News Release

BANGKOK--(BUSINESS WIRE)--Feb. 4, 2019-- 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 28, 2018.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “We are pleased to have delivered record results in the fiscal second quarter, exceeding our prior guidance with particular strength from products to the telecom market. We are optimistic that Q3 will represent a record third quarter for us in terms of both revenue and profitability, and that our strong market position will enable us to extend our track record of success over the longer-term.”

Second Quarter Fiscal Year 2019 Financial Highlights

As of the first quarter of fiscal 2019, Fabrinet is reporting results under the new revenue recognition standard Accounting Standards Codification Topic 606 (“ASC 606”), using the modified retrospective method. Financial results for reporting periods prior to fiscal year 2019 are presented as previously disclosed in conformity with the old revenue recognition standard Accounting Standards Codification Topic 605 (“ASC 605”). A reconciliation to ASC 605 is included at the end of this press release.

GAAP Results

• Revenue for the second quarter of fiscal year 2019 was $403.1 million, compared to revenue of $337.1 million for the comparable period in fiscal year 2018.
• GAAP net income for the second quarter of fiscal year 2019 was $31.5 million, compared to GAAP net income of $19.3 million for the second quarter of fiscal year 2018. GAAP net income for the second quarter of fiscal year 2019 included a foreign exchange loss of $0.4 million, or $(0.01) per diluted share, compared to a foreign exchange loss of $1.3 million, or $(0.04) per diluted share, for the second quarter of fiscal year 2018.
• GAAP net income per diluted share for the second quarter of fiscal year 2019 was $0.84, compared to GAAP net income per diluted share of $0.51 for the second quarter of fiscal year 2018.

Non-GAAP Results

• Non-GAAP net income for the second quarter of fiscal year 2019 was $36.5 million, compared to non-GAAP net income of $27.3 million for the second quarter of fiscal year 2018. Non-GAAP net income for the second quarter of fiscal year 2019 included a foreign exchange loss of $0.4 million, or $(0.01) per diluted share, compared to a foreign exchange loss of $1.3 million, or $(0.04) per diluted share, for the second quarter of fiscal year 2018.
• Non-GAAP net income per diluted share for the second quarter of fiscal year 2019 was $0.97, compared to non-GAAP net income per diluted share of $0.72 for the same period in fiscal year 2018.

Share Repurchase Program Update

There was no share repurchase activity during the three months ended December 28, 2018. As of December 28, 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 for the third quarter of fiscal 2019 is based on ASC 605; however, we will report revenues for such quarter based on ASC 606. As of the first quarter of fiscal 2019, Fabrinet is reporting results under ASC 606, which it is adopting for fiscal year 2019 on a modified retrospective method. A reconciliation to ASC 605 is included at the end of this press release.

Based on information available as of February 4, 2019, Fabrinet is issuing guidance for its third fiscal quarter of 2019 ending March 29, 2019, as follows:

• Fabrinet expects third quarter revenue to be in the range of $384 million to $392 million.
• GAAP net income per diluted share is expected to be in the range of $0.71 to $0.75, based on approximately 37.6 million fully diluted shares outstanding.
• Non-GAAP net income per diluted share is expected to be in the range of $0.86 to $0.90, based on approximately 37.6 million fully diluted shares outstanding.

