Q2 2022 Fabrinet Earnings Call
And good afternoon, welcome to <unk> financial results conference call for the second quarter of fiscal year 2022.
Speaker 1: Good afternoon. Welcome to Fabrinet's Finance Results Conference call for the second quarter of fiscal year 2022. At this time, all participants are not listening only to the mode. Later, we will conduct a question and answer session and instructions on how to participate will be provided at that time.
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.
Speaker 1: As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Gerro Tommagenian, Investor Relations.
As a reminder, today's call is being recorded I would 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 second quarter of fiscal year 2022, which ended December 24 2020 with.
Speaker 2: Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss governance, financial, and operating results for the second quarter of fiscal year 2022, which ended December 24, 2021. Thank you for calling. We'll be on the conference side. Thank you, Miss Grady, Chief Executive Officer, and Chabaspera, Chief Financial Officer.
Briefly on the call today by Jamie Grady Chief Executive Officer.
<unk>, our chief Financial Officer.
This call is being webcast and a replay will be available on the investors section of our website located at Investor Dark fiber net dot com.
Speaker 2: This call is being webcast and the replay will be available on the Investor section of our website located at investor.fabricant.com
Speaker 2: During this call, we will present both GAP and non- GAAP financial measures. Please refer to the Investor section of our website for important information, including our earnings press release and investor presentation, which include our GAP to non-GAP reconciliation.
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.
Speaker 2: In addition, 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.
In addition, today's discussion will contain forward looking statements about the future financial performance of the company.
Looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations.
Speaker 2: 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.
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.
Speaker 2: For a description of the risk factors that may affect our results, please refer to our recent SEC filings in particular the sectioned captioned risk factors in our form 10Q filed on November 2, 2021.
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 November two 2021.
Speaker 2: We'll begin the call with remarks from Shamist and Chaba, followed by time for questions. I would now like to turn the call over to Fabianist, CEO , Shamist Gray. Shunist.
We will begin the call with remarks from Seamus and Ciao, followed by time for questions.
I'd now like to turn the call over to cabinets CEO Seamus great Janice.
Thank you Garo and good afternoon, everyone and thank you for joining us on today's conference call.
Speaker 3: Thank you, Garot. Good afternoon, everyone, and thank you for joining us on today's conference.
Speaker 3: We are very pleased with our results for the second quarter of fiscal 2022. Revenue was $566.6 million, and non-GAP net income was $1.50 per share, both above the top end of our guidance ranges.
We're very pleased with our results for the second quarter of fiscal 2022.
Revenue was $566 $6 million.
non-GAAP net income was $1 50 per share both above the top end of our guidance ranges.
Speaker 3: I am particularly pleased with our team's ability to continue to manage through ongoing industry white supply constraints. And we are confident that we can continue to deliver strong performance levels as we look ahead.
I am, particularly pleased with our team's ability to continue to manage through ongoing industry wide supply constraints.
And we are confident that we can continue to deliver strong performance levels as we look ahead.
Looking at the quarter in more detail revenue headwinds from supply chain constraints were within our expected range of $25 million to $30 million.
Speaker 3: Looking at the quarter in more detail, revenue headwinds from supply chain constraints were within our expected range of $25 to $30 million.
Speaker 3: I'm impressed with our team's ability to navigate these constraints to drive continued growth.
I'm impressed with our team's ability to navigate these constraints to drive continued growth.
Speaker 3: By end-markers, we had another strong co-worker for optical communications, both telecom and data-com revenue increased sequentially and year-over-year.
By end markets, we had another strong quarter for optical communications with the telecom and Datacom revenue increased sequentially and year over year.
Non optical communications revenue was essentially flat from the first quarter with newer programs offsetting small declines in industrial laser in automotive where supply chain constraints, primarily impacted traditional automotive products.
Speaker 3: Non-optical communications revenue was essentially flashed from the first quarter with newer programs of setting small declines in industrial laser and automotive, where supply chain constraints primarily impacted traditional automotive products.
Looking forward, we don't see signs of any meaningful relief from component shortages in the near term, which we continue to mitigate these impacts to the best of our ability.
Speaker 3: Looking forward, we don't see signs of any meaningful relief from component shortages in the near term, which we continue to mitigate these impacts to the best of our availability.
