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Fabrinet Announces Second Quarter Fiscal Year 2023 Financial Results

  • Record Second Quarter Revenue of $668.7 Million Exceeds Guidance
  • Strong Execution Drives Record GAAP and Non-GAAP Operating Margins

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 fiscal quarter ended December 30, 2022.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “We delivered strong second quarter results with revenue that exceeded our guidance range, and record operating margins. We continue to effectively manage through a dynamic supply environment with component availability improving for some products, but tightening for others. Positive longer-term supply and demand trends, combined with our demonstrated track record of solid execution gives us confidence that we can continue to deliver strong financial results.”

Second Quarter Fiscal Year 2023 Financial Highlights

GAAP Results

  • Revenue for the second quarter of fiscal year 2023 was $668.7 million, compared to $566.6 million for the second quarter of fiscal year 2022.
  • GAAP net income for the second quarter of fiscal year 2023 was $63.2 million, compared to $48.9 million for the second quarter of fiscal year 2022.
  • GAAP net income per diluted share for the second quarter of fiscal year 2023 was $1.71, compared to $1.30 for the second quarter of fiscal year 2022.

Non-GAAP Results

  • Non-GAAP net income for the second quarter of fiscal year 2023 was $70.0 million, compared to $56.2 million for the second quarter of fiscal year 2022.
  • Non-GAAP net income per diluted share for the second quarter of fiscal year 2023 was $1.90, compared to $1.50 for the second quarter of fiscal year 2022.

Business Outlook

Based on information available as of February 6, 2023, Fabrinet is issuing guidance for its third fiscal quarter ending March 31, 2023, as follows:

  • Fabrinet expects third quarter revenue to be in the range of $640 million to $660 million.
  • GAAP net income per diluted share is expected to be in the range of $1.59 to $1.66, based on approximately 37.0 million fully diluted shares outstanding.
  • Non-GAAP net income per diluted share is expected to be in the range of $1.86 to $1.93, based on approximately 37.0 million fully diluted shares outstanding.

Guidance for non-GAAP net income per diluted share excludes share-based compensation expenses and certain non-recurring items. A reconciliation of non-GAAP net income per diluted share to the corresponding GAAP measure is available at the end of this press release.

Conference Call Information

What:

Fabrinet Second Quarter Fiscal Year 2023 Financial Results Call

When:

February 6, 2023

Time:

5:00 p.m. ET

Live Call and Replay:

https://investor.fabrinet.com/events-and-presentations/events

A recorded version of this webcast will be available approximately two hours after the call and accessible at http://investor.fabrinet.com. The webcast 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, Israel 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 optimism that favorable demand trends will continue and we will be able to achieve strong financial results in the third quarter of fiscal year 2023; 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 third quarter of fiscal year 2023. 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 growing global economic downturn; continued disruption to our supply chain, which could increase our costs and affect our ability to procure parts and materials; 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, Israel, 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 with the SEC on November 8, 2022. 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; amortization of intangibles; severance payment and others; other expenses in relation to reduction in workforce; and amortization of deferred debt issuance costs. 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 30,

2022

June 24,

2022

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$

250,829

 

$

197,996

 

Short-term restricted cash

 

 

 

220

 

Short-term investments

 

276,778

 

 

280,157

 

Trade accounts receivable, net of allowance for doubtful accounts of $1,521 and $1,271, respectively

 

520,024

 

 

439,330

 

Contract assets

 

13,578

 

 

13,464

 

Inventories

 

536,536

 

 

557,145

 

Prepaid expenses

 

9,483

 

 

11,626

 

Other current assets

 

40,543

 

 

25,233

 

Total current assets

 

1,647,771

 

 

1,525,171

 

Non-current assets

 

 

Long-term restricted cash

 

 

 

149

 

Property, plant and equipment, net

 

302,282

 

 

292,277

 

Intangibles, net

 

3,319

 

 

3,508

 

Operating right-of-use assets

 

2,805

 

 

4,084

 

