FN - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen. Welcome to Fabrinet's financial results conference call for the first quarter of fiscal year 2019. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call - conference over to your host, Garo Toomajanian, Investor Relations. Please go ahead.

Garo Toomajanian

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

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

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

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

Seamus Grady

strong $XX flow and Garo, with revenue, the in with net cash non-GAAP $XXX cash also quarter of income good helps million, Strong This all-time exchange the high well performance Thank end an flows of of revenue. in the free you, guidance $XX foreign of came operating and above drive combined guidance. was nearly earnings first million million. at range which afternoon, of share, our for gain, also flow above in quarter $X.XX end first per Revenue cash everyone. our the high the record produced quarterly

anticipated. have will in And that better to demand, during we tariffs quarter a coming successfully on expect we will QX last the to our will as quarter. and continue related not and continue any can supply had lot future. have constrained was fiscal risks than With quarter U.S. challenges discussions the quarter, actual to mitigate considerably products performance impact increasing sequential these continued fourth represent to growth we negative appropriate forward. we months, the the manage the shortage see of again first steps a detail components would these modest another growth. in China. in we able first were the the there take moment, and to we report We We going been have anticipated our to of In we several from sequential into that anticipate to I tariffs, quarter, from that seen don't these during TS

the With we if and our vast from look actually benefit being of countries. equipment tariffs could Thailand, manufacturing on in products for China components in in majority other suppliers makers manufactured

was quarter. from up Telecom million, generated marginally XX% datacom of XX% communications photonics-based million, from the silicon data nonoptical from revenue XX% growth. overall million, up Variance was sequential up saw from fourth a factor, form first $XX quarter quarter. from the of up ago optical QX a quarter By non-silicon was $XXX which business QSFPXX up ago. quarter. which $XX Optical strong and million photonics revenue of By quarter, which both can revenue from the photonics-based, increase communications of a communications digits with fourth lower telecom end silicon for performance was be than production optical $XXX the than Both communications the represented revenue. revenue and year double million, revenue both at revenue. X% optical programs communications and was technology, or rates and of our communications Speed datacom an optical data dominate Looking rate fourth X% growing XX% XXXG and the continue and XX% grew from revenue total XXXG products million XX% $XXX markets. products by rates, faster from year of fourth grew faster at to of to $XXX and total fourth slightly

industrial and Turning was now generated delivering fourth nonoptical lasers record Revenue compared of strong the performance with a was history to million revenue communications. second-highest for revenue other from Automotive over to at ago, million. the Still, $XX the million Revenue revenue nonoptical up normal in quarter other $XX $X from we revenue variability. sensors communications record and $XXX quarter. the both from were $XX million declined quarterly our slightly a with $XX representing from in fourth with million. again million, fourth quarter products quarter-to-quarter from year down to a sensors at but

nonoptical nearly especially reached business likely this in Revenue newer continue communications programs opportunities from remain While growth new long-term our to $XXX fourth up is XX% $XXX our from million when variability optimistic the we business. in about million, quarter. ramp,

be Our long-term new revenue driver can generating new NPI, programs, or these continued business important significant services over years. several as product services an introduction, to of into turn

well new to As as customers us we Israel we would have have the previously, success customers. mentioned the seen to in to West U.K. process replicate support establish This a there enable in product in existing to and develop Fabrinet new we introduction as Fabrinet looking of are facility our

detail earnings Moreover, in going off guidance business, across are are the will TS momentum to continued forecasting forward. existing our customers our start in summary, In We strong ranges. second closely best quarter, above and which are in with in we we fiscal growth first moment. determine with with XXXX the a working strong revenue approach to Israel our a quarter

