Fabrinet

Good day, ladies and gentlemen. Welcome to Fabrinet's Financial Results Conference call for the second 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, Darrell Tumajanian, Investor Relations.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fibernet's financial and operating results for the second quarter of fiscal year 2020, which ended December 27, 2019. With me on the call today are Seamus Grady, Chief Executive Officer, Tia Tseng, Chief Financial Officer, and Chapa Svera, Vice President of Operations Finance and CFO Designate. This call is being webcast, and the replay will be available on the Investor section of our website, located at investor.fibernet.com. Please refer to our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation. I would like to remind you that today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking 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 light of 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-Q, filed on November 5, 2019. We will begin the call with your remarks from Seamus, T.S., and Chaba, followed by time for questions. I would now like to turn the call over to Fabrinus CEO Seamus Grady. Seamus?

Thank you, Carol, and good afternoon, everyone. We had a very strong second quarter with financial results that exceeded all of our guidance metrics, including record quarterly revenue. This performance was driven by sequential growth in nearly all areas of our business. With end market demand stabilizing, we expect to see continued year-over-year growth in the third quarter. Revenue in the second quarter was $426 million, up 7% from the first quarter and 6% from a year ago. Revenue upside largely fell to the bottom line with non-GAAP net income of $1 per share, which was also above the top end of our guidance range. Gross margin was 11.9%, and we continue to anticipate non-GAAP gross margins to be within our target range of 12% to 12.5% for the full year. Looking at our business by end market, optical communications revenue was $322 million, up 6% from the first quarter. This represented 76% of total revenue, consistent with the first quarter. Within optical communications, telecom revenue was $248 million, up 8% from the first quarter and 20% from a year ago, and represented 77% of optical revenue. Our Berlin transfer program within Finera again contributed to our telecom growth, and the program was fully ramped at the end of the quarter as anticipated. Datacom revenue in the second quarter was $74 million, a slight increase from Q1, which was better than we had anticipated as demand trends for these products continued to stabilize. Datacom represented 23% of optical communications revenue. By technology, silicon photonics-based optical communications revenue increased by 7% from the first quarter to $82 million and represented 26% of optical communications revenue. Revenue from QSFP28 and QSFP56 transceivers was 48 million, up 3 million from the first quarter. By data rate, 100 gig programs represented 49% of optical communications revenue at 159 million. And products rated at speeds of 400 gig and above continued to see rapid growth, up 31% from the first quarter to 49 million. Looking at our non-optical communications business, revenue of 104 million was up from 97 million in the first quarter, which was also better than expected. We were pleased to see the demand for industrial lasers improve, and as a result, revenue for these products was also better than expected at 46 million, compared to 41 million in the first quarter. We remain optimistic that over the longer term, industrial laser manufacturers will increasingly leverage outsourcing to remain globally competitive. and we believe we are uniquely positioned to be a leader in serving this market as the opportunity evolves. Automotive revenue moderated to 21 million, reflecting normal quarter-to-quarter variability from next-generation automotive programs, and which we expect to return to growth in the third quarter. Sensor revenue increased slightly to 3.9 million from 3.5 million. Revenue generated from other non-optical applications grew 20% sequentially to 33 million, mainly from Ferdinand West. During the quarter, we saw additional programs that had ramped production at Ferdinand West transfer to Bangkok, where we anticipate their volumes will continue to grow. This is another illustration of the success of our new product introduction model, which we will continue to leverage in Santa Clara, and we are gearing up to extend to Israel in the coming months. At the same time, success of our program with Infinera demonstrates our ability to build complete network systems while offering economic advantages to our customers. We believe there could be additional opportunities for us to vertically integrate from the component level up to the system level that can provide additional business to FabriNet while simplifying the supply chain for our customers. And we have been actively pursuing these opportunities. And today, I'm pleased to announce that after the close of the second quarter, we were awarded a significant new project by Cisco, which will further build on our successful partnership. While it is still early days, we believe that if this program ramps as anticipated, that Cisco could represent 10% of revenue or more for Fravernet in fiscal 2021. We look forward to sharing more on this program as it progresses. Finally, we also announced today that after more than a year of evaluating internal and external candidates, We are pleased to welcome Chavez Farah as our new Chief Financial Officer, effective February 17th, with TS stepping down from the role nearly 18 months after initially announcing his intention to retire. We are extremely grateful to TS for his contributions over the years to Farbernet and for his commitment to ensuring a smooth transition. TS will be reporting to me as EVP Special Projects during this transition period. His dedication and positive attitude are a model for us all. and we wish him the best in his well-deserved retirement. Chaba has been Vice President of Operations Finance at Farbernet for almost two years now, and I have had the pleasure of working directly with Chaba in the past. He displays all the characteristics that have had a meaningful hand in Farbernet's past success, including integrity, collaboration, and commitment to success. I am confident that Chaba will play a leading role in helping Farbernet get to our next level of performance. Before I turn the call over to TS and Chaba, I would like to address the coronavirus outbreak that I'm sure you're all concerned about. While our third quarter results often reflect a small seasonal downtake, guidance that we are providing for the third quarter also includes the anticipated impact from extended shutdowns in China due to the coronavirus outbreak. Specifically, the Lunar New Year week-long shutdown at our K6 facility in Fuzhou, China, which manufactures custom optics components. has been extended from one week to two weeks, ending February 10th. In addition, some of our third-party suppliers in China are also impacted by shutdowns. This has a direct impact on our top and bottom line expectations and is considered in the guidance we are providing for the third quarter. News related to the coronavirus is rapidly evolving and our top priority is to keep our employees safe and we'll continue to monitor the situation. In summary, We're pleased with our stronger-than-expected performance in the second quarter, and we are excited about our new business activity. While we anticipate the coronavirus outbreak will result in a larger-than-normal sequential revenue decline in the third quarter, I believe we remain well-positioned to extend our business success and market leadership as we look ahead. Now let me turn the call over to T.S. and Chaba to discuss the details of our second quarter performance and our outlook. T.S.? ?