Q3 2020 Earnings Call
The third quarter fiscal year 2020.
Time, all participants are in all the snow.
Later, we'll conduct a question answer session and instructions on how to participate will be provided at that time.
As a reminder, today's call is being recorded.
I would now I turn the call or what's your house Garo Toomajanian Investor Relations.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinets financial and operating results for the third quarter fiscal year 2020, which ended March 27 2020 <unk>.
With me on the call today, they are Seamus greedy Chief Executive Officer in trouble Chairman Chief Financial Officer.
This call is being webcast replay will be available on the investor section of our website located at Investor Dot Fabrinet Dot com.
Preferred to our website for important information, including our earnings press release, and Investor presentation, which includes our GAAP to non-GAAP reconciliation.
I would like to remind you that today's discussion will contain forward looking statements about the future financial performance of the company.
Forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from management's current expectations.
These statements reflect our opinions only as of the data this presentation and we undertake no obligation to revise them and might if you look for nation or future events, except as required by law.
<unk> the risk factors that may affect our renewal.
Pretty widely <unk> SEC filings in particular, especially caption risk factors not form 10-Q filed on February four 2020.
To begin the call these remarks from Seamus internally.
It was my time for questions.
I like to turn the call them to cabinet CEO, Jim is great Jim.
Thank you girls and good afternoon, everyone.
Before we disclosed the details of our results I would like to tell you about how we're handling covert 19.
We're very fortunate to covert 19 has not impacted our ability to keep our factories running globally.
Needless to say, we greatly appreciate extraordinary efforts over employees and their families.
Suppliers and of course, our customers for their continued dedication and hard work during this challenging time.
We've taken great measures to ensure the safety of her employees and their families and we're pleased to report we're operating at a 100% capacity and that are employees are well.
Extreme flexibility decisive responds to the crisis excellent leadership and teamwork together with excellent partnerships with our customers and suppliers have just make immediate changes to our build schedules and operation protocols to meet the volatile demands resulting from the crisis.
We came to know about the cold 19 dishes from cases, our factory in China in late January.
Information received from our staff during the Chinese new year was very disconcerting.
This was reported to be similar to the Sars Mers on 2003.
We immediately implemented all of the measures taken in or trying to factory across all of our factories, starting the first week of February.
We continued to enhance the measures as recommended by the C.D.C. The World Health organization local and federal governments of the regions, where we operate is what is based on our own research on the subject.
The measures include monitoring body temperatures of all people entering the factories cutting down in visitors.
Dining visitors from regions heavily hit by the virus mandatory social distancing.
Frequent washing of hands wearing face masks.
Shopping large group meetings, providing disinfectant in all areas of the factories and special training of stuff on the symptoms and precautions to be taken in the factory undersold.
We encourage stuff to work from home where possible on Monday, So that's all vulnerable stuff work from home.
By mid February we started disinfecting all material coming in to George was virus free before it was issued to the manufacturing lines.
Despite the challenges we faced we demonstrated the flexibility inherent in our business model to produce financial results that were within our guidance range in our fiscal toward Walker with revenue of $411 million a non-GAAP net income of 92 cents per share.
This nimbleness also enabled us to generate significant free cash flow.
Looking at some of the details of the quarter or high level business mix was relatively consistent with our recent history with 75% of revenue from optical communications and 25% from non optical communications.
Optical communications revenue of 309 million was down 4% from the second quarter, but all 3.5% from a year ago.
Within optical communications Telecom revenue was 224 million down 10% from the second quarter, but up 3% from a year ago, reflecting some inventory adjustments associated with certain next generation programs.
Datacom revenue of 85 million rebounded nicely and was up 14% from the second quarter, an up 5% for me here at all.
By technology Silicon Photonics based popular communications revenue increased 5% both from the second quarter and from a year ago to 86 million and represented 21% total revenue.
Revenue from Qsfptwenty, eight and QSS P. 56, Transceivers also continued to grow and was up 7% from the second quarter and 17% from a year ago 51 million or 12% total revenue.
