Q1 2022 Fabrinet Earnings Call
Ladies and gentlemen, thank you standing by your conference calls you have to get momentarily again. Thank you for standing by your conference calls that they're getting all the time.
[music].
Good afternoon welcome to four seven.
The conference call for the fourth quarter of fiscal year 'twenty 'twenty.
At this time all participants are in listen only that it wasn't that good question here.
Instructions on how to participate will provide at that time.
As a line of today's call is being recorded.
I would now like to turn the call over to your house Gareth Cmos.
And that's the relationship.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss <unk>.
Its financial and operating results for the first quarter of fiscal year 2022, which ended September 24 2021.
On the call today are Seamus Grady, Chief Executive Officer, <unk>, <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.
In addition, today's discussion will contain forward looking statements about the future financial performance of the company.
We're 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 detection captioned risk factors in our Form 10-K filed on August 17 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 fabricate CEO Seamus Grady Seamus.
Thank you Darryl and good afternoon, everyone and thank you for joining us on today's conference call.
We had a strong start to fiscal 2022 with top and bottom line results for the first quarter that exceeded our expectations.
Demand trends remained robust across our business, which contributed to revenue, reaching $543 $3 million more than $13 million above the high end of our guidance.
We continue to execute very effectively with revenue upside falling to the bottom line as reflected in our non-GAAP net income of $1 45 per share, which was also above our guidance range.
From a revenue perspective, we had a particularly strong quarter for optical communications, which grew 10% from the fourth quarter from 24% from a year ago.
Charter will detail in a moment strong optical communications demand was evident in both telecom and Datacom.
We continued to execute well despite the component supply constraints as we and many others continue to experience.
During our last call, we estimated that we would see a $25 million to $30 million revenue headwind in the first quarter from these constraints.
We are pleased to report that the actual impact was at the lower end of that range.
Our ability to overcome many of these component charges was most evident in our record optical communications results.
Component shortages in the automotive markets extremely lean supply chain resulted in a moderate decline in automotive revenue from the fourth quarter.
As we look to the second quarter. We are optimistic about continued strong demand across our business and are anticipating healthy overall growth despite persistent supply chain headwinds.
Operationally I am very happy to announce that our COVID-19 vaccination program for employees in Thailand has been a great success.
But at this point, 99% or virtually all of our employees in Thailand are now fully back diseases. I'm also pleased that we were successful in delivering first quarter margins within our target ranges. Despite these additional COVID-19 related costs in the quarter.
At our Chonburi campus construction of our second building is progressing well.
This building will add approximately 1 million square feet or 50% to our global footprint.
Substantially increasing our manufacturing capacity.
We are on track for construction to be completed around the end of the fiscal year.
This schedule is extremely timely since based on continued customer demand. We now anticipate that our first building in chonburi will be effectively fully occupied when our second child rebuilding opens for business.
In summary, after a very strong first quarter, we are optimistic that Q2 would represent another strong quarter for revenue and profitability.
Demand trends remained strong and we are excited that our second building in Chonburi will be coming online just at the right time to enable us to continue meeting anticipated demand and extend our business momentum in the years ahead.
Now I'd like to turn the call over to Chubb for additional financial details on our first quarter and our guidance for the second quarter of fiscal 2022.
Thank you Seamus and good afternoon, everyone.
Yeah and off to a great start for the fiscal year with record revenue and non-GAAP profitability in the first quarter.
Revenue of $543 $3 million was well above our guidance and represented an increase of 7% from the fourth quarter and 24% from a year ago.
As we continue to execute very efficiently our topline outperformance fell to the bottom line with non-GAAP earnings of $1 45 per diluted share, which also exceeded our guidance.
This result includes approximately <unk> <unk> per share and foreign exchange gains offsetting the expenses related to our vaccination program that we incurred in Q1.
Looking at the quarter in more detail.
<unk> communications revenue was $427 $3 million up 10% from the fourth quarter and made up 79% of total revenue.
Within optical communications Telecom revenue increased 9% from the last quarter to $338 6 million a new record.
And data on revenue of $88 7 million increased 15% from Q4.
By technology Silicon Photonics product reached a record $135 $1 million or 25% of total revenue and was up 23% from the fourth quarter.
Revenue from products rated at speed of 400 gig or higher was $173 3 million up 30% from the fourth quarter and 149% from a year ago.
Revenue from 100 gig products increased modestly from Q4 to $135 $6 million.
Based on continued strong demand we are expecting to see strong sequential growth in optical communications in the second quarter.
Non optical communications revenue was $116 million or 21% of total revenue, representing a 25% increase from a year ago.
Greece or 5% from the fourth quarter.
Your line is Seamus noted the overall impact of component shortages.
A lower end of our expectations for the quarter. These constraints, they're more at better than four non optical products, especially in automotive.
The majority of our sensor revenue serving out automotive applications yeah.
Now reclassifying ultimately revenue and other non optical communications revenue to include historical same store revenue, which has represented less than 1% of quarterly revenue for the past two years.
