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Fabrinet Announces Second Quarter Fiscal Year 2018 Financial Results

BANGKOK--(BUSINESS WIRE)--

Fabrinet (FN), a leading provider of advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers of complex products, today announced its financial results for its second quarter ended December 29, 2017.

Tom Mitchell, Executive Chairman of Fabrinet, said, “We are pleased to have exceeded both our revenue and net income guidance for the second quarter. We are enthusiastic about the fresh perspective Seamus brings to our team for driving opportunities from all our end markets as we look forward.”

Seamus Grady, Chief Executive Officer of Fabrinet, said, “Having recently met with customers worldwide, I am looking forward to extending Fabrinet’s track record of success. We believe that over the longer-term we remain well-positioned to drive balanced and profitable growth from our core optical communications market as well as other industries that can leverage our precision optical, electro-mechanical and electronic manufacturing reputation.”

Second Quarter Fiscal Year 2018 Financial Highlights

GAAP Results

  • Revenue for the second quarter of fiscal year 2018, was $337.1 million, compared to revenue of $351.2 million for the comparable period in fiscal year 2017.
  • GAAP net income for the second quarter of fiscal year 2018 was $19.3 million, compared to GAAP net income of $25.3 million for the second quarter of fiscal year 2017. GAAP net income for the second quarter of fiscal year 2018 included a foreign exchange loss of $1.3 million, or $0.04 per diluted share, compared to a foreign exchange gain of $1.9 million, or $0.05 per diluted share, for the second quarter of fiscal year 2017.
  • GAAP net income per diluted share for the second quarter of fiscal year 2018 was $0.51, compared to GAAP net income per diluted share of $0.67 for the second quarter of fiscal year 2017.

Non-GAAP Results

  • Non-GAAP net income for the second quarter of fiscal year 2018 was $27.3 million, compared to non-GAAP net income of $34.5 million for the second quarter of fiscal year 2017.
  • Non-GAAP net income per diluted share for the second quarter of fiscal year 2018 was $0.72, a decrease from non-GAAP net income per diluted share of $0.91 for the same period a year ago. Non-GAAP net income for the second quarter of fiscal year 2018 included a foreign exchange loss of $1.3 million, or $0.04 per diluted share.

Share Repurchase Program Increase

Fabrinet also announced that its Board of Directors has approved the repurchase of up to an additional $30.0 million of Fabrinet’s ordinary shares, bringing the aggregate authorization under Fabrinet’s existing share repurchase program to $60.0 million. Fabrinet repurchased approximately 316,000 shares of its ordinary shares at an average price of $31.36 during the second quarter.

Business Outlook

Based on information available as of February 5, 2018, Fabrinet is issuing guidance for its third fiscal quarter ending March 30, 2018, as follows:

  • Fabrinet expects third quarter revenue to be in the range of $316 million to $324 million.
  • GAAP net income per diluted share is expected to be in the range of $0.50 to $0.53, based on approximately 37.9 million fully diluted shares outstanding.
  • Non-GAAP net income per diluted share is expected to be in the range of $0.70 to $0.73, based on approximately 37.9 million fully diluted shares outstanding.

Conference Call Information

What:   Fabrinet Second Quarter Fiscal Year 2018 Financial Results Conference Call
When: Monday, February 5, 2018
Time: 5:00 p.m. ET
Live Call: (888) 357-3694, domestic
(253) 237-1137, international
Passcode: 1475796
Replay: (855) 859-2056, domestic
(404) 537-3406, international
Passcode: 1475796
Webcast:

http://investor.fabrinet.com (live and replay)

This press release and any other information related to the call will also be posted on Fabrinet’s website at http://investor.fabrinet.com. A recorded version of this webcast will be available approximately two hours after the call and will be archived on Fabrinet’s website for a period of one year.

About Fabrinet

Fabrinet is a leading provider of advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services to original equipment manufacturers of complex products, such as optical communication components, modules and subsystems, automotive components, medical devices, industrial lasers and sensors. Fabrinet offers a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, advanced packaging, integration, final assembly and test. Fabrinet focuses on production of high complexity products in any mix and any volume. Fabrinet maintains engineering and manufacturing resources and facilities in Thailand, the United States of America, the People’s Republic of China and the United Kingdom. For more information visit: www.fabrinet.com.

