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Fabrinet Announces Third Quarter Fiscal Year 2023 Financial Results

  • Record Third Quarter Revenue of $665.3 Million Exceeds Guidance

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 third fiscal quarter ended March 31, 2023.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “Revenue in the third quarter was above our guidance range, and we demonstrated the operating leverage inherent in our business model. While near-term inventory adjustments are affecting some parts of our business, the impacts are being somewhat offset by growth from other customer programs and continued gradual improvements in component availability. Our strong execution continues to benefit our bottom line results and we remain well-positioned to extend our success.”

Third Quarter Fiscal Year 2023 Financial Highlights

GAAP Results

  • Revenue for the third quarter of fiscal year 2023 was $665.3 million, compared to $564.4 million for the third quarter of fiscal year 2022.
  • GAAP net income for the third quarter of fiscal year 2023 was $59.4 million, compared to $50.7 million for the third quarter of fiscal year 2022.
  • GAAP net income per diluted share for the third quarter of fiscal year 2023 was $1.60, compared to $1.35 for the third quarter of fiscal year 2022.

Non-GAAP Results

  • Non-GAAP net income for the third quarter of fiscal year 2023 was $71.8 million, compared to $56.2 million for the third quarter of fiscal year 2022.
  • Non-GAAP net income per diluted share for the third quarter of fiscal year 2023 was $1.94, compared to $1.50 for the third quarter of fiscal year 2022.

Business Outlook

Based on information available as of May 8, 2023, Fabrinet is issuing guidance for its fourth fiscal quarter ending June 30, 2023, as follows:

  • Fabrinet expects fourth quarter revenue to be in the range of $630 million to $650 million.
  • GAAP net income per diluted share is expected to be in the range of $1.57 to $1.64, 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 $1.76 to $1.83, 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 Third Quarter Fiscal Year 2023 Financial Results Call

When:

   

May 8, 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, and Israel. 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 we will be able to extend our success; 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 fourth 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 February 7, 2023. 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; restructuring and other related costs; 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)

March 31,

2023

June 24,

2022

Assets

 

 

Current assets

 

 

Cash and cash equivalents

$230,743

$197,996

Short-term restricted cash

220

Short-term investments

307,980

280,157

Trade accounts receivable, net of allowance for doubtful accounts of $1,031 and $1,271, respectively

540,343

439,330

Contract assets

21,081

13,464

Inventories

554,247

557,145

Prepaid expenses

10,606

11,626

Other current assets

39,610

25,233

Total current assets

1,704,610

1,525,171

Non-current assets

 

 

Long-term restricted cash

149

Property, plant and equipment, net

308,365

292,277

Intangibles, net

2,471

3,508

Operating right-of-use assets

2,210

4,084

Deferred tax assets

10,487

9,800

Other non-current assets

658

652

Total non-current assets

324,191

310,470

Total Assets

$2,028,801

$1,835,641

Liabilities and Shareholders’ Equity

 

 

Current liabilities

 

 

Long-term borrowings, current portion, net

$12,156

$12,156

Trade accounts payable

436,085

439,684

Fixed assets payable

20,116

9,085

Contract liabilities

3,249

1,982

Operating lease liabilities, current portion

1,634

2,319

Income tax payable

2,785

2,898

Accrued payroll, bonus and related expenses

28,899

20,374

Accrued expenses

23,428

24,758

Other payables

26,637

25,231

Total current liabilities

554,989

538,487

Non-current liabilities

 

 

Long-term borrowings, non-current portion, net

3,039

15,202

Deferred tax liability

6,159

6,001

Operating lease liability, non-current portion

235

1,476

Severance liabilities

21,267

18,384

Other non-current liabilities

1,531

2,409

Total non-current liabilities

32,231

43,472

Total Liabilities

587,220

581,959

Shareholders’ equity

Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of March 31, 2023 and June 24, 2022)

Ordinary shares (500,000,000 shares authorized, $0.01 par value; 39,274,783 shares and 39,048,700 shares issued at March 31, 2023 and June 24, 2022, respectively; and 36,578,909 shares and 36,436,683 shares outstanding at March 31, 2023 and June 24, 2022, respectively)

393

390

Additional paid-in capital

200,141

196,667

Less: Treasury shares (2,695,874 shares and 2,612,017 shares as of March 31, 2023 and June 24, 2022, respectively)

(156,475)

(147,258)

Accumulated other comprehensive income (loss)

(6,281)

(12,793)

Retained earnings

1,403,803

1,216,676

Total Shareholders’ Equity

1,441,581

1,253,682

Total Liabilities and Shareholders’ Equity

$2,028,801

$1,835,641

 

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)

 

Three Months Ended

Nine Months Ended

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

March 31,

2023

March 25,

2022

March 31,

2023

March 25,

2022

Revenues

$665,281

$564,395

$1,989,366

$1,674,350

Cost of revenues

(579,274)

(493,702)

(1,735,388)

(1,470,689)

Gross profit

86,007

70,693

253,978

203,661

Selling, general and administrative expenses

(18,309)

(17,034)

(57,804)

(55,412)

Restructuring and other related costs

(5,872)

(5,872)

(135)

Operating income

61,826

53,659

190,302

148,114

Interest income

3,317

414

7,210

1,470

Interest expense

(399)

(73)

(1,179)

(347)

Foreign exchange gain (loss), net

(1,303)

(410)

(3,122)

998

Other income (expense), net

31

(36)

(178)

(1,351)

Income before income taxes

63,472

53,554

193,033

148,884

Income tax expense

(4,117)

(2,893)

(5,906)

(4,693)

Net income

59,355

50,661

187,127

144,191

Other comprehensive income (loss), net of tax:

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

2,046

(2,455)

1,768

(3,615)