Speaker 3: To support our growth well into the future, the expansion underway at our Chambari facility remains on track for completion at the end of our fiscal year. Given the strong demand trends we are seeing, the opening of our new 1 million square foot building will be well timed to make customer leads for additional space.
To support our growth well into the future.
Pension underway at heart Chonburi facility remains on track for completion at the end of our fiscal year.
Given the strong demand trends, we are seeing the opening of our new 1 million square foot building will be well timed to meet customer needs for additional space in.
In summary, we're very pleased with our execution, which helped produce another record quarter for the company.
Speaker 3: In summary, we're very pleased with our execution, which helped produce another record quarter for the company. With continued strong demand trends and effective supply management, we're optimistic we'll be able to deliver another strong performance in Q3.
With continued strong demand trends and effective supply management, we're optimistic we'll be able to deliver another strong performance in Q3.
Speaker 3: Now I'd like to turn the call over to Chava for additional financial details on our second quarter and our guidance for the third quarter of Fiscal 2022. Chava.
Now I would like to turn the call over to <unk> for additional financial details on our second quarter and our.
Guidance for the third quarter of fiscal 2022 trauma.
Thank you Seamus and good afternoon, everyone.
Speaker 4: We are very excited to report another quarter with record revenue and non-gov profitability that exceeded our guidance range.
Very excited to report another quarter with record revenue and non-GAAP profitability that exceeded our guidance ranges.
Speaker 4: Revenue of $566.6 million increased 4% from the first quarter and 25% from a year ago.
$566 $6 million increased 4% from the first quarter and 25% from a year ago.
Speaker 4: Revenue outside drove strong non-get earnings of $1.50 per diluted share.
Revenue outside drove strong non-GAAP earnings of $1 <unk> per diluted share.
Looking at revenue in little more detail optical communications represented 80% of total revenue at $450 8 million.
Speaker 4: Looking at revenue in little more detail, optical communications represented 80% of total revenue at $450.8 million.
Up 5% from the first quarter.
Within optical communications, we saw growth in both telecom and Datacom revenue to record levels.
Speaker 4: Within optical communications, we saw growth in both telecom and data com revenue to record level.
Speaker 4: Telecom revenue increased 4% from the first quarter to $350,2.7 million. And data-com revenue increased 11% sequentially to $98.1 million. By technology silicon photonics products increased 16% sequentially to $157 million, worth 28% of total revenue, a new record.
Telecom revenue increased 4% from the first quarter to $352 $7 million and Datacom revenue increased 11% sequentially to $98 1 million by.
By technology, Silicon Photonics products increased 16% sequentially to $157 million or 28% of total revenue and you record.
Speaker 4: Revenue from product rated at speed of 400 gig or higher grew 8% from the prior quarter to 187.5 million dollars.
Revenue from products rated at speed of 400 gig or higher grew 8% from the prior quarter to $187 $5 million revs.
Speaker 4: Revenue from 100 gig products increased 3% from Q1 to 139.8 million dollars.
Revenue from 100 gig products increased 3% from Q1 to $139 8 million.
Non optical communications revenue was $115 9 million essentially flat from the first quarter.
Within non optical automotive revenue was $47 million down 3% from last quarter and industrial laser revenue of $35 $6 million decreased 5%.
Other non optical communications revenue increased 10% from the first quarter to $33 $3 million with.
Speaker 4: Other non-optical communications revenue increased 10% from the first quarter to 33.3 million dollars.
<unk> contribution to growth from our new product introduction facility in Santa Clara in Israel.
Speaker 4: with contribution to growth from our new product introduction facilities in Santa Clara and Israel.
As I turn to the details of our P&L expense and profitability metrics provided on a non-GAAP basis, unless otherwise noted.
A reconciliation of GAAP to non-GAAP measures is included in our earnings press release, and Investor presentation, which you can find in our Investor Relations section of our website.
Speaker 4: A reconciliation of gap to non- GAAP measures is included in our earnings press release and investor presentation, which you can find in our investor relations sections of our web.
Operationally, we continue to run very efficiently gross margin was 12, 5% up 40 basis points from Q1 and that the upper end of our target range.
Speaker 4: Operationally, we continue to run very efficiently. Gross margin was 12.5%, up 40 basis points from Q1, and at the upper end of our target range.
Speaker 4: operating expenses in the quarter at 12.1 million dollars or 2.1 percent of revenue.
<unk> expenses in the quarter at $12 $1 million or two 1% of revenue.
