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Oclaro Announces Second Quarter Fiscal Year 2013 Financial Results

January 31, 2013

SAN JOSE, Calif., Jan. 31, 2013 /PRNewswire/ — Oclaro, Inc. (NASDAQ: OCLR), a provider of optical components, modules and subsystems, today announced the financial results for its second quarter of fiscal year 2013, which ended December 29, 2012.

“Our financial results for the second quarter of fiscal 2013 demonstrate the progress we are making after the merger,” said Alain Couder, chairman and CEO. “Our revenues were at the top-end of guidance and we have successfully executed to the planned synergies on schedule. We also took action to strengthen our balance sheet. Looking ahead, market and economic conditions remain uncertain in a typically softer March quarter. As a result, our efforts will remain focused on reducing operating expenses and improving margin, as well as capitalizing on our new product introductions and strong customer relationships to maximize revenues.”

Results for the Second Quarter of Fiscal 2013:

Oclaro closed its merger with Opnext, Inc. on July 23, 2012. The financial results for the second quarter of fiscal 2013 include a full quarter of operating results of Opnext. The financial results for the first quarter of fiscal 2013 include approximately ten weeks of operating results of Opnext since the closing of the merger. Results for the second quarter of fiscal 2012 were pre-merger Oclaro and do not include the operating results of Opnext.

  • Revenues were $159.5 million for the second quarter of fiscal 2013, compared with revenues of $148.8 million in the first quarter of fiscal 2013. Pro forma combined revenues for the first quarter of fiscal 2013, including Opnext for the full quarter, were $160.2 million.
  • GAAP gross margin was 13% for the second quarter of fiscal 2013, compared with a GAAP gross margin of 12% in the first quarter of fiscal 2013.
  • Non-GAAP gross margin was 15% for the second quarter of fiscal 2013, compared with a non-GAAP gross margin of 13% in the first quarter of fiscal 2013.
  • GAAP operating loss was $6.7 million for the second quarter of fiscal 2013, which included a $25.0 million gain on the sale of assets related to our interleaver product line and our thin film filter business. This compares with a GAAP operating loss of $47.4 million in the first quarter of fiscal 2013.
  • Non-GAAP operating loss was $23.1 million for the second quarter of fiscal 2013, compared with a non-GAAP operating loss of $29.4 million in the first quarter of fiscal 2013.
  • GAAP net loss for the second quarter of fiscal 2013 was $12.2 million, and included a $25.0 million gain on the sale of assets related to our interleaver product line and our thin film filter business. This compares with a GAAP net loss of $9.4 million in the first quarter of fiscal 2013, which included a gain on bargain purchase of $39.5 million related to the acquisition of Opnext.
  • Non-GAAP net loss for the second quarter of fiscal 2013 was $25.2 million, and excluded a $25.0 million gain on the sale of assets related to our interleaver product line and our thin film filter business. This compares with a non-GAAP net loss of $31.1 million in the first quarter of fiscal 2013, which excluded a gain on bargain purchase of $39.5 million related to the acquisition of Opnext.
  • Adjusted EBITDA was negative $13.2 million for the second quarter of fiscal 2013, compared with negative $20.6 million in the first quarter of fiscal 2013.
  • Cash, cash equivalents and restricted cash were $96.0 million at December 29, 2012. On January 23, 2013, Silicon Valley Bank (SVB) and Wells Fargo entered into a Joinder Agreement pursuant to the Second Amended and Restated Credit Agreement, dated as of November 2, 2012. Pursuant to the Joinder Agreement, SVB agreed to become an additional Lender under the Credit Agreement, and the Lenders agreed to increase the revolving credit facility under the Credit Agreement from $50 million to $80 million.

Third Quarter Fiscal Year 2013 Outlook

The results of Oclaro for the third quarter of fiscal 2013, which ends March 30, 2013, are expected to be:

  • Revenues in the range of $140 million to $155 million.
  • Non-GAAP gross margin in the range of 10% to 14%.
  • Adjusted EBITDA in the range of negative $25 million to negative $13.5 million.