Conference Call Information

What:					Fabrinet Second Quarter Fiscal-Year 2019 Financial Results Call
When:					Monday, February 4, 2019
Time:					5:00 p.m. ET
Live Call:					(888) 357-3694, domestic
					(253) 237-1137, international
					Passcode: 2047796
Replay:					(855) 859-2056, domestic
					(404) 537-3406, international
					Passcode: 2047796
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 optimism that Q3 will represent a record third quarter for both revenue and profitability; (2) statements regarding our optimism that our strong market position will enable us to deliver further financial success over the longer-term; 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 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 November 6, 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 CFO search; debt administration expense; amortization of intangibles; business combination expenses; loss (gain) on foreign currency contracts; amortization of debt issuance costs; restructuring charges; 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)					December 28, 2018				June 29, 2018
Assets
Current assets
Cash and cash equivalents					$	230,996			$	158,102
Restricted cash in connection with business acquisition						—				3,331
Short-term investments						151,508				174,269
Trade accounts receivable, net						261,519				246,912
Contract assets						13,336				—
Inventory, net						277,893				257,687
Prepaid expenses						9,809				8,061
Other current assets						5,044				5,948
Total current assets						950,105				854,310
Non-current assets
Property, plant and equipment, net						212,314				219,640
Intangibles, net						4,283				4,880
Goodwill						3,698				3,828
Deferred tax assets						5,454				5,280
Other non-current assets						72				80
Total non-current assets						225,821				233,708
Total Assets					$	1,175,926			$	1,088,018
Liabilities and Shareholders’ Equity
Current liabilities
Bank borrowings					$	3,250			$	3,250
Trade accounts payable						248,253				220,159
Capital lease liability, current portion						409				451
Income tax payable						2,568				709
Deferred liability in connection with business acquisition						—				3,331
Accrued payroll, bonus and related expenses						16,327				13,476
Accrued expenses						9,106				9,013
Other payables						17,637				19,728
Total current liabilities					297,550				270,117
Non-current liabilities
Long-term loan from bank					60,125				60,938
Deferred tax liability						2,939				2,284
Capital lease liability, non-current portion					302				516
Severance liabilities					11,173				10,162
Other non-current liabilities					2,304				3,062
Total non-current liabilities					76,843				76,962
Total Liabilities						374,393			347,079
Commitments and contingencies (Note 15)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of December 28, 2018 and June 29, 2018)					—				—
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,138,159 shares and 37,723,733 shares issued; and 36,849,056 shares and 36,434,630 shares outstanding as of December 28, 2018 and June 29, 2018, respectively)						381			377
Additional paid-in capital						151,639			151,797
Less: Treasury shares (1,289,103 shares and 1,289,103 shares as of December 28, 2018 and June 29, 2018, respectively)						(42,401)			(42,401)
Accumulated other comprehensive loss						(1,077)			(1,257)
Retained earnings						692,991			632,423
Total Shareholders’ Equity					801,533				740,939
Total Liabilities and Shareholders’ Equity					$	1,175,926			$	1,088,018

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 amounts)			December 28, 2018				December 29, 2017							December 28, 2018						December 29, 2017
Revenues			$	403,080			$	337,072						$	780,257					$	694,385
Cost of revenues				(357,516)				(299,906)							(694,417)						(616,887)
Gross profit				45,564				37,166							85,840						77,498
Selling, general and administrative expenses				(12,727)				(13,157)							(27,164)						(28,835)
Expenses related to reduction in workforce				(319)				(1,776)							(404)						(1,776)
Operating income				32,518				22,233							58,272						46,887
Interest income				1,182				596							2,626						1,405
Interest expense				(1,616)				(826)							(2,250)						(1,679)
Foreign exchange (loss) gain, net				(421)				(1,348)							2,647						(3,282)
Other income				562				250							639						347
Income before income taxes				32,225				20,905							61,934						43,678
Income tax expense				(712)				(1,592)							(2,571)						(3,332)
Net income				31,513				19,313							59,363						40,346
Other comprehensive income (loss), net of tax:
Change in net unrealized gain (loss) on available-for-sale securities				598				(462)							886						(432)
Change in net unrealized loss on derivative instruments				—				—							(1)						(1)
Change in foreign currency translation adjustment				(505)				44							(705)						569
Total other comprehensive income (loss), net of tax				93				(418)							180						136
Net comprehensive income			$	31,606			$	18,895						$	59,543					$	40,482
Earnings per share
Basic			$	0.86			$	0.52						$	1.62					$	1.08
Diluted			$	0.84			$	0.51						$	1.59					$	1.06
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic				36,841				37,477							36,733						37,462
Diluted				37,471				38,156							37,305						38,160

