Q3 2024 Ciena Corp Earnings Call

Operator: Good day, and welcome to the Ciena fiscal 3rd quarter, 2024 financial results conference call. Today, all participants will be in a listen-only mode. Should you need any assistance during today's event, please send me a conference specialist by pressing the star key followed by zero.

Good day and welcome to the <unk> fiscal third quarter 2024 financial results Conference call.

Speaker Change: All participants will be in a listen only mode should you need any assistance during today's event. Please signal for a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch phone. To withdraw your question, please press star, then two. Please note that today's event is being recorded.

Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask any question. You May Press Star then one on a touchtone phone.

Speaker Change: Draw. Your question. Please press Star then two please.

Speaker Change: Please note that today's event is being recorded.

Gregg Lampf: I would now like to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead, sir.

Gregg Landes: I would now like to turn the conference over to Gregg Landes, Vice President of Investor Relations. Please go ahead Sir.

Gregg Lampf: Thank you, Chris. Good morning, and welcome to the end of the 2024 fiscal third quarter conference call. On the call today is Gary Smith, President and CEO, and Jim Moylan, CFO.

Gregg Landes: Thank you Chris.

Gregg Landes: Good morning, and welcome to <unk> 2020 for fiscal third quarter Conference call.

Speaker Change: On the call today is Gary Smith, President and CEO and Jim Moylan CFO.

Gregg Lampf: Scott McPhilly, Executive Advisor, is also with us for Q&A. In addition to this call on the press release, we have posted to the investor section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items to the quarter. Our comments today speak to our recent performance, our view on market, 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-gett measures of CM results of operations. A reconciliation of these non-gett measures to our GAAP results is included in today's press release.

Speaker Change: Got Mcfeely executive advisor is also with us for Q&A.

Speaker Change: 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.

Speaker Change: Our comments today speak to our recent performance our view on market current market dynamics and drivers of our business as well as a discussion of our financial outlook.

Speaker Change: Today's discussion includes certain adjusted or non-GAAP measures of <unk> results of operations.

Speaker Change: Reconciliation of these non-GAAP measures to our GAAP results is included in today's press release.

Gregg Lampf: Before turning the call over to Gary, I want to remind you that during this call we will be making certain forward-looking statements. Such statements, including 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 includes risks and uncertainties that could cause actual results to differ materially in the statements discussed today. Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation of an annual post shortly after, are an important part of such public voting statements, and we encourage you to consider them.

Speaker Change: 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 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.

Speaker Change: That could cause actual results to differ materially from the statements discussed today.

Gary Smith: Assumptions relating to our outlook, whether you mentioned on this call are included in the Investor presentation that we will post shortly after our important part of such forward looking statements and we encourage you to consider that.

Gregg Lampf: Our forward voting statements should also be viewed in the context of the risk factors, detailed and remote recent 10-K and our 10-Q, which we expect to follow the SEC today. The end assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events, or otherwise.

Gary Smith: Our forward looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K, and our 10-Q, which we expect to file with the SEC today.

Gary Smith: <unk> 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. So we ask that you limit yourselves to one question and one follow up with that I'll turn the call over to Gary.

Gregg Lampf: As always, we allow for as much Q and A as possible today, though we ask that you limit yourselves to one question and one follow. With that, I'll turn the call over to Gary.

Gary Smith: Thanks, Greg, and good morning everyone. Today, we've reported strong fiscal third quarter results, including revenue of 942 million and adjusted gross margin of 43.7%. We also delivered quarterly adjusted operating margin of 8% and adjusted EPS of 35 cents. Later in the call, Jim will provide additional details about our Q3 financial performance. Highlights from the quarter with respect to our portfolio and our outlook for the fourth quarter.

Gary Smith: Thanks, Greg and good morning, everyone.

Gary Smith: Today, we reported strong fiscal third quarter results.

Speaker Change: <unk> revenue of $942 million and adjusted gross margin of 43, 7%.

Speaker Change: We also delivered quarterly adjusted operating margin of 8%.

Speaker Change: And adjusted EPS of <unk> 35.

Speaker Change: Later in the call Jim will provide additional details about our Q3 financial performance highlights from the quarter with respect to our portfolio.

Jim Moylan: Our outlook for the fourth quarter.

Gary Smith: And speaking of Jim, you will also have seen the news this morning that he's informed us of his decision to retire next year after more than 16 years with CN. Jim is obviously an outstanding member of our executive leadership team, and we look forward to him continuing to see if all while we commence the search process to identify a success. On the state of our business, overall industry dynamics continue to be encouraging, and our innovation leadership has frankly never been more apparent. As expected, order flowing Q3 was strong, largely driven by cloud providers, and we finished the quarter with a book-to-bill ratio above one.

Jim Moylan: And speaking of Jim you will also have seen the news. This morning, but he has informed us of his decision to retire next year after more than 16 years with Sienna.

Speaker Change: Jimmy is obviously, an outstanding member of our executive leadership team and we look forward to continuing to CFO, while we commenced a search process to identify.

Speaker Change: Right.

Unknown Attendee: Good Day, and welcome to the Ciena Fiscal 3rd quarter, 2024 financial results conference call. Today, all participants will be in a listen only mode. Should you need any assistance during today's event, please send me a conference specialist by pressing the star key followed by zero.

Speaker Change: On the state of our business overall industry dynamics continue to be encouraging.

Speaker Change: Innovation leadership has frankly never been more apparent.

Speaker Change: As expected order flow in Q3 was strong largely driven by cloud providers and we finished the quarter with a book to bill ratio above one.

Unknown Attendee: After today's presentation, there will be an opportunity to ask questions. To ask a question you may press star, then one, on a touch phone. To withdraw your question, please press star, then two. Please note that today's event is being recorded.

Gary Smith: We see this as a positive sign that the market is moving in the right direction, with the gap between supply and inventory absorption narrowing. And ultimately, bandwidth demand continues to be strong and is growing, particularly with the anticipated rise in AI-driven network traffic and increased cloud adoption. We are now clearly seeing customers move towards dedicated network capacity and architectures initially to support AI for machine-to-machine type traffic. And this brings me to my next point, which is that we believe is most helpful to look at the really the current environment through the lens of our two largest customer segments: cloud providers and service providers.

Speaker Change: We see this as a positive sign that the market is moving in the right direction with the gap between supply and inventory absorption narrow way.

Speaker Change: And ultimately bandwidth demand continues to be strong growing, particularly with the anticipated rise in AI driven network traffic and the increased cloud adoption.

Gregg Lampf: I would now like to turn the conference over to Gregg Lampf, vice president of investor relations. Please go ahead, sir. Thank you, Chris.

Gregg Lampf: Good morning, and welcome to the end of 2024 fiscal 3rd quarter conference call. On the call today is Gary Smith, president and CEO and Jim Moylan CFO. Scott McPhilly, executive advisor, is also with us for Q&A. In addition to this call on the press release, we have posted to the investor section of our website, an accompanying investor presentation that reflects this discussion, as well as certain highlighted items in the quarter. Our comments today speak to our recent performance, our view on market, current market dynamics, and drivers of our business, as well as the discussion of our financial outlook. Today's discussion includes certain adjusted or non-gett measures of CM results of operations. A reconciliation of these non-gett measures to our gap results is included in today's press release.

Speaker Change: We are now clearly seeing customers move towards dedicated network capacity and architectures initially to support AI for machine to machine type traffic.

Speaker Change: And this brings me to my next point.

Speaker Change: We believe it is most helpful to look at the really the currency environment through the lens of our two largest customer segments.

Speaker Change: Cloud providers and service providers.

Gary Smith: So starting with cloud providers, they are clearly leading the charge and building out their networks to support the expected growth in cloud and AI-related traffic. Specifically, they are investing in their network architectures from sub-C cables to long-haul routes to data center connectivity, essentially to add capacity with the most efficient use of space and power. Our leading technology best addresses these key requirements, and combined with our deep and expanding relationships with cloud providers, our business with this customer segment is strong and getting stronger in all aspects. In Q3, we secured new wins with major cloud provider customers spanning terrestrial, submarine, and coherent pluggable applications.

Speaker Change: So starting with cloud providers.

Speaker Change: They are clearly leading the charge in building out their networks to support the expected growth in cloud and AI related truck.

Speaker Change: Specifically they are investing in their network architectures from subsea cables to long haul routes to data center connectivity.

Speaker Change: Essentially to add capacity with the most efficient use of space and power.

Gregg Lampf: Before turning the call over to Gary, our minds that are during this call will be making certain forward voting statements. Such statements, including a quarterly and annual guidance, commentary on market dynamics, and discussion of our opportunities and strategy are based on current expectations, forecast, and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially in the statements discussed today. Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation of an annual post shortly after, are an important part of such voter voting statements, and we encourage you to consider them.

Speaker Change: Our leading technology best addresses these requirements and combined with our deep and expanding relationships with cloud providers business with this customer segment is strong and getting stronger in all aspects.

Speaker Change: In Q3, we secured new wins with major cloud provider customers spanning terrestrial submarine and coherent plug a hole applications. The majority driven by preparations for the expected growth in <unk>.

Gary Smith: The majority driven by preparations of the expected growth in AI and cloud traffic. For the same reason, we are seeing a growing market opportunity for us amongst the expanding set of cloud players, including data center operators and companies that offer a range of cloud applications and cloud infrastructure services. And we have, in fact, been winning an increasing number of these deals with these customers over the past several quarters.

Speaker Change: In cloud trial.

For the same reason, we are seeing a growing market opportunity for us amongst the expanding set of cloud players, including data center operators and companies that offer a range of cloud applications and cloud infrastructure services.

Gregg Lampf: Our voter voting statements should also be viewed in the context of the risk factors, detailed and remote recent 10K and our 10Q, which we expect to follow the SEC today. Diana assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events, or otherwise.

Speaker Change: And we have in fact been winning an increasing number of these deals with these customers over the past several quarters.

Gary Smith: Now moving to service providers. Overall, our pipeline with service providers globally continues to increase, and we are winning significant deals, including many new logos. For example, in Q3, we secured new customers in India, South Asia, Germany, Scandinavia, and several new ones across North America. In addition, mofen activity, which we mentioned last quarter, remains strong with four major wins in Q3. And just as a reminder, with Mofen, telecom service providers build advanced optical networks and lease five repairs to cloud providers. Sanders, really enabling them to quickly expand their reach and better service their customers. I would say that while these winds bowed incredibly well over the longer term, our current results continue to reflect the challenges related to the timing and volume of service provider orders.

Speaker Change: Now moving to service providers.

Gregg Lampf: As always, we allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow.

Speaker Change: Overall, our pipeline with service providers globally continues to increase and we are winning significant deals, including many new logos.

Gary Smith: With that, I'll turn the call over to Gary. Thanks, Greg, and good morning, everyone. Today we've reported strong fiscal third quarter results, including revenue of 942 million and adjusted gross margin of 43.7%. We also delivered quarterly adjusted operating margin of 8%, and adjusted EPS of 35%. Later in the call, Jim will provide additional details about our Q3 financial performance. Highlights from the quarter with respect to our portfolio, and our outlook for the fourth quarter.

Speaker Change: For example in Q3, we secured new customers in India, South Asia, Germany, Scandinavia, and several new ones across North America.

Speaker Change: In addition, mobile phone activity, which we mentioned last quarter remained strong with full major wins in Q3.

Speaker Change: And just as a reminder, with Molson Telecom service providers build advanced optical networks and leased fiber paths to cloud providers.

Gary Smith: And speaking of Jim, you will also have seen the news this morning that he's informed of his decision to retire next year, after more than 16 years with CN. Jim is obviously an outstanding member of our Executive Leadership Team and we look forward to him continuing to see if all while we commence the search process to identify a success. On the state of our business, overall industry dynamics continue to be encouraging and our innovation leadership has frankly never been more apparent.

Speaker Change: Really enabling them to quickly expand the reach and better service that customer.

Speaker Change: I would say that while these wins bode incredibly well over the longer term. Our current results continue to reflect the challenges related to the timing and volume of service provider orders.

Gary Smith: Specifically, North America, we have started to see the purchasing patterns of service providers come back into more of a normal bounce as they continue to deploy inventory build-up from prior periods. Obviously, this recovery remains gradual and will take several more quarters to play through completely, but we are absolutely seeing clear evidence of improvement here. Further, with respect to international service providers, those cautious spending persists, and particularly in Europe related to macroeconomic geopolitical concerns as well as industry structure issues. As a result, we expect the recovery and order volumes from international service providers to generally lag that of our North American counterparts.

Speaker Change: Specifically in North America, we have started to see the purchasing patterns of service providers come back into more of a normal bounds as they continue to deploy inventory buildup from prior periods.

Gary Smith: As expected, order flowing Q3 was strong, largely driven by cloud providers and we finished the quarter with a book to bill ratio above one. We see this as a positive sign that the market is moving in the right direction with the gap between supply and inventory absorption narrowing and ultimately bandwidth demand continues to be strong and is growing, particularly with the anticipated rise in AI-driven network traffic and increased cloud production. We are now clearly seeing customers move toward dedicated network capacity and architectures initially to support AI for machine-to-machine type traffic.

Speaker Change: Obviously, there's recovery remains gradual and will take several more quarters to play through completely but we are absolutely seeing clear evidence of improvement.

Speaker Change: Further with respect to international service providers cautious spending.

Speaker Change: And particularly in Europe.

Speaker Change: Related to macroeconomic geopolitical concerns as well as industry structure issues.

Speaker Change: As a result, we expect the recovery in order volumes from international service providers to generally lagged that about North American counterparts.

Gary Smith: With that and talking about the market, I want to move to a discussion about portfolio and specifically the technology advantages that we have in the market today as well as our market expansion opportunities from our innovation leadership. In summary, our optical portfolio has never been stronger with our industry-leading coherent modem technology, optical line systems, and automation and network control software. Starting with our coherent modems and our latest generation Wave Logic 6 technology. Last week, many of you saw that we achieved the world's first 1.6 terabit wavelength data transmission across some 470 kilometers in a live network with our customer.

Speaker Change: With that I'm talking about the market. So I wanted to move to a discussion of our portfolio and specifically the technology advantages that we have in the market today as well as our market expansion opportunities from our innovation leadership.

Gary Smith: And this brings me to my next point, which is that we believe is most helpful to look at the really the current environment through the lens of our two largest customer segments, cloud providers and service providers. So starting with cloud providers, they are clearly leading the charge and building out their networks to support the expected growth in cloud and AI-related traffic. Specifically, they are investing in their network architectures from sub-C cables to long haul routes to data center connectivity, essentially throughout capacity with the most efficient use of space and power.

Speaker Change: In summary, our optical portfolio has never been stronger with our industry, leading coherent modem technology optic.

Speaker Change: Optical line systems, and automation and network control software.

Speaker Change: Starting with our coherent modem. So now our latest generation wave logic six technology.

Speaker Change: Last week I think many of you saw that we achieved the world's first one six terabits wavelength data transmission across some 470 kilometers in a live network with our customer really.

