Q3 2023 Ciena Corp Earnings Call
Good morning, everyone and welcome to CNS fiscal third quarter 2023 financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please also note today's event is being recorded at this time I'd like to turn the floor over to Gregg Lampf, Vice President of Investor Relations. Please go ahead.
Thank you Jamie good morning, and welcome to <unk> 2023 fiscal third quarter results Conference call.
On the call today is Gary Smith, President and CEO and Jim Moylan CFO .
Scott Mcfeely, our senior Vice President of global products and services 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 from the quarter.
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 <unk> 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'll remind you that during this call, we'll be making certain forward looking statements such statements, including our quarterly and annual guidance and our long term financial outlook and discussion of market opportunities and strategy are based on current expectations forecasts and assumptions regarding the company and its markets which include risks and then.
Certainties that could cause actual results to differ materially from the statements discussed today.
Assumptions relating to our outlook whether mentioned on this call are included in the Investor presentation that we will post shortly after 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-K filing and in our upcoming 10-Q filing which will be filed with the SEC by September 7th.
Ciena assumes no obligation to update the 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, they'll ask that you limit yourselves to one question and one follow up.
Also for those in the investment community, who will be attending ECS D. Jim Malone and I will be meeting with investors on October 2nd and third please reach out to us if you're interested in.
With that I'll call it turn the call over to Gary.
Thanks, Greg and good morning, everyone.
Today, we reported strong fiscal third quarter results, including quarterly revenue of 1.07 billion, an increase of 23% year over year.
Our results included solid profitability metrics with quarterly adjusted operating margin of 12% and adjusted EPS of <unk> 59.
We are delivering a very strong year with 22% revenue growth year to date as we continue to capture market share.
And in fact, we are confident as we look forward, particularly given the secular demand for bandwidth continues to increase.
In fact, the bandwidth growth has remained consistent for us even through the recent period of supply chain constraints.
And the underlying drivers of that strong growth of very durable over the long term.
These include mobility, five G cloud automation and more recently artificial intelligence applications as they move out towards the network.
These market dynamics in turn drive direct demand for our industry, leading technology and services.
Which we measure through three indicators.
Number one is customer pipeline and forecasts.
Number two is orders.
And number three backlog and ultimately shipments.
Which collectively reflect demand in our business not just a single element of this.
So I thought it might be helpful for me to provide some insights into what we're seeing across each of these indicators of demand.
Turning firstly with pipeline.
We are very encouraged by the level of overall customer activity that we are seeing across all regions and segments.
Most notably we are seeing early signs of near term requirements with our cloud customers as they work to ensure the network readiness for machine learning and AI traffic coming out of the data center and into the Wan.
Okay.
With respect to orders the flow of new orders in recent quarters has been directly impacted by several factors.
Specifically customers ordering decisions in the prior supply constrained environment resulted in both large order backlog and then higher than typical customer inventory levels.
In addition, the recent rapid compression of our lead times has reduced the need for customers to place advanced orders.
As a result, new order flow over the past couple of quarters has been meaningfully below revenue and we expect this to continue for another couple of quarters.
Therefore, this order flow in isolation as not really been a good reflection of underlying demand.
Yeah.
Now however, we are starting to see an uptick in new orders led by cloud providers.
Overall orders were slightly up in Q3, and we expect higher orders in Q4.
Importantly, we believe that this recent uptick in orders from cloud customers.
A leading indicator of a rebalancing of supply and demand, which we believe will begin to flow through to our service provider customers in the coming quarters.
And finally backlog.
Have had and continue to have an outsized backlog, resulting from the previous period of supply constraints and the resulting elongation of lead times.
I would remind everyone that our backlog is still larger in both absolute and relative terms than any of our competitors.
Which is testament to our increasing competitive advantage.
And as we turn this backlog into revenue it is translating into significant market share gains, which so far this year have been in approximately the mid single digits.
We now expect that we will exit FY2023 with backlog that is approximately $2 7 billion, even with a strong revenue year.
And I think this is very encouraging on several levels.
Fundamental demand drivers for our business are strong and improving customer activity is increasing and supply versus demand is gradually coming into alignment.
