Fabrinet Announces First Quarter Fiscal Year 2020 Financial Results

BANGKOK--()--Fabrinet (NYSE: 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 first quarter ended September 27, 2019.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “We had a strong start to the year with fiscal first quarter revenue and earnings that exceeded our guidance ranges. We have made significant progress establishing a new product introduction facility in Israel that we expect to be operational in the first part of calendar 2020. We believe Fabrinet Israel can mirror the success we have seen at Fabrinet West in California by attracting new customers and deepening relationships with existing customers. This development, along with our ongoing business success reinforce our confidence as we look ahead.”

First Quarter Fiscal Year 2020 Financial Highlights

GAAP Results

  • Revenue for the first quarter of fiscal year 2020 was $399.3 million, compared to revenue of $377.2 million for the comparable period in fiscal year 2019.
  • GAAP net income for the first quarter of fiscal year 2020 was $25.9 million, compared to GAAP net income of $27.9 million for the first quarter of fiscal year 2019. GAAP net income for the first quarter of fiscal year 2020 included a foreign exchange loss of $1.9 million and a mark-to-market loss on the two interest rate swap contracts of $1.7 million, or $0.09 per diluted share, compared to a foreign exchange loss of $3.1 million, or $0.08 per diluted share, for the first quarter of fiscal year 2019.
  • GAAP net income per diluted share for the first quarter of fiscal year 2020 was $0.69, compared to GAAP net income per diluted share of $0.75 for the first quarter of fiscal year 2019.

Non-GAAP Results

  • Non-GAAP net income for the first quarter of fiscal year 2020 was $32.2 million, compared to non-GAAP net income of $34.1 million for the first quarter of fiscal year 2019. Non-GAAP net income for the first quarter of fiscal year 2020 included a foreign exchange loss of $1.9 million and a mark-to-market loss on the two interest rate swap contracts of $1.7 million, or $0.09 per diluted share, compared to a foreign exchange loss of $3.1 million, or $0.08 per diluted share, for the first quarter of fiscal year 2019.
  • Non-GAAP net income per diluted share for the first quarter of fiscal year 2020 was $0.86, compared to non-GAAP net income per diluted share of $0.92 for the same period a year ago.

Business Outlook

Based on information available as of November 4, 2019, Fabrinet is issuing guidance for its second fiscal quarter of 2020 ending December 27, 2019, as follows:

  • Fabrinet expects second quarter revenue to be in the range of $408 million to $416 million.
  • GAAP net income per diluted share is expected to be in the range of $0.74 to $0.77, based on approximately 37.7 million fully diluted shares outstanding.
  • Non-GAAP net income per diluted share is expected to be in the range of $0.91 to $0.94, based on approximately 37.7 million fully diluted shares outstanding.

Conference Call Information

What:

Fabrinet First Quarter Fiscal-Year 2020 Financial Results Call

When:

Monday, November 4, 2019

Time:

5:00 p.m. ET

Live Call:

(888) 357-3694, domestic

 

(253) 237-1137, international

 

Passcode: 3684935

Replay:

(855) 859-2056, domestic

 

(404) 537-3406, international

 

Passcode: 3684935

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 testing. 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) our expectation that Fabrinet Israel will be operational in the first part of calendar 2020; (2) our belief that Fabrinet Israel can mirror the success of Fabrinet West; and (3) all of the statements under the "Business Outlook" section regarding our expected revenue, GAAP and non-GAAP net income per share, and fully diluted shares outstanding for the second quarter of fiscal year 2020. 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 Annual Report on Form 10-K, filed on August 20, 2019. 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; severance payments; expenses related to our CFO search; amortization of intangibles; business combination expenses; amortization of deferred debt issuance costs; expenses related to reduction in workforce; and ASC 606 adjustments. 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

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

(in thousands of U.S. dollars, except share data and par value)

 

September 27,
2019

 

June 28,
2019

 

 

 

 

 

Assets

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

168,535

 

