Feb 5, 2013
Executives
Paul Kalivas - General Counsel and Corporate Secretary David T. Mitchell - Founder, Chairman and Chief Executive Officer John Marchetti - Chief Strategy Officer and Executive Vice President Toh-Seng Ng - Chief Financial Officer, Executive Vice President, Executive Vice President of Fabrinet USA Inc and Chief Financial Officer of Fabrinet USA Inc
Analysts
Sherri Scribner - Deutsche Bank AG, Research Division Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division Alexander B.
Henderson - Needham & Company, LLC, Research Division Troy D. Jensen - Piper Jaffray Companies, Research Division Ehud A.
Gelblum - Morgan Stanley, Research Division Paul Coster - JP Morgan Chase & Co, Research Division Natarajan Subrahmanyan - TheJudaGroup, Research Division
Operator
Good day, ladies and gentlemen, and welcome to the Fabrinet Second Quarter 2013 Financial Results. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to turn the call over to your host Paul Kalivas, Fabrinet's Chief Administrative Officer and General Counsel.
Paul Kalivas
Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the second quarter of fiscal year 2013, which ended December 28, 2012.
With us on the call today are Tom Mitchell, Chief Executive Officer and Chairman of the Board of Directors of Fabrinet; TS Ng, our Chief Financial Officer; and John Marchetti, our Chief Strategy Officer. This call is being webcast, and a replay will be available on the Investors section of our website located at investor.fabrinet.com.
Please refer to our website for important information, including our earnings press release and our non-GAAP to GAAP reconciliation. I would like to remind you that today's discussion may contain forward-looking statements about the future financial performance of the company.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law.
For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular, the section captioned Risk Factors in our Form 10-Q filed on November 6, 2012. We will begin the call with brief remarks by Tom, John and TS, followed by a time for questions.
I would now like to turn the call over to Fabrinet's CEO and Chairman, Tom Mitchell.
David T. Mitchell
Thank you, Paul, and good afternoon, everyone. I am pleased to report the solid second quarter results, with sequential growth in revenue and earnings per share.
While the challenging global economy continues to weight on our business over the nearer term, we are optimistic about the long-term opportunities for growth, which include new business from existing customers, potential business from new customers and positive trends in the market we serve. We remain to be committed to provide world-class manufacturing services to all of our customers and are doing all we can to help them meet their current and future production needs while exploring opportunities to further diversify our revenue.
I want to thank our employees for all the hard work and our customers for their continued trust and support of Fabrinet. I will now turn the call over to John Marchetti, Chief Strategy Officer, for a further perspective of the markets we serve.
John?
John Marchetti
Thanks, Tom, and thanks, everyone, for joining us today. In terms of overall demand trends, we did see some weakness in orders over the last month of the December quarter.
This softness was not attributable to any one particular customer or end market vertical, but rather was fairly broad-based across our lines of business. Over the last several weeks, we have begun to see some signs of improvement, but we remain somewhat cautious as it is still too early to determine if this improvement is sustainable throughout the entire quarter.
Looking at our segments, in optical communications, we saw some cuts to orders late in the quarter, as our customers did not see an uptick in overall demand going into calendar year end. There was still a lot of excitement and focus in some of the more advanced components and modules, which is encouraging, and we are hopeful that these trends will continue.
As I indicated earlier, we have begun to see indications of orders improving in our optical communications business. And while it is too early to call this a trend, we are encouraged by these early signs and expect that the March quarter will represent the trough of our optical business in calendar 2013.
We believe the underlying fundamentals of our optical business remains strong and expect the benefit through our customers from the 100-gig upgrade cycle even if the timing of that cycle remains somewhat uncertain. Demand in our laser and sensor segment is mixed as well, with some variation by application.
Our laser market appears to be in a bit of a slump, as some of the weakness that we saw in the government and research markets continued through last quarter, and the industrial market remains solidly mixed. We expect that, over the near term, our laser business may continue to experience some sluggishness.
However, we continue to believe that the overall laser market is in the early stages of outsourcing and represents a significant opportunity for growth over the next several years. The demand and visibility in our automotive segment remains solid, and we are encouraged that signs point to this continuing.
We continue to win key accounts in this segment and are excited about the opportunities for growth in the coming quarters. Overall, we remain confident that our laser, sensor and other segment will be a critical driver of our top line growth for the next several years.
