Ladies and gentlemen, thank you for standing by and welcome to the Ciena Fiscal Q4 2019 Financial Results Call. At this time, all participations are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to -- today to Mr. Gregg Lampf, Vice President, Investor Relations. Please go ahead.

Thank you, Sharon. Good morning and welcome to Ciena's 2019 fiscal fourth quarter and year-end review. With me today is Gary Smith, President and CEO; and Jim Moylan, CFO. Scott McFeely, our Senior Vice President of Global Products and Services will join us for the Q&A portion of today's call. 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 and fiscal year. Our comments today speak to view on current market dynamics and how we're addressing the opportunity in front of us, our Q4 and fiscal 2019 performance, as well as a discussion of our long-term financial targets and near-term outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A detailed 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 will remind everyone that during this call we will be making certain forward-looking statements. Such statements including our guidance and long-term financial targets 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 from the statements discussed today. These statements should be viewed in the context of the risk factors detailed on our most recent 10-Q filing and in our upcoming 10-K filing. Our 10-K is required to be filed with the SEC by December 30th and we expect to file by that date. Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events or otherwise. With that, I will turn it over to Gary.

Thanks, Gregg, and good morning, everyone. Today we reported strong fiscal fourth quarter results, rounding out an extraordinary year of top and bottom-line financial performance and leading market share gains. For the full fiscal year, we again delivered industry leading growth and profitability including 15% revenue growth and greater than 50% growth in adjusted EPS. We delivered 13.1% adjusted operating margin for the year and took important steps during the year that will drive continued leverage and improvement. We also had a very strong year for cash generation with more than $413 million in cash from operations ending the fiscal year with over $1 billion in cash and investments. We frankly had a phenomenal year by any measure, highlighting our clear market leadership, and most importantly, positioning us to continue delivering profitable growth going forward. We are entering 2020 with tremendous confidence and have strong visibility into our business, prevailing market dynamics and key customer relationships. We are the industry's clear innovation leader and have an enviable competitive position with our technology leadership. Our diversification and global scale have created a balanced and resilient business, and one that has consistently outperformed the market and our peers, even in the face of short-term challenges in any particular geography segments or customer. Our deep understanding of industry dynamics and customer behaviors has enabled us to provide both short-term guidance and longer-term forecasts that we have consistently met or exceeded. While there are some well documented headwinds as we head into 2020, we have taken them fully into account and balanced them against the positive drivers of our business, giving us confidence in our view towards continued faster than market growth and bottom-line expansion. In fact, this confidence has also positioned us to increase certain of our long-term targets which Jim will discuss…

Thank you, Gary. Good morning, everyone. Q4 marked a strong end to an extraordinary fiscal 2019. Total revenue was $968 million. Q4 adjusted gross margin was 43.8%. Adjusted operating expense in the quarter was $295 million. This was higher than expected due largely to higher variable compensation tied to our strong performance in the quarter and the year, as well as a one-off charge for doubtful accounts in Latin America. With respect to profitability measures, in Q4, we delivered adjusted operating margin of 13.3%, adjusted net income of $90.4 million and adjusted EPS of $0.58. In addition, in Q4, our adjusted EBITDA was $152 million and cash from operations was $240 million. As Gary mentioned, we ended the quarter with approximately $1 billion in cash and investments. Finally, we continue to execute on our share buyback plans. In the fourth quarter, we repurchased approximately 1 million shares for $38 million to close out the year with total amount repurchased of approximately $150 million as expected. With respect to our performance for the full fiscal year, as Gary mentioned, annual revenue increased 15% from fiscal 2018, which was significantly above our target growth rate of 6% to 8% and well above market growth. We believe that we gained approximately 3 percentage points of market share as a result of this performance in 2019. Adjusted EPS was $2.11, which greatly exceeded our target 20 plus percent annual growth rate. And finally, free cash flow for fiscal 2019 was $351 million which represents 75% of adjusted operating income, also well above our 60% to 70% target range. Following the strong performance in 2019, we are again providing an updated set of three year financial targets, in this case through fiscal year 2022. For the most part, these long-term targets remain about the same…

[Operator Instructions]. Your first question comes from Jeffrey Kvaal with Nomura. Please go ahead.