Change in net unrealized gain (loss) on derivative instruments

(5,535)

666

4,435

2,743

Change in net retirement benefits plan – prior service cost

113

124

338

448

Change in foreign currency translation adjustment

(191)

(34)

(29)

(198)

Total other comprehensive income (loss), net of tax

(3,567)

(1,699)

6,512

(622)

Net comprehensive income

$55,788

$48,962

$193,639

$143,569

Earnings per share

 

 

Basic

$1.62

$1.37

$5.12

$3.90

Diluted

$1.60

$1.35

$5.07

$3.85

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

Basic

36,608

36,940

36,575

36,945

Diluted

36,989

37,473

36,895

37,451

 

FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

Nine Months Ended

(in thousands of U.S. dollars)

March 31,

2023

March 25,

2022

Cash flows from operating activities

 

 

Net income for the period

$187,127

$144,191

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

 

 

Depreciation and amortization

32,504

28,907

Non-cash restructuring charges and other related costs

2,201

 

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

(1,630)

(175)

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

92

(13)

Amortization of discount (premium) of short-term investments

300

3,038

Amortization of deferred debt issuance costs

24

24

(Reversal of) allowance for doubtful accounts

(240)

(39)

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

693

(1,422)

Amortization of fair value at hedge inception of interest rate swaps

(478)

(736)

Share-based compensation

21,217

21,701

Deferred income tax

(276)

563

Other non-cash expenses

(151)

1,067

Changes in operating assets and liabilities

 

 

Trade accounts receivable

(98,212)

(109,334)

Contract assets

(7,617)

(1,690)

Inventories

2,720

(30,503)

Other current assets and non-current assets

(11,807)

(11,221)

Trade accounts payable

(5,028)

55,333

Contract liabilities

1,267

243

Income tax payable

(262)

(872)

Severance liabilities

1,917

1,883

Other current liabilities and non-current liabilities

17,861

6,952

Net cash provided by operating activities

142,222

107,897

Cash flows from investing activities

 

 

Purchase of short-term investments

(154,033)

(119,853)

Proceeds from sales of short-term investments

30,179

19,463

Proceeds from maturities of short-term investments

97,408

92,862

Purchase of property, plant and equipment

(43,422)

(75,327)

Purchase of intangibles

(698)

(592)

Proceeds from disposal of property, plant and equipment

117

229

Net cash used in investing activities

(70,449)

(83,218)

Cash flows from financing activities

 

 

Repayment of long-term borrowings

(12,187)

(9,141)

Repayment of finance lease liability

(7)

Repurchase of ordinary shares

(9,217)

(28,624)

Withholding tax related to net share settlement of restricted share units

(17,740)

(20,439)

Net cash used in financing activities

(39,151)

(58,204)

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

$32,622

$(33,525)

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

32,622

(33,525)

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

(244)

(301)

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

$230,743

$269,297

Non-cash investing and financing activities

 

 

Construction, software and equipment-related payables

$20,116

$14,060

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)

March 31,

2023

March 25,

2022

Cash and cash equivalents

$230,743

$269,140

Restricted cash

157

Cash, cash equivalents and restricted cash

$230,743

$269,297

 

FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Three Months Ended

Nine Months Ended

March 31,

2023

March 25,

2022

March 31,

2023

March 25,

2022

(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

$59,355

$1.60

$50,661

$1.35

$187,127

$5.07

$144,191

$3.85

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

Related to cost of revenues:

Share-based compensation expenses

1,453

0.04

1,183

0.03

5,028

0.14

4,579

0.12

Depreciation of fair value uplift

92

0.00

Total related to gross profit

1,453

0.04

1,183

0.03

5,028

0.14

4,671

0.12

Related to selling, general and administrative expenses:

Share-based compensation expenses

5,080

0.14

4,540

0.12

16,003

0.43

17,122

0.46

Amortization of intangibles

70

0.00

101

0.00

224

0.01

328

0.01

Severance payment and others

(250)

0.00

105

0.00

Total related to selling, general and administrative expenses

5,150

0.14

4,391

0.12

16,227

0.44

17,555

0.47

Related to other income and expense:

Restructuring and other related costs

5,872

0.16

5,872

0.16

135

0.01

Amortization of deferred debt issuance costs

8

0.00

8

0.00

24

0.00

24

0.00

Total related to other income and expense

5,880

0.16

8

0.00

5,896

0.16

159

0.01

Total related to net income & EPS

12,483

0.34

5,582

0.15

27,151

0.74

22,385

0.60

Non-GAAP measures

$71,838

$1.94

$56,243

$1.50

$214,278

$5.81

$166,576

$4.45

Shares used in computing diluted net income per share

GAAP diluted shares

36,989

37,473

36,895

37,451

Non-GAAP diluted shares

36,989

37,473

36,895

37,451

 

FABRINET

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

 

(in thousands)

Three Months Ended

Nine Months Ended

March 31,

2023

March 25,

2022

March 31,

2023

March 25,

2022

Net cash provided by operating activities

$37,122

$50,329

$142,222

$107,897

Less: Purchase of property, plant and equipment

(19,779)

(23,410)

(43,422)

(75,327)

Non-GAAP free cash flow

$17,343

$26,919

$98,800

$32,570

 

FABRINET

GUIDANCE FOR QUARTER ENDING JUNE 30, 2023

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

 

Diluted

EPS

GAAP net income per diluted share:

$1.57 to $1.64

Related to cost of revenues:

 

Share-based compensation expenses

0.05

Total related to gross profit

0.05

Related to selling, general and administrative expenses:

 

Share-based compensation expenses

0.14

Total related to selling, general and administrative expenses

0.14

Total related to net income & EPS

0.19

Non-GAAP net income per diluted share

$1.76 to $1.83

 

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