FN - Earnings call transcript Q1 2021

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Operator

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the First Quarter of Fiscal Year 2021. [Operator Instructions]. I would now like to turn the call over to your host, Garo Toomajanian, Investor Relations.

Garo Toomajanian

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

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

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

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

Seamus Grady

primarily With XX%, guidance our to improvements, driven a the good in Thank first target margins efficiency surpassed of by quarter on and with quarter our had a you, our results performance focus gross Garo, end high within afternoon, range, the Revenue above an was and $XXX.X that longer-term our range. constant expectations We everyone. excellent in and stronger-than-expected million was telecom automotive. increased optimism. first and record reinforces

operating to addition, manage effectively continue costs. In we

delivering income on diluted we the $X.XX As bottom outperformed per a non-GAAP also net line, share. of result,

was to investments. free flow make Our even business cash we $XX.X was and produced flows, Operating cash million. growth million, $XX.X flow healthy continue as cash also

fourth sequential $XXX revenue Looking of than down This from $XX million, than revenue, the the quarter. at fourth telecom which more at of fourth $XXX million expected million was grew in the revenue $XX from offset faster at Optical quarter. the the quarter up X% increase quarter. million. of decline some Telecom details X% anticipated in was datacom communications from of far revenue XX% the

As inventory we telecom issues customer appear one us. that be now anticipated, behind at experienced to

an We to system program of also on on Cisco, ahead. to transfer at quarters which optical continue the in ramp progress make track the is transport

Supplier Revenue was and first transceivers the on awarded very In X% revenue their at the fact, annual XX% driven we QSFPXX primarily a also Silicon we historic telecom QSFPXX growth. photonics-based of in optical products quarter. when fourth communications Year the million, the note ended continued Appreciation high Partner high, EMS quarter, a quarter Event. of were Cisco's total from record from by to $XX a and up grow represented

our data above we to from performance, stable telecom at see As from $XXX revenue continue to reflected grew in strong XXX-gig was programs $XX million. rates. growth Revenue at while and sequentially XXX-gig XX% million, strong faster

to increased Sensor auto was growth the other $X an growth of at quarter, unanticipated A XX% million. $XX in automotive combination performance million. was our increased of decrease a from which with sequential and $X stable in to reflecting by was revenue traditional by sequentially increase better million sequentially was Industrial level. programs. demand XX%, driven business, revenue Looking new communications million, from trends. broader $XX $X million, revenue, than and sequential to return than expected first by automotive programs record at as million revenue our revenue nonoptical $XX was declined This to a of automotive revenue million the offset expected, and laser increasing more $XX

trends automotive quarter. rates. healthy to should programs signals. pace, business to Looking faster We will to see on at that data that telecom anticipate the ahead. newer industry revenue affect communications, offset in also we will quarter, and datacom lasers, It's look expect based anticipate the but nonoptical outsourcing and demand worth second In that laser by This current the continue softness that laser are a continued will to increase offset first optimistic driven optimism largely the similar we industrial in grow market we growth decline expect a revenue to in industry softness near-term mentioning does this that declines. in those industrial years continue largely not the our

remain take even place. we very serve catalyst, well as In industry a benefit could transition fact, to this competitive positioned and when intense pressure to begins

continue pursue we serve, we customers, the penetrate to leveraging that facilities growth in industries growth customers of enable This strategy. multifaceted combined the markets currently and a us to further new technologies We the strategy both investing new existing and and markets. win in in with includes serve

from strategy. successful of the Our this that first benefiting are demonstrate execution results quarter we

well market on over no focused capitalizing what new markets in processes opportunities success we next-generation exploring While investments can business early control, in and and we broader expansion system-level we control our capacity advanced trends, have as as can technologies remain in including on serve. that manufacturing our pursuing

stakeholders. very XXXX. our to in for a to As returns well summary, execute on strategy, all fiscal off believe we deliver our positioned we In we're start are positive we superior

the Our we newer programs strategy in softness strength as offset is from certain working see markets.

optimistic the position complex can products. further reputation as that in manufacturer continue leverage the most markets of strong advance We to our our to we leading the are

to guidance second Now like fiscal for of over call I'd Csaba? XXXX. and our the to Csaba details quarter the turn additional for financial