$

180,839

Short-term restricted cash

 

 

22,180

 

Short-term investments

 

 

238,266

 

 

256,493

Trade accounts receivable, net

 

 

273,616

 

 

260,602

Contract assets

 

 

11,620

 

 

12,447

Inventory, net

 

 

321,511

 

 

293,612

Prepaid expenses

 

 

6,313

 

 

8,827

Other current assets

 

 

9,122

 

11,015

Total current assets

 

 

1,051,163

 

 

1,023,835

Non-current assets

 

 

 

 

Long-term restricted cash

 

 

7,402

 

 

7,402

Property, plant and equipment, net

 

 

212,270

 

 

210,686

Intangibles, net

 

 

3,661

 

 

3,887

Operating right-of-use assets

 

 

6,185

 

Goodwill

 

 

3,603

 

 

3,705

Deferred tax assets

 

 

5,201

 

 

5,679

Other non-current assets

 

 

225

 

 

124

Total non-current assets

 

 

238,547

 

 

231,483

Total Assets

 

$

1,289,710

 

$

1,255,318

Liabilities and Shareholders’ Equity

 

 

 

 

Current liabilities

 

 

 

 

Long-term borrowings, current portion, net

 

$

12,157

 

$

3,250

Trade accounts payable

 

 

252,147

 

 

257,617

Contract liabilities

 

 

2,266

 

 

2,239

Capital lease liability, current portion

 

 

391

 

 

398

Operating lease liability, current portion

 

 

1,550

 

Income tax payable

 

 

2,534

 

 

1,801

Accrued payroll, bonus and related expenses

 

 

18,713

 

 

16,510

Accrued expenses

 

 

12,014

 

 

8,997

Other payables

 

 

21,649

 

 

22,236

Total current liabilities

 

 

323,421

 

 

313,048

Non-current liabilities

 

 

 

 

Long-term borrowings, non-current portion, net

 

 

48,631

 

 

57,688

Deferred tax liability

 

 

3,791

 

 

3,561

Capital lease liability, non-current portion

 

 

 

102

Operating lease liability, non-current portion

 

 

4,635

 

Severance liabilities

 

 

15,872

 

 

15,209

Other non-current liabilities

 

 

2,665

 

 

2,611

Total non-current liabilities

 

 

75,594

 

 

79,171

Total Liabilities

 

 

399,015

 

 

392,219

Commitments and contingencies

 

 

 

 

Shareholders’ equity

 

 

 

 

Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of September 27, 2019 and June 28, 2019)

 

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,389,128 shares and 38,230,753 shares issued; and 37,000,025 shares and 36,841,650 shares outstanding as of September 27, 2019 and June 28, 2019, respectively)

 

 

384

 

 

382

Additional paid-in capital

 

 

160,148

 

 

158,299

Less: Treasury shares (1,389,103 shares and 1,389,103 shares as of September 27, 2019 and June 28, 2019, respectively)

 

 

(47,779)

 

 

(47,779)

Accumulated other comprehensive loss

 

 

(2,598)

 

 

(2,386)

Retained earnings

 

 

780,540

 

 

754,583

Total Shareholders’ Equity

 

 

890,695

 

 

863,099

Total Liabilities and Shareholders’ Equity

 

$

1,289,710

 

$

1,255

FABRINET

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

 

 

Three Months Ended

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

September 27,
2019

 

September 28,
2018

Revenues

$

399,296

 

$

377,177

Cost of revenues

 

(353,309)

 

 

(336,901)

Gross profit

 

45,987

 

 

40,276

Selling, general and administrative expenses

 

(16,000)

 

 

(14,437)

Expenses related to reduction in workforce

 

 

(85)

Operating income, net

 

29,987

 

 

25,754

Interest income

 

2,098

 

 

1,444

Interest expense

 

(2,393)

 

 

(634)

Foreign exchange (loss) gain, net

 

(1,953)

 

 

3,068

Other income, net

 

377

 

 

77

Income before income taxes

 

