Fabrinet Announces Third Quarter Fiscal Year 2019 Financial Results

Revenue and EPS Exceed Guidance Ranges
Gross Margin Increases to Highest Level in Seven Quarters
Year-to-Date Cash Flow From Operations of $105.5 Million Up 17% From Year-Ago Period

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 quarter ended March 29, 2019.

Seamus Grady, Chief Executive Officer of Fabrinet, said, “We exceeded our guidance for revenue and profitability in the third quarter on both an ASC 605 and ASC 606 basis, primarily due to increasing demand from the telecom market. In addition, we were pleased to see non-GAAP gross margins return to within our target range. With new business wins and strong customer relationships, we are optimistic that we can deliver a strong fourth quarter resulting in a record year for revenue and profitability.”

Third Quarter Fiscal Year 2019 Financial Highlights

As of the first quarter of fiscal 2019, Fabrinet is reporting results under the new revenue recognition standard Accounting Standards Codification Topic 606 (“ASC 606”), using the modified retrospective method. Financial results for reporting periods prior to fiscal year 2019 are presented as previously disclosed in conformity with the old revenue recognition standard Accounting Standards Codification Topic 605 (“ASC 605”). A reconciliation to ASC 605 is included at the end of this press release.

GAAP Results

Revenue for the third quarter of fiscal year 2019 was $399.0 million, compared to revenue of $332.2 million for the comparable period in fiscal year 2018.
GAAP net income for the third quarter of fiscal year 2019 was $28.6 million, compared to GAAP net income of $21.1 million for the third quarter of fiscal year 2018. GAAP net income for the third quarter of fiscal year 2019 included a foreign exchange loss of ($3.1) million, or ($0.08) per diluted share, compared to a foreign exchange loss of ($2.4) million, or ($0.06) per diluted share, for the third quarter of fiscal year 2018.
GAAP net income per diluted share for the third quarter of fiscal year 2019 was $0.76, compared to GAAP net income per diluted share of $0.55 for the third quarter of fiscal year 2018.
Cash flow from operations for the first three quarters of fiscal 2019 was $105.5 million, compared to $89.8 million for the first three quarters of fiscal 2018.

Non-GAAP Results

Non-GAAP net income for the third quarter of fiscal year 2019 was $34.3 million, compared to non-GAAP net income of $26.9 million for the third quarter of fiscal year 2018. Non-GAAP net income for the third quarter of fiscal year 2019 included a foreign exchange loss of ($3.1) million, or ($0.08) per diluted share, compared to a foreign exchange loss of ($2.4) million, or ($0.06) per diluted share, for the third quarter of fiscal year 2018.
Non-GAAP net income per diluted share for the third quarter of fiscal year 2019 was $0.92, compared to non-GAAP net income per diluted share of $0.71 for the same period in fiscal year 2018.

Share Repurchase Program Update

During the third quarter of fiscal 2019, Fabrinet repurchased 100,000 ordinary shares at an average price of $53.78. On May 1, 2019, Fabrinet’s Board of Directors approved the repurchase of up to an additional $50.0 million of Fabrinet’s ordinary shares, bringing the aggregate authorization under Fabrinet’s existing share repurchase program to $110.0 million, with $62.2 million currently remaining.

Business Outlook

The guidance provided below for the fourth quarter of fiscal 2019 is based on ASC 605; however, we will report revenues for such quarter based on ASC 606. As of the first quarter of fiscal 2019, Fabrinet is reporting results under ASC 606, which it is adopting for fiscal year 2019 on a modified retrospective method. A reconciliation to ASC 605 is included at the end of this press release.

Based on information available as of May 6, 2019, Fabrinet is issuing guidance for the fourth quarter of its fiscal year 2019 ending June 28, 2019, as follows:

Fabrinet expects fourth quarter revenue to be in the range of $396 million to $404 million.
GAAP net income per diluted share is expected to be in the range of $0.78 to $0.82, based on approximately 37.6 million fully diluted shares outstanding.
Non-GAAP net income per diluted share is expected to be in the range of $0.92 to $0.96, based on approximately 37.6 million fully diluted shares outstanding.