This combined basis, although multi revenue was $48 $2 million, a decrease of 8% from last quarter.
While we don't intend to break this out in the future.
Or more direct comparison purposes automotive revenue, excluding sensors declined 8% sequentially.
Industrial laser revenue was $37 $5 billion, a decline of 9% from Q4, but stable when viewed on a trailing 12 month basis.
Other non optical communications revenue was $33 million up 7% from the fourth quarter.
This category now includes a portion of revenue that was previously classified as sensors.
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 was 12, 1% down 20 basis points from Q4, consistent with our expectations considering the expenses related to all the vaccination program annual Merit increases.
<unk> expenses in the quarter that $13 2 million or two 4% of revenue, resulting in operating income of $52 5 million or nine 7% of revenue.
Effective tax rate was one 3% in the first quarter and we continue to anticipate that our tax rate in the fiscal year 2022 will be approximately 3%.
Non-GAAP net income was a record at $54 2 million or $1 45 per diluted share.
On a GAAP basis net income was $1.20 per diluted share.
Turning to the balance sheet and cash flow statement.
At the end of the first quarter cash restricted cash and investments, we had $528 $6 billion compared to $548 1 million at the end of the fourth quarter.
Operating cash flow was $39 million.
Capex of $34 6 million free cash flow was $4 4 million in the quarter.
We did not repurchase any shares during the first quarter.
We remain committed to return surplus cash to shareholders through a <unk> one share repurchase plan combined with opportunistic open market share buybacks.
We have $81 $2 million in our share repurchase authorization.
Now I would like to turn to our guidance for the second quarter of fiscal year 2022.
After a strong start to the year, we are optimistic that our momentum will continue in the second quarter.
We expect strong top line growth despite similar revenue headwinds from component shortages.
<unk> in the first quarter.
We estimate that the ongoing supply cost change will again impact our second quarter revenue by approximately $25 million to $30 million.
With that backdrop for the second quarter, we anticipate revenue in the range of $540 million to $560 million.
From a profitability perspective, we anticipate non-GAAP net income to be in the range of $1.42.
The $1 49 per diluted share.
In summary, we got off to a great start to the year and we are optimistic that strong demand trends and execution will combine again to produce even stronger results in the second quarter.
Operator, we are now ready to open the call for questions.
Thank you, ladies and gentlemen, I'd like to ask a question. Please press Star then one.
Okay.
Again, if you would like to ask a question.
And then one.
One other player.
Our first question comes from.
Alex Henderson Needham Your line is open.
Yes.
Thanks can you hear me okay.
Yes can you refinance.
Perfect.
So congratulations nice quarter.
Outstanding results in a tough environment.
There's been a very strong order rate across almost every company that has reported results so far.
That happens as they need hardware systems and related characteristics.
Characteristics to it so I assume that.
There, you're getting an extension of the visibility well beyond the current quarter.
And well beyond traditional metrics can you talk to whether that's a in.
In fact, the case and if so what kind of commentary are you hearing from these companies.
Yes, so we think the demand continuing to be quite strong we have.
I'd say longer visibility than the normal seasonal normal normally we have a pretty weeks rolling forecasts obviously.
We have much much longer visibility much more visibility much further outside these days with components.
On the supply constraints that we're all experiencing so we do have visibility for growth. It's still just guide.
One quarter, a time, Alex but the demand signals we're seeing.
Do remain quite strong across across our business.
So is it multiple quarters into next year that you have visibility to at this point I'm not asking for you your guidance, but rather.
Your sense of the visibility I mean, Arista just resolved just got off of their call a moment ago.
They're talking about increasing their orders by $2 billion commitment to.
Purchase commitments because it was poor export prior order rate and have visibility all the way through 'twenty. Two I assume that you are seeing some characteristics like that is that accurate or no.
Yeah. It depends on the I would say the customers and it depends on the specific commodities within the customer and in some cases, we have visibility.
Typical two year at this stage.
But it's really for the purpose of positioning component supply will not be easy to forecast revenue or anything like that but certainly for the purpose of securing component supply.
With visibility out 234 quarters, which we normally would not have.
Right.
The Q2 guide can you give us any more granularity on the revenue growth expectation for.
Telecom versus Datacom.
You know what what's going on in that context.
I'd like to just shut us so what we mentioned in our prepared remarks, we are anticipating telecom and data are going to be continued to be strong. So again sequentially. We are guiding up at midpoint at about 550 million. So we do anticipate.
Strong telecom and Datacom to continue.
So no granularity between the two or any difference between the rates of growth.
We are usually not providing guidance and breaking that down from guidance perspective, but we do anticipate both of them to continue to grow.
Okay and then.
Wanted to talk a little bit about the bot.
I'm looking at a chart of it.
Yes.
Almost five year lows I think the last time. It was at this level was back in July of 2017.
Which is a long time ago, obviously, it's come off very hard since February almost in a straight line. So how does that impact your numbers, obviously in the current quarter, it's a benefit.
