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 the first fiscal quarter ended September 30, 2016.

Tom Mitchell, Chief Executive Officer of Fabrinet, said: “We are off to a strong start in fiscal 2017 with first quarter revenue that exceeded our expectations and grew more than 50% from a year ago. We are benefiting from positive trends in the optical industry, including increasing activity from new and existing customer programs. We believe we are in a strong position to serve industry demand with new capacity from the first building at our new campus in Chonburi, Thailand, and our growing new product introduction (NPI) operation in Santa Clara. Our recent acquisition of Exception EMS, U.K. extends our NPI capabilities while diversifying our customer base. With continued momentum, we are optimistic we can again deliver strong growth in the second quarter, as reflected in our business outlook.”

First Quarter Fiscal-Year 2017 Financial Highlights

GAAP Results

  • Revenue for the first quarter of fiscal year 2017, which was a 14-week quarter, was $332.0 million, an increase of 53% compared to revenue of $216.4 million for the comparable period in fiscal year 2016, which was a 13-week quarter.
  • GAAP net income for the first quarter of fiscal year 2017 was $22.8 million, compared to GAAP net income of $1.6 million in the first quarter of fiscal year 2016, which was impacted by a $(10.9) million unrealized foreign exchange loss for the mark-to-market adjustment of forward contracts.
  • GAAP net income per diluted share for the first quarter of fiscal year 2017 was $0.61, compared to GAAP net income per diluted share of $0.04 in the first quarter of fiscal year 2016.

Non-GAAP Results

  • Non-GAAP net income in the first quarter of fiscal 2017 was $29.7 million, an increase of 83% compared to non-GAAP net income of $16.2 million in the same period a year ago.
  • Non-GAAP net income per diluted share in the first quarter of fiscal 2017 was $0.80, an increase from non-GAAP net income per diluted share of $0.45 in the same period a year ago.

Business Outlook

Based on information available as of November 7, 2016, Fabrinet is issuing guidance for the second quarter of fiscal-year 2017 ending December 30, 2016, as follows:

  • Fabrinet expects revenue for the second quarter, which is a 13-week quarter, to be in the range of $332 million to $336 million.
  • GAAP net income per diluted share is expected to be in the range of $0.65 to $0.67, based on approximately 37.8 million fully diluted shares outstanding.
  • Non-GAAP net income per diluted share is expected to be in the range of $0.78 to $0.80, based on approximately 37.8 million fully diluted shares outstanding.
 

Conference Call Information

  What:       Fabrinet First Quarter Fiscal-Year 2017 Financial Results Conference Call When: Monday, November 7, 2016 Time: 5:00 p.m. ET Live Call: (888) 357-3694, domestic (253) 237-1137, international

 

Passcode: 1372730

Replay: (855) 859-2056, domestic (404) 537-3406, international

 

Passcode: 1372730

Webcast:

http://investor.fabrinet.com (live and replay)

 

This press release and any other information related to the call also will be posted on Fabrinet’s website at http://investor.fabrinet.com. A recorded version of this webcast will be available approximately two hours after the call and 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, 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 test. 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 the United Kingdom. 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 our expectation that we will continue to achieve profitable growth and scale our business, as well as all of the statements under the “Business Outlook” section regarding our expected revenue and GAAP and non-GAAP net income per share for the second quarter of fiscal-year 2017. 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: 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, 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 Annual Report on Form 10-K, filed on August 17, 2016. 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

The Company refers to the non-GAAP financial measures cited above in making operating decisions because they provide meaningful supplemental information regarding the Company’s ongoing operational performance. Non-GAAP net income excludes share-based compensation expenses, executive separation costs, investigation costs, income related to flooding, expenses related to reduction in workforce, amortization of debt issuance costs, unrealized gain or loss on foreign currency, business combination expenses and one time cost resulting from a non-recurring warranty charge. 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 financial and operational decision making. In addition, these non-GAAP financial measures are used to measure company performance for the purposes of determining employee incentive plan compensation.

