ratably over the period during which the services are performed. Revenue from professional services for solution customization, software and solution support services, consulting and design, and build-operate-transfer services relating to Ciena’s software offerings is recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period.

Global Services revenue reflects sales of a broad range of Ciena’s services for maintenance support and training, installation and deployment, and consulting and network design activities. Revenue from this segment is included in services revenue on the Condensed Consolidated Statements of Operations.

Ciena’s Global Services are considered a distinct performance obligation for which revenue is generally recognized over time. Revenue from maintenance support is recognized ratably over the period during which the services are performed. Revenue from installation and deployment services and consulting and network design services is also recognized over time with Ciena applying the input method to determine the amount of revenue to be recognized in a given period. Revenue from training services is generally recognized at a point in time upon completion of the service.

Contract Balances

The following table provides information about receivables, contract assets and contract liabilities (deferred revenue) from contracts with customers as of the dates indicated (in thousands):


	Balance at July 29, 2023		Balance at October 29, 2022
Accounts receivable, net	$	997,373	$	920,772
Contract assets for unbilled accounts receivable, net	$	142,305	$	156,039
Deferred revenue	$	259,977	$	200,235

Ciena’s contract assets represent unbilled accounts receivable, net where transfer of a product or service has occurred but invoicing is conditional upon completion of future performance obligations. These amounts are primarily related to installation and deployment and professional services arrangements where transfer of control has occurred, but Ciena has not yet invoiced the customer. Contract assets are included in prepaid expenses and other in the Condensed Consolidated Balance Sheets. See Note 11 below.

Contract liabilities consist of deferred revenue and represent advanced payments against non-cancelable customer orders received prior to revenue recognition. Ciena recognized approximately $119.8 million and $98.9 million of revenue during the first nine months of fiscal 2023 and 2022, respectively, that was included in the deferred revenue balance as of October 29, 2022 and October 30, 2021, respectively. Revenue recognized due to changes in transaction price from performance obligations satisfied or partially satisfied in previous periods was immaterial during the nine months ended July 29, 2023 and July 30, 2022.

Capitalized Contract Acquisition Costs

Capitalized contract acquisition costs consist of deferred sales commissions, and were $31.4 million and $39.7 million as of July 29, 2023 and October 29, 2022, respectively. Capitalized contract acquisition costs were included in (i) prepaid expenses and other and (ii) other long-term assets. The amortization expense associated with these costs was $26.0 million and $20.5 million during the first nine months of fiscal 2023 and 2022, respectively, and was included in selling and marketing expense on the Condensed Consolidated Statements of Operations.

Remaining Performance Obligations

Remaining Performance Obligations (“RPO”) are comprised of non-cancelable customer purchase orders for products and services that are awaiting transfer of control for revenue recognition under the applicable contract terms. As of July 29, 2023, the aggregate amount of RPO was $2.1 billion. As of July 29, 2023, Ciena expects approximately 84% of the RPO to be recognized as revenue within the next 12 months.

**(4)**BUSINESS COMBINATIONS

Benu and Tibit Acquisitions

On November 17, 2022, Ciena acquired Benu, a portfolio of cloud-native software solutions, including a virtual Broadband Network Gateway ((v)BNG), that complements Ciena’s existing portfolio of broadband access solutions. On December 30, 2022, Ciena acquired Tibit, a provider and developer of PON-specific hardware and operating software that can be integrated into a carrier-grade Ethernet switch and will strengthen Ciena’s portfolio of next-generation PON solutions that support residential, enterprise, and mobility use cases. These businesses were acquired for an aggregate of approximately $291.7 million, of which $244.7 million was paid in cash, and $47.0 million represents the fair value of Ciena’s previously held cost method equity investment in Tibit. The acquisition of Tibit triggered the remeasurement of Ciena’s previously held investment in Tibit to fair value, which resulted in Ciena recognizing a gain on its cost method equity investment of $26.5 million. Each of these transactions has been accounted for as the acquisition of a business.

Ciena incurred approximately $3.4 million in acquisition-related costs associated with these acquisitions. These costs and expenses primarily include fees associated with financial, legal, and accounting advisors and employment-related costs. These costs were recorded in acquisition and integration costs on the Condensed Consolidated Statements of Operations.

The following table summarizes the final purchase price allocation related to the acquisitions based on the estimated fair value of the acquired assets and assumed liabilities (in thousands):


	Amount
Cash and cash equivalents	$	14,634
Accounts receivable, net	443
Inventories, net	1,406
Prepaid expenses and other	810
Equipment, furniture and fixtures	1,090
Goodwill	117,997
Developed technology	75,400
In-process technology	89,100
Customer relationships and contracts	18,400
Order backlog	2,480
Deferred tax asset, net	(27,782)
Accounts payable	(420)
Accrued liabilities and other short-term obligations	(874)
Deferred revenue	(851)
Other long-term obligations	(144)
Total purchase consideration	$	291,689

Developed technology represents purchased technology that has reached technological feasibility and for which the acquired companies had substantially completed development as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful life of five years.