Csaba Sverha

$X.XX our above million afternoon, guidance very quarter. second results We quarter our guidance on new more improvement. $X.XX basis, high provide Non-GAAP Seamus, On a $XX.X largely due than diluted revenue you $X.XX for upside a and range, than record. details $XX.X or record million and will everyone. good that range income net quarter million for financial you, share. was per the for I income results guidance million financial exceeded Revenue share, a year also more of the our fiscal our of GAAP guidance deliver per more end and margin the was first end pleased our high our XXXX. gross the ranges was the with to of first and net of to $XXX.X Thank were or at $X

included the of operating quarter. normalized margin GAAP turning a quarter manufacturing noted, the $X.X from was of expense the you tax million, P&L. of profitability presentation, Now Unless non-GAAP be I earnings XX%, in on continued investor was on will can to rate website. X.X% and focus of to and cost A up million measures which or was of otherwise our details effective basis. was strong our our X.X%. on find in or were first press reduction non-GAAP efforts. prior primarily result refer million, release efficiencies Gross reconciliation revenue. a in improvement revenue. and Operating to Taxes is XX.X% $XX.X produced income $XX.X This X.X% our quarter This of during the the metrics

window year-end quarter quarter. inflow last time first balance of million. did We the and cash period. we the And our due during of CapEx flow quarter. was $XX.X $X.X our in the smaller end first topped At open repurchase to the increase million cash not an share million, had $XX.X the repurchase of with to after million flow Turning from cash, the the the sheet $X.X for an At billion investments $XX.X and the free $XXX.X $XXX of million Operating first cash quarter, million, quarter, was blackout at first flow end shares program. cash in restricted statement. of remaining

implement XXbX-X subject quarter This to that second to complement to blackout plan the even repurchase expect open will market opportunistic that blackout periods. periods. remain shares will enable a us in We purchases during program

the be balance XXXX. export our should year communications, be offset rate in headwinds repurchases. Our value like quarter. to sheet, shareholders investment turn to allocation in to guidance restriction-driven and any second long-term primary in XXXX. risk the healthy our newer fiscal customers growth end driven customers. program all continue our We we areas trends of than capital experienced for I revenue, our priorities strong the we quarter With optical would combined expect In fiscal share continue expect to through This of in second these now data by to mitigation, active in returning higher from at demand quarter with the telecom first more products, we ramps. believe will strong

for We in believe nonoptical offset the communications, laser sequentially Still, near-term expect believe datacom down based communications with market this strength optical with revenue continue In will revenue total on softness QX. QX. continue industrial roughly weakness from that will flat forecast. to weakness that QX the current telecom is we we

programs automotive we should total communication but technologies of from be anticipate down growing automotive we On sequentially. the LIDAR, as the This demand laser other all anticipate to as like to offset new traditional well Therefore, slightly revenue industry. from the trend improve. most, not softness nonoptical hand, continuing

We million second $XXX are roughly income perspective, net results. that optimistic we first be and From revenue $XXX anticipate expect between drive in will quarter can we to the flat that quarter to total a record profitability million. be with efficiencies our

diluted the exceeded share. range quarter pleased and $X.XX the our per we in financial ranges. results to with $X our to guidance execution EPS that of In expect in our summary, We be first are

as initiatives forward and and to to of we proud performance, various profitable are growth call our now questions. We continuing look the we execute to for open on of growth ready deliver the Operator, strategy. are success our we financial

Operator

the with our question first Instructions]. [Operator And comes Marchetti John Stifel. of line from

John Marchetti

a portion in this talk maybe a bit? to what for where around very seeing in out Obviously, the your strength take Seamus, if maybe bit datacom trends on looking I a just term, bit datacom. of on of maybe But side? you your expectations And little wondering see are about good get sort that to the longer the some are was downtrend we could business telecom of turning little little wanted here.

Seamus Grady

driven slowdowns seems maybe have of that we was John, prior that the unlike lot Yes of where slowdown stabilized. previously pricing the pricing, saw some to by a

primarily data be current We to So and bandwidth do news. capacity grow. demand that's good demand remain the will The demand appears driven. for softness as continue optimistic to driven,

of markets in we over downturn price longer term, datacom driven. the the end remain time, offset portfolio means softness much programs more volume let's broad can our in So the say, than multiple driven now other is, the But we the seeing of growth we're that areas optimistic. same customer see. At right

it it don't but very a I see than price as driven. driven, we not significant a -- necessarily issue, is more volume So say, would

John Marchetti

Okay.

maybe looking Okay. the and industry, at, some of even I to the over of heard what guidance demand telecom had for trying you're the all you're if I'm a possible, what you seeing just have really next from but couple that more the to, in versus that sort continues sort we're move if maybe revenue the wouldn't on, year your quarters look systems-level calendar parse takes curious, ago know how the into from the of puts coming you of to on customers can new much with it's just don't we've And and perform. to we to think, demand your And telecom underlying I of is? then program out sense side, -- maybe a some how as get customers business