Deferred tax assets

 

11,212

 

 

9,800

 

Other non-current assets

 

635

 

 

652

 

Total non-current assets

 

320,253

 

 

310,470

 

Total Assets

$

1,968,024

 

$

1,835,641

 

Liabilities and Shareholders’ Equity

 

 

Current liabilities

 

 

Long-term borrowings, current portion, net

$

12,156

 

$

12,156

 

Trade accounts payable

 

438,475

 

 

439,684

 

Fixed assets payable

 

18,920

 

 

9,085

 

Contract liabilities

 

3,636

 

 

1,982

 

Operating lease liabilities, current portion

 

2,005

 

 

2,319

 

Income tax payable

 

2,470

 

 

2,898

 

Accrued payroll, bonus and related expenses

 

21,940

 

 

20,374

 

Accrued expenses

 

22,465

 

 

24,758

 

Other payables

 

27,528

 

 

25,231

 

Total current liabilities

 

549,595

 

 

538,487

 

Non-current liabilities

Long-term borrowings, non-current portion, net

6,078

15,202

Deferred tax liability

 

5,934

 

 

6,001

 

Operating lease liability, non-current portion

 

476

 

 

1,476

 

Severance liabilities

 

20,335

 

 

18,384

 

Other non-current liabilities

 

1,475

 

 

2,409

 

Total non-current liabilities

 

34,298

 

 

43,472

 

Total Liabilities

 

583,893

 

 

581,959

 

Shareholders’ equity

 

 

Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of December 30, 2022 and June 24, 2022)

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 39,251,581 shares and 39,048,700 shares issued at December 30, 2022 and June 24, 2022, respectively; and 36,590,939 shares and 36,436,683 shares outstanding at December 30, 2022 and June 24, 2022, respectively)

 

 

 

393

 

 

 

 

 

390

 

 

Additional paid-in capital

 

194,366

 

 

196,667

 

Less: Treasury shares (2,660,642 shares and 2,612,017 shares as of December 30, 2022 and June 24, 2022, respectively)

 

(152,362

)

 

(147,258

)

Accumulated other comprehensive income (loss)

 

(2,714

)

 

(12,793

)

Retained earnings

 

1,344,448

 

 

1,216,676

 

Total Shareholders’ Equity

 

1,384,131

 

 

1,253,682

 

Total Liabilities and Shareholders’ Equity

$

1,968,024

 

$

1,835,641

 

 

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 30,

2022

December 24,

2021

December 30,

2022

December 24,

2021

Revenues

$

668,656

 

$

566,633

 

$

1,324,085

 

$

1,109,955

 

Cost of revenues

 

(583,441

)

 

(497,262

)

 

(1,156,114

)

 

(976,987

)

Gross profit

 

85,215

 

 

69,371

 

 

167,971

 

 

132,968

 

Selling, general and administrative expenses

 

(18,930

)

 

(17,791

)

 

(39,495

)

 

(38,378

)

Expenses related to reduction in workforce

 

 

 

(135

)

 

 

 

(135

)

Operating income

 

66,285

 

 

51,445

 

 

128,476

 

 

94,455

 

Interest income

 

2,334

 

 

295

 

 

3,893

 

 

1,056

 

Interest expense

 

(389

)

 

(238

)

 

(780

)

 

(274

)

Foreign exchange gain (loss), net

 

(3,904

)

 

(364

)

 

(1,819

)

 

1,408

 

Other income (expense), net

 

(68

)

 

(1,055

)

 

(209

)

 

(1,315

)

Income before income taxes

 

64,258

 

 

50,083

 

 

129,561

 

 

95,330

 

Income tax expense

 

(1,101

)

 

(1,204

)

 

(1,789

)

 

(1,800

)

Net income

 

63,157

 

 

48,879

 

 

127,772

 

 

93,530

 

Other comprehensive income (loss), net of tax:

 

 

 

 

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

 

1,183

 

 

(947

)

 

(278

)

 

(1,160

)