I'm wondering if we could start by discussing some of the variables underneath your 6% outlook for 2020. I ask because there it was a little bit lumpy in terms of where the revenue sources came from, particularly in this last quarter, web-scale down, Packet Networking up. So if you could help us kind of understand a little bit about either what happened in the quarter or what that means for the 2020 view, we'd appreciate it?

Sure, Jeff. First of all, we are very diversified and we have a project-based business. So, there always are going to be movements among various customer groups. And you saw that in Q4. As we look to the future in 2020, we expect really a broad-based growth across geographies and verticals. We expect a bit of with service providers particularly in North America. I’d just highlight the point that broad-based growth is what we expect across a lot of different geographies and verticals.

Okay. Just to I guess follow-up on that, the trajectory of the revenues in Asia Pacific has suffered from India. It sounds like that's going to be somewhat better in 2020. What's the confidence level in that and to what extent? Because some of the other regions in Asia Pacific help there, you've talked about success in Japan in prior quarters.

Yes, Jeff. We -- this is Gary. Yes, we expect to have growth in Asia Pacific. I think India specifically, obviously, was a challenging year last year. And we expect the dynamics to continue to be challenging in India frankly for the next probably a couple of years. But given the relatively low number bar of 2019 and given the engagements in orders that we are seeing from certain of the stronger customers there, I would say we expect modest growth in India. We feel more bullish around Australia and some of the wins that we have had there and some of the momentum that we have got there. Subsea also I would highlight in Asia Pacific is going to be very good year in 2020 and we have got good visibility to that. Also I think Japan is going to have a good year. I would sort of reinforce I guess what Jim said around broad-based demand, I think we have been very realistic and understand very well the challenging markets in places like India, et cetera and I think that's all built into our guidance for the year. I think we've been very, very realistic on that.

Next question comes from Simon Leopold with Raymond James.

Great. Thank you. I appreciate you taking the question. I wanted to double click on the hyperscale web-scale market vertical in particular and maybe just a couple things I'd like you to address. Part one is, what's implied within your forecast of revenue growth for fiscal '20 of kind of 6%? What are your assumptions? And I'd appreciate if you could maybe explain how you see the drivers for this web-scale market, because I think many folks have associated your prospects -- with the prospects for switching or servers and maybe help us to understand the relationship, correlation or lack of correlation? Appreciate that. Thank you.

Yes. I'll start and then Scott or Gary can answer the second part of the question, Simon. First, I'd say that, we've had two phenomenal years in the web-scale space. As they have grown themselves, they've grown their CapEx at really extraordinary rates. We’ve gained share. We think that we will grow over 50% in that sector right now. As we look into 2020, it is our view that their CapEx is going to moderate. We think that it's going to grow but probably in the 7 to 10 range or something. That's what we get from our checks. In that environment, we expect to maintain our market share. I think it is going to be hard to grow market share, given that we have such a high market share but we expect to maintain our market share as we move into next year.

And Simon, it's Scott. In terms of the dynamics, I think you see demand coming at us from really two different dimensions. One is geographical expansion; other, data center footprint. And then bandwidth coming at us from just application growth. And if you look at just sort of port shift, you can see that growth absolutely in our numbers and we continue to see that looking forward in the future. What's different with us maybe than some of the other competitors that you're seeing in the marketplace is just the breadth of the logos that we deal with. We don't have the same customer concentration as some of the other folks that you may be looking at here.

Great. And if I might just a quick clarification, please. The one 10% customer, looks like you are pointing to a North American telco, just want verify if I got that right?

Yes. That's absolutely correct.

Next question comes from Paul Silverstein with Cowen.