FABRINET CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
					Six Months Ended
(in thousands of U.S. dollars)					December 28, 2018					December 29, 2017
Cash flows from operating activities
Net income for the period					$	59,363				$	40,346
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization						15,000					14,265
Loss on disposal of property, plant and equipment						528					—
Loss on disposal of intangibles						149					—
Loss from sales and maturities of available-for-sale securities						1,060					357
Amortization of investment premium						(533)					(163)
Amortization of deferred debt issuance costs						—					295
Allowance for doubtful accounts						—					5
Unrealized (gain) loss on exchange rate and fair value of derivative instruments						(5,775)					1,740
Share-based compensation						8,949					12,378
Deferred income tax						481					(153)
Other non-cash expenses						580					962
Inventory obsolescence						29					654
Changes in operating assets and liabilities
Trade accounts receivable						(14,381)					5,707
Contract assets						(3,459)					—
Inventory						(28,909)					(1,047)
Other current assets and non-current assets						2,128					(6,801)
Trade accounts payable						29,276					(33,626)
Income tax payable						1,859					(791)
Other current liabilities and non-current liabilities						2,953					2,985
Net cash provided by operating activities						69,298					37,113
Cash flows from investing activities
Purchase of short-term investments						(82,141)					(48,679)
Proceeds from sales of short-term investments						70,472					18,672
Proceeds from maturities of short-term investments						34,788					31,427
Purchase of property, plant and equipment						(9,732)					(21,405)
Purchase of intangibles						(251)					(689)
Proceeds from disposal of property, plant and equipment						5					35
Net cash provided by (used in) investing activities						13,141					(20,639)
Cash flows from financing activities
Proceeds of short-term loans from bank						—					5,000
Repayment of short-term loans from bank						—					(1,003)
Repayment of long-term loans from bank						(813)					(6,800)
Repayment of capital lease liability						(255)					(174)
Repurchase of ordinary shares						—					(9,910)
Proceeds from issuance of ordinary shares under employee share option plans						—					990
Release of restricted cash held in connection with business acquisition						(3,478)					—
Withholding tax related to net share settlement of restricted share units						(9,103)					(3,744)
Net cash used in financing activities						(13,649)					(15,641)
Net increase in cash, cash equivalents and restricted cash						68,790					833
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cashat beginning of period						161,433					137,137
Increase in cash, cash equivalents and restricted cash						68,790					833
Effect of exchange rate on cash, cash equivalents and restricted cash						773					284
Cash, cash equivalents and restricted cash at end of period					$	230,996				$	138,254
Non-cash investing and financing activities
Construction, software-related and equipment-related payables					$	2,888				$	5,658

FABRINET CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

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

(amount in thousands)					As of December 28, 2018				As of December 29, 2017
Cash and cash equivalents					$	230,996			$	134,831
Restricted cash in connection with business acquisition (non-current assets)						—				3,423
Cash, cash equivalents and restricted cash					$	230,996			$	138,254

FABRINET RECONCILIATION OF ASC 605 TO ASC 606
			Three Months Ended December 28,2018
(in thousands of U.S. dollars, except per share amounts)			ASC 605				ASC 606				Impact
Revenues			$	399,901			$	403,080			$	(3,179)
Cost of revenues				(353,341)				(356,132)				2,791
Gross profit				46,560				46,948				(388)
Selling, general and administrative expenses				(9,426)				(9,426)				—
Operating income				37,134				37,522				(388)
Interest income				1,182				1,182				—
Interest expense				(1,616)				(1,616)				—
Foreign exchange loss				(421)				(421)				—
Other income				562				562				—
Income before income taxes				36,841				37,229				(388)
Income tax expense				(712)				(712)				—
Net income				36,129				36,517				(388)
Other comprehensive income, net of tax:
Change in net unrealized gain on available-for-sale securities				598				598				—
Change in foreign currency translation adjustment				(505)				(505)				—
Total other comprehensive income, net of tax				93				93				—
Net comprehensive income			$	36,222			$	36,610				(388)
Earnings per share
Basic			$	0.98			$	0.99			$	(0.01)
Diluted			$	0.96			$	0.97			$	(0.01)
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic				36,841				36,841				—
Diluted				37,471				37,471				—