Forward-Looking Statements

“Safe Harbor” Statement Under U.S. Private Securities Litigation Reform Act of 1995

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include: (1) statements regarding our ability to continue to drive profitable growth; and (2) all of the statements under the "Business Outlook" section regarding our expected revenue and GAAP and non-GAAP net income per share for the third quarter of fiscal year 2018. These forward-looking statements involve risks and uncertainties, and actual results could vary materially from these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: less customer demand for our products and services than forecasted; less growth in the optical communications, industrial lasers and sensors markets than we forecast; difficulties expanding into additional markets, such as the semiconductor processing, biotechnology, metrology and materials processing markets; increased competition in the optical manufacturing services markets; difficulties in delivering products and services that compete effectively from a price and performance perspective; our reliance on a small number of customers and suppliers; difficulties in managing our operating costs; difficulties in managing and operating our business across multiple countries (including Thailand, the People's Republic of China, the U.S. and the U.K.); and other important factors as described in reports and documents we file from time to time with the Securities and Exchange Commission (SEC), including the factors described under the section captioned “Risk Factors” in our Quarterly Report on Form 10-Q, filed on November 7, 2017. We disclaim any obligation to update information contained in these forward-looking statements whether as a result of new information, future events, or otherwise.

Use of Non-GAAP Financials

We refer to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding our ongoing operational performance. Non-GAAP net income excludes: share-based compensation expenses; depreciation of fair value uplift; executive separation costs; expenses related to our CEO search; amortization of intangibles; business combination expenses; loss (gain) on foreign currency contracts; amortization of debt issuance costs; and restructuring charges. We have excluded these items in order to enhance investors’ understanding of our underlying operations. The use of these non-GAAP financial measures has material limitations because they should not be used to evaluate our company without reference to their corresponding GAAP financial measures. As such, we compensate for these material limitations by using these non-GAAP financial measures in conjunction with GAAP financial measures.

These non-GAAP financial measures are used to: (1) measure company performance against historical results, (2) facilitate comparisons to our competitors’ operating results, and (3) allow greater transparency with respect to information used by management in making financial and operational decisions. In addition, these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation.

FABRINET

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

   
(in thousands of U.S. dollars, except share data) December 29,

2017

June 30,

2017

Assets
Current assets
Cash and cash equivalents $ 134,831 $ 133,825
Marketable securities 149,403 151,450
Trade accounts receivable, net 258,856 264,349
Inventory, net 239,169 238,665
Prepaid expenses 9,098 6,306
Other current assets   7,974   4,159
Total current assets   799,331   798,754
Non-current assets
Restricted cash in connection with business acquisition 3,423 3,312
Property, plant and equipment, net 222,539 216,881
Intangibles, net 5,432 5,840
Goodwill 3,933 3,806
Deferred tax assets 3,056 2,905
Deferred debt issuance costs on revolving loan and other non-current assets   223   1,577
Total non-current assets   238,606   234,321
Total Assets $ 1,037,937 $ 1,033,075
Liabilities and Shareholders’ Equity
Current liabilities
Bank borrowings, net of unamortized debt issuance costs $ 52,443 $ 48,402
Trade accounts payable 182,166 215,262
Fixed assets payable 5,658 8,141
Capital lease liability, current portion 477 344
Income tax payable 1,185 1,976
Accrued payroll, bonus and related expenses 11,244 13,852
Accrued expenses 17,574 9,227
Other payables 11,089   14,068
Total current liabilities 281,836 311,272
Non-current liabilities
Long-term loan from bank, non-current portion, net of unamortized debt issuance costs 15,969 22,701
Deferred tax liability 1,989 1,981
Capital lease liability, non-current portion 756 1,024
Deferred liability in connection with business acquisition 3,423 3,312
Severance liabilities 9,264 8,488
Other non-current liabilities 2,930 2,723
Total non-current liabilities 34,331 40,229
Total Liabilities   316,167 351,501
Commitments and contingencies (Note 16)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and
outstanding as of December 29, 2017 and June 30, 2017)
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 37,597,301 shares and
37,340,496 shares issued, and 37,281,328 shares and 37,340,496 shares outstanding 376 373
as of December 29, 2017 and June 30, 2017, respectively)
Additional paid-in capital 142,914 133,293