My days raised 100 gig programs grew 1% from the second quarter.
And 10% from a year ago to 161 with it.
That's raised at speeds of 400 gig and above declined 41% from the second quarter book grew 25% from a year ago 29 million.
Looking at our non optical communications business revenue of 103 million was essentially flat from the second quarter and up 2% from a year ago.
Demand for industry lasers was also flat sequentially with revenue of 46 months.
During the third quarter, we reclassified certain revenue from other non optical revenue to automobiles to better represents the end market being served as such automotive revenue was 31 million and other revenue was 22 million.
Excluding the impact of this reclassification revenue from automotive and other non optical revenue would have been consistent with the second quarter.
Sensor revenue was 3 million.
As we look to and beyond the fourth quarter. It's clear that there is extraordinary uncertainty ahead like this I wants to share some thoughts on how the covert 19 crisis could impact our business going forward.
On the one hand with work from home protocols in place around the world demand for Internet bandwidth has grown substantially.
Clearly the next generation telecom and Datacom products, you manufacture for customers.
You make up about three quarters of our revenue are critical to expanding network capacity. This will continue to be a positive driver for fabrinets.
On the other hand.
We could continue to see regional downward demand adjustments if outbreaks return.
In addition markets for other products you manufacturers, such as industry lasers, and automotive are likely to see reduced demand in a prolonged economic downturn.
Our approach toward managing shifting customer demand remains unchanged.
Our employee welding remains our top priority and that means we will continue to follow intense safety protocols and all of our facilities.
At the same time, the availability of parts and materials, we needs to manufacture are likely to face variability.
And we will continue to work closely with our customers and suppliers to identify solutions to satisfy our customers demand.
These supply chain constraints are the primary factor that has pressured our gross margin in the torque Walker and we'd like you continue to do so in the foreseeable future and tend to covert 19 impact settles down.
Because of this we now expect our gross margin to be in the range of 11.5% to 12% or slightly below our target range of 12% to 29% for the full year and we could see this pressure continue into early fiscal 2021.
Fortunately our business model remains extremely resilient and address.
More than 90% of our costs are variable with components and materials, making up the greatest portion of our costs because of this.
We are able to quickly adjust manufacturing cost to manage changing demands dynamics.
As such we believe we can maintain industry, leading gross margin levels, despite the demand churn and matured availability challenges.
From an operating expense perspective, we continue to be a very lean organization and do not foresee meaningful expansion of operating expenses in the near future.
From a balance sheet perspective, we remain very well capitalized with over $465 million in cash and investments and total debt of approximately $55 million.
In addition, we continued to generate significant cash flow and anticipate maintaining that position in the upcoming quarters.
In summary.
In a very dynamic business environment.
And our within guidance performance in the third quarter is a stronger fraction of our resiliency and agility.
This ability to quickly responds to shifting markets has been a part of Fabrinets core strategy since our inception.
And its value becomes most apparent when the environment gets challenging I.
As such we believe we are uniquely positioned to continue to thrive during and post the covert 19 crisis.
Now I'd like to turn the call over to Java for additional financial details under fourth quarter guidance Java.
Thank you Seamus and good afternoon, everyone.
I will provide you with more details on our financial results for the third quarter and our guidance for the fourth quarter fiscal year 2020.
Although revenue during the third quarter fiscal year, 2020 was 411.2 million again, our guidance change and slightly below our record second quarter performance and anticipated.
Recall that during our last call our revenue guidance incorporated an eight to 10 million dollar impact from Colby linking.
The quarter, you have demonstrating our X gene flexibility to produce financial results.
In our guidance changes, even though the actual impact on revenue from that and then it was $12 million to $15 million or $4 million to $5 million more than you originally anticipated.
Non-GAAP net income was 92 cents per share, which was at the lower end of our guidance change even after the greater than expected effect on both revenue and expenses that shameless discussed.
