Fabrinet Ordinary Shares

Q2 2022 Earnings Conference Call

1/31/2022

spk_0: good afternoon welcome to favour next financial results conference call for the second quarter of fiscal year twenty twenty two at this time all participants on a listen only mode later we will 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 i like to turn the call over to your house garo too much any an investor relations
spk_1: thank you operator and good afternoon everyone thank you for joining us on today's conference call to discuss cabinets financial and operating results for the second quarter of fiscal year two thousand twenty two which ended december twenty four two thousand a call but i really miss grady chief executive officer and chavez farah keep an angel officer colored being webcast in a replay will be available on the investor section of our website located at investor that favour net dot com during this call we will present both gap and non gap financial measures prefer to the investor section of our website for important information including earnings press release and invest your presentation which include our gap to not get reconciliation in addition to the 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 the statements reflect our opinions only as of the date of his presentation and we undertake no obligation to provide 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 as see filings in particular the section captioned risk factors in our form tank you found on november two two thousand twenty one will begin the called me remarks from shame it and java followed by time for questions are nowhere to turn the called murder cabinet ceo chemistry sense
spk_2: thank you go good afternoon of you want to thank you for joining us on today's conference call we're very pleased with the results for the second quarter of fiscal twenty twenty two revenue was five hundred and sixty six point six million dollars and non gaap net income was one daughter and fifty cents per share both above the top end of titans ranges i'm particularly pleased with her team's ability to continue to manage through ongoing industry industrywide supply constraints and we are confident that we can continue to deliver strong performance levels as we look ahead looking at the corporate in more detail revenue headwinds from supply chain constraints were within are expected range of twenty five to thirty million dollars i'm impressed with our team's ability to navigate these constraints to drive continued growth my and marcus we had another strong walker for optical communications with telecom and datacom revenue increased sequentially and year over year non optical communications revenue was essentially flat from the first quarter with newer programs off as a small deadlines and industrial laser an automotive for supply chain constraints from early impacted traditional automotive products looking forward we don't see signs of any meaningful relief from component shortages in the near term would continue to mitigate these impacts to the best of our than as he to support her growth well into the future expansion underway at our chonburi facility remains on track for completion at the end of our fiscal year given the strong demand trans we're see the opening of a new one million square foot building will be well timed to meet customer needs for additional space in summary we're very pleased with her execution which helps produce another record quarter for the company with continued strong demand trends and effect to supply management were optimistic will be able to deliver another strong performance and que three now i'd like to turn to call over to challenge for additional financial details or second quarter and or guidance for the top quarter of fiscal twenty twenty two july
spk_3: thank you same as and good afternoon everyone the i'm very excited to report another quarter a record revenue and longer profitability that exceeded our guidance ranges reading your five hundred sixty six point six million dollars increase four percent from the first quarter and twenty five percent from a year ago yeah a new outside of stolen on get earnings of one dollar and eighty cents per diluted share looking at reading you in little more detail optical communications represented eighty percent of total revenue at four hundred fifty point eight million dollars op five percent from the first quarter didn't optic out communications be so wrote in both telecom and data on revenue to record levels telecom revenue increased four percent from the first quarter to three hundred fifty two point seven million daughters and data on revenue increased eleven percent sequentially to ninety eight point one million dollars my technology silicon photonics products increased sixteen percent sequentially to one hundred fifty seven million dollars or twenty eight percent of total revenue and new record revenue from products rated at speed or four hundred geek or higher growth eight percent from the prior quarter to one hundred eighty seven point five million dollars revenue from hundred good products increase deeper central que one the one hundred thirty nine point eight million dollars none optic our communications and i knew was one hundred fifteen point nine million dollars essentially flat on the first quarter million on optical out a lot of revenue was forty seven million dollars down three percent from last quarter and industrial laser revenue of thirty five point six million dollars decreased five percent other non optic the communications revenue increased and percent from the first quarter the thirty three point three million dollars with contribution to growth from our new product in production facilities in santa clara and israel as i turned to the details of our tnl expense and profitability metics provided on a long get basis unless otherwise noted a reconciliation of captain on get measures is included in our earnings press release and he messed up as invasion which you can find in our best to relations sections