Against this backdrop Sina has never been better positioned to deliver faster than market growth through trusted customer relationships and increasing technology leadership, new platform introductions and considerable market expansions over time.
Before turning it over to Jim I'll run through some quick highlights from the quarter.
Optical revenue was 27% up year over year as expected much of the growth in the quarter was in our optical line systems, specifically Q3 was a record quarter in revenue and shipments for a 6500 Reconfigurable line systems Rls.
Driven by cloud and content provider network expansions.
<unk> is in fact, the only Nextgen line system in the industry that is shipping at scale and serves as a strong indicator of future revenue growth and margin expansion opportunity.
We added 18, new customers in Q3 for wave logic five extreme.
Bringing our total customer count to 246.
And we also received our first order for wave logic six in the quarter, while before it has even generally available.
Routing and switching revenue was also up 27% year over year with the addition of more than 30, new customers for the portfolio in the quarter. A clear example of our technology leadership and the growing pipeline.
The increase in Q3 was primarily driven by sales of our access and aggregation platforms.
We also continue to advance our Tam expansion efforts in this general technology area, and particularly around coherent routing broadband access in PON opportunities.
We also secured our first customer for the wave router platform this quarter.
Notably our platform software and services revenue was up 24% year over year. This reflects strong growth in software maintenance services, primarily related to our domain controller MCP.
And as we know MCP as the industry's leading multilayer domain controller now with nearly 800 customers worldwide.
And more than a quarter of those customers leverage the advanced apps on the platform.
In Q3, we added 18 customers for these advanced apps.
Shifting to customers.
We had 110% quarter customer in the quarter, which was a cloud provider.
Overall direct cloud provide a revenue increased 39% year to date well above our overall revenue growth in the same period.
Panning out a little further total non telco revenue was 46% year over year in the quarter to $487 million a record high.
Further subsea revenue was up 21% year over year in the quarter to $76 million.
Revenue from service provider customers was up 9% year over year, which included one tier one customer that came in just under the 10% threshold in Q3.
And we continue to win with this important segment.
By way of example, we have recently secured a multiyear strategic expansion of our relationship with a major U S tier one service provider for a full portfolio, including routing and switching.
As they continue to enhance their network.
Another example of growing customer activity and pipeline.
And finally with respect to geographic regions Asia Pacific was again, a solid contributor at nearly 60% of total revenue in Q3.
More than 30% year over year.
And in that region, India remains very strong with year to year revenue in FY2023 of just over $200 million compared to just under $170 million for all of last fiscal year and.
And we expect this growth to continue.
EMEA also continued to perform well importantly, as our pipeline grows we secured several new design wins across the region in Q3, which we expect to begin taking revenue on in FY 'twenty four.
So in summary, we believe we are executing well and are confident as we look forward.
We are benefiting from strong secular demand and growing our pipeline with increased customer activity.
We are increasing our competitive advantage, bringing new platforms to market and expanding Tam.
And we are converting backlog to revenue and gaining market share.
With that I will turn it over to Jim to speak more about all of these elements and provide additional detail on the Q3 financial results Jim.
Thanks, Gary Good morning, everyone.
We delivered outstanding fiscal third quarter financial results total revenue in Q3 was $1 $7 billion at the high end of our expectations up 23% over Q3 of 2022.
Adjusted gross margin in the quarter was 42, 7%, reflecting the product mix shift towards <unk> systems that we expected.
Q3, adjusted operating expense was $328 million.
With respect to profitability measures in Q3, we delivered adjusted operating margin of 12% adjusted net income of $89 $1 million and adjusted EPS of <unk> 59.
In addition, we generated $9 million in cash from operations and adjusted EBITDA of 151 3 million.
Finally, we ended the third quarter with approximately $1 3 billion in cash and investments.
Inventory levels in Q3 went up $94 million from last quarter.
As a result of changes in the mix of products delivered to customers from that which we expected. We also saw an increase in deferred cost of sales on product delivered to customers, but not yet taken into revenue.
We expect total inventory to be down in Q4 and at the end of this fiscal year, we expect it to be roughly equal to that of Q4 of 'twenty two.
We repurchased approximately one 4 million shares for $61 million during the fiscal third quarter.
Since the end of Q3, we have repurchased an additional $40 million in shares bringing our year to date total to approximately $100 million in value.
