Earnings call transcript Q4 2023

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Operator

Good afternoon. Welcome to the Fabrinet Financials Results Conference Call for the Fourth Quarter and Fiscal Year 2023. At this time, all participants are in a 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 Vice conference President like host, to now Toomajanian, Garo of would turn over the your I Investor Relations.

Garo Toomajanian

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

With Csaba Sverha, and me Executive Chief Officer; the on Financial call Officer. Grady, today are Seamus Chief

our the website and webcast a will Investors being section on of at is call This located be replay investor.fabrinet.com. available

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

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

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

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

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

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

Seamus Grady

joining call us Thank you, our for everyone, Garo. on you afternoon, thank Good today. and

revenue earnings $XXX.X grew year million Our ago. a fourth exceeded of Revenue quarter per XX% share. for performance guidance and financial our from both

quarter. share earnings helped which to of We non-GAAP continued to margins, operating $X.XX the in generate per double-digit produce

earnings experienced second and the our the reflect to of Our strong encountered supply per operating XX% that the XXXX, year. year-over-year. financial increase that Revenue an year and grow the we share than the headwinds non-GAAP of in margin we $X.X half over XX the of to for from expanded billion And demonstrate points continue results execute in generated early we execution. for through year. to XX% XX.X% record $X.XX, more of inventory adjustments Non-GAAP ability fiscal year we increased basis as

the at Within and telecom and in a revenue offset inventory a customers for result telecom communications, flat decline more sequentially sequential sizeable fourth basis. revenue in growth detail. on Looking quarter digestion year-over-year communications. at Revenue optical was decrease essentially The both saw optical their was as in the revenue by record of datacom customers. our

and more fact, XX% our This In more from declined data business, grew In revenue datacom from of one sequentially. driven a revenue sequentially. increased but an communications by non-optical than datacom program growth XX% than was slightly center customers. year ago primarily ago, our AI a doubled for year transceiver almost XXX-gig

expect our beyond, quarter first the inventory are to persist. correction customers we and that to Looking experiencing near-term the

we our However, largely the saw in quarter. fourth performance quarter first in confident headwinds fiscal to that are the continue these we inventory-related very offset datacom will strong

overall we're potential growth AI-related we position, in as the fact, about ahead. continued for optimistic programs our look very In market including

contributed performance for fiscal the year. quarter to fourth solid record our summary, In results full

industry year. coming position in results that about excellent deliver excited and are to We financial confident strong continue can the our we are

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

Csaba Sverha

Seamus, you, and good afternoon, Thank everyone.

performance quarter. This ranges guidance $X.XX. a $XXX.X bottom-line, strong share were above was our in from down fourth the non-GAAP X% from up to Revenue the EPS quarter. resulting the of per third XX% ago and fell in and Revenue year million, earnings

Lumentum contributed year. In we that more XX% Nvidia XX% followed XX% the $X.XXX each prior at an billion, revenue. at had and XX%. four by of from Cisco to Infinera contributed was For the XX% XX%, full year, XXXX, at or of customers fiscal revenue, revenue increase

top in industrial datacom, diverse customers range XX revenue of of included XX% a and made together laser automotive up markets. telecom, and customers Our

ago Looking X% at flat revenue year up essentially QX. with in more detail, optical and was $XXX.X communications a revenue from million,

telecom from XX% a XX% Within $XXX.X in revenue was ago third which million, was This due the was to from primarily optical, industry. down and the inventory quarter. adjustments decrease year

XXX% the record year-over-year in year revenue was from hand, saw in XX% for and $XXX.X an increase ago datacom program growth On biggest with XXX-gig of and an million. to quarter was growth from increase history. the our applications. datacom AI the sequential This other fourth contributor quarter. a Datacom tremendous largest growth the represents revenue our of third The a

By technology, silicon adjustments sequentially photonics we inventory the to due revenue XX% of $XX.X million declined discussed.