Conference Call Information

What: Fabrinet Third Quarter Fiscal Year 2019 Financial Results Call When: Monday, May 6, 2019 Time: 5:00 p.m. ET Live Call: (888) 357-3694, domestic (253) 237-1137, international Passcode: 1558338 Replay: (855) 859-2056, domestic (404) 537-3406, international Passcode: 1558338 Webcast:

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

This press release and any other information related to the call will also 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, 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 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: (1) statements regarding our optimism that the fourth quarter will result in a record year for both revenue and profitability; 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 2019. 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 Quarterly Report on Form 10-Q, filed on February 5, 2019. 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; severance payments; executive search expenses; amortization of intangibles; business combination expenses; amortization of debt issuance costs; restructuring charges; and ASC 606 adjustments. 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.

FABRINETCONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

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

March 29,2019

June 29,2018

Assets Current assets Cash and cash equivalents $ 166,407 $ 158,102 Restricted cash in connection with business acquisition — 3,331 Short-term investments 242,484 174,269 Trade accounts receivable, net 265,110 246,912 Contract assets 10,543 — Inventory, net 285,431 257,687 Prepaid expenses 12,299 8,061 Other current assets 5,236 5,948 Total current assets 987,510 854,310 Non-current assets Property, plant and equipment, net 209,084 219,640 Intangibles, net 4,112 4,880 Goodwill 3,823 3,828 Deferred tax assets 5,734 5,280 Other non-current assets 354 80 Total non-current assets 223,107 233,708 Total Assets $ 1,210,617 $ 1,088,018 Liabilities and Shareholders’ Equity Current liabilities Bank borrowings $ 3,250 $ 3,250 Trade accounts payable 256,282 220,159 Capital lease liability, current portion 417 451 Income tax payable 2,651 709 Deferred liability in connection with business acquisition — 3,331 Accrued payroll, bonus and related expenses 17,900 13,476 Accrued expenses 8,772 9,013 Other payables 16,370 19,728 Total current liabilities 305,642 270,117 Non-current liabilities Long-term loan from bank 58,500 60,938 Deferred tax liability 3,177 2,284 Capital lease liability, non-current portion 209 516 Severance liabilities 11,837 10,162 Other non-current liabilities 2,364 3,062 Total non-current liabilities 76,087 76,962 Total Liabilities 381,729 347,079 Commitments and contingencies Shareholders’ equity Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of March 29, 2019 and June 29, 2018) — — Ordinary shares (500,000,000 shares authorized, $0.01 par value; 38,216,231 shares and 37,723,733 shares issued; and 36,827,128 shares and 36,434,630 shares outstanding as of March 29, 2019 and June 29, 2018, respectively) 382 377 Additional paid-in capital 154,738 151,797 Less: Treasury shares (1,389,103 shares and 1,289,103 shares as of March 29, 2019 and June 29, 2018, respectively) (47,779) (42,401) Accumulated other comprehensive loss (79) (1,257) Retained earnings 721,626 632,423 Total Shareholders’ Equity 828,888 740,939 Total Liabilities and Shareholders’ Equity $ 1,210,617 $ 1,088,018

FABRINETCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME (unaudited)

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

March 29,2019

March 30,2018

March 29,2019

March 30,2018

Revenues $ 398,951 $ 332,213 $ 1,179,208 $ 1,026,598 Cost of revenues (352,193) (295,280) (1,046,610) (912,167) Gross profit 46,758 36,933 132,598 114,431 Selling, general and administrative expenses (14,132) (12,418) (41,296) (41,253) Expenses related to reduction in workforce (323) — (727) (1,776) Operating income 32,303 24,515 90,575 71,402 Interest income 2,144 1,149 4,770 2,554 Interest expense (1,423) (820) (3,673) (2,499) Foreign exchange loss, net (3,055) (2,428) (408) (5,710) Other income, net 159 91 798 438 Income before income taxes 30,128 22,507 92,062 66,185 Income tax expense (1,493) (1,454) (4,064) (4,786) Net income 28,635 21,053 87,998 61,399 Other comprehensive income (loss), net of tax: Change in net unrealized gain (loss) on available-for-sale securities

513

(616)

1,399 (1,048) Change in net unrealized loss on derivative instruments

(1)

—

(2) (1) Change in foreign currency translation adjustment

486

789

(219)

