FN - Earnings call transcript Q4 2018

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Operator

Good day, ladies and gentlemen. Welcome to Fabrinet's Financial Results Conference Call for the Fourth 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 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

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

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

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

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

Tom Mitchell

fourth our under good the afternoon leadership pleased as am and expectations our exceeded revenue and that CEO. for Seamus's Thank of Company's am I performance we quarter everyone. the I Garo, you, proud

seen marks from role several have stepped may This from CEO you my I Fabrinet ago. completion quarters have transition started the away the recent As Chairman. filings, at of Executive operational as we

Chairman over However, remain I’d call for I plan the his to the like involved Board, Fabrinet. Seamus to now of turn remarks. highly at to as

Seamus Grady

And pleased will as non-optical growth that revenue we I growth markets modest to Moreover, that will and anticipate growth revenue. we am in to report communications this positive as optical we communications experienced strong came our components we challenges. we to continue sequential serve. under in constraints detail, TS take to our continue to quarter. these will we during able enter And supply steps were risks With operating these and high certain and mitigate quarter fiscal $XX I Operating of share you cash we XXXX, in anticipating million $XXX non-GAAP that everyone. am We came Tom income end share, across the at good revenue you, generated guidance of the end fourth net of quarter above $XXX million our the Thank quarter million afternoon free $XXX and to year the of for fourth guidance per cash entered flow million. above modest most with all up growth pleased the XXXX. the year shortage demand manage the our in appropriate range. during supply fiscal also still $X.XX of top increasing was flow flow of with quarter. fourth And cash successfully

in X% than third from line end telecom offsetting growth, X% optical was datacom by was Looking million decline sequential our expectations. markets, sequential revenue. revenue performance up quarter. $XXX million in revenue million with communications the performance up $X by $XXX optical, Within quarter at represented our fourth marginally Overall, more a of

industrial QX saw $XX revenue all revenue, laser pleased communications revenue from year and Both and ago $XX and was ago revenue, QX. with programs. non-optical XX% particularly our and QX from automotive a automotive XX% increasing record from Overall, industrial saw laser to from XX% up with X% the are growing a from businesses, from and year-ago We quarterly growth from million. from XX% we up $XXX non-optical a million, year to XX% million communications programs time

space. we of quarter, While and million to from some revenue grew to new million the prospects quarter-to-quarter increasing total variation in be the over we expect quarter. there optimistic non-optical customers ahead, long-term existing in from customers programs about the a new fourth as XX% we remain look our from $X prior $XXX communication Revenue

represented production X.X X% are terabyte X% quarter. in in increased contributing revenue each from photonics first QX up transceivers, both revenue non-silicon based the as products increase automotive ramping, data New total non-optical continues in dominate business of QX. XX% and lower their variants to optical products as from programs from the a than in the By programs XX% growth of to came revenue more industrial early decreases. after $XX with QSFPXX quarter volumes stages as as year, and programs, communications first based, now representing saw the XXXG and quarter, and such last consistent from price X% well million, total of new of laser also Silicon in silicon fourth million XXXG which photonics offset their fourth sequential of in $XX with are applications. revenue. QX, year have up to photonic both rate growth price saw a sequential

strategic forward to business establish we services facility investments an and we introduction NPI as we plans Our early Last look sharing in West new a NPI Fabrinet stages. next these Fabrinet our with are beyond progress Israel, at product new for important and our that more on quarter, playing on-ramp to role. UK or introduced critical

and into overtime addition continued In we ramp to in which they medical expect will won production. of programs, contribute a also lasers industrial progress as automotive, volume we number

technology based products and products, the as advanced West automotive Sensing laser new further our to LIDAR, expanding at such solutions industry. emerging We’re based capabilities manufacturing for NPI lighting XD our for packaging Fabrinet strengthen and

optimistic enable these into manufacturing and to core revenue fourth cash for new systems will solid and summary, exceeded and requiring in markets. solutions earnings predictable In precision competencies pleased expansion mechanical products generate and to the flow. our and quarter have optical, We’re we continue and we our are electrical assemblies continue our expectations to

We’re enthusiastic markets the about the first quarter across serve, excited we’re the with we about ahead. beyond and or trends improving and many opportunities stabilizing