Looking beyond the scope of the March quarter, we remain encouraged by the overall growth prospects for our business. We continue to have success in new customer acquisition and in winning new programs from existing customer.
While these new wins always take time to generate meaningful revenue, we believe the pipeline for both of these growth avenues is strong. With that, I would now like to turn the call over to TS, our CFO, for a report on our financial results.
TS?
Toh-Seng Ng
Thanks, John. As usual, I would like to start with an update on the insurance recovery status, review the results for the second quarter and then end with our outlook for the March quarter.
We continue to expect our financial results to be impacted for multiple quarters due to the timings of approval and payments of insurance proceeds. We have now submitted claims for all losses related to equipment, inventory, property and business interruption claims for losses incurred through the end of first quarter of fiscal 2013.
In the second quarter, we received an insurance payment towards our own equipment claim in the amount of approximately $4.8 million. This is the second consecutive quarter where we have received insurance payment against our claims, and we will continue to aggressively pursue the balance of our claims.
We will disclose additional informations on the timings and payments of our insurance claims as it becomes available. Now to review the results for the second quarter.
Please note that all numbers are GAAP, unless stated otherwise. Our total revenue for the second quarter of fiscal 2013 was $167.4 million, an increase of 6% sequentially and 73% compared to the second quarter of fiscal 2012.
Please remember that second quarter of 2012 was impacted by the flood recovery. On an end market basis, revenue from optical communication was $120 million, or 72% of total revenues for the quarter while lasers, sensors and other revenue was $48 million, the remaining 28%.
As Tom indicated in his prepared remarks, we will continue to look for ways to further diversify our revenue base. Our share-based compensation expenses for the quarter were $1.3 million, of which roughly $1.1 million was included in the SG&A.
This compares to share-based compensation of $1.25 million last quarter and $1.6 million in the December quarter last year. Our flood-related item for the quarter was income of $4.8 million, which represented insurance payments on our equipment claims for Fabrinet-owned equipment.
This amount is included in our results as other income and is excluded from our non-GAAP results. We intend to book the gain on the insurance proceeds in future periods, as those amounts become reasonably certain.
Our effective tax rate for the first quarter was 4.3%, including the effect of flood-related insurance recoveries, as well as the release of comp [ph] positive tax provision. Without these items, our normalized tax rate would have been 5.2%, within our expected range of 5% to 6%.
On a non-GAAP basis, net income totaled $13.8 million for the quarter or $0.39 per share calculated from a base of roughly 35 million fully diluted shares. Non-GAAP net income grew 8% sequentially compared to non-GAAP net income of $12.8 million last quarter and increased 123% compared to non-GAAP net income of $6.2 million in the same period last year.
On a GAAP basis, including flood-related income and share-based compensation expenses, our net income was $16.2 million or $0.48 per share. In the near term, we expect that our GAAP results may continue to fluctuate due to the size and timings of future insurance recoveries.
Moving on to the balance sheet and cash flow statement. We ended the quarter with a cash balance of $128 million.
The $30 million sequential increase was primarily due to positive operating cash flow and the proceeds from the insurance payments. I would now like to discuss guidance for next quarter.
We expect revenues of between $147 million and $151 million. We anticipate non-GAAP net incomes of $0.29 to $0.31 per share based on a fully-diluted basis of 35 million shares.
We anticipate GAAP net incomes of $0.26 to $0.28, although we know that GAAP net income remains subject to the timings of insurance recoveries. That concludes our prepared remarks.
At this point, I would like to turn the call over for questions. Operator?
Operator
[Operator Instructions] Our first question comes from Sherri Scribner from Deutsche Bank.
Sherri Scribner - Deutsche Bank AG, Research Division
In your commentary, you talked about demand picking up in the last couple of weeks -- the first couple weeks of this quarter, I'm sorry. And we've heard from some of your customers that their expectations for the back half are more optimistic.
Can you give us a sense of what you're hearing from customers and if you expect to see demand improving in the second half of calendar '13?
John Marchetti
Yes. Thanks, Sherri.
Yes, I'll take a first stab at it, and then, obviously, I'll turn it over to Tom for maybe some commentary from some of the customers he's been talking with. Again, I think what we are expecting from our customers dovetails with exactly what they've been saying publicly.