This resulted in an operating income of $58 $7 million.
Speaker 4: This resulted in operating income of $58.7 million.
non-GAAP operating margin was a record 10, 4%.
Speaker 4: Non-gap operating margin was a record 10.4%.
Speaker 4: While we continue to expect positive operating leverage trends, in the near term we anticipate returning to operating margins in the 9.5 to 10 percent range.
While we continue to expect positive operating leverage.
In the near term, we anticipate returning to operating margins in the nine 5% to 10% range.
Speaker 4: Effective tax rate was 2.4% in the second quarter, and we continue to anticipate that our tax rate for the fiscal year will be approximately 3%.
Effective tax rate was two 4% in the second quarter and we continue to anticipate that our tax rate for the fiscal year will be approximately 3%.
Speaker 4: non-GAAP net income was a record at $56.2 million, or $1.50 per diluted share. On a GAAP basis, net income was $1.30 per diluted share. Turning to the balance sheet,
non-GAAP net income was a record at $56 2 million or $1 50 per diluted share.
On a GAAP basis, net income was $1 <unk> per diluted share.
Turning to the balance sheet and cash flow statement.
Speaker 4: At the end of the second quarter, cash, restricted cash, and investments were $520.2 million, down $8.4 million from the end of the first quarter. Operating cash flow was $18 billion.
At the end of the second quarter cash restricted cash and investments were $522 million down $8 4 million from the end of the first quarter.
Operating cash flow was $18 $6 million.
Speaker 4: With CAPEX of $17.3 million, free cash flow was $1.3 million in the quarter.
We had capex of $17 3 million free cash flow was $1 $3 million in the quarter.
Speaker 4: Cash balance is at the end of the quarter or so reflect the repurchase of 38.3 thousand shares at an average price of 115 dollars and 82 cents Coratoto cash outlay of 4.2 million dollars
Cash balances at the end of the quarter also reflect the repurchase of 38 3000 shares at an average price of $115 82.
Our total cash outlay of $4 $2 million.
Speaker 4: As a result, $76.7 million dollars remain in our share repurchase authorization.
As a result, $76 $7 million remaining in our share repurchase authorization.
Speaker 4: Now I will turn to our guidance for the third quarter of fiscal year 2022.
Now I will turn to our guidance for the third quarter of fiscal year 2022.
Based on continued strong demand largely across the board we are expecting revenue from both optical and non optical communications to be flat to up in the third quarter.
Speaker 4: Based on continuous strong demand largely across the board, we are expecting revenue from both optical and non-optical communications to be flat to up in the third quarter.
Speaker 4: This includes the impact of slightly higher supply chain headwinds, which we estimate will be 30 to 35 million dollars in the third quarter.
This includes the impact of slightly higher supply chain headwinds, which we estimate will be $30 million to $35 million in the third quarter.
For the third quarter, we anticipate revenue to be in the range of $560 and $580 million.
Speaker 4: For the third quarter, we anticipate revenue to be in the range of $560 and $580 million.
Speaker 4: We anticipate non-GAAP net income to be in the range of $1.48 to $1.55 per diluted share.
We anticipate non-GAAP net income to be in the range of $1 48.
The $1 55 per diluted share.
In summary, we are very pleased with our results for the second quarter.
Speaker 4: In summary, we are very pleased with our results for the second quarter. We are optimistic that increased demand levels and stronger execution will again produce a strong performance in the third quarter.
We are optimistic that increased demand levels and strong execution will again produce a strong performance in the third quarter.
Operator, we are now ready to open the call for questions quick questions.
Speaker 4: Operator, we are now ready to open the call for questions.
Thank you as a.
Speaker 1: Thank you. As a reminder, to ask a question, please press star 1 on your telephone. Again, that's star 1 on your telephone to ask a question. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster.
Minded to ask a question. Please press star one on your telephone again Thats Star one on your 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 Alex Henderson of Needham Your line is open.
Speaker 1: Our first question comes from the line of Alex Henderson of Needham. Your line is open.
Hey, guys.
Speaker 5: Nice quarter, thanks for the print.
Nice quarter, thanks for the Permian.
So when you talk about your headwind of $30 million to $35 million.
Speaker 5: So when you talk about your headwind of $30 to $35 million, I mean,
I'm looking at the <unk>.