to from By XX% from from a a grew up from was and record XXX-gig new up XX% programs from rated QX. down revenue million, $XX $XXX.X products ago year Revenue faster, QX. a XX% and XX% million, XXX-gig from ago and of speed, year

and to XXX-gig as products momentum. continued million inventory from anticipated, $XXX we of revenue. XX% rated products was decline communications digestion As optical to Revenue from revenue due faster products non-speed or gained XXX-gig and

was up from and quarter our a ago, XX% year revenue third but $XXX.X representing of XX% communications record Non-optical from total revenue. million, down X%

Automotive down revenue Automotive prior the year QX. $XX.X a was X% from of same but up from continues ago, as to two availability. reflecting range revenue quarters, improved XX% in be the million component

down million, QX. XX% revenue Industrial $XX was laser from

non-optical XX% $XX.X QX. was revenue a up from from XX% year ago, but million, Other communications down

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

XX.X%. the in margin quarter Gross was

fluctuations basis from and to As QX points about margin our anticipated, due gross exchange foreign declined hedging currency program. XX

higher adjustments. one-time were X.X% revenue, anticipated year-end Operating expenses and $XX.X due to slightly quarter in some than the or of which items was million

from was $XX and asset We well at liability $X This which gain million increase produced of operating income, as foreign quarter. the of an as the XX.X%. currency representing million, interest revaluations million, operating income a from of an end margin $X.X of benefited in

rate GAAP tax the was year-end fourth quarter, Effective X.X% reflecting in adjustments.

our was in fiscal rate the effective and tax our year, XXXX. in that remain anticipate X.X% we tax digit mid-single will the GAAP rate For

income net income per GAAP share, was diluted guidance $XX.X Non-GAAP On or per our was above a $X.XX share. diluted basis, and range. net $X.XX million,

the year income fiscal increase diluted year from were an For $X.XX increase the of per XX full XXXX, a operating year; from margins net points record XX% share, XX.X%, of a ago. basis non-GAAP an prior was

significantly fiscal As EPS in XXXX, revenue outpaced growth. growth

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

a free Operating million, was cash record $XX.X was also quarterly of quarterly $XX.X CapEx cash of with record. flow $XX.X a flow million, million,

operating we generated a free cash million cash flow of year, record For $XXX.X of $XXX flow and the full million. record

We We were average $XX.X to outlay favorable at fourth active the XXX,XXX market of advantage price an over with repurchase our quarter. conditions cash million. $XX.XX took total share of a program of repurchase in shares for

we For XXX,XXX reflecting our outlay approximately total the shareholders. year, and shares return value cash a for commitment to of drive capital repurchased full to $XX.X million,

$XXX available million additional resulting currently share Since then, authorized the in $XX.X XXXX. of $XX.X result, Board an our at for in a our has repurchases. million repurchase fiscal authorization for As remained million end repurchases,

turn will for our the I Now, first guidance to quarter.

effects We our and application first this datacom quarter. adjustments. the that customers We to continue high AI new be their data into for impact rate strength revenue. at telecom will the customers programs inventory largely expect offset These primarily inventory adjustments seen in in believe will of our

flat. be and relatively automotive to laser revenue industrial expect We

We anticipating therefore, total are, fourth between quarter. the quarter that $XXX higher We moderately will be first revenue revenue $XXX million and anticipate be to than million. the in

From margins to annual a seasonal increases. expect we merit perspective, pressure quarter, on profitability first in gross our the due near-term

expenses prior operating of continue efficiencies $X.XX expect to the return behind the be diluted account, work non-GAAP year-end income to deliver in to adjustments executing range. we share. With into we range these our in to way years, to us, we expect As net Taking factors to and anticipate year. $X.XX to the per as expenses X% we through well improving operating

successfully through guidance fourth quarter some our industry exceeded unusual we summary, dynamics. while In navigating

these to extending as While healthy our by negatively has largely new on inventory of deliver been our enabling track execution. records continue to results programs offset headwinds, have strong business we focus impacted absorption, us