spk_4: of our that site
spk_3: operationally the continue to run very efficiently gross margin the felt point five percent up for the basis points from que one and that the other end of our target range operating expenses in that water at that point one million dollars or two point one percent of reading this resulted in operating income of fifty eight point seven million dollars non gap operating margin missouri record and point four percent my they continue to expect positive operating levity stands in the near term the anticipate returning to operate the margins in the nine point five to ten percent range effective tax rate was two point four percent in the second quarter and he continued to anticipate that our taxes for the fiscal year will be approximately eighty percent non gaap net income as a record and fifty six point two million dollars or one dollar and fifty cents per night or the chair when i get basis net income was one dollar and thirty cents per night or did share learning to the balance sheet and cashflow statement at the end of the second quarter cash restricted cash and investments their five hundred seventy point two million dollars down eight point four million from the end of the first quarter operating cash flow was eighteen point six million dollars if cutbacks of seventeen point three million feet as little as one point three million dollars in the water cash balances at the end on the border also reflect that he thirties of during a pointy thousand shares at an average price of one hundred fifteen dollars and eighty two cents for i thought all cash outlay of four point two million dollars as a result seventy six point seven million dollars remain in our share repurchase allergies asian now i returned to our guidance for the third quarter of fiscal year twenty twenty two based on continues strong demand likely across the board the expecting had a new from both optical and the latika communications to be flat to up in the third quarter this includes the impact of slightly higher supply chain had vince which we estimate will be thirty two thirty five million dollars in the third quarter for the third quarter the anticipate revenue to be in the range of five hundred and sixty and five hundred and eighty million dollars the anticipate non gaap net income to the in the range of one dollar and forty eight cents to one dollar and fifty five cents per diluted share in summary the are very pleased with our results for the second quarter the are optimistic that increase demand levels as don't get sick you shun the and again produce as told performance in the third quarter operator the are now ready to open the all for questions on good question
spk_0: thank you as a reminder can request employees press star one on your telephone again at star one on your telephone to ask a question to withdraw your question press the pound key please stand by while we compile the q and a roster our first question comes from the line of alex henderson of needham your line is open
spk_5: i guess
spk_6: nice quarter thanks for the problem i'm so when you talk about your headwind of thirty to thirty five million dollars i'm looking at the supply chain all the way up and down the is from systems to the components to to the contract manufacturer and it seems pretty clear to me that that navy what you being in terms of orders in house but this systems companies are running backlogs of thirty to fifty percent of a four years product
spk_7: sailed from the obviously they're not passing on that on true can you talk a bit about how
spk_6: we measure the thirty did
spk_8: thirty five million versus in the implied the order the growth of up the chain that is so much significantly larger than what you're talking about and
spk_9: thirty that fifty percent of employers backlog will eventually find it's way didn't hear evidence right
spk_8: ah yikes alex not think car kind of an
spk_2: message around you have to demand from is quite strong so thirty minutes or pets are and the kind of a mixed message but you know the demand as you like to point out is is very strong which i'm which a good news but the that increase demand is putting increase pressure on the other limited component supplies that are out there have you know what we've been seeing we've we've had some people say that the demands i'm sorry that the supply constraints are set to to ease leave we haven't seen the evidence of that thus far
spk_10: if anything you know it is tightening as you can see in our guidance we've increased the amount of of the impact feet components constraints
spk_9: and that's really driven by a couple of hackers what is like a said the demand is very robust after a that's you're putting increase pressure on the limited supply of coupons and out there and secondly you know any surplus components that were out there in the in the broader supply chain in the distribution market or the broker marcus that's going up now so we're really dealing
spk_6: directly with manufacturers at this point and i am a legacy demand is quite strong and on the on the surface parts or alternate parts that were in the supply chain they've been shaken out at this point so we do see it continued to be a lot of pressure point for for some time to come
spk_2: did he just going back to the question a shame at so the the he question really is when you stop that thirty to thirty five million dollars that's from waters for the current quarter that doesn't reflect anything that might be in the backfired on the system is basis at the allianz that are ultimately the end users in the product is that a fair way to think about it said that there's actually a much larger and that demand than what captured by the thirty to thirty five billion
spk_6: yeah that's a fair way to look at that the thirty thirty five million that's the head when that we see on our ability to deliver you know that the the didn't have demand the commitment for this quarter it doesn't look at you will be on this quarter so yeah the care what your step at a very fair the demanded by strong and and the demand continues to be like strong from the the broader a customer base
