Q4 2021 Fabrinet Earnings Call
And good afternoon, welcome to <unk> financial results conference call for the fourth quarter of fiscal year 2021.
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.
I'd now like to turn the call over to your host Garo <unk> Investor Relations.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss <unk> financial and operating results for the fourth quarter of fiscal year 2021, which ended June 25, 2021 with me on the call today are Seamus Grady, Chief Executive Officer, and <unk> Chief Financial Officer.
This call is being webcast and a replay will be available on the investors section of our website located at Investor Dot fiber net dot com. During this call we will present, both GAAP and non-GAAP financial measures.
Please refer to the investors section of our website for important information, including our earnings press release, and Investor presentation, which include 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 to differ materially from management's current expectations.
These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise them in light of new information or future events, except as required by law.
For a description of the risk factors that may affect our results. Please refer to our recent SEC filings in particular, the section captioned risk factors in our Form 10-Q filed on May four 2021.
We will begin the call with remarks from Seamus and Ciao, followed by time for questions I would now like to turn the call over to <unk> CEO Seamus Grady.
Thank you Joe Good afternoon, everyone and thank you for joining us on today's conference call. We had an excellent fourth quarter to finish a strong fiscal year with robust demand trends continuing across our business combined with excellent execution by our team we delivered a number of records in the quarter.
Revenue was well above our guidance range and for the first time exceeded $5 billion at $509.6 million.
In addition to record revenue. We also delivered record non-GAAP operating margins of nine 9%, resulting in an all time high non-GAAP earnings per share of $1.31 in the fourth quarter.
For the full fiscal year, we produced record revenue of $1.88 billion.
Representing industry, leading growth of 14% from the prior year.
Non-GAAP net income was $4.67 per share.
Total operating cash flow for the year was $118.7 million and free cash flow was $76.1 million.
Looking at some of the highlights of the fourth quarter optical communications revenue reached another new record driven by strong telecom demand non optical communications revenue also reached another record in Q4.
Looking ahead, we remain encouraged by healthy demand trends across all lines of business as we continue to successfully navigate and manage component supplies.
We estimate that the supply constraints, we are experiencing impacted our fourth quarter revenue by approximately $25 million to $30 million and we expect to see a similar impact in Q1.
Despite this headwind we anticipate that revenue will continue to grow sequentially to a new record in Q1 as travel will outline in a moment.
We're also optimistic from a profitability standpoint that said in Q1, we anticipate a small nonrecurring headwinds to net income as you may have heard Thailand, along with other countries in southeast Asia has recently seen a rapidly growing number of COVID-19 cases.
In response, Lockdowns and other measures have been imposed which primarily impacts social gatherings.
Our manufacturing facilities are fully operational because we have implemented additional safeguards beyond what we have been doing for the past year and a half in order to protect our staff.
This includes increased testing and sending people home with pay if the test positive for COVID-19. In addition, we have been granted permission by the Thai government to vaccinate, our employees and have been carrying out this initiative for the past several weeks at our expense.
We are very pleased that at this time to vast majority of our employees have already received their second doses such that by the end of this month approximately 90% of our employees in Thailand will be considered fully vaccinations.
We are proud to be able to carry out. This efforts that has both a very positive social impact while also being good for our business and we believe it will further enhance our very favorable reputation as an excellent employer in Thailand.
As we communicated earlier this year, we have broken ground on a new 1 million square foot building at our Chonburi campus.
Construction is progressing and we expect the building to be complete in about one year.
We also previously discussed our intention to add approximately 100000 square feet of manufacturing space at our Pinehurst campus.
Just after the end of the fourth quarter, we completed the acquisition of 15 acres of land that had become available adjacent to our Pinehurst facility.
This site will enable us to relocate some non manufacturing activities from the current campus, which will allow us to increase our manufacturing footprint within our existing buildings.
As a result, we're confident that we will continue to have ample capacity to satisfy the growing customer demand we are experiencing.
In summary, we had a very strong finish to a record year.
We are optimistic about demand trends from all of the markets. We serve and we are well positioned to continue to deliver excellent results over the longer term.
Now I'd like to turn the call over to <unk> for additional financial details and our guidance for the first quarter of fiscal 2020 to Java.
Thank you Seamus and good afternoon, everyone.
We had a strong finish to a record year with record revenue and non-GAAP earnings revenue of $509.6 million up 6% from Q3, and 26% from a year ago and was above our guidance range.
We also executed very well.
Higher gross margin in four years and record operating margins to produce non-GAAP earnings of $1.31 per share, which also exceeded our guidance.