I would think that are giving you a cost sharing Thai baht.
And that should help your competitive position considerably or help your margins. How are you planning on benefiting from that.
So yes, so as I mentioned on the prepared remarks, Steve you had a five five per share gain in the current quarter. That's the sheer fact of the revaluation of the balance sheet items. So as you know we are continuing with our FX and currency hedging programs. So you usually hedged out three quarters ahead. So we are entering the quarter.
100% hedged position and then next quarter with 50% and 75%. That's obviously if <unk> stays in the current levels, we will see the benefits in our Q3, and Q4 and definitely a tailwind and it makes our position of more competitive.
As most of our cost bases in Thailand in Thai baht. So you do anticipate.
Aylwin strongest assuming.
The curve stays in the same way.
Shove I'm.
Not asking what's your hedging policy is hedging policy hasn't changed my question is.
If we have the exchange rates stay at this level for an extended period of time, which as you know.
Well, yeah, nobody wants to forecast currency.
So we're assuming flat at this level.
How will you handle that benefit will it be something we used to go after competitive.
Wins.
This environment, where things are sold out or will you use it to.
Allow yourself, some more pricing power on buying supplies, and therefore crop share gains or Alternatively will you see some of it back into the margins.
How should we think about your strategy relative to this level of bot.
So first of all most of our material spending are still in U S dollars. So our labor and overhead spending is predominantly in box. So there's not much you can leverage their ahead, obviously, we are another way to.
Increased pay ahead too just to to offset so basically once you should anticipate is some of this will obviously fall to the bottom line as we are realizing the gains from just four of our contract in the next couple of quarters. So that's definitely something you should anticipate in the in the gross margins on falling to the bottom line.
Perfect and one last question can you talk about the peso.
Already coming online I think you made some comments that it was coming online at the end of the year can you remind us what portion of capacity coming on.
Yes.
Yeah. So.
The current new building building Aces is a as you know it's.
Finished and is ramping up and will be.
I would say fully occupied by the end of the fiscal year with which points to new buildings building nine will be coming online and thats about a million square feet just over million square feet.
Space, So timing wise, we think we've got the timing right because it's a little bit of good planning and a lot of look in our parks.
Building Asus has been filling up maybe.
Maybe a little bit ahead of our expectations, which is great news on building will be coming online just at the right time. So about the end of the fiscal year. So middle of the calendar year next year, we should be up and running and building on and effectively.
Ash after about a full capacity in buildings.
Okay. One last question then I'll cede the floor can you talk a little bit about systems.
I'm not asking about any particular customer, but broadly are you winning additional new systems customers, but the pipeline looks like how did how did how should we be thinking about systems performance.
In the current period and current environment.
Yes.
We've had some success in that regard and where we're most effective Alex it's where we have where we have a lot of the content already so it kind of bottoms up vertical integration, where we're building the content system does on its own without the content isn't very exciting.
For us before we have the content. It makes it very compelling both for us and for our customer our target customer. We haven't we have a couple of I would say additional network system companies that we're talking with them.
Working with.
But nothing to announce at this point, but the pipeline is I would say strong and it's a question of.
How and when we can convert our pipeline into reality.
And what we've seen in the past when we have success in the complete network systems space that can be quite significant and profound in terms of the impact of revenue. So there's a few more companies that were continuing to work with.
Nothing nothing to communicate at this point.
Great Thanks for great quarter.
Thanks, Alex.
Okay.
Thank you again, if you'd like to ask a question.
And then once we get that.
Again to ask a question please press star.
Sorry.
Next question comes from Saturday JP Morgan Your line is open.
Hi can you hear me.
Yes, we can hear you.
Yes, we can right. This is this is Angela Tan Entresol metallurgy, congratulations on the strong quarter great to see.
Thank you.
So I guess first question.
More on the supply chain.
We would really appreciate any.
Details you could provide about where it's at exact bottleneck might be.
I know you mentioned that component costs.
Alright, thank but could you drill down a little bit more into that but appreciate any color. Thanks.
So the component constraints are pretty pervasive.
One commodity in particular, it's pretty pervasive across the supply base.
From our perspective, you know Costco up quickly we pass those costs onto our customers.
Fortunately their customers have to bear the cost of the unfavorable.
Variances.
And we are seeing some signs of the variances coming through from the supply base, but again, we have to ask Wisconsin for our customers, but it's not any one commodity Andre.
Andrew it's spread across several commodities and it's also across all industries, if anything I think maybe optical.
A little bit less prone towards in automotive, we have a small amount of automotive business. That's gone the traditional automotive business at supply chain <unk> quite lean anyway.
So maybe gives a little bit worse on the automotive side.
Maybe a little bit more wiggle room in the optical space, but it's still it's affecting every customer every product.
And.
I'm afraid I don't have any great wisdom under greater insight as to when it's going to improve we see continuing for the foreseeable future and that certainly from our perspective, we have not seen that improve continuing at about 25, I think besides the last quarter of about 25 to 30 million and potentially a headwind for the quarter came in at the low end of that range.
