FN - Earnings call transcript Q3 2022

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Operator

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Third Quarter of Fiscal Year 2022. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be provided 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

to and Thank Thank quarter XX, us call XXXX. you operator, of for Fabrinet's you, and which joining on good fiscal year With today's ended the me results for operating afternoon, XXXX, everyone. discuss third financial March conference replay on call Executive Sverha, Chief Csaba Investors the today is webcast, our at on being and website call available are investor.fabrinet.com. Officer; Seamus will and of section a Officer. the Grady, This be Chief located Financial

include will both our GAAP refer including our reconciliation. we call, this to measures. section for financial website and earnings Please press During non-GAAP the of our Investors present which GAAP release information, non-GAAP and important to presentation, investor

contain today's forward-looking about company. the of addition, performance discussion statements future the financial In will

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

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

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

Seamus Grady

strong in in operating at as the strong offset from headwinds solid today's was which XX.X% non-GAAP very third XX% and demand to contributed to everyone, execution our non-GAAP in you net continue perform million, record essentially quarter, $X.XX with which on to joining quarter Operationally, delivered thank for year income per grew ago within a environment. a guidance and range call. margins Thank very was Good performance a high team flat of continue conference Revenue $XXX.X and sequentially. supply the a of from afternoon, the you, Garo. chain us we quarter was We resulting level, share.

Looking supply remains our little to a remaining Demand biggest product with higher in robust, the more across all constraints categories growth. obstacle our at quarter detail.

During and team terrific this for to shortages, period managing component customers. way them. better and done we constraints our materials do a serve we products of to help job source for manufacture has alternative our One parts is qualify this customers these our

and but complex by are Sometimes require these end requalification more not well. customers at can times, substitutions validation, our just very other products straightforward; customers, and by their as

have alternative third good associated news the previously the efforts, had During the adding were programs fully been of the The to since we to $XX the shipment million have from qualified, customer million $XX supply revenue certain is these $XX chain-related products, that essentially chain requalification component impact that by shifted delayed supply these headwind and estimated resumed has fourth. we to an components the quarter third million quarter, estimated. already meaning

quarter color as driven and ago additional revenue the more this revenue, from up was grew automotive communications. our another By was both grew the the and history, communications area datacom discussed. sequentially and both in most XX% primarily sequentially. revenue on some highest provide the year I Non-optical strong me level markets, quarter. declined impacted by component had year-over-year, to we requalifications for sequentially by let Now, just strong third than but a revenue year-over-year sequentially grew end Telecom which optical

from impact customers business the suppliers automotive quarter direct or While in in we saw have region. in Russia small no other business our with the Ukraine, a

This at with time. total square meet for building our Building provide expansion, approximately from building XX% us nearly complete. which million square of capacity feet, demand capacity campus foot increases X, new X footprint customers to than and construction more existing some ample our will to million X to our by is Turning Chonburi new

existing in into certain the that discussions QX rapid experiencing excited to we're More during are expand earnings us already customers with growth new this on fact, call. In our building.

As fourth the at continuing. the look broadly, momentum quarter across of is our we more all strong business

component of excellent to Our team these improvement do are any signs not and continues chain supply but if an shown managing job supply have constraints anything, issues, increasing.

and guidance since execution in to substantially the $XX industry-leading fourth quarter, very to enviable strong across track in fourth drives the that That as the growth detail would of proud revenue as which benefit industry-leading execution, including of bottom to will moment, record year. managing very continue our have these As $XX both constraints strong said, headwinds, that quarter million confident deliver have I'm Csaba remain the not demand of the can team's supply delivering line higher, for for With beginning In been margins. in summary, expect we from a record trends top million margins. well grown that our profitability. we are if board, we our

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

Csaba Sverha

we year afternoon, from be good our in a trends to Demand healthy Thank ago. you, in reflected continue very markets Seamus, serve and as growth XX% everyone. the

million, in continues slight to within our demand third grew range. in $XXX.X supply-related to in guidance decrease headwinds sequential increase, also resulting which the quarter, was revenue a While

to from rated XX% our or sequentially revenue million, to from in gig million. of million, revenue. products from last per a products was total automotive million. of decline. of XXX an our million X% was gig silicon photonics up revenue XX% of reflecting represented Datacom highest the to QX, ago. the grew $XX.X due from X% datacom requalification was discussed. that million, XX% Non-optical and to sequentially, communications, revenue By sequentially. $XXX.X XX% at was primarily earnings $XXX.X optical, Within revenue X% delays second but down sequentially reaching Revenue non-optical Seamus quarter from mix increased communications was to $XX.X Other share record non-optical XXX of quarter, revenue decrease revenue declined million, new million total execution slightly $XXX.X of end were laser prior speeds industrial quarter, million $XXX.X moderated which non-GAAP with At million. silicon up was revenue up photonics Another year of technology, dipped revenue, the $XX.X $X.XX, X% Revenue consistent a more telecom communications modestly Within the revenue XX% sequentially. from up produced $XXX.X last revenue XX% By quarter. X% and optical strong history. was $XX which $XXX market, communications