Less: Treasury stock at cost (315,973 shares and zero shares as of December 29,

2017 and June 30, 2017, respectively)

(9,910)
Accumulated other comprehensive (loss) income (212) (348)
Retained earnings 588,602 548,256
Total Shareholders’ Equity 721,770 681,574
Total Liabilities and Shareholders’ Equity $ 1,037,937 $ 1,033,075

FABRINET

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME

   
Three Months Ended Six Months Ended
(in thousands of U.S. dollars, except per share amounts)

December
29,
2017

 

December
30,
2016

December
29,
201

 

December
30,
2016

Revenues $ 337,072 $ 351,156 $ 694,385 $ 683,199
Cost of revenues  

(299,906)

  (308,110)  

(616,887)

 

(600,545)

Gross profit 37,166 43,046 77,498 82,654
Selling, general and administrative expenses (13,157) (17,651) (28,835) (33,483)
Expenses related to reduction in workforce   (1,776)     (1,776)  
Operating income 22,233 25,395 46,887 49,171
Interest income 596 320 1,405 757
Interest expense (826) (555) (1,679) (1,876)
Foreign exchange gain (loss), net (1,348) 1,945 (3,282) 3,602
Other income   250   147   347   289
Income before income taxes 20,905 27,252 43,678 51,943
Income tax expense   (1,592)   (1,960)   (3,332)   (3,885)
Net income   19,313   25,292   40,346   48,058
Other comprehensive loss, net of tax:
Change in net unrealized loss on marketable securities (462) (353) (432) (540)
Change in net unrealized loss on derivative instruments (1) (158)
Change in foreign currency translation adjustment   44   (1,903)   569   (1,162)
Total other comprehensive loss, net of tax   (418)   (2,256)   136   (1,860)
Net comprehensive income $ 18,895 $ 23,036 $ 40,482 $ 46,198
 
Earnings per share
Basic $ 0.52 $ 0.69 $ 1.08 $ 1.31
Diluted $ 0.51 $ 0.67 $ 1.06 $ 1.28
             
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic 37,477 36,848 37,462 36,626
Diluted 38,156 37,805 38,160 37,567

FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

         
Six Months Ended
(in thousands of U.S. dollars)

December
29,
2017

December
30,
2016

 
Cash flows from operating activities
Net income for the period $ 40,346 $ 48,058
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 14,265 10,758
Loss on disposal of property, plant and equipment 19
Loss from sales and maturities of available-for-sale securities 357 15
Amortization of investment (premium) discount (163) 228
Amortization of deferred debt issuance costs 295 1,072
Allowance for doubtful accounts (reversal) 5 (40)

Unrealized loss (gain) on exchange rate and fair value of
derivative instruments

1,740 (3,033)
Share-based compensation 12,378 14,208
Deferred income tax (153) 938
Other non-cash expenses 962 586
Inventory obsolescence (reversal) 654 (100)
Changes in operating assets and liabilities
Trade accounts receivable 5,707 (40,779)
Inventory (1,047) (29,286)
Other current assets and non-current assets (6,801) 4,747
Trade accounts payable (33,626) 11,026
Income tax payable (791) 448
Other current liabilities and non-current liabilities   2,985   887
Net cash provided by operating activities   37,113   19,752
Cash flows from investing activities
Purchase of marketable securities (48,679) (83,405)
Proceeds from sales of marketable securities 18,672 15,682
Proceeds from maturities of marketable securities 31,427 38,142
Payments in connection with business acquisition, net of cash acquired (9,917)
Purchase of property, plant and equipment (21,405) (44,412)
Purchase of intangibles (689) (319)
Proceeds from disposal of property, plant and equipment   35   127
Net cash used in investing activities   (20,639)   (84,102)
Cash flows from financing activities
Proceeds of short-term loans from banks 5,000 15,744
Repayment of short-term loans from bank (1,003)
Repayment of long-term loans from bank (6,800) (9,800)
Repayment of capital lease liability (174) (92)
Repurchase of ordinary shares (9,910)
Proceeds from issuance of ordinary shares under employee share option plans 990 5,848
Withholding tax related to net share settlement of restricted share units   (3,744)   (1,008)
Net cash (used in) provided by financing activities   (15,641)   10,692

