Earnings call transcript Q3 2023

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Operator

Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Third Quarter of Financial Year 2023. At this time, all participants are in a listen-only mode. [Operator Instructions].

As a reminder, today's call is being recorded.

to President conference of like Garo your now Vice Toomajanian, Investor would turn to the host, I Relations. Please go ahead.

Garo Toomajanian

Thank Thank you ended March conference good quarter of afternoon, us the XXXX. XXXX, results and Fabrinet's today's which year operating discuss call you, on to third and for XX, fiscal for operator, joining financial everyone.

be This With available at a Csaba Sverha, and me Executive Chief Officer; and section Investors the on the investor.fabrinet.com. webcast, Financial on call call Officer. of Grady, replay located being today will are Seamus website, is Chief our

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

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

risks could expectations. management's are uncertainties statements actual Forward-looking from and to materially to current results subject differ that cause

as statements this only These new date we as light future in revise information our and required no of or of events, presentation, reflect obligation law. them except to opinions of by the undertake

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

will the from We for call Seamus remarks and with time begin Csaba, followed questions. by

call Fabrinet's Seamus CEO, to turn over I would like the to now Grady. Seamus?

Seamus Grady

was you increase on Total a for Garo. quarter. EPS, both us the the call non-GAAP thank an you, of year We everyone, in guidance joining in and revenue million, from exceeded for and Thank ago. quarter revenue Good afternoon, XX% today. our our $XXX.X third

anticipated. $XX revenue million to headwinds second by the million quarter, supply impacted During $XX as

next a gradual quarters. and of few availability continue the over we expect to supply, further improvements in We component see loosening

performance above produced from guidance year $X.XX strong quarter, ago. a Our and the up our non-GAAP and solid execution of in EPS range $X.XX revenue

telecom quarter, both, for similarly Datacom primarily called supply a ongoing flat by than expectations. was revenue sequentially to we communications, detail. the due constraints, from This was more optical programs. in than decreased and constraints. revenue Revenue quarter communications, sequentially from commodity the photonics component was a impact more but at anticipated. little optical impacting constraints and as programs Looking our essentially specific better by last non-optical and affected semiconductor lesser offset to next-generation Within was some silicon photonics out growth non-silicon degree was supply

performance, quarterly As year-over-year a result, datacom we growth. record a and producing strong had

For we a relatively non-optimal communications, second stable automotive was quarter than revenue the our business year from was up ago XX% with and as more maintained strong levels.

fourth to corrections from we quarter Looking the inventory being immune near-term in are broader the experienced the not optical beyond, and ecosystem.

proxy a be product in headwind in for our not to are fourth revenue the inventory expect to impact areas the the of some absorption industry, we While we quarter. a

On gradual Longer-term, and in component market and the continue end to we optimistic position hand, other we execute growth our availability. improvements efficiently. the remain to we continue and drivers to our ability markets be intact, about see believe

with results that non-GAAP quarter revenue In exceeded third we summary, and our strong guidance. delivered EPS

a remain We some this supply improving to and execute confident but in adjustments in ability as demand in result as strong as persistent, industry are deliver seeing We the variability constraints. results. financial of our well inventory environment

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

Csaba Sverha

good and Seamus, you, Thank everyone. afternoon,

and also in faster Demonstrating from per non-GAAP million, Revenue profitability $X.XX, and was business ago for the EPS up of guidance earnings the with $XXX.X third our a than exceeded and XX% ago guidance model, X.X% above quarter. the Our revenue our up from year grew XX% our quarter. was share which from range. changes down leverage a non-GAAP revenue year second

at QX from decline from up optical, XX% slightly anticipated. a Looking detail. ago telecom down Within year in revenue more and up decline was supply ago, constraints million, the communications as which X% as was X% second but to million, from Optical semiconductors $XXX.X this quarter. revenue increased we This was last due revenue was of quarter. a primarily for $XXX.X in from used discussed a year product certain

