Fabrinet Announces Second Quarter Fiscal Year 2020 Financial Results

Csaba Sverha to Succeed TS Ng as Chief Financial Officer

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 second quarter ended December 27, 2019.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “Our second quarter revenue and earnings exceeded our guidance ranges. Sequential growth across nearly all our markets resulted in a record quarterly revenue performance. We expect to see continued year-over-year growth in the third quarter, even after considering the impact of the coronavirus outbreak in our guidance. From a longer-term perspective, our ongoing market momentum makes us very optimistic about our ability to continue to drive profitable growth and reinforce our leadership position in the market.”

Second Quarter Fiscal Year 2020 Financial Highlights

GAAP Results

  • Revenue for the second quarter of fiscal year 2020 was $426.2 million, compared to revenue of $403.1 million for the comparable period in fiscal year 2019.
  • GAAP net income for the second quarter of fiscal year 2020 was $31.2 million, compared to GAAP net income of $31.5 million for the second quarter of fiscal year 2019. GAAP net income for the second quarter of fiscal year 2020 included a foreign exchange loss of $1.0 million, or $0.03 per diluted share, compared to a foreign exchange loss of $0.4 million, or $0.01 per diluted share, for the second quarter of fiscal year 2019.
  • GAAP net income per diluted share for the second quarter of fiscal year 2020 was $0.83, compared to GAAP net income per diluted share of $0.84 for the second quarter of fiscal year 2019.

Non-GAAP Results

  • Non-GAAP net income for the second quarter of fiscal year 2020 was $37.7 million, compared to non-GAAP net income of $36.5 million for the second quarter of fiscal year 2019. Non-GAAP net income for the second quarter of fiscal year 2020 included a foreign exchange loss of $1.0 million, or $0.03 per diluted share, compared to a foreign exchange loss of $0.4 million, or $0.01 per diluted share, for the second quarter of fiscal year 2019.
  • Non-GAAP net income per diluted share for the second quarter of fiscal year 2020 was $1.00, compared to non-GAAP net income per diluted share of $0.97 for the same period a year ago.

Csaba Sverha Named Chief Financial Officer

Fabrinet has named Csaba Sverha to succeed Toh-Seng (“TS”) Ng as Chief Financial Officer, effective February 17, 2020, as part of a CFO search that was announced in August 2018. Mr. Sverha currently holds the position of Vice President of Operations Finance at Fabrinet, having joined the company in March 2018, after 13 years at Sanmina in roles of increasing responsibility, most recently as Vice President of Finance & Controller for Sanmina Mechanical Systems Division.

Mr. Grady added, “We are very grateful to TS for his contributions to Fabrinet over the past 13 years, including serving as Chief Financial Officer since 2012. We are excited that Csaba Sverha will be stepping up to the role of CFO, completing our CFO search. Csaba brings a wealth of financial operations experience to the role enabling us to extend our strong reputation for financial stewardship and track record of success under TS’ leadership. TS will be serving as EVP, Special Projects reporting to me to help transition the CFO role before he retires in February 2021.”

Business Outlook

Based on information available as of February 3, 2020, Fabrinet is issuing guidance for its third fiscal quarter of 2020 ending March 27, 2020, as follows:

  • Fabrinet expects third quarter revenue to be in the range of $410 million to $418 million.
  • GAAP net income per diluted share is expected to be in the range of $0.75 to $0.78, 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 $0.92 to $0.95, based on approximately 37.9 million fully diluted shares outstanding.

Conference Call Information

What:

Fabrinet Second Quarter Fiscal-Year 2020 Financial Results Call

When:

Monday, February 3, 2020

Time:

5:00 p.m. ET

Live Call:

(888) 357-3694, domestic

 

(253) 237-1137, international

 

Passcode: 1607729

Replay:

(855) 859-2056, domestic

 

(404) 537-3406, international

 

Passcode: 1607729

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 expectations that we will see strong results again in the third quarter; (2) our ability to drive profitable growth and reinforce our leadership position; 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 third 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: the effects of the coronavirus on our business, particularly the possibility of (1) extended shutdowns at our Casix facility, suppliers and customers and (2) increased shutdowns of other factories in our supply chain as the virus becomes more widespread; 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 5, 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)

