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Fabrinet Announces Fourth Quarter and Fiscal Year 2018 Financial Results

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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 fourth quarter and fiscal year
ended June 29, 2018.

Seamus Grady, Chief Executive Officer of Fabrinet, said, "Our financial
results for the fourth quarter exceeded our guidance for revenue and
profitability. Our sequential revenue growth was driven by modest growth
from optical communications products, and strong growth from non-optical
communications products, with a particularly notable performance in the
industrial laser and automotive markets. We are encouraged by the
broadly improving demand dynamics we see and are optimistic that we will
see continued sequential growth in the first quarter of fiscal year 2019
as we expand our leadership as a manufacturer of complex products."

Toh-Seng Ng, Chief Financial Officer of Fabrinet, added, "On a personal
note, at my request, our board of directors has initiated a CFO
succession plan. We have retained an executive search firm to assist in
identifying and evaluating candidates, and there is no set timeline for
this process."

Fourth Quarter Fiscal Year 2018 Financial Highlights

GAAP Results

  • Revenue for the fourth quarter of fiscal year 2018 was $345.3 million,
    compared to revenue of $370.5 million for the comparable period in
    fiscal year 2017.
  • GAAP net income for the fourth quarter of fiscal year 2018 was $22.8
    million, compared to GAAP net income of $27.4 million for the fourth
    quarter of fiscal year 2017. GAAP net income for the fourth quarter of
    fiscal year 2018 included a foreign exchange loss of $0.9 million, or
    $0.02 per diluted share, compared to a foreign exchange loss of $1.0
    million, or $0.03 per diluted share, for the fourth quarter of fiscal
    year 2017.
  • GAAP net income per diluted share for the fourth quarter of fiscal
    year 2018 was $0.60, compared to GAAP net income per diluted share of
    $0.72 for the fourth quarter of fiscal year 2017.

Non-GAAP Results

  • Non-GAAP net income for the fourth quarter of fiscal year 2018 was
    $30.7 million, compared to non-GAAP net income of $32.8 million for
    the fourth quarter of fiscal year 2017. Non-GAAP net income for the
    fourth quarter of fiscal year 2018 included a foreign exchange loss of
    $0.9 million, or $0.02 per diluted share, compared to a foreign
    exchange loss of $1.0 million, or $0.03 per diluted share, for the
    fourth quarter of fiscal year 2017.
  • Non-GAAP net income per diluted share for the fourth quarter of fiscal
    year 2018 was $0.81, compared to non-GAAP net income per diluted share
    of $0.86 for the same period a year ago.

Fiscal Year 2018 Financial Highlights

GAAP Results

  • Revenue for fiscal year 2018 was $1,371.9 million, compared to revenue
    of $1,420.5 million for fiscal year 2017.
  • GAAP net income for fiscal year 2018 was $84.2 million, compared to
    GAAP net income of $97.1 million for fiscal year 2017. GAAP net income
    for fiscal year 2018 included a foreign exchange loss of $6.6 million,
    or $0.17 per diluted share, compared to a foreign exchange loss of
    $1.1 million, or $0.03 per diluted share, for fiscal year 2017.
  • GAAP net income per diluted share for fiscal year 2018 was $2.21,
    compared to GAAP net income per diluted share of $2.57 for fiscal year
    2017.

Non-GAAP Results

  • Non-GAAP net income for fiscal year 2018 was $113.5 million, compared
    to non-GAAP net income of $127.4 million for fiscal year 2017.
    Non-GAAP net income for fiscal year 2018 included a foreign exchange
    loss of $6.6 million, or $0.17 per diluted share, compared to a
    foreign exchange loss of $2.9 million, or $0.08 per diluted share, for
    fiscal year 2017.
  • Non-GAAP net income per diluted share for fiscal year 2018 was $2.98,
    compared to non-GAAP net income per diluted share of $3.37 for fiscal
    year 2017.

Share Repurchase Program Update

Fabrinet repurchased approximately 551,000 ordinary shares at an average
price of $36.31 during the fourth quarter. As of June 29, 2018, Fabrinet
had a remaining authorization to purchase up to an additional $17.6
million worth of its ordinary shares.