This sequentially. was at strong revenue was and year X% anticipated up XX% revenue Datacom million. ago $XXX.X record a from level

telecom non-silicon than headwinds photonics revenue those supply potential, for offset constraint By strong photonics decrease $XXX.X rate restrained While due million, $XXX trends rate, impacted a more and faster which XX% year headwinds. to QX, primarily was from from million, demand technology, speed, products was revenue. higher datacom our supply revenue photonics from silicon and up the XX% XX% sequential from datacom record data XXX-gig products. non-silicon is products that By a a ago

million, After $XXX.X was XX% the year revenue record and QX, XX% XXX-gig down from QX. products from from ago a

strong to total XXX-gig see continue revenue we would of record rate million, from Non-optical revenue. growth, $XXX.X data was above faster communications moderate. As quarter, slightly believe products continue XX% representing to revenue our products second

year robust million, XX% quarter revenue laser with communications and from non-optical year up $XX a remained revenue Industrial ago from at $XX.X was relatively also last million. revenue QX. Other Automotive flat increased to from million. flat sequentially ago $XX.X and essentially a at

reconciliation the release is a our are non-GAAP press on I can metrics noted. unless you P&L, earnings to in find website. discussed in GAAP details Relations and of included section expense A investor presentation, of otherwise and our which non-GAAP provided of Investor As the our basis, profitability measures

benefit points from FX hedging program, year up from This We XX XX and and result continue ago. our includes this margin points become mild expect tailwinds in basis points of well QX. Based tailwinds. FX basis XX a was a approximately from very on to execute headwinds we to QX XX.X%, non-GAAP basis gross

Operating quarter or produced income of revenue. representing expenses in margin million strong $XX.X operating million, the of of operating This record X% were $XX.X an XX.X%.

loss per recent per with sheet at $X.XX to share. strong diluted quarter. the With the a $X.X increasing more balance end losses. quarters, our interest stable more This share, interest exchange quarter FX due from than the loss of offsetting $X.XX revaluations benefit the or narrowed rates. asset million in FX was to liability income tieback than in to our primarily rose and or Net continue foreign We to million $X.X

facility, GAAP diluted mid tax was GAAP $XX.X net quarter. discussed share. rate $X.XX of rate last was was year. we closure that On net in conjunction a and basis, Effective tax include Non-GAAP of million which an X.X% U.K. GAAP quarter, for $X.X the results per continue to in Note anticipate to the $X.XX the expense or our a income the with million per restructuring share. effective low diluted we in single-digits income our

the the was of quarter. balance short-term cash third statements. cash, flow restricted the to the At With cash cash, and $XX.X Operating $XX.X was end million, quarter, $XX.X the million. CapEx flow cash were Turning of cash second $XX.X of investments from $XXX.X million. end million, equivalents, sheet and flow million up free

quarter, approximately During cash $XXX.XX outlay XX,XXX at price bought the shares million. of average an with of back third we $X.X a total

As authorization. our $XX.X remained in of million the end the third share repurchase quarter, of

our guidance Now for fourth quarter. I turn the will to

market. customers we seeing the adjustments and indicated, components impact are the our optical Seamus their that inventory customers in As of

in revenue to expect a quarter. result, fourth sequentially be we down As telecom the

impact, Datacom expect QX. programs rate we certain in this from our the high to continued same data than growth is sequential While business headwinds, offset growth also more the resulting inventory experiencing in

We be up in to expect sequentially revenue strong automotive our to QX. flat

quarter. in fourth see million impact to of or the revenue QX to decrease the $XX of we all supply quarter. Considering continue factors, And half in this We expect million gradual these $XXX easing to million $XXX cost saw what we range approximately the of chain of trends. third to of the in revenue in anticipate about

we to turn diluted expect execution we have the headwinds mild in $X.XX income expect in perspective, range record fourth to extend profitability quarter. to earlier, net the anticipate per track That FX strong indicated said, been a experiencing will the the We non-GAAP in we be as share. $X.XX of our into fourth From quarter. we of tailwinds

non-GAAP above a performance guidance. summary, we quarter revenue our and EPS third delivered In with strong

quarter confident position variability. to execute by be optimistic we about And to our longer-term this in that optical Our to ecosystem term growth drivers. be inventory short the outlook and is in we expect market our well through continue in ability remain We fourth moderated adjustments communication nature.