We continue to expect that we will repurchase an aggregate of approximately $250 million in shares during this fiscal year.
Turning now to guidance.
As a reminder, the outlook I'm about to provide reflects all of the key assumptions that we detail in our earnings presentation.
Our expectations for Q4 are consistent with the fiscal full year guidance that we provided on the last earnings call.
Specifically for the fiscal fourth quarter, we expect to deliver revenue in a range of one point over $6 billion to 114 billion.
Adjusted gross margin in the low to mid <unk> range, and adjusted operating expense of approximately $335 million.
With respect to fiscal year 2024 as is our normal practice, we will provide a detailed view of our expectations for next year. When we report our Q4 results in December .
But it's important to remember the context, we provided when we laid out our three year targets last December .
Specifically, we said that revenue compound annual growth rate over the three year period from fiscal year 'twenty two to fiscal year 'twenty five would be 10% to 12% and would not be linear, particularly given our expectations for outsized revenue growth in fiscal 'twenty, three which we will deliver.
We are still comfortable with those projections for that three year period.
Specifically, we expect fiscal 'twenty four to be a growth year, we also expect to grow faster than the market and to take market share.
Before we close out the call I want to highlight our recent announcement of science based environmental targets, which support and strengthen our sustainability commitments to stakeholders.
Our science based targets commit us to reduce our direct and indirect greenhouse gas emissions.
They also align our de carbonization efforts with the Paris climate agreement to limit global warming to one five degrees Celsius above preindustrial levels.
Importantly, the achievement of our goals will help drive down the environmental impact both of Sienna and of our customers networks across the globe.
Encourage you to review this recent announcement.
In closing I will say that demand for bandwidth is strong and growing and that demand is reflected in our pipeline and in the recent trends and orders we expect a strong close to the year in Q4 and continued growth in revenue going forward, both in absolute terms and in market share.
Jamie we will now take questions from the sell side analysts.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
You withdraw your question please.
Please press Star then two at this time, we will pause momentarily to assemble our roster.
Okay.
Our first question today will come from David <unk> of UBS. Please go ahead.
Great. Thanks, guys.
Can you maybe talk about what youre seeing directly from web scale, what's sort of driving sort of this inflection that you are speaking out from an orders perspective.
Is it just under investment and optimization, that's been sort of transpire into the last four to six quarters or is it maybe AI related or a combination of maybe.
Adjusted NII, just would love to get some more color on what you're seeing there in terms of the order inflection and then why do you think maybe SP orders follow closely thereafter from an inflection point perspective. Thanks.
Yes, David I would say generally the sort of chronology. The last few quarters as we've gone through this supply demand alignment issues.
As the web scale, but we're the first to kind of reschedule and pull back in terms of deployment for them for their absorption. They were the first to do that.
I think what's encouraging now as they are working their way through that probably still got a little more to go but they are beginning to see new applications and new drivers and the specific things.
But we're seeing for Q4, which are new orders to be shipped in Q4. In addition to their existing backlog that we've got.
Was driven by really the need to start preparing for machine learning and AI traffic coming out of the coming out of the data center. It's the first time.
We've seen that sort of tagged specifically.
And the cloud players so that's that's super encouraging.
And generally speaking I think the sort of general flow of traffic and activity.
We will reflect the fact that the cloud providers were the first to go into into this challenge. They are the first to come out of it which makes sense and typically the service providers will flow through that I mean, not least of which from the traffic growth in cloud generally spilled through to the service providers.
A couple of quarters later, just generally so I think.
Our perspective is that this is very encouraging and is really the first leading indicator, but we're getting alignment now around orders lead times and use their ultimate demand.
Great. Thanks, Gary.
Thank you David.
Our next question today will come from Tim long of Barclays. Please go ahead.
Thank you.
I was hoping to kind of a two parter on the surface.
Service provider telco piece.
First Gary you mentioned the U S.
Uh huh.
Tier one kind of renewal.
Which included some switching and routing could you just talk a little bit to that as far as kind of scope of that extension or a new agreement any new use cases, particularly on the switching routing side any any changes there and then secondly, maybe just following on as you were talking about the cycle.