of section foreign non-GAAP the basis can which otherwise As expense executed GAAP P&L, by Investor expenses Relations I of of noted. website. on $X.XX our approximately investor the year non-GAAP are Non-GAAP tailwind. release is record discuss details exchange or revenue. X.X% fiscal $XX.X XX.X% third we in of well to operating for the income Gross million, provided continue in was our net diluted XX.X% basis, and This with quarter. revenue. which reconciliation anticipate million further the or very a second quarter, you measures GAAP the million in metrics our of in assisted share, consistent press included the find quarter reached $XX.X presentation, in profitability per resulted Operating unless our was and a slight tax to Effective was quarter or is income in We was record and performance. net that margin $X.XX X.X% diluted were of earnings tax X%. will and income rate per rate be On A our $XX.X share. a

flow third end cash, were At restricted million cash $XXX.X With cash was CapEx of and of flow strong, $XX.X was million. $XX.X the free $XX.X down from Turning second the the sheet in to quarter, cash million the the of balance million, Operating million, and quarter. flow end $X.X quarter. statement. the investments cash

XXX,XXX buyback cash we price $XXX.XX million. quarter, the at of an total $XX.X activity increased and average repurchased of outlay for shares a During our

share authorization. in $XX.X remain million result, As our a repurchase

I will our the fiscal to turn XXXX. Now quarter for fourth of guidance year

remains $XXX the revenue guidance We to Seamus This fourth growing very the $XX million constraints, quarter. which the million the million in demand of strong in be anticipate quarter. our includes across of $XXX impact in for As to supply services $XX we indicated, fourth to range million our business. estimate

to fourth In $X.XX to to execution optimistic per are pleased net the $X.XX business. we share. We that the with our execution trends demand extend quarter will strong into non-GAAP diluted and anticipate are see of the range our our and positive continue be very across we summary, in strong we income

and revenue we ready pressures, chain the questions. to that quarter. in We call able we profitability fourth both growth open will are supply are deliver be in optimistic sequential Operator, despite to now for the increasing

Operator

[Operator Instructions].

question Our comes first Needham. from Henderson Alex with

Alex Henderson

also to on of in recalibration go the quarter? quarter total will to requals well qualification positive somewhat products, time. wanted the September the impact back I holding but the processes the datacom bit quarter take so quarter? and also a cover sequentially the March often does April quite so the that impact quarter Was of that it's June into as that the Or June So somewhat probably full positively as impact

Seamus Grady

have a we is in is now. this little -- impact qualification longer so quarter, in the up. QX. was we behind weren't us catch in to QX. came the would The the the the at liked able to. Alex, right end It was impact Seamus. Yes, took full than bit Yes, Unfortunately, of That

the in and the QX. So was therefore, full benefit be impact QX, will full in

Alex Henderson

Okay.

additional actually by that supply right? no of created Is So supply are mitigate that that those the constraints. some there's constraints requalifications helps

Seamus Grady

others additional us. time not that done time there and to specific Yes, but certainly That's that's There's other that issue and supply say from qualification. to is will behind no due constraints, to won't pop particular constraints that be correct. particular up

Alex Henderson

Okay.

to So China everybody's of supply clearly, difficult chains evaluate. mind top the terms lockdowns pretty and us of in are for on in

have So can currently sort. China? aggressively? being either of out and locked are any is things as impacted down that are like it And about you that comments your be in the of you that most that around give supply which are What to products of boards emanating might things that chain out your might talked to being China embedded us quality circuit of of degree X derived portion the kind regions is exposed

Seamus Grady

Yes.

thus chains. impact on has mean, as puts been just pressure the similar I think proportion more demand increase contract issues. supply would -- significant our the supply fairly the be supply they in But global to chain very certainly of the not exacerbated far. manufacturers. from The other lockdowns, I be headwind supply us standard biggest continued to QX, standard -- on In parts, chain our

earlier. about requalification talked million by an that that, was beyond stretched persist the and expect from been -- we But $XX in demand we've guidance impact actually, headwinds QX China. an requalification impact the complete, issue we included to haven't due again, additional further while increased and to our of by And the Now, QX, million timing supply $XX chain that will probably into we impacted of hugely headwinds. of is

been that. actual by material comes the lockdowns have in But we recover lockdowns going the to on Shenzhen. I scrambling, little think end the logistics of not towards do more we say, from impacted component thus we of supply. But scramble I far, But lot in to of A Shenzhen. a impacted bit were through the China. quarter, would and it than again, able had while significantly