Now turning to the details of our BNL reconciliation of GAAP to non-GAAP measures is included in our earnings Thats ready and he misrepresentation, which you can find on our website.
And we'll describe the number of extraordinary airports going through doing Colby 19 to remain operational but also keeping our employees say.
Combined with the revenue impact gross margin was below our target range at 11.2% in a third quarter.
Non-GAAP operating expenses fell by Germany in the third quarter, John If you do.
As a result, non-GAAP operating income of 38.7 million and non-GAAP operating margin of 8.2%.
Actually in the third quarter at about 1 million in our normalized effective tax rate was 2.4%.
And then use James coming from more advantageous tax jurisdiction, we now expect our effective tax rate to be below 5% for the full year.
Non-GAAP net income of 34.8 million in the third quarter or 92 cents per diluted share as I indicated earlier.
GAAP basis, which excludes share based compensation expenses and amortization of debt issuance costs net income for the quarter 28.2 million or 75 cents per diluted share also beating our guidance right.
Turning to the balance sheet cash flow statement.
At the end of the third quarter cash restricted cash and investments at 465.2 million up from 450.5 million at the end of the second quarter.
Operating cash flow in the quarter about 51.8 million and these capex of 12.1 million free cash flow was 29.8 million into third quarter.
On a year to date basis operating cash flow 104.4 million.
Cash flow was 77 million.
From a capital allocation perspective, we remain committed to returning value to shareholders and have been focused on opportunistically repurchasing shares into open market is permitted.
During the quarter repurchased 855000 shares at an average price of 58.3 $7, but on a cash outlay of 20.7 million.
At the end of the border, we had 41.5 million remaining in our share repurchase program.
If you will continue to evaluate market conditions don't but can you maybe purchasing additional shares as possible.
I would now like to Darren into our guidance for the fourth quarter fiscal year Lenny.
We believe that long term growth trends our index for the markets, we serve and that the current environment in many respects highlights the importance of product you manufacture.
That said, we are not immune from a broader factor impacting some of our customers and this is reflected in our and then your guidance each call sort of sequential decline of 6% at the midpoint.
At the same time the market uncertainty is greater than you have seen in sometime.
As such the at expanding our guidance ranges to reflect its.
For the fourth quarter, we anticipate continued to be in the range of 872 400 million, including a 25 to 35 million impact from Colby 19 related on certain days.
Yes, also reflecting in our guidance and approximately 15 million impact as a result company mentally correction for one of our customers.
As you would anticipate from the factors that impacted our gross margin in the third quarter.
Many of which will extend into upcoming orders, we expect gross margin to be in a range of 11.5%.
Slightly below our target changes.
5%, what it will yield discounts anything.
From an earnings perspective, we anticipate non-GAAP net income per share in the fourth quarter will be in their angel 80 cents 92 cents and GAAP net income per share.
64, 76 cents based on approximately 27.6 million fully diluted shares outstanding.
In conclusion, the I'm pleased to see our resilient business model works successfully at double that bye bye.
Do you see the potential for even greater uncertainty at our flexibility and agility leaves us well positioned to protect our business do they spend.
We believe he can exit the crisis in an even stronger position and continue to be optimistic about our prospects to deliver shareholder value over the longer term.
Operator, we're now ready to open the call for questions.
Thank you.
Ask a question you'll need to press star one on your telephone to withdraw your question that's the conkey.
Please standby will be completed the candy roster.
My first question comes from John My Caddy with Stifel. Your line is now open.
Thanks, very much Seamus I was wondering if you could talk a little bit as well looking out here into your fourth quarter guide about how you see some of the different segments playing out here.
Telecom clearly seemed to slow here a bit you saw some uptick until it datacom and in the March quarter.
And then you talked a little bit about the weakness in lasers that may be likely just curious if you can give us some qualitative comments I, what you're seeing out there across those three markets and what's kind of embedded in that guide for for Fourq you.
Yes, Thanks, Sean I would say.
Datacom as you said, we see it thing continued to be pretty resilient pretty strong I think the.