In-process technology represents purchased technology that had not reached technological feasibility as of the date of acquisition. Fair value was determined using future discounted cash flows related to the projected income stream of the in-process technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Upon completion of the in-process technology, it will be amortized on a straight line basis over its estimated useful life, which will be determined on that date.

Customer relationships and contracts represent agreements with existing Tibit customers and have an estimated useful life of three years. Order backlog is amortized over the fulfillment period.

The goodwill generated from these acquisitions is primarily related to expected economic synergies. The total goodwill amount was recorded in the Networking Platforms segment. The goodwill is not deductible for income tax purposes.

Pro forma disclosures have not been included due to immateriality. The amounts of revenue and earnings for these acquisitions since the acquisition dates, which are included on the Condensed Consolidated Statements of Operations for the reporting period are immaterial.

**(5)**SIGNIFICANT ASSET IMPAIRMENT AND RESTRUCTURING COSTS

Restructuring Costs

Ciena has undertaken a number of restructuring activities intended to reduce expense and to align its workforce and costs with market opportunities, product development, and business strategies. The following table sets forth the restructuring activity and balance of the restructuring liability accounts, which are included in accrued liabilities and other short-term obligations on the Condensed Consolidated Balance Sheets, for the nine months ended July 29, 2023 (in thousands):


	Workforce reduction			Other restructuring activities			Total
Balance at October 29, 2022	$	1,215		$	4,620		$	5,835
Charges	4,509		(1)	12,116		(2)	16,625

Cash payments	(4,920)			(16,736)			(21,656)
Balance at July 29, 2023	$	804		$	—		$	804
Current restructuring liabilities	$	804		$	—		$	804

(1) Reflects employee costs associated with workforce reductions during the nine months ended July 29, 2023 as part of a business optimization strategy to improve gross margin, constrain operating expense, and redesign certain business processes.

(2) Primarily represents costs related to restructured real estate facilities and the redesign of certain business processes associated with Ciena’s supply chain and distribution structure reorganization.

The following table sets forth the restructuring activity and balance of the restructuring liability accounts, which are included in accrued liabilities and other short-term obligations on the Condensed Consolidated Balance Sheets for the nine months ended July 30, 2022 (in thousands):


	Workforce reduction			Other restructuring activities			Total
Balance at October 30, 2021	$	781		$	—		$	781
Charges	2,224		(1)	13,992		(2)	16,216


Cash payments	(2,423)			(13,115)			(15,538)
Balance at July 30, 2022	$	582		$	877		$	1,459
Current restructuring liabilities	$	582		$	877		$	1,459

(1) Reflects employee costs associated with workforce reductions during the nine months ended July 30, 2022 as part of a business optimization strategy to improve gross margin, constrain operating expense, and redesign certain business processes.

(2) Primarily represents the redesign of certain business processes associated with Ciena’s supply chain and distribution structure reorganization and costs related to restructured real estate facilities.

(6) INTEREST AND OTHER INCOME, NET

The components of interest and other income, net, are as follows for the periods indicated (in thousands):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Interest income	$	12,835	$	2,774	$	30,365	$	4,962

Gains (losses) on non-hedge designated foreign currency forward contracts	1,679		(985)		(2,885)		(2,911)
Foreign currency exchange gains (losses)	(4,031)		(788)		(2,927)		2,711

Gain (loss) on cost method equity investments, net	(87)		—		26,368		4,120
Other	(209)		(635)		(210)		(4,022)
Interest and other income, net	$	10,187	$	366	$	50,711	$	4,860

During the first quarter of fiscal 2023, the acquisition of Tibit triggered the remeasurement of Ciena’s previously held investment in Tibit to fair value, which resulted in Ciena recognizing a gain on its cost method equity investment of $26.5 million. See Note 4 above.

Ciena Corporation, as the U.S. parent entity, uses the U.S. Dollar as its functional currency; however, some of its foreign branch offices and subsidiaries use local currencies as their functional currencies. During the first nine months of fiscal 2023, Ciena recorded $2.9 million in foreign currency exchange rate losses as a result of monetary assets and liabilities that were transacted in a currency other than Ciena’s functional currency. During the first nine months of fiscal 2022, Ciena recorded $2.7 million in foreign currency exchange rate gains as a result of monetary assets and liabilities that were transacted in a currency other than Ciena’s functional currency. The related remeasurement adjustments were recorded in interest and other income, net, on the Condensed Consolidated Statements of Operations. From time to time, Ciena uses foreign currency forwards to hedge this type of balance sheet exposure. These forwards are not designated as hedges for accounting purposes, and any net gain or loss associated with these derivatives is reported in interest and other income, net, on the Condensed Consolidated Statements of Operations. During each of the first nine months of fiscal 2023 and 2022, Ciena recorded losses of $2.9 million from non-hedge designated foreign currency forward contracts.