The foregoing guidance is based on current expectations. These statements are forward looking, and actual results may differ materially. Please see the Safe Harbor Statement in this earnings release for a description of certain important risk factors that could cause actual results to differ, and refer to Oclaro’s most recent annual and quarterly reports on file with the Securities and Exchange Commission (SEC) for a more complete description of these risks. Furthermore, our outlook excludes items that may be required by GAAP, including, but not limited to, restructuring and related costs, acquisition or disposal related costs, any additional flood-related expenses, expenses or income from certain legal actions, settlements and related costs outside our normal course of business, impairments of other long-lived assets, depreciation and amortization, extraordinary items, as well as the expensing of stock options and restricted stock grants. We do not intend to update this guidance as a result of developments occurring after the date of this release.

Conference Call

Oclaro will hold a conference call to discuss financial results for the second quarter of fiscal 2013 today at 1:30 p.m. PT/4:30 p.m. ET. To listen to the live conference call, please dial (480) 629-9665. A replay of the conference call will be available through February 7, 2013. To access the replay, dial (858) 384-5517. The passcode for the replay is 4593179. A webcast of this call and a supplemental presentation will be available in the investor section of Oclaro’s website at www.oclaro.com.

About Oclaro

Oclaro, Inc. (NASDAQ: OCLR) is one of the largest providers of lasers and optical components, modules and subsystems for the optical communications, industrial and consumer laser markets. The company is a global leader dedicated to photonics innovation, with cutting-edge research and development (R&D) and chip fabrication facilities in the U.S., U.K., Italy, Switzerland, Israel, Korea and Japan. It has in-house and contract manufacturing sites in China, Malaysia and Thailand, with design, sales and service organizations in most of the major regions around the world. For more information, visit http://www.oclaro.com.

Copyright 2013. All rights reserved. Oclaro, the Oclaro logo, and certain other Oclaro trademarks and logos are trademarks and/or registered trademarks of Oclaro, Inc. or its subsidiaries in the U.S. and other countries. Information in this release is subject to change without notice.

Safe Harbor Statement

This press release contains statements about management’s future expectations, plans or prospects of Oclaro and its business, and 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 of 1995. These forward-looking statements include statements concerning (i) financial targets and expectations, and progress toward our target business model, including financial guidance for the fiscal quarter ending March 30, 2013 regarding revenue, non-GAAP gross margin and Adjusted EBITDA, and (ii) expectations related to the integration of Opnext into Oclaro following the closing of the merger on July 23, 2012, and (iii) our market position, economic conditions and future operating prospects. Such statements can be identified by the fact that they do not relate strictly to historical or current facts and may contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “outlook,” “could,” “target,” and other words and terms of similar meaning in connection with any discussion of future operations or financial performance. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including (i) the future performance of Oclaro and its ability to effectively integrate the operations of acquired companies following the closing of acquisitions and mergers, including its merger with Opnext, (ii) the potential inability to realize the expected and ongoing benefits and synergies of acquisitions and mergers, (iii) the impact to our operations, revenues and financial condition attributable to the flooding in Thailand, (iv) the impact of continued uncertainty in world financial markets and any resulting reduction in demand for our products, (v) our ability to meet or exceed our gross margin expectations, (vi) the effects of fluctuating product mix on our results, (vii) our ability to timely develop and commercialize new products, (viii) our ability to reduce costs and operating expenses, (ix) our ability to respond to evolving technologies and customer requirements and demands, (x) our dependence on a limited number of customers for a significant percentage of our revenues, (xi) our ability to maintain strong relationships with certain customers, (xii) our ability to effectively compete with companies that have greater name recognition, broader customer relationships and substantially greater financial, technical and marketing resources than we do, (xiii) our ability to effectively and efficiently transition to an outsourced back-end assembly and test model, (xiv) our ability to timely capitalize on any increases in market demand, (xv) increased costs related to downsizing and compliance with regulatory compliance in connection with such downsizing, (xvi) competition and pricing pressure, (xvii) the potential lack of availability of credit or opportunity for equity based financing, (xviii) the risks associated with our international operations, (xix) the outcome of tax audits or similar proceedings, (xx) the outcome of pending litigation against the company, (xxi) our ability to maintain or increase our cash reserves and obtain financing on terms acceptable to us, and (xxii) other factors described in Oclaro’s most recent annual report on Form 10-K, quarterly report on Form 10-Q and other documents we periodically file with the SEC. The forward-looking statements included in this announcement represent Oclaro’s view as of the date of this announcement. Oclaro anticipates that subsequent events and developments may cause Oclaro’s views and expectations to change. Oclaro specifically disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this announcement.