Change in net unrealized gain (loss) on derivative instruments

 

11,188

 

 

3,294

 

 

9,970

 

 

2,077

 

Change in net retirement benefits plan – prior service cost

 

57

 

 

126

 

 

225

 

 

324

 

Change in foreign currency translation adjustment

 

(84

)

 

 

 

162

 

 

(164

)

Total other comprehensive income (loss), net of tax

 

12,344

 

 

2,473

 

 

10,079

 

 

1,077

 

Net comprehensive income

$

75,501

 

$

51,352

 

$

137,851

 

$

94,607

 

Earnings per share

 

 

 

Basic

$

1.73

 

$

1.32

 

$

3.50

 

$

2.53

 

Diluted

$

1.71

 

$

1.30

 

$

3.47

 

$

2.50

 

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

 

 

 

 

Basic

 

36,589

 

 

37,017

 

 

36,558

 

 

36,947

 

Diluted

 

36,939

 

 

37,552

 

 

36,848

 

 

37,440

 

 

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

Six Months Ended

(in thousands of U.S. dollars)

December 30,

2022

December 24,

2021

Cash flows from operating activities

 

 

Net income for the period

$

127,772

 

$

93,530

 

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

 

 

Depreciation and amortization

 

21,596

 

 

19,114

 

(Gain) loss on disposal and impairment of property, plant and equipment

 

(337

)

 

(135

)

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

 

92

 

 

(13

)

Amortization of discount (premium) of short-term investment

 

565

 

 

2,079

 

Amortization of deferred debt issuance costs

 

16

 

 

16

 

(Reversal of) allowance for doubtful accounts

 

251

 

 

(30

)

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

 

3,086

 

 

(673

)

Amortization of fair value at hedge inception of interest rate swaps

 

(346

)

 

(513

)

Share-based compensation

 

14,498

 

 

15,978

 

Deferred income tax

 

(1,338

)

 

(986

)

Other non-cash expenses

 

(321

)

 

268

 

Changes in operating assets and liabilities

 

 

Trade accounts receivable

 

(79,831

)

 

(48,046

)

Contract assets

 

(114

)

 

(1,270

)

Inventories

 

20,475

 

 

(62,740

)

Other current assets and non-current assets

 

(11,946

)

 

(5,568

)

Trade accounts payable

 

(4,176

)

 

44,078

 

Contract liabilities

 

1,654

 

 

214

 

Income tax payable

 

(577

)

 

(1,323

)

Severance liabilities

 

1,269

 

 

1,708

 

Other current liabilities and non-current liabilities

 

12,812

 

 

1,880

 

Net cash provided by operating activities

 

105,100

 

 

57,568

 

Cash flows from investing activities

 

 

Purchase of short-term investments

 

(74,482

)

 

(78,786

)

Proceeds from sales of short-term investments

 

30,000

 

 

19,463

 

Proceeds from maturities of short-term investments

 

46,925

 

 

57,721

 

Purchase of property, plant and equipment

 

(23,643

)

 

(51,917

)

Purchase of intangibles

 

(412

)

 

(446

)

Proceeds from disposal of property, plant and equipment

 

32

 

 

188

 

Net cash used in investing activities

 

(21,580

)

 

(53,777

)

Cash flows from financing activities

 

 

Repayment of long-term borrowings

 

(9,140

)

 

(6,094

)

Repayment of finance lease liability

 

(5

)

 

 

Repurchase of ordinary shares

 

(5,104

)

 

(4,198

)

Withholding tax related to net share settlement of restricted share units

 

(16,796

)

 

(19,481

)

Net cash used in financing activities

 

(31,045

)

 

(29,773

)

Net increase (decrease) in cash, cash equivalents and restricted cash

$

52,475

 

$

(25,982

)

Movement in cash, cash equivalents and restricted cash

 

 

Cash, cash equivalents and restricted cash at the beginning of period

$

198,365

 

$

303,123

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

52,475

 

 

(25,982

)

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

 

(11

)

 

(296

)