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

Operator

Our Instructions] comes from [Operator first you. question line Thank the Needham. with of Henderson Alex

is open. line Your

Alex Henderson

every customer I so across that because the literally out be September some guidance. of every eight- had advance that across their you out of great be Fi, service production single and be Thank a provider they've at Adtran, know it know Juniper, them virtually that guys whether that dozen much. flow really here business sharp in of guide OEM you've there's whether solid whether XX I at be decline at lock-in companies, there, decline Cisco, Great. XX-week the pretty looking been that board, in news and window. to days a a the quarter quarter, mean, at XX% you declines one weak And a in good XX-some-odd-percent the given whether I but

going you does nice out, and So, unusual give is September any bad clearly, situation late? of bad might like quarter. this relief in quarter for of ask, you to December a seems I quarter and less seen what's to us the September this July on in news based be from on in therefore give timeframe what know don't that while that timeframe, the can is an sense but like it and a lot June guidance situation us require you've a the that news, came of also representative

Seamus Grady

let's is Alex. that believe is digestion the experiencing, guide. headwinds Hi, everyone I into September our factored We say. the say couple -- industry things that Yes, a quarter really the of headwinds would and inventory

look overall significant at datacom primarily is And let's in if QX our at a business. digestion. by transceiver primarily call driven our business, it, look driven business business by you transceiver, down, inventory is telecom up you AI nicely, our results, AI If growth our

way, in what's the all feel that with front of representative. representative And September this So, something do the I'll we it's is don't deal we're We put we it of missing in us. it's really can guide. have. like business we Alex, think

datacom We XX if time, on, essentially our rolling seeing is you from one short we're our weeks quarter strongly. going forecast were of at rightly distill a guide We have down what a business it you kind to up out. snapshot, a point customers. into But as

down think is business telecom we because that inventory digestion, back. of will Our come but

therefore, when... So,

Alex Henderson

on continue bit ability capacity capacity that availability? a the terms for look large ramp Thanks. your you of ramp number availability AI. does to going pretty steep That's very in Datacom from What talk in Could piece? of little like to a terms a the a zero year-over-year basis, about in the slope essentially

Seamus Grady

Yes.

ample So, we Alex. have capacity,

know, you As we the X square million foot in X facility opened recently Building Chonburi.

we have ramp what expand and is and capacity as kind is That's but buildings ample steep, more lots of needed. has have the The burst we the provide do. room one we of So, of customer capacity to when build that's a very lots There's that make of very services let's ramp, large ramp, have of the we not not always, we're provide a services the is item. we items to the sure the but sure pacing we're pacing ability pacing item. to other, say, one make steep we

on very Alex, focused very confident... we're So, we're and that,

Alex Henderson

totally have testing, that which in in you customer line the datacom. it install to factor some get of I Seamus, other understand, and the but in, equipment must order ramping needs to capacity gating is to terms that visibility

Seamus Grady

that, it Alex. really us We to speak do, correct. but That's be wouldn't for to

Alex Henderson

answers. Thanks. Okay. candid Thank you. appreciate I the

Seamus Grady

Thanks, Alex. you. Thank

Operator

Thank you. question. our Please for standby next

question of line Our with next JPMorgan. from Chatterjee Samik comes the

is line open. Your

Joe Cardoso

of it of of Cardoso this the this are your in seeing digestion is given in relationships first follow-up. we're quick Chatterjee. the Like, Samik your about two-quarter industry, there a with how is just telecom you Is customers inventory through? industry. on is at Thank on question longevity that digestion this in at I Hi, in And Any and be that some going would you a think this terms time I Joe the to any kind of folks visibility can time? My guess current you're provide point I experience have the it for your just that, cycle thinking lining around then, helpful. historically guys digestion. pointed about color like to have you. that up the

Seamus Grady

their distinguish it's us of customers to digestion, in difficult changes quite to causes, inventory from demand say, customers. specific it's difficult patterns or from the of So, for order a call, and let's our and between one