Non-GAAP Financial Measures

Oclaro provides certain supplemental non-GAAP financial measures to its investors as a complement to the most comparable GAAP measures. The GAAP measure most directly comparable to non-GAAP gross margin rate is gross margin rate. The GAAP measure most directly comparable to non-GAAP operating income/loss is operating income/loss. The GAAP measure most directly comparable to non-GAAP net income/loss and Adjusted EBITDA is net income/loss. An explanation and reconciliation of each of these non-GAAP financial measures to GAAP information is set forth below.

Oclaro believes that providing these non-GAAP measures to its investors, in addition to corresponding income statement measures, provides investors the benefit of viewing Oclaro’s performance using the same financial metrics that the management team uses in making many key decisions and evaluating how Oclaro’s “core operating performance” and its results of operations may look in the future. Oclaro defines “core operating performance” as its ongoing performance in the ordinary course of its operations. Items that are non-recurring or do not involve cash expenditures, such as impairment charges, income taxes, restructuring and severance programs, costs relating to specific major projects (such as acquisitions), gain on bargain purchase, non-cash compensation related to stock and options and certain income, purchase accounting adjustments related to the fair market value of acquired inventories, costs to outsource our back-end manufacturing activities, write-offs and expenses related to flooding in Thailand, including advance payments received from insurers, impairment of fixed assets and inventory and related expenses, are not included in Oclaro’s view of “core operating performance.” Management does not believe these items are reflective of Oclaro’s ongoing core operations and accordingly excludes those items from non-GAAP gross margin rate, non-GAAP operating income/loss, non-GAAP net income/loss and Adjusted EBITDA. Additionally, each non-GAAP measure has historically been presented by Oclaro as a complement to its most comparable GAAP measure, and Oclaro believes that the continuation of this practice increases the consistency and comparability of Oclaro’s earnings releases.

Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States of America. Non-GAAP measures should not be considered in isolation from or as a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies.

Non-GAAP Gross Margin Rate

Non-GAAP gross margin rate is calculated as gross margin rate as determined in accordance with GAAP (gross profit as a percentage of revenues) excluding non-cash compensation related to stock and options, purchase accounting adjustments related to the fair market value of acquired inventories and costs to outsource our back-end manufacturing activities. Oclaro evaluates its performance using non-GAAP gross margin rate to assess Oclaro’s historical and prospective operating financial performance, as well as its operating performance relative to its competitors.

Non-GAAP Operating Income/Loss

Non-GAAP operating income/loss is calculated as operating income/loss as determined in accordance with GAAP excluding the impact of amortization of intangible assets, restructuring, acquisition and related costs, non-cash compensation related to stock and options granted to employees and directors, certain other one-time charges and credits and excluding any flood related advance payments received from insurers, impairment of fixed assets and inventory and related expenses specifically identified in the non-GAAP reconciliation schedules set forth below. Oclaro evaluates its performance using, among other things, non-GAAP operating income/loss in evaluating Oclaro’s historical and prospective operating financial performance, as well as its operating performance relative to its competitors.

Non-GAAP Net Income/Loss

Non-GAAP net income/loss is calculated as net income/loss excluding the impact of restructuring, acquisition and related costs, gain on bargain purchase, Thailand flood-related income and expenses, non-cash compensation related to stock and options granted to employees and directors, net foreign currency translation gains/losses, the impact of amortization of intangible assets and certain other one-time charges and credits specifically identified in the non-GAAP reconciliation schedules set forth below. Oclaro uses non-GAAP net income/loss in evaluating Oclaro’s historical and prospective operating financial performance, as well as its operating performance relative to its competitors.

Adjusted EBITDA

Adjusted EBITDA is calculated as net income/loss excluding the impact of income taxes, net interest income/expense, depreciation and amortization, net foreign currency translation gains/losses, as well as restructuring, acquisition and related costs, non-cash compensation related to stock and options, gain on bargain purchase, purchase accounting adjustments related to the fair market value of acquired inventories and certain other one-time charges and credits, including flood related advance payments received from insurers, impairment of fixed assets and inventory and related expenses, specifically identified in the non-GAAP reconciliation schedules set forth below. Oclaro uses Adjusted EBITDA in evaluating Oclaro’s historical and prospective cash usage, as well as its cash usage relative to its competitors. Specifically, management uses this non-GAAP measure to further understand and analyze the cash used in/generated from Oclaro’s core operations. Oclaro believes that by excluding these non-cash and non-recurring charges, more accurate expectations of its future cash needs can be assessed in addition to providing a better understanding of the actual cash used in or generated from core operations for the periods presented. Oclaro further believes that providing this information allows Oclaro’s investors greater transparency and a better understanding of Oclaro’s core cash position.

