Earnings Call Transcript
CIENA CORP (CIEN)
Earnings Call Transcript - CIEN Q2 2023
Operator, Operator
Good morning, everyone, and welcome to the Ciena Fiscal Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Gregg Lampf, Vice President of Investor Relations. Sir, please go ahead.
Gregg Lampf, VP of Investor Relations
Thank you, Jamie. Good morning, and welcome to Ciena's 2023 fiscal second quarter results conference call. On the call today is Gary Smith, President and CEO; and Jim Moylan, CFO. Scott McFeely, our Senior Vice President of Global Products and Services is also with us for Q&A. In addition to this call and the press release, we have posted to the Investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter. Our comments today speak to our recent performance, our views on current market dynamics and drivers of our business as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release. Before turning the call over to Gary, I'll remind you that during this call, we'll be making certain forward-looking statements. Such statements, including our quarterly and annual guidance and our long-term financial outlook, discussion of market opportunities and strategy and commentary about the impacts of supply chain constraints on our business and results 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 from the statements discussed today. Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation that we will post shortly after are an important part of such forward-looking statements, and we encourage you to consider them. Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K filing and in our upcoming 10-Q filing, which we expect to file with the SEC by June 8th. Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events or otherwise. As always, we will allow for as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up. With that, I will turn the call over to Gary.
Gary Smith, President and CEO
Thanks, Gregg, and good morning, everyone. Today, we reported outstanding fiscal second quarter results, including higher-than-expected quarterly revenue of $1.13 billion, an increase of nearly 20% year-over-year and adjusted gross margin of 43.7%. Our results included very strong profitability metrics as well with quarterly adjusted operating margin of 13.8% and adjusted EPS of $0.74. We also generated $230 million in cash from operations in Q2. Overall, we performed better-than-expected with respect to revenue in the second quarter and indeed for the first half of fiscal 2023. This was driven largely by the supply chain improving faster than anticipated, which enabled us to ship significantly more product to more customers in recent quarters. And to help you understand the magnitude of this dynamic, supply chain improvements have enabled us to improve our lead times to customers by more than 50% year-to-date. Consequently, as the supply chain improves and lead times come down, customers no longer need to place advanced orders to secure supply. As a result, and as expected, orders were lower than revenue in Q2. We are now clearly in a transitionary period, one that is moving from an environment where orders vastly outstrip supply to one where supply and order flow are beginning to come into some kind of balance. Consequently, this is driving a near-term shift in customer ordering and shipment dynamics and behavior. Previously, we had discussed some pushouts of orders by our cloud provider customers as they re-profile their spend to align with their budgets. In recent weeks, we've begun to see similar behavior by certain of our large North American service provider customers. And to be really clear, customers are not canceling orders. They are pushing some existing orders into subsequent quarters to better align with their budgets and scheduling capabilities. And this is purely a matter of timing. It is not the result of CapEx cuts, rather it is one of operating within their existing CapEx and logistical capabilities. Therefore, we continue to expect to exit fiscal 2023 with a backlog that is at least double our historical levels on an absolute basis. However, as a result of this transitionary period, as Jim will discuss, we do expect a wider range of potential revenue outcomes for fiscal year 2023. I would also stress that none of the shorter-term transitional supply demand dynamics are in any way a reflection of the durability and strength of the underlying demand drivers in the industry and, of course, our business. But rather, they reflect the transition back to a more balanced supply-and-order environment that is aligned to our annual CapEx spend. Overall, we are very encouraged by conversations we're having with our customers, which are once again more strategic in nature, addressing how they can meet the growing demands of their networks. And whilst we are mindful of macroeconomic uncertainty, fundamental demand for bandwidth persists as it has done consistently for many years, including through difficult macro conditions. The key demand drivers behind this are strong and durable. These range from continued 5G rollouts and increasing cloud adoption to broadband access and the growing need for more automation. In fact, all of these were strong demand drivers prior to COVID and the supply chain challenges of the past few years and are arguably even stronger today. And of course, AI could prove to be transformative for service providers and cloud providers alike on top of these existing dynamics. This is increasingly evident with the recent introduction and surging interest in Generative AI platforms, which are widely expected to be a driver of bandwidth demand over time and creating potential new opportunities, of course, for us. Critical to supporting this demand are the underlying technologies that deliver optimal and future-proof network architectures for both service providers and cloud providers. We, of course, offer many of these key technologies today. With our traditional portfolio, where we are the undisputed leader across metro DWDM and DCI, submarine and long haul. And we continue to increase our technology lead even further. With WaveLogic 6, the first and only 1.6 terabit solution becoming available in the first half of next year, we are very excited about the opportunity in front of us, particularly given their plans to integrate the technology across a range of our optical and routing and switching platforms and also to make it available for use in third-party solutions. Importantly, we've been adding to our diversification and differentiation with an eye towards accretive TAM expansion into faster-growing markets. Our TAM expansion in optical will target the emerging opportunity in coherent plugs and components, including inside the data center over the years to come. And as you've already seen, technologies to support next-gen metro and edge applications