And I think we've baked in about the same.
<unk> 25 to 30 million headwind into this quarter. So.
And that's maybe stabilized a little bit, but it certainly has not improved.
Alright, I appreciate that commentary and then just last question.
On the optical communications side.
Really impressive numbers.
Well I'd love to hear more about what exactly might have driven that and if you see those trends continuing.
I mean, I can see like the 400 gig ramp and tuck in photonics must be driving part of it but any additional detail there would be appreciated. Thank you.
Yes. Thank you.
It's the name of the hit the 400 400 gig Silicon Photonics and also.
With 400, ZR starting to take off.
We certainly feel pretty good about.
The off the communications business and again.
Both across telecom and Datacom, but yeah.
Yes.
It's a good time right now with that transition from let's say a 102 hundred gig to 400 gig we're right in the middle class and 100 gig remained strong as well until we have 400 gig ramping 100 gig remains strong and then 400 ZR is starting to come on this one so.
Overall, the demand signals, we're seeing are quite strong.
We're quite optimistic about both of those.
Great. Thank you.
Thank you Angela.
And our next question.
Hi.
Partners. Your line is open.
Thank you for taking my call I apologize I missed a.
Much of your prepared remarks.
Earnings were up today.
So if I'm asking I.
I apologize.
But can you help us understand.
In terms of the strength you saw in the quarter and the trends you're seeing.
And intra data center, silicon photonics worse or telecom silicon photonics.
And then I've a follow up on 400 gig ZR.
So.
We.
Classify.
Let's say intra data center silicon Photonics, and our telecom revenue.
It's not a more difficult number note within our telecom number we don't really break out, let's say traditional telecom versus.
Silicon Photonics based interest intra data center products. So we don't really break that out, but what I would say is overall.
The demand trends, we're seeing are quite strong across the board.
In both telecom and Datacom.
And it's.
It is encouraging as we look out it is encouraging to see those demands.
But further brendan or if youre breaking out between let's say traditional.
Telecom and Silicon Photonics based integrated central products, we don't really break down those items.
Got it and then on the <unk>.
100 gig ZR.
I'm not sure if it is still material for you to call it out individually.
But if it is a luxury.
400 gig ZR revenue is looking like what.
If you kind of answered that Canadians after us.
Are you seeing more than one supplier of Oregon.
More than one customer now.
Being able to deploy flogging geographies, it's still predominantly single vendor story.
No. It's it's.
It's multiple vendors I would say.
You are correct. We aren't currently low four hundreds we are at this point, but we are starting to see some exciting activity at a handful of customers.
They are at various stages of.
We're at various stages of ramping production with those customers.
Overall, it's still relatively small it wouldn't be meaningful overall.
Certainly the <unk>.
Projections, we're seeing performance looks very encouraging.
We're optimistic that we'll continue to see 400 ZR.
And become more meaningful over time, we have.
I'd say three or four customers in 400 ZR.
Hum.
Let's say three or four is one of the customers with maybe a little bit behind in the development cycle, but certainly we have three.
I would say strong customers with solid demand on the <unk>.
Fourth one coming on as well so we have multiple customers in that space.
Got it.
If I could ask you.
One of your lead customers announced the next generation one two terabits.
Product that probably would likely ship.
Sometime at the end of 'twenty two early 'twenty three.
The unique CMI eight plug a hole can you speak to the revenue opportunity you see in terms of.
The emergence of these new Msas and new plausible how much do you think that is kind of becoming an incremental growth opportunity for you with this large customer.
Is that I'm not sure.
Sure.
I'm, not sure, which customer or product youre, referring to.
Cisco.
And.
A new form factor plausible.
Yeah. My anything I was just wondering how much of an incremental upside opportunity would that be because it's a new it's a new form factors. So whenever you have on your phone factor how do you how should we think about the introduction of a new form factor.
Is that an opportunity that some of the incremental is it because suddenly forecast or is it.
Because.
Beyond just the.
Faster more highest capacity.
With them.
Yeah. So.
In terms of applicable.
Certainly our it's a big big part of our business I would say manufacturing promos.
We're kind of form factor I would say agnostic, we don't mind, what the form factor is we're really more interested in the content and the technology within the plausible and making sure that we're making as.
As much as the kind of the content because it's applicable and also make it applicable so without talking about any customer in particular, because we generally don't intend, we're certainly what they've announced themselves.
Any any move to new form factors that gets more.
More demand for global Boots, we're always excited about but I don't really have a I'm afraid to comment on the specific example, you talked about.
I appreciate the answer thank you.
Thank you Todd.
Thank you I'm showing no further questions at this time I will turn the call back over to famous Grady for closing remarks.
Thank you operator, we're pleased with our excellent start to the fiscal year with results that exceeded our guidance ranges. We're optimistic that we'll be able to deliver another strong quarter in Q2, and we look forward to speaking with you again, thank you and goodbye.
Thank you ladies and gentlemen.