We did see our optical orders, in particular, start to get better a little bit over the last couple of weeks, nothing dramatic, but like we said in the script, something that gives us at least a little bit of sort of an encouraging outlook. But I think all of them are at least anticipating that, as we go through this calendar year, we should see demand specifically on the optical component side start to get a little bit better.
Tom, I don't know if you want to add any color to that, given some of the customers you've been talking with?
David T. Mitchell
No. I think that my experience in it is that, that we are really dovetailing or perfectly aligned with our customer base.
And we're -- and as John said, that's exactly what we're seeing. And so, the -- and our experience is always going forward that we do see the perfect alignment of our customers' demand working with us.
Did that help you out?
Sherri Scribner - Deutsche Bank AG, Research Division
Yes, that's very helpful. And also, I just wanted to get a sense of -- I know that Building 6 is somewhat of a drag on expenses because it's not fully utilized.
Can you give us some sense of how full Building 6 is right now? And when you -- you probably won't -- don't want to give me a time when it will be fully utilized, but what are your expectations for ramping that?
John Marchetti
Sure. So Building 6 right now is a little less than 50% occupied from a space perspective.
So even within that 50%, if you will, there are still customers that are in the early stages of establishing their production with us. So some of that is new customer, if you will, space that is being occupied so it's going to take them a little bit of time to get up to a meaningful revenue level with us from there.
In terms of how long that building's going to take to firm up, a lot of that is really going to depend on how quickly some of the new customers that we're talking with and that we're in various stages of contract negotiations, how quickly we can close some of that business and get it moved into the factory. So at this point, we continue to monitor that.
And as that building continues to fill up, we'll share that with folks. But it's not something we necessarily forecast on a quarter-by-quarter basis.
Operator
The next question comes from Patrick Newton from Stifel, Nicolaus.
Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division
I guess, first one, John, can you walk us through what is baked in the revenue outlook? I know you talked about orders slowing in the month of December, starting to improve in the months of January.
But I guess the 9% sequential decline at midpoint is definitely below what we've heard so far out of your top 2 customers, as far as what have they pointed to in the March quarter. So are there any material commercial, laser or sensor items that are also baked into this outlook that would point to the sequential decline?
John Marchetti
Sure. Thanks, Patrick.
I mean, I think the big thing for us here is we did see weakness across essentially the bulk of the customer base, both on the laser and the optical side, as we came through the last month of the second quarter -- of our fiscal second quarter, excuse me. As we got into the early part of January, that definitely firmed up to where we saw that sort of bouncing around at the same level for several weeks.
And I can say that over the last week or 2, we started to see a small uptick in some of the optical comm stuff. But when we look across that customer base or what's really in the guidance is, we have a number of customers that are essentially down a little bit sequentially for us as we go into that March quarter.
And when you tally all that up, that's kind of how we get to the outlook that we get to.
Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division
Okay. That's helpful.
And I guess, for TS or for John, can you help us understand why your gross margin contracted sequentially on higher revenue? Was there -- was that a mix issue?
Or any detail would be great.
Toh-Seng Ng
Hi, Patrick. Yes.
Okay. So I think, in the last quarter, the gross margin is down about 20 basis points.
So we experienced some -- a little bit of headwind from the exchange. This is due to the Thai baht.
So as you know, the U.S. dollar has been depreciating.
Therefore, Thai baht is appreciating. So that change alone accounts for the decline.
Of course, there is a lot of plus and minus. But eventually, it's a headwind from the foreign exchange that accounts for that.
Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And I guess just one more, if I may, because I think this is really an important issue as far as gross margin on a go-forward basis is.
Your current insurance policy, can you remind us when that comes up for -- or I guess, when it expires or comes up for renewal? And at this point, do you have any sense as to whether the renewal of a contract or signing a new insurance contract would be a positive or negative impact relative to your current insurance policy?
Toh-Seng Ng
Okay. Sure, Patrick.
Now actually, we just renewed our insurance policy for this calendar year. And as compared to the last year, we actually realized some savings.
So there will be some savings that -- which will be reflected in the March quarter, okay? So that's the only thing I can tell you there.
Patrick M. Newton - Stifel, Nicolaus & Co., Inc., Research Division
Can you help us quantify just in the sense that last time it went up exponentially? Is this time just down a little bit, or is it a pretty meaningful delta relative to the prior contract?
Toh-Seng Ng
Yes. So there's no way you can go back to the pre-flood level.