are another focus of our TAM expansion. In this arena, the acquisitions of Vyatta, Tibit and Benu are driving new customer conversations and engagements about the opportunities in virtual routing and broadband access, including PON. Additionally, we announced the game-changing wave router platform, an industry-first platform architecture optimally designed for the converged metro, which will come online this year. An expansion of our family of purpose-built coherent routers, this new product has generated significant interest from customers around the world as we aim to disrupt the edge routing market and capture share. And as a reminder, combining these new markets and opportunities with our existing portfolio, we believe our total addressable market grows from something like $13 billion in 2020 to more than $22 billion over the next several years. Moving to some quick highlights from the quarter that speak to our performance and really illustrate the customer demand for our products. On the portfolio side, in optical, we added 14 new customers in Q2 for WaveLogic 5 Extreme, bringing our total customer count there to 228. And we had another record shipment quarter in Q2 for WaveLogic 5 E, bringing our total of modems shipped to date to 75,000. In routing and switching, quarterly revenue increased 19% year-over-year. And during the quarter, we secured new wins for our new broadband network gateway from the Benu acquisition. With respect to customer segments and regions, service provider revenue was up 22% year-over-year, and non-telco revenue was 42% of total sales in Q2. This particularly reflects a very strong performance with the cloud providers, including our only 10% customer in the quarter. Direct cloud provider revenue was also up 20% year-over-year and comprised 22% of total revenue in the quarter. And in fact, direct cloud provider revenue grew 32% period-over-period in the first half of '23. And we continue to expect growth with cloud providers this fiscal year that is above the corporate average, which will reinforce our leadership and market share position with this critical customer segment. We also continue to drive growth outside of the US. In particular, in Q2, Asia Pacific revenue was up 60% year-over-year. This was largely driven by continued revenue growth in India, which was up 88% year-over-year in Q2 to about $70 million, reflecting consistent strong demand from service providers in that market. In summary, as supply and order flow are coming into balance, providing demand is proving strong and very durable. We are incredibly well positioned with a market-leading set of technologies, including new platform releases that advance our leadership and expand our opportunities. With that I will turn it over to Jim to speak more on what we are going to provide additional detail on the Q2 financial results.
James Moylan, CFO
Thanks, Gary. Good morning, everyone. We delivered outstanding fiscal second quarter financial results. Total revenue in Q2 was $1.13 billion, which reflects our ability to ship more product than expected given improvements in component deliveries, particularly toward the end of the quarter. Adjusted gross margin in the quarter was 43.7% due to a favorable product mix. Q2 adjusted operating expense was $338 million, reflecting continued investment in innovation and R&D, particularly around our WaveLogic coherent technology and investment aimed at several different areas of TAM expansion. With respect to profitability measures, in Q2, we delivered strong results, including adjusted operating margin of 13.8%, adjusted net income of $110 million and adjusted EPS of $0.74. In addition, we generated $230 million in cash from operations. Adjusted EBITDA in Q2 was $181 million. And finally, we ended the quarter with approximately $1.3 billion in cash and investments. As the operating environment continues to improve, inventory levels came down $80 million from Q1. We expect to continue reducing our inventory levels as we move through the year, which will allow us to return to the consistent level of cash generation we drove before the supply chain disruptions. We did not repurchase any shares in our fiscal second quarter. We will leverage our balance sheet this quarter to begin to return capital to stockholders again and we continue to expect that we will repurchase approximately $250 million in shares during this fiscal year. Turning now to guidance. As with last quarter, the outlook I'm about to provide reflects key assumptions that we detail in our earnings presentation, including those related to supply and demand dynamics. As Gary mentioned, we are currently in a transition period as we move towards an environment where supply and order flow are more in balance with each other. This is driving some customers to push out their requested shipment days. As a result of all of these phenomena, we are broadening the range of our fiscal '23 revenue growth outlook to 18% to 22%, which reflects a wider range of potential outcomes. I'll just remind you that our previous range had been 20% to 22% for the year. We continue to believe that our adjusted gross margin for fiscal year '23 will be in the range of 42% to 44%. With respect to OpEx for the fiscal year, we now expect it to be approximately $1.33 billion, slightly higher than we last projected as we continue to see opportunities to invest for TAM expansion. For the fiscal third quarter, we expect to deliver revenue in a range of $1 billion to $1.08 billion and adjusted gross margin in the low 40s range. Finally, we expect adjusted operating expense in the quarter to be approximately $335 million. At this rate of revenue growth, we will deliver significantly higher than market growth and continue to take share. Our business has never been stronger, backed by strong demand characteristics and the best set of customer relationships in the industry. We are well positioned to expand our addressable markets for future growth opportunities in other markets over time. Of note, we expect tailwinds as we bring new products to market, including WaveLogic 6, WaveRouter and several solutions stemming from the acquisitions we've made over the last couple of years. We are incredibly confident in our business and in the future demand for networking products, services and software. But before we move to questions, I would like to announce that we recently published our new sustainability report. This report details our commitment to sustainability and provides our stakeholders a comprehensive discussion of our programs and the great progress we have made as a company on sustainability. If you'd like to read the report, it is available on the Sustainability pages of our website or you're welcome to e-mail our IR team, and we will send you a PDF copy. Jamie, we will now take questions from the sell-side analysts.