Cash, cash equivalents and restricted cash at the end of period

$

250,829

 

$

276,845

 

Non-cash investing and financing activities

 

 

Construction, software and equipment-related payables

$

18,920

 

$

28,740

 

 

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:

As of

(in thousands)

December 30,

2022

December 24,

2021

Cash and cash equivalents

$

250,829

$

276,531

Restricted cash

 

 

314

Cash, cash equivalents and restricted cash

$

250,829

$

276,845

 

FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Three Months Ended

Six Months Ended

December 30,

2022

December 24,

2021

December 30,

2022

December 24,

2021

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

Net income

Diluted EPS

Net income

Diluted EPS

Net income

Diluted EPS

Net income

Diluted EPS

 
GAAP measures

$

63,157

$

1.71

$

48,879

$

1.30

$

127,772

$

3.47

$

93,530

$

2.50

Items reconciling GAAP net income & EPS to non-GAAP net income & EPS:

Related to cost of revenues:

Share-based compensation expenses

 

1,660

 

0.05

 

1,421

 

0.04

 

3,576

 

0.10

 

3,396

 

0.09

Depreciation of fair value uplift

 

 

 

 

 

 

 

92

 

0.00

Total related to gross profit

 

1,660

 

0.05

 

1,421

 

0.04

 

3,576

 

0.10

 

3,488

 

0.09

Related to selling, general and administrative expenses:

 

 

 

 

 

 

 

 

Share-based compensation expenses

 

5,115

 

0.14

 

5,265

 

0.14

 

10,922

 

0.29

 

12,582

 

0.33

Amortization of intangibles

 

71

 

0.00

 

108

 

0.00

 

154

 

0.01

 

227

 

0.01

Severance payment and others

 

 

 

355

 

0.01

 

 

 

355

 

0.01

Total related to selling, general and administrative expenses

 

5,186

 

0.14

 

5,728

 

0.15

 

11,076

 

0.30

 

13,164

 

0.35

Related to other income and expense:

 

 

 

 

 

 

 

 

Other expenses in relation to reduction in workforce

 

 

 

135

 

0.01

 

 

 

135

 

0.01

Amortization of deferred debt issuance costs

 

8

 

0.00

 

8

 

0.00

 

16

 

0.00

 

16

 

0.00

Total related to other income and expense

 

8

 

0.00

 

143

 

0.01

 

16

 

0.00

 

151

 

0.01

Total related to net income & EPS

 

6,854

 

0.19

 

7,292

 

0.20

 

14,668

 

0.40

 

16,803

 

0.45

Non-GAAP measures

$

70,011

$

1.90

$

56,171

$

1.50

$

142,440

$

3.87

$

110,333

$

2.95

Shares used in computing diluted net income per share

 

 

 

 

 

 

 

 

GAAP diluted shares

 

 

36,939

 

 

37,552

 

 

36,848

 

 

37,440

Non-GAAP diluted shares

 

 

36,939

 

 

37,552

 

 

36,848

 

 

37,440

 

FABRINET

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

 

(in thousands)

Three Months Ended

Six Months Ended

 

December 30,

December 24,

December 30,

December 24,

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net cash provided by operating activities

$

44,466

 

$

20,657

 

$

105,100

 

$

57,568

 

Less: Purchase of property, plant and equipment

 

(13,385

)

 

(19,395

)

 

(23,643

)

 

(51,917

)

Non-GAAP free cash flow

$

31,081

 

$

1,262

 

$

81,457

 

$

5,651

 

 

FABRINET

GUIDANCE FOR QUARTER ENDING MARCH 31, 2023

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

 

Diluted

EPS

GAAP net income per diluted share:

$1.59 to $1.66

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

0.14

Total related to selling, general and administrative expenses

0.14

Related to other income and expense:

 

Other expenses in relation to reduction in workforce

0.09

Total related to other income and expense

0.09

Total related to net income & EPS

0.27

Non-GAAP net income per diluted share

$1.86 to $1.93

 

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