On the competitor front Gary and Jim, there has been a lot of talk about Infinera stabilizing and improving a lot of concerns about 600 gig, taking away share. So two questions here, a broader and a narrower question. On the narrower question, there's has been talk in investment community about you having to re-spin. I trust from your comments on WaveLogic 5 or the timing that, that is not the case. It sounds like you are confident that, that will shift in the near-term. You’ve already got customer orders in hand. But broader question, what are you seeing in the competitive environment from Infinera in particular and more generally from your key competitors?

Yes, Paul. It’s Scott. Just on the generic WaveLogic 5 question I would say this and Gary talked about it in his remarks. But just to reiterate, we are thrilled with the execution, both from the program execution perspective and the performance perspective. And since we talked to this group last in September, we’ve had our technology forum which we call Vectors where we had several hundred customers come to the labs and witness that execution and witness the performance and they walked away exceptionally confident which is more important than my confidence by the way. And as witnessed by the fact that many of them have placed orders on us for that and we do expect to have that capability in their hands as we said starting before the end of our fiscal Q1, which is not that far away and revenue in Q2. So we’re thrilled and feel great about the competitive position on that one.

In terms of the overall dynamics, the broader question, Paul, this is Gary, we think that the competitive advantages that we’re going to deliver in WaveLogic 5 in 800 frankly causes most of the engagements that we’ve had with them to skip over any 600 gig requirements quite frankly, and we’ve seen that in web-scale, we’ve seen in service providers. There is just not enough benefits in terms of the speed and reach of 600 gig, which frankly some of the stuff that’s coming out is really on the competitive with WaveLogic AI, which has been in the market for two to three years now.

Gary, if I could just one -- hey Gregg can I do one quick follow up? I think it’s clear from your comments -- but I will ask the question, are there any one-offs for better or worse as we look at fiscal ‘20?

You are talking revenue or what are we talking about?

I’m sorry, Jim, from a revenue standpoint. I mean certainly the theme has been ongoing diversification across regions, product, markets, customers et cetera. But are there any particular -- from a meaningful impact on revenue for better or worse, are there any particular from any of those Vectors as we look out over the year?

I would describe it like this Paul, I think what we've seen over the last two to three years is, certain customers pause or they have some challenges, certain markets pause. We saw India go very strong for a couple of years and then pause last year. And the point that I would make is that we’ve got such breadth and scale now that we can withstand and navigate our way through those challenges. We had some real challenges in 2019 around some of those markets, which I think are well understood. I think what was particularly strong in 2019 was web-scale. We expect as Jim said for that to continue to grow but at a more moderate rate. I think what we're seeing in 2020 is just more moderate growth across a very broad customers and market segments, I characterize it as that. But if you look at ‘19, I think what was particularly strong was web-scale and some of the North American service providers. I absolutely think that service providers will be strong in 2020 across the wins that we’ve had.

Next question comes from Rod Hall with Goldman Sachs.

I wanted to drill into this packet number. The revenues there are a lot stronger and I know Gary you talked about Adaptive IP wins. I wonder could you just talk a little bit more about the pipeline there. And what sort of things you're seeing out in the market? Are you seeing people -- I think you alluded to switching off of routing platforms onto this. Just nay more color on what the trajectory of that's likely to look like since that was way ahead of what we were expecting? And then does that possibly drive networking platforms growth higher for you in 2020? So that's -- I know it's long winded, that's my first question. And then I have one follow up.

Yes, I think -- [Paul], it's Scott. In terms of looking in the rearview mirror and what drove the growth on packet, it really is a -- I look at some of the applications when people are looking at modernizing their access and aggregation networks to deal with a number of different applications sets. Particularly in Q4, we benefited from a number of projects that we're looking at migrating from their legacy TDM services onto a packet infrastructure. And when they did that, they actually wanted to go with a more modern, which we call an Adaptive IP approach to it and we've definitely benefited from that. Looking forward, we continue to see that as an application driver. But I also think as people start to look at 5G from a standalone perspective and start to make architectural decisions around that, there's an opportunity there for that same product portfolio set. We do expect looking forward for that packet portfolio to grow faster than our aggregate numbers. We haven't updated the targets I don’t think exclusively in the three-year plan, but they're very consistent with what we had in the last three year plan, which is higher -- be double-digits but higher than our aggregated numbers.