(7) INCOME TAXES

The effective tax rate for the quarter and nine months ended July 29, 2023 was higher than the effective tax rate for the

quarter and nine months ended July 30, 2022, primarily due to the mandatory capitalization of research and development expenses in the third quarter and nine months ended July 29, 2023, in response to changes in U.S. tax policy.

(8) CASH EQUIVALENT, SHORT-TERM AND LONG-TERM INVESTMENTS

As of the dates indicated, investments are comprised of the following (in thousands):


	July 29, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government obligations	$	94,715	$	1	$	(976)	$	93,740
Corporate debt securities	63,401		2		(155)		63,248
Time deposits	80,854		1		(12)		80,843
	$	238,970	$	4	$	(1,143)	$	237,831

Included in cash equivalents	$	74,890	$	—	$	—	$	74,890
Included in short-term investments	142,743		4		(904)		141,843
Included in long-term investments	21,337		—		(239)		21,098
	$	238,970	$	4	$	(1,143)	$	237,831


	October 29, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. government obligations	$	137,963	$	—	$	(3,379)	$	134,584
Corporate debt securities	54,899		1		(405)		54,495
Time deposits	55,889		—		(64)		55,825
	$	248,751	$	1	$	(3,848)	$	244,904

Included in cash equivalents	$	55,530	$	—	$	—	$	55,530
Included in short-term investments	156,430		1		(2,442)		153,989
Included in long-term investments	36,791		—		(1,406)		35,385
	$	248,751	$	1	$	(3,848)	$	244,904

The following table summarizes the final legal maturities of debt investments as of July 29, 2023 (in thousands):


	Amortized Cost		Estimated Fair Value
Less than one year	$	217,633	$	216,733
Due in 1-2 years	21,337		21,098
	$	238,970	$	237,831

(9) FAIR VALUE MEASUREMENTS

As of the dates indicated, the following tables summarize the assets and liabilities that are recorded at fair value on a recurring basis (in thousands):


	July 29, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	767,668	$	—	$	—	$	767,668
Bond mutual fund	102,715		—		—		102,715
Time deposits	80,843		—		—		80,843
Deferred compensation plan assets	12,203		—		—		12,203
U.S. government obligations	—		93,740		—		93,740
Corporate debt securities	—		63,248		—		63,248
Foreign currency forward contracts	—		2,574		—		2,574
Interest rate swaps	—		19,528		—		19,528

Total assets measured at fair value	$	963,429	$	179,090	$	—	$	1,142,519

Liabilities:
Foreign currency forward contracts	$	—	$	4,691	$	—	$	4,691
Interest rate swaps	—		32		—		32

Total liabilities measured at fair value	$	—	$	4,723	$	—	$	4,723


	October 29, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	639,024	$	—	$	—	$	639,024
Bond mutual fund	71,145		—		—		71,145
Time deposits	55,825		—		—		55,825
Deferred compensation plan assets	12,751		—		—		12,751
U.S. government obligations	—		134,584		—		134,584
Corporate debt securities	—		54,495		—		54,495
Foreign currency forward contracts	—		251		—		251
Interest rate swaps	—		12,306		—		12,306

Total assets measured at fair value	$	778,745	$	201,636	$	—	$	980,381

Liabilities:
Foreign currency forward contracts	$	—	$	15,605	$	—	$	15,605


Total liabilities measured at fair value	$	—	$	15,605	$	—	$	15,605

As of the dates indicated, the assets and liabilities above are presented on Ciena’s Condensed Consolidated Balance Sheets as follows (in thousands):


	July 29, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	944,714	$	559	$	—	$	945,273
Short-term investments	6,512		135,331		—		141,843
Prepaid expenses and other	—		2,574		—		2,574
Long-term investments	—		21,098		—		21,098
Other long-term assets	12,203		19,528		—		31,731
Total assets measured at fair value	$	963,429	$	179,090	$	—	$	1,142,519

Liabilities:
Accrued liabilities and other short-term obligations	$	—	$	4,691	$	—	$	4,691
Other long-term obligations	—		32		—		32
Total liabilities measured at fair value	$	—	$	4,723	$	—	$	4,723


	October 29, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	757,725	$	7,974	$	—	$	765,699
Short-term investments	8,269		145,720		—		153,989
Prepaid expenses and other	—		251		—		251
Long-term investments	—		35,385		—		35,385
Other long-term assets	12,751		12,306		—		25,057
Total assets measured at fair value	$	778,745	$	201,636	$	—	$	980,381

Liabilities:
Accrued liabilities and other short-term obligations	$	—	$	15,605	$	—	$	15,605


Total liabilities measured at fair value	$	—	$	15,605	$	—	$	15,605

Ciena did not have any transfers between Level 1 and Level 2 fair value measurements during the periods presented.