Or the web scale or where do you think we are in that.
For the service provider and telco service providers.
When do you think they'll get to the phase with it looks like the web scale players are at currently thank you.
Yeah, Tim Let me, let me take the last one first and then.
Then I will address the issue about the tier one service providers.
Best view of it and we're pretty close obviously with a lot of the large I mean really when we talk about tier one let me quantify a little bit more service providers, we're really talking about North America. This dynamic.
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Further ordering out ahead, given supply chain, we did not really see that dynamic internationally with the service providers.
I would I would really.
Target, Mike My reply adhere to the tier one north American players.
I think we're very close with them and understanding around what their absorption challenges are around deployment of people equipment et cetera.
I'd suspect really Tim that we've got another couple of quarters of that.
Sort of mid mid 24, something like that with the tier one service providers.
We're beginning to see some encouraging signs with them as well, but I do think I do think it'll be a couple more quarters before we see them catch up and get into alignment.
With the reduced lead times that are now.
And market for US Scott do you want to take that and then Tim.
Tim on the scope of the relationship agreement with a tier one service provider.
Or is it basically is an extension of the relationship that we had with them for their fiber based infrastructure across their core and their metro and it includes transitioning that infrastructure to all of our next generation technologies and an extensive extended obviously in time as well so it's a very low cost relationship with them.
Not so much new use cases, but the next generation technology evolution.
Okay. Thank you.
Okay.
Our next question today will come from George Notter of Jefferies. Please go ahead.
Hi, guys, thanks very much.
I would definitely interested in the commentary about the content provider strength.
And the order improvement can you talk about.
The magnitude of the order improvement that you saw.
Said that orders were soft quite soft it sounds like the last few quarters.
They've improved I presume sequentially here is it is it is a significant sequential improvement maybe you can give us a book to bill ratio just give us some kind of sense for the scale of the order improvement and then also I'm just curious about where backlog levels wound up at the end of the quarter and then also where you are in product lead times.
Hello, George It's Jim I'll take that first of all backlog at the end of Q3, our Q3 was $3 1 billion very much in line with our expectations.
We believe now that backlog at the end of the year will be more like $2, seven plus or minus as opposed to the slightly lower backlog that we had called last quarter and that really expresses the.
Higher orders that we expect to get in Q4, we do believe that orders in Q4 will be below our revenue and as Gary said that phenomenon is going to continue for a few quarters, but with those numbers I think you can sort of back into the range of what the increase in orders is from Q3 to Q4.
Got it that's great and then product lead times, just curious about where those are now GA on product lead times as Youll remember, we said we entered the year our entire fiscal year of approximately 52 week lead times last quarter, we said that in half and we'd expect them to continue to improve as we sit here today there.
Average is probably in the high teens across the portfolio, there's standard deviations on that but shows.
This improvement there and we would expect those to continue to reel in quarter over quarter.
Okay. Thank you very much guys I appreciate it.
Thank you George.
Our next question today is from Simon Leopold of Raymond James. Please go ahead.
Great. Thanks for taking the question.
Wanted to sort of get a little bit more granularity on how you see that the hyperscale trending in that it sounds like you had some strength this quarter and you've got long term optimism I'm, just wondering whether or not there's any kind of pause or transition over the next couple of quarters before the ramp or whether it.
It's a more linear expectation.
And just a quick clarification.
On the the.
The 10% customers that a customer that has been over 10% and a full year in the past if you could let us know.
The answer to your last question is yes.
George.
The.
I would say overall in the Hyperscale is the just remind everybody I mean, we're close to 40% revenue growth with these guys. This year so.
Despite.
The sort of public issues around year of efficiency and all the rest of it they're still clearly prioritized it in the network because thats the lifeblood for them.
Godless of what the applications happened in their data centers.
When it gets into the network and into the cloud. So we've not seen really any back off in terms of their commitment to build out the networks for that for that very reason.
And I think if.
If you look at the dynamics around machine learning and AI et cetera, and who knows how that will play out and the timing of it in the modeling of the network piece, but you have to believe that that traffic will be incremental to what we've already seen over some point in time here.
So we're not seeing any less up from the cloud players we've got a lot of back.
