moving networks forward faster - seeking alpha

1© 2017 Oclaro, Inc. | Confidential and Proprietary

Moving Networks Forward Faster

Nasdaq 36th Investor Program

Greg Dougherty, CEO


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. These forward-looking statements include statements concerning financial guidance for Oclaro’s fiscalquarter ending July 1, 2017, the anticipated growth of Oclaro’s 100G and beyond product revenues, the size of themarkets in which we operate, our strategies and Oclaro’s future financial performance and operating prospects.There are a number of risks and uncertainties that could cause actual results or events to differ materially fromthose indicated by such forward-looking statements, including those related to Oclaro’s business and growthopportunities. For a discussion of those risk factors, please refer to Oclaro’s most recent annual report on Form 10-K, quarterly report on Form 10-Q and other interim documents it periodically files with the SEC. Oclaro assumes noobligation to update the information in 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 May 2,2017 for the third quarter of fiscal 2017.

Disclaimer


Oclaro Key Highlights

Market Leadershipat 100G and Above

StrongFinancials

ProvenManagement

Team

Technology Leadership

Well Positionedin High Growth

Markets

Scale and InnovationThrough Vertical

Integration


Moving Networks Forward Faster: ~ It All Starts with Light ~

DataCenter

Metro

LongHaul

Global IP traffic expected to exceed 150 exabytes

per month by 202082% of this will be video(2)

Video

Smart phones and tablets expected to account for

two-thirds of all Internet traffic by 2020 (2)

Smart Phones& Tablets

Data Centers

Global data centerIP traffic projected to triple

over the next 5 years (1)

The number of devices connected to IP networks

projected to be 3 times the global population by 2020 (2)

IoT

(1) Cisco, “Global Cloud Index: Forecast and Methodology, 2014–2019 White Paper”, 2015.(2) Cisco, “The Zettabyte Era—Trends and Analysis”, July 2016.

5G Wireless


Growth Cycle: Market Drivers

100G 200G 400G

GPON NGPON

WDM PON

3G 4G 5G

10G/40G 100G 400G

100G 200G 400G

10G/40G 100G 200G

New Cloud Business Model

Data Center Upgrades/New Builds

Metro USA/Europe

China: Backbone, Metro, Provincial

5G Wireless


Global Presence

San Jose, CA

U.K.

Italy

Japan

China

• Headquarters: San Jose, CA

• Sales & Marketing

• High Speed Telecom Module Design

• System Level Test Bed

North America

• InP Fab: DML & EML Lasers, Photodetectors

• Data Center Transceiver Design

• Client Side Transceiver design

• Wireless Transceiver Design

Japan

• Telecom TOSA/ROSA Manufacturing

• Shared Service Center

China

• ~ 2000 Employees

• ~1200 Patents

• Founded 1988

• NASDAQ: OCLR

Europe

• UK: InP Fab: tunable lasers, modulators, receivers, photonic integrated circuits (PICs)

• Italy: Lithium Niobate Fab

• High Speed Telecom Component Package Design

• High Speed Telecom Module Design

Oclaro


Wafer Fabrication and Chip Design

Miniaturization and Advanced Packaging

ModuleIntegration

Vertical Integration Differentiation

▪ Higher density through integration: Photonic Integrated Circuits (PICs)

▪ Pluggability

▪ Reduced power consumption

Oclaro Focus:Higher Bandwidth(100G and Beyond)


100G & Beyond Product LeadershipSp

eed

(Gb

ps)

Dual mITLA

100/400G LiNbO3 Modulators

CFP2 CFP4CFP QSFP28CFP2-ACO

mITLA

QSFP 56DD

Intra Data Center2-10 km

Edge/DCI<120 km

Metro<600 km

Long Haul<2,000 km

Ultra Long Haul10K km+

1.2T

600G

400G

200G

100G In Production

In Production

In Production

Under Development

In Production

Under Development

In Production

In Production

In Production

Under Development

In Production In Production

Under Development

Under Development

Under Development

Tunable TOSA/ROSA TSFP+

Under Development


DataCenter Metro Long

Haul

Technology Leadership In High Growth Segments


Client Side: Total 100G Market (All Products)

Fro

nt

pan

el b

and

wid

th (

bit

/s)

Network Evolution

$0

$500

$1,000

$1,500

$2,000

$2,500

CY2015 CY2016 CY2017 CY2018 CY2019 CY2020

TAM Revenues ($M)