Operator, we are the questions. now ready for call to open

Operator

first comes the Our question Samik JPMorgan. line from Instructions] [Operator of you. of Chatterjee Thank

line Your is open.

Samik Chatterjee

Hi, bit thanks for a late. jumped taking on my I question.

touched starting off order their So inventory I the conversations Thank I giving your of related with of sort you're more apologize remarks of and returns but the they are normalized duration quick with I'll color more the color something in a adjustments be a just nature prepared maybe you inventory any those of the to [ph] you. your that asking early, in follow-up. customers the any when them might terms you having digestion, terms of to And have pattern? or more on

Seamus Grady

Samik. Hi,

beyond So or customers. demand, component like demand that. we as to our think be inventory we're it's normal the patterns. back which XX we rolling a short-lived. back we're that, visibility during expect a relatively two then ordering quarters, situation. have the correction of We longer had to right forecast But demand and be you time, had to back horizon weeks had we've know, weeks something at great We crisis. XX to longer maybe do don't getting component from on really We We should the really now, more before the

Samik Chatterjee

that robust. here. currency to the relation Thank the And takes including volume margins near-term leverage continue well puts have? of a The can us the of thinking quite drivers, you'll for you terms you're color Maybe about in of maybe how be give as you. sort one gross to bit the sort particularly Csaba lower more if as and in

Csaba Sverha

for Thanks Samik. the question. Hi,

been FX In from recent the basis quarters. quarter, been of XX communicating gross point tailwind our had sequential the aided have we that past by margin tailwinds about that. have couple we So in

are As in remarks, mentioned this prepared we also tailwind mild to headwind I a anticipating QX. turn in our

now the results. these continue with in So tailwinds our overall, being no stabilized, longer we see baht Thai

However efficiencies. we continue to operating improve our

we demand longer-term model decrease, potential correction agile very and any So short-term fixed lived very small, even business base. a have cost or

we strong well. that will able we our be are confident So to performance operating maintain as

basis is rate has numbers. exchange the in earnings key been in tailwind again, QX our point from here XX-basis that three message So QX about approximately points amount

Samik Chatterjee

questions. the taking for Thanks you. Thank

Csaba Sverha

Samik. Thanks,

Operator

line Thank comes the Our you. from of Instructions] & next Needham Alex Henderson Company. [Operator of question

open. line Your is

Alex Henderson

Great, thank much. you so

me, basis headwind saying quarter going clarify, to a to basis looking so the you're the when about we point a to point excuse going XX hit operating Are be hearing? margins that Just I'm then sequentially XX basis June point we March should that what talking XX quarter? the XX-basis point headwind. at tailwind to -- XX-basis point to from a Is

Csaba Sverha

That's correct, Yes. Alex.

Alex Henderson

Okay.

great the there. in Just were metrics wanted sure to make that we

I June on you -- had So have amount go quarter, are you through the know the the do? sitting talked probably of continue of experiencing but the scenario who want duration a correction And September, we're and you that any to getting their know fair June how of December who this a currently with it inventory time don't conversations I beyond do on play OEMs necessarily in quarter? slope to kind inventory without the which is out partners what you that Or books, the your won't will over to the forecast, quarters?

