Oclaro 1Q14 revenues climb but layoffs loom

Optical component, module, and subsystems vendor Oclaro Inc. (NASDAQ: OCLR) reported on November 7 sequential revenue growth for the first quarter of fiscal year 2014. The company earned $138.9 million in the quarter, which ended September 28, 2013, up $2.8 million from the previous quarter. However, the relatively good news will not be enough to halt layoffs, company management revealed.

The figure ever so slightly exceeded management’s guidance of $134 million to $138 million and came as the company shed assets in a pair of recent transactions with II-VI (see “Oclaro sells GaAs laser diode business to II-VI” and “II-VI exercises option to buy Oclaro's amplifier and micro-optics businesses”). Revenue reported for the quarter included approximately 11 weeks of sales from its former laser diode business and a full quarter of results from its amplifier and micro-optics businesses. The latter sale closed November 1, so the departed assets won’t be fully off the revenue ledger until fiscal 3Q14. With the results of the businesses sold to II-VI removed, Oclaro saw revenues of $96.6 million for the most recent quarter, still slightly higher than the adjusted $95.4 million of the previous quarter.

The company reported adjusted EBITDA of negative $15.5 million for the quarter, an improvement sequentially over the negative $21.1 million it suffered in the fourth quarter of fiscal 2013 (see “Oclaro ends fiscal 2013 on a down note”). With the discontinued operations removed, these figures change to negative $19.7 million for 1Q14 and negative $22.4 million for 4Q13.

Again leaving out the discontinued businesses, GAAP operating loss was $31.7 million for the most recent quarter, better than the GAAP operating loss of $42.8 million reported for the fourth quarter of fiscal 2014, which included $18.9 million of flood-related income, net of expenses, and an impairment of goodwill and intangible assets of $26.2 million.

"Our results for the first quarter of fiscal 2014 were in line with our expectations and demonstrate evidence of our progress," said Greg Dougherty, Oclaro CEO, via a press release. "As a company, we are focused on creating a culture that delivers on the commitments we make. We have now completed the first phase of our turnaround plan by closing our previously announced sales of our Zurich and Amplifier businesses. We have started the restructuring process, which has required some hard choices and decisions, including a reduction of our global workforce, the closing of additional sites, and a simplification of our organization structure. While our work will take several quarters to complete, I am pleased with our progress so far. I am enthusiastic about the potential for Oclaro in the future as we emerge from our restructuring process a more focused and stronger company."

The quarter saw a surge in 40-Gbps and 100-Gbps module sales. Such optical modules accounted for $38.9 million in revenue, up from the $31.7 million earned in the previous quarter and $31.1 million garnered in the year-ago quarter. However, sales of modules for 10 Gbps and below slipped to $50.6 million from the $56.9 million of 4Q13 and $58.5 million of 1Q13. Telecom products accounted for 50% of revenues, datacom for 43% of revenues, and industrial products 7% of revenues for the recent quarter.

In an analyst call November 7, Dougherty further outlined his plans for reshaping the company. The corporate transformation will include layoffs. Dougherty said this process has already begun. It is his goal to reduce headcount from approximately 3000 on July 1, 2013 to about 2200 on January 1, 2014, with further reductions planned for the year reducing Oclaro’s employee totals to potentially less than 1500 people by July 1, 2014.

Dougherty added that the company’s executive team and the board of directors will take an approximately 15% pay cut.

Looking ahead, Oclaro management said it expects the current quarter, which ends December 28, 2013, to see revenues from its current operations range from $92 million to $102 million. Non-GAAP gross margin is expected to be in the range of 10% to 14%, while adjusted EBITDA will be in the range of negative $20 million to negative $15 million, company management predicts. For what it’s worth, Oclaro expects the amplifier business to have generated approximately $7 million of revenue and associated results prior to the November 1 sale close.

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