We that committed chain our XX the have and during not really seeing weeks customers, getting returned we're we longer-term crisis. to from orders the had visibility supply

not order size inventory they to is us And it's tell demand but the inventory talking are about tell us why possible So, what you patterns, what for what demand. it order underlying back and me. everyone normal if in is the digestion, XX-week our follow don't customers to the digestion and really necessarily is change while is, is the

we're timing I suppose quarter secondly, be be digestion made inventory is the quite that this the to -- until to seems we seems calendar like the see the the towards to know. part industry at two have in to and, end as it have we'll have we're difficult everybody -- for quarters else, be of that We reluctant to this And call the And observations of year, it calendar same of I about. a patterns others we about early orders, We think the precise XXXX. the the timing start of us wait just two get to that's hear same but hearing. point. of purchase to normal But see and should what come we back kind order don't just

Joe Cardoso

for the And tremendously guys well Got guess you I -- just AI opportunity to it. around Do you program it? current it, with appreciate current different the around -- Just around win customer just it, thoughts doing opportunity in in won. additional perhaps beyond you. this curious any the you you call guys No. any like my materializing just program I a your that that Obviously, I expanded way? opportunity supplier. the is datacom. in? I'm for you're is should current what curious the Seamus. you're hear maybe you beyond XXX-gig Is did Thank an to to that have and follow-up visibility just customer

Seamus Grady

Yes.

let we're going and like, all, So, on out, and we're is coming say that program business. ramping couldn't we'll it's AI contributor as rightly in you decline customer, is revenue one now, speak we'll a we if itself, let it's What program of growth timing in and break you telecom from -- out, The become not to first very them rates point better helped our really not right has to to -- going them because what's the really. have meaningful particular can and fast, that, the really us our that business. been obviously has absorb to the

and very this much the just But of very believe, early very early of we long of this this into days. very the opportunity, trend. cycle couple also in very, what days we're really a program understand, believe as we much and it in We're long a a quarters we will be

looking expanding, So, that but have with programs customer, also multiple say, beyond -- one customer we're to currently. to we base beyond forward let's yeah, the definitely

seem to does really nothing very it. significant this but at to we're announce a about represent it excited So, point, opportunity and very

Joe Cardoso

Appreciate on the Seamus. responses, Thanks, the and congrats results.

Seamus Grady

you. Thank

Operator

next question. Thank you. our Please standby for

Capital Markets. Our next question Savageaux of comes with from Northland Tim the line

Your open. line is

Tim Savageaux

Hey, from good on the as afternoon, quarter. and well congrats me

Seamus Grady

Tim. you, Thank

Tim Savageaux

terms quarter of terms expect and in been kind continued of flattish you is fourth a in telecom flatten missed I to I do expect the that have that the maybe strong in significant increase decline a but continue -- if I bit? saw it, or than the little And out you although, have datacom, feared, to a in in kind follow-up. clearly of better overall, know might you of You don't trends which guide, do

Csaba Sverha

I be sequentially and Csaba. Yes, are similar are out QX, is a to our This be we up. Tim. expecting telecom Hi, pattern pointed we anticipating we pretty in to in QX. are datacom anticipating that down

that And anticipating quarter-on-quarter. laser, changed are really and also haven't trends be said to auto we the flat. we So,

auto up; datacom, and laser. and down; flat, telecom, So,

Tim Savageaux

on in is try we a to QX, movements the degree very you that, the guess telecom. you just sides? When what I in declines both a little in on that increases I'd saw back significant is expect for continue more volatility which given very of to expect, pattern, similar color come Okay. significant say datacom, big

Csaba Sverha

Yes.

Tim Savageaux

-- yes? Or

Csaba Sverha

correct. is that Yes,

Tim Savageaux

access follow-up or to want systems I the side. great. Okay, on PON

what a it your DZS, a to at But guess, deal material with I in ramp going between point, would material get all to with for take pre-existing And and that's you? mean, I QX? while to up. you at that fiscal You recently. to relationship in start expect was I imagine announced that 'XX Nokia