Seamus Grady

Alex. correct, that's Yes,

we visibility end customer amount us, visibility worser say is, have of the mean further a the away I see becomes. let's certain So -- from we but

but the to for a network So to to the we you operators. some suppliers as turn supply supply who complete lot who supply companies, in of component produce, network produce system what complete the we companies the system we know,

more you away go, the further the becomes. -- clear the it So less

we've a something the inventory on it's indications we relatively think correction, two that. based maybe However, seen, quarters, short-lived like

quarter, this we seen. think quarter it's we it and to but relatively remains So next But short-lived. be think

Alex Henderson

those floor. last there to does can same question, that one component have systems of us the looks problem how business, some progressing then that have see the the obviously, what of and kind give on you And companies any The like, ramp business and component with? of clarity deal is the systems not slope I'll the

Seamus Grady

Yes.

of we're a The So beginning there one customers. number business. we just The system that you really was believe added have that business And again are recent pursuing to things DZS of transfer customers. new win but and And additional at couple existing we over at ramp mentioned mind, are system we've we customers additional DZS. is this to both keep time, business, completed, know, before. in and we're as most as stage systems there certainly still to a opportunities

confident make will sure secondly, makes of of be to the that we need or very content we us. We need we're a business business we're in either And win systems in all, really portion by those -- system component the systems. win about that making that a to the of large sense catalysts First selective to that ability for wins that cases, content, portion control. driven the we external large our don't many then is already

we and to quite to occur. So several we're it pursue for very have line that up but optimistic, closely, things

That new additional system we revenue us. to can think an margin business by significant a the customers said, time, we're very stacking cost positioned, savings that well level and for while for opportunities providing over provide eliminating of

you -- there's much we But continue until it. So very report have positive landed. be know, Alex, as we one and to excited there until about not to

pursuing keep those work we So and this just opportunities. hard on

Alex Henderson

question, wasn't really That Yes. Seamus. the

us in whether some in business? business about from of that's a it you organic quarter, thing. perspective? the be September So get sense June that should feathering thinking give the DZS And we that an quarter more that is, the but Or growth Fall question there's is I can how really

-- take down work to got inventory, to while for the it's them going a You little correct? to

Seamus Grady

Yes.

is we that you wins, that we think I our biz space. which -- I the remarks, mentioned prepared system largely at system lot Csaba mentioned a telecom have our of think look of in if lot about fits is -- what that a in business,

experiencing is impacted business, inventory the it's just correction. So network business system a correction. inventory that's that component also not It's by some

the but and optical business the the remains business by corrections. areas the are strong, telecom mentioned, very two component affected business as we inventory datacom most So

Alex Henderson

I'll in get Thanks. back queue.

Seamus Grady

Alex. Thanks,

Operator

Our Thank next Instructions] line Markets. [Operator from of Troy you. question the Capital Jensen comes Lake of Street

open. is line Your

Troy Jensen

results, congrats Yes, nice on gentlemen. first off, the

Seamus Grady

you, talk Thank to to Great you. Troy.

Troy Jensen

Yes, be here. great to back

So category? strength specifically up just the datacom broad-based that strength, in Or a nicely, but the is were just non-silicon was new obviously, photonics program wins? follow up that to on

Seamus Grady

wins. It's a little it's but of bit both, new primarily program

on. seeing of couple going things a we're So

rate all, XXX ramp driven the to centers to of we're data gig see, as XXX demand at excited largely inside -- XXX-gig can completed. and of the ramps, of but inside And seeing First products also center And we're ramp about. applications higher data we're gig you decline begin the new data that products largely gig center. and by seeing is now a XXX-gig as XXX starting see about quite inside data new that's we're

both. of bit little a So

ramping gig, non-silicon also So photonics-based beginning but new we're products of to well. ramp as XXX

Troy Jensen

remind Got of did it. gap, the I progress Building what's X, fill And of now All couple Building but and right. got to year you it guys, you a obviously how long in X? just with coverage take can me up my

Seamus Grady

Building XXX,XXX foot fully us a to Building facility. X, took it X probably total me foot square fill see, in X. Building let five years is a four, square million X Building X is facility.

about used with off at So to in would quite to before, off But say We on we Building I unlike the talk and Troy, spoken for. anymore. data and point. ground, don't we're a that But like X. statistics happy provide progress X this Building start we're the good occupied

Troy Jensen

All right, good luck understood. guys the Good work. keep and

Seamus Grady

much, very you Thank Troy.

