FN - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen. Welcome to Fabrinet’s Financial Results Conference Call for the Second Quarter of Fiscal Year 2018. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time.

As a reminder, today's call is being recorded. to Investor call Relations. like host, to now Toomajanian, Garo would turn over the your I

Garo Toomajanian

TS to Executive and Thank Tom today includes on will financial and Thank quarter Investors at XX, us Company. I reconciliation. is Chairman; call replay XXXX. you Executive operator of contain future our Mitchell, including for Fabrinet’s Officer performance you, and investor Financial discussion which Grady, being Officer. Ng, webcast on to a Seamus a joining like refer Founder on the would the good which press fiscal Please year of call With will Fabrinet’s today’s website you and forward-looking located ended GAAP the be me website results to earnings Chief are that available for important operating about of today’s afternoon, information and our the and XXXX everyone. non-GAAP discuss Chief our second financial December conference for statements call remind the to section release investor.fabrinet.com. This presentation,

by new management’s statements or our expectations. and Forward-looking to uncertainties from and could These information except actual no obligation of law. undertake required subject we in results of materially of differ future statements them risks cause reflect the as light opinions to presentation only that date are current this as revise to events,

filed of XX, our Factors the description Risk on the that section affect to particular, XX-Q recent our XXXX. a For in refer factors November Form in results, filings, may our risk SEC please captioned

the for by now to Chairman, like I Seamus, begin Mitchell. Fabrinet’s the will call We to over would Tom, remarks from Tom? questions. call Tom Executive and followed TS time with turn

David Mitchell

turn I’d will the am the to future. I second in success Thank Seamus to for programs diversification the results call and our with his everyone. our Garo, and good like to quarter continue contribute and remarks. afternoon, believe pleased now new you, over to

Seamus Grady

four of months employees, am spoke the our you, afternoon Thank than quality and relationships I meeting a and with good even customer Tom, Fabrinet I about few you at spent my months our more the when enthusiastic business and with first of strength customers everyone. ago. I’ve and

packaging we advanced experience automotive, our manufacturer are in the adjacent target our Our At I and a automotive, mix reputation marketplace. to we have expertise as a presence remain the a we the leverage us sensor in strong in industrial, markets, in our and laser, and technology-driven believe business optical I other coming uniquely our have dynamic XX% of this and optical from communications founding, am of markets increasingly our the business to already to from in market. positions expansion We same communications can and looking revenue and strong presence that precision namely committed of XX% and to optical manufacturing continued markets, the longer-term communications, forward Since market. industrial medical. had time, other

to mix organic believe effective evaluating over and candidates of mix with that revenue growth profitability balanced business diverse for also margins, progress competitive growth, an look we business strong revenue right opportunities, and as continue more new M&A could longer-term. will trends, that that reliable possible steady more we While we this drive the be balance combinations may process We of have identifying accelerate market be the make To reputations. be way and the however, to lengthy believe clear, shift. this

in reflects up diluted a Looking guidance the of EPS the and million This of weakness $XXX to meaningful of contribution communications ranges. from high-end business, the at we markets, our our non-communications pleased second new per non-GAAP fiscal business. $X.XX growth continued in above which optical our quarter more are detail, both performance revenue share, in were combination and of report

represented XX% our revenue second this overall quarter at new In of in first fact, our $XXX business performance. was million the quarter consistent with and

don’t we overall Fabrinet excited see facility, time, continue break to small, contributing to we still the Fabrinet new and UK at out financials campus our growth, we production ramping While relatively while in by our the by same are West Chonburi. at

quarter, profitability can and to markets Fabrinet revenue the remains leverage we taken decrease third within that customers. expect generate our profitable to expertise, revenue expect and the that sequential as communications in our the term believe markets the over exceeded roughly we how to drive more expectations full our growth is positioned manufacturing second I saving ahead for and optical know Looking I we impact efficiencies long basis, In summary, EPS, for cost which to importantly, other our further revenue. flat proposition on compelling pleased despite both am produce where an the value quarter, measures a our anticipated we in decline QX of non-GAAP while sequentially, in uniquely a

our details Now and let me second discuss TS to turn the our call outlook. performance of quarter TS? to over the

Toh-Seng Ng

year with Thank non-GAAP our quarter decrease $X.XX a quarter, details in a income In our and share $X.X this to Non-GAAP was per exceeded $XXX.X still quarter year you, year results guidance per Total QX. year and Seamus. net in million, $X.X financial the upper-end compared $X.XX ago. million in from quarter the guidance fiscal on in for a QX above net our exchange we guidance income headwind, range. of I by but headwind, will share $X.XX the ago. Despite $X.XX per the exchange share our foreign experienced per compared or of a range. end-market X% second our or revenue XXXX provide you share, performance the million of a ago, with foreign same more tailwind was

