Ciena (CIEN) Q4 2025 Earnings Call Transcript

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Date

Thursday, Dec. 11, 2025 at 8:30 a.m. ET

Call participants

• President and Chief Executive Officer — Gary Smith
• Chief Financial Officer — Mark Graff
• Executive Adviser — Scott McFeely
• Vice President, Investor Relations — Gregg Lampf

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Takeaways

• Quarterly revenue -- $1.35 billion, a record for the company and up 20% year over year.
• Annual revenue -- $4.77 billion, representing 19% annual growth and a new company high.
• Q4 earnings per share -- $0.91, reflecting a 69% increase year over year.
• Full-year earnings per share -- $2.64, up 45% versus fiscal 2024.
• Annual orders -- $7.8 billion, resulting in a record backlog entering fiscal 2026.
• Service provider orders -- Increased nearly 70% for the year.
• Top three service provider revenue growth -- Rose 16% from 2024 to 2025.
• Optical market share -- Gained two percentage points year to date, with further share gains expected in 2026.
• Implementation services revenue -- Increased by 34% during fiscal 2025.
• In and around data center opportunity -- Revenue from this segment tripled from 2024 to 2025.
• Pluggable revenue -- Surpassed $168 million, more than doubling fiscal 2024 levels.
• WaveLogic 6 Nano 800 Gig pluggables -- Initial shipments booked as revenue; 800ZR plugs shipped to three cloud providers for certification since quarter end.
• Gross margin Q4 -- 43.4% on an adjusted basis, 90 basis points above the guided midpoint.
• Full-year adjusted gross margin -- 42.7% for 2025.
• Cash conversion cycle -- Improved by 34 days sequentially, driven by faster collections and inventory turns.
• Q4 cash from operations -- $371 million.
• Full-year free cash flow -- $665 million after $140 million in capital expenditures.
• Stock repurchase -- $330 million completed in 2025 at an average price of $83.34 under the current $1 billion authorization.
• Adjusted operating margin Q4 -- 13.2%, improving 250 basis points sequentially and 320 basis points year over year.
• Full-year operating margin -- 11.2%, up 150 basis points from fiscal 2024.
• Record backlog -- Approximately $5 billion at year end, with $3.8 billion in hardware and software and the remainder in services.
• Blue Planet segment -- Achieved $34 million in quarterly revenue and $115 million for the year, reaching full-year profitability.
• Fiscal 2026 revenue guidance -- Updated to $5.7 billion to $6.1 billion, implying 24% annual growth at midpoint.
• Fiscal 2026 gross margin guidance -- Estimated at 43%, plus or minus one percentage point, with second-half improvement expected.
• Fiscal 2026 operating margin guidance -- Now expected to reach 17%, plus or minus one percentage point.
• Fiscal 2026 capital expenditures -- Planned at $250 million to $275 million, representing higher than typical capital intensity.
• Q1 2026 guidance -- Revenue expected between $1.35 billion and $1.43 billion; adjusted gross margin 43%-44%; adjusted operating expenses approximately $380 million; adjusted operating margin 15.5%-16.5%.
• Major customer concentration -- In Q4, three customers accounted for just under 44% of revenue (two cloud providers and AT&T (NYSE:T)).
• Pluggable and component business expansion -- The recent Nubis Communications acquisition targets scale-up and scale-out opportunities inside the data center, with initial product general availability expected in fiscal 2026.
• RLS (Reconfigurable Line System) product growth -- Up 72% year over year, materially contributing to the Optical segment’s performance.
• Routing and switching revenue -- Grew 49% year over year; 3,005 series product revenue doubled, with DCOM cited as a primary driver.
• Global services segment -- Expanded 25% year over year, highlighted by growth in advisory, enablement, and implementation services.
• Cloud provider segment -- Orders ramped across the portfolio and constitute a significant portion of the backlog.
• Three hyperscaler wins -- Ciena (NYSE:CIEN)'s "scale across" architecture adopted by three of the four major hyperscalers, with revenue recognition expected to begin for all three in 2026.
• DCOM business with Meta (NASDAQ:META) -- Announced expansion as Meta plans deployments in multiple new data centers; discussions ongoing with other hyperscalers for adoption.
• MOFN project wins -- Large managed optical fiber network wins in India and other new geographies, with service provider orders significantly up.
• Operating expenses fiscal 2026 -- Adjusted operating expenses projected flat at approximately $1.52 billion including Nubis integration.
• Share repurchase plan fiscal 2026 -- Targeting $330 million of shares under current authorization.

Summary

Ciena (NYSE:CIEN) delivered a record quarter and fiscal year, driven by robust demand from cloud and service provider customers, especially for high-speed connectivity solutions supporting AI infrastructures. Management raised 2026 revenue guidance to $5.7 billion to $6.1 billion, reflecting a significant upward revision just months after its prior outlook and citing exceptional backlog and strong order trends as the foundation for this update. Notably, the company secured major "scale across" wins with three hyperscalers and expanded adoption of its DCOM solution at Meta (NASDAQ:META), establishing critical new multiyear growth runways aligned with evolving AI architectures. Extensive capital allocation for supply chain capacity and next-generation product development underscores management’s confidence in the durability of current demand trends. The company emphasized operational discipline, resulting in improved gross margins, strong free cash flow, and increased share repurchases without raising operating expenses for 2026.

