Fabrinet Announces Third Quarter Fiscal Year 2020 Financial Results

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 third quarter ended March 27, 2020.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “We quickly adjusted to a changing business environment in the third quarter to safely remain operational, demonstrating the flexibility inherent in our business model. As a result, our financial results for the quarter were within our guidance ranges. Looking ahead, we will continue to benefit from our flexible operating model and highly variable cost structure to generate solid results during this rapidly changing business environment. Keeping our employees safe and healthy remains our top priority, and this enables us to continue providing the highest levels of service to our customers, reinforcing our strong reputation and leadership position in the market.”

Third Quarter Fiscal Year 2020 Financial Highlights

GAAP Results

  • Revenue for the third quarter of fiscal year 2020 was $411.2 million, compared to revenue of $399.0 million for the comparable period in fiscal year 2019.
  • GAAP net income for the third quarter of fiscal year 2020 was $28.3 million, compared to GAAP net income of $28.6 million for the third quarter of fiscal year 2019. GAAP net income for the third quarter of fiscal year 2020 included a foreign exchange loss of $8 thousand, or $0.00 per diluted share, compared to a foreign exchange loss of $3.1 million, or $0.08 per diluted share, for the third quarter of fiscal year 2019.
  • GAAP net income per diluted share for the third quarter of fiscal year 2020 was $0.75, compared to GAAP net income per diluted share of $0.76 for the third quarter of fiscal year 2019.

Non-GAAP Results

  • Non-GAAP net income for the third quarter of fiscal year 2020 was $34.8 million, compared to non-GAAP net income of $34.3 million for the third quarter of fiscal year 2019. Non-GAAP net income for the third quarter of fiscal year 2020 included a foreign exchange loss of $8 thousand, or $0.00 per diluted share, compared to a foreign exchange loss of $3.1 million, or $0.08 per diluted share, for the third quarter of fiscal year 2019.
  • Non-GAAP net income per diluted share for the third quarter of fiscal year 2020 was $0.92, 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 May 4, 2020, Fabrinet is issuing guidance for its fourth fiscal quarter of 2020 ending June 26, 2020, as follows:

  • Fabrinet expects fourth quarter revenue to be in the range of $370.0 million to $400.0 million.
  • GAAP net income per diluted share is expected to be in the range of $0.64 to $0.76, 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 $0.80 to $0.92, based on approximately 37.6 million fully diluted shares outstanding.

Conference Call Information

 

What:

Fabrinet Third Quarter Fiscal-Year 2020 Financial Results Call

When:

Monday, May 4, 2020

Time:

5:00 p.m. ET

Live Call:

(888) 357-3694, domestic

 

(253) 237-1137, international

 

Passcode: 2794510

Replay:

(855) 859-2056, domestic

 

(404) 537-3406, international

 

Passcode: 2794510

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 continue to benefit from our flexible operating model to generate solid results; (2) our ability to reinforce our reputation and 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 fourth 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) the growing global economic downturn, (2) extended shutdowns at any of our manufacturing facilities, especially if the outbreak intensifies or returns in various geographic areas, (3) continued disruption to our supply chain, which could increase our costs and affect our ability to procure parts and materials, especially if the outbreak intensifies or returns in various geographic areas, and (4) regional downward demand adjustments from our customers, particularly those in areas affected by the outbreak; 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 February 4, 2020. 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 liabilities; 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)

March 27,

2020

June 28,

2019

 

 

 

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$

224,138

$

180,839

Short-term restricted cash

 

7,402

Short-term investments

 

233,622

 

256,493

Trade accounts receivable, net

 

283,467

 

260,602

Contract assets

 

16,413

 

12,447

Inventories

 

290,208

 

293,612

Other receivable

 

24,310

Prepaid expenses

 

4,524

 

8,827

Other current assets

 

8,774

 

11,015

Total current assets

 

1,092,858

 

1,023,835

Non-current assets

 

 

Long-term restricted cash

 

7,402

Property, plant and equipment, net

 

218,043

 

210,686

Intangibles, net

 

3,999

 

3,887

Operating right-of-use assets

 

7,175

Goodwill

 

3,571

 

3,705

Deferred tax assets

 

4,353

 

5,679

Other non-current assets

 

262

 

124

Total non-current assets

 

237,403

 

231,483

Total Assets

$

1,330,261

$

1,255,318

Liabilities and Shareholders’ Equity

 

 

Current liabilities

 

 

Long-term borrowings, current portion, net

$

12,156

$

3,250

Trade accounts payable

 

240,028

 

257,617

Contract liabilities

 

1,941

 

2,239

Operating lease liabilities, current portion

 

1,893

Income tax payable

 

2,857

 

1,801

Accrued payroll, bonus and related expenses

 

19,959

 

16,510

Accrued expenses

 

19,798

 

8,997

Other payables

 

28,819

 

22,634

Total current liabilities

 

327,451

 

313,048

Non-current liabilities

 

 

Long-term borrowings, non-current portion, net

 