in total revenue communications were total $XXX optical from Revenue solutions of first to non-optical optical, revenue, slightly compared in decline solutions million. XXX $XXX revenue. compared of compared was $XX to grow, photonic XX% QX. million Datacom did in again QSFPXX first to to Silicon XXX Gig $XX million, but as the XX% decline XX%. to the was and As the increased telecom million optical quite transition Reflecting the $XX XX% million, with roughly first Gig communications mentioned, $XX non-optical quarter, Within transceivers quarter, of million, Optical low-cost continues the in in in Seamus revenue. to flat from XX% was variant. revenue revenue represented $XX was while was not overall while communications continued at quarter CWDMX customers down numbers million offset

communication performance. Turning to our non-optical

anticipated million, revenue at record million, revenues performance was million. $XX.X Other $XX as increased $XX XX% nearly from from contribution We and QX, a of a million, $X from record record XX% a industry XX% laser Revenue UK. revenue and Fabrinet Fabrinet XX% from also year Sensors quarterly have overall with West was Automotive ago. with and QX at was QX $XX and a ago. stable from was from strong approximately from ago a XX% revenue million. from XX% a up year year up

of was the overall to first an new quarter represented total New XX% revenue. revenue. revenue business contributor QX, important million, with $XXX In our consistent business and is

and at from target the you slightly Thai strengthening in lower the as non-GAAP is to on Now, margin GAAP Non-GAAP turning first can in release quarter on baht in of a than to the our was details gross the well included of website. P&L, reconciliation to find measures continued the presentation, second range XX.X%, primarily press and XX.X%, earnings our QX decrease due XX% revenue quarter. below our our of as which the to investor

continue in of we operating second cost-cutting We measures the range and operating was QX, normalized income including quarter taken the in $X.X the expense the consistent made to in quarter savings margin X.X%, efficiencies workforce $XX and in margin reduction improved non-GAAP million tight on Non-GAAP with and tax in with earlier million in improved drive X% net earlier the due gross of primarily operating of were effective was was year. to our the rate X%. to flat of in half that expected X.X%, and second from controls the expect line Taxes to QX, our a quarter. expenses quarter

an fiscal X% of related of includes $XX.X net income for issuing or to $XX.X the XXXX. the in $X.XX year was million per debt second announced in cost CEO and and our million the was Non-GAAP in On share, year cost, second income expenses, $X.XX in share-based the to force diluted compared X% per to $X.XX QX for to search, XXXX. We quarter costs anticipate a reduction fiscal basis, diluted completion share or to $X.XX of continue rate which $XX.X share, million ago. tax net compared second GAAP of $X.XX related effective quarter, the quarter quarter last to per diluted or a amortization we compensation year

earlier, As on or we Thai GAAP a a stronger our impact bottom-line baht million from I mentioned quarter. result per non-GAAP $X.XX the share and $X.X experienced second for negative

million. the sheet the flows million quarter, repurchases the $XXX.X quarter, million, and operating share $XX.X at and of statement, from $XX $XX.X of of CapEx and flow investments This cash from primarily offset balance cash of' Moving end $XX on increase end represents first approximately second million. million, cash to of the by were the of an the

maintenance all CapEx to of expect is be We approximately CapEx in million. XXXX $XX FY which

were we share active approximately repurchase bought share. XXX,XXX $XX.XX an program quarter, in back per average the our During shares of price second and at

Board share $XX million million. size the Directors has to from program doubled $XX Our repurchase of our of

to the in now the discuss million now guidance expect the to result, quarter. a third I $XX in As active quarter. our and for buyback remain like authorization we in remains would third

see share year perspective, of $XXX From to expect approximately net to reduction in cost net we from model. other me an share of revenue to flexibility revenue. the offset the non-GAAP some we decline income in benefits produce in more the and in despite a of non-GAAP share $X.XX made $XXX between expect GAAP summary, our in meaningful the and top-line of we expected fiscal highlighting flat $X.XX per earlier operating $X.XX, We a outstanding. full for revenue to $XX.X range sequentially that’s dip million EPS fully quarter expect impact, of of cost In measures XXXX, saving to the income based efficiency third anticipate to QX. combined third quarter million. expect on $X.XX of and million the be We per roughly the diluted profitability Therefore, impact to

well-positioned and as we now to be Operator, like trend to benefit open questions. continue market ahead. we from for we Importantly, the call look would improved to increase diversification

Operator

with of Our question Stifel. Instructions] comes the first [Operator line Patrick from Newton

now line Your is open.