spk_11: that if i put down a somewhat different subject though the thai baht the has been given you a nicer
spk_6: an advantage all tear call structure for a while now as a result of was it might cost falling off the table and i look at the income statement that you've had done
spk_12: a much better than expected gross margin then much better than expected the ah xm pitting double digit operating margins which is shirley the upper end endear year traditional band
spk_6: how do we think about though that aspect of it of is the the bottom so stabilized in this range after coming down when it's over the summer into the and fall to do we look at it is though
spk_13: while to get they were little bit of upside to the ravages your ability to buy pot arts and that helps you on the gross margins her and does the two point one down from two point three two point four when he was that the sustainable level at this point on our backs thanks hi alex mrs jarvis elite take it one by one so indeed the die about has been somewhat stable in the last six months so we did start to see the pick up the not in in our construction voting calls and and our backs in law school at ourselves and you know we have our hedging programming place so that's kind of gives us up it is stay will impacts are going forward stole with the i anticipate that is going to be somewhat stable in the next six months to a second secondly a our cost structure and bought spending is primarily on our labor and overhead side so in terms of material the i really buying a new as dollars last year so that is no in fact whatsoever or know we we cannot use the leverage of the the butter said to buy in advance so that's that's definitely a impacting our cogs and affects mine from labour perspective in terms of operating expense said yes it was
spk_6: and now sequentially l dismissal also part by but has a plane that so abby we also have some said seasonality the in and the opec structure so and a longer term he anticipated to be returning to their two and a half two and a half of the percent range going for myself
spk_13: thing that's pretty much i think i summarize loyal questions
spk_14: i am and just below the line none view had a pretty a little bit of an unusual was swinging were all the interest in common interest and for it's all going negative can you give us any sense of what you think that's gonna look like in the march quarter of an old adage jaeger get him off
spk_0: oh he the typically not that we have typically not them guiding below the line numbers so it's always a function of the exchange rate than the and time of assets that we have on on and so that that's basically what to what you would see i would expect an undisciplined a neutral line they're going forward to at night all up our it
spk_15: what that's what the
spk_16: thank you again to ask a question please press star wanting a test on telephone or next question comes from to make charity of jp morgan the airline is open
spk_17: ah
spk_18: much
spk_13: are pretty much with you might expect come back
spk_15: like
spk_19: device
spk_20: come back
spk_16: historic levels
spk_13: ah i think this is shower so yes we we need had a record low the went on percent or backsides primarily huge obviously one of the factories and the operating leverage that busy on that strong top lane roads as on as i as indicated earlier get some season on and ad taleban doesn't so when it comes to a longer term we are anticipating it to be somewhere around five that that two point five saturday percent range going forward
spk_21: so i think are historically be running into that rain so just a by set aside and and the exchange rate than seasonality the anticipate do as they and and two and a half the chips and change my father
spk_22: the cross party
spk_23: despite
spk_18: play
spk_19: the house
spk_23: it's pretty much
spk_24: right well as shot
spk_25: mac
spk_26: so yes it in immediate a very strong thousand and a half percent are gross margin corner so we feel pretty good about term sustainability so we have always said at our target changes some them it into detail and a half percent so when it comes to operating leverage our six cars phase is not that high so i think we would see more
spk_8: an effect on the opec's line and operating margin line as we grow organically that's what the have been seen game over the last couple of course know it's biggest a gross margin the anticipate the whole and maintain our target change of love to tell an hopper centers the as been will that he continued to execute it executes a very efficiently and as you made
spk_2: remember we had some one time and had wins in the last quarter mentioning the obviously group and his corner and continue to expect expected to stay in our diet change fell to the elena
spk_8: loved her like as it looks pretty
spk_2: dwayne of of step up from we're going hi point site oct thoughts not that capacity health club
spk_9: was levels
spk_27: yeah i think it's a it's a it's a tough one to
spk_0: to answer accurately for from i gothic it you know if you look at the last couple years we have had this you know you're here you're right as outside growth
spk_2: i'm a lot of which has driven by the if you like the underlying growth in businesses is quite strong i think we're in a web services that for my customers compelling the best products with with very good go for those customers
spk_8: the we've had some large ways and and be been able to deliver outside growth and last couple years ah you know shit about master we had to big way from francisco and the prior year we have a big way from not from it's a narrative the call you that is from hundred so we have had you know under our the underlying go of has been very strong to them be supplement
spk_0: that's what these large a complete network system weights leave even end to do that without negatively impacting or was murdered
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