Gary Smith: Our leading technology best addresses these key requirements and combined with our deep and expanding relationships with cloud providers, our business with this customer segment is strong and getting stronger in all aspects. In Q3, we secured new wins with major cloud provider customers spanning terrestrial submarine and coherent pluggable applications. The majority driven by preparations for the expected growth in AI and cloud traffic. For the same reason, we are seeing a growing market opportunity for us amongst the expanding set of cloud players, including data center operators and companies that offer a range of cloud applications and cloud infrastructure services. And we have in fact been winning an increasing number of these deals with these customers over the past several quarters.

Gary Smith: This is a clear demonstration that our Wave Logic 6 Extreme technology, the first of its kind in the world to leverage 3 nanometer technology in a telecom application, can deliver unprecedented capacity and performance, setting a new benchmark for the industry. We expect to benefit from a considerable time-to-market lead with our 1.6 terabet solution, particularly given that no other competitor has even announced plans for a solution beyond 1.2 terabet. And we already have orders from 23 customers for Wave Logic 6, a list that continues to grow, and we will recognize revenue into 4 as we begin shipping.

Speaker Change: This is a clear demonstration that our wave logic six extreme technology. The first of its kind in the world to leverage three nanometer technology and telecom applications.

Speaker Change: Can deliver unprecedented capacity and performance setting a new benchmark for the industry.

Speaker Change: We expect to benefit from a considerable time to market lead without one six terabits solution, particularly given that no. Other competitor is even announced plans for a solution beyond one two terabyte.

Speaker Change: And we already have orders from 23 customers per wavelength <unk> six.

Speaker Change: That continues to grow and we will recognize revenue in Q4 as we begin shipping.

Gary Smith: As AI traffic demands increase and do become more distributed, line systems that are reliable, maximized capacity on fiber, and most importantly, minimized power are critical to forward-looking network architectures. The sub-ulures we have been closely collaborating with leading cloud providers on the design of that next generation line. of the system. The result is our reconfigurable line system platform, often referred to as RLS. It is the industry's leading open line system that can manage bandwidth-intensive applications with greater scale, density, and programmability, all while consuming less space and, of course, hour. As a result, RLS is now being deployed by all of the major cloud providers, as well as the growing number of service providers.

Speaker Change: How is that AI traffic demands increase and do become more distributed learning systems that are reliable maximize capacity on fiber and most importantly minimize power.

Gary Smith: Now moving to service providers. Overall, our pipeline with service providers globally continues to increase and we are winning significant deals including many new logos. For example, in Q3, we secured new customers in India, South Asia, Germany, Scandinavia and several new ones across North America. In addition, Mophon activity which we mentioned last quarter remains strong with four major wins in Q3. And just as a reminder, with Mophon, telecom service providers build advanced optical networks and lease five repairs to cloud providers. Sanders, really enabling them to quickly expand their reach and better service their customers.

Speaker Change: Critical to forward looking network architectures.

Speaker Change: The several years, we have been closely collaborating with leading cloud providers on the design of the next generation line system.

Speaker Change: The result is a reconfigurable line system platform, often referred to as Rls.

Speaker Change: It is the industry's leading open line system that can manage bandwidth intensive applications with greater scale.

Speaker Change: City and Programmability.

Speaker Change: All while consuming less space and of course our.

Gary Smith: I would say that while these winds bowed incredibly well over the longer term, our current results continue to reflect the challenges related to the timing and volume of service provider orders. Specifically North America, we have started to see the purchasing patterns of service providers come back into more of a normal bounce as they continue to deploy inventory build-up from prior periods. Obviously this recovery remains gradual and will take several more quarters to play through completely, but we are absolutely seeing clear evidence of improvement here.

Speaker Change: As a result, <unk> is now being deployed by all of the major cloud providers.

Speaker Change: As well as the growing number of service providers. In fact, it has quickly become the industry's line system of choice to form the foundation of the AI optimized network architectures.

Gary Smith: In fact, it has quickly become the industry's line system of choice to form the foundation of their AI-optimized network architectures. Accordingly, we expect orders and revenue for RLS to increase over the coming quarters, which lays further track, quite literally, for future business, with capacity ads over time.

Speaker Change: And accordingly, we expect orders and revenue for our last two increase over the coming quarters, which lies further track quite literally for future business with capacity ads over time.

Gary Smith: Finally, let me talk about our Navigator Network Control Suite, the most advanced network control software in the industry today. Some of you may remember this by its former name and CP. As network architectures evolved to meet bandwidth demands written by AI and cloud-based applications, they are also obviously growing in complexity. As a result, the need to automate the management and control of these networks has never been greater. Navigate a network control suite is designed to do just that, and it is the first and currently the only domain controller based on a microservices architecture to optimize scale and performance.

Speaker Change: Finally, let me talk about our navigate the network control suite. The most advance network control software in the industry today. Some of you may remember this by its former name NCP.

Gary Smith: Further with respect to international service providers, those cautious spending persists and particularly in Europe related to macroeconomic geopolitical concerns as well as industry structure issues. As a result, we expect the recovery and order volumes from international service providers to generally lag that of our North American counterparts.

Speaker Change: As network architectures evolve to meet bandwidth demand driven by AI and cloud based applications. They are also obviously growing in complexity.

Speaker Change: As a result, the need to automate the management and control of these networks has never been greater.

Gary Smith: With that and talking about the market, I want to move to a discussion of our portfolio and specifically the technology advantages that we have in the market today as well as our market expansion opportunities from our innovation leadership. In summary, our optical portfolio has never been stronger with our industry leading coherent modem technology, optical line systems and automation and network control software. Starting with our coherent modems and our latest generation wave logic 6 technology.

Speaker Change: And navigate a network control's suite is designed to do just that.

Speaker Change: And it is the first and currently the only domain controller based on a micro services architecture.

Speaker Change: Optimize scale and performance.

Gary Smith: It basically provides a single view across all network layers, optical Ethernet and IP, to coordinate life cycle network operations or within a single software system.

Speaker Change: Basically provides a single view across all network players optical Ethernet and IP.

Speaker Change: <unk> Tonight lifecycle network operations, all within a single software system.

Gary Smith: Moving on from our optical foundation technologies, and with respect to our market expansion opportunities, we are seeing a growing and incremental opportunity inside and around the data center. Specifically, our foundational optical technologies can be leveraged in a variety of form factors, including plugables and high-speed interconnect technologies, really to address a range of consumption models. In plugables, we already have several significant wins. In fact, we're ramping revenue for 400CR at cloud providers for around the data center applications. Specifically, really short-reach data center interconnect. I would remind everybody that we've now won three of the top four cloud providers for 400CR.

Speaker Change: Moving on from our optical foundation technologies, and with respect to our market expansion opportunities.

Speaker Change: We are seeing a growing an incremental opportunity inside and around the data center, specifically, our foundational optical technologies can be leveraged in a variety of form factors, including plug of bowls in high speed interconnect technologies really to address a range of consumption models.

Gary Smith: Last week, I think many of you saw that we achieved the world's first 1.6 terabet wavelength data transmission across some 470 kilometers in a live network with our customer a reliant. This is a clear demonstration that our wave logic 6 extreme technology, the first of its kind in the world to leverage three nanometer technology in a telecom application, can deliver unprecedented capacity and performance setting a new benchmark for the industry. We expect to benefit from a considerable time to market lead with our 1.6 terabet solution, particularly given that no other competitor has even announced plans for a solution beyond 1.2 terabet. And we already have orders from 23 customers for wave logic 6, a list that continues to grow and we will recognize revenue in 2.4 as we begin shipping.

Speaker Change: And plug of bowls, we already have several significant wins in fact, we're ramping revenue for 400, ZR or cloud providers put around the data center applications, specifically really short reach data center interconnect.

Speaker Change: I would remind everybody that we've now won three of the top four cloud providers for 400 C O.

Gary Smith: And as we mentioned last quarter, we are also the recipient of the first 800CR award by any major cloud provider. In looking at opportunities for our interconnect portfolio inside the data center, we are collaborating closely with several cloud customers and ecosystem partners in this area, and expect this opportunity to develop a mature overtime.

Speaker Change: And as we mentioned last quarter. We were also the recipient of the first 800 ZR award by any major cloud provider.

Speaker Change: And looking at opportunities for our interconnect portfolio inside the data center.

Speaker Change: All collaborating closely with several cloud customers and ecosystem partners in this area and expect this opportunity to develop and mature over time.

Gary Smith: As AI traffic demands increase and do become more distributed, line systems that are reliable maximize capacity on fiber and most importantly, minimize power are critical to forward looking network architectures. The subulures we have been closely collaborating with leading cloud providers on the design of that next generation line, of the system. The result is our reconfigurable line system platform, often referred to as RLS. It is the industry's leading open line system that can manage bandwidth-intensive applications with greater scale, density, and programmability, all while consuming less space and of course hour.

Gary Smith: We are also gaining traction in our market expansion opportunities around broadband access and co-hear around. In broadband access, as public funding is distributed, which admittedly is taking longer than expected, we would look forward to providing more customers a modular and open XGS-PON solution. This is grounded in the competitive advantage that we have with our optical technology, and is a cost-effective, flexible, and sustainable OLT solution that can address residential, enterprise, and mobility use cases. In coherent routing, the growing need for scale and cost efficiency across network domains to support increased traffic flows from new applications will continue to drive customers to converge the IP and optical layers, we believe, over time in the metro, and we are well positioned to support them with our purpose-built coherent aggregation routers.

Speaker Change: We are also gaining traction in a market expansion opportunities around broadband access and coherent ramping.

Speaker Change: And broadband access is public funding is distributed.

Speaker Change: Admittedly, it's taking longer than expected, we would look forward to providing more customers a modular and open ex GFS <expletive> solution.

Gary Smith: As a result, RLS is now being deployed by all of the major cloud providers, as well as the growing number of service providers. In fact, it has quickly become the industry's line system of choice to form the foundation of their AI-optimized network architectures. And accordingly, we expect orders and revenue for RLS to increase over the coming quarters, which lays further track, quite literally, for future business, with capacity ads over time.

Speaker Change: This is grounded in the competitive advantage that we have with our optical technology and it's a cost effective flexible and sustainable LTE solution that can address residential enterprise mobility use cases.

Speaker Change: And coherent routing the growing need for scale and cost efficiency across network domains to support increased traffic flows from new applications. We will continue to drive customers to converge the IP and optical legos, we believe overtime in the metro.

Speaker Change: And we are well positioned to support them with our purpose built coherent aggregation routers.

Gary Smith: So, in summary, I'd say that we delivered a strong performance in Q3, and we remain encouraged by the improving industry dynamics. Cloud providers clearly continue to be strong. Spending dynamics among North American service providers are gradually improving, while we remain cautious about international service providers generally. It is clear that our market leadership, driven by the strength of our innovation and times and market advantage, will continue to drive sharegames and open up new opportunities over time.

Speaker Change: So in summary, I would say that we delivered a strong performance in Q3, and we remain encouraged by the improving industry dynamics.

Final providers clearly continue to be strong.

Speaker Change: Spending dynamics, among our North American service providers are gradually improvement, while we remain cautious about international service providers generally.

Gary Smith: Finally, let me talk about our navigator network control suite, the most advanced network control software in the industry today. Some of you may remember this at the buyer's former name and CP. As network architectures evolve to meet bandwidth demands written by AI and cloud-based applications, they are also obviously growing in complexity. As a result, the need to automate the management and control of these networks has never been greater. And navigator network control suite is designed to do just that.

Speaker Change: It is clear that our market leadership, driven by the strength of our innovation and time to market advantage will continue to drive share gains and open up new opportunities overtime.

Jim Moylan: With that, I'll turn it over to Jim.

Speaker Change: With that I'll turn it over to Jim.

Jim Moylan: Thank you, Gary. You're welcome, everyone. At Gary State, we delivered strong fiscal third quarter financial results, so revenue in Q3 was $942 million. This included two 10% plus customers, one cloud provider, and one service provider. Adjusted growth margin was 43.7%. Q3 adjustment operating expense was $336 million. Book to Bill was greater than one, as we expected. With respect to profitability measures in Q3, we delivered adjusted operating margin of 8%, adjusted net income of $51 million, and adjusted EPS of 35 cents per share. In addition, we used $159 million in cash for operations.

Jim Moylan: Thank you Gary good morning, everyone.

Jim Moylan: As Gary stated, we delivered strong fiscal third quarter financial results.

Jim Moylan: Total revenue in Q3 was $942 million.

Gary Smith: And it is the first and currently the only domain controller based on a microservices architecture to optimize scale and performance. It basically provides single view across all network layers, optical ethernet and IP, to coordinate life cycle network operations or within a single software system.

Jim Moylan: This included 210% plus customers, one cloud provider and one service provider.

Jim Moylan: Adjusted gross margin was 43, 7%.

Jim Moylan: Q3, adjusted operating expense was $336 million.

Book to Bill was greater than one as we expected.

Jim Moylan: With respect to profitability measures in Q3, we delivered adjusted operating margin of 8% adjusted net income of $51 million.

Gary Smith: Moving on from our optical foundation technologies and with respect to our market expansion opportunities, we are seeing a growing and incremental opportunity inside and around the data center. Specifically, our foundational optical technologies can be leveraged in a variety of form factors, including pluggables and high-speed interconnect technologies, really to address a range of consumption models. In pluggables, we already have several significant wins. In fact, we're ramping revenue for 400CR at cloud providers for around the data center applications.

Jim Moylan: And adjusted EPS of <unk> 35 per share.

Jim Moylan: In addition.

We used $159 million in cash for operations.

Jim Moylan: We have been engaged in a strategic realignment of our supply chain activities, including improvements in processes and systems, as well as changes in our vendor relationships to improve resilience. As a part of this transition, and to facilitate inventory movement across our vendor venues, we made a cash advance of approximately $175 million to one of our vendors, which will be recovered over the next few quarters. Adjusted human stock in Q3 was $99 million. Finally, we ended the quarter with approximately $1.2 billion in cash and investment. We repurchased approximately 600,000 shares for $29 million during the quarter.

Jim Moylan: We have been engaged in a strategic realignment of our supply chain activities, including improvements in processes and systems as well as changes in our vendor relationships to improve resilience.

Jim Moylan: As a part of this transition and to facilitate inventory movement across our vendor base. We made a cash advance of approximately $175 million to one of our vendors, which will be recovered over the next few quarters.

Gary Smith: Specifically, really short-reach data center interconnect. I would remind everybody that we've now won three of the top four cloud providers for 400CR. And as we mentioned last quarter, we are also the recipient of the first 800CR award by any major cloud provider. In looking at opportunities for our interconnect portfolio inside the data center, we are collaborating closely with several cloud customers and ecosystem partners in this area, and expect this opportunity to develop a mature overtime.

Jim Moylan: Adjusted EBITDA in Q3 was $99 million.

Jim Moylan: Finally, we ended the quarter with approximately $1 2 billion in cash and investments.

Jim Moylan: We repurchased approximately 600000 shares for $29 million during the quarter.