Operator, Operator
Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Simon Leopold from Raymond James. Please go ahead with your question.
Simon Leopold, Analyst
Great. Thanks for taking the question. I want to start out with the WaveRouter announcement. You talked about, I think, general availability this year. I'd like to get a sense of when you think about revenue recognition for that product and how we should sort of think about weaving that into the model? I appreciate you're not guiding to fiscal '24, but I guess I'm just looking for some hints as to how to think about contributions to expect from that next year.
Scott McFeely, SVP of Global Products and Services
Yes, Simon, it's Scott. Good morning. First of all, you have an announcement that was sort of aligned with the MPLS World Congress. First of all, we got tremendous reception from the customer base with the announcement at the show and lots of press available on that. I will remind you that it actually is a part of our broader WaveRouting family. So it's a continuation of filling out that capability set. You were bang on the general availability of the product is later this year. Revenue expectations would start flowing in 2024. Obviously, we knew this was coming. So it was part of our overall three-year growth rate that we gave you historically. That was in our thinking there.
Simon Leopold, Analyst
Great. Thanks. And just as a quick follow-up. Love to get kind of an update on where the India progress is. I know historically, on a small revenue base, it peaked around 9% of revenue. It looks like it was 6% or 7% of revenue this quarter. How should we think about the cadence of the India business for the balance of the year? Thank you.
Gary Smith, President and CEO
I expect the momentum to remain strong in the second half and into 2024. Unlike other areas of the industry, India is experiencing a significant cycle with the rollout and expansion of 5G over the next one to three years. We hold the top market share among numerous carriers there, which makes us very optimistic about the Indian market for the same time frame. We're witnessing growth not only from the 5G rollout but also from expanding broadband access to larger regions. Consequently, we are quite positive about prospects in India. While it's difficult to predict how much revenue this will represent due to the healthy growth of other segments, including cloud services, these cloud providers are also making a significant impact in India. Additionally, we are engaged in both submarine operations and direct carrier services in the Indian market, which is currently the fastest-growing internet market globally.
Simon Leopold, Analyst
Great. Thank you.
Operator, Operator
Our next question comes from Tim Long from Barclays. Please go ahead with your question.
Tim Long, Analyst
Thank you. Yes, two, if I could. First, Jim or Gary, can you just give us a little bit more color on kind of the order book-to-bill backlog drawdown in the quarter, just so we can get a sense of how we're working down that balance? And maybe related to that, I guess, there's no way to use other backlog to fill in holes. It looks like the second half was lowered a little bit, so maybe a little bit on the fungibility of that backlog. And then I had a margin follow-up.
James Moylan, CFO
Yes, Tim. The backlog decreased by approximately $600 million. We previously mentioned that our backlog at the end of this year would be about double our historical backlog level at year-end. Therefore, we anticipated and still expect a reduction in backlog. This is primarily due to shorter lead times, meaning customers no longer need to order as much equipment in advance. All of this aligns with the overall trends in the industry.
Tim Long, Analyst
Okay. Great. Regarding the gross margin, could you explain the various factors impacting it? I understand there have been some shifts in the product mix, and you mentioned new network construction projects, which tend to have lower margins. Can you outline how these factors will interact, particularly as you recover some margin from supply chain and logistics improvements, and what that balance might look like over the next year? Thank you.