• Management explicitly stated that all new data center and AI-related wins are already incorporated into 2026 guidance, with "nearly a tripling of the percent of revenue" from these opportunities.
• CFO Mark Graff said, "As we look at what we're seeing in Q1, we're essentially sold out. Right? If we had more supply, we'd be able to sell more," highlighting near-term supply constraints rather than demand issues.
• CEO Gary Smith confirmed, "three out of the four hyperscalers have selected us for their scale across training models." and expects revenues from these contracts to begin in 2026, with larger scaling in 2027 and beyond.
• Guidance for fiscal 2026 includes a gross margin improvement weighted toward the second half as cost yield and pricing actions from customer negotiations take effect.
• Customer concentration remains elevated, with AT&T (NYSE:T) and two cloud providers accounting for nearly 44% of Q4 2025 revenue.
• The company’s implementation services made its largest-ever revenue contribution, with the most significant customer in services during the year being a cloud provider for the first time.
• Management noted the Nubis acquisition accelerates Ciena (NYSE:CIEN)'s road map for scale-up and scale-out opportunities within the data center, targeting new revenue streams beyond 2026.
• Long-term growth visibility is supported by multi-year project cycles with hyperscalers, increasing capital expenditures for photonics and component supply, and new architectural wins across both cloud and telco segments.

Industry glossary

• MOFN (Managed Optical Fiber Network): Turnkey optical transport services, typically provisioned and operated for cloud/hyperscale data center connectivity by service providers.
• Hyperscaler: A company operating massive-scale data centers and networks, such as Amazon, Microsoft (NASDAQ:MSFT), Google, or Meta (NASDAQ:META), requiring high-volume, high-performance equipment purchases.
• ZR/800ZR pluggables: High-speed, low-power coherent optical transceivers used in data center interconnect (DCI) and metro/regional optical networks for 400/800 gigabit per second transmission.
• Scale across: Ciena (NYSE:CIEN)’s terminology for network architectures linking geographically distributed AI data center clusters, enabling multi-site AI training and data mobility.
• DCOM: A Ciena (NYSE:CIEN)-developed out-of-band network management solution, offering hyperscale-level routing and switching, initially in partnership with Meta (NASDAQ:META) for large data center environments.
• RLS (Reconfigurable Line System): Ciena (NYSE:CIEN)'s photonic line system product for optical network scalability, flexibility, and automated wavelength management.
• Blue Planet: Ciena (NYSE:CIEN)’s automation software segment providing multi-domain orchestration and analytics for network management.
• NeoScalers: Emerging, smaller-scale cloud providers positioned as new entrants to the large-scale cloud and AI infrastructure markets.
• Coherent optics: Advanced optical transmission technology using phase and amplitude modulation techniques for ultra-high-speed, high-capacity communications, especially in wide area and metro networks.

Full Conference Call Transcript

Operator: Good morning, and welcome to Ciena Corporation's Fiscal Fourth Quarter and Year End 2025 Financial Results Conference Call. All participants will be in listen-only mode. By pressing star then 0 after today's presentation, to ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead.

Gregg Lampf: Thank you, Drew. Good morning, and welcome to Ciena Corporation's 2025 fiscal fourth quarter and year-end results conference call. On the call today is Gary Smith, President and CEO, and Mark Graff, CFO. Scott McFeely, executive adviser, is also with us for Q&A. In addition to this call and the press release, we have posted to the Investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items for the fiscal quarter and year-end. Our comments today speak to our recent performance, our view on current market dynamics and drivers of our business, as well as a discussion of our financial outlook.

Today's discussion includes certain adjusted or non-GAAP measures of Ciena Corporation's results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release. Before turning the call over to Gary, I remind you that during this call, we will be making certain forward-looking statements. Such statements, including our quarterly and annual guidance, commentary on market dynamics, and discussion of our opportunities and strategy, are based on current expectations, forecasts, and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially from the statements discussed today.

Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation that we posted earlier today, are an important part of such forward-looking statements, and we encourage you to consider them. Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-Q and in our upcoming 10-K filing. Ciena Corporation assumes no obligation to update information discussed in this conference call, whether as a result of new information, future events, or otherwise. As always, we will allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up. With that, I'll turn the call over to Gary.

Gary Smith: Thanks, Gregg, and good morning, everyone. Today, we reported record fiscal fourth quarter and full-year revenue of $1.35 billion and $4.77 billion, respectively. These records are a direct result of our sustained purposeful investment and focus on leading high-speed connectivity technologies, together with disciplined execution and deep collaboration with our customers. Combined, these advantages have positioned and will continue to position Ciena Corporation to deliver value in the AI ecosystem, serving both cloud and service provider customers for many years to come. Our progress in driving value from our operating model is also reflected in Q4 earnings per share of $0.91, up 69% year over year, and full-year EPS of $2.64, up 45% from fiscal 2024.

Lastly, we generated record orders for the year of $7.8 billion, which resulted in our entering this year again with a record backlog. These strong results really underscore our overall market leadership position as well as the ramping broad-based demand across our business. To this point, I'd like to provide some insight into what we believe to be robust and durable demand over the next several years. Firstly, we continue to see accelerating demand from our cloud customer providers, including the large hyperscalers and the emerging Neo scaler segment that we talked with you about last quarter. In fact, cloud providers today are as focused on scaling their network as they are on their access to power.

Orders from cloud providers are very strong and ramping across our portfolio, and they constitute a substantial portion of our growing backlog. It's important to note that this accelerating demand is being driven by several dynamics. As counterintuitive as it may seem, the cloud providers have largely actually underinvested in their networks to date, particularly relative to other areas of AI infrastructure. The major hyperscalers who are seeing rapid traffic growth not only have the capital to invest but also have real sustainable business models that are currently constrained by the need to dramatically scale their global networks. These cloud providers cannot and do not intend to strand their significant investments in AI-related data center infrastructure.

I would stress that traffic needs to leave the data center to be monetized and operationalized, and we are their strategic technology partner for those network requirements. Secondly, demand from our service provider customers continues to grow steadily as they too reinvest in their transport infrastructure after years of digesting accumulated inventory and also focused on other areas of their networks, most notably and specifically 5G. In addition, service providers' businesses are also being fueled by AI through the enterprise cloud demand and specifically cloud providers' need for managed optical fiber networks or MOFN.