Patrick Newton

it’s am I Yes, Thank gross TS, have various right and margin, but the you should questions. area at I an guess, guidance or whether us sequential going curious segments up, good my can have about is that optical, specifically any then you you as tick? on down, sequentially, your provide afternoon, for if to there flat sequentially the down taking Seamus, TS. larger you directional on Tom, telecom guidance, cost-cutting talked focusing jumping and Datacom or on a whether look in be initiatives, we

Toh-Seng Ng

Hey, Patrick, this is TS.

if you at $X.XX the it backwards. to EPS, So, goes implied $X.XX look

margin I from in gross in of the we the the think we November. savings from a the project cost lot again revenue has took a lower this and slight in come improvement reduction force despite

slightly flat the optical most non-communication be and equation, we Now side or Is foresee area, slightly, the for of downturn we of it mix, of believe communication sequentially the that will helpful? in from lower. the terms

Patrick Newton

refresh, helpful. get revenue customer they much hasn’t we lasers and historically, if was that to That’s follow-through there. you when sensors, of have very then tend have the there very historically an other your a been laser, and you I large impressive, on from in quarter two product or fiber focus a their And guess, impact

different bit that growth be around? you are a this still are time. what more curious, am think you I this time from that own business might seeing it’s from on checks that a sustainable hearing We our laser it little make perspective that perhaps might

Toh-Seng Ng

products. six Yes, we about customer have laser again, seven or producing Patrick,

to on area. that sometime strong we down pretty one again, and say in again see that up suffice So, overall

looks So, the for of rest the trend again only good. fiber the customers, laser one or customers is in two general and – really look

Patrick Newton

kind TS Great. curious CWDMX you am some have do we your quarter. I you CWDMX for try believe ignore transition just the the have to the dive in behind I for this to customers? one more seasonality normal LRX trends, of if either or if the I And into March we may, and QSFPXX if is from Seamus transition largely that is, guess LRX seasonality, we to

Toh-Seng Ng

yet. behind XXX% Not

happy our very LLX the ramping are are results still suffice the they are to PSMX, and down. on with that customers of of CWDMX We but shipping and say the some ramp

yes, all for be story CWDMX. So, it probably would I FY all the mean, – XXXX,

Patrick Newton

for luck. Good you Thank my taking Great. questions.

Toh-Seng Ng

Thank you.

Seamus Grady

Thank you, Patrick.

Operator

question Thank Jensen you. the And with our Piper Jaffray. line comes Troy next of from

Your line is now open.

Troy Jensen

off, first on congrats the great gentlemen, results Hey, here.

Seamus Grady

Thank you, Troy.

Toh-Seng Ng

Thank you.

Troy Jensen

touched Seamus, I M&A you mean, on you, So, here. for

So I’d or are just thoughts small be curious your tuck-in to anything looking are to if know transformative? you larger, more do deals

Seamus Grady

pretty open much we are So, both. for

As remains pretty balance you’ve our strong. sheet results, seen our from

We have nest a pretty cash. of sizable egg

acquisitions think I well like really So opportunity any we to deals. that larger say are comes or at or way, tuck-in either positioned our tuck smaller you

complementary really So just not are capability looking to want do. add capability, what add we we to that’s add revenue, to we

manufacturer, contract and want We that to we a are keep it way. technology-focused

the our for we that diversifies, business to So results, today. have are we complementary add looking technology really improves so to mix

open smaller larger to deals and are So deals. we both really

Troy Jensen

also there Are any talking like So, you into, verticals? getting specific you about markets processes? are other different talked about

Seamus Grady

So, to today. again, what similar we do processes

We to a broad are based EMS not become company. going

the we going the be are complementary and stay space say, equipments but of driving We very focus real today, we segments, which the the that’s I complementary. some will what that A be to technology. technology three, market other optical also, a our do to on then develop would and would autonomous targeting. focused markets example some industrial, of medical, The in on good are into with technology medical but automotive are core

Troy Jensen

products you I’ve versus the products? could I’ve seen me missed TS, – new for And existing understood. Okay, give

Toh-Seng Ng

Okay, new call XX% it, top-line. we in $XXX the of million, business the our

Troy Jensen

And capacity know, is new facility not to XX%, opened me. last consumed? XX%, you a that how ago, currently long so question okay. be existing for The guys so curious much just

Seamus Grady

for. So about XX% call we XX% what have right XX% now to spoken about to XX% and we occupied

spoken it’s So to XX% XX% about, for. again,

Troy Jensen

or breaking is on enough building yet? far on you that it ground just don’t thoughts to Any about the need next out worry

Seamus Grady

build this quarter, what ground proactively. about we add is, in I we’ll take XX% worry for second We XX%, once facility. the a output up and break wouldn’t we get tad certainly. generally facility, Really capacity to that

going We a wait to are for not customer come. to

to going proactively. capacity are add We

facilities. would say, – would XX% So, up and – thereabout a add in probably We facility have it there we’ll enough land several and certainly there to new or add take I have terms we enough we land there and space output to of capacity.

ten last as would We say another have as years. enough to to I eight far

Troy Jensen

right, up All right Keep work. All the good perfect. guys.

Seamus Grady

Thank you, Troy.

Toh-Seng Ng

Thank you.

Operator

for no I call Thank Seamus return you. the And am to showing Grady further questions. I’d Mr. like closing remarks. any to

Seamus Grady

you everyone. Okay, soon. and you. speaking to today we forward you for joining call you thank much look Thank again our very Thank us with on

Operator

you in have thank participating the Ladies day. Everyone, and does you disconnect. all conclude gentlemen, conference. may for This great and a program today’s

Fabrinet (FN) 5 Feb 182018 Q2 Earnings call transcript