Thank you all participating you may now disconnect have a great day.
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[music].
[music].
Good afternoon welcome to Paul.
Without conference call for the first quarter fiscal year 2020.
At this time all participants are in listen only mode and we conduct a question you have to suck it in construction.
Participating with me about at that time.
As a lot of today's call is being recorded.
I would now like to turn the call over to your house Gareth Cmos.
Ammonia and that's the relationship.
Thank you operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss fabric.
Its financial and operating results for the first quarter of fiscal year 2022, which ended September 24 2021.
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 Fibernet 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.
In addition, today's discussion will contain forward looking statements about the future financial performance of the company.
We're 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-K filed on August 17 2021.
We will begin the call with remarks from Seamus and Charbagh, followed by time for questions I would now like to turn the call over to Fabulous CEO Seamus Grady Seamus.
Thank you Daryl and good afternoon, everyone and thank you for joining us on today's conference call.
We had a strong start to fiscal 2022 with top and bottom line results for the first quarter that exceeded our expectations.
Demand trends remain robust across our business, which contributed to revenue, reaching $543 $3 million more than $13 million above the high end of our guidance.
We continue to execute very effectively with revenue upside falling to the bottom line as reflected in our non-GAAP net income of $1 45 per share, which was also above our guidance range.
From a revenue perspective, we had a particularly strong quarter for optical communications, which grew 10% from the fourth quarter and 24% from a year ago.
As Trevor will detail in a moment strong optical communications demand was evident in both telecom and Datacom.
We continued to execute well despite the component supply constraints as we and many others continue to experience.
During our last call, we estimated that we would see a $25 million to $30 million revenue headwind in the first quarter from these constraints.
We are pleased to report that the actual impact was at the lower end of that range.
Our ability to overcome many of these component charges was most evident in our record optical communications results.
Component shortages in the automotive markets extremely lean supply chain resulted in a moderate decline in automotive revenue from the fourth quarter.
As we look to the second quarter. We are optimistic about continued strong demand across our business and are anticipating healthy overall growth despite persistent supply chain headwinds.
Operationally I am very happy to announce that our COVID-19 vaccination program for employees in Thailand has been a great success.
And that at this point, 99% are virtually all of our employees in Thailand are now fully vaccinated I'm also pleased that we were successful in delivering first quarter margins within our target ranges. Despite these additional COVID-19 related costs in the quarter.
And our Chonburi campus construction of our second building is progressing well.
This building will add approximately 1 million square feet or 50% to our global footprint.
Substantially increasing our manufacturing capacity.
We are on track for construction to be completed around the end of the fiscal year.
This schedule is extremely timely since based on continued customer demand. We now anticipate that our first building in chonburi will be effectively fully occupied when our second chonburi building opens for business.
In summary, after a very strong first quarter. We are optimistic that Q2 will represent another strong quarter for revenue and profitability.
Demand trends remained strong and we are excited that our second building in Chonburi will be coming online just at the right time to enable us to continue leasing anticipated demand and extend our business momentum in the years ahead.
Now I'd like to turn the call over to each other for additional financial details on our first quarter and our guidance for the second quarter of fiscal 2020 to Java.
Thank you Seamus and good afternoon, everyone.
Yes, we're off to a great start for the fiscal year with record revenue and non-GAAP profitability in the first quarter.
Revenue of $543 $3 million was well above our guidance and represented an increase of 7% from the fourth quarter and 24% from a year ago.
As we continue to execute very efficiently our top line outperformance fell to the bottom line and non-GAAP earnings of $1 45 per diluted share, which also exceeded our guidance.
This result includes approximately <unk> <unk> per share and foreign exchange gains offsetting the expenses related to our vaccination program, that's being incurred in Q1.
Looking at the quarter in more detail.
<unk> communications revenue was $427 $3 million up 10% from the fourth quarter and made up 79% of total revenue.
Within optical communications Telecom revenue increased 9% from the last quarter to $338 6 million a new record.
Data comm revenue of $88 7 million increased 15% from Q4.
By technology Silicon Photonics product reached a record $135 $1 million or 25% of total revenue and was up 22% from the fourth quarter.
Revenue from products rated at speeds of 400 gig or higher was $173 3 million up 30% from the fourth quarter and 149% from a year ago.
Revenue from 100 gig products increased modestly from Q4 to $135 $6 million.
Based on continued strong demand we are expecting to see strong sequential growth in optical communications in the second quarter.
Non optical communications revenue was $116 million or 21% of total revenue, representing a 25% increase from a year ago.
Kris or 5% from the fourth quarter.
While as Seamus noted the overall impact of component shortages.
Lower end of our expectations for the quarter. These constraints, they're more apparent for non optical products, especially in automotive.
With the majority of our sensor revenue serving out automotive applications, yes, now reclassifying automotive revenue and other non optical communications revenue to include historical sensor revenue, which has represented less than 1% of quarterly revenue for the past two years.
On this combined basis, our automotive revenue was $48 2 million a decrease of 8% from last quarter.