Business Outlook

The guidance provided below is based on ASC 605. In the first quarter of
fiscal 2019, Fabrinet will report results under ASC 606, which it is
adopting for fiscal year 2019 on a modified retrospective transition
method, and will provide a reconciliation to ASC 605 at that time.

Based on information available as of August 20, 2018, Fabrinet is
issuing guidance for its first fiscal quarter of 2019 ending September
28, 2018, as follows:

  • Fabrinet expects first quarter revenue to be in the range of $347
    million to $355 million.
  • GAAP net income per diluted share is expected to be in the range of
    $0.58 to $0.61, 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 $0.80 to $0.83, based on approximately 37.9 million fully diluted
    shares outstanding.

Conference Call Information

   
What: Fabrinet Fourth Quarter and Fiscal Year 2018 Financial Results Call
When: Monday, August 20, 2018
Time: 5:00 p.m. ET
Live Call: (888) 357-3694, domestic
(253) 237-1137, international

 

Passcode: 9097326

Replay: (855) 859-2056, domestic
(404) 537-3406, international

 

Passcode: 9097326

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 improving demand and our
ability to achieve sequential growth in the first quarter of fiscal year
2019, as well as our ability to expand our leadership as a manufacturer
of complex products; and (2) 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 first
quarter of fiscal year 2019. 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 May 8, 2018. 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 CEO search;
debt administration expense; 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

 

CONSOLIDATED BALANCE SHEETS

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

June 29,
2018

June 30,
2017

Assets
Current assets
Cash and cash equivalents $ 158,102 $ 133,825
Restricted cash in connection with business acquisition 3,331 -
Marketable securities 174,269 151,450
Trade accounts receivable, net 246,912 264,349
Inventory, net 257,687 238,665
Prepaid expenses 8,061 6,306
Other current assets   5,948   4,159
Total current assets   854,310   798,754
Non-current assets
Restricted cash in connection with business acquisition - 3,312
Property, plant and equipment, net 219,640 216,881
Intangibles, net 4,880 5,840
Goodwill 3,828 3,806
Deferred tax assets 5,280 2,905
Deferred debt issuance costs on revolving loan and other non-current
assets
  80   1,577
Total non-current assets   233,708   234,321
Total Assets $ 1,088,018 $ 1,033,075
Liabilities and Shareholders' Equity
Current liabilities
Bank borrowings, net of unamortized debt issuance costs $ 3,250 $ 48,402
Trade accounts payable 220,159 215,262
Capital lease liability, current portion 451 344
Income tax payable 709 1,976
Deferred liability in connection with business acquisition 3,331 -
Accrued payroll, bonus and related expenses 13,476 13,852
Accrued expenses 9,013 9,227
Other payables   19,728   22,209
Total current liabilities 270,117 311,272
Non-current liabilities
Long-term loan from bank, non-current portion, net of unamortized
debt issuance costs
60,938 22,701
Deferred tax liability 2,284 1,981
Capital lease liability, non-current portion 516 1,024
Deferred liability in connection with business acquisition - 3,312
Severance liabilities 10,162 8,488
Other non-current liabilities 3,062 2,723
Total non-current liabilities 76,962 40,229
Total Liabilities   347,079 351,501
Commitments and contingencies
Shareholders' equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no
shares
issued and outstanding as of June 29, 2018 and June 30, 2017)
Ordinary shares (500,000,000 shares authorized, $0.01 par value;
37,723,733 shares and 37,340,496 shares issued, and
36,434,630 shares and 37,340,496 shares outstanding 377 373
as of March 30, 2018 and June 30, 2017, respectively)
Additional paid-in capital 151,797 133,293
Treasury shares at cost (1,289,103 shares and zero shares as of

March 30, 2018 and June 30, 2017, respectively)

(42,401)
Accumulated other comprehensive loss (1,257) (348)
Retained earnings 632,423 548,256
Total Shareholders' Equity 740,939 681,574
Total Liabilities and Shareholders' Equity $ 1,088,018 $ 1,033,075
       