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

TS Ng

as by guidance fiscal for of you, above fiscal results year fourth provide of year quarter Total you everyone. revenue market as QX and will with our in details million good Thank for well financial XXXX. and our afternoon XXXX was of $XXX.X on Seamus and fiscal performance XXXX, end our partial from I offset $X.XX quarter guidance year the adjustments. the more the QX net time by per our the also from benefited income mark-to-market exchange range. foreign first $X.XX range. share was share $X.XX valuation and fourth per above our the was by high-end reversals Non-GAAP income in annualized Net loss asset guidance of partially which allowances,

range. of above impact income high-end $X.XX was of still the positive the adjustment, non-GAAP guidance this our net Excluding

and For the income non-GAAP net share. was revenue full per $X.XX billion $X.XXX year, was

detail. more in quarter fourth a at Looking

in As in with fourth sequential slightly Seamus revenue. small communication program we quarter sequential a from datacom modest in increase revenue, offsetting mentioned, growth saw decline telecom optical largest a

million quarterly QX, we non-optical Our in sequential industrial revenue was a $XXX in set song growth primarily automotive driven a highlight in as laser revenue. to XX% record and growth by

For represented revenue. XX% was the fourth communication and of the optical quarter, quarter revenue in of XX% non-optical communication

presentation, on below GAAP The to reconciliation gross site. the P&L. earnings range of fourth XX% you which our XX.X%. on in Non-GAAP included to slightly and find the of our target investor details to our margin turning release in our XX%, can was Now is measure non-GAAP quarter Web press

the fourth discussed fourth quarter, to We in within in we quarter, during as expect Non-GAAP our fiscal from last was operating in was primarily expense slightly strengthening Thai decrease U.S. that a denominated $XX.X of the affected XXXX. target quarter margin million our the losses than liability primarily for return to to us small X.X%. tax quarter. due range mentioned a Taxes Non-GAAP baht, operating an income less bonus increase reversals million $X.X was non-GAAP year quarter million, in operating due though accrual QX to on gross of quarter. margin to and from onetime of effective dollars normalized were created QX, which rate third declined X% the $XX.X the net

to our X% fiscal in quarter tax all effective to rate or of XXXX. the to effective for that was fourth per share-based in $XX.X For compensation of $X.XX share On the share compared income million Non-GAAP net per ago. million tax quarter amortization fourth in year $X.XX income fiscal to million anticipate $XX.X X% FY'XX, fourth share QX costs, per was will GAAP a a $X.XX XXXX. debt net X%. or diluted expenses $X.XX $XX.X quarter rate and $X.XX which diluted our compared the of year include or issuing We return year and approximately was basis, diluted

the of and balance the cash flow, quarter, million. from investments less of flow was the by term cash the At operating of third repurchase statement. were represents of CapEx flow cash end the sheet and which quarter. operating $XX.X to $X repayments in of from $X.X the bank $XX.X of CapEx of and $XX.X a the loans of an fourth flow primarily million quarter, million This long Turning end cash offset $XXX.X Free fourth share million million million, $XX increase million. cash is

million, million, of capital. increase in representing a million. operating $XXX.X year CapEx XXXX all decrease to of due $XX.X fiscal was meaningful flow cash and a For year working was flow improving CapEx XXXX, the After for cash significant $XXX.X fiscal from year subtracting free

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

the repurchase improving quarter end the another our million non-optical forward to to to in now the would authorization. and we're of our momentum turn $XX.X quarter, fiscal growth. looking quarter in year guidance demand With customers I from business, XXXX. continuous revenue sequential for our As of of first remained communication of like optical fourth

tariff Now that with the product. of a currently as on of revenue China represent in the expect we values manufactured our in impact product our Chinese of the total do discussion manufactured not meaningful minimum news, of portions component

method. year modified we transition of ASC-XXX In the using first XXXX fiscal addition, the retrospective be quarters adopting will of as

guidance in earning that being net ASC-XXX share first we'll today anticipate that of and be million. in of on to in to our diluted ASC-XXX $X.XX we perspective, million quarter per our gross million bear of in first first costs outstanding. share to on annual on per Keep be income increases in quarter margin. revenue anticipate $X.XX $X.XX non-GAAP results. is mind, when to mind fully range resulting of we $X.XX we net merit From the provided provide range $XX.X discuss to pressures GAAP reconciliations $XXX quarter on in revenue QX a to the based and basis approximately income Our ASC-XXX in will we additional the shares $XXX With seasonal