Jim Moylan: and we continue to target the repurchase of $250 million in shares by the end of fiscal year 24.

Jim Moylan: And we continue to target the repurchase of $250 million in shares by the end of fiscal year 'twenty four.

Gary Smith: We are also gaining traction in our market expansion opportunities around broadband access and co-hear around, in broadband access as public funding is distributed, which admittedly is taking longer than expected, we would look forward to providing more customers a modular and open XGS-PON solution. This is grounded in the competitive advantage that we have with our optical technology and is a cost-effective flexible and sustainable OLT solution that can address residential enterprise and mobility use cases.

Jim Moylan: Turning to some portfolio highlights from the quarter, in optical, Wave Logic 5 traction continues. We shipped close to 12,000 Wave Logic 5 Extreme modals in Q3 and added another 12 customers, 9 of which are new logos for Ciena. We also continued to gain momentum with Wave Logic 5 Nano, 400 ZR and ZR Plus, shipping a record number of plundals in the quarter for revenue. We added 18 new Wave Logic 5 Nano customers for a total of 122 today. Also in optical, wave servo revenue in Q3 was up 29% year over year and 25% sequentially, with 7 new customers in the quarter.

Jim Moylan: Turning to some portfolio highlights from the quarter.

In optical wave logic five traction continues.

Jim Moylan: We shipped close to 12000 wave logic fab extreme modems in Q3, and they added another 12 customers, none of which are new logos for <unk>.

Jim Moylan: <unk>.

Jim Moylan: We also continued to gain momentum.

Jim Moylan: <unk> nano 400, ZR and ZR plus shipping.

Shipping a record number of portables in the quarter for revenue.

Jim Moylan: We added 18, new wave logic.

Gary Smith: In coherent routing, the growing need for scale and cost efficiency across network domains to support increased traffic flows from new applications will continue to drive customers to converge the IP and optical layers we believe over time in the Metro. And we are well positioned to support them with our purpose-built coherent aggregation routers.

Jim Moylan: Customers for a total of 122 today.

Jim Moylan: Also in optical wave server revenue in Q3 was up 29% year over year, and 25% sequentially with seven new customers in the quarter.

Jim Moylan: Our routing and switching business continues to gain momentum. In Q3, we secured 9 new broadband access customers across Europe and the US, increasing our global broadband customer count to more than 65. And our coherent routing solution, which leverages our coherent aggregation values in combination with our wave logic 5 nano plundable and navigator network control suite, is also increasingly being selected by customers to replace outdated legacy IP solution. Other portfolio highlights from the quarter include another good quarter for platforms offering services, with revenue up 5% year over year and with planet revenue nearly double year over year.

Jim Moylan: Our routing and switching business continues to gain momentum.

Jim Moylan: In Q3, we secured nine new broadband access customers across Europe, and the U S increasing our global broadband customer count to more than 65.

Gary Smith: So in summary, I'd say that we delivered a strong performance in Q3 and we remain encouraged by the improving industry dynamics. Cloud providers clearly continue to be strong. Spending dynamics among North American service providers are gradually improving while we remain cautious about international service providers generally. It is clear that our market leadership, driven by the strength of our innovation and times of market advantage, will continue to drive sharegames and open up new opportunities over time.

Jim Moylan: And our coherent routing solution, which leverages, our coherent aggregation routers in combination with our wave logic nano plausible and navigator network control suite is also increasingly being selected by customers to replace outdated legacy IP solution.

Jim Moylan: Other portfolio highlights from the quarter include another good quarter platform software and services with revenue up 5% year over year.

Jim Moylan: With that, I'll turn it over to Jim. Thank you, Gary. You want to have one?

Jim Moylan: Blue planet revenue nearly doubled year over year.

Jim Moylan: At Gary State, we delivered strong fiscal third quarter financial results. So revenue in Q3 was $942 million. This included two 10% plus customers, one cloud provider and one service provider. Adjusted growth margin was 43.7%. Q3 adjustment operating expense was $336 million. Book to bill was greater than one, as we expected. With respect to profitability measures in Q3, we delivered adjusted operating margin of 8%, adjusted net income of $51 million. And adjusted EPS of 35 cents per share.

Jim Moylan: Starting out of guidance, for the fiscal quarter, we expect to deliver revenue in a range of $1.06 billion to $1.14 billion. This would put us at about $4 billion in revenue for fiscal year 2024, in line with the guidance we provided in June. We expect Q4 adjusted gross margin to be in the low to mid 40 drain. Gary spoke about our reconfigurable line system, which has the combination of intelligence and high capacity that makes it ideal for next gen AI driven network. And we're selling a lot. This had the near term effect on both margins, but as we sell the modem to provide capacity on the new blind, our margins will improve.

Jim Moylan: Turning now to guidance for the fiscal fourth quarter, we expect to deliver revenue in a range of 1.16 billion to $1 one $4 billion.

Jim Moylan: This would put us at about $4 billion in revenue for fiscal year 2024 in line with the guidance we provided in June.

Ryan: We expect Q4 adjusted gross margin to be in the low to mid Forty's Ryan.

Ryan: Gary spoke about a reconfigurable line system, which has the combination of intelligence and high capacity that makes it ideal for Nexgen AI driven network and we're selling a lot.

Speaker Change: This has a near term effect on our gross margins, but as we sell the modems to provide capacity on the new bonds.

Jim Moylan: In addition, we used $159 million in cash for operations. We have been engaged in a strategic realignment of our supply chain activities, including improvements in processes and systems, as well as changes in our vendor relationships to improve resilience. As a part of this transition, and to facilitate inventory movement across our vendor venues, we made a cash advance of approximately $175 million to one of our vendors, which will be recovered over the next few quarters.

Speaker Change: Margin will improve.

Jim Moylan: And we expect adjusted operating expense to be approximately $350 million.

Speaker Change: And we expect adjusted operating expense to be approximately $350 million.

Jim Moylan: Looking ahead to fiscal year 2025, as is our normal practice, we will provide a detailed view of our expectations when we report our Q4 results in December. With that said, we previously indicated that fiscal 2024 would be a transition year following a few years that were impacted by the unusual events of the pandemic that led to supply chain challenges and a subsequent snapback resulting in an outside growth in fiscal 2023. We've also said that we believe using a six to eight percent compound annual growth rate is the best representation of our long-term revenue growth rate, which is faster than market growth based on current forecast.

Speaker Change: Looking ahead to fiscal year 2025.

Speaker Change: This is our normal practice, we will provide a detailed view of our expectations. When we report our Q4 results in December.

Speaker Change: With that said, we previously indicated that fiscal 2024 would be a transition year. Following a few years that were impacted by the unusual events.

Jim Moylan: Adjusted human stock in Q3 was $99 million. Finally, we ended the quarter with approximately $1.2 billion in cash and investments. We repurchased approximately 600,000 shares for $29 million during the quarter, and we continue to target the repurchase of $250 million in shares by the hands of fiscal year 24.

Speaker Change: The pandemic.

Speaker Change: The supply chain challenges and a subsequent snapback, resulting in outsized growth in fiscal 'twenty three.

Speaker Change: We have also said that we believe using a 6% to 8% compound annual growth rate is the best representation of our long term revenue growth rate, which is faster than market growth based on current forecasts.

Jim Moylan: This range, by the way, matches our revenue growth rate over a long period of years. We continue to believe that this is a reasonable and balanced use of a long-term, keeping in mind that any one year's growth rate can be outside that range.

Speaker Change: This range by the way.

Speaker Change: Actions, our revenue growth rate over a long period of years.

Jim Moylan: Turning to some portfolio highlights from the quarter, in optical, wave logic 5 traction continues. We shipped close to 12,000 wave logic 5 extreme modals in Q3 and added another 12 customers, nine of which are new logos for Ciena. We also continued to gain momentum with wave logic 5 nano, 400 ZR and ZR Plus, shipping a record number of plundals in the quarter for revenue. We added 18 new wave logic 5 nano customers for a total of 122 today.

Speaker Change: We continue to believe that this is a reasonable and balanced use of a long term keeping in mind that any one year's growth rate can be outside that range.

Jim Moylan: Before I conclude, I'll prepare remarks. I'll see a few words about my plan or time. To understand that the investment community likes to have advanced notice of the departure of a senior executive, and we are providing that notice today. Ciena is a great company. We have the best optical technology in the world, and our lead on the competition is growing. We also have a group of passionate and talented employees all over the globe who make Ciena a great place to work. It has been an honor to serve as Ciena CFO, but more than that, it has been a tremendous learning experience, and it will continue to be since I will be at Ciena for another year.

Speaker Change: Before we conclude our prepared remarks, I'll say, a few words about my planned retirement.

Speaker Change: I understand that the investment community likes to have advanced notice of the departure of a senior executive and we are providing that notice today.

Speaker Change: The other is a great company.

Speaker Change: We have the best optical technology in the world and our lead on the competition as well.

Speaker Change: We also have a group of passionate and talented employees all over the globe.

Jim Moylan: Also, in optical, wave server revenue in Q3 was up 29% year over year and 25% sequentially, with seven new customers in the quarter. Our routing and switching business continues to gain momentum. In Q3, we secured nine new broadband access customers across Europe and US, increasing our global broadband customer count to more than 65. And our coherent routing solution, which leverages our coherent aggregation values in combination with our wave logic 5 nano plundable and navigator network control suite is also increasingly being selected by customers to replace outdated legacy IP solutions. Other portfolio highlights from the quarter include another good quarter. The platform software and services would revenue up 5% year over year and would plan it revenue nearly double year over year.

Speaker Change: It makes it a great place to work.

<unk> CFO: It's been an honor to serve as <unk> CFO, but more than that it has been a tremendous learning experience.

Speaker Change: And there will continue to be since that will be it for another year.

Jim Moylan: We will start a search for Ciena's next CFO immediately, and I will work closely with my replacement to ensure a smooth transition.

Speaker Change: We will start a search for <unk> next CFO immediately.

Speaker Change: He will work closely with my replacement to ensure a smooth transition.

Jim Moylan: To close, we delivered a strong Q3. We're confident in achieving our fourth quarter guidance based on the momentum we see in our business and the wins we've discussed. We are optimistic about positioning, capture, long-term opportunities, and deliver possible growth, expanding into the new areas of available markets over the coming years.

Speaker Change: To close we delivered a strong Q3.

Speaker Change: We're confident in achieving our fourth quarter guidance based on the momentum we see in our business and the wins we've discussed.

Speaker Change: We are optimistic.

Speaker Change: Domestic about positioning and capture long term opportunities and deliver profitable growth expanding.

Speaker Change: Expanding into the new areas of available market over the coming weeks.

Operator: With that, Chris, we'll take questions from the self.

Speaker Change: With that Chris will take questions from sell side analysts.

Operator: Thank you. We will now begin the question and answer session. As a reminder to ask a question, you may press star, then one on your touchstone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw it, please press star, then two.

Chris: Thank you we will now begin the question and answer session. As a reminder to ask a question.

Speaker Change: May Press Star then one on your Touchtone phone.

Speaker Change: If you are 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. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Jim Moylan: Starting out of guidance. For the fiscal quarter quarter, we expect to deliver revenue in a range of $1.06 billion to $1.14 billion. This would put us at about $4 billion in revenue for fiscal year 2024 in line with the guidance we provided in June. We expect Q4 adjusted gross margin to be in the low to mid 40 drain. Gary spoke about our reconfigurable line system, which has the combination of intelligence and high capacity that makes it ideal for next gen AI-driven network.

Operator: At this time, we will pause momentarily to assemble our roster.

Meta Marshall: And today's first question comes from Mehta Marshall with Morgan Stanley. Please proceed. Great. Thanks so much. Maybe Jim, as you mentioned on the call, you were talked about six to eight percent being a good long-term guide. As you look at fiscal 25 estimates, as they are within that range, is there a comfort that you have with fiscal 25 estimates of the street as they are?

Speaker Change: And today's first question comes from meta Marshall with Morgan Stanley. Please proceed.

Great. Thanks, So much you know maybe Jim just you know as you mentioned on the call you had talked about kind of 6% to 8% kind of being that good long term guide I'm just.

Meta Marshall: As we look at as you look at fiscal 'twenty five estimates as they are you know and they are within that range is there a comfort that you have with kind of fiscal 'twenty five.

Jim Moylan: And we're selling a lot. It's had the near term effect on most margins, but as we sell the modem to provide capacity on the new plan, our margins will improve. And we expect adjusted operating expense to be a approximately $350 million.

Meta Marshall: The estimates of the street as they are and then maybe a second question.

Meta Marshall: And then maybe a second question for Gary. On the pluggables wins that you guys have had, noting that a lot of those were very short reach. Do you view the pluggable business that you're getting as additive to the business currently? Thanks.

Gary Smith: For Gary just on the plug of bowls wins that you guys have had.

Jim Moylan: Looking ahead to fiscal year 2025, as is our normal practice, we will provide a detailed view of our expectations when we report our Q4 results in December. With that said, we previously indicated that fiscal 2024 would be a transition year, following a few years that were impacted by the unusual events of the pandemic that led to supply change challenges and a subsequent snack path, resulting in an outside growth in fiscal 2022-2023.

Gary Smith: Yeah.

Speaker Change: Noting that you said that a lot of those are very short reach do you view the plug a bolus of business that you're getting as additive to the base. That's currently thanks.

Jim Moylan: We won't comment on the 25 estimates out there today. I will say that we feel great about our position in the market. We think 68 percent of the good long-term growth rate is going very from that, and any given year that we've seen in the past. and I think we're going to continue each year.

Speaker Change: We won't comment on the 25 vessel that's out there today.

We feel great about our position in the market, we think 6% to 8% is a good long term growth rate.

Speaker Change: Does that in any given year that we've seen in the past.

Jim Moylan: We've also said that we believe using a six to eight percent compound annual growth rate is the best representation of our long-term revenue growth rate, which is faster than market growth based on current forecast. This range, by the way, matches our revenue growth rate over a long period of years. We continue to believe that this is a reasonable and balanced use of a long-term, keeping in mind that any one year's growth rate can be outside that range.

Speaker Change: And I think we're going to continue to take share. So all of those things are good for us.

Gary Smith: So all of those things are good for us, but we don't want to make a comment about 25 at this point in time. We just finished you three.

Speaker Change: But we don't want to make a comment about 25 at this point in time, we just finished Q3.

Gary Smith: So Meta, on the second part of the question, the very short answer is yes. We view pluggables as an incremental 10 opportunity for Ciena. We've been most consistent about this. Most of that is going to go into the short reach where we really don't have much revenues at all right now. So that's basically it. We do not see it cannibalizing, you know, long haul submarine. You know, we're very complex and high performance system requirements. We're not seeing that on the Metro DCI, which is less than 10% of the total optical market, by the way. We are seeing again, incremental opportunities for us and any cannibalization would be really into the Metro part of that DCI.

Speaker Change: Some men or on the on the second part of the question.

Speaker Change: Short answer yes, we do.

Speaker Change: Plug it bowls as an incremental Tam opportunity for Ciena, we'd been most consistent about this.