Looking at revenue in more detail optical communications by $387.8 million or 76% of total revenue up 7% from Q3.
Non optical communications revenue was $121.7 million or 24% of total revenue.
And increased 4% from Q3.
Within optical communications Telecom revenue was $310.7 million.
Up 10% from last quarter.
Data revenue was $77.1 million down very modestly from Q3.
By technology Silicon Photonics products made up 22% of total revenue.
$110.2 million up 5% from Q3.
Revenue from products rated at speeds of 400 gig or higher was $133.3 million up 27% from the prior quarter.
It's more than offset a 4% sequential decline of 100 gig products to $133.6 million in the fourth quarter.
In Q1, we expect the optical communications flow trend to continue.
Looking at our non optical communications business.
<unk> revenue was $48.6 million a slight decline from our record third quarter results.
Industrial laser revenue more than offset this at $41.1 million.
14% from the third quarter.
Sensor revenue was $3.6 million and other non optical communications revenue was up 14% to $28.2 million.
Now turning to the details of our P&L unless otherwise noted profitability metrics are on a non-GAAP basis.
A reconciliation of GAAP to non-GAAP measures is included in our earnings press release, and Investor presentation, which you can find on our website.
Gross margin of 12, 3%.
Up 10 basis points from Q3 and was at the highest level in four years.
Operating expenses in the quarter of about $12 million or <unk>.
Two 4% of revenue, reflecting our operating leverage resulting in operating income of $50.5 million or nine 9% of revenue.
Record for the company.
During the fourth quarter, we have recorded a tax benefit of $2.1 million.
This is primarily due to the reversal of evaluation allowance related to certain subsidiaries as a result of better operating performance and effective control of operating expenses.
We anticipate that our effective tax rate in fiscal year 2020 to be approximately 4%.
Non-GAAP net income was a record at $49.4 million or $1.31 per diluted share.
On a GAAP basis.
Net income was also a record at $42.4 million or $1.13 per diluted share.
For the full year revenue was $1.88 billion, an increase of 14% from the prior year.
Non-GAAP gross margin was 12, 1% and operating margins at nine 5% of revenue.
Non-GAAP EPS.
For the year was $4.67.
Up a strong 25% from fiscal year 2020.
The report 10% customers annually.
And in fiscal year 2021, he had 310% customers.
Cisco and momentum both represented 14% of revenue and the Infinera represented 12% of revenue for the year.
Note that the Cisco revenue contribution includes a partial year impact from Cisco's acquisition of Acacia.
Excluding the impact of the acquisition.
<unk> also has been a 10% customer is Scott year 2021.
Our top 10 customers represented 78% of revenue.
Compared to 79% in fiscal year 2020.
Turning to the balance sheet and cash flow statement.
At the end of the fourth quarter cash restricted cash and investments were $548.1 million an increase of $39.2 million from the end of the third quarter.
Operating cash flow was $43.5 million.
With Capex of $13.5 million free cash flow was $30 million in the quarter.
In addition to expenses related to construction with our Chonburi campus.
Recently purchased 15 acres of land adjacent to our Pinehurst campus that facilitate.
The manufacturing expansion, we have in progress at that campus.
After.
$13.2 million purchase price, 10% was paid during the fourth quarter and the remainder was paid in the first quarter of fiscal 2022.
We remained active in our share repurchase plan and during the fourth quarter, we repurchased approximately 122000 shares at an average price of $85 and 88 for a total cash outlay of $10.5 million.
Approximately $81.2 million remains in our buyback authorization.
Now I would like to turn to our guidance for the first quarter of fiscal year 2022.
We are entering the year from a position of strength and remain optimistic about the markets we serve.
And our ability to execute.
For the first quarter, we anticipate revenue in the range of $500 million to $530 million.
It will represent another record quarter for Fibernet.
From a profitability perspective, we anticipate non-GAAP net income to be in the range of $1 in 2009.
The $1.36 per diluted share.
I'd like to point out that this guidance includes the impact of our customary annual merit increases as well as approximately a 4% to five impact from the cost we are incurring in order to safeguard our employees through the vaccination program. The chain was described.
We believe this employee safety costs are non reoccurring and that this program benefits our employees and their families as well as the continued operation of the success of our business.
If not for these non recurring costs, our non-GAAP net income guidance for Q1 would have represented another quarterly record for the company.
In summary.
Proud of our record fourth quarter and fiscal 2021 performances.
We are excited about the prospects ahead and look forward to continued success for all our stakeholders.
Operator, we are now ready to open the call for questions.
As a reminder to ask a question you will need to press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line.
Of John Marchetti.
Before your question please.