Backlog that Jim talked about for a portion of that is cloud providers. They once as we go through through next year. So we expect to have a strong year with them next year.
Because of the rule of large numbers it is not going to be 40% growth that does that right, but we still expect a very strong year from the cloud providers.
Great and then just quick follow up remaining performance obligations.
Where are they now and how did they trend in the quarter versus the prior.
They are slightly down but still strong.
Great. Thank you.
$2 1 billion from $2 four.
Great I appreciate that.
Okay.
And again, if you would like to ask a question. Please press star and then one.
Our next question today will come from Michael Genovese of RASM.
<unk> Securities. Please go ahead.
Alright, thanks very much.
Congratulations on the improving.
Yes, improving outlook here.
Actually consistent outlook I should say, but in terms of the three year CAGR as we talked about 24 versus <unk> 25.
Yes.
Are you thinking about this year as being fairly even with each other or is there. A reason for instance, 24 would be lower coming off the strength of 23. Thank you.
All I would say today is that we said the average over the next three years is going to be 10% to 12% and you can back into what the average growth rate of growth is in 'twenty $4 25 to get to that 10% to 12% based on whatever you think we're going to be for this year speculating on how that trends.
Those two years is not something we're going to do right now Mike.
Okay, well I take that to be a good thing, meaning that there's less confidence in 'twenty four and thats. It for me thanks guys.
Thanks, Mike.
And our next question today will come from Sami Chatterji of Jpmorgan. Please go ahead.
Hi, Thanks for taking my question I have a couple.
But maybe if I can start with the growth outlook or just the comments that you made that next year will be a growth yield and not to get into specifics, but how much of that conference should I interpret is coming from the recent uptick that you're seeing in cloud autos or is there a conference given sort of the activity youre seeing outside the tier one telcos as well the teller.
As well as it grows next year any thoughts around that please.
Quick follow up.
Yeah.
The way the way Gary described demand I think captures our confidence because we said that it's a combination of pipeline, which is customer activity and customer activity is very strong we're in conversations with a lot of customers around the world for what they want to do next year and we're in the middle of a lot of.
Quibbling two RFP. So first of all activity is strong secondly, we did start to see a trend upward and orders and they were from web scale players.
<unk>.
Thirdly, we expect a lot of that backlog, which still remains high to convert to revenue next year. So it's really all three elements of demand that we feel very good about.
Okay, that's great and Jim I guess the follow up was for you in terms of you're sticking to your three year outlook, which sort of means that Jimmy the other box of that plan should hold when we think about inventory that you wanted to Gary.
How does that compare to what you were sort of getting people to make which is more like 300 million notes.
And right now youre tracking by the end of this year at about 900 plots. So how are you thinking about like is that.
Is that plan still intact back to pre pandemic level, how do you want to plan around inventory exiting that.
No.
Yes.
Without commenting on what our revenue is going to be next year, we do expect a good year and we do expect our inventory levels to come down very significantly next year, that's our expectation as we sit here today I won't give you an exact number.
I will say that given what the supply chain.
Has gone through and the changes in the supply chain that we will likely carry a bit more inventory as compared to revenue than we have in the past you will recall that we used to for many quarters. We ran at about six turns I don't believe given our need for buffer stocks going forward that we will.
One at six times. The question is where we ended up below that and that's probably going to be between four and five times I don't know exactly where in that range.
But that means that inventory will come down next year, we believe.
Got it thank you.
Our next question today will come from Alex Henderson of Needham. Please go ahead.
Alright, Thank you very much.
So clearly.
The optical line system was a key driver of.
Shipments in the period and those carrying significantly lower.
Margins.
They often generate future orders of transceivers to three quarters four quarters out so I.
Can you talk about how you think the mix of the shipments will change over time as you've been shipping out.
The optical line systems here and whether that implies some improvement in the margins.
And the forward periods as the mix shifts to Transceivers.
Forward should we expect.
Couple of hundred basis points of margin expansion at some point over the next year.
I would say this Alex I mean, I think the dynamic that you highlight is exactly the right one.
Very encouraging that we're putting all those track out there basically.
Rls the adoption of our Alaska has been has been terrific.
And we're now in a position where we can ship it in large scale. So I think that's that's very encouraging because that will translate into.