James Moylan, CFO
Regarding the supply chain conditions, we indicated last year that the exceptional costs, which include expenses paid to brokers for component purchases and increased logistics costs, were approximately $150 million to $160 million, resulting in about a 4% hit to our gross margin. This year, we anticipate that this impact will decrease to roughly 200 basis points in gross margin. Overall, these conditions are improving. While I cannot predict exactly what next year will bring, we believe that over time, these exceptional costs will return to historical levels, which were typically in the single-digit millions. This adjustment may not occur all at once next year, but it is likely to happen in the coming years. Additionally, it's important to note that the primary driver of our gross margins historically has been product mix. This has been the main factor influencing fluctuations in gross margin. In the past, when we introduced new line systems with limited capacity to satisfy bandwidth demand, those typically yielded lower gross margins. However, as we increased capacity by adding modems to these systems, the gross margins became higher, and the combination of these two factors primarily dictates our gross margin. Furthermore, routing and switching software generally offers higher margins, and as this segment expands within our business over time, we expect it will positively contribute to our gross margin. This year, we have also noted a particularly significant mix of line systems, which is affecting our gross margin. All these elements together lead us to project a gross margin between 42% and 44% for this year. Over time, we believe we can return to the mid-40s, or possibly even exceed that.
Tim Long, Analyst
Thanks, Jim.
Operator, Operator
Our next question comes from Amit Daryanani from Evercore. Please go ahead with your question.
Amit Daryanani, Analyst
Thank you for taking my question. To start, you mentioned a broader range of outcomes for the second half of the year. It seems like you're experiencing delays in deliveries from North American service providers. Is that the only area where you're observing these delivery delays, or are there other regions or markets where this might also be the case? Do you think there's a chance that these issues could extend to other geographical areas or submarkets?
Gary Smith, President and CEO
Yes. Thanks, Amit. It's very specific to North American Tier 1s. And as I said in the earlier remarks, we saw that with the cloud players fairly early on, where it really, I think, is the ability. Those two sets of customers, both the cloud players and North American Tier 1s, were in a position to place larger forward orders given the supply chain challenges. We did not see that dynamic, particularly internationally, for example. We did not see that phenomenon or really in a lot of Tier 2, Tier 3 players in North America. So we think it's really isolated to those two groups. The cloud ones, we saw that earlier on, and that's all reprofiled and now rolling out. And you're seeing the strength, notwithstanding that, you're still seeing the strength of the cloud players increasing their revenues this year. So this is really North American Tier 1 players. And I would say a couple of things. It's a confluence of elements. It's all of this stuff is suddenly coming out. And not just our equipment, but the broader sort of general technology industry. The supply chain challenges have been ameliorated, and they're all kind of coming at once to them. And these carriers are dealing with both alignment to budgets, the logistical aperture that they have and deployment and absorption. So it's understandable, much the same as we saw with the cloud players that they're balancing this out. We are not seeing cancellations with them. I would also say, we really haven't had any conversations around this being a macroeconomic caution. It's really one kind of to be expected around the whiplash effect of supply and demand.
Amit Daryanani, Analyst
Got it. That's really helpful. And maybe if I can just kind of follow up on this a bit. Kind of let's say, the magnitude is $80 million, $100 million, I think, something thereabout from this pushout basis. Do I just think about this is just something that's going to flow into fiscal '24 for you? So essentially the way you still end up with the revenues, but maybe growth is a little lower than what you thought, but a lot smoother with the extended duration? So I guess, maybe just talk about does this just flow into '24? And does that just imply that growth rates will be more steady as you go into the out years?
James Moylan, CFO
Clearly, some of this is shifting to '24. At this moment, I wouldn't suggest altering our projections for '24 or changing your numbers for that year. We believe '24 is going to be very strong for us because we see demand from our customers, and we have the chance to capture some of that expanded total addressable market. So, it’s going to be a positive year. However, I wouldn’t simply take the projected number that we’re not going to deliver this year and add it to your current call. I don’t think that’s the appropriate way to approach it.
Gary Smith, President and CEO
I believe it will provide us with better insight for next year. If we consider this dynamic, we will still begin the year with a backlog that is significantly higher than usual. I anticipate that this transitional phase will lead us towards a more balanced situation as we finish the year, enabling us to operate under more normalized conditions regarding orders, deliveries, and shipments. I also expect that this scheduling will give us improved visibility for 2024.
Amit Daryanani, Analyst
Got it. Thank you very much.