(10) INVENTORIES

As of the dates indicated, inventories are comprised of the following (in thousands):


	July 29, 2023		October 29, 2022
Raw materials	$	771,955	$	664,916
Work-in-process	51,763		18,232
Finished goods	333,544		258,584
Deferred cost of goods sold	77,521		41,084
Gross inventories	1,234,783		982,816
Reserve for inventory excess and obsolescence	(42,261)		(36,086)
Inventories, net	$	1,192,522	$	946,730

The increase in raw materials inventory is related to the steps Ciena has taken to mitigate the impact of supply chain constraints on its business and customers in recent prior periods and a global market shortage of semiconductor components. The increase in finished goods inventories resulted primarily from planned fulfillment of customer advance orders for which some deliveries have been rescheduled.

Ciena writes down its inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about future demand,

which are affected by changes in Ciena’s strategic direction, discontinuance of a product or introduction of newer versions of products, declines in the sales of or forecasted demand for certain products, and general market conditions. During the first nine months of fiscal 2023, Ciena recorded a provision for inventory excess and obsolescence of $18.8 million, primarily related to a decrease in the forecasted demand for certain Networking Platforms products. Deductions from the provision for excess and obsolete inventory relate primarily to disposal activities.

(11) PREPAID EXPENSES AND OTHER

As of the dates indicated, prepaid expenses and other are comprised of the following (in thousands):


	July 29, 2023		October 29, 2022
Contract assets for unbilled accounts receivable, net	$	142,305	$	156,039
Prepaid VAT and other taxes	75,637		63,975
Prepaid expenses	55,997		55,440
Product demonstration equipment, net	41,691		35,929
Capitalized contract acquisition costs	24,349		33,516
Other non-trade receivables	17,734		24,026
Foreign currency forward contracts	2,574		251
Deferred deployment expense	1,405		877
	$	361,692	$	370,053

Depreciation of product demonstration equipment was $5.9 million during the first nine months of fiscal 2023 and $6.8 million during the first nine months of fiscal 2022.

For further discussion on contract assets and capitalized contract acquisition costs, see Note 3 above.

(12) INTANGIBLE ASSETS

As of the dates indicated, intangible assets are comprised of the following (in thousands):


	July 29, 2023						October 29, 2022
	Gross Intangible		Accumulated Amortization		Net Intangible		Gross Intangible		Accumulated Amortization		Net Intangible
Developed technology	$	503,618	$	(408,090)	$	95,528	$	428,218	$	(386,300)	$	41,918
In-process technology	89,100		—		89,100		—		—		—
Patents and licenses	8,795		(4,967)		3,828		8,415		(4,228)		4,187
Customer relationships, covenants not to compete, outstanding purchase orders and contracts	411,384		(380,755)		30,629		390,271		(366,859)		23,412
Total intangible assets	$	1,012,897	$	(793,812)	$	219,085	$	826,904	$	(757,387)	$	69,517

The aggregate amortization expense of intangible assets was $36.3 million during the first nine months of fiscal 2023 and $36.5 million during the first nine months of fiscal 2022. Expected future amortization of intangible assets for the fiscal years indicated is as follows (in thousands):


Fiscal Year	Amount
Remaining fiscal 2023	$	14,170
2024	39,836
2025	34,635
2026	23,348
2027	15,843
Thereafter	2,153
	$	129,985	(1)

(1) Does not include amortization of in-process technology, as estimation of the timing of future amortization expense would be impractical.

(13) GOODWILL

The following table presents the goodwill allocated to Ciena’s operating segments as of July 29, 2023 and October 29, 2022, as well as the changes to goodwill during the first nine months of fiscal 2023 (in thousands):


	Balance at October 29, 2022		Acquisitions		Impairments		Translation		Balance at July 29, 2023
Platform Software and Services	$	156,191	$	—	$	—	$	—	$	156,191
Blue Planet Automation Software and Services	89,049		—		—		—		89,049
Networking Platforms	83,082		117,997		—		277		201,356
Total	$	328,322	$	117,997	$	—	$	277	$	446,596

(14) OTHER BALANCE SHEET DETAILS

As of the dates indicated, accrued liabilities and other short-term obligations are comprised of the following (in thousands):


	July 29, 2023		October 29, 2022
Compensation, payroll related tax and benefits	$	104,303	$	126,338
Warranty	49,504		45,503
Income taxes payable	34,577		11,472
Vacation	30,344		26,396
Foreign currency forward contracts	4,691		15,604
Interest payable	9,779		4,793
Finance lease liabilities	4,063		3,758

Other	118,361		126,918
	$	355,622	$	360,782

The following table summarizes the activity in Ciena’s accrued warranty for the periods indicated (in thousands):


	Beginning Balance		Current Period Provisions	Settlements	Ending Balance
Nine Months Ended July 30, 2022	$	48,019	12,416	(14,746)	$	45,689
Nine Months Ended July 29, 2023	$	45,503	18,860	(14,859)	$	49,504

As of the dates indicated, deferred revenue is comprised of the following (in thousands):


	July 29, 2023		October 29, 2022
Products	$	34,102	$	19,814
Services	225,875		180,421
Total deferred revenue	259,977		200,235
Less current portion	(188,104)		(137,899)
Long-term deferred revenue	$	71,873	$	62,336

(15) DERIVATIVE INSTRUMENTS

Foreign Currency Derivatives

Ciena conducts business globally in numerous currencies, and thus is exposed to adverse foreign currency exchange rate changes. To limit this exposure, Ciena enters into foreign currency contracts. Ciena does not enter into such contracts for speculative purposes.