42,553

 

57,688

Deferred tax liability

 

3,684

 

3,561

Operating lease liabilities, non-current portion

 

5,024

Severance liabilities

 

16,143

 

15,209

Other non-current liabilities

 

1,997

 

2,713

Total non-current liabilities

 

69,401

 

79,171

Total Liabilities

 

396,852

 

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 March 27, 2020

and June 28, 2019)

 

 

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,460,931 shares and 38,230,753 shares issued as of March 27, 2020 and June 28, 2019, respectively; and 36,716,828 shares and 36,841,650 shares outstanding as of March 27, 2020 and June 28, 2019, respectively)

 

385

 

382

Additional paid-in capital

 

171,870

 

158,299

 

 

 

Less: Treasury shares, at cost (1,744,103 shares and 1,389,103 shares as of March 27, 2020 and June 28, 2019, respectively)

 

(68,501)

 

(47,779)

Accumulated other comprehensive loss

 

(10,383)

 

(2,386)

Retained earnings

 

840,038

 

754,583

Total Shareholders’ Equity

 

933,409

 

863,099

Total Liabilities and Shareholders’ Equity

$

1,330,261

$

1,255,318

 
 

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

 

Three Months Ended

Nine Months Ended

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

March 27,

2020

March 29,

2019

March 27,

2020

March 29,

2019

Revenues

$

411,210

$

398,951

$

1,236,723

$

1,179,208

Cost of revenues

 

(366,874)

 

(352,193)

 

(1,097,242)

 

(1,046,610)

Gross profit

 

44,336

 

46,758

 

139,481

 

132,598

Selling, general and administrative expenses

 

(17,111)

 

(14,132)

 

(50,189)

 

(41,296)

Expenses related to reduction in workforce

 

 

(323)

 

(16)

 

(727)

Operating income

 

27,225

 

32,303

 

89,276

 

90,575

Interest income

 

2,042

 

2,144

 

6,080

 

4,770

Interest expense

 

(238)

 

(1,423)

 

(2,812)

 

(3,673)

Foreign exchange loss, net

 

(8)

 

(3,055)

 

(2,949)

 

(408)

Other income, net

 

203

 

159

 

977

 

798

Income before income taxes

 

29,224

 

30,128

 

90,572

 

92,062

Income tax expense

 

(957)

 

(1,493)

 

(5,117)

 

(4,064)

Net income

 

28,267

 

28,635

 

85,455

 

87,998

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

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

 

(1,356)

 

513

 

(1,403)

 

1,399

Change in net unrealized loss on derivative instruments

 

(6,569)

 

(1)

 

(6,719)

 

(2)

Change in net retirement benefits plan – prior service cost

 

294

 

 

478

 

Change in foreign currency translation adjustment

 

(600)

 

486

 

(353)

 

(219)

Total other comprehensive (loss) income, net of tax

 

(8,231)

 

998

 

(7,997)

 

1,178

Net comprehensive income

$

20,036

$

29,633

$

77,458

$

89,176

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

$

0.76

$

0.78

$

2.31

$

2.39

Diluted

$

0.75

$

0.76

$

2.27

$

2.35

 

 

 

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

 

Basic

 

36,987

 

36,891

 

36,970

 

36,786

Diluted

 

37,797

 

37,539

 

37,696

 

37,383

 

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

 

 

 

 

 

Nine Months Ended

(in thousands of U.S. dollars)

March 27,

2020

March 29,

2019

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

Net income for the period

$

85,455

$

87,998

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

 

 

 

 

Depreciation and amortization

 

23,115

 

22,521

Loss on disposal of property, plant and equipment

 

444

 

81

Loss on disposal of intangibles

 

 

149

Gain from sales and maturities of available-for-sale securities

 

(93)

 

(196)

Accretion of premiums on short-term investments

 

(624)

 

(604)

Amortization of deferred debt issuance costs

 

18

 

(Reversal) allowance for doubtful accounts

 

(17)

 

12

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

 

942

 

(5,351)

Unrealized loss on fair value of interest rate swaps

 

1,672

 

1,564

Amortization of fair value at hedge inception of interest rate swaps

 

(838)

 

Share-based compensation

 

18,301

 

13,373

Deferred income tax

 

1,335

 

438

Other non-cash expenses

 

(559)

 

(699)

Changes in operating assets and liabilities

 

 

 

 

Trade accounts receivable

 

(23,136)

 

(17,942)

Contract assets

 

(3,966)

 

(666)

Inventories

 

3,404

 

(36,418)

Other current assets and non-current assets

 

5,830

 

(1,568)

Trade accounts payable

 

(15,571)

 

37,576

Contract liabilities

 

(298)

 

Income tax payable

 

1,056

 

1,942

Severance liabilities

 

2,266

 

1,841

Other current liabilities and non-current liabilities

 

5,712

 

1,453

Net cash provided by operating activities

 

104,448

 

105,504

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Purchase of short-term investments

 