The pretty insatiable demand for bandwidth around the world is.
Evidenced even more so no.
To three Fabrinet folks on the call here, we're all dialing in from different parts of the World I think everyone is probably dialing in from somewhere so.
The demand for for a Datacom products just continues to be very strong telecom overall, we think the demand is solid we did have an inventory correction than we have an inventory correction this quarter, but we think inventory correction aside the underlying demand is actually quite quite resilient.
Industrial and automotive I suppose are the two I'm, sorry lasers under an automotive obviously, everyone knows automotive nobody's buying cars right now so the demand for the automotive products. We make is is we expect to continue to be quite soft for awhile.
An industry industry lasers, similar I think is probably flash I would say for industry lasers and read is subject to what happens post coal, but you know if the world economy starts to take off again.
We have some pretty good customers and some pretty good products, we make for those customers, but like this I would say datacom quite strong telecom the underlying business is quite strong notwithstanding the inventory correction. We saw was one of our customers and then automotive.
Continues to be will continue to be challenged for a couple of quarters.
Industry lasers, we think would be slightly flash. The good news is I suppose the up you know the optical communications products the ones that we see being quite strong make up 75% of our revenue. So we're going to continue to see strength.
The segment that makes up the vast bulk of our revenue.
And then Jim if I can just follow up on that inventory correction, you mentioned, the 15 million to hit to.
The fourth quarter guide.
What was it in the actual third quarter and you know does it relate to some issues with older inventory that wasn't able to be no have anything to do with some of the new systems level stuff. That's been transferred over just curious if you can give us some additional color there. Thank you.
Yeah, I think you know the we're not going to break out the exact number let's say of the inventory correction. In Q3, you know there's a combination of a number of factors. There obviously, they think the covance impact we've sized.
And that was really a function of piece parts availability.
We did have some churn in the quarter, you know, where we had lack of demand for certain products.
That was replaced by increases in demand for other products.
The inventory correction that you mentioned the inventory correction, we did have an haven't factored in.
We issued our guidance earlier in the corporate so we weren't aware of it and it's really to do with I suppose if a customer who has a surface.
What we call. It good inventory finished goods inventory that they're looking to burn off of course, when they're under burning off.
Surface inventory of means that all need to buy as much of the of the new stuff that we make for them. So.
Overall, we don't see it as as indicative of any longer term trend. We said we think it's it happens from time to time, you know we have to take the real quick this move John with what the customer sometimes their demand goes through the roof and they can't get enough and then sometimes to have too much and to have to correct and as we know you know when when inventory gets built up over a few quarters. It takes more than one core control.
Correct. It so it's really just a function of an inventory correction with one particular customer.
As opposed to any any kind of big industry trend or anything like that.
Thank you.
You're welcome thank you.
Our next question comes from Troy Jensen with Piper Jaffray. Your line is now open.
Yeah first off congrats on nice results gentlemen.
Well, thank you Troy.
Yeah.
Famous maybe for you I say that you'd like.
I guess can you talk about customer concentration, 10% I guess I'd love to get an update on in Panera.
According businesses stacked up and then maybe Cisco.
We project you guys talked about and then.
Business.
So, okay and Robert let a lot of questions. There's a customer concentration you know as we had indicated.
I suppose a as the year was going along we've indicated we expect to have it will more than 110% customer I think we're still on track.
A tough more than 110% customer.
D.D. Infinera business the Korean business that has been the transfer has gone very well, we've we've ramped.
Those products and are continuing to ramp actually other other products that have maybe come our way from that were built with other other countries manufacturers that are that are being moved to was.
So I would say that has gone very well the Cisco Cisco transfer.
We are really into planning stages at this stage, there's nothing meaningful in terms of the revenue in Q3, I'm really into planning stage than we see that unfolding probably over the next I would say six to nine months, we see dash that transfer unfolding is we'll take a little bit longer than the then they transfer we did with with burnt ends because I was a different situation.
They operation in Berlin was closing down so we were on a kind of a measured might we have to get the transfer done very quickly.