As a proof point here, we have recently won and are working to deploy a large MOFN project in India with two service providers for a major hyperscaler. Additionally, in the quarter, we have secured multiple major MOFN wins in other regions, including several in new and emerging geographies for our business. As a result of these dynamics, service provider orders were up nearly 70% for the year. In fact, our top three service providers' revenue from 2024 to 2025 grew 16%.

Due to the increasing momentum across both cloud and service providers, Ciena Corporation's optical market share has continued to grow and extend our overall leadership, adding two points year to date, and we expect further gains clearly in 2026. In order to address this accelerating demand, we are committed to increasing investments and working with our supply chain partners to scale the business. With product delivery lead times extending in the face of this unprecedented demand, we are proactively expanding our capacity to ensure our ability to timely meet our customers' demands. Indeed, this has already yielded results for fiscal 2025, as we delivered double our initial revenue growth expectations for the year.

Mark will discuss how we are stepping up investments to support demand and the expanding opportunities we expect over the coming years. The simple truth is that AI continues to drive network expansion across all our customer segments, and the scale of investment currently underway is massive and accelerating faster than anything we or indeed the industry have seen to date. I would also mention that unlike the COVID-inspired supply-demand imbalance, we are seeing this demand be installed and leveraged for real near-term revenue opportunities at our customers, as evidenced by accelerated implementation services that increased in revenue by 34% in fiscal 2025.

With that, I'd like to take a moment to share our broader perspective on the AI opportunity as it relates to high-speed connectivity. As bandwidth continues to grow inside the data center and as this traffic flows out of the data center, AI inference models are moving closer to the network edge. For the reasons that I mentioned earlier, we will continue to expand our existing leadership and addressable market in high-speed connectivity in the WAN. In addition to the wide area network, we're also seeing a significant addressable market opportunity in and around the data center.

It is, I think, well understood that cloud providers are investing heavily in data centers to deliver on the current and future promises of AI. Many third parties are estimating capital spending of more than $7 trillion through the end of the decade in all AI-related infrastructure. This is obviously necessitating the need for both training and inference workloads at massive scale. As a result of the massive growth in AI workloads and to address growing power and space constraints, cloud providers are planning and building distributed AI data center training clusters, or AI factories, which require multiple clusters to act as one.

Along with those power and space constraints, the ability of the cloud providers and specifically the major hyperscalers to scale their global networks is becoming the critical long pole in the tent for them to operationalize AI for both training and inference purposes. Within these data center environments, there are three key connectivity requirements: to scale up within a data center rack, to scale out between racks in a data center, and finally to scale across between geographically distributed data centers, which must operate at the highest levels of performance, with super high capacity and the lowest latency possible. With our innovation and time-to-market leadership in high-speed connectivity solutions, our position could not be better to fulfill this critical demand.

This growing AI-driven opportunity for Ciena Corporation is what we refer to as in and around the data center. In fact, our in and around the data center opportunities grew threefold from 2024 to 2025 and are a major contributor to our 2026 expected growth rate. We have proactively invested in our portfolio to this growing market segment, with a few notable examples. First is our interconnects portfolio, comprising both our power and space-saving ZR and ZR plus pluggables and our optical components. We expect interconnects to play a meaningful role in scale-up, scale-out, and in fact scale across workloads.

In fiscal year 2025, we surpassed our target of more than doubling FY24 pluggable revenue, reaching revenue of more than $168 million. In the quarter, our WaveLogic 6 nano 800 gig pluggables have shipped for initial revenue, and since the end of the quarter, we have shipped 800ZR plugs to three additional cloud providers for testing and certification. With regard to components, we address the cloud providers' preferred disaggregated consumption model with our high-speed coherent and other industry-leading WaveLogic technologies, including our DSP, Surtees, and other high-speed analog and electro-optical components.

Mark Graff: In addition, our components business now includes the electrical and optical interconnect solutions from our acquisition of Nubis Communications. The Nubis technologies and expertise will help us address the scale-up and scale-out opportunities inside the data center. We're excited to have the Nubis team as part of Ciena Corporation and are on track to GA the first products in fiscal 2026. As we've previously noted, as technology advances and data rates increase, the components portion of our interconnects portfolio primarily represents revenue opportunities beyond fiscal '26.

In addition to our interconnect portfolio, as market needs continue to evolve driven by AI, we're seeing new architectural applications arise in and around the data center, with two recent cloud provider use cases I think of particular note. The first use case is the scale across architecture, linking geographically dispersed AI training clusters using our market-leading RLS photonic line system, WAV servers, and interconnects portfolio. This is an opportunity we discussed over the past couple of quarters, where a large hyperscaler is linking two regional data centers to build an AI backbone. I'm pleased to report that this hyperscaler is now extending this architecture to more locations.

Additionally, I am pleased to announce that two more major hyperscalers have chosen our optical solutions for their scale across training applications as well. The second use case is out-of-band network management. Ciena Corporation's unique DCOM solution leverages our XGS and other routing and switching products and was initially designed with Meta to meet hyperscale requirements. Today, I'm pleased to announce that our DCOM business with Meta has expanded, as they plan to deploy in multiple new data centers. Also, we're engaged in advanced technical discussions with additional hyperscalers to deploy this DCOM solution in their data centers.

I'd like to briefly acknowledge here that the scale across and DCOM wins are just the most recent AI-related use cases to materialize for us in recent months. They are great examples of how we co-create and productize with market-leading solutions to address critical customer scaling requirements. We fully anticipate continuing to develop additional innovative solutions with our customers as they monetize AI across the various architectures.

Before I turn it over to Mark, I really want to reiterate that as we leave Q4 and indeed the entirety of 2025, we have absolute conviction that the positive market dynamics and our technology leadership provide us with increasing confidence that the durability of demand and our business and financial trajectory are very strong. I'll now hand it over to Mark for a closer look at our Q4 and fiscal 2025 performance and outlook. Mark?

