Positioned for Growth

Taking full advantage of this momentum and the current industry dynamics, we are focused on addressing market share gain opportunities and accessing new and emerging markets. We intend to leverage our momentum and focus our efforts across specific strategic growth drivers of our business, including:

• Our optical systems business, where we are the only player who can address the complete range of key applications.
• Our global network services business, where we've begun a multi-year transformation process to improve our delivery capability and expand our opportunity.
• Our packet networking business, where we are adding IP capabilities that will enable us to play a strategic role in our customers' network densification initiatives, such as 5G and Fiber Deep.
• Our software and related services business, where we are focused on migrating customers to our Blue Planet network domain controller platform and driving adoption of our Blue Planet analytics and orchestration technologies.
• And, finally, the component space, where we continue to drive business development efforts with our partners to make our WaveLogic modem technology available to a broader set of markets and customers.

We remain focused on increasing our role in and contribution from certain important market verticals and geographies that intersect with one or more of the strategic drivers above.  These include global content network providers, the submarine market, Asia Pacific as a region, and India specifically, all in addition to new and existing service provider customers. These areas are already outstanding success stories for Ciena, and we believe that they represent further growth prospects going forward.

Our Financial Future

As we manage our business for the long-term, we will press down our competitive advantage and advance our leadership position in these key growth areas to continue delivering a combination of top-line growth, profitability and cash generation. Our longer-term strategic plan, based on current assumptions of overall market growth in the low single digits, is designed around that construct.

We are very pleased with the maturity and strength of our business, which allows us to confidently share with you our longer-term goals and how we plan to manage the business going forward. We have a proven strategy for long-term growth that has been reviewed with our Board of Directors and has their support. As a result, we have established several longer-term financial targets that we believe are achievable, and that we will be driving the company to achieve, in the next few years. These include:

• Faster-than-market revenue growth of approximately 5–7% per year over the next three years
• 15% adjusted operating margin on an annualized basis within three years
• Adjusted earnings per share (EPS) growth of approximately 14–16% per year over the next three years
• Annual free cash flow generation of approximately 60–70% of adjusted operating income over each of the next three years

Also, we are now in a position to incorporate the return of capital to shareholders in our strategic and operational plans. In late 2017 the Board authorized a program to repurchase up to $300 million of the company's common stock through the end of fiscal 2020.  This is in addition to our previously announced intent to cash settle $289 million of our convertible notes in October 2018.  These actions complement a variety of other improvements, including a reduction of our convertible note balance from $1.4 billion to $540 million, improvement of our net debt position from $712 million to an actual net cash position of $33 million, and a substantial decrease of our gross debt-to-EBITDA leverage ratio from 12x to 2.8x over the past several years. Taken together, these actions demonstrate and reflect the confidence we have in our long-term growth strategy and our strong balance sheet and cash flow generation.

Our Business Transformed

Through a combination of leading technology, global scale, diversity of applications, and deep customer relationships built over the last 25 years, we have completely transformed our business. As a result, we have an indisputable strong market leadership position. We have also proven that our model is durable. While our industry can be challenging and dynamic, our improving business and financial results demonstrate our ability to adapt to changing market conditions and develop new markets while delivering consistent financial performance.

Today, we've never felt more confident about our future. We intend to continue expanding our influence across the industry, and to build a bigger, even more resilient and more profitable business in the years to come.

On behalf of myself and our Board of Directors, I would like to thank our nearly 6,000 employees and more than 1,300 customers around the world, as well as our growing shareholder base, for your support. We look forward to continuing to create long-term value as we execute on the exciting next phase of Ciena's strategy.

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Gary B. Smith, President and CEO