Speaker Change: Most of that is going to go into the short reach where we really don't have much revenues at all right now so that's basically it we do not see it cannibalizing long haul submarine.

Jim Moylan: Before we conclude, I'll prepare remarks. I'll see a few words about my plan or time. We understand that the investment community likes to have advanced notice of the departure of a senior executive, and we are providing that notice today. Ciena is a great company. We have the best optical technology in the world, and our lead on the competition is Ruben. We also have a group of passionate and talented employees all over the globe who make Ciena a great place for work.

Very complex and high performance system requirements were not saying that.

Speaker Change: On the Metro Dci, which is less than 10% of the total optical market by the way.

Speaker Change: We are seeing again incremental opportunities for us and.

Speaker Change: And any cannibalization would be really into the metro part about CCI.

Gary Smith: We're not seeing that gather shape, and any cannibalization will be there; is more than made up by the incremental pluggable opportunity in the short reach and by the overall growing marketplace.

Speaker Change: We're not seeing that gather shape and any any cannibalization will be there is more than made up.

Jim Moylan: It has been an honor to serve at Ciena CFO, but more than that, it has been a tremendous learning experience, and it will continue to be since I will be at Ciena for another year. We will start a search for Ciena's next CFO immediately, and I will work closely with my replacement to ensure a smooth transition.

Speaker Change: While the incremental plausible opportunity in the short reach and by the overall growing marketplace.

Meta Marshall: Great, thank you. Thank you much.

Speaker Change: Great. Thank you.

Speaker Change: Thank you management.

Simon Leopold: And the next question is from Simon Leopold with Raymond James. Please proceed. Thank you very much.

Jim Moylan: To close, we delivered a strong Q3. We're confident in achieving our fourth quarter guidance based on the momentum we see in our business and the wins we've discussed. You're optimistic about positioning, capture, long-term opportunities, and deliver possible growth, expanding into the new areas of available markets over the coming years.

Speaker Change: And the next question is from Simon Leopold with Raymond James. Please proceed.

Simon Leopold: Thank you very much.

Simon Leopold: First of all, Jim, congratulations. And thank you for giving us a one-year notice. Appreciate that. I hate being surprised. And we'll miss you.

Simon Leopold: First of all again, congratulations and thank you for giving us a one year notice.

Simon Leopold: That.

Being surprised.

Speaker Change: And we will Miss you.

Simon Leopold: So, on the questions, first of all, I wanted to see if you could put some dimensions around the most and opportunity you've talked about. Given that it's sort of buried in the telco, but it's somewhat indicative of cloud trends. That's my first question.

Speaker Change: So on the questions first of all I wanted to see if you could put some dimensions around the <unk> opportunity you've talked about.

Unknown Attendee: With that, Chris, we'll take questions from the self. Thank you.

Unknown Attendee: We will now begin the question and answer session. As a reminder to ask a question, you may press star then one on your touchstone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw it, please press star then two.

Given that it's sort of buried in the telco, but somehow.

Speaker Change: Somewhat indicative of cloud trends.

Speaker Change: That's my first question as a follow up I wanted to see if you could comment on your broadband opportunities in light of the announcement yesterday from one of your competitors, winning exclusivity or at least claiming the exclusivity with a tier one U S. Operator. Thank you.

Simon Leopold: As a follow-up, I wanted to see if you could comment on your broadband opportunities. Please invite of announcement yesterday from one of your competitors, winning exclusivity or at least clinging to exclusivity with tier one US operator. Thank you.

Unknown Attendee: At this time, we will pause momentarily to assemble our roster.

Meta Marshall: And today's first question comes from Mehta Marshall with Morgan Stanley. Please proceed. Great. Thanks so much. Maybe Jim, as you mentioned on the call, you were talked about six to eight percent being a good long-term guide. As you look at fiscal 25 estimates, as they are within that range, is there a comfort that you have with fiscal 25 estimates of the street as they are? And then maybe a second question for Gary.

Gary Smith: Simon, let me take a moment. Peace. You know, it's increasingly becoming a larger part of our service provider piece in collaboration with the cloud providers around the globe. And it basically gives the cloud providers, you know, an opportunity to get to market quickly. Very often, they will define the architecture that they want delivered, and they'll specify Sienna. And that's happening around the globe, particularly in places like India, you know, which is obviously a large target market for the cloud providers. You know, it's difficult to get visibility to all of those deals, but I would sort of, you know, put a size on it, probably 10 to 15% of our total service provider business is actually moping in some way, shape, or that would be sort of best view of it, which together with our direct cloud provider business and the subsea business, you know, it's getting us in that 40 to 50% of our total business.

Speaker Change: Simon.

Speaker Change: Let me take the motion pace.

Speaker Change: It is increasingly becoming a larger part of our service provider <unk> in collaboration with the cloud providers around the globe and it basically it gives the cloud providers.

Speaker Change: Facility to get to market quickly very often they will define the architecture that they want delivered I'll now specify sienna.

Speaker Change: And that is happening around the globe, particularly in places like India, which is obviously, a large target market for cloud providers.

Speaker Change: It's difficult to get visibility to all of those deals, but I would sort of put a size on that sort of probably 10% to 15% of our total service provider business is actually most of them in some way shape.

Meta Marshall: On the pluggables wins that you guys have had, noting that you said that a lot of those were very short reach. Do you view the pluggables business that you're getting as additive to the business currently? Thanks.

Speaker Change: That would be sort of a best view, which together with Iraq.

Speaker Change: Cloud provider business and the subsea business.

Jim Moylan: We won't comment on the 25 estimates out there today. I will say that we feel great about our position in the market. We think 68 percent of the good long-term growth rate is going very from that, and I think we're going to continue each each year. So all of those things are good for us, but we don't want to make a comment on 25 at this point in time.

Speaker Change: And that 40% to 50%.

Speaker Change: Total business really is cloud both direct and indirect that's our best sort of perspective on it I'm very often.

Gary Smith: It's really is cloud, both direct and sort of indirect. That's our best sort of perspective on it. And very often, you know, in various countries, there will be a combination of different approaches by the cloud. Some may be dark fiber; they like themselves. Some may be provision. I'm just normal capacity, and some will be on the dedicated. Mothe and deal, which we're increasingly seeing a lot of the cloud providers lean towards, and we are kind of uniquely placed around that given our global footprint in most of the major carriers around the world at deep relationships with the cloud providers.

Speaker Change: In various countries there will be a combination of different approaches by the cloud so maybe dark fiber they like themselves. Some maybe provision on just normal capacity and some will be on the dedicated most of the deals which were increasingly seeing.

Gary Smith: We just finished you three. So Meta, on the second part of the question, the very short answer is yes. We view pluggables as an incremental 10 opportunity for Ciena. We've been most consistent about this. Most of that is going to go into the short reach where we really don't have much revenues at all right now. So that's basically it. We do not see it cannibalizing, you know, long haul submarine, you know, we're very complex and high performance system requirements.

Speaker Change: A lot of the cloud providers leaned towards and we all kind of uniquely placed around that given our global footprint and most of the major carriers around the world.

Speaker Change: Our deep relationships with the cloud providers and particularly.

Gary Smith: And particularly, you know, the highest market share of all of the submarine cable piece as well. So you put all of that together and were somewhat uniquely positioned to direct that month. Okay.

Speaker Change: The highest market share of all of the submarine cable piece as well. So you put all of that together with somewhat uniquely position to.

Speaker Change: Rest of that market.

Gary Smith: And then Simon on the forward-looking perspective on the broad-by-access business, I say this: like obviously our intentions in the marketplace is not to an individual customer, it is to a broad market opportunity. We're very excited about the value proposition that we're bringing to the marketplace in terms of virtualizing the OALT, integrating that into our coherent routing, adding that capability to our management suite that we talked about with Navigator. It's resonating well in the marketplace; we're up to 65 customer wins now, and we're adding quarter by quarter to that count. So it's much, much broader play than any individual customer.

Speaker Change: And then finally on the forward looking perspective on the broadband access business.

Gary Smith: We're not seeing that on the Metro PCI, which is less than 10% of the total optical market, by the way. We are seeing again incremental opportunities for us. And any cannibalization would be really into the Metro part of that DCI. We're not seeing that gather shape and any cannibalization will be there is more than made up by the incremental pluggable opportunity in the short reach and by the overall growing marketplace.

Speaker Change: Say this but obviously are our attention in the marketplace.

Speaker Change: As not to an individual customers to abroad Institute, a broad market opportunity.

Unknown Attendee: Great. Thank you.

Speaker Change: Very excited about.

Speaker Change: The value proposition that we're bringing to the marketplace in terms of the Virtualized <unk>.

Speaker Change: L T integrating that into a coherent routing adding that.

Speaker Change: Our capability to our management suite that we talked about with navigator.

Speaker Change: It's resonating well in the marketplace work up to 65 customer wins, now and we're adding quarter by quarter to that count.

Speaker Change: So it's much much much broader plays any individual customer and obviously, we're not going to comment on one individual customer anyway.

Gary Smith: And obviously we're not going to comment on one individual customer anyway.

Simon Leopold: And the next question is from Simon Leopold with Raymond James. Please proceed. Thank you very much. First of all, Jim, congratulations. And thank you for giving us a one year notice. Appreciate that. I hate being surprised. And we'll miss you.

Gary Smith: The other thing I say, though, is in the short term, it's obviously swimming right into the dynamics that are going on in the service provider space, so there's a bit of a headwind there, and probably accentuated a bit by the delay and be funding. So there's been a bit of short-term headwind, but we're quite, quite said, but the long-term potential.

Speaker Change: The other thing I'd say, though is in the short term, it's obviously swimming right into the.

Speaker Change: Uh huh.

Speaker Change: The dynamics that are going on in the service provider space, So theres a bit of a headwind there.

Speaker Change: And probably accentuated a bit by the delay in the funding so theres been a bit of short term.

Simon Leopold: So on the questions, first of all, I wanted to see if you could put some dimensions around the most and opportunity you've talked about. Given that it's sort of I buried in the telco, but it's somewhat indicative of cloud trends. That's my first question.

Speaker Change: Headwinds, but we're quite pleased.

Speaker Change: Long term potential.

Simon Leopold: Thank you.

Speaker Change: Thank you. Thank you Scott Thanks, Tom.

Samik Chatterjee: Thank you, Samik Chatterjee.

Samik Chatterjee: Our next question is from Samik Chatterjee with JP Morgan. Please proceed. Hi, thanks for taking my questions. Maybe for the fourth one, if I can sort of ask you more about the order commentary that you had in your prepared remarks, you mentioned the book to build tracking of a one, which I think would largely be seen as positive from sort of what your expectations for last quarter, but you also sort of highlighted the more sort of limited improvement or a slow recovery you're seeing with the service providers, particularly internationally. So I mean, can you just pass that out a bit in terms of the improvement orders between service providers and cloud, and did sort of the service provider order improvement come in below your expectations?

Speaker Change: Our next question is from Sami chatter G with J P. Morgan. Please proceed hi.

Speaker Change: Hi, Thanks for taking my questions maybe for the fourth one if I can sort of asking more about the order commentary that you had in your prepared remarks, you mentioned the book to Bill is tracking above one, which I think will largely be seen as positive from sort of what your expectations for the last quarter, but you also sort of highlighted though.

Gary Smith: As a follow up, I wanted to see if you could comment on your broadband opportunities in light of announcement yesterday. From one of your competitors, winning exclusivity or at least clinging to exclusivity with a tier one US operator. Thank you. Simon, let me take a moment, please. You know, it's increasingly becoming a larger part of our service provider piece in collaboration with the cloud providers around the globe. And it basically gives the cloud providers, you know, an opportunity to get to market quickly very often.

Speaker Change: More sort of limited.

Speaker Change: Mentor, a slow recovery youre seeing with the service providers, particularly internationally. So I mean can you just box that out a bit in terms of improvement between service providers and cloud and.

Gary Smith: They will define the architecture that they want delivered and they'll specify Sienna. And that's happening around the globe, particularly in places like India, you know, which is obviously a large target market for cloud providers. You know, it's difficult to get visibility to all of those deals, but I would sort of, you know, put a size on it, probably 10 to 15% of our total service provider business is actually milk on in some way, shape, or that would be sort of best view of it, which together with our direct cloud provider business and the subsea business, you know, it's getting us in that 40 to 50% of our total business.

Speaker Change: Data set up to service provider order improvement come in below your expectations and I don't know if you've ever provided like wind dumps of diesel was quite exposure do you have how much is how much should we think as north America versus internationally and I have a follow up thanks.

Samik Chatterjee: And I don't know if you ever provided like with terms of the service provider exposure, you have how much is, how much should we think is not the medical versus international and have a follow-up.

Jim Moylan: Thank you. Clearly, our current order flows are driven mostly by the web scalers, but we do expect some improvement, particularly on North American service providers in the near term, and we expect improvement in the international service providers next year. Just as a point of reference, our backlog route to about 2.1 billion at the end of Q3. We think our order flowed in Q4 will be at maybe slightly below our revenue call. So our backlog, we expect at the end of the year will be 2 billion. We think that it will be a little heavier today, today around service providers, because we do expect some improvement in the near order, right?

Speaker Change: Okay.

Speaker Change: Clearly our current order flows are driven mostly by the web scale, but we do expect some improvement, particularly on the North American service providers in the near term.

And we expect improvement in the international service providers next year.

Speaker Change: Just as a point of reference our backlog.

Speaker Change: About $2 1 billion at the end of Q3, we think our order flows in Q4 will be at or maybe slightly below our revenue calls so our backlog we expect at the end of this year will be $2 billion.

Gary Smith: It's really is cloud, both direct and sort of indirect. That's our best sort of perspective on it. And very often, you know, in various countries, they will be a combination of different approaches by the cloud. Some may be dark fiber, they like themselves, some may be provision. I'm just normal capacity and some will be on the dedicated. Most of them deal, which we're increasingly seeing a lot of the cloud providers lean towards and we are kind of uniquely placed around that given our global footprint in most of the major carriers around the world at deep relationships with the cloud providers. And particularly, you know, the highest market share of all of the submarine cable piece as well. So you put all of that together and were somewhat uniquely positioned to address that.

Speaker Change: We think that it will be a little heavier than it is today around service provider because we do expect some remaining their order rates.

Gary Smith: Okay, and for my follow-up, we all continue to see this robust investment or capex cycle from the web scalers, and you talked about that being driven by or preparing for AI as well. How should we think about how much of that investment from the web scalers will be towards the plug-ables of short reach versus really directed more towards your systems portfolio and more towards the traditional portfolio that you have. How you thinking about where does the AI preparedness benefit really come through on the portfolio side?

Speaker Change: Alright.

Speaker Change: Okay.

If I may follow up.

Speaker Change: We all continue to see this robust investment of Capex cycle from the web scales and you talked about that being driven by youre preparing for AI as well.

Speaker Change: How should we think about how much of that.

Speaker Change: Investment from the grips kilos will be towards the plausible soft short reach bosses.