Could you -- Scott, could you just expand on that 5G comment and say a word or two about what's happening there with regards to visibility and revenue trajectory right now?

Yes, I think what's going on right now is, in general, those of us that are in the packet-over-fiber infrastructure business are benefiting from a number of different drivers that is bringing more bandwidth on to the network. And those drivers have been consistent. I think they are going to be consistent going forward. Specific to wireless access networks in 5G, I think what's going on right now is a lot of augmentation on standalone deployments, which is bringing, yes, more bandwidth onto the network, but not necessarily them looking at their new architectures and making new vendor decisions because of that. I think going forward in the future as they start to look at standalone deployments, those architecture conversations come up, and there's opportunities for new competitive displacements for vendors like ourselves, but I think that's really going to be a 2021 type timeframe.

And then I was just -- my follow up was just on India, Gary said moderate growth. Could you guys put it in the ballpark on that? Like are you talking -- what do you mean there, mid-single-digits or any kind of quantification to may be look for?

I would say sort of single-digit type growth in India, in that kind of range, up from pretty -- of the 2019 performance, yes.

Next question comes from George Notter with Jefferies.

I guess I wanted to go back to the strength in the packing networking business. Just to connect some dots, I think my hunch is what you're seeing there is a cross-connect replacement project and with a major Tier 1 North American customer. I guess I -- my impression is that it's still very early days in that project. My impression also is that there is a big install base of those platforms and many other customers as well. So, I just was hoping to get any commentary you could give us on kind of the picture for new project wins there and in kind of what inning are we in terms of that kind of application and where it can grow to? Thanks.

George, I guess two things, it's Scott. So first of all, that application was one of the drivers for the packet growth, it's broader than that. So, I wouldn't just fixate on that, but that was certainly one of the drivers. On that application itself, I do resonate with how you phrased it. I think it's early innings, I think both in terms of the customers that we're in, but also the number of customer logos out there that have this challenge in front of them.

Next question comes from Jim Suva with Citi.

Thank you very much. Thus far the questions have been mostly focused on revenues which is absolutely the correct thing to do. So maybe if I can switch it down to operating margins and operating expenses a little bit. If my math is right, it looks like you came in around 13% operating margins this quarter, and maybe I'm off on that. but it seems like OpEx, your costs a little bit higher. Is that related to, you made a comment about like doubtful accounts adjustments? Or can you help us understand kind of why it seems like operating expenses were a little bit higher than maybe what some of us would have thought for this quarter?

Sure, Jim. Yes. We came in a little bit higher on OpEx than we expected, but it really is driven in large part, in fact, mostly, by the fact that our incentive comp on both our sort of sales commissions and regular corporate bonus was higher than expected. We had well over $20 million of extra expense because of our performance in the quarter and the year. So it's a good thing for you that we performed as well and a good thing for our employees, frankly. And then the other thing is, we did have a $4 million -- roughly a $4 million charge for bad debts in South America, it was a number of accounts. And we took those to reflect what's going on in those accounts. So overall, our OpEx for the quarter and for the year is very close to plan. If you look at our annual OpEx against our plan, just about all of it is driven by the incentive comp pluses that we had during the year and this $4 million charge for bad debts in Q4. So, you take those out, we're very close to our plan for OpEx for the year.

Thank you so much for the clarifications.

And the other thing I’d just repeat. As I said earlier, we're going to return to a lower level $270 million to $275 million per quarter for the year of 2020, which reflects flat to slightly down from the OpEx that we experienced in 2019.

The next question comes from Michael Genovese with MKM Partners.