Mark Graff: Thank you, Gary, and thank you to everyone for joining the call this morning. Before I review the specific results for Q4 and the full year, I'd like to provide an update on the priorities I outlined in the last earnings call, specifically gross margin performance, working capital management, and capital allocation. First, gross margin performance. You've seen that our Q4 gross margin sequentially improved and exceeded the midpoint of our guide by 90 basis points. This was largely due to higher revenue and software mix. We have had constructive discussions with our customers to improve fair value exchange, with those improvements appearing in late '26 given the large backlog entering the year.

Additionally, we are navigating through particular headwinds from ramping NPI products and rising input costs as supply becomes further constrained due to fast-growing demand. All told, I expect year-over-year gross margin improvements, with second-half margins being higher than first-half margins. Second, working capital management. We have improved our cash conversion cycle by thirty-four days sequentially, largely on faster collections and improved inventory days. In fact, our inventory turns improved by four-tenths of a turn. We left the year with $1.4 billion in cash after generating $371 million in cash from operations in Q4 and free cash flow of $326 million.

With respect to capital allocation, we completed the first year of our most recent $1 billion stock repurchase authorization, repurchasing approximately $330 million for the year at an average price of $83.34. We invested $140 million in capital expenditures in the business, focused on developing the next generation of leading products and enabling capacity to nearly double our 2025 growth rate. We also completed the cash purchase of Nubis, supplementing our interconnect portfolio to service the in portion of in and around the data center opportunity. We have also reallocated resources that will allow the company to meet the growth challenges ahead with new business processes and technology rationalization. Finally, let me turn to operating leverage.

We will hold to our commitment of flat OpEx in 2026 while investing in new opportunities for our interconnect portfolio. Now let me turn to the specifics of our Q4 and full-year performance. As Gary noted, Q4 revenue reached $1.35 billion, up 20% year over year and $70 million above the midpoint of our guide. For the year, annual revenue was up 19% to $4.77 billion, a new record. Q4 was strong across all lines of business. Specifically, our Optical business was up 19% year over year, driven by strength in RLS, which was up 72% year over year.

Our routing and switching business grew 49% year over year, with the 3,005 series product revenue doubling on a combined basis, with the DCOM opportunity driving much of this growth. Global Services had a strong quarter, growing 25% year over year, driven largely by advisory and enablement, and installation and implementation services, which grew 5345% year over year, respectively. I'd also like to note that Blue Planet had a very successful year, achieving $34 million of revenue in the quarter, a record $115 million in fiscal 2025, and achieving full-year profitability. We had 310% revenue customers in Q4, including two global cloud providers and one tier-one North American service provider.

We are exiting the year with about $5 billion of backlog, of which approximately $3.8 billion is hardware and software, with the remaining being services. This backlog supports a large share of our fiscal 2026 revenue expectations, and we see indications of strong demand continuing into '27 and beyond, giving us exceptional visibility and confidence in our outlook and medium-term expectations. Adjusted gross margin in Q4 was 43.4%, 90 basis points above the midpoint of our guide, driven by higher revenue and software mix. For the year, adjusted gross margin was 42.7%. We continue to mitigate most of the impacts of tariffs, as we are currently constructed, and the net impact of tariffs is immaterial to our bottom line.

We continue to monitor the situation and work closely with both our supply chain and customers as necessary. Q4 adjusted operating expense was approximately $409 million and $1.51 billion for the year. Excluding the higher incentive compensation, we achieved in-line OpEx for the quarter and underspent slightly for the year, reflecting our ongoing disciplined approach and operational efficiency. This led to Q4 adjusted operating margin of 13.2%, up 250 basis points sequentially and 320 basis points year over year. Operating margin for the year reached 11.2%, 150 basis points from fiscal '24. We achieved EPS of $0.91, up 69% year over year, with annual adjusted EPS of $2.64, up a healthy 45%.

Finally, cash from operations was $371 million in the quarter. For the year, free cash flow reached $665 million after $140 million in capital expenditures. Now turning to guidance. Last quarter, our confidence and visibility due to AI-driven dynamics enabled us to atypically provide an early outlook for 2026. As we move into the new fiscal year, for all the reasons Gary and I have discussed, those dynamics and the customer demand environment not only remain robust, they have accelerated. As a result, today, I'd like to update that guidance from September as our outlook has improved even from just a few months ago.

We now expect revenue in fiscal 2026 to be approximately $5.7 billion to $6.1 billion, or nearly 24% annual growth at the midpoint, versus the 17% growth rate discussed in September. We continue to expect gross margins for fiscal 2026 to be in the range of 43% plus or minus a point, and as I mentioned earlier, we continue to work to mitigate input cost pressures through supply rebalancing, designing costs out, and additional pricing actions over time. We expect the impact of these mitigation efforts will be realized in late fiscal 2026. With these dynamics, we expect the margins to improve from the first half to the second half as cost reductions and pricing actions take hold.

We expect adjusted operating expense in fiscal 2026 to be flat at approximately $1.52 billion after accounting for the Nubis operating expenses post-acquisition. With respect to operating margin, we previously advised an acceleration of our longer-term goal of 15% to 16% operating margin from 2027 into 2026. We now expect fiscal 2026 operating margins to improve further to 17% plus or minus a point. Our capital expenditures for fiscal 2026 are expected to be between $250 million and $275 million. This is higher than our typical capital intensity, in order to invest in supporting expected robust demand in late 2026 and into 2027, as well as incremental costs for three-nanometer mask sets.

In fiscal 2026, we expect to repurchase approximately $330 million in shares under our 2024 stock repurchase authorization plan. Finally, with respect to Q1 guidance, we expect to deliver revenue in the range of $1.35 billion to $1.43 billion, adjusted gross margin between 43% and 44%, and adjusted operating expenses of approximately $380 million, yielding an operating margin of 15.5% to 16.5%. To conclude, Ciena Corporation had a strong 2025, and we are looking to an even stronger 2026. We are thoughtfully allocating our owners' capital to deliver value both to our customers and for our owners. We are singularly focused on executing our strategy and winning in the market. With that, let me turn it back to Gary.