FABRINET

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

June 29,
2018

   

June 30,
2017

June 29,
2018

   

June 30,
2017

Revenues $ 345,327 $ 370,454 $ 1,371,925 $ 1,420,490
 
Cost of revenues  

(306,346)

  (325,694)  

(1,218,513)

 

(1,249,030)

Gross profit 38,981 44,760 153,412 171,460
Selling, general and administrative expenses (16,559) (15,057) (57,812) (65,626)
Expenses related to reduction in workforce       (1,776)  
Operating income 22,422 29,703 93,824 105,834
Interest income 1,371 507 3,925 1,977
Interest expense (1,107) (804) (3,606) (3,321)
Foreign exchange loss, net (877) (1,042) (6,587) (1,142)
Other income   35   112   473   509
Income before income taxes 21,844 28,476 88,029 103,857
Income tax expense   924   (1,075)   (3,862)   (6,742)
Net income   22,768   27,401   84,167   97,115
Other comprehensive loss, net of tax:
Change in net unrealized loss on marketable securities 29 20 (1,019) (471)
Change in net unrealized loss on derivative instruments (1) (158)
Change in foreign currency translation adjustment   (1,247)   625   111   (310)
Total other comprehensive loss, net of tax   (1,218)   645   (909)   (939)
Net comprehensive income $ 21,550 $ 28,046 $ 83,258 $ 96,176
 
Earnings per share
Basic $ 0.62 $ 0.73 $ 2.26 $ 2.63
Diluted $ 0.60 $ 0.72 $ 2.21 $ 2.57
           
Weighted-average number of ordinary shares outstanding
(thousands of shares)
Basic 36,828 37,334 37,257 36,927
Diluted 37,766 38,118 38,035 37,852
 

FABRINET
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

June 29,
2018

 

June 30,
2017

 
Cash flows from operating activities
Net income for the period $ 84,167 $ 97,115
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 29,087 23,793
Loss (gain) on disposal of property, plant and equipment 18 (30)
Loss on disposal of intangibles 447 -
Loss from sales and maturities of available-for-sale securities 364 822
Amortization of investment discount (506) (193)
Amortization of deferred debt issuance costs 994 1,396
Reversal of allowance for doubtful accounts (23) (1)
Unrealized loss on exchange rate and fair value of derivative
instruments
4,222 1,884
Share-based compensation 22,581 26,507
Deferred income tax (2,074) 754
Other non-cash expenses 2,133 2,173
(Reversal of) Inventory obsolescence (436) 42
Changes in operating assets and liabilities
Trade accounts receivable 17,852 (64,142)
Inventory (19,432) (53,802)
Other current assets and non-current assets (4,464) (2,231)
Trade accounts payable 3,502 38,293
Income tax payable (1,267) (67)
Other current liabilities and non-current liabilities   915   (1,379)
Net cash provided by operating activities   138,080   70,934
Cash flows from investing activities
Purchase of marketable securities (152,908) (122,778)
Proceeds from sales of marketable securities 61,795 39,578
Proceeds from maturities of marketable securities 67,417 72,361
Payments in connection with business acquisition, net of cash
acquired
(9,917)
Purchase of property, plant and equipment (33,825) (68,262)
Purchase of intangibles (1,577) (1,768)
Proceeds from disposal of property, plant and equipment   449   230
Net cash used in investing activities   (58,649)   (90,556)
Cash flows from financing activities
Proceeds of short-term loans from banks 5,000 27,500
Repayment of short-term loans from bank (1,003) (157)
Repayment of long-term loans from bank (11,212) (18,100)
Repayment of capital lease liability (417) (276)
Repurchase of ordinary shares (42,401)
Proceeds from issuance of ordinary shares under employee share
option plans
1,436 5,890
Withholding tax related to net share settlement of restricted share
units
  (5,509)   (1,425)
Net cash (used in) provided by financing activities   (54,106)   13,432
Net increase (decrease) in cash, cash equivalents and restricted
cash
  25,325   (6,190)
 