As of July 29, 2023 and October 29, 2022, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce variability in certain currencies for expenses principally related to research and development activities. The notional amount of these contracts was approximately $291.4 million and $272.2 million as of July 29, 2023 and October 29, 2022, respectively. These foreign exchange contracts have maturities of 24 months or less and have been designated as cash flow hedges.

In May 2023, Ciena entered into forward contracts designated as net investment hedges to minimize the effect of foreign exchange rate movements on its net investments in foreign operations. The notional amount of these contracts was approximately $48.6 million as of July 29, 2023. These foreign exchange contracts have maturities of 24 months or less and have been designated as net investment hedges.

As of July 29, 2023 and October 29, 2022, Ciena had forward contracts to hedge its foreign exchange exposure in order to reduce the variability in various currencies of certain balance sheet items. The notional amount of these contracts was approximately $255.9 million and $108.0 million as of July 29, 2023 and October 29, 2022, respectively. These foreign exchange contracts have maturities of 12 months or less and have not been designated as hedges for accounting purposes.

Interest Rate Derivatives

Ciena is exposed to floating rates of interest on its term loan borrowings (see Note 16 below) and has hedged such risk by entering into floating-to-fixed interest rate swap arrangements.

Prior to amending the 2025 Term Loan (as defined in Note 16 below) to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”), Ciena was exposed to floating rates of LIBOR interest on its 2025 Term Loan borrowings. Ciena hedged this risk by entering into floating-to-fixed interest rate swap arrangements (“interest rate swaps”). The interest rate swaps fix the LIBOR rate for $350.0 million of the 2025 Term Loan at 2.957% through September 2023. In January 2023, Ciena entered into a LIBOR to SOFR basis swap (“basis swap”) to hedge its exposure to SOFR rate. The basis swap offsets the LIBOR exposure risk of the interest rate swaps and effectively fixes the SOFR rate for $350.0 million of the 2025 Term Loan at 2.883% through September 2023. The total notional amount of these swaps in effect was $350.0 million as of July 29, 2023 and October 29, 2022. In April 2022, Ciena entered into floating to fixed forward starting interest rate swap arrangements (“forward starting swaps”). The forward starting swaps fix the SOFR for $350.0 million of the 2025 Term Loan at 2.968% from September 2023 through the 2025 Term Loan maturity. The total notional amount of forward starting swaps effective September 2023 was $350.0 million as of July 29, 2023.

In January 2023, Ciena entered into floating-to-fixed interest rate swap arrangements (“2028 interest rate swaps”). The 2028 interest rate swaps fix the SOFR rate of approximately $350.0 million of the principal amount of the 2030 Term Loan (as defined in Note 16 below) at 3.47% through January 2028. The total notional amount of these interest rate swaps in effect as of July 29, 2023 was $350.0 million.

Ciena expects the variable rate payments to be received under the terms of the interest rate swaps, basis swap, forward starting swaps, and 2028 interest rate swaps to offset exactly the forecasted variable rate payments on the equivalent notional amounts of the 2025 Term Loan and 2030 Term Loan. These derivative contracts have been designated as cash flow hedges.

Other information regarding Ciena’s derivatives is immaterial for separate financial statement presentation. See Note 6 and Note 9 above.

(16) SHORT-TERM AND LONG-TERM DEBT

Outstanding Term Loans Payable

2025 Term Loan

On January 23, 2020, Ciena entered into a Refinancing Amendment to Credit Agreement pursuant to which Ciena refinanced the entire outstanding amount of its then existing senior secured term loan and incurred a new senior secured term loan in an aggregate principal amount of $693.0 million and maturing on September 28, 2025 (the “2025 Term Loan”).

On January 19, 2023, in connection with the Incremental Agreement (as defined below) to the Credit Agreement (as defined below), the Credit Agreement was amended to replace LIBOR with SOFR for the 2025 Term Loan in response to pending impact of FASB Accounting Standards Codification 848, Reference Rate Reform.

The net carrying value of the 2025 Term Loan was comprised of the following as of the dates indicated (in thousands):


	July 29, 2023								October 29, 2022
	Principal Balance		Unamortized Discount		Deferred Debt Issuance Costs		Net Carrying Value		Net Carrying Value
2025 Term Loan	$	670,478	$	(687)	$	(1,286)	$	668,505	$	673,010

Deferred debt issuance costs that were deducted from the carrying amounts of the 2025 Term Loan totaled $1.3 million as of July 29, 2023 and $1.7 million at October 29, 2022. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2025 Term Loan. The amortization of deferred debt issuance costs for the 2025 Term Loan is included in interest expense, and was approximately $0.5 million during the first nine months of each of fiscal 2023 and fiscal 2022. The carrying value of the 2025 Term Loan listed above is also net of any unamortized debt discounts.