identify I There's take anywhere and going a on challenges moving team appropriate is my the being that Seamus will Before for new search as management up, I continue and be the part conclude it changing would like request, the am and search to to catching as qualified decided I an initiated Fabrinet ready remarks a my my I leadership a an operations CFO announce to of and plan fast no to day-to-day exciting differentiation Company. on and ever for had personal to business. XX-year in succession at I age timeline with today, of support for time. has replacement After a for not to our assume in new note, duty on the Company time

the summary, the In I'll the have to addition, In for pleased quarter we and of supporting involved be my the research, that our best-fit to in are exceeded eventually transition delivered CFO fourth actively replacement duty expectations. and results financial Company.

open we are the and fiscal are that quarters encouraged with both growth, are optical to our strengthen sequential year optimistic we ahead. another non-optical will for we would now optical communications look communication well to and enter in presence Operator, question. and positioned customer as demand our to call we see We of XXXX like improving a dynamic market believe among

Operator

Thank you [Operator Instructions].

comes of question Jaffray. Piper first of the Our from Troy Jensen line

open. Your line is

Troy Jensen

that silicon made sequentially was sequentially. that QSFPXX customer same a drove grew I'm curious you grew result? the comment that that photonics Seamus, also and

Seamus Grady

across It's the of actually. customers number

Troy Jensen

when by ago months about this sales three about how for you then guidance And and gave ZTE band talked X bucks. us the impacting you million quarter sales

are dollar this Just you expecting you still being curious there the amount that quarter at impacted a is guidance or when a look for recovery? upcoming full

Seamus Grady

million So our at there was $X guided that had into impact ZTE quarter looking last guidance. had we back about last factored we quarter on -- mentioned

what without million way we to expect right think We based we we mid-July about our bit have sanctions the no don’t conversations to at of sanctions know $X the been the Then would sanctions for have but in ramp sales the time. really on in customers for little of have this of the with actually ballpark time was and see to fiscal full quarter, a takes orders the being QX, lifted were officially it the restart. lifted that impact

less $X QX, in million let’s than say. So benefits we would of expect much

Troy Jensen

the how the XX% in -- customers recoveries needle right So how sequential post category And then think so can confirm And the you probably to then Seamus, do sector, about on growth, that automotive have just move the understood. said you there? that -- many automotive I that.

Seamus Grady

of and automotive represent automotive business number we about our seeing what approximately newer a the refer across space the have our we’re it’s space in have technology number is We lighting that growth automotive in as in growth and and some to the of customers is majority revenue. of LIDAR we The the secular. internally of in the predominantly -- applications. And on four customers customers it’s the new

Troy Jensen

best see work. to you and but wish the sorry up TS great you’re the And I leaving, keep

TS Ng

Thank you.

Operator

Thank you.

question Needham. next Alex Our from Henderson of comes

is line Your open. now

Alex Henderson

a much, very we’ll career. when miss last agree you you Congratulations leave. statement, I on Thank TS, you that with and great

would you’re I ask wanted you upcoming looking a pricing is datacom datacom, us somewhat. be we’d about between are optical Can business quarter, how So telecom? little of the at moderated and datacom of mix and within in what when has to It that the question you for improve. pricing terms first should the pressure, thinking seeing looks granularity give you that? in like said the

TS Ng

datacom. Alex, telecom were last telecom as datacom little But guidance turn by in offset we the our it little down quarter, to and out, grow a the expecting bit flat faster than grew bit.

we six customer one customer so due of maybe product and have in or with to in them down. terms datacom, are or of the of growing two most and seven specific So are transitions program assessments on they fact

So our the datacom since doing. excluding overall is everybody customer how

in look involved So our mark our low mostly ups costs our suffice -- pricing with are by customer, not and have offset really customers felt of to variance But that meaningfully say pricing. our variance We transitioned to profit QSFPXX, cover low transition terms for then margin. volume most it’s again cost of at countered we improve the the that increase. within costs example, and that has their to

to So a the been mitigated speak. volume to cost so has low transition

Alex Henderson

the would matriculate takes that that back while I clear significant Can degree for going it’s But you It going which next the or a it’s forward that assume, to for give if And flat there has us of assume pretty the we in move helpful? a been pretty of positive exchange couple quantify a current rate. rate a second, little that your sense to levels numbers. some for exchange that’s at through considerable quarters.

