Raymond James & Associates Institutional Investors Conference March 5, 2003
Institutional Investors Conference
Transcript of Institutional Investors Conference
1© 2018 Oclaro, Inc. | Confidential and Proprietary
Raymond James & Associates’ 39th Annual Institutional Investors Conference
Greg Dougherty – Chief Executive Officer
March 7, 2018
2© 2018 Oclaro, Inc. | Confidential and Proprietary
Forward Looking Statements
This presentation contains statements about management’s future expectations, plans or prospects of Oclaro andits business. These statements together with the assumptions underlying these statements, constitute. forward-looking statements for the purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of1995. Investors should not unduly rely on such forward-looking statements
These forward-looking statements include statements concerning financial guidance for Oclaro’s fiscal quarterending March 31, 2018, the anticipated growth of Oclaro’s 100G and beyond product revenues, the size of themarkets in which we operate, expected developments in China, our strategies and Oclaro’s future financialperformance and operating prospects. There are a number of risks and uncertainties that could cause actual resultsor events to differ materially from those indicated by such forward-looking statements, including those related toOclaro’s business and growth opportunities. For a discussion of those risk factors, please refer to the factorsdescribed under the caption “Risk Factors” and elsewhere in Oclaro’s most recent quarterly report on Form 10-Qand other documents it periodically files with the SEC. Oclaro assumes no obligation to update the information inthose documents or this presentation, except as required by applicable law.
Non-GAAP Financial Measures
In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financialperformance prepared in accordance with U.S. GAAP. For a reconciliation of these non-GAAP measures to the mostdirectly comparable GAAP measures, please see the table included with Oclaro’s earnings release dated February 5,2018 for the second quarter of fiscal 2018.
Disclaimer
3© 2018 Oclaro, Inc. | Confidential and Proprietary
Oclaro Key Highlights
Market LeadershipAt 100G And Beyond
StrongFinancials
ProvenManagement
Team
Technology Leadership
Well PositionedIn High Growth
Markets
Scale and InnovationThrough Vertical
Integration
4© 2018 Oclaro, Inc. | Confidential and Proprietary
$0
$15
$30
$45
$60
$75
$90
$105
$120
$135
$150
$165 154
162
149156
139
6167
62 63
54
36 40
41 35
24
Sales GM$ OP INC
22
%24
%
22
%
Non-GAAP P&L Quarterly Trend Calendar Year 2017 - Gross Margin 40% and Operating Income 22%
Q217 Q317 Q417 Q118 Q218
40
% 42
%
41
%
41
%
38
%
24
%
18
%
$M
5© 2018 Oclaro, Inc. | Confidential and Proprietary
• Q2 FY18 Revenue of $139.3 million, at midpoint of guidance
‒ 100G+ product portfolio sales of $105.4 million; 76% of total sales
‒ 3 customers accounting for greater than 10% of total revenue
• Non-GAAP gross margin of 38%
• Non-GAAP operating income of $24.5 million, or 18% of sales
• $290 million of cash and no debt at end of Q2 FY18
CY 2017 and Q2 FY18 Financial Recap
Calendar Year 2017 Revenue grows by 18%
with GAAP Operating Profit of 19%
6© 2018 Oclaro, Inc. | Confidential and Proprietary
Guidance & Outlook
Q3 FY18 Guidance Ranges*
Revenues $120 million - $128 million
Non-GAAP Gross Margin % 34% - 37%
Non-GAAP Operating Income $13 million - $17 million
*Guidance provided on February 5, 2018 for the quarter ending March 31, 2018** Ranges provided in SEC Form 8-K filed February 6, 2018
Continued Strong Financial Model
• June quarter revenue expected to be up ~5%
• CY 18 expected GM in the high 30s and double digit OI
Income Tax Provision** GAAP Non-GAAP
FY 18 15% - 20% 5% - 10%
FY 19 20% - 25% 20% - 25%
7© 2018 Oclaro, Inc. | Confidential and Proprietary
Growth Cycle: Market Drivers
New Cloud Business Model
Data Center Upgrades/New Builds100G & 400G