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

Toh-Seng Ng

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

impact, non-GAAP first are ASC these this change reported above Excluding top XXX, XXXX, our slightly the the XXX, accounting being as year a had of the been range. income an immaterial was Note of results under impact net income less that fiscal X.X%, ASC still standard, though guidance our quarter would have been and net have of on negligible Under $XX,XXX the than less less. previous or a would revenue results. difference our of $XXX,XXX

more in Looking detail. at the quarter first

mentioned, communication of with record program saw of XX% growth revenue, nonoptical fourth we As quarter Optical after from strong of communication in in optical quarter. communication highest first nonoptical programs with a revenue. a a Seamus increased sequential sequential growth representing the XX% the pause to year in level

find the margin gross we quarter. quarter increase was take merit in decline reflecting impact that effect absorb an turning we website. of presentation, of measures is our can A reconciliation GAAP in XX.X%, investor first our gross the to press the discussed you which previously annual that our the Now sequential P&L. margin included anticipated earnings in on details and as in on release Non-GAAP to non-GAAP first

target negatively to are that us favorable earlier, challenges the guidance range expense we less on this, was Non-GAAP our which During down XX% inefficiency range quarter. the caused quarter, fiscal exceed both first impacted $XX.X non-GAAP expect overcome return and gross optimistic, XX.X%, to for for year We in supply challenges and revenue a these component able between the margin million to industry-wide quarter. pricing quarter, material in operating our remain Seamus fourth the margin year-over-year slightly as however, for during gross noted from Notwithstanding supply we operating component help some basis to this XXXX. quarterly our quarter. the and

quarter. from non-GAAP a ago, Taxes million, operating income fourth increase and year were $XX was in fourth the normalized million, the a in and to As X.X% quarter effective X.X%. non-GAAP was compared rate and operating margin $X.X our the tax X.X% quarter result, an was

the compensation and effective share, $X.XX net $XX.X was diluted in amortization $X.XX share-based a debt includes costs, a X% issuance performance. expenses $X.XX quarter Non-GAAP to year anticipate diluted per income in net X% basis, GAAP and which year. $X.XX continue We ago. of for was first On the per the a or from record million up first of an the million quarter tax for or $XX.X share, to income rate fourth fiscal quarter

quarter. million, million did from cash operating operating million, were from offset of increase shares of release our and the which the related and flow in Turning first flow statement. first CapEx, RSUs the flow by $XX.X of flow, end of Free to $X.X to $X.X bank escrows settlement million. during cash $X.X first cash tax of share restricted the cash to million acquisition the less loans $X.X $XX.X We quarter $XXX.X long-term repayment Exception any is end and quarter, of the of of the was withholding U.K. fourth related primarily of sheet CapEx the investments million quarter. represents an in This balance not $XX.X million of cash At million. the net repurchase

stock to our in our buyback and condition market to evaluate the the million our now will position of quarter. quarter of year such, on remains end As for Management fiscal the each of as I guidance quarter, turn based to $XX.X continue like authorization. would second the XXXX. cash program repurchase

and of into provide market continued second program, a the XXX, our now growth optical varieties XXX, will sequential our are in under ongoing nonoptical in this momentum and results. on based we ASC quarter quarter. will reporting communications reconciliation we communications demand are the that we guidance While extend ASC with is the optimistic With second

revenue of million in quarter From perspective, outstanding. per on range be the $X.XX we share fiscal are a net non-GAAP second the good results diluted million. off in anticipate to per range and an exceeded XXXX $X.XX that $X.XX income $X.XX in XX.X XXXX, For to we income summary, GAAP the $XXX fiscal our with the share we in to expectations. approximately anticipate of start fully to to earnings million second financial of based net quarter of year shares In $XXX

now questions. continue like Operator, call enthusiastic open would quarter. We momentum, to the we into for second to about we are the expect our which

Operator

[Operator Instructions] Jaffray. comes Jensen first with Our from question Piper Troy

Troy Jensen

a time now Seamus, look at I guess, I'll more you. Fabrinet. start for bit of options kind you maybe with had to little

you company. for would your for your will moves on strategic of not Just strategy M&A to be kind an whether or XXXX year think the a love bigger get and update - maybe

Seamus Grady

Yes.

to continue M&A we way. come our evaluate So opportunities that

it's of key at just can don't a appreciate, opportunities. price. contribute we strategy, news. this picky. have being continue we point, some And anything very, we add We do have to we're it once approach, way. type that and come evaluate think at looking revenue, deliberate suppose, I a mentioned fair part being say complementary news. previously, the to at remains We're continue continue you look I of not still selective that we But very our And and it we we've our we're businesses we for to can topic have profitability lot it's to not to we some want until But As capabilities several acquire to Troy, we but report look. of that we opportunities so our reasonable a will as give, to our look and unfortunately, at in

