Fabrinet
Feb 6, 2017

Fabrinet Announces Second Quarter Fiscal-Year 2017 Financial Results

Revenue and Earnings Exceed High-End of Guidance Ranges
Tom Mitchell to Transition Following CEO Search

BANGKOK--(BUSINESS WIRE)-- 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 the second fiscal quarter ended December 30, 2016.

Tom Mitchell, Chief Executive Officer of Fabrinet, said: "We exceeded our guidance for the second quarter, with revenue that grew 51% from a year ago. We are enthusiastic about our continued business momentum, driven by on-going strength in the optical market and new customer programs. We're also excited to see the beginning of the transfer of programs from our new product introduction facility in Santa Clara to Thailand, and believe our growing NPI pipeline will support our growth in the years ahead."

Mr. Mitchell added, "On a personal note, at my request, our board of directors has initiated a CEO succession plan. We have retained an executive search firm to assist in identifying and evaluating candidates. We have no set timeline for this process. I intend to continue to play a leadership role in the Company after we appoint a new CEO."

Second Quarter Fiscal-Year 2017 Financial Highlights

GAAP Results

Non-GAAP Results

Business Outlook

Based on information available as of February 6, 2017, Fabrinet is issuing guidance for the third quarter of fiscal-year 2017 ending March 31, 2017, as follows:

 

Conference Call Information

   
What: Fabrinet Second Quarter Fiscal-Year 2017 Financial Results Conference Call
When: Monday, February 6, 2017
Time: 5:00 p.m. ET
Live Call: (888) 357-3694, domestic
(253) 237-1137, international

 

Passcode: 52651124

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

 

Passcode: 52651124

Webcast:

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

 

This press release and any other information related to the call also will 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, 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 our expectation that we will continue to achieve profitable growth and scale our business, as well as 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 2017. 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 9, 2016. 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

The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company's ongoing operational performance. Non-GAAP net income excludes share-based compensation expenses, executive separation costs, income or expense related to flooding, amortization of debt issuance costs, unrealized gain or loss on foreign currency, business combination expenses, and amortization of intangible assets. 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 financial and operational decision making. 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 30,
2016

June 24,
2016

Assets
Current assets
Cash and cash equivalents $ 85,619 $ 142,804
Marketable securities 170,508 141,709
Trade accounts receivable, net 240,887 196,145
Inventory, net 214,375 181,499
Deferred tax assets 1,358
Prepaid expenses 2,407 3,114
Other current assets   4,604     6,662
Total current assets   718,400     673,291
Non-current assets
Restricted cash in connection with business acquisition 3,126
Property, plant and equipment, net 213,987 178,410
Intangibles, net 5,048 499
Goodwill 2,529
Deferred tax assets 1,879 1,806
Deferred debt issuance costs on revolving loan and other non-current assets   950     1,851
Total non-current assets   227,519     182,566
Total Assets $ 945,919   $ 855,857
Liabilities and Shareholders' Equity
Current liabilities
Bank borrowings, net of unamortized debt issuance costs $ 38,287 $ 24,307
Trade accounts payable 187,306 172,052
Fixed assets payable 17,094 20,628
Capital lease liability, current portion 362
Income tax payable 2,491 2,010
Accrued payroll, bonus and related expenses 11,365 12,300
Accrued expenses 13,712 8,072
Other payables   12,440     16,356
Total current liabilities   283,057     255,725
Non-current liabilities
Long-term loan from bank, non-current portion, net of unamortized debt issuance costs 29,412 36,100
Deferred tax liability 854
Capital lease liability, non-current portion 1,108
Deferred liability in connection with business acquisition 3,126
Severance liabilities 7,277 6,684
Other non-current liabilities   2,274     2,075
Total non-current liabilities   43,197     45,713
Total Liabilities   326,254     301,438
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 30, 2016 and June 24, 2016)
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 36,918,462 shares and
36,156,446 shares issued and outstanding as of December 30, 2016 and June 24, 2016, respectively) 369 362
Additional paid-in capital 121,366 102,325
Accumulated other comprehensive (loss) income (1,269 ) 591
Retained earnings   499,199     451,141
Total Shareholders' Equity   619,665     554,419
Total Liabilities and Shareholders' Equity $ 945,919   $ 855,857
 

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 30,
2016

 

December 25,
2015

December 30,
2016

 

December 25,
2015

Revenues $ 351,156 $233,038 $683,199 $ 449,471
Cost of revenues   (308,110 ) (204,545 ) (600,545 )   (394,967 )
Gross profit 43,046 28,493 82,654 54,504
Selling, general and administrative expenses (17,651 ) (13,715 ) (33,483 ) (25,615 )
Other expense related to flooding           (864 )
Operating income 25,395 14,778 49,171 28,025
Interest income 320 455 757 897
Interest expense (555 ) (419 ) (1,876 ) (821 )
Foreign exchange gain (loss), net 1,945 6,166 3,602 (4,326 )
Other income   147   106   289     209  
Income before income taxes 27,252 21,086 51,943 23,984
Income tax expense   (1,960 ) (1,283 ) (3,885 )   (2,578 )
Net income   25,292   19,803   48,058     21,406  
Other comprehensive loss, net of tax:
Change in net unrealized loss on marketable securities (353 ) (310 ) (540 ) (223 )
Change in net unrealized loss on derivative instruments (158 )
Change in foreign currency translation adjustment   (1,903 )   (1,162 )    
Total other comprehensive loss, net of tax   (2,256 ) (310 ) (1,860 )   (223 )
Net comprehensive income $ 23,036   $19,493   $46,198   $ 21,183  
 