 

FABRINET

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

September 30,2016

June 24,2016

  Assets Current assets Cash and cash equivalents $

105,860

$ 142,804 Marketable securities 147,702 141,709 Trade accounts receivable, net 212,684 196,145 Inventory, net 205,484 181,499 Deferred tax assets — 1,358 Prepaid expenses 3,511 3,114 Other current assets   5,210   6,662 Total current assets   680,451   673,291 Non-current assets Restricted cash in connection with business acquisition 3,379 — Property, plant and equipment, net 205,845 178,410 Intangibles, net 5,091 499 Goodwill 2,994 — Deferred tax assets 2,503 1,806 Deferred debt issuance costs on revolving loan and other non-current assets   1,040   1,851 Total non-current assets   220,852   182,566 Total Assets $ 901,303 $ 855,857   Liabilities and Shareholders’ Equity Current liabilities Bank borrowings, net of unamortized debt issuance costs $ 37,516 $ 24,307 Trade accounts payable 179,741 172,052 Fixed assets payable 19,694 20,628 Capital lease liability, current portion 122 — Income tax payable 3,077 2,010 Accrued payroll, bonus and related expenses 12,417 12,300 Accrued expenses 6,462 8,072 Other payables   10,214   16,356 Total current liabilities

 

269,243

255,725 Non-current liabilities

Long-term loan from bank, non-current portion, net of unamortizeddebt issuance costs

32,759 36,100 Deferred tax liability — 854 Capital lease liability, non-current portion

 

1,556

— Deferred liability in connection with business acquisition

 

3,379

— Severance liabilities

 

7,154

6,684 Other non-current liabilities

 

2,179

2,075 Total non-current liabilities

 

47,027

45,713 Total Liabilities   316,270 301,438 Commitments and contingencies Shareholders’ equity

Preferred shares (5,000,000 shares authorized, $0.01 par value; no sharesissued and outstanding as of September 30, 2016 and June 24, 2016)

 

Ordinary shares (500,000,000 shares authorized, $0.01 par value;36,700,468 shares and 36,156,446 shares issued and outstanding as ofSeptember 30, 2016 and June 24, 2016, respectively)

367 362 Additional paid-in capital 109,772 102,325 Accumulated other comprehensive income 987 591 Retained earnings   473,907 451,141 Total Shareholders’ Equity

 

585,033

554,419 Total Liabilities and Shareholders’ Equity $ 901,303 $ 855,857      

FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME

  Three Months Ended (in thousands of U.S. dollars, except per share amounts)

September 30,2016

   

September 25,2015

Revenues $ 332,043 $ 216,433 Cost of revenues   (292,435)   (190,422) Gross profit 39,608 26,011 Selling, general and administrative expenses (15,832) (11,900) Other expense related to flooding   —   (864) Operating income 23,776 13,247 Interest income 437 442 Interest expense (1,322) (402) Foreign exchange gain (loss), net 1,657 (10,492) Other income   143   103 Income before income taxes 24,691 2,898 Income tax expense   (1,925)   (1,295) Net income   22,766   1,603 Other comprehensive income, net of tax: Change in net unrealized (loss) gains on marketable securities (187) 87 Change in net unrealized loss on derivative instruments (158) — Change in foreign exchange currency translation adjustment   741   — Total other comprehensive income, net of tax   396   87 Net comprehensive income $ 23,162 $ 1,690   Earnings per share Basic $ 0.63 $ 0.05 Diluted $ 0.61 $ 0.04   Weighted-average number of ordinary shares outstanding (thousands of shares) Basic 36,404 35,579 Diluted 37,330 36,315      

FABRINET

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  Three Months Ended (in thousands of U.S. dollars)

September 30,2016

   