Csaba Sverha

Thanks, Troy.

Operator

We Instructions]. from do [Operator JPMorgan. you. have Chatterjee follow-up Samik a Thank of question

Your line is open.

Samik Chatterjee

you thank for taking Hi, follow-up. my

a one quick Just there.

I digestion Seamus, mentioned telecom on side. think you inventory the the

Are being issues. on of that some So that of shortage just few there in situation sort of additional wondering times still obviously, that portfolio, in that supply haven't have a portfolio through we sort maybe dial we the gone like you most really supply of of you currently a components period even come where parts stands portions you're just on the any where of quarters, when is you back, lead still to seeing normal? in check are the the when of? back tackling supply and an headwind And is constrained the

Seamus Grady

Yes.

be I off, that the or longer taper in supply probably we that and Csaba's million a from $XX in are you which mentioned business. think But one and the in where we're two mentioned Telecom our split we away majority out So supply -- headwinds. Datacom, calling QX, to between of quarters the he seeing beginning telecom if remarks, take no will headwind

million it's really It component we Like a I quarter. longer to $XX a $XX this last hopefully. are I supply Samik, out probably headwinds, supply headwind situation. quarter. quarters And one was the normalized back to two So headwind think more million say, away no from we're calling

Samik Chatterjee

done that Okay, this any material and industry we should those that? relative a margin more edge in quick products XXX-gig think follow-up at XXX How now? the about on obviously right of gig there given in come that that sort being what's to gross already ramping. you're is at of your Is leading the the variation

Seamus Grady

products obviously. be margin pretty newer standard than margins better maybe But profile us, products, Samik. a aside are for generally No, the older bit that, would from little

Samik Chatterjee

Okay, Thanks color. the thank you. for

Seamus Grady

Samik. you, Thank

Operator

Thank you. [Operator Instructions].

Our Company. & line Needham of next of question the comes from Alex Henderson

Your line is open.

Alex Henderson

Great, give expectations and in that piece of that slowdown around thanks. the hoping was optical on within that for going us that could the What's your for I products. segment? big are non-speed quarter June what the some portion? a segment Is you content

Seamus Grady

Yes.

So rated Alex. you're inventory the correction. correct, The impacted is business by non-speed

we know, you one more product there. than As in have

there, but have correction. impacted We by than yes, one the that's customer that's inventory -- more in

rated a haven't And yes, broken it you impact or the we is business. the out quantified obviously, noticed, inventory Alex, this our for of you're portion us non-speed in actually is a of that of correction, As headwind chunk but correct, quarter. the

Alex Henderson

in was. are? what comments. give of revenues give normally I it indication number Can some you us what non-speed that You the guys didn't Csaba's hear

Csaba Sverha

million. $XX Hi, versus was by sequentially actually revenue the non-speed down QX about Alex, QX so in

about a rate. our sitting rated now, million $XXX quarter at run business non-speed right So is

Alex Henderson

that sense sequentially guide? into us you quarter? give Can any to expect the what you you do can June about of And the talk

Csaba Sverha

guidance not and provided way that, to haven't we down. This break is product-specific into -- We details. for intending goes are

not we expecting to it So are the down obviously, but number. be to

Alex Henderson

thanks. it, Got

Seamus Grady

Thank you, Alex.

Csaba Sverha

Alex. Thanks,

Operator

questions I'm any time. no further this the remarks. to call you. at back turn Grady showing Thank closing for I'd over to like Seamus

Seamus Grady

results. third you joining call operator. Thank We strong our quarter you, delivered for Thank today.

in As speaking Boston, JPMorgan market will attending growth ahead, again Goodbye. we short-term optimistic the the seeing we and we look you serve. forward we're remain month. execute periods that in look about markets can we to of trends you conference variability. long-term And confident with who during We well of later this those be the

Operator

conclude participating. and Thank Ladies today's for this you you. Thank gentlemen, all conference. does

disconnect. now great may day. You a Have

Fabrinet (FN) 8 May 232023 Q3 Earnings call transcript