FN - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen. Welcome to Fabrinet's Financial Results Conference Call for the Third 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 instruction for 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 our 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 third financial March 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 X, our Factors the description Risk on the that section affect to particular, XX-Q recent our XXXX. a For in refer factors February 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

Tom Mitchell

opportunities. growth are I’d am from customer customer I our demand, stabilizing Thank turn to the and we current expectations like to today third we call Seamus everyone. exceeded Garo, and good remarks. and positioned regular his well to for over afternoon the pleased new quarter you, now benefit for

Seamus Grady

is We're revenue good our with and net our foreign of million expectations including operating cash is cash also above are Tom, year-to-date million believe million flow quarter guidance fourth trends $XX that for to XX% our reflected $XX.X ago. per business pleased this the afternoon exchange third TS $XXX with $X.XX headwinds. We compared increasing nearly revenue you, million $X impact detail of in to of free share in in non-GAAP Thank as increasing year-to-date and a flow that of revenue everyone. reflected $X.XX This strong a little the income top end and later. cash the year range of and stabilizing in over came will flows profitability quarter

revenue continue fourth and second under X% optical XX% and came quarter stabilization grew quarter this We of the for will a that continues Within telecom sequential in telecom optical third XX% non-optical modest customers, of communications and optical on market both only revenue. reflect basis. revenue anticipate customers sequential the XX% after of programs our into record to quarter business fourth new communications decline customers quarter conditions non-communications. As optimistic growth programs. from datacom in to and our a trends the new our not programs. dominate will the that in We're also These quarter. levels their attract ability resume second from in but Telecom

other optical communications by strong driven and manufacturer markets Our markets driven a advanced position and precision, is the experience manufacturing as and require that for reputation packaging. in technology our

leveraging sensing, to markets as and this such Over communications the optical years, optical adjacent we as medical. have on focus lasers also commercial reinforced enter while

located end West our serving new to in XX% customers continues Santa diverse in reflect facilities New California strategically win been closer this Clara, third the a product in programs revenue business, Fabrinet of and markets. has get quarter represents diversification. helping which introduction instrumental again us new

characteristics one technology regions only large Silicon similar global there's concentration a small believe Valley, While of companies. we number there are of share that a of

we to locations new these value we steps In manufacturing. Israel, design have a NPI for new of establishing then March, is customers those services already model One Israel, and number customers. introduction helping of proven facility continue manufacturability transferring with where can Thailand towards early providing for of in we where our programs a made local our product

very look it's region, been Fabrinet including expectations already NPI exciting in the Fabrinet that we're to have still beachhead third the we with we successful forward president and in confident progress replicate in our we our to we plans. execute summary, lead pleased with exceeded vice we for in you Having Israel a this sharing to early are a revenue our new in While playbook as In charge, West have the on executive can established us that days Israel, UK. quarter.

about our quarter enthusiastic beyond with improving fourth We many ahead. excited we trends are opportunities serve about stabilizing we markets the the the across are and and

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

TS Ng

quarter high-end per the In $X.X of was range. we compared XXXX our our $X.XX a in Thank headwind to quarter, year of within income revenue you, our of $X.X $XXX.X experienced QX. million you will guidance afternoon was guidance Seamus. quarter foreign above the details exchange the well $X.XX or Good the our result XXXX. on for our range. fiscal Total or and third by per provide QX financial as headwind performance everyone. end Non-GAAP million as more million, with share, in I guidance share third market net $X.XX for

this our non-GAAP EPS guidance would been range. of above impact the headwind, have Excluding

to Within XX% was million million a Non-optical Looking quarter. second optical words, programs quarter, telecom enough continue percentage the from total third $XXX from in $XXX XX% revenues at million communications optical slightly up from million down point quarter the million $XX the represents consistent telecom million revenue million, with transceivers of revenue Silicon represented quarter third second Revenue variance in In second from year $XXX up quarter. continues other quarter. photonic optical, second in X% revenue communications. by the million dominate to By in in $XXX revenue detail, to of was the million the the solution increased lower offset to quarter third as quarter in quarter $XXX quarter. million in yet transition to revenue in CWDMX $XX was second more million the communication volume Revenue compared quarter. second ago the not to the solution to $XX compared second QSFPXX programs XXX-gig with revenue to or prices. $XX $XX a high $XX of the compared X from XX% was XXX-gig the in and $XXX Datacom quarter. $XX the million. million lower-cost second from was compared with