As of July 29, 2023, the estimated fair value of the 2025 Term Loan was $668.8 million. Ciena’s 2025 Term Loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2025 Term Loan using a market approach based on observable inputs, such as current market transactions involving comparable securities.

2030 Term Loan

On January 19, 2023, Ciena entered into an Incremental Joinder and Amendment Agreement (the “Incremental Agreement”) to its Credit Agreement, dated July 15, 2014, as amended (the “Credit Agreement”), by and among Ciena, the lenders party thereto and Bank of America, N.A., as administrative agent, pursuant to which Ciena incurred a new tranche of senior secured term loans in an aggregate principal amount of $500.0 million and maturing on January 19, 2030 (the “2030 Term Loan”). Net of original issue discount and debt issuance costs, the $492.5 million in proceeds from the 2030 Term Loan are intended to be used for general corporate purposes.

The Incremental Agreement amends the Credit Agreement and provides that the 2030 Term Loan will, among other things:

mature on January 19, 2030;
amortize in equal quarterly installments in aggregate amounts equal to 0.25% of the principal amount of the 2030 Term Loan as of January 19, 2023, or $1.25 million, with the balance payable at maturity;
be subject to mandatory prepayment on the same basis as the 2025 Term Loan, including on the occurrence of certain specified events such as asset sales, debt issuances, and receipt of annual Excess Cash Flow (as defined in the Credit Agreement);
bear interest, at Ciena’s election, at a per annum rate equal to (a) SOFR (subject to a floor of 0.00%) plus an applicable margin of 2.50%, or (b) a base rate (subject to a floor of 1.00%) plus an applicable margin of 1.50%; and
be repayable at any time at Ciena’s election, provided that repayment of the 2030 Term Loan with proceeds of certain indebtedness prior to July 19, 2023 will require a prepayment premium of 1.00% of the aggregate principal amount of such prepayment.

Except as amended by the Incremental Agreement, the remaining terms of the Credit Agreement remain in full force and effect.

The net carrying value of the 2030 Term Loan was comprised of the following as of the date indicated (in thousands):


	July 29, 2023
	Principal Balance		Unamortized Discount		Deferred Debt Issuance Costs		Net Carrying Value
2030 Term Loan	$	498,750	$	(2,308)	$	(4,679)	$	491,763

Deferred debt issuance costs that were deducted from the carrying amounts of the 2030 Term Loan totaled $4.7 million as of July 29, 2023. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2030 Term Loan. The amortization of deferred debt issuance costs for the 2030 Term Loan is included in interest expense and was $0.4 million during the first nine months of fiscal 2023. The carrying value of the 2030 Term Loan listed above is also net of any unamortized debt discounts.

As of July 29, 2023, the estimated fair value of the 2030 Term Loan was $500.0 million. Ciena’s 2030 Term Loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2030 Term Loan using a market approach based on observable inputs, such as current market transactions involving comparable securities.

Outstanding Senior Notes Payable

2030 Notes

On January 18, 2022, Ciena entered into an Indenture among Ciena, as issuer, certain domestic subsidiaries of Ciena, as guarantors, and U.S. Bank National Association, as trustee, pursuant to which Ciena issued $400.0 million in aggregate principal amount of 4.00% senior notes due 2030 (the “2030 Notes”).

The net carrying value of the 2030 Notes was comprised of the following as of the dates indicated (in thousands):


	July 29, 2023						October 29, 2022
	Principal Balance		Deferred Debt Issuance Costs		Net Carrying Value		Net Carrying Value
2030 Senior Notes 4.00% fixed-rate	$	400,000	$	(4,438)	$	395,562	$	395,045

Deferred debt issuance costs that were deducted from the carrying amount of the 2030 Notes totaled $4.4 million as of July 29, 2023 and $5.0 million as of October 29, 2022. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate, through the maturity of the 2030 Notes. The amortization of deferred debt issuance costs for the 2030 Notes is included in interest expense, and was approximately $0.5 million and $0.4 million during the first nine months of fiscal 2023 and fiscal 2022, respectively.

As of July 29, 2023, the estimated fair value of the 2030 Notes was $350.0 million. The 2030 Notes are categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its 2030 Notes using a market approach based on observable inputs, such as current market transactions involving comparable securities.

**(17)**ABL CREDIT FACILITY

On February 10, 2023, Ciena modified its senior secured asset-backed revolving credit facility (the “ABL Credit Facility”), which provides for a total commitment of $300.0 million to extend its maturity date to September 28, 2025. Other terms of the ABL Credit Facility remain unchanged.