So, with the WaveLogic 5, I mean it sounds like the customers have come and seen it in Ottawa and then you're going to get it to them it sounds like in January for field testing and first office applications. I'm just wondering how long does that stuff typically take? And can we have a strong revenue uptake in Q2 or is it more Q3 given the timing?

Yes, Mike, I think the way to think about it is, we'll start to recognize revenue in Q2, but significant material amount will be in the second half of the year.

Okay. And then just I guess can we talk, in the hyperscale vertical and maybe the subsea vertical as well sort of maybe more in hyperscale the importance of that technology. I mean I was getting a sense that the 400 G cycle is coming to an end, and that we really need to get this product out to have the growth that we expect in the vertical this year. Is that accurate to you or is there more life in 400 G than I'm talking about here?

So, the way I would say it is that, folks that are fiber constrained and have high bandwidth growth demands will always go to the highest performance optics. And that, that will be WaveLogic 5 in very, very, very near future. So, those folks will move to that new technology fairly quickly. When you say the 400 G cycle, though, I want to point out that the 400 gig cycle as a capability is just starting, being able to ship or be able to carry 400 gig anywhere on the globe without having to regenerate it, is a key value proposition of WaveLogic 5 even though we talked about it being 800 gig, and that's important because the client rates coming off of things like switches and routers are still 100 gig today. They are going to go to 400 gig. So, that's still in front of us.

Yes. I agree that particularly in the telco market the 400 G cycle in front of us and I was asking about hyper-scale and I appreciate the answers. Thank you Scott.

Next question comes from Samik Chatterjee with JPMorgan.

Gary, if I can just ask a bit of about the longer term targets, more the confidence level in reiterating the 6% to 8% revenue guide, particularly as you are guiding to 6% revenue growth in the next fiscal year and then 6% to 8% over the three year time horizon and you have spoken about some of the headwinds here. What's giving you the confidence that some of the headwinds don't accelerate or do you -- should we see it as -- necessarily a confidence in the market share wins that continue to drive you in that range?

I think if you look at the overall market dynamics and fundamentals, I think that's very, very solid. If you look at the wins that we've got and the customer plans that we have and we're intimate with across the globe, I think it's -- we've got a very high degree of confidence and visibility into that. I would also say the balance of it, when we look at those things, we're not counting on miracles in any of these markets or customers. We take a very balanced and realistic view to it. And quite frankly over the last few years, we've been very accurate on that. We've either met it or exceeded it. So, I think we have very good confidence in it. I think we've got a very good understanding of the dynamics where there are some challenges and we have good visibility into that. We have great customer and intimate relationships, which give us privy to their plans both in this year and beyond. And I think folks tend to -- and I think quite rightly focus on some of the headwinds which is sort of well-documented, there’s also on the broad demand a lot of tailwinds and I would say actually for us particularly, very specific to Ciena, it’s the service providers on Tier 1 wins that we have had both in North America and in EMEA and in Japan and Australia as we look to 2020. I don't think other folks are enjoying that and I understand it at a macro level, overall CapEx spending in the service provider space is flat to down. But that's not the deterministic issue for us, it’s what are they spending it on. And we’ve got the leading innovation and relationships with them and that's why we’ve got confidence in the service providers going forward.

And just a follow up on the balance sheet or the use of cash here. You ended the quarter with a strong cash number and strong balance sheet. So what are the options you are considering given that a lot of the investments also for the next generation products appear to be largely done? Are you considering like maybe accessing repurchases or what are the options?

Well I think you could probably name the options, they are pretty obvious. We're going to continue to generate a lot of cash over the next several years and we would love to make good acquisitions if they are out there and available for us. And if not, then we will have a choice of perhaps increasing our distribution to shareholders. My own preference would be to do some smart good acquisitions but those have to appear for us.

Next question comes from Meta Marshall with Morgan Stanley.