Turning below QX, XX% of to Revenue million market $XX beat from in again performance, XX% a from from $XX laser quarter Other in not slightly X% our the years modules was grew again We second Non-optical but at of from to second was revenue communications. non-optical was a and at Sensor in revenue had components of represented nearly but the the $XX $X record ago. up from a performance. $XX million. strong million, record industry the quarter. million year again $X records ago. million quarter did up revenue slightly $XX Automotive nearly down million million $XX in million QX. third

quarter the or $XXX was of million business third quarter. second the in XX% new as revenue was in Finally, it

website. on below to certain well to cost press range gross P&L, XX.X%, our revenue quarter of second in XX% turning to and Now to as QX Thai the our quarter. of in non-GAAP from investor decrease XX.X% release GAAP primarily you as to and our the find reconciliation the new a with margin third included can the strengthening was of to details customer in presentation, the target related continued on is startup measures a baht our which due consistent and Non-GAAP earnings program

make income the slightly margin in up but from QX enough bonus we of QX X%. workforce X.X% expense cost the from gross of $XX.X savings in effective management quarter, in of of the reduction million in fourth line target Non-GAAP X.X% all QX to against as accrued was in expected and operating range reverses and not the for net the quarter well operating to that put expect $X range to with XXXX FY from in our XXXX. rate in million tax us as We impact from margin with was the FY was and Taxes were improve consistent third a objectives. X% approximately $X.X our quarter normal million

basis, compared diluted share, of million, fiscal QX for in $X.XX the share-based anticipate quarter of to million to issuing XXXX. $X.XX and share $XX.X $X.XX $XX.X X% per income diluted quarter third expenses rate which in per net continue year was third share Non-GAAP GAAP includes or tax for and year debt X% an third compensation $XX.X net income a the to compared effective XXXX. or costs, million, to $X.XX amortizations On in ago. fiscal $X.XX quarter of or per was diluted the year a We

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

which is end flow the $XXX.X the million. the balance million, in $XX.X bank cash increased that $X.X of the $XX.X $XX.X from third CapEx was of Turning quarter, offset from FY After cash from second loans quarter, quarter subtracting less and $X.X flow $XX.X million primarily from the were operating quarter we XX% which million. repurchases an QX. of end cash investments the cash Free $XX.X reflecting of operating On This second decrease a cash and was $XX.X million XX% CapEx flow meaningful flow million, At million $XX.X CapEx third of free of an anticipated statements. for by a long-term basis, increase of year-to-date million. XXXX. to year-to-date share CapEx, was of sheet million, million represents and from repayments increase in of cash have flow the the flow, of operating cash

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

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

remain $X end quarter, million of our of impact the incorporates from of approximately $XX.X quarters guidance authorization. turn to As now the I’d on which year our repurchase ZTE. fiscal negative like XXXX, fourth the million to for in third sanctions

$X.XX in customer a our shares not in to $X.XX the of China, revenue we many revenue Chinese in As our any delivered to share range quarter XX.X customers the increase we stabilize third and approximately From are have million, enthusiastic four background, be $XXX net on per based an per fourth to indicated. the fully quarter revenue net customers. With summary, the quarter to earnings In share of outstanding. non-GAAP our we do but $X.XX to million range perspective, program from demand the that quarter of reminder, and $XXX across serve anticipate of anticipate are an increasing in above diverse guidance that direct to have GAAP third was the or in in range pleased million as do customer $X.XX, of about diluted improve. we range as income income be Seamus

for like in to strengthen now manufacture to we us the as open challenging design. Operator, the call most position continues market customer to the will look questions. Our

Operator

Instructions] Our & the with comes of Needham [Operator line Anderson Company. question Alex first from

open. now is line Your

Dan Park

is Good my for This questions. for Thanks Alex. taking Dan on afternoon. Park

comment much So, and any I am Huawei? seen ZTE you [indiscernible] in have your just how falling and of ZTE as ZTE? on change wondering a orders your of result regarding photonics silicon relative And to Huawei, off

