Fabrinet

Good day, ladies and gentlemen, and welcome to Fabrinet's Financial Results Conference Call for the first quarter of fiscal year 2020. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participate will be given at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Daryl Sumajanian, Investor Relations. Sir, you may begin.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the first quarter of fiscal year 2020, which ended September 27, 2019. With me on the call today are Seamus Grady, Chief Executive Officer, and T.S. Eng, Chief Financial Officer. This call is being webcast, and the replay will be available on the Investor section of our website, located at investor.fabrinet.com. Please refer to our website for important information, including our earnings press release and investor presentation, which include our gap to non-gap reconciliation. I would like to remind you that today's discussion will contain forward-looking statements about the future financial performance of the company. Both of these statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in either new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-K, filed on August 20, 2019. We will begin the call with remarks from Seamus and Tia, followed by time for questions. I would now like to turn the call over to Fabriano's CEO, Seamus Graydon. Seamus?

Thank you, Garo, and good afternoon, everyone. We delivered a strong performance in the first quarter with revenue and earnings that were above our guidance. Demand trends appear to be stabilizing in most of the end markets we serve, and we're optimistic that we are positioned to deliver strong results in the second quarter. Revenue in the first quarter was 399 million, a slight decrease from the record fourth quarter as expected, but a 6% increase from a year ago. Non-GAAP net income was 86 cents per share, exceeding the high end of guidance as gross margins improved to 12% in the quarter. Looking at our business by end market, optical communications revenue of 302 million was was up about 2 million from the fourth quarter and represented 76% of total revenue. Within optical communications, telecom revenue of 230 million increased 7% from the fourth quarter and represented 76% of optical revenue. This growth is particularly notable considering we had expected telecom revenue to be flat at best. Further, we expect this momentum to continue in Q2. Datacom revenue was 73 million in the quarter, an expected decrease from Q4 of 15%. Datacom represented 24% of optical communications revenue. We believe this decline is primarily the result of broader industry trends and not due to execution or competitive issues. In fact, based on anticipated near-term demand, we believe Datacom trends could be nearing a bottom and we expect Datacom revenue to be roughly flat in Q2. By technology, Silicon photonics-based optical communications revenue decreased from the fourth quarter to 77 million and represented 25% of optical communications revenue. Revenue from QSFP28 and QSFP56 transceivers was 45 million, down slightly from the fourth quarter. By data rate, 100 gig programs continue to represent nearly half of optical communications revenue at 147 million. and products rated at speeds of 400 gig and above were up strongly from the fourth quarter at $38 million, or 13% of optical communications revenue. Looking at our non-optical communications business, revenue moderated sequentially, as expected, to $97 million from $105 million in Q4. As anticipated, revenue from industrial lasers declined from the fourth quarter and was $41 million, compared to $53 million in Q4. These same demand trends seem to be persisting, so we anticipate industrial laser revenue to be roughly flat in Q2. Longer term, we remain optimistic about our potential to further penetrate the industrial laser market as more manufacturers inevitably turn to outsourcing to better compete in this global market that is in fact larger than the optical communications market. Automotive and sensor revenue were both stable at $24 million and $3.5 million respectively. Finally, revenue generated from other non-optical applications grew 15% sequentially to 28 million, mainly from FabriNet West. FabriNet West has been a great success for winning business for our offshore volume manufacturing sites. We have seen numerous programs migrate from early prototyping in FabriNet West to volume production in Thailand. At the same time, Fabric West has been an enabler for us to win business in new markets and with new customers that might have otherwise gone to competitors. As such, we have been focused on establishing a similar model to Fabric West in Israel. We already have a number of customers there and we believe we have the opportunity to grow our business with these customers as well as attract new ones. We have signed a lease for a building in Yachnai, which is a former semiconductor manufacturing facility. It is already equipped with most of the infrastructure we need for a new product introduction center. We are currently in the process of setting up S&T lines, advanced packaging, and a failure analysis lab similar to what we have to support NPI in our Bangkok facilities. We have hired a general manager for Fabrinet Israel, and we are targeting to be up and running early next year. In summary, we believe we are off to a good start to the fiscal year with revenue and earnings that beat our guidance ranges. and return to gross margins that are within our target range. We're optimistic that our telecom strength will continue and that datacom trends appear to be bottoming. In addition, we're excited to have achieved important milestones towards establishing a second new product introduction facility at Travelers Israel. Combined with our continued leadership as a contract manufacturer for the most complex products, we're very excited about our future. Now let me turn the call over to TS to discuss the details of our first quarter performance and our outlook. TS.