You asked about Acacia you have education.
Business again, we're at were a key supplier to Acacia obviously, we're very happy with that relationship as regards.
Sizing it as a 10% customary enough to tune in for the Q4 called airfreight.
Yes I.
I would favor I would say are right. We're very happy I would say without obviously with all of our customers, but how how each of them are tracking where.
I'd happy with Us and we.
We feel we're on track I would say to hopefully when we report out on our Q4 results, we'd be hopefully reporting on a little bit less less concentration anda.
Now, let's say more than more than 110% customer at that point.
Okay, perfect and then seamless had dropped off for a bit so I'm sorry. If this was a dress, but the 400 GE business did you see it was down 41% sequentially in could you just touched on it.
It was and again I said I suppose that's you know to a large extent.
The comments around the 400 gene reduction and the comments around the inventory correction or are.
Similar similar root cause I would say there again, we we don't we don't see.
Any particular overall trend so again, sometimes with newer programs the demand can be quite choppy when you've got a spike in demand for for kind of next generation products.
Ken that can taper off and then come back again, a couple of quarters measure. So again, we don't see it as again indicative of any.
Overall trend, but yes. It was a 40 I think we set a 14.
1%, if I'm correct reduction in.
And for energy.
All right last one for me and I'll cede the floor, but tedious you mentioned datacom being strong just curious is it a cross sell products segments in datacom or she says he and the 20 to 56 stronger than others.
Yes, it's across I mean, it's across multiple multiple product lines.
No I think they.
The demand for the demand for bandwidth is going to drive a lot of demand at the same time, we aren't we are hearing.
Comments on some of that big Hyperscale guys that their their AD revenue is down again, because people are working from home and.
So that their AD revenue is down so that may soften the demand, but so far we've seen that hold up pretty strong again, we're not really.
You know if you'd like to best people to tell you what the big macro trends are we just really go by the forecast we got from our customers started defense C is that.
You know what the demand remains quite strong our silicon photonics business.
Was up 5% from that from the second quarter and up 21%, sorry, almost 21% to the revenue and then Qsfptwenty 28, and 56 grew 7% from the second quarter and 17% from from a year ago and up to about 12% and again 100 gig continues to be to be very strong.
So you know that the 400 gig comment really when you're when you're building the new word next generation products the demand is.
If you if you like zoom out and look over a long period of time, it's very good but there does tend to be some intra quarter choppiness from time to time, but Uh huh.
I guess the overall, we think datacom remains quite a quite strong.
Right well understood and good luck.
Thank you.
Interesting. Thank you next question comes from Alex Henderson with Needham. Your line is now open.
Thanks So.
If you were able to get all the parts that you need it and you didnt have production issues.
Revenue guidance.
The most recent print quarter.
Hi.
In other words is the demand outstripping capacity and ability to to procure.
Yes, and I would say overall, yes, if you look let's maybe try to give a bit more detailed in a moment, but if you look at our quarter just ended.
We reported 411, which actually already contemplated the inventory correction from the customer that we talked about we also have contemplated about $8 million to $10 million of coal that impact, which ended up being a little bit higher. So if you take we contemplated at the 10 million cobot impact the actual impact was 12.
15.
If you add those to 411 close let's say an additional 5 million from corporate you've got to for 16. So we would have been out of a for 16.
And within that was a lot of chart. So a lot of churn churn, meaning circuit skews.
We're no longer required and other other skews we have to go to go get the parks for.
And then for the for the quarter, we just guidance. So we've got to 370 400.
If you if you just do the math and pick the midpoint of 385, there the corporate impact of 25 to carton side again, if you pick the midpoint of bass.
Yes Party and then the inventory correction, we sized at about 15. So we we would be out about again, taking the midpoint of the guidance.
Close the midpoint of covert impact on the inventory correction you'd be at about four carty.
So yes, we.
Demand is resilient, we believe it's really a question of.
Ability to get the parks, but we're not a confidence in our team and in our customers and enter suppliers to.