Seamus Grady

$X So That – impact remarks, and QX our our QX in at outlook mentioned from for customers. outlook discussions an as about with in our million in is our prepared number we that's we for included get we estimate the of QX. the arrived

number. that feel we about pretty excited So

Dan Park

around is space? customers? And reacceleration Okay, my at second of guess of seen the in Web of what reacceleration extent having risk the in demand reaccelerate issues the Have any you business? to you And and demand pressure workaround changes datacom have X.X volume some of been on this given great. demand question, seen resolved evidence I the –

TS Ng

This is TS.

thing volume The the there – reduction. terms cloud data is pricing think I whole the a quantity. the already is of in

we say offset prices So and we – the to remarks, in prepared increase. lower our are enough the volumes that not

can’t So reduction, it we continues just again, will in really Obviously, parts. two price the increase, it’s – be because of the volume tell. but to

Dan Park

questions. Okay, taking for great. you Thank my

Seamus Grady

you. Thank

TS Ng

Dan. you, Thank

Operator

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

Your line is now open.

Troy Jensen

Hey, the gentlemen, on congrats results. nice

Seamus Grady

Troy. you, Thank

TS Ng

Thanks, Troy.

Troy Jensen

business little grow? are you guidance, they datacom a be the telco on be helpful? Just to laser going just stable are to color and both expecting to June would the insight more and grow? guys, of Hey, Or the be

Seamus Grady

we to guidance. you our segments think I why it and grow both that's total expect moderately in reflected see

Troy Jensen

just question, photonics Is be have is color Can customer just a I $XX follow guys? give it Okay. on million – there on you just about and three big any quarter. in silicon still concentration silicon this us photonics just generically up the you can talk would great. it

Seamus Grady

a entrant three or about they quarters new ago Yeah, two and so, essentially maybe start we have ramping.

than still a acquire. And So that, customer profile. new customer we other same is there it’s the

down. ramping been has them of One

volume call, back. is to you earnings their ramping since listen they've temporarily down about their coming talked If and

QX, the are another customer about QX look and nicely. So very if ramping that to same to the QX we as of most added are they at you customers from new

Troy Jensen

right, Can guess all question with the last for just Okay, MACOM? talk And you partnership update an how about on perfect. me. I

Seamus Grady

So detail, on there going real of really into update of remain the is customer There to MACOM. amount they number on no as a last is that. update working but we're discussed of MACOM since it. ours not are of a ours go customer XX% nothing not we so customer, is huge we’re programs a with to

Troy Jensen

still June So that believe think like of that? previously we threshold I on revenue, I do track some have you could feel for there, you’re so the quarter

Seamus Grady

to at we're but talk it's of we're of because to one not about with but and businesses working to for program… the level in on to it's that that program not position them our progressing customers about, in down really the really a get probably that customer still a end customer guidance talk the pace, We're and [indiscernible] position

Troy Jensen

understood I Seamus. Okay,

keep guys Thanks. the up you So good work.

Seamus Grady

Troy. Thanks,

TS Ng

you. Thank

Operator

Our question comes Instructions] [Operator of with Savageaux from line next you. Thank Tim the Markets. Northland

open. Your line is now

Tim Savageaux

afternoon. of couple questions. A good Hi,

Seamus Grady

Tim. Hi,

Tim Savageaux

Hey.

you extent the where end upside there of don't pretty the particular portfolio, you high if I’d So anything will I your guide. to as say the to you sites telecom from been perspective out? had know like strength of kind has your or pretty things reported strong else revenue an look in across if surprise call above was you expected

TS Ng

the and more things modem, you that detail, it’s it’s I by number a a with amplifier and if would on. telecom quarter. say you on. XXX-gig telecom – Those the are laser, That sector. so And non-speed look at in gadgets specifically or we on know so them XXX-gig make those don’t classify

are segment So the customer call. if call our in earnings that’s pretty much by listen those strong the earnings to verified pretty and endorsed you also