<unk> over time, and I would expect again, we're not in a position to sort of guide for next year, but I would expect generally improving margins because because of this dynamic and also you havent got the associated costs of the supply chain is beginning to ameliorate. So I think the combination of those two things are better mix overall.
From a margin point of view as we take advantage of all the track.
Lange plus a.
A little bit more of a normalization of costs from a supply chain point of view should point to higher gross margins going forward.
You'll note we did.
The impact of the supply chain on 23 gross margins.
We set a couple of hundred basis points this year, two or 300.
It'll get better next year.
And then last question Opex.
This is a managerial decision so.
Can you give us some sense of what your psychology is relative to spending on opex as we progressed through the end of the year and into next year.
Conceptually.
Thanks.
As we've said over many quarters, Alex we intend to invest through this cycle, we have the leading position in optical technology and we will continue to invest there, but we are a challenger in the routing and switching space and it's important that we increase our.
Our investment in that space, that's where our increase in R&D has come in routing and switching and we expect to continue to have.
Very active R&D program in both optical and on.
Routing and switching going forward.
Okay.
I appreciate the answer thank you.
Thanks Al.
Our next question today will come from meta Marshall of Morgan Stanley . Please go ahead.
Great. Thanks.
Maybe just on kind of your commentary about believing in service providers will improve kind of in the coming quarters. I guess is that just trying to get how important that is by having a greater sense of what their inventory levels are versus kind of what new projects are actually taking place.
And just I guess.
That question is can you guys grow into next year just by virtue of.
Working through inventory this year and then the second question is on.
The clouds and kind of that improving cloud commentary it was that pretty uniform across the clouds.
Or are there still kind of some puts and takes.
Between between various cloud vendors.
Meta let me let me take the first part of that in terms of the service provided and again I want to qualify. This we're talking North American tier one service providers want to answer this through the lens of this question.
It's a confluence of elements.
Visibility into their activity in pipeline and projects and obviously, we are very close to these folks we have strategic relationships with all of them.
We now have a good handle on their inventory and what their absorption rates are on the various elements of manpower and things that have got to be deployed to do that so we have pretty good visibility to that and obviously, we still have large backlogs with them as well. So it's all of those elements I think it'll be.
Another couple of quarters before that sort of gets broadly into alignment.
But I think they're continuing to see strong demand there from a capacity point of view I would stress that this is really about the rates of absorption in its broadest in its broadest sense. So I think we have a pretty good we have a pretty good view too.
To those folks and obviously, we can continue to grow even due to that period. We've just demonstrated as we're coming through the height of that period as it will we're putting up 22% revenue growth.
And even with the carriers service providers globally, just 9% of that so you can see the balance of our business around subsea high growth areas such of India on the cloud players gives us a much more balanced business that we can withstand those kinds of.
Shorter term shorter term challenges I would say the cloud providers.
To your to your question about how widespread I think we're seeing that and we have two to three of the of the large players.
So we have evidence it's not just one.
Now they are all very different in terms of bad dynamics I would say that we talked about in homogeneous Lee, but the networks are very different business models are very different.
But we are encouragingly say engaged across the across a number of the matter.
Great. Thanks.
Our next question today will come from Greg Matz Neal.
Westpac West Park capital. Please go ahead.
Yes. Thank you for taking my question.
You mentioned that orders are clearly picking up at this point and.
The DSO number for the quarter was pretty on the high side at 96.
I was wondering if you can give us some view on the linearity of the quarter and how you see linearity progressing in the next quarter and beyond.
It is.
Just fact that our quarters tend to be back end loaded that's just the way the business works.
As a result, we ended up with big shipments in the last month of the quarter and Dsos reflect that we don't collect those shipments in that same sort of in that month. So thats why our dsos are high they're actually down slightly from the previous quarter.
And that's the linearity of the quarter, frankly, which drives that number more than anything else.
Got it.
And just as a quick follow up as you draw down your backlog and continue to do so can you give us any indication or metrics or data points regarding any cancellations I'm, assuming there haven't been many but if you could just give us some.
Some some indications of that.
Early on as the supply chain started to improve.
The companies that had put big advance orders on us looked at the new lead times and.