Metro USA/Europe
China: Backbone, Metro, Provincial
5G Wireless
Cable: Deep Fiber Networks
8© 2018 Oclaro, Inc. | Confidential and Proprietary
Oclaro Moving Networks Forward Faster
CFP2-ACO (DCI)QSFP56DDDML and EML Lasers
LN ModulatorsTunable LasersICT/ICRLR4 Client
10G/100G LineCFP2-ACOLR4 ClientTunable XFP and SFP+
Discrete 10G/25Gcomponents Lasers /
Detectors
Tunable SFP+
SFP+28
9© 2018 Oclaro, Inc. | Confidential and Proprietary
Oclaro Driving Networks Forward, Faster With Coherent Optics
400Gb/s pluggables
CFP2 DCO100-200Gb/s
Add driver
TT-NLL
LinearMZ-SOA
DualRx PIC
Folded MZ-SOA
HighBW
2 x 600Gb/s DCO
64GBd ICT
64GBd ICR
1Tb/s
Terabit
Gen 1 - 43GBd Gen 2 - 64GBd Gen 3 >100GBd
HighBW
HighBW
DualRx PIC
10© 2018 Oclaro, Inc. | Confidential and Proprietary
Full Suite Of 400G+ Components
Products– Developing full suite of components for 400G/600G applications
– Tunable Laser Source, 400G+ Integrated Coherent Receiver, 400G + LiNbO3 or InP modulators for linecards– Integrated coherent transmitter and receiver components for DCO daughter cards– Small form factor fully integrated coherent transmitter / receiver components for pluggable digital Coherent
optics
Applications– High-speed long haul, flexible rate metro, ultra compact DCI solutions
64G TOSA
64G ROSA
64G TROSA
64G ROSA
100kHz micro-iTLA
64G ROSA
100kHz micro-iTLA
400G LiNbO3 Mod
HB-CDM(InP Mod)
11© 2018 Oclaro, Inc. | Confidential and Proprietary
Today
Technology Elements Higher Bandwidth modulator
Integrated High BW Rx
Lower Linewidth laser
Compact InP structures
Higher levels of integration
TROSAs
Integrated VOAs and filters
L band option
Oclaro Moving From 200G To 1.2Tb
CFP2 ACO100-250Gb/s
Oclaro InP 25GHzMZ and 300kHz Laser chips
Oclaro InP I/Q 32Gb Rx chips
Oclaro InP 45GHz MZ and 100kHz Laser chips
Oclaro InP I/Q 64Gb Rx chips
2 x 600G DCO
Tomorrow
32 Gbaud ICT 32Gbaud ICR 64Gbaud ICT 64Gbaud ICR
12© 2018 Oclaro, Inc. | Confidential and Proprietary
What Goes In A DCO In China?
InPuICR
Receiver
InPuITLA
Tunable Laser
LiNb03Modulator
InPICT
Tunable Laser +
Modulator
InPICR
Receiver
InPuITLA
Si PhotonicsRx + Modulator
GaAs + ErbiumAmplifier
TunableFilter
DSP
Oclaro Opportunity
DSPDSP
Line CardOr
InP DCO
TomorrowToday
Si PhotonicsDCO
InP DCO
13© 2018 Oclaro, Inc. | Confidential and Proprietary
Oclaro supplying coherent components for 100G/200G DCO solutions CFP and CFP2 – predominantly in the China Market
100G/200G Coherent Components For China DCO Market
Oclaro Tx Oclaro Rx Oclaro 43G TROSA
CFP DCO
CFP2 DCO
14© 2018 Oclaro, Inc. | Confidential and Proprietary
100G+ Coherent Market – Market DefinitionLONG HAUL > 600km
• Most of volume so far
• 100G moving to 200G
• Adopting higher baud rates and modulations
• Most flex-coherent ports will be used in this market
• Shipments dominated by vertically integrated vendors
METRO < 600km
• ~30% of volume to date
• New lower cost hardware boosts market in 2017
• 200G used in most applications
• Single DSP designed for Metro and Long-Haul applications
EDGE < 100km
• DCI market ramps in 2017
• 100G/400G pluggables take over by 2021
Market SaturatedMassive deployments in ChinaPorts now grow <30% per year
Ramped in 2017Led by 200G deployments
100G in China
Ramp began in 2017 with Direct Detect & 200G DCI
Next inflection is 2019/2020 with 100G/400G ZR coherent
Cignal AI – Optical Applications 1H’17 – September 2017
15© 2018 Oclaro, Inc. | Confidential and Proprietary
Metro 200G started to ramp in CY 2017
– DCI hardware drives demand
– Deployment outside China accelerates versus 2016
– 100G Metro stops growing
Edge coherent starts 2020
– Expect 400G ZR to make this market happen
– Entire market, not just DCI
– Pluggables eliminate standalone DCI equipment market < 80km
100G+ Coherent Market Segmentation
Cignal AI – Optical Applications 1H’17 – September 2017
100G+ Physical Ports Forecast by Technology
Metro 100G squeezed by 200G
Direct Detect squeezed by coherent starting 2019 Ed
geLo
