Oclaro, Inc. reports 51.2% Net Income decline in 2018 and 9.6% Revenue decline

08/13/2018 • About Oclaro, Inc. ($OCLR) • By InTwits

Oclaro, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:

• EBITDA Margin is quite volatile: 18.0% in FY2018, 23.4% in FY2017, 8.0% in FY2016, -7.9% in FY2015, -19.4% in FY2014
• Oclaro, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 7.4%. At the same time it's in pair with industry average of 7.4%
• CAPEX is quite volatile: $58m in FY2018, $70m in FY2017, $30m in FY2016, $18m in FY2015, $9m in FY2014
• The company has highly profitable business model: ROIC is 12.1%

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue decreased on 9.6%. Revenue decline showed acceleration in FY18Q4 - it was 19.0% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin decreased on 5.4 pp from 23.4% to 18.0% in FY2018. EBITDA Margin followed a growing trend at 10.6 pp per annum in the last 5 years.

Gross Margin decreased slightly on 1.8 pp from 39.1% to 37.4% in FY2018. Gross Margin grew at 7.0 pp per annum in FY2014-FY2018. SG&A as a % of Revenue increased on 2.1 pp from 9.7% to 11.9% in FY2018. SG&A as a % of Revenue followed a declining trend at -1.9 pp per annum in FY2014-FY2018.

Net Income margin decreased on 9.8 pp from 21.3% to 11.5% in FY2018.

Investments (CAPEX, working capital and M&A)

In FY2018 the company had CAPEX/Revenue of 10.6%. CAPEX/Revenue increased on 5.3 pp from 5.3% in FY2015 to 10.6% in FY2018. It's average level of CAPEX/Revenue for the last three years was 9.8%. Battling declining revenue the company invested a large share of EBITDA (59.1%) to CAPEX but that didn't help at least in this year. CAPEX as a % of Revenue grew at 2.3 pp per annum in FY2014-FY2018.

Return on investment

The company operates at good ROIC (12.1%) while ROE is low (11.3%). ROIC dropped on 19.4 pp from 31.5% to 12.1% in FY2018. ROE dropped on 26.3 pp from 37.6% to 11.3% in FY2018. ROIC stuck to a growing trend at 16.0 pp per annum in the last 5 years.

Leverage (Debt)

Debt level is -2.5x Net Debt / EBITDA and 0.0x Debt / EBITDA. Debt dropped on 13.5% while cash surged on 12.0%.

Oclaro, Inc. has no short term refinancing risk: cash is higher than short term debt (10,297.1%).

Valuation and dividends

Oclaro, Inc.'s trades at EV/EBITDA 13.4x and P/E 24.8x.

Financial and operational results

FY ended 06/30/2018

Oclaro, Inc. ($OCLR) key annual financial indicators

mln. $	2014	2015	2016	2017	2018	2018/2017
P&L
Revenue	390.9	341.3	407.9	601.0	543.2	-9.6%
Gross Profit	52.4	56.7	116.4	235.2	202.9	-13.7%
SG&A	70.9	56.3	53.5	58.5	64.5	10.3%
EBITDA	-75.9	-26.8	32.6	140.5	97.5	-30.6%
Net Income	17.8	-56.7	8.6	127.9	62.5	-51.2%
Balance Sheet
Cash	99.0	111.8	95.9	219.3	245.7	12.0%
Short Term Debt	5.4	3.6	3.8	2.4	2.4	0.8%
Long Term Debt	4.5	62.4	64.2	1.4	0.9	-37.9%
Cash flow
Capex	8.8	18.1	29.6	70.1	57.6	-17.8%
Ratios
Revenue growth	-3.4%	-12.7%	19.5%	47.3%	-9.6%
EBITDA growth	-8.1%	-64.6%	-221.4%	331.1%	-30.6%
Gross Margin	13.4%	16.6%	28.5%	39.1%	37.4%	-1.8%
EBITDA Margin	-19.4%	-7.9%	8.0%	23.4%	18.0%	-5.4%
SG&A, % of revenue	18.1%	16.5%	13.1%	9.7%	11.9%	2.1%
Net Income Margin	4.6%	-16.6%	2.1%	21.3%	11.5%	-9.8%
CAPEX, % of revenue	2.2%	5.3%	7.3%	11.7%	10.6%	-1.1%
ROIC	-42.0%	-20.5%	6.9%	31.5%	12.1%	-19.4%
ROE	9.8%	-31.4%	5.4%	37.6%	11.3%	-26.3%
Net Debt/EBITDA			-0.9x	-1.5x	-2.5x	-1.0x

Oclaro, Inc. ($OCLR) key quoterly financial indicators

mln. $	FY18Q1	FY18Q2	FY18Q3	FY18Q4		YoY change
P&L
Revenue	156	139	127	121		14.8%	-9.5%	-21.5%	-19.0%
EBITDA	38	27	16	17		63.9%	-30.7%	-63.1%	-51.9%
Net Income	26	19	11	6		690.5%	-38.1%	-71.7%	-88.5%
Balance Sheet
Cash	192	157	180	246		-15.8%	-29.5%	-15.9%	12.0%
Short Term Debt	2	2	3	2		-28.3%	-10.7%	3.4%	0.8%
Long Term Debt	1	1	1	1		-37.0%	-21.8%	-31.9%	-37.9%
Ratios
Gross Margin	40.3%	37.2%	34.2%	37.0%		6.1%	-2.3%	-7.0%	-4.0%
EBITDA Margin	24.1%	19.2%	12.4%	14.3%		7.2%	-5.9%	-14.0%	-9.8%
Net Income Margin	17.0%	13.4%	8.5%	5.3%		14.6%	-6.2%	-15.1%	-32.2%