To turn cartoons and do what's necessary to get the parks to make sure we satisfied customers demand.
Right. So I just wanted to make sure that that was all supply chain not demand related and I think you're pretty clear on that.
Second question is the inventory correction is that exclusively on the telco side of the business.
Yes.
And.
Once we clear that.
Inventory out.
Should we assume than that.
The normalized rate of demand would be in fact.
[music].
25 to 35 million higher and therefore that looking out sequentially into the back half the calendar year that that's kind of the baseline is.
What's your report plus that inventory correction.
Yes, I mean, it to be blunt about it.
Every other company that's printed so far whether its make.
Whether it's in five whether it's a acacia this afternoon after the close.
Whether its neophotonics have seen much stronger numbers.
Moving towards.
Yeah, I think Thats, a fair assessments, Alex that you'd be in the ballpark with you with the assumption you met there.
You know, it's it's a it's an inventory correction again for our customer has been tough maybe a little bit more inventory than that like but it's the right thing for them to do it should burn off what the half before the order new buts. Its just that we have this one quarter and we do think it's a one quarter. We don't believe it's going to drive gone, we do expect it to get back to normal levels.
You know in the in the.
September quarter and beyond.
One more question if I could.
Clearly.
Economic situation in.
Thailand has changed quite dramatically.
I think you've gone from probably the strongest currency in.
And that.
Region to probably one of the weakest ones over the last three months.
Can you talk a little bit about.
We expect to play out through your numbers.
Be a pretty nice offset to.
Some of the cost as we get into the back half of the year sounds like it.
Probably won't cause your margins to improve beyond.
The guide for this year is that kind of the way to think about it.
Yes, hi, I'd like to his job I'll take this question. So let me answer read the tea aspect that we are seeing in that I bought.
Devaluation. So obviously at one all the things is that market that's even.
The rational Cybex, which we have started to see starting from February at the other aspect of that these our hedging policy that we had communicated we are usually entering enough water over 800% hedged for the current quarter, 50% hedged for the next quarter and say, 5% hedged as situation for the following quarter.
And also the third factories dawar hedge accounting gap that we have implemented this quarter. So all these three factors. Our lives you look at our Q2 numbers it pretty much eliminated the exchange rate impacts on file underscored by the sheer nature of oil hedging in place so Dan.
For in the in the March quarter, we haven't seen and its significant impact from their currency devaluation and also as they are looking into our Q4 as we have has pretty much 50% hedged situation by the time you started off this quarter.
We will not see significant.
Tailwinds from type out this quarter obviously.
We are buying for of Arts and the contracts every week. So we anticipate to see meaningful impacts on our fiscal Q1's anymore.
Right and just one last question on the tax line.
I'm confused you said you gave the full year tax commentary being below.
5%, but also looking for the fourth quarter to be below 5% I think it's obviously well below that.
March quarter.
So so our March quarter has been about 2.4% it has to do with our revenue from the different tax jurisdiction. So we anticipate this to go up.
Backing normal situation for Q4, it but the overall tax rate for the year CMTC basis still stay below 5%.
So it ought to be in the 5% to 6% range in the June quarter then.
It's great to be below the 5% engines.
Just just the June quarter is below 5%.
That's great Okay I got it thanks.
Thanks, Alex.
Our next question comes from semi Chatterjee with JP Morgan. Your line is now open.
Hi, guys. This is Joe Cardoso on for Sonic Chatterji on my first question I was just curious to see what you guys are expectation down our visibility was relative to recoveries across the different markets that you plan.
Hi, Joe.
I think as we as we talked about earlier I think Uh huh.
You know the markets remain pretty strong the markets. We serve our remain pretty resilient. We think datacom is remaining resilient. We think telecom is resilient, albeit with one inventory correction that we've called out aside from thus, we see had been pretty resilient.
Industry lasers, we think is some pretty strong, but it's just probably little bit flat based on the macro situation and then automotive.