TS Ng

bar bit just fluctuates and you’re I or the it But remember the we to about a right, had level. depreciated Yes, XX, forward downside. XX.X six again so hedge months, protect quite

the see X.X bar level, upside assuming there’s any if sustained the I’ll benefit at this stays out. quarter least at is assuming So in

in I quarter this bought immediate not ago. three to So six quarter, about in all because the the months immediate

the some into that and will So P&L. stay the see this at margin yes, continue level, tailwind into to gross if I

Alex Henderson

of back FY a CYXQ, So and benefit? ’XX would CYXH of that ’XX, half FYXQ be more

TS Ng

benefit. quarter then get spending will hedge have might I lock-in say, will will I this can correct. some assuming today Right -- on that’s March I less XXXX course benefit, you some CY be and still of now, I the see November-December, Yes, I buy today if

Alex Henderson

on GAAP we the level. I’ll last context margin gross you within made And us as on what floor, the of normal then you I go and or want your your might somewhat what forward don’t forward hurtful Is bit of normal you Can margins? a And occur? the Can you had know the think give helpful the the to are? But hurtful of I little think question you on us to or comment give do what guidance, remind it to dynamics specifics helpful XXX. to see you taste your consider level? think revenues, you a improving

TS Ng

conference And QX, we On say that last call. a quarter we up the here, margin, at gross XX.X% time the track then if were to look mean. inch QX And within you we XX.X% to XX.X%. at in ourselves record we measure I our at XX% at all are always

quite FY return fiscal year yet but We XXXX XX% XX%. we’ll within to in not at that we are believe the

So XX%. internal see will at a on recover get QX seasonal that’s expect Then some tailwind on. so the at we through moving will cost see some we and again again we margin forward fully the efforts and once we QX. to get goal management But gross because to reduction pressure curve we’ll and learning increase year the

In reported in to don’t gap we the of line. the the revenue in it small just an be look and impact, September margin stream. maybe is to impact terms million it’ll there’s of show the on at $X line $X no gross million major how July margin And terms But impact about little There’s to revenue will any if I coding XXX, today of very really as very, but earnings that. expect we of you a tune in be impact big material bit. call

Operator

Thank you.

next Savageaux Markets. with Tim comes from Northland question Our

Your question please.

Tim Savageaux

I’ll to add congratulations my TS.

hit margins pretty that’s and seasonal you for QX for from you there tax in extent the expect case, further decline I guide just sharp don’t some If benefit from you on But the last gross elevated in that on looking you QX are to know level. already and is the think levels indicated QX. pressure up I in Following this. response, informing OpEx EPS sequentially any QX if

TS Ng

seasonal in will all obviously over the The from a Thailand to impact to -- recover world at area a to we actually the try give folks look mitigated we part you recover increase merit increase will of as to find business other year. not two least coming once about it at our and year within necessarily our and the quarter. by if Typically be merit impact close once take is quarters it may The history that. offset

is of the on, we have now improvement we New OpEx experienced increase, see don't offset hopefully spending reduction effort the merit so we can and of will there exchange loss foreign little gross that baht cheaper. become the see subside we because But some a that just in so control margins. so you to bit, guide past

Tim Savageaux

on see the moving again want product to to bit in we And fiscal parts to better. QX if the on side, a touch can just datacom I understand moving

pretty sequential report photonics You silicon sequential did a increase in in increase and QSFPXX. sharp a

declines did principally? the QSFPXX be segment. in overall first guess what I growth modest datacom You question, my would the offsetting see

Seamus Grady

increase our think telecom saw we in business. I nice

combination products. say datacom bit a flat basis Our down, when on the of an up isolated transitions all maybe customers and business, customers were going add as That's and we reductions down all of price said, the product two aggregate What to slightly I was the one are through or will X%. is very little who to pressure. we about

two on. But customers, of the XX% growth customers, majority or some So did customers. some we the nice on I reductions the say we probably would see have of one

little were that the we is Datacom one quite actually two strong So customers. is is number bit little impression the while bit, aggregate and a to reductions would think down. down give or datacom not we in the

Tim Savageaux

forward. follows is question, look into that And last my as which right you

think across have said, you I expect might the growth sequential businesses. you

the to increase Though, am the sounds obviously the it not might had In I sequential terms non-communication if in sure QX, You on expect a segments, relative resume datacom pretty maybe in in growth. telecom might a on performance like across those have of non-communications side. datacom sharp stuff you of expect QX? business you catches for Or to flatten you versus communication any within out photonics. that up silicon whether or comments as bit both