Thanks, very much Seamus I was wondering if you could just give us a little bit more color on that 25 to 30 million headwind that you referenced both in terms of this quarter and the guide.
Obviously, having a very solid quarter here and the guidance certainly above where most of us were expecting certainly indicates that you're managing through this.
Can you talk at all about maybe where youre seeing some of those challenges.
You mentioned that lapping into September.
I guess asking for the Crystal ball do you think it goes much farther than that.
Yes, Hi, John.
So the shortages that we saw in Q3 really continued into Q4.
I think that's the case for everybody.
We expect that we'd see them.
At least for another couple of quarters, we have been focused on being as proactive as possible to minimize the impact but in the end in Q4, we believe revenue could have been about $25 million to $30 million higher or about 6% higher if.
If not for the shortages the.
The impact.
Would have been much greater if we werent doing a really good job partnering with our customers and our suppliers to mitigate these supply constraints, including having longer visibility to demand requirements from our customers and then sharing that with our suppliers.
We don't have any special or proprietary knowledge, John about when the charges may and it could be a few more quarters, we think but we'll continue to anticipate.
And really manage through the the shortages as best we can.
As regards which parts of the business was impacted the most we have been.
Been really working it's really spread across all parts of the business.
We've been working diligently to secure components supplies for products across our entire portfolio.
Probably where we felt the most pain was in the automotive part of our business and on the Datacom markets.
But in fact at the end, we were able to get all the components that we needed.
To make sure we.
We got the customers what they need us.
We would've seen revenue growth from those parts of the business.
Instead of the decreases we experienced so.
A mixed bag overall it's.
It's really spread across all parts of the business, China, We expect to continue for at least a few more quarters.
Got it.
That's helpful and then maybe just into that telecom demand specifically obviously.
Pretty big bounce here, both sequentially and year over year, it sounds like Youre expecting that to continue here into the start of the new fiscal year.
Any color you can share there.
Is this a situation where you think youre, obviously, leaving some of that demand on the table, but with visibility maybe increasing a little bit because people are putting orders in a little bit earlier.
Do you get a sense that that strength is likely to continue as we look out maybe even a little bit further past September.
Yes, I mean, we obviously don't guide beyond beyond the quarter, We guide one quarter at a time, but I would say overall we are.
We're quite upbeat about the demand the demand trends we see.
It seems to be quite robust across across all the markets we serve really.
The biggest challenge we have is the supply constraints, we're not really constrained by demand right now.
So making sure we secure supply of the components, we need but that demand strength that we're seeing is pretty pervasive across most of the markets we serve.
Got it maybe just one last one I'll jump back into the queue for Cabo.
<unk> headwind that you talked about with some of the new Covid testing and some of the measures you are putting in place there I'm assuming that comes out of gross margin here in the September quarter, but then we should expect at least those costs. The bounce back will all be taken back out when we look at the December quarter.
Hi, John Yes, basically most of that cost is going to come out from our gross margin. Most of that profit is going to be related to our gross margin that includes cost of vaccination of people and also.
Putting that on pain, while they are isolated.
To protect them and also to prevent the wider spread in the factories.
<unk> again, we are not guiding beyond one quarter at a time and as you know we also have our manage increases baked in in our Q1 forecast.
We feel very very optimistic about our.
Efforts in making efficiency improvements to keep our gross margin in our guidance range between five and 10%.
Thank you very much.
Thank you. Our next question comes from semi challenging of J P. Morgan Your line is open.
Hi, good afternoon, Thanks for taking my question.
Yes.
Clearly it looks like the telecom demand is quite strong I wanted to see if you can offer on how you're thinking about datacom. Your it looks like even though telecom growth was quite solid datacom was more flat Europe, where youre in revenues any kind of.
Dave.
Can you share what you're thinking in terms of Datacom more from our fiscal first quarter or even kind of from a full year outlook that would be helpful. What.
What happens in terms of growth outlook, there and then I have a.
A follow up please.
Yes, I think our strengthened.
In telecom in particular is very encouraging and it's really a function of a lot of the large new business wins that we've had over the last year 18 months, that's a big driver of.
That growth.
Another driver in our in our telecom space is driven by the data center business, even though it's categorized in our in our categorization, we categorize Dci data center interconnect.
Telecom, but a lot of the drivers behind that or are actually datacom business.
So we feel quite good about the Datacom business generally.
And we're seeing some strengths then and some increasing strength I would say in let's say 400, ZR, we see that as a good driver of growth in the future and again that will be a mix of <unk>.
Telecom and Datacom.