So who knows I suppose when that will recover but it's it's a small part were overall revenue, but I think automotive is going to continue to be impacted for a wide until you know global economies open up again.
So I would say the majority of the markets. We serve we feel very good about we feel the demand is strong.
We have one of the rice, we're starting to rise industries and we think we have just the best customers in those industry. So we're we're pretty.
Touchwood were pretty pretty confident Joel.
Got it and then just relative to the headwinds you're baking and for comes in it and they inventory corrections you gave us the topline number I'm what do you guys expecting in terms of any EPS headwind there.
So we don't leave Ivan.
We've guided the SLR Chubb, because we've got to the P.S.. We've we've quantified the revenue impact, let's say for covert an inventory corrections.
We're not going to break out, let's say the EPS impact.
For for Covance are are already to make US you know, it's a pretty dynamic.
It would become a kind of a meaningless number to be honest with you because we have another.
Challenges that we just have to deal with in terms of changing demands the churn we talked about and also the components supply situation and do you expect the expenses, we incurred to continue to maintain.
Keep all are all of our employees safe, which is our first priority. So there there are several elements to it if you like there's there's there's mix. There's you know component supply constraints, we have to deal with.
And then theres expenses of keeping our employee safe.
But we haven't broken out and we don't plan to breakout that said the EPS impact of covert Chubb anything you want to add to that.
No I think.
Summarizing Sunnyvale Seamus so Joe obviously, when we have got put together our guidance, it's obvious thing incorporating the impact not on the topline, but but on the EPS as well so that's our guidance reference reflecting the.
Range, which is obviously a consequence on apss not which is included in our guidance.
Got it guys no problem. Thank you and then just one last March one last question for me just on share repurchases. You guys spent roughly 20 million. This quarter I'm. Just wondering if that was more a function at the macro backdrop and the company being more opportunistic or is that a company considering that as a.
Future potential having your to drive more shareholder value going forward.
I would say it's below so he had us as part of our part of our capital allocation strategy job we.
I would say it's both obviously this past quarter, we were opportunistic when we saw the share price.
If we felt it was a good time again were subject to open window constraints and all that stuff, but we felt it was a good time to repurchasing shares were you know we're committed to.
Making sure we return.
Value to the shareholders on and obviously share repurchases a key part of that strategy.
You know whether or not we will continue to do that we don't obviously, we don't pre announced we announced after the after the fact, but we have at this stage. We have about 42 million Chubb is that correct remaining in our in our share repurchase authorization as we entered this quarter.
Yes, we have 41 off.
Okay.
Thanks, guys.
Thank you.
Thank you.
Our next question comes from Tim Savageaux with Northland Capital markets. Your line is now open.
[noise] pardon me good afternoon.
And.
So if we look at the inventory correction you mentioned is having been kind of factored into your outlook for March.
A couple of questions on that one.
I assume that we we kind of see that in the decline in core hundred gig and above revenue in the quarter to some degree.
And to you know with regard to the outlook for June.
Is it a matter of that perhaps you're taking longer than you might have initially expected or kind of growing into a bit of a larger headwinds throughout the quarter.
Or how would you.
I guess compare your outlook on right now versus when you.
Started or guided to last quarter.
Yes, I think you're you hit the nail on the head Tim I think the.
Last quarter, yes, you're right in that 400 gig an above number that gosh, that's largely explains.
That situation and then for this quarter I wouldn't think is longer than we anticipate it's very unusual when when the when one of our customers has to do an inventory corrections and.
As you depreciate inventory builds up over a long period of time.
And correcting excess inventory or surface inventory. It takes it has been a time in this case you know, it's it's a kind of a couple of quarters that the customers taking two to burn off that surface inventory. It's actually go thing that makes them healthier on stronger are they do that.
But we do believe from our discussions with the customer it's a two corker.
Situation. So last quarter you can you can you can see the impact there last quarter and then this quarter we size. It at about 15 million then we expect to be back to normal levels of business with that customer in the in the September quarter side I don't we don't see we don't envision a dragging on a longer than that in the June quarter.