Speaker Change: Really directed more towards your systems portfolio, and Motorola, Steve sort of traditional portfolio that you have how you're thinking about where does the EIA prepared benefit really come through on the portfolio side. Thank you.

Gary Smith: Thank you. Yeah, I think if you think about the plentiful piece, you know, separate of, you know, flying clubs, the stick and other other devices doesn't have a whole end and system. We've been pretty consistent, and what we said that we think, you know, that that is place that plays in the short beat Metro DCI. And we also said that it would take longer for it to be in the material piece of the industry or the business. And I think that's played out pretty accurately. And we're starting to see that come true in terms of financial results for us as we ship arenas to your plugs into that application.

Gary Smith: Okay. And then Simon on the forward-looking perspective on the broad-by-access business, I'd say this like obviously our intentions of the marketplace is not to an individual customer is to abroad institute a broad market opportunity. We're very excited about the value proposition that we're bringing to the marketplace in terms of virtualizing the OALT integrating that into our coherent routing, adding that capability to our management suite that we talked about. So it would navigate it.

Speaker Change: Yes, I think.

Speaker Change: If you think about the portable piece separate.

Speaker Change: Buying clubs.

Speaker Change: <expletive> and other other devices other than a whole end to end system.

Speaker Change: We've been pretty consistent what we said that we think.

Speaker Change: That that is.

Speaker Change: Place that plays in the short reach Metro Dci.

Speaker Change: And we also said that it would take longer for it to be material piece of the industry or in the business and I think that's played out pretty accurately and we're starting to see that come through in terms of financial results for us as we shipped 400 gig ZR plugs into into that application on again as Garry said that is no.

Gary Smith: It's resonating well in the marketplace, we're up to 65 customer wins now, and we're adding quarter by quarter to that count. So it's much much much broader, but in any individual customer and obviously we're not going to comment on one individual customer anyway. The other thing I say though is in the short term, it's obviously swimming right into the dynamics that are going on in the service provider space, so there's a bit of a headwind there. And probably accentuated a bit by the delay and indeed funding. So there's been a bit of short-term headwind, but we're quite set, but the long-term potential. Thank you.

Gary Smith: And again, as Gary said, that is net incremental for us because we largely have been exposed to that part of the West scale networks. But I think the broader spend, though I remind you that we participate with them on summary applications on their core network applications and then back into the service providers through the open exposure that we have. In those cases, those are large complex networks. And you know, the winning hand on those comes back to optical modes, line systems, and the control systems that go with them. And we think we have the best technology and all three of those dimensions.

Garry: Incremental for us because we largely having been exposed to that part of the web scale networks.

Speaker Change: I think the broader spend though I remind you that we participate with them on submarine applications on their core network applications and then back into the service providers through the bulk of the exposure that we have in most cases those are large complex networks.

Speaker Change: And the winning hand unknowns that comes back to optical modems line systems.

Speaker Change: And the control systems that go with them.

Samik Chatterjee: Our next question is from Samik and Chatterjee with JP Morgan, please proceed. Hi, thanks for taking my questions. Maybe for the fourth one, if I can sort of ask you more about the order commentary that you had in your prepared remarks, you mentioned the book to build tracking above one, which I think would largely be seen as positive from sort of what your expectations for last quarter, but you also sort of highlighted the more sort of limited improvement or slow recovery you're seeing with the service providers, particularly internationally.

Speaker Change: And we think we have the best technology in all three of those dimensions. So we're going to continue to take our our unfair share of that spend opportunity out there.

Gary Smith: So we're going to continue to take our fair share of that spend opportunity up there.

Samik Chatterjee: So I mean, can you just pass that out a bit in terms of the improvement orders between service providers and cloud and did sort of the service provider order improvement coming below your expectations? And I don't know if you ever provided like when terms of the service provider exposure you have how much is how much should we think is not the America versus international and I have a follow up. Thank you.

Gary Smith: Thank you. The vast majority of spend will continue to be on optical systems. They're in the cloud state. The vast majority of spend because it exactly Scott said the complexity and the performance requirements of these large system is what's right in their network traffic.

Speaker Change: Okay. Thank you.

Speaker Change: Please go ahead just to add to that the.

Speaker Change: The vast majority of spend we will continue to be on optical systems.

Speaker Change: In the cloud space, the vast majority of spend because it exactly as Scott said the complexity.

Speaker Change: The performance requirements of these large systems.

Speaker Change: Is what's driving that network traffic.

Samik Chatterjee: Thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah.

Amit Daryanani: And the next question comes from Amit Dariani, with every core please. Good morning. Thanks for taking my question.

Amit <unk>: And the next question comes from Amit <unk> with Evercore. Please proceed.

Amit <unk>: Good morning, and thanks for taking my question I have two as well.

Amit Daryanani: I have to as well. Maybe to start with, your October quarter guy for gross margins in the low to mid 40% I think he talked about. You're seeing some mix impact by initially setting more line systems there. We just quantify what that impacted it like a hundred to two at a base point headwind.

Amit <unk>: Maybe to start with.

Amit <unk>: Your October quarter guide for gross margins in the low to mid 40% I think you talked about you're seeing some mix impact by this we'd be selling more line systems. There can you just quantify what that impact is it just like a 100 to 200 basis points of headwind and then do you see that normalize in fiscal 'twenty five as you start to sell memorials potentially or is there a longer duration.

Samik Chatterjee: Clearly, our current order flows are driven mostly by the web scalers, but we do expect some improvement, particularly on North American service providers in the near term. And we expect improvement in the international service providers next year, just as a point of reference, a backlog route to about 2.1 billion at the end of Q3. We think our order flows and people will be at maybe slightly below our revenue calls, so a backlog we expect at the end of this year will be 2 billion. We think that it'll be a little heavier today, around service providers, because we do expect some improvement in their order rates.

Jim Moylan: And then do you see that normalized in fiscal 25 as you start to sell more modems for country, or is there a longer duration normalized that. I won't comment about 25 today, but clearly the portion of line systems that we're selling today is very heavily weighted. And that's resulting in a gross margin impact. It's at least a couple hundred basis points. I mean, I can't give you the exact number, but it's at least that kind of number.

Speaker Change: Norm lifestyle.

Speaker Change: I won't comment about 'twenty today, but clearly the proportion of line systems that we're selling today is very heavily weighted.

Speaker Change: And that's resulting in a gross margin impact if it's at least a couple of hundred basis points.

Can't give you exact number but at least that kind of a million dollars.

Amit Daryanani: Got it.

Speaker Change: Got it and then on the telco side, you talked about starting to see a recovery in North America, and EMEA being macro driven but a little bit because why don't you just talk a little bit more about what are you seeing in APAC and India, specifically when it comes to telco spending.

Gary Smith: And then you're on the telephone side; you talked about the starting to see a recovery in North America and the media being macro driven, but a little bit weaker. Let me just talk a little bit more about what are you seeing in a pack and India specifically when it comes to tell us spending. With seeing strength in Asia Pacific, you know, we've seen a number of wins, particularly in Southern Asia, places like Indonesia, Vietnam, et cetera. So we see that, and then new logos for us. We have very low market share there. So that's that's encouraging.

Gary Smith: Okay, and for me follow up, we all continue to see this robust investment or capex cycle from the web scalers and you talked about that being driven by or preparing for AI as well. How should we think about how much of that investment from the web scalers will be towards the pluggables of short reach versus really directed more towards your systems portfolio. And more towards the sort of traditional portfolio that you have, how you thinking about where does the AI preparedness benefit really come through on the portfolio side?

Speaker Change: We're seeing strength in Asia Pacific.

Speaker Change: We've seen a number of wins, particularly in southern Asia.

Speaker Change: Places like Indonesia, Vietnam et cetera.

So we see that our net new logos for us we have very low market share. There. So that's encouraging and India I think we're very bullish about about India.

Gary Smith: And in India, I think, you know, we're very bullish about India. We have number one market share there. We see good and often growth. There's obviously the cloud is very focused on it. It's a little bit cyclical. They're sort of recovering from the investment in all of the 5G pieces, but we are seeing a lot of activity. So, as we look out for the next 1 to 3 years in India, you know, again, we remain bullish. It was up a little bit sequentially, quarter to quarter. It's going to have some ads and flows, but I think, you know, where we think that we're on to a strong cycle, you know, over the next 1 to 3 years in India.

Speaker Change: Number one market share there we see good motion.

Speaker Change: Growth is obviously the cloud is very focused on it.

Gary Smith: Thank you. Yeah, I think if you think about the plentiful piece, you know, separate of, you know, flying clubs, the stick and other, other devices doesn't have a whole end and system. We've been pretty consistent. What we said that we think, you know, that that is. Place that plays in the short beat Metro DCR and we also said that it would take longer for it to be in the material piece of the industry or in the business.

Speaker Change: It's a little bit cyclical, they're sort of recovering from the investments and all of the five G.

Speaker Change: Pieces, but we are seeing a lot of activity.

So as we look out for the next one to three years in India again, we.

Speaker Change: We remain bullish it was up a little bit.

Speaker Change: <unk> quarter to quarter, it's going to have some ebbs and flows but I think we're.

Speaker Change: We think that we're onto a strong cycle over the next one to three years in India.

Gary Smith: And I think that's played out pretty accurately. And we're starting to see that come true in terms of financial results for us as we ship aren't against your plugs into into that application. And again, as Gary said, that is net incremental for us because we largely having been exposed to that part of the West scale networks. But I think the broader spend though I remind you that we participate with them on summary applications on on their core network applications and then back into the service providers through the open exposure that we have in those cases, those are large complex networks.

Jim Moylan: and Amit, I want to correct something: I just said, in Q3, it's at least 100 best points, not 200 best points. Perfect, thank you for that.

Speaker Change: And then they don't want to correct something I just said in Q3, it's at least 100 basis points not 200 basis points.

Speaker Change: Got it perfect. Thank you for that and Jim Congrats on the retirement, but levels year round with this year.

Tim Long: Jim, congrats on the retirement, but I'll see you around for a few years. Thank you. Thanks for that.

Jim Moylan: Well thank you thanks.

Nick: Thanks, Nick.

Tim Long: And the next question is from Tim Long with Barclays. Please proceed. Thank you.

Speaker Change: And the next question is from Tim long with Barclays. Please proceed.

Tim Long: Thank you.

Gary Smith: And you know, the winning hand on those comes back to optical modes, line systems and the control systems that go with them. And we think we have the best technology and all three of those dimensions. So we're going to continue to take our on fair share of that spend opportunity up there. Thank you.

Tim Long: Congratulations for me too as well, Jim, on the issue. Yeah, the first one if I could, then have a follow-up. I understand you don't want to get to into fiscal 25 at this point, but Jim, you did make some comments about kind of looking a little bit more normal or maybe Gary did after strong 23 and a correction here in 24. When we look at next year or just going forward, do we think we're back towards more typical linearity in the business, just as a go forward comment, and then I have a follow-up after that.

Tim Long: Congratulations from me too as well Jim I'll Miss you.

Tim Long: First one if I could then I have a follow up.

Speaker Change: I understand you don't want to get too into the fiscal 'twenty five at this point, but.

Speaker Change: Jim you did make some comments about.

Gary Smith: Kind of looking a little bit more normal or maybe Gary did after a strong 23 Anna.

Speaker Change: Correction here in in 24, when we look at next year or just going forward do we think we're back towards more typical linearity in the business.

Gary Smith: The vast majority of span will continue to be on optical systems in the cloud state. The vast majority of span because it exactly got that the complexity and the performance requirements of these large system is what's right in their network traffic. Thank you.

Speaker Change: Just just as a go forward comment and then I have a follow up after that.

Jim Moylan: You're referring to seasonal linearity. Yes, seasonality, yes. Our business used to be very predictable as to its seasonal nature because our business would mainly service providers. With the increase in the sales that we make to web scalers, as Gary said, it's only the 50% of our business that is driven by their activity. We've become a much less predictable company in terms of our revenue seasonally. We've had very strong first quarters. Typically, in the past, our third and fourth quarters were our biggest quarters that can change with the web scalers. Really, I can't call our seasonality right now.

Speaker Change: Youre, referring to seasonal linearity.

Speaker Change: Seasonality, yes.

Speaker Change: Seasonality.

Speaker Change: Okay.

Amit Daryanani: And the next question comes from Amit Daryani with every core please.

Speaker Change: Business used to be very predictable as to its seasonal nature, because our business was mainly service providers with the increase in the sales that really bank to web scale as Gary said, it's 40% to 50% of our business is driven by their activity we've become a much less.

Amit Daryanani: Good morning. Thanks for taking my question. I have to as well. Maybe the start with your October quarter guy for gross margins in the low to mid 40% I think he talked about. You're seeing some mix impact by initially setting more line systems there. We just quantify what that impacted the like a hundred to two at a base point headwind. And then do you see that normalized in fiscal 25 as you start to sell more mortems for country or is there a longer duration normalized that?

Speaker Change: <unk> the company in terms of our revenue seasonally we've had very strong first quarters.

Speaker Change: Uh huh.

Speaker Change: Typically in the past, our third and fourth quarter, where our biggest quarters.

Speaker Change: That can change with the web scale so.

Speaker Change: Really I can't call it seasonality right now and by the way we haven't even completed our plan for next year. So I don't know what it's going to be.

Amit Daryanani: I won't comment about 25 today. But clearly the portion of line systems that we're selling today is very heavily weighted. And that's resulting in a gross margin impact. It's at least a couple hundred basis points. I mean, I can't give you the exact number, but it's at least that kind of number. Got it. And then you're on the telephone side. You talked about the starting to see a recovery North America and the media being macro driven but a little bit weaker.

Jim Moylan: By the way, we haven't even completed our plan for next year, so I don't know what it's going to be. Great.

Speaker Change: Okay, Great and then just kind of a two part follow up here to the.

Jim Moylan: And there's just kind of a two-part follow-up here. Two of the business lines looked a little big changes quarter to quarter. So for blue planets that jump, they're just a big deal in there or some kind of seasonality, and similarly the drop in routing and switching sequentially. So either of those businesses where there's anything like kind of one time in them or these more normalized levels here. So firstly on Blue Planet, you know, basically doubled from this time last year, but offer relatively small base. You know, we've been basically focusing blue planets on, you know, very specific applications around inventory orchestration.

Speaker Change: Business lines looked a little.

Speaker Change: Big Big changes quarter to quarter, so for blue planet that jump.

Speaker Change: Is there just a big deal in there or some kind of seasonality and similarly, the drop in routing and switching.

Amit Daryanani: Let me just talk a little bit more about what he's seen in a pack and India specifically when it comes to tell us spending. With seeing strength in Asia Pacific, you know, we've seen a number of wins, particularly in southern Asia, places like Indonesia, Vietnam, etc. So we see that. And then new logos for us. We have very low market share there. So that's that's encouraging. In India, I think we're very bullish about India.

Speaker Change: Sequentially. So in both either of those businesses, where there's anything like kind of one time in them or are these more normalized levels here.

Speaker Change: So, especially on Blue planet Tim.

Speaker Change: <unk>.