Looked at the amount of orders that they had put on us and first as Gary said, starting with the cloud players. They started to push some amounts of orders out that was followed by the service providers, who pushed the amount they held onto the orders, but they pushed the delivery dates. We did also have a small number.
Of cancellations from a very few customers was not material to our backlog our backlog is has high integrity.
Just to sort of change the way they view the delivery dates.
But I would add Greg we have not seen that dynamic for that has ameliorated.
Over the last few quarters, both in terms of the cancelled any small cancellations absolutely we have not.
Been de Minimis absolutely.
What we have seen is the even the rate of change of pushing stuff out has slowed considerably.
So we have pretty good visibility into into what they want to win.
Alright, thank you for that color.
That's correct that's correct.
Our next question will come from Dave Kang of B Riley FBR. Please go ahead.
Thank you. Good morning, My question is on India.
What inning are we in and is it mainly.
No.
What about your position with the other two major service providers there.
I think to use a cricket sparkling cricket analogy I would say that were.
If you're into test cricket, we're just on the first day of the.
Of the five day sparkling cricket match.
So it's got a long way to go.
Basically it's the fastest growing internet market in the world, you're talking about where they're consuming it from a mobile perspective, most of the amongst of the internet.
And there is still a very very long way to go with that and.
I would also say David it's broadly base now I think the structure from an industry point of view is settled down you've got three major players and we're seeing growth across all three major telcos.
Thus all of the cloud activity there both directly and indirectly Youre also I think it's the fastest growing connectivity from a subsea system point of view landing in India, as well, which we obviously got number one market share in that and then Youre also saying.
We've been there for a long time, so things lightly.
Government Ministry of Defense networks based on Sienna, So we're seeing.
Very strong activity orders and shipments across the across the whole of that spectrum I think it's very broad based and I think we're in a multiyear growth opportunity with these folks.
Okay got it thank you.
Thanks, Dave.
Again, if you have a question. Please press star and then one and our next question will come from Tim <unk> of Northland Capital markets. Please go ahead.
Hi, good morning.
It looks like your backlog came down much less significantly than last quarter. So you know what I'm, saying is a pretty significant uptick.
Uptick in orders.
In Q3 on the order of 30% sequential make sure I'm reading that right.
And to the extent that's true cloud I guess, what I really want to ask is what was your book to bill in cloud in the quarter.
And given how concentrated you are there almost one customer almost 50% how concentrated was that.
And if you could comment on applications at all whether we're talking about data center interconnect.
Long haul type stuff for subsea.
That might be driving that count that all as my follow up thanks.
Thanks, Steph, let me take the first of the multi questions.
I would say.
I would describe it as a slight order uptick I wouldn't describe it as large.
Our backlog did go up and obviously we.
It came in I think the point is if we really think it's bottomed out on the orders and is heading in the heading in the right direction now from an alignment point of view and I think that will gather more momentum in Q4 as well.
In terms of the uptick it was <unk>.
<unk> cloud base, but also the service providers were reasonably solid as well, which gives us some comfort that we think but over the next couple of quarters will begin to we will begin to come out.
I would also say from a cloud point of view that it is broadly based amongst the cloud players.
It's not just one.
Which also gives us.
Some.
Encouragement across the various applications that we're seeing Scott in terms of particular applications.
Yes.
Our position across.
That customer set really falls into three applications.
Theyre Metro campus data Center interconnect.
Where they can own their own infrastructure, we participate strongly in their backlog.
And then obviously on the submarine segment, where they have private private installs as well on cables.
We are seeing growth across all three of those and thats, what sort of sums up to the 39% year to date growth in that.
Water segment. In addition to that there are quite a few parts around the world, where they have chosen not to or not able to own their own infrastructure. So they have a significant indirect.
Pull on the service provider revenue, particularly outside of North America.
Thank you very much.
Okay.
At this time, we will conclude the question and answer session.
Like to turn the conference back over to Gregg Lampf, Vice President of Investor Relations for any closing remarks.
Thank you thanks, everyone for joining us today, we appreciate it we look forward to speaking with you during the day and seeing you at various events over the next several weeks also again as a reminder, we Jim and I will be at ESG, if youre interested in meeting with us while we're there please reach out and we'll be happy to do so thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.