Seamus Grady

would to has I add business laser The strong. commercial quarter other optical was last strong very sensing one is business pretty just business. our a up, was is That is that

across sectors. it's So a number of

Tim Savageaux

not the imagine up, Understood and a to prior and silicon the end helpful. I quarter given that's disclosed quarter in quarter after of down I imagine photonics, the at follow decline the in it of it's maybe photonics impact the the quarter. in incremental the news how ZTE the in characterize would looking then terms bit And the very but decline, in silicon was March? was of you silicon drivers June be March there photonics will entirely

Seamus Grady

space, photonics but that their this concentrated ago that mix the one moment in with do silicon few March actually decline quarter they the a we a mentioned silicon a quarter. but last in customers and weakness about in earnings we of we as particular pretty is see call, customers photonics, have talked in recovering seeing So it with

else there’s million ZTE not to information into some that silicon couldn’t That’s actually is that but is best which that happen, $X say right something on a business. our numbers. have we the about based now factored So effect of photonics impact,

Tim Savageaux

you. Thank on. it. pass Got it will I

Seamus Grady

Tim. Thanks,

TS Ng

you, Thank Tim.

Operator

you. from of Thank King line question next And the comes our B.Riley. Dave with

Your now is line open.

Dave King

Thank questions. you. of couple afternoon. Good A

is million that $X just the can one from or ZTE, that? customer characterize impact regarding First, you primarily

Seamus Grady

of customer, it’s of across than it’s more number it’s the a know customers, number one I across customers.

actually anything don’t across actually who ZTE. to number million of customers to ship As our directly customers, $X to works, – China, but the We is directly you – chipsets anything product ZTE. ours who of that don’t ship we shipped all of

Dave King

gross SG&A. Got and then it. And margin

is drove a $XX million? What that First kind quarter it over fourth back and one of to also little on about it how about like flat. think on we should and was should or was kind Can that sustainable And pop gross of margin, we we SG&A, about get XX% think going or million. How is the over beyond? then that? down to to that backup $X

TS Ng

So, our check a you’d and the EPS you QX. in if but little margin, the guidance expenses Dave, low are I bit operating on gross work good and would normally our backwards, QX. given and of we the don’t that – are guide margins in at revenue knowledge the improving say like

implied have expenses gross And management normal extremely some – We accrual. operating rate the XX.X I of million side, in the June expecting going back again reverses the CapEx low. level, a to to run XX to quarter. We $X.X about about bonus quarter. on was June margin better the of level is get talked

helpful. So hopefully that’s

Dave King

$XX next should Yes. how we about CapEx, this million And fiscal more one think on year, year? so

TS Ng

If million. I or second Seamus. feel early $XX the XXXX approximately XXXX in at until – be right calendar a year, I We CapEx, still grow, $XX end of would a XX% a year, maybe fiscal would lot ramp obviously, maybe of million to around Next building grow around for are we last okay. say going the assuming lot need we we depend on but revenue, example year normal to don't commission

Seamus Grady

is, we building. we’ll the plus Obviously much the to in CapEx then drive if the XX%, XX%, a percent I that $XX point commission exactly million think get we second in to XX% will problem where probably have. Chonburi for that Yeah, think bigger that. $XX utilized, to as good a I But year number million of next which is do now hope It's year. we that right a

TS Ng

[indiscernible] second spend the will that the in Yeah, FYXXXX, payment FYXXXX, construction in commission be building I will we XXXX. think but in the

Dave King

and question. one my will be Got And final more it. question this

it fourth the or be in flat was third quarter. baked in silicon going guidance? Is photonics, your down On to slightly up maybe or into What’s it quarter? down

TS Ng

customers on four there have depends I three think or and demand lot a posture. we their

of in they’re talking setback one sees back. One coming call about the and the other doing a earnings well, temporary them

So think well, obviously hard of to them up. going see tell, but both are number I doing the if we’ll

Dave King

it. Got much. very Thank you

TS Ng

you. Thank

Operator

Thank I you. And questions am no time. at showing further this

would like to for the I Grady Mr. any Seamus return call remarks. closing to So

Seamus Grady

operator, Okay, we'll speaking of in fourth thank August. to afternoon. the with today's you, upcoming we at fiscal for to great talk again have a forward results We’ll and for and everyone you thanks events call. Thanks participating investor present everyone in and our when XXXX quarter many

Operator

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

Fabrinet (FN) 7 May 182018 Q3 Earnings call transcript