Speaker Change: Basically doubled from this time last year, but also offer relatively small base.

Speaker Change: We've been basically.

Speaker Change: Focusing blue planet on very specific applications around inventory orchestration.

Jim Moylan: And that's been, you know, increasingly successful. So it's not just one big deal. We're very encouraged by what we're seeing with Blue Planet and we'll talk more about that during the coming quarters. You saw the recent announcement with Lumen, which is, you know, I think good evidence of that, but we're seeing board engagements across, you know, a more focused set of applications from Blue Planet, including, including things like network assurance. On the routing and switching, really, you know, I think that's more a function of the overall service provider, you know, challenges. And I think we all continuing make good progress on routing and switching.

Speaker Change: And that's been increasingly successful so it's not just one big deal we're very encouraged by.

Amit Daryanani: We have number one market share there. We see good and open growth. There's obviously the cloud is very focused on it. It's a little bit cyclical. They're sort of recovering from the investment in all of the 5G pieces, but we are seeing a lot of activity. So as we look out for the next one to three years in India, again, we remain bullish. It was up a little bit sequentially quarter to quarter.

What we're seeing with Blue planet, and we'll talk more about that during the during the coming quarters. You saw the recent announcement with lumen, which is I think good evidence of that but we're seeing broad engagements occur.

Amit Daryanani: It's going to have some ads and flows. But I think, you know, where we think that we're onto a strong cycle over the next one to three years in India, and Amit, I want to correct something, I just said, in Q3, it's at least 100 best points, not 200 best points.

Speaker Change: <unk> and.

Speaker Change: A more focused set of applications from blue planet, including including things like network assurance.

Unknown Attendee: Perfect, thank you for that.

Speaker Change: On the routing and switching really.

Speaker Change: I think that's more a function of the overall service provider.

Speaker Change: Challenges and I think we are continuing to make good progress on routing and switching.

Jim Moylan: We're seeing new logos, but I think it really, it's held back right now by the overall service provider challenges, particularly internationally. North America, I think, as we've talked about, I think is gradually improving. We've seen clear evidence of that, including routing and switching. The challenge is more internationally and then particularly in Europe.

Speaker Change: We're seeing new logos, but I think really it's it's.

Speaker Change: Held back right now by the overall.

Unknown Attendee: Jim, congrats on the retirement, but I will see you around for a few years. Thank you. Thanks for that.

Speaker Change: <unk>.

Speaker Change: Service provided challenges, particularly internationally.

Speaker Change: North America, I think because we've talked about I think is gradually improvement and we're seeing clear evidence of that including routing and switching.

Tim Long: And the next question is from Tim Long with Barclays, please proceed. Thank you.

Speaker Change: The challenge is more internationally, particularly in Europe.

Tim Long: Congratulations for me too, as well, Jim, on the issue. Yeah, first one if I could then have a follow-up. I understand you don't want to get to into fiscal 25 at this point, but Jim, you did make some comments about kind of looking a little bit more normal or maybe Gary did after strong 23 and a correction here in 24. When we look at next year, or just going forward, do we think we're back towards more typical linearity in the business, you know, just as a go forward comment, and then I have a follow-up after that.

Tim Long: Okay, thank you, guys.

Speaker Change: Okay. Thank you guys.

Tim Long: Thanks, Tim.

George Notter: And then the next question is from George Notter with Jeffries, please proceed. Hi, guys. Thanks very much. I guess I wanted to ask about sort of the trend in your direct web scale revenue. You've had a couple quarters in a row now that are a bit smaller relative to what was a couple quarters of really, really strong. Web scale sales. So, you know, you have the narrative around AI; the narrative from you guys, I think, just sounds better and better and better. And I'm kind of wondering, you know, what's causing that sort of step down versus the run rates here at a couple quarters ago?

Tim Long: And our next question is from George Notter with Jefferies. Please proceed.

George Notter: Hi, guys, thanks very much.

George Notter: I wanted to ask about sort of the trend in your direct web web scale revenue.

Speaker Change: Had a couple of quarters in a row now that are a bit smaller relative to what was a couple of quarters of really really strong web scale sales.

Speaker Change: So.

Speaker Change:

Speaker Change #100: Yet the narrative around AI. The narrative from you guys, I think just sounds better and better and better and I'm kind of wondering what's causing that sort of step down versus the run rates here at a couple of quarters ago was that inventory digestion.

Tim Long: You're referring to seasonal linearity. Yes, seasonality. Yes. Our business used to be very predictable as to its seasonal nature because our business would mainly service providers with the increase in the sales that we make to web scalers, if Gary said it's already 50% of our business is driven by their activity. We think much less predictable company in terms of our revenue seasonally, we've had very strong first quarters. And you know, typically in the past, a third and fourth quarter were our biggest quarters that can change with the web scalers. So I really, I can't call our seasonality right now. And by the way, we haven't even completed our plan for next year.

George Notter: Is that inventory digestion? Maybe it's a function of not seeing the whole picture and, you know, I've got to look more at your moping deals and sort of adjust for that. But how do you sort of explain that trajectory relative to the narrative?

Speaker Change #101: Maybe it's a function of not seeing the whole picture and.

Speaker Change #102: Kind of look more at your motion deals and sort of adjust for that but how do you. How do you sort of explain that that trajectory relative to the narrative.

Gary Smith: Yeah, George, I think that all of our business is going to be project driven, including that with the web scalers, and there are going to be ebbs and flows in their activity. So, you know, I increased on a decrease in anyone given quarter does not necessarily make a trend. But clearly, as you've seen though, a web scale business over time has grown from, you know, virtually nothing to directly out 2025 and 30%. And we said, no, it's no, it's not maybe 10 to 15. So we're not to point to 50%. But I will say that one of the things we are saying is that with the demands on that work that the web scalers are putting, they can't do all the work themselves; even they can't do it on themselves.

George Notter: Yes George.

Speaker Change #103: I think the thing.

George Notter: All of our business is going to be project, driven including that with the web scale and they're going to be ebbs and flows in their activity. So.

George Notter: Increase or a decrease in any one given quarter does not necessarily make a trend clearly as you've seen our web scale business over time.

Speaker Change #104: Virtually nothing to directly between 25 and 30% we said motion.

Jim Moylan: So I don't know what it's going to be. Okay, great. And they're just, you know, kind of a two-part follow-up here. Two of the, you know, business lines looked a little, you know, big, big changes quarter to quarter. So for blue planet that jump, they're just a big deal in there or some kind of seasonality and similarly the drop in routing and switching sequentially. So both either of those businesses where there's anything like kind of one time in them or these more normalized levels here.

Speaker Change #105: Open for submarines.

Speaker Change #106: That makes sense.

Speaker Change #107: So we're getting up to 1%.

Speaker Change #106:

Speaker Change #106: But I will say that one of the things we are seeing.

Speaker Change #106: With the demands on networks the Wednesday.

Putting they can't do all the work themselves even they can't do it on themselves that's why they're turning off that.

Gary Smith: That's why they're turning and open as increased pretty significantly over the past year or two. And so that is something that adds to the picture and shows you that we're getting good with the web scalers. Got it.

Speaker Change #106: And opened has increased pretty significantly over the past year or two and so.

Speaker Change #106: That is something that.

Jim Moylan: So firstly, on blue planet, you know, basically doubled from this time last year, but offer, offer, you know, relatively small base. You know, we've been basically focusing blue planet on, you know, very specific applications around inventory orchestration. And that's been, you know, increasingly successful. So it's not just one big deal. We're very encouraged by by what we're seeing with blue planet. And we'll talk more about that during the during the coming quarters.

Speaker Change #106: Add to the picture and shows you that we're getting good growth with the web scale.

Speaker Change #106: Okay.

Gary Smith: Great. And then just as a follow-up, you guys made a comment in the monologue about, you know, interconnect opportunities, I think inside data centers and collaborating with several content providers. Could you talk a bit more about what the application is there and what exactly you guys are doing?

Speaker Change #108: Got it great and then just as a follow up.

Speaker Change #109: You guys made a comment in the monologue about.

Speaker Change #110: Interconnect opportunities I think inside data centers and collaborating with several content providers could you talk a bit more about what the application is there and what exactly you guys are doing.

Gary Smith: First of all, when we talked about our interconnect business, there's really three parts to it. There's us selling our coherent mode of technology that plugs to outside of our system business. There's us selling our virtual OLT plugs outside of our system business.

Speaker Change #110: First of all George when we talked about in our interconnect business.

Speaker Change #111: There's really three parts to it.

Speaker Change #111: Yes.

Jim Moylan: You saw the recent announcement with Lumen, which is, you know, I think good evidence of that. But we're seeing board engagements across, you know, a more focused set of applications from blue planet, including, including things like network assurance. On the routing and switching really, you know, I think that's more a function of the overall service provider, you know, challenges. And I think we are continuing make good progress on routing and switching.

George Notter: There is a selling our coherent.

Speaker Change #112: Motive technology this folks.

Speaker Change #112: Outside of our system business, there is us selling our virtual all T.

Speaker Change #112: Plugs outside of our system business.

Gary Smith: And then there's the third one that you talked about, which is the opportunity taking that technology and reapplying it inside the data center. That third one is, you know, a longer-term opportunity. And first two are obviously shifting programming today. On that third one, you know, the dynamic that we see, the data is between, at a high level, between GPUs increased. as the distances that they have to communicate increase because of the constraint but power. And as the cloud providers start to look at things like optical switching as a way to provide, you know, interconnect at a lower cost and lower power footprint, all those things push you to need higher performing optics to connect.

And then there is the third one that you talked about which is the opportunity.

Speaker Change #112: Taking that technology and reapplying it inside the data center that third one is a longer term.

Speaker Change #112: Opportunities in the first two are obviously shipping for revenue today.

Speaker Change #112: On that third one the dynamic that we see that as.

Jim Moylan: We're seeing new logos, but I think it really, it's held back right now by the overall service provider challenges, particularly internationally. North America, I think, as we've talked about, I think, is gradually improving. We've seen clear evidence of that, including routing and switching. The challenge is more internationally and then particularly in Europe.

Speaker Change #112: The data rates between them at a high level between Gpus increase.

Speaker Change #113: How does the distances that they have to communicate increase because of the constraints that power.

Speaker Change #113: As the cloud providers start to look at things like optical switching as a way to provide.

Jim Moylan: Okay, thank you, guys.

Speaker Change #113: Interconnect.

Speaker Change #113: Lower cost and lower power footprint all of those things push you to need higher performing optics to connect.

Gary Smith: And, you know, the physics will dictate at some point in time today's existing technology is just not going to, is just not going to cut it. And you're going to have to bring the techniques that, you know, the land has seen, and we're here for the last couple of decades. It's an analogy of when the land left from 10 gig to something greater than 10 gig. We firmly believe that’s going to happen. The question is when and what technology slice. So, you know, think of it at a really high level, we're taking those components, whether they be digital system with ESPs or whether that be some of the capabilities that we have on analog digital and the electronics and applying it to just interconnect inside the data center, interconnecting GPUs.

Speaker Change #113: And the physical dictate that at some point in time.

Speaker Change #113: It is existing technology is just not gonna, it's just not going to cut it and youre going to have to bring to bear the techniques that.

George Notter: And then next question is from George Notter, with Jeffries, please proceed. Hi guys, thanks very much. I guess I wanted to ask about sort of the trend in your direct web scale revenue. You've had a couple quarters in a row now that are a bit smaller relative to what was a couple quarters of really, really strong web scale sales. So I, you know, the narrative around AI, the narrative from you guys, I think just sounds better and better and better.

Speaker Change #113: As seen in the last couple of decades as analogy of when the land went from 10 gig to something greater than 10 gig.

George Notter: And I'm kind of wondering, you know, what's causing that sort of step down versus the run race here out a couple quarters ago? Is that inventory digestion? Maybe it's a function of not seeing the whole picture and, you know, I've got to look more at your moping deals and sort of adjust for that, but how do you, how do you sort of explain that that trajectory relative to the narrative?

Speaker Change #113: Hmm.

Speaker Change #114: We firmly believe that's going to happen. The question is why.

Speaker Change #114: And then with technologies voice, so think of it.

Speaker Change #114: A really high level, we're taking those components whether they'd be.

Speaker Change #114: Digital assist with ESPN or whether that be some of the capabilities that we have on analog digital and the electro optics and applying it to just interconnect inside the data center interconnect and should be used.

George Notter: Thank you very much. I sure.

Speaker Change #115: Okay. Thank you very much.

Julie: Thanks Julie.

Tal Liani: Our next question comes from Tall, Leoni with Bank of America. Please proceed. How are you there, tall? Yes, I was on mute. Here we go. Thanks, thanks, guys.

Julie: Our next question comes from Tal Leone with Bank of America. Please proceed.

Gary Smith: Yeah, George, I think that all of our business is going to be project-driven, including that with the web scalers. And there are going to be ebbs and closed in their activity. So, you know, I increased on a decrease in anyone given quarter does not necessarily make a trend. Clearly, as you've seen though, a web scale business over time has grown from, you know, virtually nothing to directly out 2025 and 30 percent.

Speaker Change #117: That's all very good.

Speaker Change #118: Yes, I was on mute here you go.

Tal Leone: Thanks, guys.

Tal Liani: Jim, we're going to miss you. I want to ask you two questions. Number one is Cloud. So cloud was strong. Go over the last. You take a multiple year view; cloud was strong. And you did not participate in this debate of an event versus eating it. You were kind of external to that debate. So the question is: when you look at the cloud. Opportunity going forward and take a three or five year view is the opportunity for you. First, is the deployment going to get stronger. I mean, do you think the growth is going to be higher than what we've seen the last three to five years in general?

Speaker Change #120: Jamie we're going to Miss you.

Speaker Change #121: I want to I wanted to ask you two questions number one is cloud.

Speaker Change #122: So strong over the last if you take a multiple year view cloud was strong and you did not participate in this debate of Infiniband versus east.

Speaker Change #123: You were kind of.

Gary Smith: And we said, Mopen is Mopen plus submarine is another 15 percent, maybe 10 to 15. So we're getting up to point 50 percent. But I will say this, one of the things we are saying is that with the demands on that work, that the web scalers are putting, they can't do all the work themselves. Even they can't do it on themselves. That's why they're turning Mopen and Mopen has increased pretty significantly over the past year or two. And so that is something that adds to the picture and shows you that we're getting good with the web scalers. Got it. Great.

Speaker Change #124: External to that debate. So the question is when you look at the cloud.

Speaker Change #125: Opportunity going forward that they get three year five year view is the opportunity for you first is the deployment is going to get stronger meaning do you think the growth is going to be higher.

Speaker Change #125: And what we've seen the last three to five years in general.

Tal Liani: And second is the opportunity for you getting bigger. Meaning, are you going to be in parts of the network that you were not there before? So you could see better growth in the next few years.

Speaker Change #125: And second is the opportunity for you getting bigger meaning are you going to be in parts of the network that you were not there before so you could see better growth in the next few years. So.