Alex Henderson

full impacted by XXX% $XX that into are to that's hear. Can ramp the those then reflected when systems to million the And companies? which backlog to relative I product way $XX much account taking -- think to a cede to question, bit or at in What's in degree million from million, your a you your One have about little you That's benefited? and to how in systems the $XX that the and not good any customers? that year existing on about to talk you're market, your outlook floor. you numbers assume XX% last the the million. your how $XX you of going in I'll

Seamus Grady

that think to -- is a interesting unless No, not us, maybe but I what's into particularly have, a for translates because year's yes, it it's backlog relevant increase might of the that us. more huge be they full backlog,

some more effective external predict, successful. can external sense wins be already by customers it lot new where for we're pursue to that's at and know, most more Timing customers. and new we or system In of factors. catalysts wins, new hard -- they're and existing content, where continue of making a sometimes it's as where the situations us the makes and some to usually you driven Alex, very We

remains optimistic that be. and in system But guess is that our the component be to will thing remains only very our when now demand growth the we're strong. supply. wins strong, there as future, the demand more And can't say. would limiting Overall, strong, however, we So might the I revenue right

Alex Henderson

So coming this you seeing at the that on you in the point. fully systems to lines it We're now are apples-to-apples result customers growth have side, as correct? any on projects what is extraordinary systems of had, opposed won, new a as up they not

Seamus Grady

in That's ones growth grandfathered past big nice seeing, in point. are that correct. at we've we've And essentially been this X And growth. the the talked about that the

systems in growth. systems If It's you without QX, those additional those growth without very look it's at in QX. in our year-on-year nice growth,

Operator

Instructions]. [Operator

next from . Samik Our comes JPMorgan. with Chatterjee question

Angela Jin

Chatterjee. Samik for on Jin Angela is This

that you've you is high pricing gross issues? were all supply margins? And seen a tailwind gross On the line, on margin gross the years. in are the how highest there margins, We gross current margin we've posted wondering, despite maintaining

Csaba Sverha

Hi, efforts Angela, our mainly this Yes, on is cost indeed we margin Chaba. benefited line. gross reduction from so ongoing

whatsoever. pass the without typically on on them We supply-related So our no pricing up. is customers there headwinds marking or

no definitely gross tailwinds is the through margin there coming pricing-related So line.

XX improve our exchange So continue addition, in we the to quarter, the we margin. basis gross in rates. improve saw structure cost last from benefit point and And

and So X in is in our depreciation most labor saw base last X of a months. cost Thailand, to the we

were bottom able in basis extra do last our hedging line an XX the quarter. As we're to executing points we strategy, to

Angela Jin

it. Got

So barring what be quarter. that, you last [X.X%], about that's and posted you'd

the guess moving becomes, XX.X% that question of So it the sort I new margin even or is sustainable, beyond gross forward?

Csaba Sverha

to but cost we Obviously, is margins, reduction we working continue are rather gross hard are not And guiding unpredictable. efforts. rate obviously, our exchange

we our range. cost So best think maintaining it, the in about say terms staying margin target reduction way strategy I and in been our the and executing to would of have gross

exchange about the really articulating reduction it cost way best from on we efforts. think we be any look will rates, to think see that. and I this So is And communicating if forward benefits to

Angela Jin

any how million big before of possible it. give is or cede to quickly, headwinds, might And sort Got of a floor, Okay. sort that or just that Ukraine in is window part in from $XX supply be China impacts the to million I of become? it impact us then that of or $XX any Russia, And embed macro? into that

Seamus Grady

supply Yes. Russia. we side, No, on the have don't either suppliers any in not Ukraine or

impacted and of Some particularly cables of they our customers, on of been the have automotive either lot But source harnesses out Ukraine don't Russia. directly. We in Ukraine particular. suppliers were because haven't or impacted cable side, in a we

Operator

closing at questions turn I'm Seamus like to the in showing further queue no back for Grady time. this to call remarks. I'd

Seamus Grady

and record to today. line trends bottom chain again. result We're Thank team we with you We demand call our forward navigate for optimistic supply strong joining speaking to the fourth top will look you execution industry, in quarter. as our Goodbye. in from impacting and that continue the excellent constraints results

Operator

conference today's call. participating. Thank concludes for This you

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Fabrinet (FN) 2 May 222022 Q3 Earnings call transcript