Gary Smith: Thank you, Mark, and let me reiterate those comments. We had an incredibly strong quarter and fiscal 2025, which we believe is a seminal one for Ciena Corporation and one that provides a remarkable springboard for continued growth. Our momentum continues to build, our balance sheet has never been stronger, and industry dynamics have never been more positive for Ciena Corporation. We are executing well and have high confidence we will continue to do so. We remain very focused on our strategy and continue to deliver the world's best high-speed connectivity that really underpins today's AI-driven environment. With that, we'll now take questions from the sell-side analysts. Thank you.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Ruben Roy with Stifel. Please go ahead.

Ruben Roy: Thank you, and congratulations, Gary and Mark. Just great to see the progress here. So the first question, Mark, when we think about the guidance and the raise, Gary talked about some of the new use cases and more hyperscalers looking at either scale across or also discussions around DCOM with other hyperscalers. How much of that is in the new guidance versus just continued sort of growth across, you know, the existing relationships that you have? And then the second question for Gary is just thinking about the new scale across opportunities. Gary, you gave us some metrics around the first wins in terms of either revenue or bandwidth and bandwidth measured in petabit.

Are the discussions that you're having in the wins with the new hyperscalers similar? Or if you could maybe give us a little more detail on those, that'd be great.

Mark Graff: Yeah. Hi, Ruben. This is Mark. Thanks for joining. In terms of how much of the new opportunities that Gary talked about are in the guide, they are all in the guide. You know, if you think about the in and around data center, which many of the wins that Gary's talked about include, you know, we're seeing nearly a tripling of the percent of revenue from what we saw in 2025 of low single digits to, you know, to the percent of revenue that we have in 2026's guide of low double digits. And so, you know, I think we've captured a lot of that.

Obviously, we're continuing to work to satisfy all that demand, but you've seen it's all included in there. Short answer.

Gary Smith: Ruben, to the second question around, you know, the sort of models around the across piece. First of all, I'd say, there are obviously all of these hyperscalers are not sort of homogeneous around their business models and therefore their, you know, their network requirements reflect that. So they are different. Notwithstanding, they all need to train. So what we're seeing with the initial hyperscaler is obviously just expanding the amount of sites, and that will happen over multiple years. We've had two other hyperscalers now adopt our architecture, so we've got three out of the four hyperscalers have selected us for their scale across training models.

In terms of, you know, how quantifying how much they are, they're clearly, you know, hundreds of millions each. But they are different in terms of their scale at this stage. But really, that's just, you know, we're just beginning to see the traffic come out of the data center for training around these regional bones or clusters. We're just beginning to see that. And I don't think that, you know, there's gonna be a cookie style sort of, you know, of the traffic at this point.

Ruben Roy: Yep. Makes sense. Thanks, Gary.

Operator: The next question comes from Simon Leopold with Raymond James. Please go ahead.

Simon Leopold: Great. Thanks for taking the question. Yes, I wanted to maybe expand a bit on the scale across outlook. In particular. So you've gotten these two additionals that certainly earlier than we were expecting. I want to see if you can give us maybe a timeline of when you would expect those two other hyperscalers to really kick into the numbers, how imminent that is? And then maybe you could talk about sort of a longer-term cadence of scale across activity. Because I think when you first disclosed it, you talked about the initial customer perhaps having opportunities of, you know, eight or nine kind of projects.

So now that we see additional hyperscalers entering the fray, how would you look at it more broadly over the multiyear number of projects? That's customer that's question number one. Question number two is, hopefully, the easiest one you'll get today. But if you could just break up the 10% disclosures, you said two cloud and an operator. If you can give us the detail, that'll ultimately be in your SEC filings. But if we could break that down, I'd appreciate it. Thank you.

Gary Smith: Simon, let me take the first part of that. In summary, I would expect us to take revenue for all three of these hyperscalars in 2026 or begin to take revenue in '26. I think the large part of this is going to be scaling up in 2027 and through 2028. I mean, these are, you know, enormous amounts of scale and commitments around massive amounts of fiber between data centers, which takes time from an infrastructure point of view. I believe we'll take revenue on all three during the course of this year. So, I mean, I really see the ramp on this as we get to '27 and through '28.

I mean, this is gonna be the backbone for these training models. I would also say at this stage, it is all US-centric around the training models as well.

Mark Graff: Yeah. So, Simon, let me hit your second question. Yeah. The three plus 10% customers that we had in Q4, one was AT&T. You'll see that in the K. The other two were not being specific on who they were. But collectively, for Q4, those three covered just under 44% of Q4's revenue. And then for the full year, it was one cloud provider and one service provider that collectively and it was AT&T as the service provider. Collectively, for the year, they covered about 28% of our revenue.

Simon Leopold: Yeah. Can you give us that split? So, what each one was within that 44% in the quarter?

Mark Graff: Yeah. I'll have to get back to you, Simon. I don't have that specific in front of me.

Simon Leopold: Thank you.

Operator: The next question comes from Atif Malik with Citi. Please go ahead.

Atif Malik: Hi. Thank you for taking my questions and great job by the team. First one for Gary. Gary, in September, you talked about the '26 and early '27 adoption for CPO, NPO type trotters. Are you seeing an acceleration over there?

Gary Smith: I would say that, yeah, we're engaged with multiple opportunities with them. Obviously, we're waiting for the first GA product. But we have a lot of market engagement even prior to our acquisition with them. I would say, you know, Atif, that what we've seen since, you know, and this is early days, we only did the acquisition last quarter. But I think we've seen sort of accelerated now that they're part of a broader company. Scott, do you wanna?

Scott McFeely: Just, Atif, just to remind you, there are sort of at a high level, two product families within Nubis portfolio. One is a linear retimer that is very effective in terms of extending the life of active copper cable. And we see that as a, you know, an opportunity that will start in '26. The optical part of the second part of the portfolio, we see more as a '27 and beyond opportunity. But as Gary said, we're getting great feedback from customers on a bunch of different dimensions. First of all, that sort of open ecosystem approach to CPO. Secondly, just the caliber of the team. And then I'd say more an internal reaction.