Gary Smith: So I have another question, but maybe we can start with a cloud because I think it will it does. It does define your stock and valuation. And I want to better understand kind of your participation. Thanks. Given the pace at which the cloud providers are building data centers. And given that there are increasing number of with scale players that are in the data set of business and building out between those data centers. It seems very likely that the web scalers are going to grow as a percentage of our business over the next several years. So yes, I think that's that's probably true.

Speaker Change #126: I have another question, but maybe we can start with the cloud because I think that it will it does it does define your stock and valuation and I wanted to better understand kind of your participation there.

Gary Smith: And then just as a follow-up, you guys made a comment in the monologue about, you know, interconnect opportunities, I think, inside data centers and collaborating with several content providers. Could you talk a bit more about what the application is there and what exactly you guys are doing? First of all, when we talk about our interconnect business, there's really three parts to it. There's us selling our coherent mode and technology that plugs to outside of our system business.

Speaker Change #127: Given the pace at which the.

Speaker Change #127: Cloud providers are building data centers.

Speaker Change #127: And given that there are an increasing number of web scale players that are in the data center business and building out between those data centers it seems very likely.

Gary Smith: There's us selling our virtual OLT plugs outside of our system business. And then there's the third one that you talked about, which is the opportunity of taking that technology and reapplying it inside the data center. That third one is, you know, a longer term opportunity. First two are obviously shifting programming today. On that third one, you know, the dynamic that we see, the data is between, at a high level, between GPUs and increased, as the distances that they have to communicate increase because of the constraint but power.

Speaker Change #128: The web scale, there are going to grow as a percentage of our business over the next several years. So yes, I think that's probably true.

Gary Smith: Now, are we going to participate in places that we don't participate? Yes. I believe we will. We said earlier, we don't really participate in the short reach metro business. That's just not the place where we have won a lot of business. I think we will play in that space with our floods. As we said, we have an 800 CR win. And I think we'll have more of this, and it'll be short reach and longer reach, but short reach and particular. I also think there's a possibility inside the data center. Now, that's all they're out, and we still have a lot of work to do to make sure that we can provide the technology that's going to be needed inside the data center.

Speaker Change #127: No.

Speaker Change #127: We're going to participate in places that we don't participate yes, I believe we will.

Speaker Change #127: As we said earlier, we don't really participate in the short reach Metro business.

Speaker Change #127: Just not been a place where we.

Speaker Change #127: We have won a lot of business I think we will play in that space with our plans as we said we have a 800 ZR wind and.

Speaker Change #127: I think we will have more of those and it will be.

Speaker Change #127: Short reach and long reach but short reach in particular.

Gary Smith: And as the cloud providers start to look at things like optical switching as a way to provide, you know, in your connect at a lower cost and lower power footprint, all those things push you to need higher performing optics to connect. And you know, the physics will dictate the some point in time today's existing technology is just not going to is just not going to cut it and you're going to have to bring to bear the techniques that, you know, the land has seen and for the last couple of decades of the knowledge of when the land left from 10 gigs something greater than 10 gigs.

Speaker Change #127: I also think there's a possibility inside the data center now that's farther out and we still have a lot of work to do to make sure that we can provide the technology that's going to be needed in certain data center. When we don't know where the transition will occur, but we do believe that we will have a good opportunity to play there. So yes, we're gonna be in.

Gary Smith: We don't know when the transition will start, but we do believe that we'll have a good opportunity to play there. So, yes, we're going to be involved in parts of the web-scaler network. And including having a big part, and we'll be all too long haul and some reinforce their networks, as we do now.

Speaker Change #127: Broader parts of the web scale network.

Speaker Change #127: And including.

Having a big part.

Speaker Change #129: Oprah long haul and submarine force their networks as we did now.

Speaker Change #130: Got it.

Gary Smith: Okay, second question is about the broadband, and I'm going to ask it in a sarcastic way, but, you know, I'm not a mean person. Why are you even in this business? This is a commodity-like, that's what we've learned the last few years, right? A commodity-like, it's about pricing. There are companies that have been doing it for a while. Why suddenly you increase participation in this fiber to the X, and why is this a practically? Yeah, I think I think a couple of thanks. First of all, you know, you're writing a sense that there was sort of just a continuum of yesterday's world.

Gary Smith: We firmly believe that's going to happen. The question is when and what technology slice so you know, think of it at a really high level of taking those components, whether they be visual cysts with the SPs or whether that be some of the capabilities that we have on analog visual and the electronics and applying it to just interconnect inside the data center interconnecting GPUs. Thank you very much.

Speaker Change #131: Okay. Second question is about the broadband and I'm going to ask it in this sarcastically but.

Unknown Attendee: I sure.

Speaker Change #131: I'm not a mean person.

Speaker Change #132: Why are you even in this business.

Speaker Change #131: This is a.

Speaker Change #134: Commodity like and that's what we've learned in the last few years right commodity like it's about pricing.

Speaker Change #135: They are a company that <unk> been doing it for a while why suddenly you increase participation in this.

Speaker Change #136: Fiber to the X and Y is this attractive for you.

Tal Liani: Our next question comes from tall, Leoni with Bank of America, please proceed. I want to ask you two questions, number one is cloud so cloud was strong over the last week, multiple year of view, cloud was strong and you did not participate in this debate of anything. You were kind of external to that debate. So the question is when you look at the cloud opportunity going forward and take a three year view, five year view is the opportunity for you first is the deployment going to get stronger, meaning is do you think the growth is going to be higher than what we've seen the last three to five years in general.

Yes, I think a couple of things.

Speaker Change #136: First of all.

Speaker Change #136: Yeah.

Speaker Change #137: You are right in the sense that if there was sort of just a continuum of yesterday's world.

Gary Smith: That's a very valid question as, but our hypothesis is that, you know, we're staring at a different world in future, which is fiber will continue to have, you know, continued to be more prevalent in the network. Capacities are going to increase, and the technology is that you require to do that, you know, continue to play to our strengths, those that we're hearing optics. And that's playing itself out in the broadband access space. If you think about where the standards are going with, under getting on, it's, you know, it's a coherent technology. So, you know, the technologies are swimming to our sweet spot.

Speaker Change #138: That's a very valid question us, but our hypothesis is that.

Speaker Change #138: We're staring at a different role in future which is.

Speaker Change #138: Fiber.

Speaker Change #138: Continue to have.

Speaker Change #138: <unk> continued to be more prevalent in the.

Speaker Change #138: Network capacities are going to increase.

Speaker Change #138: The technologies that you're required to do that.

Speaker Change #138: Continuing to play to our strength of coherent optics, and that's playing itself out in the broadband access base. If you think about where the standards are going with 100 gig on.

Tal Liani: And second is the opportunity for you getting bigger, meaning do you are you going to be in parts of the network that you were not there before. So you could see better growth in the next few years.

Speaker Change #138: Yes.

Speaker Change #138: It is a coherent technology.

Speaker Change #138: The technologies are swimming to our sweet spot.

Gary Smith: We own the technology; we're vertically integrated. We have a great cost base there on the old key side. And we're bringing, you know, a, you know, a very, very innovative architecture to our customers to service that future looking to met. It's also the same customer base that we have. So, you know, same customer base, swimming towards the technology that we have a strength in. We own the technology, and we're burdened the integrator. It goes to the reasons why, and it's a big spend opportunity out there in the marketplace. So those are the reasons why we're targeting it.

Speaker Change #138: We own the technology, we're vertically integrated we will have a great cost base there.

Speaker Change #138: On the oil side.

Speaker Change #138: And we're bringing in.

Speaker Change #138: Very very.

Speaker Change #138: Innovative architecture to our customers to service that few future looking demand.

Gary Smith: So I have another question, but maybe we can start with a cloud because I think that it will it does it does define your stock and valuation and I want to better understand kind of your participation. Given the face at which the cloud providers are building data centers and given that there are increasing number of with scale players that are in the data set of business and building out between those data centers, it seems very likely that the web scalers are going to grow as a percentage of our business over the next several years.

Speaker Change #138: It's also the same customer base that we have.

So same customer base swimming too towards the technology WNS strengthen we own the technology and member downgrades on those are the reasons why and it's a big spend opportunity out there in the marketplace. So those are the reasons why we're we're targeting it.

Gary Smith: We're clearly a challenger, but we like the hand that we have. And do you think you can earn good margins on this business? Yeah, our margins today, I'm not going to say we've got 65, 65 customers today at the margins. I'm not today in, you know, in line with our corporate average margins.

Speaker Change #138: We're clearly a challenger but.

Speaker Change #138: We like to have that we have.

Speaker Change #139: And do you think you can earn good margins on this business.

Speaker Change #140: Yes, our margins today and like I said, we've got 65 65 customers today are the margins on that today.

Speaker Change #141: In line with our corporate average margins.

Tal Liani: Thank you. Thank you, Tom.

Speaker Change #141: Got it okay. Thank you. Thank you Tom.

Gary Smith: So yes, I think that's that's probably true. Now, we're going to participate in places that we don't participate. Yes, I believe we will. We said earlier, we don't really participate in the short and each metro business that's just not going to place where we have won a lot of business. I think we will play in that space with our floods as we said, we have a 800 ZR win and I think we'll have more of this and it'll be short reach and longer reach but short reach and particularly.

David Vogt: And the next question comes from David Vote with UBS. Please proceed. Great, guys. Thanks for your, thanks for taking the time, and Jim, congratulations. Maybe just a big picture question to start. You know, I don't want to give it the specifics on Fiscal 25. But against the long term model of six to eight percent growth and Gary's comments, that's clear that web scale is going to be a bigger part of the business. You help us understand maybe before web scale had taken off to the point that it did recently. How we should think about SP spending either in aggregate or by region given the law that we've lived through for a number of years.

Speaker Change #142: And the next question comes from David <unk> with UBS. Please proceed.

David: Great guys. Thanks for your thanks for taking the time and Jim Congratulations maybe.

Maybe just a big picture question to start I don't want to get into specifics on fiscal 'twenty five against our long term model of 6% to 8% growth in Gary's comments, that's cleared that web scale is going to be a bigger part of the business can you help us understand maybe before web scale have taken off to the point that it did recently.

David: How we should think about SP spending either in aggregate or by region. Given the lull that we've lived through for a number of years and in the context of that and Jim to your point about the backlog.

Gary Smith: I also think there's a possibility inside the data center. Now that's all they're out and we still have a lot of work to do to make sure that we can provide the technology that's going to be needed inside the data center. We don't know when the transition will start, but we do believe that we'll have a good opportunity to play there. So, yes, we're going to be involved in parts of the web-scaled network. And including having a big part and also a long haul and some reinforce their networks, as we did now.

David Vogt: And in the context of that and Jim, to your point about the backlog and systems being a bigger part of coming out of into revenue now. How should we think about that gross margin impact going forward if we look at maybe history as a comparison. I know COVID was probably an unfair comparison when you ship a lot of transceivers out of backlog, and that helps gross margin.

Jim Moylan: And system as being a bigger part of coming out of into revenue now.

Speaker Change #144: How should we think about that gross margin impact going forward. If we look at maybe history as a comparison I know COVID-19 was probably an unfair comparison when you shipped a lot of.

Speaker Change #145: Transceivers out of backlog and that helps gross margin, but just any kind of framework or guardrails, you can kind of put around the different moving pieces over the longer term not necessarily 25 would be helpful. Thanks.

David Vogt: But just any kind of framework or guardrails, you can kind of put around the different moving pieces over the longer term, not necessarily 25, would be helpful. Thanks.

Gary Smith: David, let me pick the first part of that question. The overall sort of service provider dynamics, I would say that they've certainly been challenged, you know, all the way through, through COVID, supply chain, and then this absorption, which I think has lasted longer than any of us would have certainly anticipated. But, you know, seen through the smog of all of that, if you will, service providers continue to be the primary delivery for all of this bandwidth, including all of the things like AI and cloud connectivity around the world, you know, and particularly when you talk about the last mile or so, and on the mobile side.

Speaker Change #145: David Let me take the first part of the question the overall sort of service provider dynamics.

Gary Smith: Okay, second question is about the broadband and I'm going to ask it in a sarcastic way, but you know, I'm not a mean person. Why are you even in this, this is a commodity like, that's what we've learned the last few years, right? commodity like, it's about pricing. There are companies that have been doing it for a while. Why suddenly you increase participation in this fiber to the X and why is this a practical.

Speaker Change #146: Would say that they've certainly been challenged CIT and you know all the way through Covid supply chain and then this this absorption, which I think has lasted longer than any of us would have certainly.

Anticipated, but you know we've seen through the smog of all of that if you will.

Speaker Change #146: Service providers continue to be the primary delivery for all of this our bandwidth, including all of the things like AI.

Speaker Change #146: And cloud connectivity around the world.

Gary Smith: Yeah, I think I think a couple of thanks. First of all, you know, you're writing a sense that there was sort of just a continuum of yesterday's world. That's a very valid question as, but our hypothesis is that, you know, we're staring at a different world in future, which is fiber will continue to have, you know, continue to be more prevalent in the, in the network. Capacities are going to increase, and the technology is that you require to do that, you know, continue to play to our strengths, those that we're here in optics.

Speaker Change #146: And particularly when you talk about the last mile So and on the mobile side.

Gary Smith: So, you know, service providers are certainly not going away. It's been very challenging around the dynamics that we all know from that. I think they are coming into balance, particularly we're seeing that in North America, where we expect, you know, to be a continued, gradual improvement. We're encouraged by what we're seeing, and certain international markets as well, you know, places like India, places like South Asia for us, look good. Europe, I think, has some, you know, particular challenges around the structure of it, which will take time to, you know, resolve, but it's also got the tailwind there of Huawei replacement as well.

Speaker Change #146: So service providers are certainly not going away, it's been very challenging around the dynamics that we all know from that I think they all coming into balance.

Speaker Change #146: Particularly we're seeing that in North America.

Speaker Change #146: Where we expect it.

Speaker Change #146: It should be a continued gradual improvement we're encouraged by what we're seeing and certain international markets as well you know places like India Places like South Asia for Us.

Gary Smith: And that's playing itself out in the broadband access space, if you think about where the standards are going with under getting on, it's, you know, it's a coherent technology. So, you know, the technology is swimming to our sweet spot. We own the technology, we're vertically integrated. We have a great cost base there on the old key side. And we're bringing in, you know, a, you know, a very, very innovative architecture to our customers to service that future looking to met.

Speaker Change #146: Europe I think has some <unk>.

Speaker Change #146: Particular challenges around the the structure I'll bet, which will take time to.

Speaker Change #146: Resolved, but it's also got the tailwind Arab Huawei replacement as well so I do think youre going to get back to a more normalized growth with service providers going forward.

Jim Moylan: So, I do think you're going to get back to a more normalized growth with the service providers going forward, I do. Which, you know, builds into our, on the line, 68 percent, David, as you mentioned. And just on the shape of our gross margins there, the shape of our gross margins don't vary significantly across our customer base. Now, when we're a challenger going into a new market, sometimes we'll put a pretty competitive price or available to get in, but over time, whether we're selling to a service provider or to a web scaler, our gross margins by product are going to be, you know, in the same range.