That is almost impossible. But I will say that this decline -- new policy is significantly reduced from the last quarter.
So you might be looking in -- at some gross margin improvement. So...
Operator
Our next question comes from Alex Henderson from Needham & Company.
Alexander B. Henderson - Needham & Company, LLC, Research Division
So could you talk a little bit about what's going on with your -- one of your larger customers in terms of Oclaro having moved stuff? Have you finally stabilized your situation with those guys?
I know that they're moving some stuff between production locations and realigning things. Has that at least stabilized in that particular instance?
John Marchetti
It has, Alex. I mean, I think that at least for the near term, the decisions that we were waiting on have been made.
There still is probably going to be some small impact as a program or 2 comes our way and that kind of a thing. But I think for the most part, where we stand with them today, I would absolutely characterize it as stable.
We're not expecting any big changes from there on a go-forward basis.
Alexander B. Henderson - Needham & Company, LLC, Research Division
And then the second question, as you're looking at this mix between the December guidance and the March -- or the December actual and the March guidance, it looks like some of that had to do with some timing. But as you're looking at the commentary that you're getting from people over the last month, it seems like they're seeing a pickup from October levels to the January timeframe.
Several of the companies have made that comment. Did you also see that trajectory, or would it be lag from the time they saw it?
In other words, if they saw weakness in orders in October, would it show up in your numbers in December?
John Marchetti
Well, I mean, I think it is fair to say that we are typically the tail of this dog, right? I mean, all of this has got to work down the chain to us.
And I think we -- like I said, we saw a pretty steady drop after the Thanksgiving holiday, as we came through that month and then it leveled off again. So whether that is us catching up to sort of a weaker start to the quarter for our customers, I think, is reasonable.
And again, like I said, we don't want to make too much out of it, that's why I think we're trying to be somewhat conservative here. But just like I think our customers have shared publicly, they're certainly talking about looking at better demand levels over the coming months.
I think that's just a matter of time before we catch up to some of that commentary.
Alexander B. Henderson - Needham & Company, LLC, Research Division
But from -- mechanically, it sounds like there's about a 2- to 4-week lag from when they see an order to the time it actually gets translated out to you guys in terms of when you'll be shipping that order. Is that...
John Marchetti
I think that's rare...
Alexander B. Henderson - Needham & Company, LLC, Research Division
The right way to think about it? So if they were seeing a pickup in December, then that would not be reflected in your December quarter per se, but rather into your January quarter?
John Marchetti
Correct.
Operator
Our next question comes from Troy Jensen from Piper Jaffray.
Troy D. Jensen - Piper Jaffray Companies, Research Division
So a quick question maybe for John. Just to be clear, when you say you saw an uptick in optical, is that an uptick off of the December month level, or is it an uptick from the first month of the December quarter?
John Marchetti
It's an uptick off that sort of baseline that we reestablished in the beginning of January, right? So it's -- we had a decline essentially through the month of December, that stabilized out, and now we're starting to see it pick a little bit back up from there.
Troy D. Jensen - Piper Jaffray Companies, Research Division
Perfect. And just to be clear, you guys don't experience any type of steep price cuts like the component guys do?
Toh-Seng Ng
[indiscernible] Not really. Not really because we don't have new product launch in that types of markets and so on.
So most of our pricing, our revenues, our cost base so. And customers obviously keep asking me for cost reduction, that's just a normal affair, right?
We work with them. So if they take the cost out, and they call it -- so actually our pricing model costs less.
So...
Troy D. Jensen - Piper Jaffray Companies, Research Division
Right. Perfect.
And then just last question or just kind of more clarity on the guidance here. Could you guys may be separate optical guidance versus lasers?
I mean, do you expect kind of both segments to be down this 9%, 10% sequentially, or is one going to do better than the other?
John Marchetti
I would say, Troy, we don't guide that way. But what I will say is that the little bit of an uptick that we have seen over the last couple of weeks has been much more on the optical side than it has been necessarily in lasers.
That end market still seems to be a little bit lumpy. Now for us, it's off a small base, so it could certainly rebound much easier than something in our optical segment.
But for now, I think some of the positive signs we've seen just in these last couple of weeks have been pretty much on the optical -- had been on the optical component side, not really on the laser side as well.
Operator
Our next question comes from Ehud Gelblum from Morgan Stanley.
Ehud A. Gelblum - Morgan Stanley, Research Division
A couple of questions. First of all, TS, you said gross margin could never go back to pre-flood level.