Seamus Grady

making So the we're, we're I growth on quite we're progress happy the and there. side the say, telecom seeing would with

which revenue have from business, beginning is really XXXX, long which have -- had new for new new which we the past, in since historically, call used a we We we customers, too business really ago. the of metric to referenced --

So we're to and that's we looking as growth the from and in would come customers of dollars existing a I our business measures see about of robust. component-level programs longer new existing see, -- to talk is for prior who and of from the from new metric. new up we've new if vertically also both in business some quite customers, also we're the we percentage and And to their total but customers these customers. regard. sense had whom after, year, systems again, increase We're business strong, today, both pipeline, to quite from with And we're Most new talked about the some that at the say, we other of that but that customers programs going existing sixth we've majority some entering continue customers. new now many with But meetings, revenue, that. the new the given and might more the make that as way into of no would there's looking are of -- looking expand expand providing success the both that services space programs growth

seeing. the quite wins say, positive, we've would business I the about new about feel been we pipeline and So

John Marchetti

Got I couple commentary but did so quarter? Csaba, it. was And missed that. any the I of it, of if a missed XX% customer between then you may apologize maybe lastly, have hopping the I give I calls, in

Csaba Sverha

Well, Csaba. the is at customers the this we are providing John, only year. end XX% of

that So we stick haven't to provide we process year-end. and at that, and provided to continue our our

Operator

line next Henderson Needham from our the of Company. question comes Alex And & with

Alexander Henderson

I companies? where hoping you and extent little was the systems us are to coming are the think kind think relative you're up could Cisco, that you in, you any where companies run do we you gets could to bringing might on be? When at some bit systems on time and run talk if a additional rate what Infinera of about what to now line sense give you of revenues, rate

Seamus Grady

Alex. So thanks,

that So the say, announce did at the we expected the to should on Cisco. and largely on to the the pace of say, that's we're calendar end towards announced let's end that we're we said talk We should pace with be the We We the be the course, think a us. And at Infinera, I ramp. for and year, say, behind be track FY largely run year. remain the Cisco talked rate would prior we we're inventory which the ramped correction, quite that and be feel that past, but the Cisco about primarily, the customer an by we're year. Infinera at rate. customer, quite Again, will happy largely nature all, still of let's to quarters, at about we in 'XX. be of ramped we that. the yes, Infinera, win, we of When in of the of normal the, seems end the we should we optimistic Berlin we first there transfer end XX% of ramped the now XX% back the about did the year, of now run calendar had in think

We right very So at but I would And certainly rate now we're wins need targeting, say we're so and of too like huge talk number huge a not there's about a Cisco. don't with this Infinera. a able at to need customers, stage. small we targeting, been we significant to the companies system-level it's number run We're customers. far number much other have then of of just Infinera accomplish with early both

So we're of or very more firmly targeting those. X X

Alexander Henderson

process? the at then first not as bit Is but is Situation, ramping a then the rate quarter third full the quarter's fourth run quarter, fiscal in your a year, say exit quarter Cisco of a right hitting quarter. quarter be kind first and that So gradually little the it worth? and the then you the but not fair of would full fourth looking So the in material number to

Seamus Grady

Yes.

would yes. be fair, think that I

Alexander Henderson

going there's reasonably I a because datacom datacom I been little at for then you numbers to And numbers if has out day guys any from know are been the don't most the obviously, some commentary surprising could. side printing. strong around of the to printed specific, have of the And that that positive tie of saw time rest It's second, been same Perfect. you and a back and good datacom. pretty the we but other

some base to XG be within behind ramp? Is a as What function, softness base? your to of is associated that the it with little stuff your you in potentially think people you taking is the think that shift -- some driver? So longer do do maybe the share may of, a customer customer

Seamus Grady

We certainly think it's lost than probably haven't We more any program customers programs. transition-related shift. share any or

shifts up to newer share maybe one some between program. say, programs we're be more necessarily to, might fully where you it's producing, on, be there haven't going like order from an a likely say, program program our down another but program ramped let's customers ramping they're and Sometimes, to that transitioning shift our not and within customers

So we...