Speaker Change #146: Which you know built into our.

Speaker Change #146: Underlying 6% to 8% David as you as you mentioned.

Gary Smith: It's also the same customer base that we have. So, you know, same customer base, swimming to, towards the technology that we have strength in, we own the technology and reverse the integrates on, goes to the reasons why, and it's a big spend opportunity out there in the marketplace. So those are the reasons why we're targeting it. We're clearly a challenger, but we like the hand that we have. And do you think you can earn good margins on this business? Yeah, our margins today, I would say 65, 65 customers today and margins on that today and, you know, in line with our corporate average margins.

Speaker Change #147: And just on the shape of our gross margins there.

Unknown Attendee: Thank you.

David: The shape of our gross margins don't vary significantly across our customer base now when we are a challenger going into a new market.

David Vogt: Thank you, Tom.

David: We will.

David: Sort of really competitive price or available in order to get in but over time, whether we're selling to a service provider or to a web scale or our gross margins by product are going to be in the same range now.

Jim Moylan: Now, we have said that line systems in particular had low of those margins that are low that are capacity. And that's just a function of the first cost in to our customers. And that's true, whether it's a service provider or a web scaler. And then you look at optical margins versus writing switching margins. We believe over time, writing a switching margins are going to be creative to our most margins software will be creative to our most important services. And so that's the shape doesn't really vary across our customer base all that much; it has to do with mix and timing of the budget.

David: We have said that.

David: Line systems in particular have lower gross margins that are sort of capacity and that's just a function of.

David: First cost and to our customers and that's true whether it's a service provider or a web scale.

Jim Moylan: And the next question comes from David vote with UBS, please proceed. Great, guys. Thanks for your, thanks for taking the time and Jim, congratulations. Maybe just a big picture question to start. You know, I don't want to give it the specifics on fiscal 25, but against the long term model of six to eight percent growth and Gary's comments, that's clear that web scale is going to be a bigger part of the business.

David: And then you look at optical margins versus routing and switching momentum, we believe overtime routing and switching margins are going to be accretive to our gross margins software will be accretive to our gross margins in services is accretive to our gross margin. So that's the shape doesn't really vary across our customer base all that much as to do.

Jim Moylan: Can you help us understand maybe before web scale had taken off to the point that it did recently, how we should think about sp spending either in aggregate or by region given the law that we've lived through for a number of years. And in the context of that and Jim to your point about the backlog and systems being a bigger part of coming out of into revenue now. How should we think about that gross margin impact going forward if we look at maybe history as a comparison.

David: With mix and timing of the project.

Jim Moylan: Great, can I ask you just a follow-up and mechanical question. I don't think I heard you say where you think inventory is going to end up at the end of the year. Do you have something to share with us? Yeah, the quarter is 937 million. I think it'll come down another 50 million or so. I didn't need my desk. Perfect, perfect. Thanks, guys.

Speaker Change #148: Great can I ask just a follow up Jim mechanical question I don't think I heard you say, where you think inventory is going to end up at the end of the year do you have something you can share with us.

Speaker Change #149: Yeah, we ended the quarter at $937 million I think it'll come down another $50 million or so.

Speaker Change #150: When guests great perfect Alright, perfect. Thanks, guys.

Jim Moylan: I know COVID was probably an unfair comparison when you ship a lot of transvers out of backlog and that helps gross margin. But just any kind of framework or or guardrails, you can kind of put around the different moving pieces over the longer term, not necessarily 25 would be helpful.

Jim Moylan: And the next question is from Ruben Roy with Steve Holt. Please proceed. Thank you. I guess, Jim, just to follow up on that. So, as you get through the inventory, exiting fiscal 24, how would you assess inventory levels at that point? Pretty close to normal, or is there more work to do there? You're turning up 25 now? Yeah, we're going to explore that. Yeah, yeah. Yeah. As I've been showing that, you know, only if you made that so decreasing before, it's still elevated. We're still working through inventory and then big wonders that we put on our supply chain over the past year and a half.

Speaker Change #149: Sure.

Speaker Change #149: The next question is from Ruben Roy with Stifel. Please proceed.

Ruben Roy: Thank you I guess, Jim just to follow up on that so as you as you get through the inventory exiting fiscal 'twenty four how would you assess inventory levels at that point pretty close to normal or is there more work to do there.

Gary Smith: Thanks David, let me pick the first part of that question. The overall sort of service provider dynamics, you know, I would say that they've certainly been challenging, you know, all the way through through covid supply chain and then this this absorption, which I think has lasted longer than any of us would have certainly anticipated, but you know seen through the smog of all of that, if you will, you know service providers continue to be the primary delivery for all of this bandwidth, including all of the things like AI and cloud connectivity around the world, you know, and particularly when you talk about the last mile or so, and on the mobile side, so, you know, service providers are certainly not going away, it's been very challenging around the dynamics that we all know from that, I think they are coming into balance.

Speaker Change #152: I'm talking about 25, now, yes, we're going to be stored.

Ruben Roy: Yes.

Ruben Roy: Yeah.

Yes.

Ruben Roy: Yes.

Speaker Change #153: Only a few million dollars or so decrease in Q4, it's still elevated we're still working through inventory and the big orders that we put on our supply chain over the past year and a half.

Jim Moylan: We had, you know, with a couple of two times terms or something like that. In the past, we were at much as six times. But I don't think we'll get back to six times terms. We'll give them what's happening on supply chain. We will likely keep more surplus components of key components in order to make sure that we can get through difficulty in the purchase of some of these components. I think we'll get back to something like four and a half, maybe five times. But maybe not five times, but in the next year, maybe it's going to be more between four and four and a half.

Speaker Change #153: We had.

Speaker Change #153: Coupled with two times turns or something like that.

Speaker Change #153: In the past when we were at <unk>.

Speaker Change #154: Is six times.

Speaker Change #154: But I don't think we will get back to <unk>.

Speaker Change #154: Well given what's happened in our supply chain, we will likely more store plus components are a key component in order to make sure that we can get through difficulties.

Speaker Change #154: The purchase of some of these components I think we will get back down to something like.

Gary Smith: Particularly, we're seeing that in North America, where we expect, you know, it to be a, you know, continued, gradual improvement, we're encouraged by what we're seeing, and certain international markets as well, you know, places like India, places like South Asia for us, look good Europe, I think has some, you know, particular challenges around the structure of it, which will take time to.

Speaker Change #154: Or a half.

Speaker Change #154: Patterns, but.

Speaker Change #154: Maybe not right now.

Speaker Change #154: Next year, maybe it's going to be more important.

Jim Moylan: Thanks for that, Jim, and congrats on your future plans.

Speaker Change #154: Four and a half.

Speaker Change #154: Thanks for that Shannon Congrats on your future plans I had a quick follow up for Gary or Scott.

Gary Smith: I had a quick follow-up for Gary or Scott, just around the 400 GR short East DCI commentary. It seems to me like that's maybe a little bit more of a competitive set of products relative to where you've been in systems historically. And just wondering, you know, given the momentum there for your products, if you could maybe just give us a few details around why you're winning. I assume you mentioned, you know, power is this important, et cetera. But any else we should think of around, you know, kind of why you're winning and what your visibility is, I guess, you know, for continuing momentum in that seemingly important area of the market.

Speaker Change #155: Just around the 400 G R. <unk> D C I commentary.

Speaker Change #156: I was wondering I it seems to me like that's maybe a little bit more of a competitive.

Ruben Roy: [inaudible] And the next question is from Ruben Roy with Steve Holt, please proceed. Thank you. I guess, Jim, just to follow up on that.

Speaker Change #157: The set of products relative to where you've been and in systems.

Speaker Change #158: Historically, and just wondering given the momentum there.

Speaker Change #159: For your your products if you could maybe just.

Speaker Change #160: If you could give us a few details around why you're winning I assume you mentioned you know powers this important et cetera, but.

Speaker Change #160: And any other anything else, we should think of around kind of why you're winning and what your visibility is I guess.

Speaker Change #160: For continued momentum in that.

Really important area of the market. Thank you.

Gary Smith: Thank you. Yeah, so just a reminder, our 400 gigs, your plug is based off of a real wave logic, five nano technology. If you go back a few years, we had we had two, two, uh, alternative wave logic, five, one, six, three, and one was nano. We consciously made the decision to introduce extreme first and nano second in the marketplace. And turn it up to be the right decision based on, you know, our market share gains over the years. But if they mean that we did not intercept the first couple of early movers and marketplace on the 400 gig plugables.

Speaker Change #161: Yes. So just a reminder, our R 400 gig ZR plug is based off of a really laundry five nano technology and if you go back a few years.

Speaker Change #162: We had if we had to to.

Speaker Change #163: Alternatively logic five months extreme almost night and we've consciously made the decision to introduce extreme first.

Speaker Change #163: Nanosecond in the marketplace.

Speaker Change #163: Turned out to be the right decision based on our market share gains over the years, but it doesn't mean that we did not intercept their first couple early movers in the marketplace on on.

Speaker Change #163: On the 400 gig plausible.

Gary Smith: Now, the original definition of 400 gigs, you are was sort of the least common denominator from a performance perspective. What's happened in the marketplace, of course, with AI coming on gangbusters as people are realizing that power is forcing data centers to be distributed further, and therefore performance starts to be important again. So, you know, performance from a reach perspective and performance for the power perspective in that, in that form factor is now what wins in the conversations. And I'd say after the first couple of awards in this sort of industry segment, we've had a tremendous win rate.

Speaker Change #163: Now the original definition of 400 gig ZR was sort of the least common denominator from a performance perspective, what's happened in the marketplace of course with.

Speaker Change #163: With AI coming on gangbusters as people are realizing that power is forcing datacenters to be distributed and further and therefore performance starts to be important again.

Speaker Change #163: So performance from a reach perspective performance from a power perspective.

Speaker Change #163: In that in that form factor is now what wins in the conversation and then I'd say after the first couple of awards in this sort of industry segment, we've had a tremendous win rate in terms of any of the competitive.

Gary Smith: And in terms of the competitive, competitive, uh, bits out there for the technology, I think we're going to continue to have that going forward because of that performance. and I think there is a misconception about plugins generally. You know, novel plugins are equal. Right. Got it.

Speaker Change #163: Okay.

Speaker Change #163: Bids out there for this technology I think we're going to continue to have that going forward because of that performance advantage.

Speaker Change #163: And I think there is a misconception about plugs generally novel plugs are equal.

Jim Moylan: So as you get through the inventory, exiting fiscal 24, how would you assess inventory levels at that point, pretty close to normal, or is there more work to do there? You're turning up 25 now? Yeah, we're going to explore that. Yeah, point that, yeah. Yeah, that's not obvious from the, you know, only if you made that sort of decrease in people, it's still elevated. We're still working through inventory and then big waters that we put on our supply chain over the past year and a half.

Speaker Change #163: Right.

Ruben Roy: Thank you.

Speaker Change #164: Got it thank you.

Operator: Thank you, Ruben. Thank you, everyone, for joining us today. We appreciate it.

Thanks, Dave and thank you everyone for joining us today. We appreciate it we look forward to catching up with folks that later today and over the coming weeks. Thank you.

Operator: We would forward to catching up with folks, so later today. How many weeks? Thank you.

Operator: The conference is now concluded.

Speaker Change #165: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Operator: Thank you for attending today's presentation, and you may now disconnect. Thank you.

Yeah.

Speaker Change #165: [music].

Jim Moylan: We had, you know, with a couple of two times terms or something like that. In the past, we were at much of six times terms, but I don't think we'll get back to six times terms. We'll, given what's happening on supply chain, we will likely keep more surplus components of key components in order to make sure that we can get through difficulty in the purchase of some of these components. I think we'll get back down to something like four and a half, maybe five times, but maybe not five times by the end of next year, maybe it's going to be more between four and a half by the end of next year.

Unknown Attendee: Thanks for that, Jim, and congrats on your future plans.

Gary Smith: I had a quick follow up for Gary or Scott just around the 400 GR short East DCI commentary. It seems to me like that's maybe a little bit more of a competitive set of products relative to where you've been in systems historically, and just wondering, given the momentum there for your products, if you could maybe just give us a few details around why you're winning. I assume you mentioned power is important, et cetera, but any else we should think of around why you're winning and what your visibility is, I guess, for continued momentum in that seemingly important area of the market.

Gary Smith: Thank you. Yes, so just a reminder, our 400 GR plug is based off of a roadway logic five nanotechnology. I have to go back a few years. We had two, two alternative way logic five, one six, three, and one was nan, and we consciously made the decision to introduce extreme first and nanose second in the marketplace and turned out to be the right decision based on our market share gains over the years.

Gary Smith: But if they mean that we did not intercept the first couple or early movers in the marketplace on the 400 gig plugables. Now the original definition of 400 gig ZIR was sort of the least common denominator from a performance perspective. What's happened in the marketplace, of course, with with AI coming on gangbusters as people are realizing that power is forcing data centers to be distributed further and therefore performance starts to be important again.

Gary Smith: So performance from a reach perspective and performance from a power perspective in that in that form factor is now what wins in the conversations. And I'd say after the first couple of awards in this sort of industry segment, we've had a tremendous win rate on terms of the competitive, competitive bits out there for this technology plan. I think we're going to continue to have that going forward because of that performance. And I think there is a misconception about plugs generally, you know, novel plugs are equal. Right. Got it.

Speaker Change #165: Yes.

Speaker Change #165: [music].

Unknown Attendee: Thank you. Thank you, Ruben. Thank you everyone for joining us today. We appreciate it. We would forward to catching up with folks later today. Come in weeks.

Speaker Change #165: Yes.

Speaker Change #165: [music].

Unknown Attendee: Thank you. You You You You You[inaudible] I don't know. I don't know. [inaudible] I don't know. I don't know. [inaudible] I don't know. I don't know. Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret[inaudible] Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret, Dr. Paret,[inaudible] Dr. Paret, Dr. Dr. Paret,[inaudible] Michael, George Notter, Gregg Lampold, Michael Michael, George Notter, Gregg Lampold, Michael Michael, George Notter, Gregg Lampold, Michael Michael, George Notter, Gregg Lampold, Michael Michael, George Notter, Gregg Lampold, Michael, George Notter, Gregg Lampold, Michael, George Notter, Gregg Lampold, Michael, George Notter, Gregg Lampold, Michael, George Notter, Gregg Lampold

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[music].

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Speaker Change #165: Thanks.

Speaker Change #165: [music].

Yes.

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Speaker Change #165: Okay.

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Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: Yes.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Sure.

Speaker Change #165: Okay.

Speaker Change #165: Yes.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: Sure.

Speaker Change #165: Yeah.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: Great.

Speaker Change #165: Okay.

Speaker Change #165: Yes.

Speaker Change #165: Yes.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: Yes.

Speaker Change #165: Okay.

Yes.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Okay.

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Okay.

Speaker Change #165: Okay.

Speaker Change #165: [music].

Speaker Change #165: Yes.

Speaker Change #165: [music].