And we, you know, one of the big things, one of the big filters as we looked at this company did we think they're a good cultural fit? And I'd say ninety days in, we're absolutely thrilled with that.

Atif Malik: Great. And as my follow-up, Mark, a nice debut on gross margins and keeping OpEx discipline. You have talked about advantages from bringing lasers in-house. Wondering what else is driving sustainable outlook for operating margins of 17%.

Mark Graff: Yeah. So there's a couple of things that I would say. You know, the first is one of the big things that we're working on in the first half of the year is ramping our 800 gig pluggables. And so as we ramp that, you know, you basically get yield economics, which lower the unit costs over time. And we expect that, you know, as we go through Q2, Q3, Q4, we'll see significantly lower costs than we're seeing at the beginning of the year. So that would be the first aspect that I would say. The second aspect is, you know, the conversations that we've had with a lot of our customers have yielded, you know, good results.

And so once we get through the backlog that we're entering the year with, a lot of those new orders will start to see the benefits of those pricing discussions. And so we would exit, you know, the year at a higher entry rate, higher exit rate, than we feel that we'll see in the first half of the year.

Atif Malik: Thank you.

Operator: The next question comes from George Notter with Wolfe Research. Please go ahead.

George Notter: Hey, guys. Thanks very much. It seems like there's just obviously tons and tons of demand here. Could you give us more on what you're doing on the supply side of things? Just curious like what do you see as the supply constraints in the business? Is it, you know, is it fabbing chips? Is it contract manufacturing? Like, anything you can tell us on, you know, what those bottlenecks are and what you're doing to open those up would be great. Thanks a lot.

Mark Graff: Yeah. Hey, George. It's Mark. I'll start and then hand it over to Gary and Scott for more color. So a couple of things. You heard me talk about a pretty nice increase in our CapEx year on year. And within that, there's about a 50% increase in what we're doing to ensure that we could have more capacity to support what will really be end of year and into 2027 demand. But what we're seeing is really a constraint on the photonics parts. Right? And I would say optical parts in general. And we've worked really closely with our key suppliers, and I know you know who those are, to make sure that we can secure supply.

And the investments that we've made in 2025 actually yielded a doubling of the growth rate from what we expected a year ago. Right? And so between that, the level of vertical integration that we've got, and just what we control, as well as the investments that we're making in 2027, we're trying to support as much of that revenue as we possibly can through, you know, '26 and into '27.

Scott McFeely: And, Mark, I'd add to that in terms of the constraints you talked about in terms of the industry optical component subsegment, if you like. An advantage that we have there's a couple of advantages that we have, I think, relative to other peers. Number one is we have a very tight relationship with the cloud providers. You know, we have market share leadership there and, you know, a great set of relationships. So even though the demand outstripped what everybody expected, I think we had the earliest view of that in the industry, and therefore, you know, our conversation with those industry component suppliers started earlier than everybody else. So that gave us a benefit.

I think as we talked about in the past, you know, we're more vertically integrated than anybody else. So to some degree, we do have a little bit more control of our own destiny. And part of the reason why the last ninety days we've been able to take 2026 out is the activity that we did in '25 that allowed us to double our growth perspective in '25 is carrying over into '26. So we're getting more confident in our ability to deliver to that demand as well.

George Notter: Got it. And then one last one. What are lead times right now? Any sense for kind of what blended or average lead times would look like for you guys? Thanks.

Gary Smith: This is Gary. It really varies by specific product areas. I mean, they're all generally, you know, in the optical infrastructure base, so sort of think scale across RLS. They have extended out. But it depends on the product grouping. You know, what we're working on within, as Mark and Scott said, you know, we're confident. You look at the midpoint of our guide, you know, which is what 24% growth for this year. So that's the work that Scott said, we did kind of last year to increase capacity and component supply. We're now working on towards the '26 and '27 and making sure that we're, you know, we're in a good position from that point of view.

So, hopefully, by the time we get to, you know, the end of the year, we get to '27, you know, lead times can come down a little. You know, we're seeing increased demand, including order flows in Q1, being strong as well.

George Notter: Thank you. Thanks, George.

Operator: The next question comes from Tal Liani with Bank of America. Please go ahead.

Tal Liani: Hi. I have three questions. The first one is historical perspective. You guided before to 8% growth. And that you increased it multiple times, and now you're guiding for 30% growth for next quarter. That's a massive change. So you didn't have good visibility before for the growth. And the question I'm asking myself is do you have now good visibility going forward? So can you take us through the historical perspective? Meaning, what happened over the last four or five quarters that drove up the growth so much better than expectation? And you spoke a little bit about customer concentration, but what kind of what happened that enabled this kind of growth?

Stop here, and then I'll ask my other questions after because they're more on the margin side.

Mark Graff: Yeah. Hey, Tal. It's Mark. I'll start and Gary can add in here. I think there's really a couple of dynamics that's going on. One is the close proximity that we have with, you know, our hyperscaler customers has really allowed us to get insight into what their demands are and how we plan for those demands. And they followed that demand up with pretty significant orders. Right? So, I mean, you heard Gary talk about, you know, we achieved $7.8 billion of orders, you know, over 2025. As we look at what we're seeing in Q1, we're essentially sold out. Right? If we had more supply, we'd be able to sell more.

And so we've got really good visibility of what, you know, the next several quarters look like just because we've got those orders in place. And then, you know, the last thing I'll say before Gary can chime in is through 2025, I think our supply chain team has done quite a good job of squeezing every drop of blood from the stone that they can to drive that revenue. We're investing we invested, you know, in 2025. We're increasing that investment by about 50% through 2026. And we're seeing those annualization layers kind of help us drive higher revenue that, you know, for the year, we expect a midpoint growth of 24%.