28,116

 

 

29,709

Income tax expense

 

(2,159)

 

 

(1,859)

Net income

 

25,957

 

 

27,850

Other comprehensive (loss) income, net of tax:

 

 

 

Change in net unrealized gain on available-for-sale securities

 

35

 

 

288

Change in net unrealized gain (loss) on derivative instruments

 

39

 

 

(1)

Change in net retirement benefits plan – prior service cost

 

83

 

Change in foreign currency translation adjustment

 

(369)

 

 

(200)

Total other comprehensive (loss) income, net of tax

 

(212)

 

 

87

Net comprehensive income

$

25,745

 

$

27,937

 

 

 

 

Earnings per share

 

 

 

Basic

$

0.70

 

$

0.76

Diluted

$

0.69

 

$

0.75

 

Weighted-average number of ordinary shares outstanding (thousands of shares)

Basic

 

36,913

 

 

36,625

Diluted

 

37,529

 

 

37,140

FABRINET

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

 

Three Months Ended

(in thousands of U.S. dollars)

 

September 27,
2019

 

September 28,
2018

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Net income for the period

 

$

25,957

 

$

27,850

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

Depreciation and amortization

 

 

7,465

 

 

7,412

Loss on disposal of property, plant and equipment

 

 

8

 

 

46

Loss on disposal of intangibles

 

 

 

149

(Gain) loss from sales and maturities of available-for-sale securities

 

 

(67)

 

 

178

Amortization of investment discount (premium)

 

 

65

 

 

(94)

Amortization of deferred debt issuance costs

 

 

2

 

(Reversal of) allowance for doubtful accounts

 

 

(5)

 

Unrealized loss (gain) on exchange rate and fair value of foreign currency forward contracts

 

 

1,479

 

 

(4,232)

Unrealized loss (gain) on fair value of interest rate swaps

 

 

1,671

 

 

(50)

Share-based compensation

 

 

5,995

 

 

4,980

Deferred income tax

 

 

705

 

 

3

Severance liabilities

 

 

811

 

 

872

Other non-cash expenses

 

 

53

 

 

(282)

Reversal of inventory obsolescence

 

 

(264)

 

 

(478)

Changes in operating assets and liabilities

 

 

 

 

Trade accounts receivable

 

 

(12,967)

 

 

(10,887)

Contract assets

 

 

827

 

 

(280)

Inventory

 

 

(27,634)

 

 

(28,904)

Other current assets and non-current assets

 

 

4,225

 

 

(979)

Trade accounts payable

 

 

(5,263)

 

 

29,182

Contract liabilities

 

 

27

 

Income tax payable

 

 

733

 

 

1,680

Other current liabilities and non-current liabilities

 

 

(1,176)

 

 

8,427

Net cash provided by operating activities

 

 

2,647

 

 

34,593

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of short-term investments

 

 

(62,880)

 

 

(1,955)

Proceeds from sales of short-term investments

 

 

49,472

 

 

24,181

Proceeds from maturities of short-term investments

 

 

31,673

 

 

19,863

Purchase of property, plant and equipment

 

 

(6,343)

 

 

(5,410)

Purchase of intangibles

 

 

(246)

 

 

(78)

Net cash provided by investing activities

 

 

11,676

 

 

36,601

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Payment of debt issuance costs

 

 

(153)

 

Proceeds from long-term borrowings

 

 

60,938

 

Repayment of long-term borrowings

 

 

(60,938)

 

 

(813)

Repayment of capital lease liability

 

 

(109)

 

 

(123)

Release of restricted cash held in connection with business acquisition

 

 

 

(3,478)

Withholding tax related to net share settlement of restricted share units

 

 

(4,144)

 

 

(8,904)

Net cash used in financing activities

 

 

(4,406)

 

 

(13,318)

Net increase in cash, cash equivalents and restricted cash

 

 

9,917

 

 

57,876

 

 

 

 

 

Movement in cash, cash equivalents and restricted cash

 