Speaker 5: supply chain all the way up and down from the systems to the components to the contract manufacturer. And it seems pretty clear to me that that may be what you...
Supply chain, all the way up and down.
This is from systems to the components to the contract manufacturer.
And it seems pretty clear to me that that may be what.
Youre seeing in terms of.
Orders in house, but the systems companies are running backlogs of 30% to 50% of our full year's product.
Sale.
Obviously theyre not passing that on through can you talk a little bit about how.
We measure the.
30.
$35 million versus.
The implied order growth.
Up the chain that has so much significantly larger than what you're talking about.
30%, 50% of employers backlog will eventually find its way into your revenues right.
Alex Yes, I think.
Kind of a.
Message around that.
Demand remains quite strong so it's a mystery because circumstances as a kind of a mixed message.
The demand as you would like to point out is very strong which.
Which is good news, but that increased demand is putting increased pressure on the.
The limited component suppliers that are out there.
We've been saying we've heard some people say that the demand I'm, sorry about the supply constraints.
Two is we haven't seen the evidence of that thus far.
Im getting at is tightening as you can see in our guidance, we've increased the amount of the impact to the component constraints.
And that's really driven by a couple of factors. One is like I said the demand is very robust.
Putting increased pressure on the limited supply of components that are out there and secondly, any surplus components that were out there in the broader supply chain and the distribution market or in the broker markets.
So we're really dealing directly with manufacturers at this point.
Unlike I'd say demand is quite strong.
On the surplus parts of alternative parts that were in the supply chain have been shaken out at this point so.
So we do see it continuing to be.
A pressure point for for some time to come.
Just going back to the question Seamus so.
The question really is when you talk about 30% to $35 million that's firm orders for the current quarter that doesn't reflect anything that might be in the backlog on the system is basis.
At the Oems that are ultimately the end users of the product is that a fair way to think about it. So that there is actually a much larger pent up demand and what is captured by the 30% to 35 billion.
Yes, I think Thats, a fair way to look at that $30 million to $35 million. That's the headwind that we see on our ability to deliver that.
<unk>.
The demand the commitment for this quarter it doesn't look at beyond this quarter, So I think youre right.
That's very fair, but demand is very strong and the demand continues to be very strong from the broader customer base.
If I could on a somewhat different subject.
The Thai baht has been giving you a nice.
Advantage.
Of your cost structure for a while now as a result.
It kind of falling off the table.
And if I look at the income statement.
You've had.
Much better than expected gross margins and much better than expected.
Opex hitting.
Hitting double digit operating margins, which is certainly at the upper end of your traditional band.
How do we think about.
That aspect of it.
The <unk> seems to have stabilized in this range coming.
Coming down pretty much over the summer into the fall.
Do we look at it is.
Well to get the.
A little bit of upside to the revenues was your ability to buy.
Alright.
And that helped you on the gross margins.
And does the $2 one down from 2324 is that the sustainable level at this point on Opex.
Sure.
Hi, Alex This is Joe So let me take it one by one so indeed, the dialogue has been somewhat stable in the last six months. So we did start to see the pick up in the in our cost structure, both in Cogs and Opex in the last quarter. So as you know we have our hedging program in place. So thats kind of gives us the previous table.
Impact so going forward, so I anticipate that that's going to be somewhat stable in the next six months.
Secondly, our cost structure and bought spending is primarily on our labor and overhead side. So in terms of materiel VR really buying in U S dollars, mostly so there is no impact whatsoever or not we cannot use the leverage of the need to buy in advance.
Absolutely.
I think our Cogs and Opex lines from a labor perspective in terms of operating expense, yes. It was.
Down sequentially I'll just missiles also part.
<unk>.
Saying that so.
We also had some <unk>.
Seasonality tailwind in the Opex structure, so in the longer term, we anticipate it to be.
Returning to the $2.
2.5% to 2% range going forward so.
That's pretty much I think I summarized all your questions.
Alright, and then just below the line.
<unk> had a pretty.
A little bit of an unusual swinging with all of the.
Interest income and interest and Forex all going negative can you give us any sense of what you think thats going to look like in the March quarter.
If you aggregate them all.
So it would typically not that we are typically not guiding below the line numbers. So it's always a function of the exchange rate on the Thai baht assets that we have on one hand, so that's basically what.
What you would see I would expect and anticipate the neutral aligning their going forward alright, alright.
Alright.
I'll cede the floor. Thanks.