Gary Smith: Yeah. Tal, I would say sort of zooming out from this is sort of big picture. I think, you know, everything Mark said there, I think we've done a good job operationally of scaling it up quickly. I would say that what's behind that really with the cloud guys just in general is that I think early in the year there, you know, at the beginning of '25 as we're to get through it, was a realization that their networks needed to be scaled massively.

And if you think about the sort of hierarchy of flow around long poles in the tent and focus areas, obviously, there's been tremendous focus in the context of AI infrastructure around GPUs, TPUs, and getting access and scaling those up. Power within the data centers, etcetera, I think you began to then see, you know, oh, the network. And that coincided with, you know, the need for back networks to train across multiple data centers. And the increase they were seeing in inference traffic. Obviously, this is uncharted territory from a network perspective. But I think they're now coming up to speed very quickly that, you know, it's now the network as the gating item.

And I think there was a real realization of that in the first part of '25, and you're seeing that play through now. So that's the sort of context that I would offer on that.

Scott McFeely: And, Tal, within that, if you go back, you know, a year or eighteen months, we talked quite a bit about our belief system of, you know, optics and particularly coherent optics having a bigger and bigger role to play in the network inside and around the data center. And what we weren't sure of though, and we were overt about this. What we weren't sure about is the timing of when you see that inflection point. What's happened in that period is with the scale across network is you're seeing that inflection point. You know, new use cases for coherent optical high-speed connectivity.

Tal Liani: Got it. My second question is on margins. In previous cycles, your margins shot up all the way to even 49%, even over 50 if we go back a few years. And cycles always had a direct impact on gross margin. Like, you always had a stagnant margin as well. This time, because it's coming in pluggables, because it's coming in cloud, your margins are 40 c. You're guiding to 43, 43 and a half. And the question is, is there a chance that the margin will also have a gross margin will also have a cycle with revenues? Or what needs to happen for the gross margin to have a similar cycle to revenues?

Mark Graff: Yeah. I think how I would respond, Tal, is, you know, there's a couple of headwinds that we're seeing, at least in the near term. And I've talked about the 800 gig. So we're in an NPI phase of that product, so that's creating some headwinds that we expect to kind of normalize out through the end of the year. The other piece is I think that customers are starting to see the value in what we're providing both in space savings and power savings. And we're getting some benefit from that relative to the value that we're delivering. So I think between those two things, we're seeing that.

And my sense is that's going to be more sustainable than the cyclicality that we've seen in the past. Because we're really starting to talk about a foundation level of benefit that our customers are seeing. And, you know, as Gary said, they're realizing that they've underinvested in the network, both on the cloud provider side and the service providers are catching up as well. And so I think we're gonna see steady improvement to what we've described previously as our aspiration to get back to the mid-forties at this point, we kind of view as a waypoint, not the endgame. So I think we're on a steady track. You'll see sequential improvement.

We'll exit the year better than we will perform in the first half of the year, but I'm pretty confident that we're gonna see ongoing multiyear gross margin expansion.

Tal Liani: Thanks, Tal. Thank you.

Operator: The next question comes from Samik Chatterjee with JPMorgan. Please go ahead.

Samik Chatterjee: Hi. Thanks for taking my questions. Maybe for the first one, I had a question on scale across. And Gary, you mentioned the additional engagements with hyperscalers. Are you seeing any engagements yet from the Neo Clouds on front, or would you expect most of that neo cloud demand for scale across to come through the hyperscale itself? And can you help us think about margin in for scale across relative to like, there's a heavy mix of time systems as well as capacity. So how should we think about margin implications of scale across ramping here relative to your corporate average? And I have a quick follow-up. Thank you.

Gary Smith: Yeah. I think largely at this stage, the training at scale across AI backbones is largely a purview of the large hyperscalers. And I think the NeoScalers, there's a couple of them that are using the back they're on the back of that for one of the better description. So I think this is largely right now given the frankly, the scale of it with the hyperscalers. And, you know, I don't see that, you know, I think it's gonna take a while for that to bleed through into the neo scalers.

In terms of the deployment there, you know, as Mark said, you know, it's gonna be a combination of next-generation line systems, you know, RLS, which is also, you know, fairly recent into market and also with the 800 gig plugs as well. So, yes, in the early stages, that's a sort of headwind from a margin point of view, which is why we're kind of guiding as we are. But as those platforms get more into volume, the yields improve, you know, and we get through that MPI phase on both of those, then we'd have better margins as we exit the year.

And, of course, you've also got, you know, the benefits of just scale and volume as well.

Samik Chatterjee: Got it. Got it. And just for my follow-up, I mean, clearly, if FY26 is your guidance largely covered by the backlog. When you look at now sort of the long-term guide that you had provided of to 11% growth, like, what level of visibility are you getting from your about fiscal '27? Are they sort of giving you more detailed plans for the out years just so that you can pan out capacity? And does that sort of imply that your growth rate sort of stays above the eight to 11% level in sort of the out year as well?

Mark Graff: Yeah. Hey, Samik. It's Mark. A couple of things. One is, you know, when we talked about the longer-term guides last quarter, we kind of took those off the table. Just because, you know, in the medium term, we're not very good at calling, you know, calling the growth rates on the upside. Right? So that 11 to eight to 11% I think is off the table. We're not really talking to 2027 at this point. But I would say, overall, maybe qualitatively, we feel very strong going into '26. We think a lot of that momentum continues into 2027.

And the proof point there is really the implement the increase that we've seen in our CapEx for capacity, which is up 50% year on year.

Gary Smith: You know, I think the other thing you could obviously extrapolate out, we're not sort of guiding into '27 right now. We're just starting '26. But clearly, dynamics have changed here. And that's why I said this is a sort of 2025 was a seminal year for us in this regard. I mean, I think you're seeing multiple scale across wins that will they are their very nature, they're going to be multi-year. So that gives us confidence in '27 and '28. The other thing I would say is that's really all the context of our optical WAN type business in and around the data center to it.