FABRINET RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
			Three Months Ended												Six Months Ended
			December 28, 2018 (ASC 606)						December 29, 2017 (ASC 605)						December 28, 2018 (ASC 606)						December 29, 2017 (ASC 605)
(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			31,513			0.84			19,313			0.51			59,363			1.59			40,346			1.06
Items reconciling GAAP net (loss) income & EPS to non-GAAP net income & EPS:
Related to cost of revenues:
Share-based compensation expenses			1,300			0.03			1,812			0.05			3,147			0.08			3,713			0.10
Depreciation of fair value uplift			84			0.00			86			0.00			173			0.00			153			0.00
ASC 606 adoption impact on gross profit			-			-			-			-			(31)			(0.00)			-			-
Total related to gross profit			1,384			0.04			1,898			0.05			3,289			0.09			3,866			0.10
Related to selling, general and administrative expenses:
Share-based compensation expenses			2,669			0.07			3,646			0.10			5,802			0.16			8,665			0.23
Expenses related to CFO/CEO search			382			0.01			204			0.01			572			0.02			204			0.01
Amortization of intangibles			176			0.00			208			0.01			368			0.01			377			0.01
Business combination expenses			58			0.00			11			0.00			240			0.01			117			0.00
Severance payment			16			0.00			-			-			601			0.02			-			-
Total related to selling, general and administrative expenses			3,301			0.09			4,069			0.11			7,583			0.20			9,362			0.25
Related to other incomes and other expenses:
Other expenses in relation to reduction in workforce			319			0.01			1,776			0.05			404			0.01			1,776			0.05
Amortization of debt issuance costs			-			-			267			0.01			-			-			540			0.01
Total related to other incomes and other expenses			319			0.01			2,043			0.05			404			0.01			2,316			0.06
Total related to net income & EPS			5,004			0.13			8,010			0.21			11,276			0.30			15,544			0.41
Non-GAAP measures			36,517			0.97			27,323			0.72			70,639			1.89			55,890			1.47
Shares used in computing diluted net income per share
GAAP diluted shares						37,471						38,156						37,305						38,160
Non-GAAP diluted shares						37,471						38,156						37,305						38,160

FABRINET RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(amount in thousands)					Three Months Ended						Six Months Ended
					December 28, 2018			December 27, 2017			December 28, 2018			December 29, 2017
Net cash provided by operating activities					$ 34,705			$ 40,167			$ 69,298			$ 37,113
Less: Purchase of property, plant and equipment					(4,322)			(10,202)			(9,732)			(21,405)
Non-GAAP free cash flow					$ 30,383			$ 29,965			$ 59,566			$ 15,708

FABRINET GUIDANCE FOR QUARTER ENDING MARCH 29, 2019 RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
			Diluted EPS
GAAP net income per diluted share:			$0.71 to $0.75
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			0.09
Expenses related to our CFO search			0.01
Total related to selling, general and administrative expenses			0.10
Related to other incomes and other expenses:
Other expenses in relation to reduction in workforce			0.01
Total related to other incomes and other expenses			0.01
Total related to net income & EPS			0.15
Non-GAAP net income per diluted share			$0.86 to $0.90

View source version on businesswire.com: https://www.businesswire.com/news/home/20190204005739/en/

Source: Fabrinet

Investor Contact:
Garo Toomajanian
ir@fabrinet.com