Michael.
Thank you again to ask a question. Please press star one on your Touchtone telephone. Our next question comes from Simeon challenging with Jpmorgan. Your line is open.
Great. Thank you.
That's helpful.
Quick question. So first on the clarification I think you mentioned.
The operating margins, which by the way congrats on the strong gross margin and operating margin. This quarter do you expect them to sort of come back and debate and you said longer term, but just wanted to clarify are you seeing those come back more in line with the.
Historical levels.
From the third quarter et cetera.
Maybe if you could describe that comments, let me close.
Hi, This is Joe so yes, we indeed had a.
Record low 2% Opex. So it's primarily due to obviously one of the factors in the operating leverage that we see on the strong top line growth as well as I indicated earlier, we had some seasonal.
Net tailwind as well so when it comes to longer term, we are anticipating it to be somewhere around slide.
Two 5% to 3% range going forward. So I think historically, we've been running into that range. So.
If I set aside in the.
Exchange rates and seasonality, we anticipate to stay in the <unk>.
Half the 2% range going forward.
Got it okay. So.
My question essentially on the gross margin you had really strong gross margin this quarter. Despite the supply headwinds you are navigating through.
Should we think about sustainability of these kind of gross margins, but it is the volume level. It seems to be quite well assured as you will continue to benefit from the strong demand as you've talked about.
So yes, indeed, we had a very strong seven 5% gross margin quarter. So we feel pretty good about.
Staying ability. So we have always said that our target range is somewhere between 12 to 12, 5%. So when it comes to operating leverage our fixed cost base is not that high. So I think we will see more benefit on the Opex line and operating margin line as we grow organically.
What we had been seeing over the last couple of quarters. So with regards to gross margin, we anticipate to hold and maintain our target range of 12 to 12, 5%.
We look ahead, we continue to extra execute very efficiently and as you may remember, we had some onetime headwinds in the last quarter. So sequentially. We obviously grew.
This quarter and we continue to expect to stay in our target range.
Hotel at all.
Okay I don't know if you guys. Let me just squeeze in one more here.
Sure.
As we look at the first three quarters you would what you gave with your guidance for March.
Doing above 20% year on year growth.
<unk> is a step function up from the 15% growth that you did in fiscal 'twenty one.
Looks like we are.
Sort of going through a high point in the cycle in terms of optical so maybe if you could share your thoughts, particularly as you think about the capacity expansion in the capacity coming through as well how sustainable are these sort of 20% plus growth levels in terms of what you're hearing from your customers.
Yes, I think it's.
It's a tough one to two.
To answer accurately to make I think.
If you look at the last couple of years, we have had.
Youre right there is outsized growth.
A lot of which was driven by the if you like the underlying growth in the business is quite strong I think we are.
We are servicing the right customers and building the best products with really good growth for those customers, but also we've had some large wins.
We've been able to deliver outsized growth the last couple of years.
Last year, we had the big win from from Cisco.
Prior year, we had the big win from from Infinera I think the Korean business really prepared so we have had.
The underlying growth has been very strong and then we supplemented that with these large complete network system wins.
We've been able to do that without negatively impacting our gross margin. So we're very focused on just continuing on that path winning the right products.
From our customers, making sure that we're building, but we're always working on the next generation products.
So continuing to work on these larger.
Opportunities they don't come along easily take a long time to secure but we continue to work very hard on those so.
Obviously, we're not going to give multiyear growth projections, but we feel good about the trajectory that we're on and.
We have our new capacity expansion coming online at the end of the fiscal year.
June July timeframe, we should be hoping our new facility in Chonburi, which is an additional 1 million square feet.
So it's an exciting time, we feel good about that.
Products will make it for our customers the customers we have on that.
The business wins, we've been able to secure and also these large expansions that we've been able to secure with our customers.
So we feel good about the growth popped up room.
Thank you. Thanks, Thanks a lot.
Thank you tamika.
Thank you at this time I would like to turn the call back over to Seamus Grady for any closing remarks Sir.
Thank you. Thank you for joining our call today, we delivered very strong second quarter, reflecting the combination of strong demand trends and effective navigation of component charges.
With both of these trends continuing into the third quarter. We are optimistic that we can again delivered excellent financial results in Q3.
We look forward to speaking with you again goodbye.
And this concludes today's conference call. Thank you for participating you may now disconnect.
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