Operator, Operator
Our next question comes from Alex Henderson from Needham & Company. Please go ahead with your question.
Alex Henderson, Analyst
All right. Thank you so much. So just a couple of quick clarifications. What do you think the normal backlog is that you're going to stabilize around? And how is that going to be different from where you were prior to the supply chain pressures? I think it's probably a little longer than normal historical.
James Moylan, CFO
It's challenging to predict the exact end of our backlog because it relies on two key factors: our lead times and customer behavior regarding those lead times and their demand visibility to us. Historically, our backlog has been about one-third of the following year's revenue. However, due to the current supply chain situation, which includes large and extended orders, our backlog increased to approximately 65% of our expected revenue for 2022 and 90% for 2023. We anticipate that it will decrease closer to that one-third level, but it may not return entirely to that figure due to potentially longer lead times and customers opting to place advanced orders. Therefore, it is likely that our backlog at the end of this year will be higher than it will be once things return to a more normal state.
Alex Henderson, Analyst
You mentioned that optical line systems are a larger portion of sales this year compared to usual, and I assume this also applies to your backlog. Selling optical line systems typically leads to more sales of optical transmission components in the future. Can you explain whether the additional capacity for optical line systems is reflected in the backlog? Or should we anticipate those additional orders for high-margin transceivers coming in after the systems are delivered, installed, and integrated with ROADMs?
James Moylan, CFO
You are exactly right. We do tend to get higher orders for the capacity after a period of time, during which, we put out line systems. So, yes, that does happen. As far as whether that's in backlog now, some of it is. I mean, customer is going to give us a set of orders that consists both of the line systems and the capacity to add. But the bulk of it is not. The bulk of it will come over the coming years.
Alex Henderson, Analyst
So that suggests there is a time delay from when an order is placed or installed to when new orders for transceivers are received. What is that delay? Is that a new order opportunity for 2024?
Gary Smith, President and CEO
It varies tremendously between customers. Some large customers place the line systems out with a small amount of capacity in it then that gets layered in after that. Submarine cables tends to be higher initial deployments. For example, they tend to put more capacity out there from day one, where terrestrial really generalizing here, tends to be less capacity to it. But it also varies quite a lot from customer to customer and their varied approach. I think the kind of good news from all of this is we're laying a lot of future track in our business with a lot of new build-outs around the world. So we're very encouraged by the new builds that are going on there, but the mix does vary.
Alex Henderson, Analyst
Thank you all.
James Moylan, CFO
Thank you.
Gary Smith, President and CEO
Thanks, Alex.
Operator, Operator
Our next question comes from George Notter from Jefferies. Please go ahead with your question.
George Notter, Analyst
Hi, there. Thanks very much. I guess I wanted to ask about product lead times. I think you guys mentioned that they're coming down quite a bit. Can you just talk about lead times? Where are they now? Where have they been historically? I'm just curious on the viewpoint there. And then also, is there a possibility that customers are building up excess inventory here, where they've been building big buffers and over ordering? And now the time is they're working off those buffers? Or what's the perspective? Thanks.
Scott McFeely, SVP of Global Products and Services
Yes, George. On the lead times, obviously, if you resonate with the fact we have a very broad portfolio. So mileage may vary a bit from product to product. But in general, what we said going into the year, our lead times were normally around 52 weeks. As we said in the script, we've cut that by more than half year-to-date, and we would expect to continue to improve that as we go through the rest of the year.
Gary Smith, President and CEO
George, regarding the question about excess inventory, I would like to add a few comments. Firstly, our focus is on the cloud providers among the North American Tier 1s. It’s evident they were in a strong position and were quite proactive in securing future orders as lead times began to extend. However, when our lead times significantly improved, as Scott mentioned, we found ourselves delivering products at a time when their capacity to absorb all the equipment—financially and logistically—was challenged. Whether this situation is classified as excess inventory is hard to determine. Nonetheless, they struggled to take in all the equipment at once. We noticed this adjustment with cloud providers and are observing similar re-scheduling and profiling with the Tier 1s. Given the fluctuations we've experienced, this is somewhat expected. However, we now have clear visibility on the situation, and it seems to be part of the normalization process we’re experiencing as supply chain lead times decrease.
George Notter, Analyst
Are your lead times still longer than your competitors, just out of curiosity?
James Moylan, CFO
We don't believe so. Competitors can choose to prioritize certain customers and adjust accordingly, but we typically take a balanced approach. While it may appear in certain situations that their lead times are either longer or shorter, as a general policy, we do not operate that way.