Understood and getting back to your estimated.
Pandemic impact or.
What have you I guess, it's going to come back to it and.
I might imagine.
You talked about continued demand strength in datacom.
Should we take from after you expect datacom revenues to rise or you're kind of.
Portioning the supply chain impact that you're calling out across segments relative to kind of where they would have been.
On the one hand, and then I assume there's actual.
You know economic or virus related demand destruction in places like auto and maybe other where.
You might have.
Normally are just isn't as a result or.
Demanded pack you know guided down so I guess I'm trying to.
Kind of parse out between supply and supply constraint driven impact and what you consider to be actual demand impact in that 25 to 35 million range.
I would say that the vast bulk of the Coolfit impact. We've we've called out is supply related as opposed to demand destruction.
The only real demand destruction, we've seen isn't isn't automotive, which is a small small part of our revenue.
Oh aside from that we haven't really seen any demand destruction, it's mostly to do with let's say supply constraints and in some cases the supply constraints are a function of this demand churn that I talked about where we think we're going to be building products, a b and C for particular customer.
And we end up.
Having to.
Park, a b and C and builds products DNS and until we have to scramble to get the parts and get the components for those so you know, it's what I would say the underlying demand is quite strong and the the majority if I had to kind of parse it out.
The majority of they covered impacts we've we've called out this quarter is primarily I would say supply components supply related that's our that's our biggest challenge the to the two biggest things I suppose that that maybe keeps me awake at night.
Are we going to be able to get all the parts to make sure we satisfied with the customers need and how do we make sure. We keep all we continue to keep all of our employee safe. The two biggest challenges for us for the next to the next I would say and took over there is behind us and the impact on the component shortages. It's unusual it's not like let's say previously if you go back a couple of years ago, we had like the.
I would see shortages are from time to time to get DRAM charges or whatever it might be this is completely different this is a function of.
Primarily a function off where you have lockdowns in place in particular countries and suppliers have to operate at 50% or are implementing all social distancing in their factory that it can only bring in half of the workforce. So it just takes time for those suppliers to be able to respond to that and maybe bring on additional shifts and run run over the weekend.
Increase their output so and its spread across many I would say many commodities, it's not specific 21 commodity.
So yes, the challenges are great this quarter, but that's that's why we're here to solve those problems.
Got it if I could squeeze in one last follow up and I wonder if that the overall kind of logistical issues play any role in.
Kinda be increasing challenges for for ongoing Cisco and whether you continue to expect.
That.
They could represent.
I would say another but.
Our two or above the 10% customer and your fiscal 21.
I think I.
I mean, just generally we don't talk about kind of specific customers, but just on the on the Cisco.
Transfer I would say you know hopefully not 10, because it's an existing set of products that are already being manufactured by another supplier.
So the supply chain is positioned it's not like a completely new product that we have to go off and set up to supply chain Thats an established.
You know a family of products with an established supply chain.
So you know we're quite optimistic I would say about the onboarding of that business and but it will take it will take an additional I think I think will take about six to nine months. The ended the calendar year I'd say, it's probably a timing wise is it good best whether that results in in Cisco, you know, becoming a 10% customer nice we'd have to it.
Wait and see.
But.
Yeah, we're quite happy with.
I like how we're diversifying our our our customer mix. Obviously Lumentum is art is our number one customer and I would say would continue to be for for some time, but you know the others in contention if you like that we've talked about before obviously infinera as one.
Cisco as one.
Acacia.
The significant customer for us. So we are quite happy with how we're diversifying our mix of customers.
Okay. Thank you.
Thank you Tim.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Seamus Grady for closing remarks.
Thank you operator, thank you all for joining our call today, we're pleased to have met our guidance into third quarter, joining a very dynamic business environment.
Our success is the direct reflection of our core strategy to operate.
Hi, Joe and flexible business that lets us respond very quickly to shifting environments. We look forward to speaking with you again in the future until then goodbye and stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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