(123,980)

 

(202,328)

Proceeds from sales of short-term investments

 

48,808

 

85,941

Proceeds from maturities of short-term investments

 

97,358

 

50,370

Funds provided to customer to support transfer of manufacturing operations

 

(24,310)

 

Purchase of property, plant and equipment

 

(27,482)

 

(13,211)

Purchase of intangibles

 

(797)

 

(290)

Proceeds from disposal of property, plant and equipment

 

1,482

 

473

Net cash used in investing activities

 

(28,921)

 

(79,045)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Payment of debt issuance costs

 

(153)

 

Proceeds from long-term borrowings

 

60,938

 

Repayment of long-term borrowings

 

(67,032)

 

(2,438)

Repayment of finance lease liabilities

 

(304)

 

(342)

Repurchase of ordinary shares

 

(20,722)

 

(5,378)

Release of restricted cash held in connection with business acquisition

 

 

(3,478)

Withholding tax related to net share settlement of restricted share units

 

(4,727)

 

(10,427)

Net cash used in financing activities

 

(32,000)

 

(22,063)

Net increase in cash, cash equivalents and restricted cash

 

43,527

 

4,396

 

 

 

 

 

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

 

43,527

 

4,396

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

 

(228)

 

578

Cash, cash equivalents and restricted cash at end of period

$

231,540

$

166,407

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

Construction, software and equipment-related payables

$

11,906

$

3,286

 

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

March 27, 2020

As of

March 29, 2019

 

 

 

Cash and cash equivalents

$

224,138

$

166,407

Restricted cash

 

7,402

 

Cash, cash equivalents and restricted cash

$

231,540

$

166,407

 

 

 

 

FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Three Months Ended

Nine Months Ended

March 27,

2020

March 29,

2019

March 27,

2020

March 29,

2019

(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

28,267

 

0.75

 

28,635

 

0.76

 

85,455

 

2.27

 

87,998

 

2.35

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related to cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expenses

1,489

 

0.04

 

1,237

 

0.03

 

4,800

 

0.13

 

4,384

 

0.12

Depreciation of fair value uplift

 

86

 

 

0.00

 

 

82

 

 

0.00

 

247

 

0.01

 

255

 

0.01

ASC 606 adoption impact on gross profit

-

 

-

 

-

 

-

 

-

 

-

 

(31)

 

(0.00)

Total related to gross profit

1,575

 

0.04

 

1,319

 

0.04

 

5,047

 

0.13

 

4,608

 

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related to selling, general and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expenses

4,629

 

0.12

 

3,187

 

0.08

 

13,501

 

0.36

 

8,989

 

0.24

Expenses related to CFO search

-

 

-

 

285

 

0.01

 

-

 

-

 

857

 

0.02

Amortization of intangibles

145

 

0.00

 

163

 

0.00

 

431

 

0.01

 

531

 

0.01

Business combination expenses and consulting fee

-

 

-

 

88

 

0.00

 

-

 

-

 

328

 

0.01

Severance liabilities

150

 

0.00

 

348

 

0.01

 

150

 

0.00

 

949

 

0.03

Total related to selling, general and administrative expenses

4,924

 

0.13

 

4,071

 

0.11

 

14,082

 

0.37

 

11,654

 

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related to other incomes and other expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses in relation to reduction in workforce

-

 

-

 

323

 

0.01

 

16

 

0.00

 

727

 

0.02

Amortization of debt issuance costs

8

 

0.00

 

-

 

-

 

18

 

0.00

 

-

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total related to other incomes and other expenses

8

 

0.00

 

323

 

0.01

 

34

 

0.00

 

727

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total related to net income & EPS

6,507

 

0.17

 

5,713

 

0.15

 

19,163

 

0.51

 

16,989

 

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP measures

34,774

 

0.92

 

34,348

 

0.92

 

104,618

 

2.78

 

104,987

 

2.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted shares

 

 

37,797

 

 

 

37,539

 

 

 

37,696

 

 

 

37,383

Non-GAAP diluted shares

 

 

37,797

 

 

 

37,539

 

 

 

37,696

 

 

 

37,383

 
 

FABRINET

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

 

(amount in thousands)

Three Months Ended

Nine Months Ended

 

March 27, 2020

March 29, 2019

March 27, 2020

March 29, 2019

 

 

 

 

 

Net cash provided by operating activities

$

51,838

$

36,206

$

104,448

$

105,504

Less: Purchase of property, plant and equipment

(12,071)

(3,479)

(27,482)

(13,211)

Non-GAAP free cash flow

$

39,767

$

32,727

$

76,966

$

92,293

 
 

FABRINET

GUIDANCE FOR QUARTER ENDING JUNE 26, 2020

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

 

Diluted

 

EPS

GAAP net income per diluted share:

$0.64 to $0.76

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

Total related to selling, general and administrative expenses

0.12

 

 

Total related to net income & EPS

0.16

Non-GAAP net income per diluted share

$0.80 to $0.92