Seamus Grady

communication were very say QX. in in we the the think I as happy you non-optical business with growth

XX XX% at a XX remarks, business I you at business, optical If point. TS's from look historically. one actually is our communications And down high of was it now of think

growing growing at business making while non-optical time our optical communications we're progress there, our the steady So nice business. communications same

happen. business We it's always the growing percentage the when all optical we of want communications want the to business. a things So to grow we they’re both challenge also want but of reduce both

and The business quite strong, look to the to fair in and strong. I in laser business QX, both it’d strong solid out then As automotive very remains continued communications the growth say growth we're we across telecom as industrial it's optical communications, business the be think and remains laser the businesses seeing is does non-optical. datacom very

really the we're it's of benefiting right So the number across that nice across board, thankfully sectors growth I’d from we're now. participating say some in

TS Ng

them are If to call most of our listen on the optical earning communications. you upbeat recently, pretty customer

to on optimism So we on write that. hope that

customers One datacom. fully in another in datacom laser and also talking so on talking of are the fiber laser and robust robust guys about and the their really business ROADM and about

writing those on customer is and we are So then hope things. right we our

Operator

you. Thank

Alex Our Needham. next comes of Henderson from question

Your open. line is

Alex Henderson

of for I built or you've the China's facility might relative you. had a us clarity some a give little that’s to bit it. hoping I being you just they're I us Thailand. sense relevance to There just to of wanted that for plant whether speculation next that's bad Lumentum to give you a business I has ask plant was to good that and hoping facilities of your what the know your Sanmina into and that. is substantial said relative was of thing lot thing about around been plant. on conversations has And of But the you that Lumentum of portion moving a out that read could

Seamus Grady

beneficiary this we’ve contract And their I of consolidating where they're use them. means are contract manufacturer number moving manufacturers number some most that before. of would whereby their that Alex, that talked our China. about the is of suppliers Lumentum in plan think these at for we're their Thailand And they're the understanding one own to only really no of is customer facility. is say, I manufacturing that not to that we're customer, number they’re participate But at business our they’re the customer. of very our them. sole with is they’re biggest business their the fortunate we really some have and as a strong them to -- into understand really excellent Their just moving momentum customer, be able to

with relationship Our remains them strong.

business Yes, would establish close it's to Our growing, within own campus. I or our their is Thailand quite them say. Pinehurst they’ve in near facility actually and

signals rather a So this between distant two the more we do believe that companies. cooperation than a closer

from a in sense they’re that that’s coming Chinese own Thailand the Thailand, yes facility. moving movie So But the as see into business business is suppliers. overall business to it the positive we their coming most they're to for part,

a positive. So as we that see

Operator

Thank you.

Capital. follow-up from Northland We have a question Savageaux Tim to of

is line Your open.

Tim Savageaux

and look tell were for How that how maybe you year? briefly or reflected together your you to given largest and merger. type if they Oclaro you the customers the on pending of I following combined annual as be at would But mentioned in significant many us And customer? filings. end XX% at wonder Lumentum a that quantify is that then had if is Lumentum information that maybe I the given customer. you year And the response might your we're realized this

TS Ng

our But through, you’ll only again, Lumentum I year. plus mergers Oclaro can K. go tell In be of see XX% last the XX% XX%, Lumentum We time, one our When customer have at X%. XX% revenue. one customer, it’ll you number days two is that

Operator

Thank you.

questions to remarks. in like call over the any are Grady to there turn closing I’d for no Seamus back further As queue, Sir?

Seamus Grady

Thank for today everyone in you. continued interest and our your Fabrinet. for joining Thanks call

with we’re the next the call forward again speaking look in all in improving our on markets we and We’re you earnings dynamic about optimistic that November. to seeing

Piper week and Jefferies Jaffray week look next good and Thanks those Summit Select in Conference attending seeing Tech you in For the of Southern bye. forward the you. Chicago Investor again, to after, for California we

Operator

your Ladies today’s Thank a you. conference. day. this and have Thank and participation gentlemen, you concludes for wonderful

Fabrinet (FN) 20 Aug 182018 Q4 Earnings call transcript