Seamus Grady

anything like wasn't important their Nokia, But the to that I it So, want piece Nokia, in in if it material think help significant important with with impact, a to first material XX% to say. I the it's of us it's happy all, believe customer we important onshoring you not. important wouldn't hugely will It's relationship or QX, a of we're to And of you be a an don't it's revenue that. sure business. an -- the hugely be driver, expanding I or business revenue and terms them would but take for thinking it's It's Nokia, with very, deal. We to it's activities. important leave very

Tim Savageaux

a given neck maybe little more same woods of of Well, or they're kind the in competitors. the bit broadly,

the on at of refocus timing If fiscal in question decree including in general, in and area materiality systems you 'XX, DZS. of access the look maybe terms that

Seamus Grady

also, But is you days. onshoring space, our access both the Yes, it's introduced our DZS focused -- at XX difficult Tim. forecast. it's in you location customers. it's like if for is like, our really onshoring of call say introduced. number, manufacture Nokia's if there's you a think the to for Obviously, in getting we in opportunities now We're -- products our And in lot if Thailand is friend-shoring. It's opportunity numbers, our in but a on and generally point, it, this the QX to there friendly in generally.

difficult it point, very Tim. on be that, size to at very this focused we're So, it'll but

Tim Savageaux

Okay. Thanks much. very

Seamus Grady

Tim. Thank you,

Csaba Sverha

Tim. you, Thank

Operator

our Please Thank for question. standby next you.

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

open. is line Your

Dave Kang

what impact first is, afternoon. question Yes. fourth for expectation quarter? And quarter? upcoming Thank the Good supply you. in was My this is fiscal what chain your

Seamus Grady

you level. at news supply our call, chain the out everyone earnings So, And that's and in supply and QX. Dave, about -- environment just really. don't we of that really we we The back if need constraints revenue headwind that very point. the panned And a had we're out levels last $XX that manageable call had it to at is was impact million continues headwinds, normal forecasted faces. that supply challenges now considered from at for way to look this considered supply good about there thereabouts, or the feel improve It

not So, calling number we're out specific unless considerably guidance, won't in something in actually -- not changes we any we're and our the future. QX

Dave Kang

year XXX-gig Got is tailwinds: now? XXX-gig it. Have to or which and they And the you of is, three quarter, expect intra-DC tailwinds the so last ZR for for do you you year? And about since three intra-DC, fiscal my then? strongest next follow-up XXX-gig And calendar talked DCI. remain you changed them

Seamus Grady

Yeah, fiscal year.

they I all think remain tailwinds.

if which datacom, than positioned. largely The put by think if be driven terms very positioned. really I center three biggest then I AI by think to areas, opportunity followed the program, probably growth significance, in and offsetting I XXX I declines We're rank terms XXX-gig, these transceiver the of ZR think the again data order in ideally growth of they'd think I XXX-gig we're had in would the telecom. in them that's the in more We is But like, we're them. product you excited. ideally

datacom sustainable future, long is is the telecom in growth the and comes back, term. think So in as we

should benefit back has digested. comes inventory think the after we we when been nicely all So, telecom

Dave Kang

is change? of rankings you be just be or they fiscal clear, expect as could to kind those in And remain 'XX, to

Seamus Grady

the could I three two think maybe and change.

XXX could is growing say XXX growth ZR But outpace Let's ZR. nicely. XXX-gig

in customers of area, nicely. that number growing It's know. a have as you We

say and opportunities sizable center, well. ZR would followed So the XXX-gig data by inside those the biggest is XXX-gig growth of both then XXX or either opportunity I represent as

Dave Kang

it. you. Got Thank

Seamus Grady

Thank you, Dave.

Operator

turn you. to Thank closing I At the like remarks. Seamus this back time, to would for call

Seamus Grady

long-term and environment We you we We remain forward record guidance strong remain we produce fourth quarter trends ranges. Thank to execution, in continue executed the positive with to Bye-bye. speaking a well dynamic our of today. in about optimistic the our exceeded markets serve. well results you for that look joining call positioned We to our track again.

Operator

for Ladies this and today's participation. your conference concludes Thank call. you gentlemen,

disconnect. now may You

Fabrinet (FN) 21 Aug 232023 Q4 Earnings call transcript