First question is just on kind of the revised 16% to 17% kind of fiscal ‘22 operating margin target. Should we assume that most of that comes from OpEx savings and just give a sense of where within kind of OpEx those savings are coming would be helpful? And then maybe second question, there has been a lot of discussion about Europe and Huawei, kind of, whereas it looked like Huawei wouldn’t be kicked out of certain accounts. That is looking more likely. Just any change in commentary around European customers over the last couple of weeks would be helpful? Thanks.

Thanks, Meta. I will take the first part. And with respect to our higher targets, we believe that it will be a combination of increased operating leverage as we continue to grow our revenue faster than our OpEx and also we expect a bit of margin improvement. So it's a combination of those factors. With respect to OpEx, we've done a lot of things over the last year to get -- to ring efficiencies out of our business and that's why we can call that our OpEx will be flat to down as we go into next year. We will continue to look for those kind of opportunities. But generally speaking, we're just going to run our OpEx in a very disciplined way and as I say we will grow revenue faster than OpEx.

Meta, on the European context around China or Inc, I would say that it's really the dynamics haven’t particularly changed. I think it's difficult to discern any impact on our own business certainly to-date showing up in our financials and it’s obviously difficult to predict how all of this will play out. But what I would say this and in particular regard to the European carriers, I think there's much more of a sensitivity now around over dependence on certain vendors, regardless of all the other geopolitical and security considerations that are in play. And I think whenever you’ve got such a large market share of a particular player, I think a number of carriers are now becoming concerned about that and we're engaged in a number of conversations that presents an opportunity for us. I would stress that these are mainly infrastructure type decisions. So they are not quick and they are not quick to show up into the numbers. But I think we are engaged as you would expect with a number of major carriers, which presents opportunities for us within this dynamic of an over dependency on a certain player.

Next question comes from John Marchetti with Stifel.

Gary, I was hoping, you could just spend a little bit of time on that Centina acquisition that you kind of snuck in here. Just talk a little bit how that sort of rounds out the software offering and combined with sort of what feels like an improved outlook for that total software business. Just curious, if the tenor or tone of discussions with service provider has changed where now you really feel like you kind of know how to attack that market and look for that to be a real contributor for growth going forward?

Yes. Thank you. Thank, John. I think it does round out in a number of ways. I think to sort of start at the end of your question on the overall dynamics that we're seeing, we were obviously very early entrants into this market and we've -- to get ourselves educated and we've learned a lot over the last three to five years, particularly around the entry points into the service providers around their pain points and how to get this next generation of automation really solutions targeted at their needs. And we've now put together I think a world class portfolio within Blue Planet to address that. This last piece of it really was around the network assurance which allows us to have what they sort of call a closed loop understanding of what's going on in the network. And now we've got a very full portfolio around federated inventory, route optimization, analytics and this was really the obvious and final element now which allows us to pull all those pieces together. We're seeing very good momentum now in a number of carriers around these kinds of solutions and automation and taking some of the complexity around their assets out. And we had a very good year. We doubled our revenues in Blue Planet. And I think we're going to have a strong year in 2020 as well.

And then maybe just as a quick follow-up to that point, Gary. Is this being used primarily with going in with some of the new network builds that you're doing? Is it customers that are looking to monetize some of their back office stuff? Just curious, where you're inserting yourself, as you go to market with that solution? Thank you.

There are some examples John of new networks. And obviously, that's the easy one. But the greenfields, you put the leading edge automation elements and then we do have some of those. But largely it is around existing carriers looking to automate elements of their network. The back office is complex. It was not designed to deliver the kind of services they are today. I mean a lot of these back offices were designed to deliver basic phone service to your house and to offices. And so that's the issue that they're trying to deal with. And now you have an environment where you want instant on demand large amounts of capacity and services, and their back office is just not suited to that. And so we've identified the particular pain points that can -- high leverage elements that can deliver a lot of savings and improve services to the carriers. And we're seeing some great use cases now around improved service delivery and understanding of their network. And that's cascading around a number of carriers around the world. So quick answer to your question is, really it's in the existing networks and the problems that we're trying to solve there.