While we don't intend to break this out in the future.
For a more direct comparison purposes automotive revenue, excluding sensors declined 8% sequentially.
Industrial laser revenue was $37 5 billion a decline of 9% from Q4, but stable when viewed on a trailing 12 month basis.
Other non optical communications revenue was $33 million up 7% from the fourth quarter.
This category now includes a portion of revenue that was previously classified as sensors.
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 was 12, 1% down 20 basis points from Q4, consistent with our expectations considering the expenses related to our vaccination program annual Merit increases.
Operating expenses in the quarter of $13 2 million or two 4% of revenue, resulting in operating income of $52 5 million or nine 7% of revenue.
Effective tax rate was one 3% in the first quarter and we continue to anticipate that our tax rate in the fiscal year 2022 will be approximately 3%.
Non-GAAP net income was a record at $54 2 million or $1 45 per diluted share.
On a GAAP basis, net income was $1 <unk> per diluted share.
Turning to the balance sheet and cash flow statement.
At the end of the first quarter cash restricted cash and investments at $528 $6 million compared to $548 1 million at the end of the fourth quarter.
Operating cash flow was $39 million.
Capex of $34 6 million free cash flow of $4 4 million in the quarter.
We did not repurchase any shares during the first quarter.
We remain committed to return surplus cash to shareholders through a <unk> one share repurchase plan combined with opportunistic open market share buybacks.
Currently we have $81 $2 million in our share repurchase authorization.
Now I would like to turn to our guidance for the second quarter of fiscal year 2022.
After a slow start to the year, we are optimistic that our momentum will continue in the second quarter.
We expect strong top line growth despite similar revenue headwind from component shortages that we experienced in the first quarter.
We estimate that the ongoing supply cost changes will again impact our second quarter revenue by approximately $25 million to $30 million.
With that backdrop for the second quarter, we anticipate revenue in the range of $540 million to $560 million.
From a profitability perspective, we anticipate non-GAAP net income to be in the range of $1 and 42.
The $1 49 per diluted share.
In summary, we are off to a great start to the year and we are optimistic that strong demand trends and execution will combine again to produce even stronger results in the second quarter.
Operator, we are now ready to open the call for questions.
Thank you, ladies and gentlemen, I'd like to ask a question. Please press Star then one on your Touchtone telephone again, if you would like to ask the question.
And then one.
One other player.
Our first question comes from.
Alex Henderson Needham Your line is open.
Yes.
Thanks can you hear me okay.
Yes, we hear you finals.
Perfect.
So congratulations nice quarter.
Outstanding results in a tough environment.
<unk>.
There has been a very strong order rate across almost every company that has reported results so far.
That happens as the hardware systems related.
Characteristics to it so I assume that.
There you are getting an extension of the visibility well beyond the current quarter.
Well beyond traditional metrics can you talk to whether that's.
In fact, the case and if so what kind of commentary are you hearing from these companies.
Yes, so we see that demand continuing to be quite strong we have.
I'd say a longer visibility than the normal normal normally we have about 13 weeks rolling forecast, obviously, we have much much longer visibility much visibility much farther outside these days with components.
On the supply constraints that we're all experiencing so we do have visibility for growth is still just guide.
One quarter, a time, Alex but the demand signals we're seeing.
Do remain quite strong across across our business.
So is it multiple quarters into next year that you have visibility to at this point I'm not asking for you your guidance, but rather.
Your sense of visibility I mean, Arista just resolved just got off of their call a moment ago.
They're talking about increasing their orders by two.
$2 billion commitment to two.
Purchasing commitments because it was poor export prior order rate and have visibility all the way through 'twenty, two I assume that youre seeing some characteristics like that is that accurate or no.
Yeah. It depends on the I would say the customers and it depends on the specific commodities within the customer and in some cases, we have visibility.
I would say close to year at this stage.
But it's really for the purpose of physician and component supply that will not be easy to forecast revenue on Cmos.
Certainly for the purpose of securing component supply.
With visibility out 234 quarters, which you normally would not have.
Okay.
The Q2 guide can you give us any more granularity on the revenue growth expectation for <unk>.
Telecom versus Datacom.
You know what what's going on in that context.
I'd like to this is China so what.
As mentioned in our prepared remarks, we are anticipating telecom and data going to be continued to be strong. So again sequentially. We are guiding up at midpoint.
$550 million, so we do anticipate.
Strong telecom and Datacom to continue.
So no granularity between the two or any difference between the rates of growth.
We are usually not providing guidance on breaking that down from guidance perspective, but we do anticipate both of them to continue to grow.
Okay and then.
Wanted to talk a little bit about the bot.
Looking at a chart of it.
<unk> is at.
Almost five year lows I think the last time. It was at this level was back in July 2017.
Which is a long time ago, obviously, it's come off very hard since February almost in a straight line. So.
How does that impact your numbers, obviously in the current quarter, it's a benefit.
I would think that.
Given your cost sharing Thai baht.