And I think we're quite I would say quite feasible, both telecom and datacom, even though like I say it appears that a lot of the strength is in telecom datacom is actually quite strong as well.
I understand my point that some of our Datacom business is categorized as telecom because its Dci.
Got it.
And then if I can just follow up on the industrial.
Laser segment, clearly a strong rebound to Europe into the fourth quarter. What are you seeing in terms of the recovery that we get to kind of what you've seen now. This is more recent peak of almost like mid forties.
Fourth quarter or even how youre pretty quickly with data company that are you seeing any.
Kind of what are you hearing from customers would be helpful.
No I mean, we're pretty pleased I would say with the growth in the laser market and we expect.
We expect that business to be stable to grew.
Growing a little bit in Q1.
Longer term as we always have been we're very optimistic about.
Our position in the laser market it is more of a.
If you like a slow build for us we're really relying on a lot of those bigger laser companies outsourcing more.
But overall, we feel quite quite a piece of both.
How about the laser market guidance beyond Q1, we wouldn't be ready to do that but we do feel quite good about the laser marks.
Okay got it. Thank you. Thanks, Okay. Thank you.
Thank you so weak.
Thank you again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question. Our next question comes from Fahad job of <unk> Partners. Your line is open.
Thank you for taking my question.
I wanted to.
Yeah.
You gave it already but I'll.
I joined the call late can you provide us any color on revenue for silicon Photonics this quarter.
Hi, This is Charles so our silicon photonics revenue was around $110 million for quarters. It was up about 5% sequentially.
The highest levels. So far so we see the silicon photonics growth to continue and we are really optimistic cannot be at about that segment as well.
Got it thank you for that so.
So if I may follow up on that what's driving that strength and silicon photonics, because clearly datacom was flat. So are you beginning to see some incremental.
Opportunity income 400 gig ZR.
Described in terms of the adoption of 400 gig ZR, obviously glut.
A sizable customer that leading that.
But markets any color you could put that there will be appreciated.
Yes.
Silicon Photonics revenue is actually driven by two factors, obviously, the bidding new new businesses from our existing customers in the silicon photonics.
Auto power business. So that is continuing to gain market. We are also continuing to gain market share in that space. As you know Thats 400, ZR, we have handful of customers in that space and we started to see that.
We shipped 400 ZR revenue in our Q4.
Q4, even though it was not martini, but based on the outlook. We are seeing we are very optimistic about that area selling it for silicon Photonics is something that has been growing.
If you look at our year on year numbers. It grew about 27% on a year on year basis. I mean, we continue to be very optimistic about that segment.
I appreciate the color there. So in terms of just one last one for me on telecom.
Obviously, you're clearly seeing the benefit your customers have highlighted.
Strong demand for them.
Impeded by component.
Any sense on like how a lot of your customers and highlighted the component shortages are worsening of <unk>.
Some may say that Q4 might be the word subsidy, maybe Q4 slightly better but can you give us some sense on how you are seeing the supply the supply.
Okay.
Yes.
Yes, Hi. This is this is Seamus I think.
We're hearing the same thing unfortunately, with us know that seem to be on the engine side right now at least I mean, we said I think in our prepared remarks, we see it happening for another.
Another couple of quarters at least but it's probably more like another three or four quarters of a constrained component environment.
Mike.
And our customers, we don't have a crystal ball.
We are getting better visibility I think than we've ever gotten from our customers and we're sharing that facility with our supply base.
So, but we don't see it improving certainly in the next couple of quarters, we don't see it improving unfortunately.
Other than they're getting.
Hard to say I think it's certainly not improving I think.
We've done a good job I think positioning ourselves for success, making sure. We we factor it in and take into account the.
Constrained environment, when we when we set our guidance.
But also when we make our commitments to our customers. So it's a very challenging environment.
It sounds like a lot of us another new normal I think it seems to me the phrase for the last a year or so and we just have to make sure we manage manage our way through it as best we can.
Thank you I appreciate the answers.
No problem. Thank you for that.
Thank you at this time I would like to turn the call back over to CEO Seamus Grady for closing remarks, Sir.
Thank you for joining our call today, we had a strong end to a record year with healthy market demand trends and the demonstrated ability to execute we remain optimistic about our future. We look forward to speaking with you again soon goodbye.
Okay.
And this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Yes.
[music].
Yes.
[music].
Okay.
[music].
Okay.
[music].
Yes.
[music].
[music].
And good afternoon, welcome to fiber net financial results conference call for the fourth quarter of fiscal year 2021.
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 I would now like to turn the call over to your house Garo <unk> Investor Relations.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss <unk> financial and operating results for the fourth quarter and fiscal year 2021, which ended June 25.2021.