 

December 27,
2019

 

June 28,
2019

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

220,031

 

$

180,839

Short-term restricted cash

 

 

272

 

 

Short-term investments

 

 

222,805

 

 

256,493

Trade accounts receivable, net

 

 

285,579

 

 

260,602

Contract assets

 

 

11,114

 

 

12,447

Inventories

 

 

294,380

 

 

293,612

Other receivable

 

 

24,310

 

 

Prepaid expenses

 

 

4,919

 

 

8,827

Other current assets

 

 

7,416

 

 

11,015

Total current assets

 

 

1,070,826

 

 

1,023,835

Non-current assets

 

 

 

 

 

 

Long-term restricted cash

 

 

7,402

 

 

7,402

Property, plant and equipment, net

 

 

217,038

 

 

210,686

Intangibles, net

 

 

4,038

 

 

3,887

Operating right-of-use assets

 

 

7,558

 

 

Goodwill

 

 

3,798

 

 

3,705

Deferred tax assets

 

 

4,115

 

 

5,679

Other non-current assets

 

 

253

 

 

124

Total non-current assets

 

 

244,202

 

 

231,483

Total Assets

 

$

1,315,028

 

$

1,255,318

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Long-term borrowings, current portion, net

 

$

12,156

 

$

3,250

Trade accounts payable

 

 

234,929

 

 

257,617

Contract liabilities

 

 

2,360

 

 

2,239

Capital lease liability, current portion

 

 

311

 

 

398

Operating lease liability, current portion

 

 

1,823

 

 

Income tax payable

 

 

3,137

 

 

1,801

Accrued payroll, bonus and related expenses

 

 

15,942

 

 

16,510

Accrued expenses

 

 

11,338

 

 

8,997

Other payables

 

 

31,384

 

 

22,236

Total current liabilities

 

313,380

 

313,048

Non-current liabilities

 

 

 

 

Long-term borrowings, non-current portion, net

 

45,592

 

57,688

Deferred tax liability

 

3,543

 

3,561

Capital lease liability, non-current portion

 

 

102

Operating lease liabilities, non-current portion

 

5,728

 

Severance liabilities

 

16,735

 

15,209

Other non-current liabilities

 

1,723

 

2,611

Total non-current liabilities

 

73,321

 

79,171

Total Liabilities

 

386,701

 

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 December 27, 2019 and June 28, 2019)

 

 

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,408,890 shares and 38,230,753 shares issued at December 27, 2019 and June 28, 2019, respectively; and 37,019,787 shares and 36,841,650 shares outstanding at December 27, 2019 and June 28, 2019, respectively)

 

 

384

 

382

Additional paid-in capital

 

 

166,103

 

158,299

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

 

 

(47,779)

 

(47,779)

Accumulated other comprehensive loss

 

 

(2,152)

 

(2,386)

Retained earnings

 

 

811,771

 

754,583

Total Shareholders’ Equity

 

928,327

 

863,099

Total Liabilities and Shareholders’ Equity

 

$

1,315,028

 

$

1,255,318

FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

 

 

Three Months Ended

 

Six Months Ended

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

December 27,
2019

 

December 28,
2018

 

December 27,
2019

 

December 28,
2018

Revenues

$

426,217

 

$

403,080

 

$

825,513

 

$

780,257

Cost of revenues

 

(377,059)

 

 

(357,516)

 

 

(730,368)

 

 

(694,417)

Gross profit

 

49,158

 

 

45,564

 

 

95,145

 

 

85,840

Selling, general and administrative expenses

 

(17,078)

 

 

(12,727)

 

 

(33,078)

 

 

(27,164)

Expenses related to reduction in workforce

 

(16)

 

 

(319)

 

 

(16)

 

 

(404)

Operating income

 

32,064

 

 

32,518

 

 

62,051

 

 

58,272

Interest income

 

1,940

 

 

1,182

 

 

4,038

 

 

2,626

Interest expense

 

(181)

 

 

(1,616)

 

 

(2,574)

 