 

 

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

188,241

 

 

161,433

Increase in cash, cash equivalents and restricted cash

 

 

9,917

 

 

57,876

Effect of exchange rate on cash, cash equivalents and restricted cash

 

 

(41)

 

 

667

Cash, cash equivalents and restricted cash at end of period

 

$

198,117

 

$

219,976

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

Construction, software and equipment-related payables

 

$

9,816

 

$

3,830

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 the same amounts shown in the unaudited condensed consolidated statements of cash flows:

 

(amount in thousands)

As of
September 27, 2019

As of
September 28, 2018

 

 

 

Cash and cash equivalents

$

168,535

$

219,976

Restricted cash

 

29,582

 

-

Cash, cash equivalents and restricted cash

$

198,117

$

219,976

FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Three Months Ended

 

September 27,
2019

 

September 28,
2018

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

Net
income

 

Diluted
EPS

 

Net
income

 

Diluted
EPS

 

 

 

 

 

 

GAAP measures

$25,957

 

$0.69

 

$27,850

 

$0.75

Items reconciling GAAP net income & EPS to non-GAAP net income & EPS:

 

 

 

 

 

 

 

Related to cost of revenues:

 

 

 

 

 

 

 

Share-based compensation expenses

1,720

 

0.05

 

1,847

 

0.05

Depreciation of fair value uplift

79

 

0.00

 

89

 

0.00

ASC 606 adoption impact on gross profit

 

 

 

 

(31)

 

0.00

Total related to gross profit

1,799

 

0.05

 

1,905

 

0.05

 

 

 

 

 

 

 

 

Related to selling, general and administrative expenses:

 

 

 

 

 

 

 

Share-based compensation expenses

4,275

 

0.11

 

3,133

 

0.08

Expenses related to CFO search

 

 

190

 

0.01

Amortization of intangibles

143

 

0.00

 

192

 

0.01

Business combination expenses

 

 

182

 

0.00

Severance payment

 

 

585

 

0.02

Total related to selling, general and administrative expenses

4,418

 

0.12

 

4,282

 

0.12

 

 

 

 

 

 

 

 

Related to other incomes and other expenses:

 

 

 

 

 

 

 

Expenses related to reduction in workforce

 

 

85

 

0.00

Amortization of deferred debt issuance costs

2

 

0.00

 

 

Total related to other incomes and other expenses

2

 

0.00

 

85

 

0.00

 

 

 

 

 

 

 

 

Total related to net income & EPS

6,219

 

0.17

 

6,272

 

0.17

 

 

 

 

 

 

 

 

Non-GAAP measures

$32,176

 

$0.86

 

$34,122

 

$0.92

 

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

 

 

 

 

 

 

GAAP diluted shares

 

 

37,529

 

 

 

37,140

Non-GAAP diluted shares

 

 

37,529

 

 

 

37,140

FABRINET

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

 

(amount in thousands)

Three Months Ended

 

September 27,
2019

September 28,
2018

 

 

 

Net cash provided by operating activities

$

2,647

$

34,593

Less: Purchase of property, plant and equipment

 

(6,343)

 

(5,410)

Non-GAAP free cash flow

$

(3,696)

$

29,183

FABRINET

GUIDANCE FOR QUARTER ENDING DECEMBER 27, 2019

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

 

Diluted

 

EPS

GAAP net income per diluted share:

$0.74 to $0.77

Related to cost of revenues:

 

Share-based compensation expenses

0.04

Total related to gross profit

0.04

 

 

Related to selling, general and administrative expenses:

 

Share-based compensation expenses

0.12

Expenses related to our CFO search

0.01

Total related to selling, general and administrative expenses

0.13

 

 

Total related to net income & EPS

0.17

Non-GAAP net income per diluted share

$0.91 to $0.94

 

Contacts

Investor Contact:
Garo Toomajanian
ir@fabrinet.com

Contacts

Investor Contact:
Garo Toomajanian
ir@fabrinet.com