With me on the call today are Seamus Grady, Chief Executive Officer, and Cabot's Ferrar, Chief Financial Officer. This call is being webcast and a replay will be available on the investors section of our website located at Investor Dot fiber net dot com. During this call we will present, both GAAP and non-GAAP financial measures.
Please refer to the investors section of our website for important information, including our earnings press release, and Investor presentation, which include our GAAP to non-GAAP reconciliation.
I'd 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 to differ materially from management's current expectations.
These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise them in light of new information or future events, except as required by law.
For a description of the risk factors that may affect our results. Please refer to our recent SEC filings in particular, the section captioned risk factors in our Form 10-Q filed on May four 2021.
We will begin the call with remarks from Seamus and Ciao, followed by time for questions I would now like to turn the call over to <unk> CEO Seamus Grady.
Thank you Darla and good afternoon, everyone and thank you for joining us on today's conference call. We had an excellent fourth quarter to finish a strong fiscal year with robust demand trends continuing across our business combined with excellent execution by our team we delivered a number of records in the quarter.
Revenue was well above our guidance range and for the first time exceeded $5 billion at $596 million.
In addition to record revenue. We also delivered record non-GAAP operating margins of nine 9%, resulting in an all time high non-GAAP earnings per share of $1.31 in the fourth quarter.
For the full fiscal year, we produced record revenue of $1.88 billion representing.
Representing industry, leading growth of 14% from the prior year.
Non-GAAP net income was $4.67 per share.
Total operating cash flow for the year was $118.7 million and free cash flow was $76.1 million.
Looking at some of the highlights of the fourth quarter optical communications revenue reached another new record driven by strong telecom demand non optical communications revenue also reached another record in Q4.
Looking ahead, we remain encouraged by healthy demand trends across all lines of business as we continue to successfully navigate and manage component supplies.
We estimate that the supply constraints, we are experiencing impacted our fourth quarter revenue by approximately $25 million to $30 million and we expect to see a similar impact in Q1.
Despite this headwind we anticipate that revenue will continue to grow sequentially to a new record in Q1 as travel will outline in a moment.
We're also optimistic from a profitability standpoint that said in Q1, we anticipate a small nonrecurring headwinds to net income as you may have heard Thailand, along with other countries in southeast Asia has recently seen a rapidly growing number of COVID-19 cases.
In response, Lockdowns and other measures have been imposed which primarily impacts social gatherings.
Our manufacturing facilities are fully operational because we have implemented additional SaaS cards beyond what we have been doing for the past year and a half in order to protect our staff.
This includes increased testing and sending people home with pay if they test positive for COVID-19. In addition, we have been granted permission by the Thai government to vaccinate, our employees and have been carrying out this initiative for the past several weeks at our expense.
We are very pleased that at this time the vast majority of our employees have already received their second doses such that by the end of this month approximately 90% of our employees in Thailand will be considered fully vaccinations.
We're proud to be able to carry out. This efforts that has both a very positive social impact while also being good for our business and we believe it will further enhance our very favorable reputation as an excellent employer in Thailand.
As we communicated earlier this year, we have broken ground on a new 1 million square foot building at our Chonburi campus.
Construction is progressing and we expect the building to be complete in about one year.
We also previously discussed our intention to add approximately 100000 square feet of manufacturing space at our Pinehurst campus.
Just after the end of the fourth quarter, we completed the acquisition of 15 acres of land that had become available adjacent to our Pinehurst facility.
This site will enable us to relocate some non manufacturing activities from the current campus, which will allow us to increase our manufacturing footprint within our existing buildings.
As a result, we are confident that we will continue to have ample capacity to satisfy the growing customer demand we are experiencing.
In summary, we had a very strong finish to a record year.
We are optimistic about demand trends from all the markets, we serve and we are well positioned to continue to deliver excellent results over the longer term.
Now I'd like to turn the call over to each other for additional financial details and our guidance for the first quarter of fiscal 2020 to Java.
Thank you Seamus and good afternoon, everyone.
We had a strong finish to a record year with record revenue and non-GAAP earnings revenue of $509.6 million up 6% from Q3, and 26% from a year ago and was above our guidance range.
They also executed very well.
Higher gross margin in four years and record operating margins to produce non-GAAP earnings of $1.31 per share, which also exceeded our guidance.
Looking at revenue in more detail I'll pick out communications, a $387.8 million or 76% of total revenue up 7% from Q3.
Non optical communications revenue was $121.7 million or 24% of total revenue.
And the increased 4% from Q3.
Within optical communications telecom revenue of $310.7 million.