                                                              OCLARO, INC.
                                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                          (unaudited, in thousands, except per share amounts)

                                                                                             Three Months Ended
                                                                                             ------------------
                                         December 29, 2012                          September 29, 2012                 December 31, 2011
                                         -----------------                          ------------------                 -----------------

    Revenues                                                $159,465                          $148,813                           $86,488
    Cost of revenues                                                       137,966                            130,976                      75,613
                                                                           -------                            -------                      ------
    Gross profit                                                            21,499                             17,837                      10,875

    Operating expenses:
                                Research and development                    25,750                             25,765                      17,024
                                Selling, general and administrative         23,092                             24,566                      14,425
                                Amortization of intangible assets            2,402                              2,026                         723
                                 Restructuring, acquisition and
                                 related costs                             (23,665)                            12,636                       3,219
                                Flood-related expense                          641                                264                       9,088
                                 (Gain) loss on sale of property and
                                 equipment                                       6                                (18)                         37
    Total operating expenses                                                28,226                             65,239                      44,516
                                                                            ------                             ------                      ------

    Operating loss                                                          (6,727)                           (47,402)                    (33,641)
    Other income (expense):
                                Interest income (expense), net                (649)                              (478)                       (245)
                                 Gain (loss) on foreign currency
                                 translation                                (3,423)                               196                       1,298
                                Other Income                                     -                                  -                       2,238
                                Gain on bargain purchase                         -                             39,460                           -
    Total other income
     (expense)                                                              (4,072)                            39,178                       3,291
                                                                            ------                             ------                       -----
    Loss before income taxes                                               (10,799)                            (8,224)                    (30,350)
    Income tax provision                                                     1,424                              1,183                         478
                                                                             -----                              -----                         ---
    Net loss                                                $(12,223)                          $(9,407)                         $(30,828)
                                                            ========                           =======                          ========

    Net loss per share:
                                Basic                                       $(0.14)                            $(0.12)                     $(0.61)
                                Diluted                                     $(0.14)                            $(0.12)                     $(0.61)
    Shares used in computing
     net loss per share:
                                Basic                                       89,827                             80,219                      50,492
                                Diluted                                     89,827                             80,219                      50,492

    Stock-based compensation
     included in the following:
       Cost of revenues                                         $524                              $338                              $388
       Research and development                                                531                                376                         374
       Selling, general and
        administrative                                                         999                                886                         913
                                Total                                       $2,054                             $1,600                      $1,675
                                =====

                                                                                          OCLARO, INC.
                                                            RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
                                                                       (unaudited, in thousands, except per share amounts)

                                                              Three Months Ended
                                                              ------------------
                                                       December 29, 2012                                          September 29, 2012           December 31, 2011
                                                       -----------------                                          ------------------           -----------------
    Reconciliation of GAAP net
     loss to non-GAAP net loss
     and adjusted EBITDA:
    GAAP net loss                                                             $(12,223)                                               $(9,407)                   $(30,828)
                 Stock-based compensation included
                 in:
                   Cost of revenues                                                524                                                    338                         388
                   Research and development                                        531                                                    376                         374
                   Selling, general and administrative                             999                                                    886                         913
                Amortization expense                                             2,402                                                  2,026                         723
                 Restructuring, acquisition and
                 related costs                                                 (23,665)                                                12,636                       3,219
                Flood-related expense                                              641                                                    264                       9,088
                Opnext FMV inventory adjustment                                    819                                                  1,462                           -
                Other (income) expense items, net                                    -                                                (39,460)                     (2,238)
                Outsource transition costs                                       1,357                                                      -                           -
                 (Gain) loss on foreign currency
                 translation                                                     3,423                                                   (196)                     (1,298)
    Non-GAAP net loss                                                          (25,192)                                               (31,075)                    (19,659)
                                                                               -------                                                -------                     -------
                Income tax provision                                             1,424                                                  1,183                         478
                Depreciation expense                                             9,874                                                  8,825                       4,624
                Interest (income) expense, net                                     649                                                    478                         245
    Adjusted EBITDA                                                           $(13,245)                                              $(20,589)                   $(14,312)
                                                                              ========                                               ========                    ========