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 25,325 (6,190)
Effect of exchange rate on cash, cash equivalents and restricted cash   (1,029)   523
Cash, cash equivalents and restricted cash at end of period $ 161,433 $ 137,137
 
Non-cash investing and financing activities
Construction, software-related and equipment-related payables $ 5,144 $ 8,434
 

FABRINET
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

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

       
(amount in thousands)

As of
June 29,
2018

As of
June 30,
2017

 
Cash and cash equivalents $ 158,102 $ 133,825
Restricted cash in connection with business acquisition

(non-current assets)

 

3,331

 

3,312

Cash, cash equivalents and restricted cash $ 161,433 $ 137,137
   

FABRINET
RECONCILIATION OF GAAP MEASURES TO
NON-GAAP MEASURES

 

      Three Months Ended     Twelve Months Ended
  June 29, 2018     June 30, 2017 June 29, 2018     June 30, 2017
(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 22,768 0.60 27,401 0.72 84,167 2.21 97,115 2.57
Items reconciling GAAP net (loss) income & EPS to non-GAAP net
income & EPS:
Related to cost of revenues:
Share-based compensation expenses

1,507

0.04

1,133 0.03 6,784 0.18 5,318 0.14
Depreciation of fair value uplift

89

   

0.00

80     0.00 330     0.01 147     0.00

Total related to gross profit

1,596

   

0.04

1,213     0.03 7,114     0.19 5,465     0.14
 
Related to selling, general and administrative expenses:
Share-based compensation expenses

3,370

0.09

3,438 0.09 15,797 0.42 21,190 0.56
Expenses related to CEO search

-

-

100 0.00 204 0.01 203 0.01
Debt administration expenses

-

-

-

-

-

-

320

0.01

Amortization of intangibles

199

0.01

199

0.01

780

0.02

607

0.02

Business combination expenses

-

-

160 0.00 117 0.00 1,790 0.05
Severance payments 2,142     0.06 -     - 2,142     0.06 577     0.02
Total related to selling, general and administrative expenses

 

5,711

   

 

0.15

 

3,897

   

 

0.10

 

19,040

   

 

0.50

 

24,687

   

 

0.65

 
Related to other incomes and other expenses:
Loss on foreign currency contracts

-

-

-

-

-

-

(1,713)

(0.05)

Restructuring charges - - - - 1,776 0.05 - -
Amortization of debt issuance costs 634 0.02 257 0.01 1,412 0.04 1,884 0.05
                               
Total related to other incomes and other expenses 634     0.02 257     0.01 3,188     0.08 171     0.00
 
 
Total related to net income & EPS

7,941

   

0.21

5,367

   

0.14

29,342

   

0.77

30,323

   

0.80

 
Non-GAAP measures 30,709     0.81 32,768     0.86 113,509     2.98 127,438     3.37
 
Shares used in computing diluted net income per share
GAAP diluted shares 37,766 38,118 38,035 37,852
Non-GAAP diluted shares 37,766 38,118 38,035 37,852
   
FABRINET
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO
FREE CASH FLOW
             
(in thousands) Three Months Ended Twelve Months Ended
June 29,
2018

June 30,
2017

June 29,
2018

June 30,
2017
 
Net cash provided by operating activities $48,286 $10,546 $138,080 $70,934
Less: Purchase of property, plant and equipment (5,557) (11,038)   (33,825) (68,262)
Non-GAAP free cash flow $42,729 ($492)   $104,255 $2,672
 

FABRINET
GUIDANCE FOR QUARTER ENDING SEPTEMBER 28,
2018

RECONCILIATION OF GAAP MEASURES TO NON-GAAP
MEASURES

     
Diluted
EPS
GAAP net income per diluted share: $0.58 to $0.61
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 0.16
Business combination expenses 0.01
Total related to selling, general and administrative expenses 0.17
 
Total related to net income & EPS 0.22
Non-GAAP net income per diluted share $0.80 to $0.83

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