That's impossible. Why not?
Toh-Seng Ng
What? I didn't say that -- I didn't say that, Ehud.
I said the insurance premium will never go back to the pre-flood level.
Ehud A. Gelblum - Morgan Stanley, Research Division
[indiscernible] Oh, I'm sorry, I'm sorry that I misunderstood.
Toh-Seng Ng
I'm sorry about that.
Ehud A. Gelblum - Morgan Stanley, Research Division
[indiscernible] Okay. That's much better.
I understand -- I'm surprised you didn't turn [ph] at all at this point but [indiscernible]. The dip that you saw -- that you said, John, you said you saw in December in optical or across both actually, did that affect your revenues in December, or is that an order dip that would have -- that affected what you would have collected in revenues in January?
So is that an explanation for your guidance for the March quarter? Or would -- without that dip, would your December revenues have been even greater than that $167 million?
John Marchetti
No, Ehud. It is primarily a -- an order commentary.
So it would be affecting our March quarter. It would not have had -- it may have had a small impact on December -- or I should say, on the December quarter, but it is primarily forward-looking from an order perspective.
Ehud A. Gelblum - Morgan Stanley, Research Division
Okay. And in your -- the time between order and revenue for you is roughly about the same 4 or 5 weeks or so?
Is that a good...
John Marchetti
It's 4 or 5 weeks, I say, of lag time, and then our typical lead time is 6 to 8 weeks. It could be a little bit shorter if we got a lot of the material in-house.
But again, we try not to keep a lot of excess inventory on hand. But typically, if you look at our turnaround time to ship the goods, it's usually somewhere in the 6- to 8-week timeframe.
Ehud A. Gelblum - Morgan Stanley, Research Division
So if you lost, let's say, 3 weeks of strong orders during this dip in the month of December and that led to roughly 3 weeks of weak revenue in the March quarter, is that the way to think about it? And then, it kind of picked back up again as you got into January, so we have a hole of roughly 3 weeks, and that's sort of what is explaining the downtick in revenues in the March quarter?
John Marchetti
I think, certainly relative to where we thought we would be, yes.
Ehud A. Gelblum - Morgan Stanley, Research Division
And that brings me to my next question. What is normal March seasonality for you guys?
It's -- I'm looking at my model, and I don't quite pick out anything that pops out at me.
John Marchetti
No. Unfortunately, at least, the last couple of years that we've been public, we -- it's been very tough for us to determine just because the -- we sort of peaked March 2 years ago.
And last year, we were in the midst of a flood recovery. So it's been tough for us to really, sort of, normalize out that seasonality.
But I think, generally, we're in line with what our customers go through. So while it is typically -- I think we would expect it to be flat to slightly down, this is probably down a little bit more than we would have hoped for.
Ehud A. Gelblum - Morgan Stanley, Research Division
Okay. So the flat to slightly down, all right.
I appreciate that. That's actually very helpful.
Now the $167 million was higher than your guidance, obviously. Can you go over again some of the areas that beat you versus your expectations?
John Marchetti
I'm sorry. One more time, Ehud, I missed that.
Ehud A. Gelblum - Morgan Stanley, Research Division
What areas were stronger for you than kind of what you were looking at from a guidance perspective for the quarter you just reported from the guidance?
John Marchetti
I mean, I would say that, as we're looking at the March quarter guidance in terms of what is stronger than what we were anticipating, the only one that really is even in line, I would say, is the automotive segment.
Ehud A. Gelblum - Morgan Stanley, Research Division
I'm sorry. I'm talking [indiscernible] for your quarter that you just reported.
John Marchetti
Oh, the quarter we just reported...
Ehud A. Gelblum - Morgan Stanley, Research Division
You guided to $159 million to $163 million to $167 million. So what's the areas you beat there?
John Marchetti
Yes. So I mean, I think relative to what we were guiding for, optical did come in a little bit stronger than we were anticipating in that December quarter.
And if anything, laser was probably a little bit weaker than we were hoping for. But I think the automotive probably came in pretty much on line with our expectations, and optical was probably a little bit stronger.
Ehud A. Gelblum - Morgan Stanley, Research Division
And finally -- I'm sorry for taking up so much time. But within optical, is there anything you can put -- hang your hat on there?