Next question comes from Tim Savageaux with Northland Capital.

Congrats on a strong quarter with a lot of moving parts and that's kind of where my question is, which is, if you look at what was a very strong North American performance and some pretty severe headwinds in Asia Pac, for the quarter I guess I'd be interested in kind of where things may have surprised you to the plus side and maybe to the minus side relative to what you might have expected either geographically or end market customer wise on the one hand? And then I wondered if you can comment on what you're expecting -- what you saw on the quarter on the cable vertical, and what your expectations might be heading forward?

I'll start with that one, Tim. I'd say that the quarter played out generally, as we expected, the -- we have a big backlog. We have very deep engagements with each of our customers. And we know what projects are ongoing, which projects are beginning, which projects are coming to the end of their lives. So, we didn't really have any huge surprises, I would say that our big North American customer was -- performed better than expected. That had to do with what things that were going on in their network. But overall, no real surprises in the quarter. We did see a reduction in the web-scale vertical. We expected that and we have a great year with them, and we’ll have another good year with them next year.

Tim, just on the cable element of your question, we had a pretty strong year in cable in 2019. But significantly, we've had a couple of very large wins in that cable space which will play through to 2020. And now we frankly have all of the major North American MSOs are Ciena customers. And most of the international ones as well, particularly in Europe where you’ve got the other large ones. So, we pretty much now have a clean sweep across all of the major cable MSO players and that also gives us confidence as we go through 2020.

Next question comes from Troy Jensen with Piper.

My first question would be for Gary. Just curious to get your thoughts on what the bigger revenue driver will be for '20? Is it going to be 400 G moving into metro or is it going to be 800 G in DCI?

I'll take the first part of that and then and maybe Scott get your views to it. I still think the main growth driver is going to be 400 gig. And we're saying that just as we're about to get 800 gig in market. Scott over to you.

I totally agree with that. At the end of the day, the fundamental driver is continued bandwidth demand and growth, and that's going to materialize in a number of different applications. I think what you're going to see is 400 gig becoming ubiquitous transport currency around the globe. So, that will instantiate in a couple different technologies. That will be the key driver.

And just to remind you, we said earlier, Troy -- just a reminder Troy, we just say that we -- as far as geographies and verticals, we expect pretty broad-based growth and maybe a little bit about performance from the Tier 1 providers, service providers, particularly in North America. But overall, we expect growth across a wide range of geographies and verticals.

So maybe just follow-up with Scott or Gary, just 400 gig metro, can you update us on traction you’ve had or significant revenue ramp?

I mean we've been shipping 400 gig capable products with WaveLogic Ai for quite a while and I think last -- and we are approaching 100 different customers on that WaveLogic Ai 400 gig capable technology. It's a combination of that. There is two fundamental drivers for people who want to have optical performance. One is, I have got significant bandwidth increase and I have got fiber constraints, I'm going to want the best optical performance I can get. And that's been consistent since we have been in the optical demand and that will continue forever. And then the other one is, what services and clients are you trying to carry on that line. Obviously we are not at the point yet where 400 gig a client driver is the dominant client piece of that, that’s still in front of us. But we have seen on the optical side broad-based growth from metro, DCI, infrastructure core networks and submarine across the piece driven fundamentally by bandwidth continues to grow.

Next question comes from Amit Daryanani with Evercore.

I have two as well. First one, just on the free cash flow -- free cash flow conversion was fairly strong in fiscal '19. I think it was over 75%. Could you just help us to square away, why do you expect that to drop to 60% to 70% as you go forward in your long-term target? Was there something one-off that helped fiscal '19 to be really good or just hoping to close the bridge over there?