Troy Jensen

next just how margins September. like talk think XX% hit you kind they And Perfect. here look understand back maybe of to quarters? this - range? Maybe XX.X% to the do quickly I why X TS. in get the What do get the we you about quarter over for Could this

Toh-Seng Ng

fiscal prepared we to our the a this sometime year. in return anticipate in still So back XX% remarks,

the guidance backwards, pretty if we to you work that So again, at close level. if provided, you look it's

Troy Jensen

It is.

about get know Perfect last number TS, All update. how how the be but me. to from is. maybe automotive didn't gave think it. Okay. business I'd revenue you question And curious right. just a I guess I I

and your love get thoughts there. would If repeat you just could and an update that, to

Toh-Seng Ng

automotive it's is from of kind down really is The historical high, of $XX Yes. but $XX $XX the million. highs. high. million, I Again, wouldn't one million all-time say

Seamus Grady

Seamus. Troy, this is

previously, of newer working be Our and And automotive on. talked automotive newer up stable. quarter, we're technologies, about business automotive, last continues we've traditional of, is the some made the programs to very as traditional

though variable more be to tend programs ramp. New the programs as

straight you to in overall like, grow, we TS us the expect time, So revenue, as a we line automotive automotive. quarter to the if new programs new programs, automotive going record QX said And can on they a the what was variability decline not saw the said, last because in the we new quarter ramp. since was at quarter the in that's for saw new variability see on last as And quite you programs, technology. sometimes really

than So more bit little with there's a the automotive. choppiness traditional

We that's I gained what saw newer last like said, really trends. programs. quarter. overall any but a few But decline. didn't we programs, programs overall actually any choppiness more did lose on So didn't customers. lose We it's it's, than the any We revenue

Operator

[Operator Instructions] Our from question Needham. comes Henderson with Alex next

Alex Henderson

that guess that's in issues related where - pretty the of component that supply on a improvement that gross that of I improvement? getting causing Clearly, the is accurate resolved in chain some to some steep constraints. supply an assume what's sequential the off of an Is margins you're the XX.X%. improvement

Seamus Grady

so, Alex. I think

for on I if we One we other assessment. really everything the components supply margin this last overlooking past sure component is in secure a And quarters sometimes this situations. tight get situation. and very and commitments. our And increase, we merit gross that outsource the deliver saw components was customers exceed we're in previous make that margins, we to thing did their customers' it supply, the to we revenue sure so acted our the one when proud it's us get those other it sure one absolutely of, is award the especially, of believe do was for while or can ultimately We parts. something really, our maybe in the good do like, time at relationships. of for We little gross drag the with our actually ability arrangements way on to us look strong get then reasons to is make discounts talked headwinds are that we the they meet right near-term business. and to can that key we and fairly QX, the When about have cost. volume charges, we very to potential including, previously, source mean, the really And short but parts couple we a supply, that's customer make and to a make revenue did we bit to customers want customers create you drive at quickly a more to think revenue. the means which we manage quarter. of, but had component again the In - I shortage we

like, idle some and more manifested So also maybe that carried as for due the, I mentioned, also, bit headwind, you little up X component And a bit shortage volume if paying we a itself in probably to little was One on discounts frankly, operating giving inefficiency really some components. it ways. capacity.

the incur last If component, component for most time, have that still except on of we parts the if in costs. come operating doesn't last you all the

this So of but the past do was We the this the quarters, see over that's next really primary quarter. past driver couple what situation drove improving that quarter. that

Alex Henderson

we it go that that at as revenue guidance, So a it your reasonable result might that on a margins and envelope as your quarter? little through of end lower be at the end, higher again to gross be December lower would pushing little higher the think that it, the might a ironically, be of

Seamus Grady

down really It's just I hard say really comes quite it because depends unfortunately, Alex, down lot it's mix. mix. of think - to straightforward a it that it to - to the not come the

within to fairly margin that, you came gross there's wide a while quarter last imagine, can As XX.X%, range. the out average

end mix but at day, quarter, feel the do does guidance come EPS the we're of back to year. down really it engineer targeting we're we you XX% this to we've thereabouts reverse this or if there that said, get we to given, And TS the the So as think.

Toh-Seng Ng

Yes.