John Marchetti
[indiscernible] Ehud, that's just not -- it's not something I'm really prepared to go into, I apologize.
Operator
Our next question comes from Paul Coster from JPMorgan.
Paul Coster - JP Morgan Chase & Co, Research Division
Can you just repeat what you said about March is the trough quarter for the fiscal year or the calendar year?
John Marchetti
No. We anticipate, Paul, that it will be the trough in optical for the calendar year.
Paul Coster - JP Morgan Chase & Co, Research Division
Oh, okay. For optical, all right, got it.
And then, for laser, no comment on what it might look like from a sequential perspective with the back end of the year in mind?
John Marchetti
Not yet, no.
Paul Coster - JP Morgan Chase & Co, Research Division
Okay. Now I just want to go back to gross margins for a second because it does feel like, with the guidance you've issued, year-on-year growth seems to be back in order and if you got sequential growth, you should see it through the remainder of the year.
So going back to this point of, can you return to the gross margins that you saw pre-flood levels, I imagine it's not impossible. It would be a function of capacity, but also of the new business.
Can you talk a little bit about gross margins as a function of capacity utilization, particularly on Building 6, and gross margins as a function of bringing in new business and whether you've kind of got a sort of threshold that you look to exceed when you're bringing in that new business?
Toh-Seng Ng
Paul, this is TS. I think, previously, we said that we have -- we came off from one big campus into one big campus after floods, so we have tons of fixed overhead now.
And again, we say once the top line grow, you'll pick out the gross margin. So we -- in the past we say that's $190 million to $200 million.
We are pretty comfortable that we're going to see the 12% to 12.5% historical gross margin level. So that's still not changed because basically there's a volume leverage here.
Obviously, the factory also has a lot of cost reduction program. They were [indiscernible] daily and so on.
New -- bringing new business will more helping the top line rather than obviously, you bring in a new business. Initially, we can better leverage on materials and so on.
But essentially, new customer is mostly helping the top line. But the gross margin in the short run will be mostly volume leverage and capacity driven.
Paul Coster - JP Morgan Chase & Co, Research Division
Okay. And then, if I look back at the last few quarters, you've beaten or exceeded the top end -- or you've sort of aligned with or exceeded the top end of the range of guidance that you've issued, generally.
I mean, would you describe your forecasting method, at least from the purpose of issuing guidance, as conservative because it certainly seems that way?
John Marchetti
Yes. I would say we're certainly trying to be conservative, Paul.
I mean, if only because at the end of the day, kind of, as we indicated as to what happened in 2Q in terms of orders, we're relying obviously on the business of our customers, right? This isn't our product.
We don't build any of our own products that we're bringing to market. And so, we are somewhat at the mercy of our customers' order patterns.
And so, we do have to manage that expectation somewhat carefully. I mean, we're not out purposely trying to sandbag a quarter or a number, but we do, I think, purposely put in a level of conservatism just to make sure that we've got a little bit of wiggle room because, again, we don't ultimately control the order forecast.
Operator
Our next question comes from Subu Subrahmanyan from TheJudaGroup.
Natarajan Subrahmanyan - TheJudaGroup, Research Division
I wanted to explore again the delta between your customers' guidance for this quarter and your guidance talking about down by 10%. Most customers have guided flat, maybe down a little bit.
Though December, you were up while most customers were flat. So, John, is it fair to say that as you look from September to March, that's probably more realistic of what happens to your customers and you just didn't see the impact in December because of the lag time between when they order [indiscernible] and ship and your revenues get impacted?
John Marchetti
I mean, I think that's fair. I mean -- as, again, the orders that we were seeing in the September quarter were stronger, that's going to obviously impact our December quarter from a revenue perspective.
While like we indicated, we started to see a little bit of weakness here late in fiscal 2Q from an order perspective, and I think that is having an impact on us in terms of the guidance we're giving for March.
Natarajan Subrahmanyan - TheJudaGroup, Research Division
And as your order patterns do pick up a little bit towards late in the month of January given your 6- to 8-week lead time, that still can impact the current quarters. So how much of that is factored into your guidance that's starting to improve kind of pattern?
John Marchetti
I mean, very little at this point, Subu. Like I said, we're trying to be careful and not overly anxious to count all these orders in because, obviously, they can easily shift out a little bit.
And again, the uptick that we're seeing right now continues to be pretty small and measured. So we're trying not to be overly optimistic about that.