(18) ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes the changes in accumulated balances of other comprehensive income (“AOCI”), net of tax, for the nine months ended July 29, 2023 (in thousands):


	Unrealized Gain (Loss) on
	Available-for-sale Securities		Foreign Currency Forward Contracts		Interest Rate Swaps		Cumulative Translation Adjustment		Total
Balance at October 29, 2022	$	(2,965)	$	(10,197)	$	9,397	$	(42,880)	$	(46,645)
Other comprehensive gain before reclassifications	2,075		17,070		11,763		17,981		48,889
Amounts reclassified from AOCI	—		(7,756)		(6,266)		—		(14,022)
Balance at July 29, 2023	$	(890)	$	(883)	$	14,894	$	(24,899)	$	(11,778)

The following table summarizes the changes in AOCI, net of tax, for the nine months ended July 30, 2022 (in thousands):


	Unrealized Gain (Loss) on
	Available-for-sale Securities		Foreign Currency Forward Contracts		Interest Rate Swaps		Cumulative Translation Adjustment		Total
Balance at October 30, 2021	$	(164)	$	6,216	$	(12,179)	$	6,566	$	439
Other comprehensive gain (loss) before reclassifications	(2,184)		(5,207)		2,786		(22,783)		(27,388)
Amounts reclassified from AOCI	—		(1,569)		6,639		—		5,070
Balance at July 30, 2022	$	(2,348)	$	(560)	$	(2,754)	$	(16,217)	$	(21,879)

All amounts reclassified from AOCI, related to settlement (gains) losses on foreign currency forward contracts designated as cash flow hedges, impacted research and development expense on the Condensed Consolidated Statements of Operations. All amounts reclassified from AOCI, related to settlement (gains) losses on interest rate swaps designated as cash flow hedges, impacted interest and other income, net, on the Condensed Consolidated Statements of Operations.

(19) EARNINGS PER SHARE CALCULATION

Basic net income per common share (“Basic EPS”) is computed using the weighted average number of common shares outstanding. Diluted net income per potential common share (“Diluted EPS”) is computed using the weighted average number of the following, in each case, to the extent that the effect is not anti-dilutive: (i) common shares outstanding; (ii) shares issuable upon vesting of stock unit awards; and (iii) shares issuable under Ciena’s employee stock purchase plan and upon exercise of outstanding stock options, using the treasury stock method.

The following table presents the calculation of Basic and Diluted EPS for the periods indicated (in thousands, except per share amounts):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Net income	$	29,733	$	10,512	$	163,628	$	95,257
Basic weighted average shares outstanding	149,690		149,862		149,472		152,083
Effect of dilutive potential common shares	287		601		395		1,126
Diluted weighted average shares	149,977		150,463		149,867		153,209
Basic EPS	$	0.20	$	0.07	$	1.09	$	0.63
Diluted EPS	$	0.20	$	0.07	$	1.09	$	0.62
Antidilutive employee share-based awards, excluded	3,383		1,640		2,567		1,264

(20) STOCKHOLDERS’ EQUITY

Stock Repurchase Program

On December 9, 2021, Ciena announced that its Board of Directors authorized a program to repurchase up to $1.0 billion of its common stock.

During the third quarter of fiscal 2023, Ciena repurchased an additional 1.4 million shares of its common stock for an aggregate purchase price of $61.2 million at an average price of $42.48 per share. As of July 29, 2023, Ciena (i) has repurchased 9.9 million shares for an aggregate purchase price of $561.2 million at an average price of $56.83 per share, and (ii) has an aggregate of $438.8 million authorized and remaining under its stock repurchase program. The purchase price for the shares of Ciena’s stock repurchased is reflected as a reduction of common stock and additional paid-in capital.

Stock Repurchases Related to Stock Unit Award Tax Withholdings

Ciena repurchases shares of its common stock to satisfy employee tax withholding obligations due on vesting of stock unit awards. The related purchase price of $29.8 million for the shares of Ciena’s stock repurchased during the first nine months of

fiscal 2023 is reflected as a reduction to stockholders’ equity. Ciena is required to allocate the purchase price of the repurchased shares as a reduction of common stock and additional paid-in capital.

(21) SHARE-BASED COMPENSATION EXPENSE

The following table summarizes share-based compensation expense for the periods indicated (in thousands):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Products	$	1,118	$	1,002	$	3,324	$	2,960
Services	2,687		1,940		7,643		5,467
Share-based compensation expense included in cost of goods sold	3,805		2,942		10,967		8,427
Research and development	10,954		8,233		30,919		23,372
Selling and marketing	8,770		8,075		25,949		23,196
General and administrative	9,377		7,579		27,313		22,825

Share-based compensation expense included in operating expense	29,101		23,887		84,181		69,393
Share-based compensation expense capitalized in inventory, net	127		28		257		7
Total share-based compensation expense	$	33,033	$	26,857	$	95,405	$	77,827

As of July 29, 2023, total unrecognized share-based compensation expense was approximately $231.5 million, which relates to unvested stock unit awards and is expected to be recognized over a weighted-average period of 1.45 years.

Stock Unit Awards

Beginning in December 2022, Ciena introduced a benefit, under which, upon completion of ten years of service and reaching age 60, executive officers who are residents of the United States, the United Kingdom, or Canada and who provide 12 months’ notice of their retirement will receive continued vesting of all of their granted but unvested restricted stock unit (“RSU”) awards and a pro-rated amount of their performance stock unit awards and market stock unit awards. Other employees in these countries will be subject to the same eligibility and notice requirements, but will receive acceleration of their granted but unvested RSU awards upon retirement. This program accelerates the recognition of share-based compensation expense.