 

(2,250)

Foreign exchange (loss) gain, net

 

(988)

 

 

(421)

 

 

(2,941)

 

 

2,647

Other income, net

 

397

 

 

562

 

 

774

 

 

639

Income before income taxes

 

33,232

 

 

32,225

 

 

61,348

 

 

61,934

Income tax expense

 

(2,001)

 

 

(712)

 

 

(4,160)

 

 

(2,571)

Net income

 

31,231

 

 

31,513

 

 

57,188

 

 

59,363

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized (loss) gain on available-for-sale securities

(82)

598

(47)

886

Change in net unrealized loss on derivative instruments

 

(189)

 

 

 

 

(150)

 

 

(1)

Change in net retirement benefits plan - prior service cost

 

101

 

 

 

 

184

 

 

Change in foreign currency translation adjustment

 

616

 

 

(505)

 

 

247

 

 

(705)

Total other comprehensive income, net of tax

 

446

 

 

93

 

 

234

 

 

180

Net comprehensive income

$

31,677

 

$

31,606

 

$

57,422

 

$

59,543

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.84

 

$

0.86

 

$

1.55

 

$

1.62

Diluted

$

0.83

 

$

0.84

 

$

1.52

 

$

1.59

 

 

 

 

 

 

 

 

 

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

Basic

 

37,011

 

 

36,841

 

 

36,962

 

 

36,733

Diluted

 

37,763

 

 

37,471

 

 

37,646

 

 

37,305

FABRINET
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

 

 

 

Six Months Ended

(in thousands of U.S. dollars)

 

December 27,
2019

 

December 28,
2018

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net income for the period

 

$

57,188

 

$

59,363

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

 

 

 

 

 

 

Depreciation and amortization

 

 

15,279

 

 

15,000

Loss on disposal of property, plant and equipment

 

 

242

 

 

528

Loss on disposal of intangibles

 

 

 

 

149

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

 

 

(79)

 

 

1,060

Amortization of investment discount (premium)

 

 

117

 

 

(533)

Amortization of deferred debt issuance costs

 

 

10

 

 

Allowance for doubtful accounts

 

 

6

 

 

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

 

 

1,205

 

 

(5,775)

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

 

 

1,672

 

 

849

Amortization of interest rate swaps’ fair value at hedge inception

 

 

(433)

 

 

Share-based compensation

 

 

12,183

 

 

8,949

Deferred income tax

 

 

1,543

 

 

481

Severance liabilities

 

 

2,015

 

 

1,339

Other non-cash expenses

 

 

(851)

 

 

(759)

Changes in operating assets and liabilities

 

 

 

 

 

 

Trade accounts receivable

 

 

(24,970)

 

 

(14,381)

Contract assets

 

 

1,333

 

 

(3,459)

Inventories

 

 

(767)

 

 

(28,880)

Other current assets and non-current assets

 

 

7,471

 

 

2,128

Trade accounts payable

 

 

(22,816)

 

 

29,276

Contract liabilities

 

 

121

 

 

Income tax payable

 

 

1,336

 

 

1,859

Other current liabilities and non-current liabilities

 

 

805

 

 

2,104

Net cash provided by operating activities

 

 

52,610

 

 

69,298

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of short-term investments

 

 

(101,727)

 

 

(82,141)

Proceeds from sales of short-term investments

 

 

72,664

 

 

70,472

Proceeds from maturities of short-term investments

 

 

62,666

 

 

34,788

Other receivable provided to customer

 

 

(24,310)

 

 

Purchase of property, plant and equipment

 

 

(15,411)

 

 

(9,732)

Purchase of intangibles

 

 

(808)

 

 

(251)

Proceeds from disposal of property, plant and equipment

 

 

1,195

 

 

5

Net cash (used in) provided by investing activities

 

 

(5,731)

 

 

13,141

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Payment of debt issuance costs

 

 

(153)

 

 

Proceeds from long-term borrowings

 

 

60,938

 

 

Repayment of long-term borrowings

 

 

(63,985)

 

 

(813)

Repayment of capital lease liability

 

 

(189)

 

 

(255)