Gary Smith, President and CEO
Well, I think the other sort of point, just to underline that is you look at our revenue growth, even the bottom end of our range. You took an 18% growth. I don't know any other optical player of our size and scale that's doing that kind of piece. So we're clearly taking market share.
George Notter, Analyst
Okay. Thank you very much.
Gary Smith, President and CEO
Thanks, George.
Operator, Operator
And our next question comes from Samik Chatterjee from JPMorgan. Please go ahead with your question.
Samik Chatterjee, Analyst
Yes, hi. Thank you for taking my questions. To start with the orders, the rough calculation suggests that your orders last quarter were around 900 million and then decreased to about 500 million. This seems to be largely due to lead times improving. Can you provide any additional visibility on when the orders might start to stabilize on a sequential basis? Also, could you share any early order trends for the quarter? When do you anticipate that the lead times and order book duration will become more consistent moving forward? I have a follow-up as well.
James Moylan, CFO
Well, the first thing I'd say is that if you just run the math on our comments around backlog, we do expect that orders will be a bit lower than revenue for each of the next two quarters, most likely. Now who knows, as we approach the end of the year, sometimes customers start to order in advance and so that might change our view. But if you just take the rough math over the next couple of quarters, we do think that orders will be less than our revenue. Now as we go into next year, we think that orders will recover. We can't give you a date on that precisely. But underlying demand for bandwidth is continuing to grow. All of our conversations with our customers show that the market will continue to grow. We've gone through a very tumultuous time with respect to lead times and availability of supply and orders, and all those things have gone through enormous change. It will begin to get back towards a more stable environment sometime next year in terms of their ordering patterns and our backlog.
Samik Chatterjee, Analyst
Okay. Got it. And for my follow-up, if I can ask you to sort of dig into the service provider timing sort of issues that you're seeing a bit more in North America. I mean, is it more of delays of complete projects that you're seeing from them? Or is it more of a downsizing of how much capacity that they're looking to deploy? And if you can compare it to on a related magnitude, how much of a pushout are you seeing greater to the web scalers that you had highlighted the issue with last quarter?
Gary Smith, President and CEO
I would say that it's largely the larger North American Tier 1 players. It's more about their ability to absorb and deploy and deal with logistics with all of this stuff coming at a given point. It seems like the supply chain is really resolving fairly quickly, and that's across not just our industry, but a number of other technology industries that they deal with. And so across their whole supply chain, they're really seeing a high influx of equipment and products, and they're having to manage that, both from a logistical point of view, a budget point of view, a deployment point of view, all those various elements. And it's still going to be up year-over-year because they need the kit, but their ability to actually absorb and schedule all of that is obviously challenging for them at any one given point in time. But if you look through all of that, you look at pretty steady growth. And in fact, even if you drew a line pre-COVID right to the end of the year, depending on what your assumptions are, you're looking at very good growth within the North American Tier 1 carriers with us. And even if you look through this rescheduling, you're still seeing very healthy growth this year. And obviously, the cloud players, we're saying is actually going to grow faster than whatever we end up with our corporate average as well. So it's a healthy environment. They're just dealing with this transitional period on the supply and demand dynamics.
Samik Chatterjee, Analyst
Got it. Thank you. Thanks for taking my questions.
Gary Smith, President and CEO
Thank you, Samik.
Operator, Operator
And our next question comes from David Vogt from UBS. Please go ahead with your question.
David Vogt, Analyst
Thank you for taking my question. I have a short-term question and a longer-term question. Midway through the quarter, you announced that you were on track to meet your goals despite some fluctuations from your partners. I also heard Jim mention that improvements in components toward the end of the quarter contributed to the positive results. Could you clarify how the quarter has been tracking in terms of linearity? Was the positive performance primarily in the last month? For my second question, I recall Jim mentioning that fiscal 2024 is expected to be a strong year. I interpret that to mean growth above the long-term average for the optical industry and your market share. If that's accurate, does this suggest we might return to a more stable growth pattern in the following year, say fiscal 2025, once we move beyond this transitional phase? Thank you.
James Moylan, CFO
Yes. I want to remind you, David, and others, that the supply issues with components have significantly impacted our ability to deliver modems, which are high-capacity units. This has been our biggest constraint, compounded by the volatility in the delivery of these components. However, we are now reaching a point where the volume and timing of these deliveries are starting to normalize. Specifically, we're seeing that the components we order are now arriving on time and in the expected quantities, which was not the case for the previous six or seven quarters. In the most recent quarter, our projections for the modem components were lower than the actual deliveries we received, which occurred in the last month of the quarter. This unexpected increase contributed to higher revenue and margins. We don’t anticipate this pattern to continue, as our suppliers are now meeting their lead times and delivering the ordered volumes. That summarizes our performance for the quarter.