And that should help your competitive position considerably or help your margins. How are you planning on benefiting from that.
So yes, yes, so as I mentioned on the prepared remarks, Steve you had a five five per share gain in the current quarter Thats. The sheer fact of the revaluation of the balance sheet items. So as you know we are continuing with our FX and currency hedging programs. So you usually hedged out three quarters ahead. So we are entering the quarter.
It's 100% hedged position and then next quarter with 50% and 25%. That's obviously if Bob stays in the current levels, we will see the benefits in our Q3, and Q4 and definitely a tailwind and it makes our position more competitive.
As most of our cost basis in Thailand in Thai baht, So we do anticipate a.
Tailwind from this assuming.
The curve stays in the same way.
Siobhan.
Not asking what's your hedging policy is hedging policy Hasnt changed and my question is if we have the exchange rates stay at this level for an extended period of time, which as you know.
Yes, nobody wants to forecast currency.
So we're assuming flat at this level.
How will you handle that benefit will it be something we use to go after competitive.
<unk>.
And in this environment, where things are sold out or will you use it to them.
Allow yourself, some more pricing power on buying supplies, and therefore crop share gains or Alternatively will you see some of it back into the margins.
How should we think about your strategy relative to this level of bot.
So first of all most of our material spending are still in U S dollars. So our labor and overhead spending is predominantly in box. So there is not much you can leverage their ahead, obviously you are not going to incur.
Increased pay ahead too just to to offset so basically what you should anticipate is.
Some of this will obviously fall to the bottom line as we are realizing the gains from just four of our contracts in the next couple of quarters. So that's definitely something you should anticipate in the end.
Gross margins on falling to the bottom line.
Perfect and one last question can you talk about the.
Yep.
<unk> coming online I think you made some comments that it was coming online at the end of the year. When can you remind us what portion of capacity is coming on.
Yeah.
Yeah, so on the.
<unk>.
The current new building building as is.
We know it's finished and as.
Ramping up and will be.
I would say fully occupied by the end of the fiscal year with which points to new buildings building nine will be coming online and thats about a million square feet just over million square feet.
Base, So timing wise, we think we've got the timing rice and I think a little bit of good planning and a lot of look when our parks.
Asus has been filling up.
A little bit ahead of our expectations, which is great news.
Building will be coming online just at the right time, so about the end of the fiscal year. So middle of the calendar year next year, we should be up and running and building nine and effectively.
Ash after about full capacity in the litigation.
Okay. One last question then I'll cede the floor can you talk a little bit about systems.
I'm not asking about any particular customer, but broadly are you winning additional new systems customers. What's the pipeline look like how did how did how should we be thinking about systems performance.
In the current period and current environment.
Yes.
We've had some.
Some success in that regard and where we're most effective Alex it's where we have where we have a lot of the contents already so it kind of bottoms up vertical integration, where we're building the contents system does on its own without the content is very exciting.
For us before we have the content it makes it very compelling for us and for our customer our target customer. Yes. We haven't we have a couple of I would say additional network system companies that we're talking with them.
Working with.
But nothing to announce at this point, but the pipeline is I would say strong and it's a question of how and when we can convert that pipeline into reality.
As we've seen in the past when we have success in the complete network systems space that can be quite significant and profound in terms of the impact on revenue.
So there's a few more companies that were continuing to work with.
But nothing nothing to communicate at this point.
Great. Thanks for a great quarter.
Thanks, Alex.
Okay.
Thank you again, if you'd like to ask a question.
And then once we get that somehow against.
Again to ask a question please press.
Start anymore.
Next question comes from Saturday JP Morgan Your line is open.
Hi can you hear me.
Yes, we can hear you.
As we can right. This is this is Angela Tan Entresol metallurgy, congratulations on the strong quarter great to see.
Thank you.
So I guess first question.
More on the supply chain.
We would really appreciate any.
Details you could provide about where is the exact bottleneck might be.
Yeah.
I know you mentioned that component costs.
Alright, thank but could you drill down a little bit more into that but I appreciate any color. Thanks.
So the component constraints are pretty pervasive.
One commodity in particular, it's pretty pervasive across the supply base.
From our perspective, Costco up quickly we pass those costs onto our customers.
Fortunately their customers have to bear the cost of the unfavorable.
Variances.
And we are seeing some sizeable variances coming through from the supply base, but again, we have to ask Wisconsin for our customers, but it's not any one commodity.
<unk> spread across several commodities and it's also across all industries, if anything I think maybe optical.
A bit less prone towards in automotive, we have a small amount of a more of a business, let's call. It traditional automotive business at supply chain, hence drone quite lean anyway.
So maybe just a little bit worse on the automotive side.
Maybe a little bit more wiggle room.
But it's still it's affecting every customer every product.
Hum.
I'm afraid I don't have any great wisdom under great insight as to what it's going to improve we see continuing for the foreseeable future and that certainly from our perspective, we have not seen that improve continuing at about 25, I think we cited last quarter at about $25 million to $30 million.