Earnings per share
Basic $ 0.69 $0.55 $1.31 $ 0.60
Diluted $ 0.67 $0.54 $1.28 $ 0.59
         
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic 36,848 35,812 36,626 35,695
Diluted 37,805 36,826 37,567 36,570
 
       

FABRINET
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

December 30,
2016

December 25,
2015

 
Cash flows from operating activities
Net income for the period $48,058 $ 21,406
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 10,758 8,294
Loss (gain) on disposal of property, plant and equipment 19 (49 )
Loss from sales and maturities of available-for-sale securities 15 124
Amortization of investment premium 228 457
Amortization of deferred debt issuance costs 1,072 358
Reversal of allowance for doubtful accounts (40 ) (7 )
Unrealized (gain) loss on exchange rate and fair value of derivative instruments (3,033 ) 5,566
Share-based compensation 14,208 5,783
Deferred income tax 938 413
Other non-cash expenses 586 765
Reversal of inventory obsolescence (100 ) (478 )
Loss from written-off inventory due to flood loss 233
Changes in operating assets and liabilities
Trade accounts receivable (40,779 ) (12,486 )
Inventory (29,286 ) (10,004 )
Other current assets and non-current assets 4,747 1,019
Trade accounts payable 11,026 (405 )
Income tax payable 448 320
Other current liabilities and non-current liabilities 887     2,395  
Net cash provided by operating activities 19,752     23,704  
Cash flows from investing activities
Purchase of marketable securities (83,405 ) (53,258 )
Proceeds from sales of marketable securities 15,682 25,709
Proceeds from maturities of marketable securities 38,142 34,460
Payments in connection with business acquisition, net of cash acquired (9,917 )
Purchase of property, plant and equipment (44,412 ) (26,407 )
Purchase of intangibles (319 ) (210 )
Proceeds from disposal of property, plant and equipment 127     58  
Net cash used in investing activities (84,102 )   (19,648 )
Cash flows from financing activities
Payment of debt issuance costs (359 )
Proceeds of short-term loans from banks 15,744 18,000
Repayment of long-term loans from bank (9,800 ) (3,000 )
Repayment of capital lease liability (92 )
Proceeds from issuance of ordinary shares under employee share option plans 5,848 2,025
Withholding tax related to net share settlement of restricted share units (1,008 )   (1,711 )
Net cash provided by financing activities 10,692     14,955  
Net (decrease) increase in cash, cash equivalents and restricted cash (53,658 )   19,011  
 
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period 142,804 112,978
(Decrease) increase in cash, cash equivalents and restricted cash (53,658 ) 19,011
Effect of exchange rate on cash, cash equivalents and restricted cash (401 )   (630 )
Cash, cash equivalents and restricted cash at end of period $88,745   $ 131,359  
 
Non-cash investing and financing activities
Construction, software-related and equipment-related payables $17,094 $ 6,657
 

FABRINET
Reconciliation of GAAP measures to non-GAAP measures

     
(in thousands of U.S. dollars, except per share data) Three Months Ended Six Months Ended
December 30, 2016   December 25, 2015 December 30, 2016   December 25, 2015

 

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

Net
income

 

Diluted
EPS

 
GAAP measures 25,292 0.67 19,803 0.54 48,058 1.28 21,406 0.59
Items reconciling GAAP net income (loss) & EPS to non-GAAP net income & EPS:
Related to cost of revenues:
Share-based compensation expenses 1,514 0.04 540   0.01   2,528   0.07   1,077 0.03
 
Total related to gross profit 1,514 0.04 540   0.01   2,528   0.07   1,077 0.03
 
Related to selling, general and administrative expenses:
Share-based compensation expenses 7,083 0.19 2,570 0.07 11,680 0.31 4,706 0.13
Executive separation cost - - 552 0.01 577 0.02 552 0.01
Amortization of intangible assets 229 0.01 - - 229 0.01 - -
Business combination expenses 99 0.00 -   -   1,510   0.04   - -
 
Total related to selling, general and administrative expenses 7,411 0.20 3,122   0.08   13,996   0.37   5,258 0.14
 
Related to other incomes and other expenses:
Expenses/(income) related to flooding - - - - - - 864 0.02
Amortization of debt issuance costs 281 0.01 187 0.01 1,344 0.04 358 0.01
(Gain)/loss on foreign currency - - (5,418 ) (0.15 ) (1,713 ) (0.05 ) 5,479 0.15
 
Total related to other incomes and other expenses 281 0.01 (5,231 ) (0.14 ) (369 ) (0.01 ) 6,701 0.18
Total related to net income & EPS 9,206 0.24 (1,569 ) (0.04 ) 16,155   0.43   13,036 0.35
 
Non-GAAP measures 34,498 0.91 18,234   0.50   64,213   1.71   34,442 0.94
 
Shares used in computing diluted net income per share
GAAP diluted shares 37,805 36,826 37,567 36,570
Non-GAAP diluted shares 37,805 36,826 37,567 36,570

Fabrinet Guidance for Quarter Ending March 31, 2017
Items reconciling GAAP EPS to non-GAAP EPS:

     
Diluted
EPS
GAAP net income per diluted share: $0.66 to $0.68
Related to cost of revenues:
Share-based compensation expenses $0.04
 
Related to selling, general and administrative expenses:
Share-based compensation expenses $0.15
Business combination expenses $0.00
Amortization of intangible assets $0.01
Share-based compensation expenses $0.16
 
 
Related to other incomes and other expenses:
Amortization of debt issuance costs $0.00
 
Total related to net income & EPS $0.21
Non-GAAP net income per diluted share $0.87 to $0.89

Investor Contact:
ICR for Fabrinet
Garo Toomajanian
ir@fabrinet.com

Source: Fabrinet

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