ng
Hau
lM
etro
16© 2018 Oclaro, Inc. | Confidential and Proprietary
275k ports shipped in CY 2016
– China accounted for 55% of market and 100% of the growth in 2016
– China represented 30% of the growth in 2017
– China growth dominated by 100G CFP-DCO
164k ports shipped 1HCY 2017
– Total market is up 20% YoY
– Chinese vendors up 12%
– All other vendors up 31%
Forecast for CY 2017 is 360k
– +30% YoY growth
– Assumes 45% Western and 20% Chinese vendor growth
100G+ Coherent Ports Market Share 1HCY 2017
Huawei62020
Ciena 22904
ZTE 19200
Infinera 15050Nokia 12356 Cisco
9000Fiberhome
6500
ADVA 6314
Fujitsu 5604
Acacia 2300
Coriant 1500
NEC 790
Other 450
Other 10644
Cignal AI – Optical Applications 1H’17 – September 2017
17© 2018 Oclaro, Inc. | Confidential and Proprietary
-
200
400
600
800
1,000
1,200
CY2016 CY2017 CY2018 CY2019
100G 10 km
100G 2 km
DataCenter Market View - 100G
• Single-mode duplex fiber dominating 100G intra-DC connections
• 4x25G Indium Phosphide lasers used for 2km CWDM4 /10km LR4
• Migration to 1x100G EML with PAM4 starting in CY19• Silicon Photonics limited to 500m PSM4 market to-date• PSM market shrinking
$156M
$587M
$1.0B
$1.1B
QSFP28 LR4• Leading solution for cross-platform
interoperability IEEE standard
• Used both in high-end routers/switches at edge of datacenter and optical transport
• Expected to replace CFPx in China starting in CY18
QSFP28 CWDM4• Replacing QSFP 40G and 100G LR4 as
leading solution for intra-DC on proprietary switch / white boxes
• Relaxed specification vs. LR4 to enable lower cost components
Data is a combination of LightCounting report 10/17, Ovum report 4/17 and company estimates
18© 2018 Oclaro, Inc. | Confidential and Proprietary
-
100
200
300
400
500
600
700
800
CY2018 CY2019 CY2020
$81
$31
$300M
Data Center Market View - 400G Single-Mode Market
• Single-mode duplex fiber dominating 400G intra-DC connections
• 4 x 100G PAM4 lasers and ICs required
• EML key technology to deliver bandwidth complemented by PAM4 DSPs
• Silicon Photonics likely to be limited to 500m or below
$287M
$720M
Data is a combination of LightCounting report 10/17, Ovum report 4/17 and company estimates
NRZ modulation PAM4 modulation
0→
1→
00→01→10→11→
$56M
QSFP-DD/OSFP
19© 2018 Oclaro, Inc. | Confidential and Proprietary
Emerging Opportunities in Converged AccessFebruary 2018
20© 2018 Oclaro, Inc. | Confidential and Proprietary
Wireless Fronthaul Technologies
RRH: Remote Radio HeadEquipment which convert RF signal through RF/COAX cables from Antenna to CPRI signal. Optics are installed in RRH. Industrial Temperature range required for uncontrolled/ remote applications
BBU: Base Band UnitEquipment which transfers CPRI signal to backhaul by modulating to IP signal.
D-RAN
C-RAN
RRHBBU
Backhaul
Backhaul
Fronthaul
Fronthaul
microwave
Distributed Radio Access Network
Centralized Radio Access Network
X2
Fiber Txcrs
21© 2018 Oclaro, Inc. | Confidential and Proprietary
>10G Transceivers In Wireless Fronthaul And Backhaul
5G Wireless Schedule:
– Field Trials – 2017; Pre-Commercial - 2018-2019; Commercial Launch - 2020
25G SFP28 transceivers to be used in Point to Point Fronthaul from BBU to cell tower.
10G DWDM Tunable transceivers used in Point to Point Fronthaul applications where fiber plant is scarce.
Oclaro leads the market with 25G SFP28 and 10G DWDM Tunable SFP+ I-Temp solutions
258% CAGR
66% CAGR
-4% CAGR
Lightcounting April 2017
22© 2018 Oclaro, Inc. | Confidential and Proprietary
New Cable Remote PHY / Fiber Deep Architecture
18% CAGR
11% CAGR
-2% CAGR
Lightcounting, April 2017
23© 2018 Oclaro, Inc. | Confidential and Proprietary
Continued Profitable Execution
Foundation For Sustained Growth
Market And Technology Leadership At 100G And Beyond Speeds
Strong Cash Flow And Overall Balance Sheet
Multiple Market Drivers Continue: Data Center, Metro, China, 5G Wireless
24
Thank You
For more information, visit us at www.oclaro.com.
Follow us on @OclaroInc and LinkedIn.