CFPx QSFP28 QSFP-SR

QSFP28 CY16-CY20: 35% CAGR

➢ CFP Family - $500M market in CY17

➢ QSFP28-LR4 & CWDM - $350M market in CY17

• CY16-CY20: 35% CAGR

➢ Preparing for evolution from 100G to 400G

Source: LightCounting September 2016; Company Estimates


Data Center Interconnect (DCI) Market

Source: Optical Equipment - DCI Hardware; Cignal AI, 2017

#1 Market ShareBest Optical Performance With All DSPs

Multi-year Contracts With Largest Customers

Chips

Transmitters & Receivers

CFP2-ACO Module

$0

$200

$400

$600

$800

$1,000

$1,200

2016 2017 2018 2019 2020

CY16-CY20: 47% CAGR


100G & Beyond Coherent DWDM Market Leader

Source: Cignal AI, 100G+ Coherent Optical Ports – September 2016

Metro 100G/200G CY16-CY20: 32% CAGR

Long Haul CY16-CY20: 19% CAGR

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2016 2017 2018 2019 2020

Long Haul Coherent 100G Ports

Metro 100G/200G Coherent Ports

• Long Haul Metro Market Still 2/3 of Total Port Count

• Long Haul Market Mostly Discrete Components

• Pluggables Penetrating Metro CFP2-ACO, TSFP+

Port

s

13

Financial Summary


$0

$20

$40

$60

$80

$100

$120

$140

$160

101

125

135

154162

27

4147

61

67

5

15 21

36 40

42

%

34

%

32

%

27

%

40

%

Non-GAAP P&L Quarterly Trend

Q316 Q416 Q117 Q217 Q31714wks

$M

12

%

25

%

24

%

16

%

Sales GM Op. Inc.


Q217Q416 Q317

Strong Balance Sheet

97

243255

91104

118

6581

100

(68)

(4) (4)(19) (17) (17)

167

408

452

Cash WC* PP&E Debt LT Liability Net Worth

(*) WC includes Trade AR, Inventory, Prepaids, Other Assets, AP, and Accrued Liabilities

Raised ~$135M Sept. 16Convertible Debt Retired Aug.16


Guidance & Outlook

Q4FY17 Guidance Ranges

Revenues $144 million - $152 million

Non-GAAP Gross Margin % 38% - 41%

Non-GAAP Operating Income $27 million - $31 million

Projected guidance provided on May 2, 2017 for the quarter ending July 1, 2017

• CY2017 revenue projected to increase ~20% over CY2016

• Multiple growth drivers: CFP2-ACO; QSFP28; tunable lasers

• Revenue from China expected to be flat to down sequentially in CY2017

• Gross Margin to remain in the upper 30% to 40% range

• Operating Income to remain in the high teens to low 20% range


Track Record of Profitable Execution

Foundation For Sustained Growth

Market And Technology Leadership At 100G And Beyond Speeds

Strong Overall Balance Sheet And Cash Flow

Multiple Market Drivers Continue: Data Center, Metro, China, 5G Wireless

18

Thank You

For more information, visit us at www.oclaro.com.

Follow us on @OclaroInc and LinkedIn.

© 2017 Oclaro, Inc. | Confidential and Proprietary


Non-GAAP Financial Results

$ in Millions (except per share amounts) Q316 Q217 Q317

Total Revenues 101.1 153.9 162.2

Gross Profit (non-GAAP) (1) 27.5 61.2 67.4

Gross Margin % 27.2% 39.8% 41.6%

R&D (non-GAAP) 10.9 13.2 13.9

SG&A (non-GAAP) 12.0 11.8 13.1

Non-GAAP Operating Income 4.6 36.2 40.5

Non-GAAP Net Income 3.3 36.3 39.9

Non-GAAP EPS (diluted) 0.03 0.21 0.23

(1) See reconciliation to comparable GAAP numbers in financial tables of press release dated May 2, 2017.