Gary Smith, President and CEO
David, in terms of your question about '24, obviously, it's way too early for us to give a guide for '24. But as Jim said earlier, given the dynamics that we're seeing, we feel very positive around that. We're obviously going to go in with a strong backlog, good visibility to North America and cloud players into the first part of '24. That's for sure. we're seeing very good engagement around pipeline and demand for '24. And obviously, we've got a lot of new products and technology coming into market, WaveRouter, et cetera, WaveLogic 6. We've got all of the PON stuff that's coming through. So we do feel that it's going to be a strong year in '24.
Operator, Operator
Our next question comes from Tal Liani from Bank of America. Please go ahead with your question.
Tal Liani, Analyst
Good morning. Thank you. What is the risk of cancellation for the backlog? Considering the pushouts we're experiencing, where is the line between a pushout and an order cancellation? Additionally, could you explain the differences in trends regarding pushouts for cloud providers, service providers, and cable? Are these trends consistent across all of them, or are there variations? Thanks.
James Moylan, CFO
Hey, Tal. I'll take a shot at this, and Gary will likely add some thoughts too. There’s a distinct difference between a cancellation and a pushout. A cancellation means they are taking the order away from us, which we are not witnessing anymore. You may remember that we experienced a little of that at the end of last year, but it was minimal. Currently, we haven’t seen much in terms of cancellations. What we are observing is pushouts. They still want the equipment, but they want it at a later date. That's the distinction to make; there’s no doubt about it. Additionally, as they assess their requirements and what they've already ordered, they certainly have the option to cancel these orders if they chose to. However, that's not happening. Instead, they are pushing the orders out because they still want the equipment.
Gary Smith, President and CEO
And in terms of the segmentation, Tal, in there, I think we saw this phenomenon happen with the cloud players a little bit earlier. They're all re-profiled and playing through. We've got good visibility to the second half and for the first half of '24, and we're involved in their projects. North American one is a bit more of a recent phenomenon with them as we've now sort of improved lead times to them. I would include some of the larger cable players in there as well, to your point. When I talk about large North American Tier 1s, I would actually include the larger players in there as well. And we're seeing the same phenomenon with them.
Operator, Operator
And our next question comes from Michael Genovese from Rosenblatt Securities. Please go ahead with your question.
Michael Genovese, Analyst
Thank you. I have a question about the backlog figures. I thought the backlog was over $4 billion at the end of the first quarter. If it decreased by $600 million, then it should be around $3.5 billion, but I didn't catch the number you mentioned earlier.
James Moylan, CFO
Yes, that's the number we gave.
Michael Genovese, Analyst
Okay. Perfect. So none of it did disappear. So that's good. So then, I guess my real question is, is broadband and strategy in terms of fiber to the home, could you just talk to us a little bit more about that? And I'm particularly interested in what types of carriers, what tier of carrier, what geographies you think you'll have the most success with there?
Scott McFeely, SVP of Global Products and Services
So Mike, our clear strategy on the broadband piece is to go after, I'll say, the next-generation technology as a wedge of opportunity in the marketplace, specifically 10-gig, next-generation PON and above, and not chasing sort of the legacy-gig PON or other technologies there. So that was the motivation for our acquisitions of Tibit and Benu. In terms of the market traction, we are seeing it actually across the board in terms of examples of Tier 1 service providers that have a very broad broadband access business today to some of the smaller municipality types that are chasing the world of broadband opportunities, but also the cable codes that are looking at when they go beyond their existing footprint, building out fiber versus their DOCSIS approach. So it's sort of pretty broad brush in that sense, but it is an interception of sort of a next-generation technology.
Gary Smith, President and CEO
And the only thing I'd add to that is, Mike, we are seeing that in a lot of different places around the world. There's a lot of countries really having various broadband similar to exactly, as Scott sort of described, in different parts of the world. So it is really a global opportunity.
Operator, Operator
Our next question comes from Meta Marshall from Morgan Stanley. Please go ahead with your question.
Meta Marshall, Analyst
Thank you. Could you provide more insights on the trends related to order pushouts? Are these specific to certain regions, new markets, or lower speed maintenance purchases? Are customers feeling satisfied with their current inventory, or are they opting for higher speed upgrades? I'm trying to understand which types of orders are being delayed more than others. Additionally, have you noticed any changes in the cloud architecture as Generative AI traffic starts to alter data center traffic patterns? Thank you.