    Non-GAAP net loss per share:
                Basic                                                           $(0.28)                                                $(0.39)                     $(0.39)
                Diluted                                                         $(0.28)                                                $(0.39)                     $(0.39)
    Shares used in computing Non-
     GAAP net loss per share:
                Basic                                                           89,827                                                 80,219                      50,492
                Diluted                                                         89,827                                                 80,219                      50,492

    Reconciliation of GAAP gross
     margin rate to non-GAAP
     gross margin rate:
    GAAP gross profit                                                          $21,499                                                $17,837                     $10,875
    Opnext FMV inventory
     adjustment                                                                    819                                                  1,462                           -
    Outsource transition costs                                                   1,357                                                      -                           -
    Stock-based compensation in
     cost of revenues                                                              524                                                    338                         388
                Non-GAAP gross profit                                          $24,199                                                $19,637                     $11,263
                                                                               =======

    GAAP gross margin rate                                                        13.5%                                                  12.0%                       12.6%
    Non-GAAP gross margin rate                                                    15.2%                                                  13.2%                       13.0%

    Reconciliation of GAAP
     operating loss to non-GAAP
     operating loss:
    GAAP operating loss                                                        $(6,727)                                              $(47,402)                   $(33,641)
    Stock-based compensation
     included in:
                 Cost of revenues                                                  524                                                    338                         388
                 Research and development                                          531                                                    376                         374
                 Selling, general and administrative                               999                                                    886                         913
    Amortization of intangible
     assets                                                                      2,402                                                  2,026                         723
    Restructuring, acquisition and
     related costs                                                             (23,665)                                                12,636                       3,219
    Flood-related (income)
     expense, net                                                                  641                                                    264                       9,088
    Opnext FMV inventory
     adjustment                                                                    819                                                  1,462                           -
    Outsource transition costs                                                   1,357                                                      -                           -
                Non-GAAP operating loss                                       $(23,119)                                              $(29,414)                   $(18,936)
                                                                             =========

                                                               OCLARO, INC.
                                                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                                        (unaudited, in thousands)

                             ASSETS                                  December 29, 2012      June 30, 2012
                                                                     -----------------      -------------
    Current assets:
             Cash, cash equivalents and                                            $78,201              $61,760
                 short-term investments
             Restricted cash                                                        17,773                  614
             Accounts receivable, net                                              119,853               74,666
             Inventories                                                           151,273               78,444
             Prepaid expenses and other current assets                              24,979               12,582
    Total current assets                                                           392,079              228,066
                                                                                   -------              -------
    Property and equipment, net                                                    111,725               59,616
    Other intangible assets, net                                                    39,406               16,645
    Goodwill                                                                        10,904               10,904
    Other non-current assets                                                        14,823               13,075
             Total assets                                                         $568,937             $328,306
                                                                                  ========

            LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
             Accounts payable                                                     $122,558              $60,098
             Accrued expenses and other liabilities                                 59,248               49,944
             Capital lease obligations, current                                     11,650                    -
             Note payable                                                           17,052                    -
             Credit line payable                                                    40,756               25,500
    Total current liabilities                                                      251,264              135,542
                                                                                   -------              -------
    Deferred gain on sale-leaseback                                                 12,049               12,722
    Convertible notes payable                                                       23,350                    -
    Capital lease obligations, non-
     current                                                                        12,997                    -
    Other long-term liabilities                                                     23,899               12,391
    Total liabilities                                                              323,559              160,655
                                                                                   -------              -------
    Stockholders' equity:
             Common stock                                                              918                  515
             Additional paid-in capital                                          1,424,116            1,330,172
             Accumulated other comprehensive income                                 34,548               29,538
             Accumulated deficit                                                (1,214,204)          (1,192,574)
                                                                               -----------
    Total stockholders' equity                                                     245,378              167,651
             Total liabilities and stockholders' equity                           $568,937             $328,306
                                                                                  ========

SOURCE Oclaro, Inc.


Source: PR Newswire