100G and Above Speed Sales Growth

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

Q415 Q116 Q216 Q316 Q416 (14wk)

Q117 Q217 Q317 Q417 MPG

10G

40G

100G

$MQ417 Guidance$144M-$152M

$36.4M

Mid-PointGuidance

High$20M range

$125.8M

Guidance provided on May 2, 2017 for the quarter ending July 1, 2017


Revenue By Product Group

$ in Millions Q316 Q416* Q117 Q217 Q317

100G+ Transmission 58.6 79.7 97.8 113.8 125.8

40G & Lower Transmission 42.5 45.5 37.7 40.1 36.4

Total Revenues 101.1 125.2 135.5 153.9 162.2

Percent of Total

100G+ Transmission 58% 64% 72% 74% 78%

40G & Lower Transmission 42% 36% 28% 26% 22%

$ in Millions Q316 Q416* Q117 Q217 Q317

Datacom/Client Side 53.4 65.5 68.4 69.8 75.8

Telecom/Line Side 47.7 59.7 67.1 84.1 86.4

Total Revenues 101.1 125.2 135.5 153.9 162.2

Percent of Total

Datacom/Client Side 53% 52% 50% 45% 47%

Telecom/Line Side 47% 48% 50% 55% 53%

* Q416 was a 14 week quarter


GAAP to Non-GAAP Reconciliation

($ Thousands) Q3-16 Q4-16 Q1-17 Q2-17 Q3-17

Reconciliation of GAAP operating income to non-GAAP operating income:

GAAP operating income 2,459$ 12,803$ 17,939$ 33,402$ 37,740$

Stock-based compensation 2,073 1,761 2,443 2,589 2,890

Amortization of intangible assets 247 247 244 241 150

Restructuring, acquisition and related costs (59) 46 311 82 (301)

Loss on sales of property and equipment (145) 10 (37) (74) (16)

Non-GAAP operating income 4,575 14,867 20,900 36,240 40,463

Depreciation expense 3,910 4,309 4,748 4,935 5,042

Adjusted EBITDA 8,485 19,176 25,648 41,175 45,505

Reconciliation of GAAP Income to non-GAAP income:

GAAP income 89$ 11,844$ 3,351$ 30,267$ 38,214$

Stock-based compensation 2,073 1,761 2,443 2,589 2,890

Amortization of intangible assets 247 247 244 241 150

Payments related to the interest make-

whole charge and induced conversion

expense on the convertible notes - - 13,250 - -

Restructuring, acquisition and related costs (59) 46 311 82 (301)

Other (income) expense items, net (174) (291) (194) (156) (233)

Loss on sales of property and equipment (145) 10 (37) (74) (16)

(Gain) loss on foreign currency translation 865 1,501 518 3,324 (687)

Income tax effect 425 (709) 105 22 (125)

Non-GAAP income 3,321 14,409 19,991 36,295 39,892


InP Enables Integration and PerformanceUsing Indium Phosphide – CFP2-ACO

Silicon PIC

CFP2-ACO

Silicon PIC

Analog Electrical

DSP

ModulatorModulatorDriver

Tunablefilter

Optical Amplifier

NLW Tunable

Laser

Coherent RX TIA’s

▪ ACO based on Silicon modulator/receiver requires external InP based laser, optical amplifier and tuneable filter

▪ Complex system with multiple discrete external components

Indium Phosphide PIC

CFP2-ACO

DSP

Analog Electrical

Laser and Modulator

Driver

IntegratedInP SOA

Laser/Modulator

Coherent RX +TIA’s

▪ Oclaro ACO integrates all of the optical functions into tiny InP integrated components which eliminates the need for external amplifiers or lasers

▪ Higher signal fidelity of InP based devices increases reach and capacity in core optical networks


Oclaro Moving Networks Forward Faster

100G/200G LineCFP2-ACO

QSFP28 – CWDM4 Client

100G/200G LineLN ModulatorsTunable Lasers

CFPx – LR4 Client

10G/100G LineTunable XFP and SFP+CFP2-ACO

CFPx – LR4 Client

Discrete 10G/25Gcomponents Lasers /

Detectors

SFP+28 Xcvrs


Evolution of Data Center Technology

Data Center Interconnect /Transport Network

SERVERS

QSFP28 CWDM4, LR4

QSFP28 LR4CFPx LR4

CORE / TRANSPORT

SPINE

LEAF

CFP2-ACO

• Market shifting quickly to 100G and single mode fiber

• QSFP28 for LR4 (10km) and CWDM4 (2km)

• CWDM4 applications gaining over PSM4

• Market will move to 400G when 56G PAM4 DSP technology available – likely 2019

• Data Center Interconnect requires high density 200G+ Coherent ACO

moving networks forward faster - seeking alpha

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