Release of restricted cash held in connection with business acquisition

 

 

 

 

(3,478)

Withholding tax related to net share settlement of restricted share units

 

 

(4,377)

 

 

(9,103)

Net cash used in financing activities

 

 

(7,766)

 

 

(13,649)

Net increase in cash, cash equivalents and restricted cash

 

 

39,113

 

 

68,790

 

 

 

 

 

 

 

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

 

 

39,113

 

 

68,790

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

 

 

351

 

 

773

Cash, cash equivalents and restricted cash at end of period

 

$

227,705

 

$

230,996

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

Construction, software and equipment-related payables

 

$

14,307

 

$

2,888

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
December 27,
2019

As of
December 28,
2018

 

 

 

Cash and cash equivalents

$

220,031

$

230,996

Restricted cash

 

7,674

Cash, cash equivalents and restricted cash

$

227,705

$

230,996

FABRINET
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Three Months Ended

Six Months Ended

December 27,
2019

December 28,
2018

December 27,
2019

December 28,
2018

(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

31,231

0.83

31,513

0.84

57,188

1.52

59,363

1.59

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

 

 

 

 

 

 

 

 

Related to cost of revenues:

 

 

 

 

 

 

 

 

Share-based compensation expenses

1,591

0.04

1,300

0.03

3,311

0.09

3,147

0.08

Depreciation of fair value uplift

82

0.00

84

0.00

161

0.00

173

0.00

ASC 606 adoption impact on gross profit

-

-

-

-

-

-

(31)

(0.00)

Total related to gross profit

1,673

0.04

1,384

0.04

3,472

0.09

3,289

0.09

 

 

 

 

 

 

 

 

Related to selling, general and administrative expenses:

 

 

 

 

 

 

 

 

Share-based compensation expenses

4,597

0.12

2,669

0.07

8,872

0.24

5,802

0.16

Expenses related to CFO search

-

-

382

0.01

-

-

572

0.02

Amortization of intangibles

143

0.00

176

0.00

286

0.01

368

0.01

Business combination expenses and consulting fee

-

-

58

0.00

-

-

240

0.01

Severance payment

-

-

16

0.00

-

-

601

0.02

Total related to selling, general and administrative expenses

4,740

0.13

3,301

0.09

9,158

0.24

7,583

0.20

 

 

 

 

 

 

 

 

 

Related to other incomes and other expenses:

 

 

 

 

 

 

 

 

Other expenses in relation to reduction in workforce

16

0.00

319

0.01

16

0.00

404

0.01

Amortization of debt issuance costs

8

0.00

-

-

10

0.00

-

-

Total related to other incomes and other expenses

24

0.00

319

0.01

26

0.00

404

0.01

 

 

 

 

 

 

 

 

 

Total related to net income & EPS

6,437

0.17

5,004

0.13

12,656

0.34

11,276

0.30

 

 

 

 

 

 

 

Non-GAAP measures

37,668

1.00

36,517

0.97

69,844

1.86

70,639

1.89

 

 

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

 

 

 

 

 

 

 

GAAP diluted shares

 

37,763

 

37,471

 

37,646

 

37,305

Non-GAAP diluted shares

 

37,763

 

37,471

 

37,646

 

37,305

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

 

(amount in thousands)

Three Months Ended

Six Months Ended

 

December 27,
2019

December 28,
2018

December 27,
2019

December 28,
2018

 

 

 

 

 

Net cash provided by operating activities

$

49,963

$

34,705

$

52,610

$

69,298

Less: Purchase of property, plant and equipment

 

(9,068)

 

(4,322)

 

(15,411)

 

(9,732)

Non-GAAP free cash flow

$

40,895

$

30,383

$

37,199

$

59,566

FABRINET
GUIDANCE FOR QUARTER ENDING MARCH 27, 2020
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

 

Diluted
EPS

GAAP net income per diluted share:

$0.75 to $0.78

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

Amortization of intangibles

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

$0.92 to $0.95

 

Contacts

Investor:
Garo Toomajanian
ir@fabrinet.com

Contacts

Investor:
Garo Toomajanian
ir@fabrinet.com