All we're making tremendous amounts of investments and progress on the other dimensions there, you know, sort of inside and around the data center, which are completely new markets for Ciena Corporation. And the revenues to those are largely, you know, we're taking some now. We're making good progress. Largely 2728 plays. And specifically, coherent inside the data center. You know, that's all additional revenue to us in addition to all the things we've talked about right now. So that gives us confidence in the multiyear dimension to this.

Samik Chatterjee: Got it. Great. Thank you.

Operator: Thanks for taking my question. Thanks, Samik. The next question comes from Tim Long with Barclays. Please go ahead.

Tim Long: Thank you. Two questions for me as well. First, Gary, following on what you were just talking about, could you maybe talk a little bit about DCOM and see if you can, you know, somewhat scale that for us and, you know, good news that it's expanded with Meta and being tested at others. Could this be a type of technology that would really, you know, accelerate that move into the data center as it gives you kind of a beachfront? And then second, on the telco side, I get the MOFN part in 5G currently, but tends to be a little bit more cyclical than probably what you're gonna see from hyperscalers.

How do you look about sustainability of that business, you know, over the next few years on the telco specifically side? Thank you.

Gary Smith: Yes. On the DCOM part of that, obviously, that was co-created specifically with Meta over a period of time. And I think what we're seeing with that is the expansion of the opportunity within their data center piece to that it saves power and space for them, which is, you know, absolutely critical. And, you know, we've seen an expansion even in '26. And you're talking hundreds of millions of dollars of this. And as they refresh and build out new data centers, that's become part of their adopted architecture. So, you know, I think this, again, is gonna be a multiyear opportunity within Meta.

You know, and I also think about, you know, these large hyperscalers really when you think now about the diversity of portfolio that we're dealing with them, they're really markets in their own right given their size and scale. We're also, as you said, engaged deeply with two to three other hyperscalers around this kind of architecture, and I would expect to see wins during the course of the year and adoptions for additional cloud players for DCOM. So and it gives us, you know, an entree point into the data center together with Nubis, together with the scale across because that is actually even the scale across is actually installed inside the data center.

So you put all those things together and we're definitely under the tent here. And that's before, you know, the Nubis, which will start to deliver product, you know, in '26 and before the opportunity with Coherent inside the data center. To your point on the telco piece, they've kind of been underinvested in transport, frankly, for the last five years ever since COVID began. They didn't want to mess with their networks during COVID. Then you had the supply chain whiplash. And then you had this massive investment they all had to make in 5G, which largely has not yielded the financial returns that they'd anticipated. Now you're seeing, I think, a multiyear investment back into transport.

They are largely underinvested in networks. And I think whilst that's not at the rapid scale and growth rate of the cloud, I think it's nice, steady, you know, mid-digit kind of, single-digit growth within the telco space. And I think that's quite sustainable. What is amplifying that, though, is the AI traffic for things like MOFN. And you saw last year hundreds of millions of dollars of our telco business was in fact MOFN, specifically for hyperscalers. And you saw it, you know, typically, we'd seen it. We're also seeing it now in North America ramp up as well.

So, you know, you put those two things together, and I think that gives confidence around that telco, which is half of our business, currently, having nice sustained growth rates, albeit lower than the cloud players.

Tim Long: Thank you very much.

Gary Smith: Thank you.

Operator: Take one more question, please. Thank you, sir. And that question will come from Ryan Koontz with Needham. Please go ahead.

Ryan Koontz: Super. Thanks for the question. You know, Gary, maybe you can just take a step back and work regarding your great growth you're seeing here in the cloud segment. How has your product mix changed over, say, the last twelve months? Obviously, a lot around scale across and RLS and DCI where you're historically more of a long haul and subsea player. Can you give us any kind of a perspective there on the product mix?

Gary Smith: Yeah. I would say it's sort of, you know, we're laying more track at massive scale because it's, you know, that than we would normally see. You're specifically seeing that with scale across, you know, because they're laying the tracks down first. So, you know, what much higher proportion of line systems would be, you know, the initial take on that. Now that will then move to plugs. We're seeing, you know, obviously, a very large ramp up in our 800 gig plugs. We think will be, you know, largely adopted amongst most of the hyperscalers. And that is a different mix than we've seen traditionally. And, you know, more intelligence on the line systems, then also, you've seen traditionally.

Because given the massive scale that they're gonna need to put in with multiple fibers across it, then, you know, you're gonna need to increase the intelligence and the scalability of the line systems. Uplift that with DCOM, which, you know, frankly, you know, was a as fat and very quickly emerged as a portfolio offering. You know, that was not projected into the '26 plan, you know, when we did that in our three-year planning piece. So the mix has changed quite a lot around that architecture.

Ryan Koontz: Really helpful. And just a quick follow-up if I could. Just around, you know, growth limiters outside of your control as it relates to fiber supply, permitting, labor, and, you know, really putting these lanes in the ground, you know, what kind of supply constraints are you seeing for the industry for your cloud customers?

Gary Smith: You know what? I think a large the relationship with the fiber providers, people at Corning, etcetera, is very tight amongst the cloud players and the service provider. The particularly the wholesalers, people like Lumen who publicly talked about that. So I think there's a lot of commitment to scale capacity. So, you know, we're seeing that happen. The other thing I would say that's a real opportunity for us because we have the largest optical support and services organization in the world. And we are increasingly engaged with the deployment of these. In fact, our largest service customer last year was a cloud provider for the first time.

And we're now providing multiple services across the high and we see that as an area of tremendous growth to help, you know, to your point, facilitate the delivery of this infrastructure.

Ryan Koontz: Super helpful. Thanks, Gary.

Gary Smith: Thank you. Thanks, Ryan.

Mark Graff: Thanks to everyone for joining us today. We look forward to catching up with folks today and over the next week or so. Happy holidays and happy New Year to all.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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