Alex Henderson

a is is at the of China? you Is can how that us kind - it's juncture a thought. rate the - facility? point? terms new might second next space wanted your moving square-foot you little driving than an trying question faster starting same I What's the And then coming It at be to what expedited of in can what to that's move floor in on of about taken - this you like space along what facility? other - the address uptake out function have seems the for provide bit of talk of people that? sounds much at process metrics The XXX,XXX And up would you line up of floor finally, lines, considering of

Seamus Grady

is the there, XX% on XX%, We towards process building. wise, started this ramp and building. place. that likelihood, probably feel combination Timing points think. pull Right we now I year. some rolling the It would start permits of the think a happens. does the getting XX%, of of on so will in for XX%, uptake we on spoken couple terms new the next heading in of So how occupied uptake and trigger some XXs, new I the we're of a - quickly get we strong the fiscal late above new the probably do the in Yes, really building. pretty believe in we've programs we'll say process Once of all depend to we

our a a building based tariffs We we tailwind. prepared way. customers us. in blows As do producing in as who hopefully direction be plan they're business while business some come they for it our our And certainly it in we're said think not in not - does our China, tariffs, remarks, headwind could China the on are

little quite that, we slow. it are is So of seeing but bit a

at and for customers them, our quite China can process come imagine, in be building look the us way to can products you qualification As ask even when Alex, long.

be to kind at quickly that could tailwind you to X of and could that months So for tariff the could situation process take for longer hold. X looking change a a a no again, And us. qualification be

So it like not help does on I think. based but business our said, certainly that, us, we building we're

Alex Henderson

you in I'll driven and other been cede anticipated. bit that's off and there? thinking of then number that the had business your have talk about question weakness versus the fiber relative little the you're we that last and something equipment differentiates Can One some space slowdown. market to if semi the industrial The you floor. semi mainly what There's equipment rest market companies stronger mix a of laser than laser sounded of suggested from a the

Toh-Seng Ng

this Alex, is TS.

I think very X observation - see customers in there. accurate. We is of we most have X your fact, or

tell We can are I that. gaining share, market you so

One to flat, gain speak. the so pretty we the continue of program. to But okay, customers, more are rest

forward, So because one market the million X $X QX. - But million in of with we from moving the show just what quarter that's in last we market to gain customer, to semiconductor. believe see on why customers we we'll grow. we'll share rest, that $XX the $XX happens will And growth, marketplace share gain million or X the in continue

Operator

is And open. Mr. your Henderson, back Instructions] [Operator line

Alex Henderson

the didn't you and guidance? us some So give in thinking the little see about a you talked Could optical granularity the on how mix piece specify to sequentially. the current that in quarter, you're bit out playing but relative really datacom the you what

Toh-Seng Ng

million $XXX - Alex, $XX million. million grew telecom $XXX the you pretty We quarter-over-quarter, to as XX% know. So is strong,

in guidance coming break the December anticipate but down double-digit continued quarter, we QX, quarter. for Although we growth don't still

For grew nicely, quarter-over-quarter. XX% very datacom, also

forward, front is flat in slightly of to a Moving bit. up the me number

So helpful? is that

Alex Henderson

is how Can basis? on towards assume And the us perspective looks I the quarter. accelerating thoughts a helpful. give would on photonics that upcoming very mix That's you also silicon into that any

Toh-Seng Ng

Yes.

$XX We anticipate excuse grew XX%. $XX have photonics growth, million, And we Silicon forward, XX moving sequentially million. grow. continue to very a me, up nice -

we program technology. customer, the have grow With to continue the with we will the

Alex Henderson

So at forward? do optical growing we faster think look business you as your it's than point overall this

Toh-Seng Ng

that close, I level. close would say to same

Operator

the back Grady turn for over conference closing remarks. I'll Mr. that, to with And

Seamus Grady

the continued we the in forward positive Okay. you, the growth We Thank interest Well, and strong you call thank deliver longer company. position to our as continue goodbye. We over a you to We're and outlook excited and for appreciate to look joining with our diversification for company results speaking today. again term. soon.

Operator

that Thank you. much conference. and participation. you today's your concludes gentlemen, for Thank Ladies very

You may a day. Have all disconnect. wonderful

Fabrinet (FN) 5 Nov 182019 Q1 Earnings call transcript