So it's in the guidance, to be fair, but it's not 100% in the guidance, if that makes any sense.
Natarajan Subrahmanyan - TheJudaGroup, Research Division
Fair enough. And final question, I mean, if you look at the comment on this quarter being the bottom, is it some qualitative metrics?
Is it quantitative metrics that gives you confidence that, for optical comm, March could be the bottom?
John Marchetti
I mean, I think it is more qualitative than anything else. If we were having -- if we had enough visibility to really call that from an order perspective, that would be a bit stronger.
But I think, in terms of the conversations that we're having with customers and what they're telling us their expectations are as they go through the calendar year, that's really where that commentary stems from. But to be fair, that absolutely could change 6, 9 months down the road.
Operator
[Operator Instructions] Our next question comes from Alex Henderson from Needham & Company.
Alexander B. Henderson - Needham & Company, LLC, Research Division
So just to kill a dead horse here, for instance, JDSU was suggesting that the quarter and the March quarter would be a little bit more back-end loaded than normal based off the idea that there was going to be larger orders, and it took them -- would take the service providers a little longer to distribute that orders out to their customers. If that's an accurate read, then they would expect, instead of orders coming in for them in late February, that it would come in during the March timeframe, in which case I would think, for you, that would therefore translate out from the March quarter into the April quarter.
Is that a reasonable read of the way the lag would work on that? I mean, if that's accurate, then are we just simply shilling [ph] between the month of March and April?
John Marchetti
Right. I mean, I think you're fair, Alex.
I mean, if that's the way it ultimately plays out from the carrier and that it would filter down to us, I think, in that type of fashion.
Alexander B. Henderson - Needham & Company, LLC, Research Division
All right. So if that's accurate, that would imply a better second quarter because you're picking up that month of March in the second quarter timeframe.
Am I thinking correctly on that?
John Marchetti
I mean, right. If normally, we would start to see those orders trickle in, in late February to where maybe we could get a little bit of that revenue there in March, that would then count towards that quarter.
If JDSU is correct in how they're reading the market, then we would see more of that benefit come to us in the June quarter than in the March quarter.
Alexander B. Henderson - Needham & Company, LLC, Research Division
Okay. So second question, we talked -- you talked a little bit about the 50% occupied rate in the Building 6.
Can you give us what the occupied rate is company-wide? And, second, when you're thinking about added volumes, there's 2 ways you can add volumes.
You can add volumes on existing lines, and you can add volumes by filling in that 50% occupied. How should we think about -- or unoccupied person of Building 6, how should we think about the mix between those 2?
Will more of the incremental volumes over the next, say 12 to 18 months, be coming from existing lines or from adding additional lines?
John Marchetti
So I think that, to answer your first question, Alex, the entire footprint today is just under 70% occupied. So essentially, with buildings 3, 4 and 5 now, we are almost completely full.
There's a little bit of space here and there, but those buildings are generally -- they're generally full. So our unoccupied space is predominantly what's left in Building 6.
Over the next 12 months, I would certainly expect that upside in terms of volume is going to come more or so from existing lines and just seeing demand for those products pick up, if you will, than us necessarily adding a bunch of new lines into this space and having that be a huge, huge driver. To be fair, we certainly hope that we're going to continue to add new business into that factory, but I would expect the bigger impact to our volumes is going to come from existing customers and in existing lines.
Alexander B. Henderson - Needham & Company, LLC, Research Division
If I could just follow one more question off of that. So is the improvement in margins as you move towards full capacity more a function of driving more volume across existing lines or a function of the unoccupied capacity coming on-stream and driving additional incremental volume across your fixed base?
John Marchetti
Right. I mean, what would I would tell you, Alex, is that it's going to be driven, like TS said, off of revenue.
And I think the quickest revenue pass, if you will, over the next 12 months is likely to come from volume as opposed to space.
Alexander B. Henderson - Needham & Company, LLC, Research Division
So it doesn't matter which one drives it as long as it's revenue?
John Marchetti
Correct.
Toh-Seng Ng
[indiscernible] Yes. We see that new customers take a lot of them also once you get them.
So...
Operator
This ends our Q&A session. I'll turn you back to management for closing remarks.
John Marchetti
Thanks very much, everybody, for joining us today.
Operator
Ladies and gentlemen, thanks for participating in today's program. This concludes the call.
You may all disconnect.