And potential headwinds for the quarter came in at the low end of that range.
And I think we stated about the same.
125 to 30 million headwinds into this quarter. So it's continuing.
Maybe stabilized a little bit, but it certainly has not improved.
Alright, I appreciate that commentary and then just last question.
On the optical communications side.
Really impressive number.
Well I'd love to hear more about what exactly might have driven that and if you see those trends continuing.
I mean, I can see like the 400 gig ramp in silicon photonics.
The driving part of that but any additional detail there would be appreciated. Thank you.
Yes. Thank you.
It's the name of the hit the 400 400 gig Silicon Photonics and also.
With 400, ZR starting to take off.
We certainly feel pretty good about that.
The communications business and again.
Both across telecom and Datacom, but yeah.
Yes.
No.
A good time right now with that transition from let's say 102 hundred gig to 400 gig we're right in the middle of Dos and 100 gig remained strong as well until we have 400 gig ramping 100 gig remains strong and informed us that they are starting to come on this one.
<unk>.
Overall, the demand signals, we're seeing are quite strong.
We're quite optimistic about.
Great. Thank you.
Hey, guys.
And our next question from.
Hi, Adam.
Partners. Your line is open.
Thank you for taking my call I apologize I missed a.
Much of your prepared remarks.
The earnings go up today.
So if I'm asking a little bit I apologize.
But can you help us understand.
In terms of the strength you saw in the quarter and the trends you're seeing.
And intra data center Silicon Photonics worse, the telecom silicon Photonics and.
And then I've a follow up on 400 gig ZR.
So.
With.
Classify.
Let's say intra data center silicon Photonics, and our telecom revenue.
It's not a new desk a number now within our telecom number we don't really break out, let's say traditional telecom versus <unk>.
Silicon Photonics based and intra data center products. So we don't really break that out, but what I would say is overall the demand trends, we're seeing are quite strong across the board.
In both telecom and Datacom.
And thats it.
As encouraged as we look out it is encouraging to see those demands.
But further granularity or breaking out between let's say traditional.
Telecom Silicon Photonics based integrated central products, we don't really break down the road.
Got it and then.
The 400 gig ZR not sure if it is still material for you.
Well call it out individually.
But if it is a luxury.
400 gig ZR revenue is looking like what.
If you kind of said that can you give us all.
Are you seeing more than one supplier.
Yeah.
One customers now.
Now beginning to deploy 400 gig we are and it's still predominantly single vendor story.
No.
It's multiple vendors I would say.
You are correct, we aren't frankly low four hundreds we are at this point, but we are starting to see some exciting activity at a handful of customers.
They are at various stages of.
They're at various stages of ramping production with those customers.
Overall, it's still relatively small it wouldn't be meaningful overall.
Currently the projections were seeing performance ZR look very encouraging.
We are optimistic that we will continue to see 400 ZR ramp.
And become more meaningful over time, we have.
I'd say three or four customers in 400 ZR.
The reason I say three or four is one of the customers is maybe a little bit behind in the development cycle, but certainly we have three.
I would say strong customers with solid demand and a fourth one coming on as well. So we have multiple customers in that space.
Got it.
If I could ask you.
One of your lead customers announced a next generation one two terabyte.
Product that probably would likely ship.
Sometime at the end of 'twenty two early 'twenty three.
The unique CMI Gluggable can you speak to the revenue opportunity you see in terms of.
The emergence of these new Msas and new plausible.
How much do you think that is kind of becoming an incremental growth opportunity for you with this large customer.
Yes, I'm not sure.
Hum.
I'm, not sure, which customer or product youre, referring to from us.
Cisco.
And.
A new form factor plausible culture.
Called CMI anything I was just wondering how much of an incremental upside opportunity would that be because it's a new it's a new form factors. So whenever you have a new form factor how do you how should we think about the introduction of new form factor.
The opportunities.
But the incremental is it because the 17 forecast or is it.
Because.
Beyond just the.
Faster more higher capacity.
Yes so.
In terms of plausible.
Certainly our it's a big big part of our business I would say manufacturing globally.
We're kind of form factor I would say agnostic, we don't mind, what the form factor is we're really more interested in the content and the technology within the plausible and making sure that we're making.
As much as we can contact the codelco plausible and also making globally.
Without talking about any customer in particular, because we generally don't until we're certainly what they've announced themselves.
Any any move to new form factors that gets more and.
More demand for global Boots, we're always excited about but I don't really have a I'm afraid to comment on the specific example, you talked about.
I appreciate the answers thank you.
Thank you for that.
Thank you.
I'm showing no further questions at this time I'll turn the call back over to famous Grady for closing remarks.
Thank you operator, we're pleased with our excellent start to the fiscal year with results that exceeded our guidance ranges. We're optimistic that we'll be able to deliver another strong quarter in Q2, and we look forward to speaking with you again, thank you and goodbye.
Thank you ladies and gentlemen, this episode.
This conference. Thank you all participating you may now disconnect have a great day.