Alexander Henderson

recall rebound in but be it quarter If that, was the third that going thought to it said the fourth in calendar, you I case correctly, quarter. would the had you that

expect ramp be continue because ramps to nonseasonal Now you that weak that Is normally delay and of therefore, you're to saying should that it it in anticipate quarter? a weak. as a in the we March benefit seasonally

Seamus Grady

previously at it. we about is that lasting is optimistic bit about there. little mean, way But hopefully. that. still look the but Yes, would to -- we'd optimistic continuing that our it We customer and talked transition we a a It's longer that's transition feel about I than I we're probably -- like, think like fair longer that term. still

Alexander Henderson

I'll driving differential? the Then So any floor. of sense transition this that what's see

Csaba Sverha

is Csaba. Alex, this

say, the mentioned, we be started also transition rates of what We higher we largely in one the picking that seen this up going So actually. it to shift. customer. have X you would particular done had was We last, see of I thought our transceivers data quarter of a quarters to transition that

So drivers. that one could be of the

While started in transceivers up and is strong, to to XXXG see double remains the the pipeline. still very come QSFPXX starting you coming

So off bringing and products and up then the tapering of this new a time, the effect the somewhat at be data up knock-on bringing higher XXXG the rate might same products.

many denominator the common seeing particular customers are than rather or share So across any we that's shift.

Operator

[Operator Instructions].

from Dave line the Kang of question Riley. B. next comes with Our

Unidentified Analyst

Dave. on Danny for is This

provide you ramp and additional in Infinera, any demand Infinera addition the color Going to off I question about and the around from around if Cisco Cisco? any wondering was could

Seamus Grady

specific from these be calls. We demand want for our provide we to customers. we any speaking don't on on sorry, I'm can't customers -- outlook just

provide afraid that So I I'm information. can't

Unidentified Analyst

are that X about? question verticals should guess, autos any forward? I giving And Okay. particularly confidence And telecom how the Got and going be, it. That's you're the would about we What's think fair. these there you You mentioned additional an well, sectors? in excited earlier. that

Seamus Grady

Yes.

a there's areas. few think I

So there's -- mentioned you automotive.

For us, We've unexpectedly. a in more exciting for that quarter us, good is came in strong bit wins area us, is new the a actually some little space. really us. And that solid automotive, traditional quite for back But growing good had it's for maybe LIDAR. fit the automotive especially

from industrial down, even In much under-penetrated addition, sector outsourcing an somewhat it's that business, laser whole perspective. very the though is

very feel So longer we positive that about sector term.

be our the customers. moving and And some business pursue there. had customers. not for high-quality We've would good very up We're value that the be chasing vertically Third We're as business. chasing revenue. chain we'll integrating, revenue high-quality system we really success selective from just

And medical is I markets. precision quite you very area that, serve but generally area the we we've so also would like, regard. far, in the of of and sensors traditionally, then that some on say, broader markets focused fourth been successful, And fortunate if the some other

So say, that enough our very, and we customers, good, very feel let's effective provide for but for do segments to good mix for also really very us and we of be good in sectors have for a job a have common that us. us diversification

we're optimistic, growth I say, would So about prospects. our longer-term quite

robust Huawei shown if several our and -- face of growth last it's been it's quite COVID over the think like look in and headwinds through quarters whatnot. I at the you

remain optimistic. we So quite

Operator

And of have Alex a follow-up the with question Henderson we Needham. from line

Alexander Henderson

Okay.

and business. believe you've industrial of sequential a trailing well. primary a finally they one that to -- decline very as saying know offered this reported business bottomed. The numbers, wanted the some has the they that talk but been bit up that obviously So laser flat your period, I And share had that, morning, steep about in I little primary picking customers

do I as of So seasonally at normally look trying which is stronger first year next business, laser to how the well. in the year the industrial half understand

that conservative something upcoming customer So is current the there is into it a beyond -- quarter? is seeing weakness sequentially -- also the some the cause obvious it to guide

Seamus Grady

No.

currently -- for all you don't produce all like, I customers. generally. that's we We're industry -- to with products, of of think it's the more do the if

more customers' more. strategy outsourcing at who penetration. that demand we're to to really we for is the need the more marketplace products products deeper plan do for So we where the whim reduce. will around Those the That's are capitalize. outsource believe, The really yet of and in not the heavily companies, outsourced, we

version marketplace. us, version. long-term the short-term a there's So about what very longer the in positive it's and the for laser, of the generally, at answer, term, that term, kind we industrial if The for of like, of good whim a us. happens Alex, you really But feel fit short we're segment

that of increasing can with expand we can for them, So customers very, we've as a continue job expand outsourcing. far, in good the outsource. any and relationships done companies they're have the space, very we our those We we think to the

Operator

Stifel. line We the follow-up have Marchetti another question from John of with

John Marchetti

weaken maybe calendar about don't maybe trying little represents? amount that know have to share the Particularly, look How think vendor? we looking you of lines, revenue direct next about more 'XX? out certainly next think And how indicating rework we're of with you some But that continuing the calendar a out reallocated? that that Huawei. I we that, that, as or to several that key require exposure a just into Huawei, customers, is it systems-level Particularly, to quarters. go Seamus, any of as do of tremendous as can quickly we different your get from stream say, a look as think how market with headwind into some to for you does production year, to that over

