Fabrinet

Good afternoon. Welcome to FabriNet's Financial Results Conference call for the first quarter of fiscal year 2021. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Gero Tumajanian, Investor Relations.

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 2021, which ended September 25, 2020. With me on the call today are Seamus Grady, Chief Executive Officer, and Chavis Vera, Chief Financial Officer. This call is being webcast, and a 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. 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-K, filed on August 18, 2020. We'll begin the call with remarks from Seamus and Chaba followed by time for questions. I would now like to turn the call over to Fabrinus' CEO, Seamus Grady.

Thank you, Garo, and good afternoon, everyone. We had an excellent first quarter with results that surpassed our expectations and reinforces our longer-term optimism. Revenue in the first quarter was a record $436.6 million and was above the high end of our guidance range, driven primarily by stronger-than-expected performance in telecom and automotive. With a constant focus on efficiency improvements, gross margins increased to 12% within our target range. In addition, we continued to effectively manage operating costs. As a result, we also outperformed on the bottom line, delivering non-gap net income of $1.05 per diluted share. Our business also produced healthy cash flows, even as we continued to make growth investments. Operating cash flow was $34.5 million, and free cash flow was $21.9 million. Looking at some of the details of the quarter, optical communications revenue was 344 million, up 9% from the fourth quarter. Telecom revenue of 261 million grew faster than anticipated at 14% from the fourth quarter. This sequential increase of more than 30 million in telecom revenue far offset the expected decline in datacom revenue, which was down 4% from the fourth quarter at 83 million. As anticipated, Inventory issues that we experienced at one telecom customer now appear to be behind us. We also continue to make progress on the transfer of an optical transport system program at Cisco, which is on track to ramp in the quarters ahead. In fact, we ended the quarter on a very high note when we were awarded Cisco's EMS Partner of the Year at their annual supplier appreciation event. Silicon photonics-based optical communications products represented 25% of total revenue in the first quarter, a historic high. driven primarily by telecom growth. Revenue from QSFP28 and QSFP56 transceivers also continued to grow and was a record 59 million, up 8% from the fourth quarter. As reflected in our strong telecom performance, we continue to see strong growth at faster data rates. Revenue from 100 gig programs was stable at 150 million, while revenue from 400 gig and above grew 62% sequentially to 70 million. Looking at our non-optical communications business, our performance was better than expected with revenue increasing 3 million sequentially to 93 million. Industrial laser revenue declined as expected and was 34 million, a sequential decrease of 16%, reflecting broader demand trends. This was more than offset by automotive revenue, which increased sequentially to 35 million, a record level. A sequential revenue increase of 28% in automotive was driven by the combination of growth from new automotive programs and by an unanticipated return to growth from traditional automotive programs. Sensor revenue was stable at 2 million in the first quarter and other revenue increased 2 million to 21 million. Looking to the second quarter, we expect to see similar business trends to the first quarter. We anticipate that telecom will continue to grow at a healthy pace driven by newer programs and faster data rates. This should largely offset a decline that we anticipate in Datacom revenue based on current demand signals. In non-optical communications, we expect continued softness in industrial lasers, but are optimistic that automotive revenue growth will continue and largely offset those declines. It's also worth mentioning that that this near-term softness in the industrial laser market does not affect our optimism that the industrial laser industry will look to increase outsourcing in the years ahead. In fact, intense competitive pressure could even serve as a catalyst, and we remain very well positioned to benefit when this industry transition begins to take place. We continue to pursue a multifaceted growth strategy. This strategy includes leveraging the growth of the industries we serve, combined with investing in facilities and technologies that enable us to further penetrate existing customers and win new customers, both in the markets we currently serve and in new markets. Our first quarter results demonstrate that we are benefiting from the successful execution of this strategy. While we have no control over broader market trends, we remain focused on what we can control, including investments in next-generation manufacturing technologies and in capacity expansion, as well as capitalizing on our early success pursuing system-level business and exploring opportunities in new markets that our advanced processes can serve. As we execute in our strategy, we believe we are very well positioned to deliver superior returns for all our stakeholders. In summary, we're off to a positive start in fiscal 2021. Our strategy is working as strength from newer programs offsets the softness we see in certain markets. We're optimistic that we can continue to leverage our strong reputation in the markets further advance our position as a leading manufacturer of the most complex products. Now I'd like to turn the call over to Chaba for additional financial details and our guidance for the second quarter of fiscal 2021. Chaba.