Yes. First of all, the range is 65% to 75%. So I am not sure if we're going to see that drop, but we did give a range that reflects at the midpoint a slight decline. I would say that a lot depends upon the particular area of the world where we’re selling into, some parts of the world generally have longer payment terms than others, also the extent to which a quarter is frontend loaded or backend loaded in terms of revenue. And for this past year, we've enjoyed a very high percentage of frontend loaded quarters given the demand. Our expectation to go to sort of a midpoint of 70% reflects growth outside of the U.S. as well as perhaps going back to a more backend loaded quarter.

Got it.

But I'd say, whether it would be a 65% or 75%, we're going to have great cash for the next several years.

Fair enough. If I can just follow up. When we think about either fiscal '20 or the next couple of years, where do you see the biggest share gain opportunity from a geo or end market basis as you go forward? And then on the web-scale side, where I think you sound a little bit more tempered on share gain potential going forward. Is that just a reflection that you're customer are saying, you have 50% share that's plenty if you want diversity or is it some other variable there specifically?

Let me start with the last question first. I think this is just the reality when you get well over 50% market share. It's probably even closer to 60% frankly. It's just tough to grow. It’s the lot of big numbers in share, I don't think there's a particular -- particularly within that space, I don't think that's necessarily driven by a requirement for diversity of supply. Given the fact that our financial strength and our innovation and the rest of it, we're seeing more and more both with large service providers and with web-scale that are absolutely -- they have got the right flight to quality and trust in a vender. This two vendor, three vendor things was really becoming a little bit of a thing in the past. So -- but the market share piece is just a lot of big numbers there. In terms of other areas for us to take share, I think it's across the board, I really do. I think it’s very broad-based. I think EMEA has some particular opportunities. I think EMEA -- given the concentration with other certain competitors in EMEA, I think there’s opportunity there. There is opportunity in Japan for us in some of the indigenous vendors there. And I think given the strength of our scale and our technology with WaveLogic 5 coming out I think of submarine as well, I also feel we are going to have a strong year in submarine from a share gain point of view as well.

Next question comes from Ryan Koontz with Rosenblatt Securities.

Wondering if you guys have an updated view on the threat from white box. AT&T has been very vocal about their interest in edge applications and the web-scale sector, seeing some utilization. Do you see that starting to wane or how is it affecting your product strategy going forward? Thanks.

I think there are certain -- some segments that have more propensity to want to control some of their own innovation and that’s been going on for a while and we’ve reacted to that. We’ve made our technology basis available on various different assumption models, everything from our packaged software assets available as an independent network operating system. You mentioned one of the customers that we happen to be engaged with them on that. All of the various different open line system approaches around the world, we’ve been a leader there. And I think we took a leadership position in making that coherent technology available outside of our system business. So we've embraced sort of this open consumption model, frankly for bringing value to the marketplace from a technology leadership and innovation, how our customers want to consume it, is how our customers want to consume it, we’ll react to that.

Next question comes from Catharine Trebnick with Dougherty.

I just want to drill in more on the subsea. You just said that, that could possibly see a market share gain next year. Could you talk about who your typical customers are for subsea? I always view it as Google, Facebook, Microsoft? And drill into, are carrier still a piece of that business or not, or who is actually your end customer? Thanks.

Yes. I would say that there is kind of a broad range of people who want to have submarine capability because everybody who wants to move stuff across the world. In recent years, it definitely has moved to the web-scale fellows because they're the ones who are building out data centers around the world and have to have that capacity. But we still do business with large consortia who operates across the world. And so it's really a combination of all those. The other thing that is important to know about that as we’ve moved very significantly toward an unbundled conferring bills and the customer was best of breed in terms of the cable and in terms of the optical gear. We are clearly the leader with respect to optical gear. No question about it. And so we think that whether it's web-scale or whether it’s service providers our technology really puts us in a great position to win.

And at this, I will turn the call over to the presenters.

Thank you. Thank you, everyone. Have a happy holiday and happy New Year. We look forward to 2020 delivering a very strong year again. Thank you.

Ladies and gentleman, this concludes today's conference call. Thank you for participating. You may now disconnect.