Seamus Grady

Thanks, to John. of the Yes. A parts couple answer.

last let's was, just all, quarter the impact of negligible. I quarter, First say, would ended, towards the say,

to able in of date the and If September was late the of else appreciate, what the the I -- ship think, sanctions quarter pull very was came needed by Therefore, most in and we quarter. everything much can the there. pretty set, was and you were XXth

very a in QX. minimal impact was there So

to incorporates $XX guidance QX headwind from of Huawei $XX sanctions. Our million by customers about the a million impacted

to $XX today. sanctions, $XX our we'd outlook And words, our for into QX guiding the not million million guidance. incorporated be that's other So above in

and impact, guide impact. But So been that able a still it's sizable headwind we've overcome insignificant to up. not it's

customers quickly convert over As lines, want production regards quickly lines impact, -- how over can is it's how I production convert small. quite customers and but of converting our to can we minimize the the manner. don't qualify be They do that those to other The products. time, will pacing to in getting more qualifications item, the have the with we done can And timely believe, some a time. non-Huawei take

we I any products our on in produce customers they've great adding cases, capacity think don't And have have, customers remain these So anticipate part our products. products. delays some and, to our been quite excellent the really they optimistic some about

sure end there. our I there's customer do side. item just Does to think will don't I as over from takes more customers item But it to support be, a over next And qualifying our to the of them. say, hugely non-Huawei the It's there gating any So We'll we're couple or would make to pacing do products. the ready whatever sense, quarters transition with they're make transition customers. successful John? that

John Marchetti

Absolutely.

Seamus Grady

the still Operator, line. if on you're

Operator

of we Needham. another Alex line And I'm with Henderson sure have from question follow-up the

Alexander Henderson

So both one is could production One give update two your are on prototyping and on progress where with second And front. you expansion is, you on questions, the facility? plans? what's Israel going us on an kind of

Seamus Grady

Sure.

from Israeli-based in of won to it's of We've customers. on not interest high now. say, of customers, of and Israel some up in also existing have a hugely but revenue, Israel, all, from going of of, ours, right customers. Fabrinet -- facility lot interest new both exciting in we level new but with would a the level a huge business new have running, and customers business. very first in of customers of So new With terms and bringing a high activity I terms lot on important we that's It's

we're Alex, programs new new And of growth. if Of revenue still winning and turn lot know, with services won focus interest you you of other have The relationships is course, drive really of the the and is that to of with progress as activity have yes, NPI would on enabler, stage as lot prototyping to there of driving of ultimately, context, the then, customer that a quick and and there. manufacturing not very in happy the say late-design like, a and more necessarily and context, Thailand. introduction new goal in course, volume I business facility. is some product a much, very focus

The of with second the... part do to your question

Alexander Henderson

that, Fabrinet altogether? before customers get off Just to we of new those

Seamus Grady

Some are, yes.

the, are I customers also space, they're defense Fabrinet. and Fabrinet, say, in Some aerospace the would in to say, exciting but noncommunications and in other new such for and I and are, new automotive, that new other areas, would communication medical, segments as

busy really So of of and a It hot there. is yes, opportunity plenty bed very, very technology activity.

Alexander Henderson

Perfect. And Thailand? capacity on the expansion progress in

Seamus Grady

Yes.

So let's say, happen from have we like But unlike, very at it time, in just there evaluating a and our continue building, that to volumes because and expansion will attract customers happy, before Pinehurst main campus, a because campus. would our steps this much effect. until moving And and underway. it Chonburi full obviously, capacity who increasing say, excited we're into the there's in the is new same to building. we're build on move And with to already to I new a might be. what we're the a increased at quarters the next want has the expansion around seeing I lot would completed more project sense, fourth there. of several comes -- say, it's customers quarter, straightforward campus for the a in solution is to the expand you We've started take Whereas an busy production

Operator

for CEO, no remarks. will I'm I And showing over now questions. further any Seamus further turn to Grady, the back call

Seamus Grady

exceeded record pleased our in operator. have We're joining Thank quarter. all you you, first to revenue call the Thank income and and for today. net our reported guidance

the with Our MKM we meeting as in we December. at virtually look with and ahead the of strategy well you, Needham sharing success is conference you goodbye. more and working, look some as to in forward as November and you conference Thank

Operator

disconnect. Ladies concludes today's you may you for now Thank conference call. and this participating, and gentlemen,

Fabrinet (FN) 2 Nov 202021 Q1 Earnings call transcript