Gary Smith, President and CEO
Meta, why don't I take the first part of that. I would say, it's not specific to any particular architectural part of the network. It's really about they placed forward orders. They didn't know exactly when they were all going to arrive. They're sort of all arriving in a very tight time frame, and it's just purely their ability to deal with that, both from a budget point of view, a CapEx point of view and from a logistical point of view. Think deployment, warehousing, etc. So it's not specific to any PON or metro or long haul. It's really impacting all of their projects. And they're trying to prioritize certain projects and certain things that they're working, but there's no commonality of that. I think we've looked through any of the carriers. It's purely a high level logistical budget issue as a result of the sort of the whiplash. So there's no really refined firm around the actual elements that they're re-profiling and rescheduling.
James Moylan, CFO
We believe this technology is incredibly exciting, and with the advent of Generative AI, it is poised to change the world. The first area to experience this change will be within data centers, as the demand for computing power is increasing at an extraordinary rate. This growth will definitely impact our business over time. However, as of now, we haven't observed any changes in orders or customer behavior with us. That said, such changes will occur.
Operator, Operator
Our next question comes from Greg Mesniaeff from WestPark Capital. Please go ahead with your question.
Greg Mesniaeff, Analyst
Thank you for taking my question. I was wondering if you can just quickly touch base on your software business, Blue Planet specifically? I guess that's been kind of pushed to the back burner. And if any of that technology can be reincorporated or repurposed or included in some of your new product offerings, including WaveLogic 6? Thanks.
Gary Smith, President and CEO
Thanks, Greg. No, I understand, given all the supply chain challenges over the last sort of 18 months or so, we haven't talked too much around our software business, which continues to do well. We are taking various elements of that whole automation strategy and putting it in products like MCP, which we've now really pretty much got all of our major customers around the world taking, where we can then put applications on top of that. So we're parlaying that micro services type automation architecture across the portfolio. We're also putting automation into our line systems as well and the most intelligent line systems in the world. And so we very much see automation as a key thread throughout all of our portfolio.
Scott McFeely, SVP of Global Products and Services
And a very specific example of that technology reuse, if you look at what we've announced in our Wave Routing family, one of the key attributes of that is to be able to manage a multilayer network in our customer domain. There's key technology in the Blue Planet family around that, that if you're familiar with the portfolio, it's the rollout part of the portfolio, which we have used and integrated into our MCP platform to provide that multilayer administration, which is a key stumbling block for our customers to actually be able to recognize convergence.
Operator, Operator
And our next question comes from Dave Kang from B. Riley. Please go ahead with your question.
Dave Kang, Analyst
Thank you. Good morning. First, just a clarification is that did you reiterate or reconfirm next three year CAGR of 10% to 12%?
James Moylan, CFO
We haven't said anything about next year recently. We think it's going to be a great year. We haven't changed anything about our views for the coming years.
Gary Smith, President and CEO
We would typically update our long-term CAGR at the end of this fiscal year.
Dave Kang, Analyst
Got it. And then regarding your backlog before in recent quarters, I believe, you said most of your backlog was for immediate shipments. What is the current mix now?
James Moylan, CFO
For immediate shipments day, is that what you asked?
Dave Kang, Analyst
Yeah, yeah.
James Moylan, CFO
Yeah. Well, what we said is this, historically, we operated on kind of a just-in-time ordering pattern by our customers and the delivery to them with lead times of four to six to eight weeks. That was the way the business works. The supply chain disruptions have changed people's views about the amount of inventory they want to hold. Lead times are probably not going to get back down as low as they were. I'd say that guardedly because I'm not sure. And customer behavior is going to revert closer to what it was, not necessarily all the way to where it was in terms of a just-in-time ordering pattern. So that's what's going on. We have a fair amount of orders in our backlog, which are for '24 deliveries. Now most of those are early '24 deliveries, but we have those today. And those are, with longer, in most cases, than our backlog because customers still want to give us visibility to their demands outside of our lead time. So that's what's going on. And I think it will revert closer to the old model. It might not get back down to that just-in-time model that we used to operate on.
Gregg Lampf, VP of Investor Relations
Thank you, Dave. We've reached the end of our time. We appreciate everybody joining us this morning and we look forward to seeing several of you on the road over the next few weeks. For those we don't see, have a great summer, and we'll talk to you again in a couple of months.
Operator, Operator
Ladies and gentlemen that will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.