© 2017 Oclaro, Inc. | Confidential and Proprietary
25© 2018 Oclaro, Inc. | Confidential and Proprietary
Non-GAAP Financial Results
$ in Millions (except per share amounts) Q217 Q118 Q218
Total Revenues 153.9 155.6 139.3
Gross Profit (non-GAAP) (1) 61.2 63.1 53.6
Gross Margin % 39.8% 40.6% 38.4%
R&D (non-GAAP) 13.2 15.6 14.5
SG&A (non-GAAP) 11.8 13.0 14.6
Non-GAAP Operating Income 36.2 34.6 24.5
Non-GAAP Net Income 36.3 34.5 23.1
Non-GAAP EPS (diluted) 0.21 0.20 0.14
(1) See reconciliation to comparable GAAP numbers in financial tables of press release dated February 5, 2018.
26© 2018 Oclaro, Inc. | Confidential and Proprietary
GAAP To Non-GAAP Reconciliation
($ Thousands) Q117 Q217 Q317 Q417
YTD
Total Q118 Q218
Reconciliation of GAAP operating income to non-GAAP operating income:
GAAP operating income 17,939$ 33,402$ 37,740$ 29,887$ 118,968$ 31,229$ 19,255$
Stock-based compensation 2,443 2,589 2,890 3,273 11,195 3,199 3,939
Amortization of intangible assets 244 241 150 151 786 152 154
Restructuring, acquisition and related costs 311 82 (301) (32) 60 - 969
Loss (gain) on sales of property and equipment (37) (74) (16) (3) (130) 22 169
Non-GAAP operating income 20,900 36,240 40,463 33,276 130,879 34,602 24,486
Depreciation expense 4,748 4,935 5,042 6,032 20,757 6,195 7,344
Adjusted EBITDA 25,648 41,175 45,505 39,308 151,636 40,797 31,830
Reconciliation of GAAP Income to non-GAAP income:
GAAP income 3,351$ 30,267$ 38,214$ 56,027$ 127,859$ 26,489$ 18,737$
Stock-based compensation 2,443 2,589 2,890 3,273 11,195 3,199 3,939
Amortization of intangible assets 244 241 150 151 786 152 154
Payments related to the interest make-whole
charge and induced conversion expense on the
convertible notes 13,250 - - - 13,250 - -
Restructuring, acquisition and related costs 311 82 (301) (32) 60 - 969
Other (income) expense items, net (194) (156) (233) (227) (810) (574) (936)
Loss (gain) on sales of property and equipment (37) (74) (16) (3) (130) 22 169
(Gain) loss on foreign currency translation 518 3,324 (687) 497 3,652 (489) (1,599)
Income tax effect 105 22 (125) (25,756) (25,754) 5,664 1,687
Non-GAAP income 19,991 36,295 39,892 33,930 130,108 34,463 23,120
27© 2018 Oclaro, Inc. | Confidential and Proprietary
Revenue By Product Group
$ in Millions Q217 Q317 Q417 Q118 Q218
100G+ Transmission 113.8 125.8 120.6 125.6 105.4
40G & Lower Transmission 40.1 36.4 28.8 30.0 34.0
Total Revenues 153.9 162.2 149.4 155.6 139.3
Percent of Total
100G+ Transmission 74% 78% 81% 81% 76%
40G & Lower Transmission 26% 22% 19% 19% 24%
$ in Millions Q217 Q317 Q417 Q118 Q218
Datacom/Client Side 69.8 75.8 72.6 75.1 64.9
Telecom/Line Side 84.1 86.4 76.8 80.5 74.4
Total Revenues 153.9 162.2 149.4 155.6 139.3
Percent of Total
Datacom/Client Side 45% 47% 49% 48% 47%
Telecom/Line Side 55% 53% 51% 52% 53%
Numbers may not foot due to rounding
28© 2018 Oclaro, Inc. | Confidential and Proprietary
Trended Revenue By Geography
$139.3$153.9M $149.4M$162.2M $155.6M
$63.9
$57.9
$47.3
$41.4
$51.4
$31.6
$45.8
$57.6
$72.4
$44.4
$15.9$19.5
$14.9 $15.8
$23.1
$40.6
$35.1
$27.3$23.9
$18.9
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
China Americas EMEA South East Asia
21%
28%
39%
47%
10%
12%
10% 10%15%
18%
22%26%
* Sales in Japan account for remainder
42%
36%
32%
27%
37%
32%
17%
14%
29© 2018 Oclaro, Inc. | Confidential and Proprietary
Raymond James & Associates’ 39th Annual Institutional Investors Conference
Greg Dougherty – Chief Executive Officer
March 7, 2018