September 25,2015

  Cash flows from operating activities Net income for the period $ 22,766 $ 1,603 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 5,113 4,063 Gain on disposal of property, plant and equipment (40) (26) Loss from sales and maturities of available-for-sale securities 100 92 Amortization of investment premium 166 298 Amortization of deferred debt issuance costs 908 171 Allowance for doubtful accounts (reversal of) 3 (4) Unrealized (gain) loss on exchange rate and fair value of derivative instruments (1,913) 10,855 Share-based compensation 5,611 2,673 Deferred income tax 311 157 Other non-cash expenses 453 386 (Reversal of) inventory obsolescence (62) 150 Loss from written-off inventory due to flood loss — 233 Changes in operating assets and liabilities Trade accounts receivable (11,876) (4,948) Inventory (21,290) (13,150) Other current assets and non-current assets 3,285 (668) Trade accounts payable 3,103 3,053 Income tax payable 1,035 707 Other current liabilities and non-current liabilities   (8,675)   (1,106) Net cash (used in) provided by operating activities   (1,002)   4,539 Cash flows from investing activities Purchase of marketable securities (32,737) (38,773) Proceeds from sales of marketable securities 13,061 16,687 Proceeds from maturities of marketable securities 13,230 12,528 Payments in connection with business acquisition, net of cash acquired (9,664) — Restricted cash in connection with business acquisition (3,379) — Purchase of property, plant and equipment (27,090) (8,452) Purchase of intangibles (178) (68) Deposits for land purchase — (2,352) Proceeds from disposal of property, plant and equipment   107   28 Net cash used in investing activities   (46,650)   (20,402) Cash flows from financing activities Payment of debt issuance costs — (353) Proceeds from revolving loans 13,500 — Repayment of long-term loans from bank (4,900) (1,500) Proceeds from issuance of ordinary shares under employee share option plans 2,708 1,547 Withholding tax related to net share settlement of restricted share units   (867)   (878) Net cash provided by (used in) financing activities   10,441   (1,184) Net decrease in cash and cash equivalents   (37,211)   (17,047)   Movement in cash and cash equivalents Cash and cash equivalents at beginning of period 142,804 112,978 Decrease in cash and cash equivalents (37,211) (17,047) Effect of exchange rate on cash and cash equivalents   267   (466) Cash and cash equivalents at end of period $ 105,860 $ 95,465   Non-cash investing and financing activities Construction and equipment-related payables $ 19,694 $ 5,123    

FABRINET

Reconciliation of GAAP measures to non-GAAP measures

      (in thousands of U.S. dollars, except per share data) Three Months Ended September 30, 2016     September 25, 2015

Netincome

 

DilutedEPS

Netincome

 

DilutedEPS

  GAAP measures 22,766 0.61 1,603 0.04 Items reconciling GAAP net income & EPS to non-GAAP net income & EPS: Related to cost of revenues: Share-based compensation expenses 1,014 0.03 537 0.01         Total related to gross profit 1,014   0.03   537 0.01   Related to selling, general and administrative expenses: Share-based compensation expenses 4,598 0.12 2,136 0.06 Executive separation cost 577 0.02 - - Business combination expenses 1,411 0.04 - -         Total related to selling, general and administrative expenses 6,586   0.18   2,136 0.06   Related to other incomes and other expenses: Expenses related to flooding - - 864 0.02 Amortization of debt issuance costs 1,063 0.03 171 0.01 (Gain)/loss on foreign currency (1,713 ) (0.05 ) 10,897 0.30         Total related to other incomes and other expenses (650 ) (0.02 ) 11,932 0.33   Total related to net income & EPS 6,950   0.19   14,605 0.40   Non-GAAP measures 29,716   0.80   16,208 0.45   Shares used in computing diluted net income per share GAAP diluted shares 37,330 36,315 Non-GAAP diluted shares 37,330 36,315    

Fabrinet Guidance for Quarter Ending December 30, 2016Items reconciling GAAP EPS to non-GAAP EPS:

 

     

DilutedEPS

GAAP net income per diluted share:   $0.65 to $0.67 Related to cost of revenues: Share-based compensation expenses   0.03

Related to selling, general and administrative expenses:

Share-based compensation expenses   0.09

Related to other incomes and other expenses:

Amortization of debt issuance costs   0.01   Total related to net income & EPS   0.13 Non-GAAP net income per diluted share   $0.78 to $0.80  

Investor Contact:FabrinetGaro Toomajanianir@fabrinet.com

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