(22) SEGMENTS AND ENTITY-WIDE DISCLOSURES

Segment Reporting

Ciena has the following operating segments for reporting purposes: (i) Networking Platforms; (ii) Platform Software and Services; (iii) Blue Planet Automation Software and Services; and (iv) Global Services.

Ciena's long-lived assets, including equipment, building, furniture and fixtures, right-of-use (“ROU”) assets, finite-lived intangible assets, and maintenance spares, are not reviewed by Ciena's chief operating decision maker for purposes of evaluating performance and allocating resources. As of July 29, 2023, equipment, building, furniture and fixtures, net, totaled $287.5 million, and operating ROU assets totaled $40.5 million both of which support asset groups within Ciena’s four operating segments and unallocated selling and general and administrative activities. As of July 29, 2023, finite-lived intangible assets, goodwill, and maintenance spares are assigned to asset groups within the following segments (in thousands):


	July 29, 2023
	Networking Platforms		Platform Software and Services	Blue Planet Automation Software and Services	Global Services	Total
Other intangible assets, net	$	198,937	—	20,148	—	$	219,085
Goodwill	$	201,356	156,191	89,049	—	$	446,596
Maintenance spares, net	$	—	—	—	48,165	$	48,165

Segment Profit (Loss)

Segment profit (loss) is determined based on internal performance measures used by Ciena’s chief executive officer to assess the performance of each operating segment in a given period. In connection with that assessment, the chief executive officer excludes the following items: selling and marketing costs; general and administrative costs; significant asset impairments and restructuring costs; amortization of intangible assets; acquisition and integration costs; interest and other income, net; interest expense; and provision for income taxes.

The table below sets forth Ciena’s segment profit (loss) and the reconciliation to net income for the periods indicated (in thousands):


	Quarter Ended				Nine Months Ended
	July 29,		July 30,		July 29,		July 30,
	2023		2022		2023		2022
Segment profit (loss):
Networking Platforms	$	171,380	$	108,282	$	588,281	$	395,176
Platform Software and Services	49,691		39,646		136,028		132,698
Blue Planet Automation Software and Services	(12,072)		(10,139)		(30,044)		(17,693)
Global Services	50,550		52,965		137,190		158,808
Total segment profit	259,549		190,754		831,455		668,989
Less: Non-performance operating expenses
Selling and marketing	118,266		105,880		367,156		344,700
General and administrative	49,349		41,121		151,184		131,191
Significant asset impairments and restructuring costs	4,174		7,692		16,625		20,203
Amortization of intangible assets	9,487		8,919		26,773		26,757
Acquisition and integration costs	59		35		3,474		598

Add: Other non-performance financial items
Interest and other income, net	10,187		366		50,711		4,860
Interest expense	(24,060)		(12,642)		(63,819)		(33,275)
Less: Provision for income taxes	34,608		4,319		89,507		21,868
Net income	$	29,733	$	10,512	$	163,628	$	95,257

Entity-Wide Reporting

The following table reflects Ciena’s geographic distribution of equipment, building, furniture and fixtures, net, and operating ROU assets, with any country accounting for at least 10% of total equipment, building, furniture and fixtures, net, and operating ROU assets specifically identified. Equipment, building, furniture and fixtures, net, and operating ROU assets attributable to geographic regions outside of the United States and Canada are reflected as “Other International.” For the periods indicated, Ciena’s geographic distribution of equipment, building, furniture and fixtures, net, and operating ROU assets was as follows (in thousands):


	July 29, 2023		October 29, 2022
Canada	$	241,416	$	226,451
United States	46,936		47,515
Other International	39,585		38,921
Total	$	327,937	$	312,887

(23) COMMITMENTS AND CONTINGENCIES

Tax Contingencies

Ciena is subject to various tax liabilities arising in the ordinary course of business. Ciena does not expect that the ultimate settlement of these tax liabilities will have a material effect on its results of operations, financial position, or cash flows.

Litigation

Ciena is subject to various legal proceedings, claims, and other matters arising in the ordinary course of business, including those that relate to employment, commercial, tax, and other regulatory matters. Ciena is also subject to intellectual property related claims, including claims against third parties that may involve contractual indemnification obligations on the part of Ciena. Ciena does not expect that the ultimate costs to resolve such matters will have a material effect on its results of operations, financial position, or cash flows.

(24) SUBSEQUENT EVENTS

Stock Repurchase Program

From the end of the third quarter of fiscal 2023 through September 1, 2023, Ciena repurchased an additional 0.9 million shares of its common stock, for an aggregate purchase price of $38.8 million at an average price of $41.67 per share, inclusive of repurchases pending settlement. As of September 1, 2023, Ciena has repurchased an aggregate of 10.8 million shares and has an aggregate of $400.0 million of authorized funds remaining under its stock repurchase program.

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