Net increase (decrease) in cash, cash equivalents and
restricted cash

  833   (53,658)
 
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period 137,137 142,804
Increase (decrease) in cash, cash equivalents and restricted cash 833 (53,658)
Effect of exchange rate on cash, cash equivalents and restricted cash   284   (401)
Cash, cash equivalents and restricted cash at end of period $ 138,254 $ 88,745
 
Non-cash investing and financing activities
Construction, software-related and equipment-related payables $ 5,658 $ 17,094

FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
unaudited condensed consolidated balance sheets that sum to the total of same amounts shown in the
unaudited condensed consolidated statements of cash flows:

   
(amount in thousands)

As of
December
29, 2017

 

As of
December
30, 2016

 
Cash and cash equivalents $ 134,831 $ 85,619

Restricted cash in connection with business acquisition
(non-current assets)

 

3,423

 

3,126

Cash, cash equivalents and restricted cash $ 138,254 $ 88,745
FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 
    Three Months Ended   Six Months Ended

December 29,
2017

 

December 30,
2016

December 29,
2017

 

December 30,
2016

(in thousands of U.S. dollars,
except per share data)

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

 
GAAP measures 19,313 0.51 25,292 0.67 40,346 1.06 48,058 1.28

Items reconciling GAAP net
(loss) income & EPS to non-
GAAP net income & EPS:

Related to cost of revenues:

Share-based
compensation expenses

1,812

0.05

1,514 0.04 3,713 0.10 2,528 0.07

Depreciation of fair value
uplift

86

0.00

- - 153 0.00 - -

Cost resulting from a
non-recurring warranty
charge

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Total related to gross profit

1,898

0.05

1,514 0.04 3,866 0.10 2,528 0.07
 

Related to selling, general
and administrative expenses:

Share-based
compensation expenses

3,646

0.10

7,083 0.19 8,665 0.23 11,680 0.31

Executive separation
costs

-

-

-

-

-

-

577

0.02

Expenses related to CEO
search

204

0.01

- - 204 0.01 - -

Debt administration
expenses

-

-

-

-

-

-

-

-

Amortization of
intangibles

208

0.01

229

0.01

377

0.01

229

0.01

Business combination
expenses

11

0.00

99 0.00 117 0.00 1,510 0.04

Total related to selling,
general and administrative
expenses

 

4,069

 

0.11

 

7,411

 

0.20

 

9,362

 

0.25

 

13,996

 

0.37

 

Related to other incomes
and other expenses:

Loss (gain) on foreign
currency contracts

-

-

-

-

-

-

(1,713)

(0.05)

Other expenses in
relation to reduction in
workforce

 

1,776

 

0.05

 

-

 

-

 

1,776

 

0.05

 

-

 

-

Amortization of debt
issuance costs

267 0.01 281 0.01 540 0.01 1,344 0.04
               

Total related to other
incomes and other expenses

2,043 0.05 281 0.01 2,316 0.06 (369) (0.01)
 

Related to income tax
expense

Non-recurring income tax
expense

-

-

-

-

-

-

-

-

Total related to income tax
expense

-

-

-

-

-

-

-

-

 

Total related to net income &
EPS

8,010

0.21

9,206

0.24

15,544

0.41

16,155

0.43

 
Non-GAAP measures 27,323 0.72 34,498 0.91 55,890

 

1.47

64,213 1.71
 

Shares used in computing diluted
net income per share

GAAP diluted shares 38,156 37,805 38,160 37,567
Non-GAAP diluted shares 38,156 37,805 38,160 37,567

FABRINET

GUIDANCE FOR QUARTER ENDING MARCH 30, 2018

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 
Diluted
EPS
GAAP net income per diluted share: $0.50 to $0.53
Related to cost of revenues:
Share-based compensation expenses 0.05
Total related to gross profit 0.05
 
Related to selling, general and administrative expenses:
Share-based compensation expenses 0.13
Business combination expenses 0.01
Total related to selling, general and administrative expenses 0.14
 
Related to other incomes and other expenses:
Amortization of debt issuance costs 0.01
 
Total related to net income & EPS 0.20
Non-GAAP net income per diluted share $0.70 to $0.73

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