Peers in Communications Equipment

Below you can find Oclaro, Inc. benchmarking vs. other companies in Communications Equipment industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Ribbon Communications Inc. ($RBBN)				30.6%	75.2%
Extreme Networks, Inc. ($EXTR)		6.4%	-4.4%	13.2%	64.4%
Optical Cable Corporation ($OCC)		-11.3%	-12.2%	-0.8%	37.0%
ParkerVision Inc ($PRKR)			37,601.2%	-97.5%	35.0%
Network-1 Technologies, Inc. ($NTIP)		34.6%	292.9%	-74.7%	34.4%
Median (66 companies)		0.7%	7.3%	5.1%	3.5%
Oclaro, Inc. ($OCLR)		-12.7%	19.5%	47.3%	-9.6%

Top companies by Gross margin, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
F5 Networks, Inc. ($FFIV)	82.1%	82.7%	83.1%	83.1%	83.3%
Radware Ltd. ($RDWR)	82.1%	82.4%	81.8%	81.3%	82.2%
Radcom Ltd. ($RDCM)	63.2%	76.8%	69.6%	71.8%	74.0%
Casa Systems, Inc. ($CASA)		70.8%	69.1%	73.4%	73.4%
NetScout Systems, Inc. ($NTCT)	78.7%	79.2%	65.6%	70.2%	72.4%
Median (67 companies)	42.4%	44.0%	43.9%	41.7%	41.2%
Oclaro, Inc. ($OCLR)	13.4%	16.6%	28.5%	39.1%	37.4%

Top companies by EBITDA margin, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Network-1 Technologies, Inc. ($NTIP)	35.5%	33.7%	50.6%	37.8%	42.8%
InterDigital, Inc. ($IDCC)	50.8%	58.1%	73.6%	67.3%	41.9%
EchoStar Corporation ($SATS)	25.7%	39.7%	40.3%	38.1%	37.4%
Ubiquiti Networks, Inc. ($UBNT)	34.7%	25.5%	37.3%	34.3%	32.8%
Ituran Location and Control Ltd. ($ITRN)	32.4%	30.5%	29.9%	29.9%	30.4%
Median (65 companies)	5.6%	6.1%	5.5%	6.0%	4.6%
Oclaro, Inc. ($OCLR)	-19.4%	-7.9%	8.0%	23.4%	18.0%

Top companies by CAPEX/Revenue, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Resonant Inc. ($RESN)			132.5%	124.8%	245.2%
ViaSat, Inc. ($VSAT)	22.8%	26.5%	26.7%	33.0%	32.1%
Applied Optoelectronics, Inc. ($AAOI)	31.5%	30.1%	19.0%	17.5%	26.9%
EchoStar Corporation ($SATS)	19.7%	43.8%	39.9%	30.9%	26.5%
Finisar Corporation ($FNSR)	11.3%	11.9%	9.4%	9.7%	16.8%
Median (65 companies)	2.3%	2.2%	1.9%	1.8%	1.6%
Oclaro, Inc. ($OCLR)	2.2%	5.3%	7.3%	11.7%	10.6%

Top companies by ROIC, %

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
F5 Networks, Inc. ($FFIV)	33.9%	40.8%	43.1%	46.9%	47.9%
Ubiquiti Networks, Inc. ($UBNT)	61.4%	31.5%	41.5%	38.5%	39.1%
Motorola Solutions, Inc. ($MSI)	-16.1%	18.9%	26.4%	39.5%	35.3%
Ituran Location and Control Ltd. ($ITRN)	50.9%	46.8%	50.1%	48.5%	35.1%
Casa Systems, Inc. ($CASA)			43.2%	39.7%	21.9%
Median (70 companies)	2.1%	2.3%	2.2%	2.1%	0.3%
Oclaro, Inc. ($OCLR)	-42.0%	-20.5%	6.9%	31.5%	12.1%

Top companies by Net Debt / EBITDA

Top 5	FY2014	FY2015	FY2016	FY2017	FY2018
Extreme Networks, Inc. ($EXTR)			-2.2x	-1.5x	7.1x
ViaSat, Inc. ($VSAT)	3.4x	2.5x	3.2x	2.5x	5.8x
CommScope Holding Company, Inc. ($COMM)	2.3x	9.6x	4.3x	4.6x	4.4x
Inseego Corp. ($INSG)					3.9x
Finisar Corporation ($FNSR)	-0.3x	0.2x	-0.5x	1.6x	3.8x
Median (45 companies)	-0.7x	-0.7x	-0.8x	-0.6x	0.2x
Oclaro, Inc. ($OCLR)			-0.9x	-1.5x	-2.5x

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