1,358

Total other comprehensive income, net of tax 998 173 1,178 309 Net comprehensive income $ 29,633 $ 21,226 $ 89,176 $ 61,708 Earnings per share Basic $ 0.78 $ 0.56 $ 2.39 $ 1.64 Diluted $ 0.76 $ 0.55 $ 2.35 $ 1.61 Weighted-average number of ordinary shares outstanding (thousands of shares) Basic 36,891 37,275 36,786 37,400 Diluted 37,539 38,055 37,383 38,125

FABRINETCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

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

March 29,2019

March 30,2018

Cash flows from operating activities Net income for the period $ 87,998 $ 61,399 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 22,521 21,288 Loss (gain) on disposal of property, plant and equipment 81 (153) Loss on disposal of intangibles 149 — (Gain) loss from sales and maturities of available-for-sale securities (196) 362 Amortization of investment premium (604) (31) Amortization of deferred debt issuance costs — 433 Allowance for doubtful accounts 12 44 Unrealized (gain) loss on exchange rate and fair value of derivative instruments (5,351) 1,393 Share-based compensation 13,373 17,704 Deferred income tax 438 19 Other non-cash expenses 1,142 1,941 Inventory (reversal of inventory) obsolescence 280 (291) Changes in operating assets and liabilities Trade accounts receivable (17,942) 21,411 Contract assets (666) — Inventory (36,698) (973) Other current assets and non-current assets (1,568) (9,853) Trade accounts payable 37,576 (22,518) Income tax payable 1,942 (1,678) Other current liabilities and non-current liabilities 3,017 (703) Net cash provided by operating activities 105,504 89,794 Cash flows from investing activities Purchase of short-term investments (202,328) (84,519) Proceeds from sales of short-term investments 85,941 22,169 Proceeds from maturities of short-term investments 50,370 42,977 Purchase of property, plant and equipment (13,211) (28,268) Purchase of intangibles (290) (1,487) Proceeds from disposal of property, plant and equipment 473 202 Net cash used in investing activities (79,045) (48,926) Cash flows from financing activities Proceeds of short-term loans from bank — 5,000 Repayment of short-term loans from bank — (1,003) Repayment of long-term loans from bank (2,438) (10,200) Repayment of capital lease liability (342) (293) Repurchase of ordinary shares (5,378) (22,407) Proceeds from issuance of ordinary shares under employee share option plans

—

993 Release of restricted cash held in connection with business acquisition (3,478) — Withholding tax related to net share settlement of restricted share units (10,427) (4,030) Net cash used in financing activities (22,063) (31,940) Net increase in cash, cash equivalents and restricted cash 4,396 8,928 Movement in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of period 161,433 137,137 Increase in cash, cash equivalents and restricted cash 4,396 8,928 Effect of exchange rate on cash, cash equivalents and restricted cash 578 (89) Cash, cash equivalents and restricted cash at end of period $ 166,407 $ 145,976 Non-cash investing and financing activities Construction, software-related and equipment-related payables $ 3,286 $ 4,684

FABRINETCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

The following table provides a reconciliation of cash, cash equivalents andrestricted cash reported within the condensed consolidated balance sheets that sum to thetotal of the same amounts shown in the condensed consolidated statements of cash flows:

(amount in thousands)

As ofMarch 29, 2019

As ofMarch 30, 2018

Cash and cash equivalents $ 166,407 $ 142,407 Restricted cash in connection with business acquisition — 3,569 Cash, cash equivalents and restricted cash $ 166,407 $ 145,976

FABRINETRECONCILIATION OF ASC 605 TO ASC 606

Three Months Ended

March 29,2019

(in thousands of U.S. dollars, except per share amounts) As reported under

ASC 606

Adjustment ASC 605 Revenues $ 398,951 $ 2,793 $ 401,744 Cost of revenues (350,874) (2,699) (353,573) Gross profit 48,077 94 48,171 Selling, general and administrative expenses (10,061) — (10,061) Operating income 38,016 94 38,110 Interest income 2,144 — 2,144 Interest expense (1,423) — (1,423) Foreign exchange loss (3,055) — (3,055) Other income 159 — 159 Income before income taxes 35,841 94 35,935 Income tax expense (1,493) — (1,493) Net income 34,348 94 34,442 Other comprehensive income, net of tax: Change in net unrealized gain on available-for-sale securities

513

—

513

Change in net unrealized loss on derivative instruments

(1)

—

(1)

Change in foreign currency translation adjustment 486 — 486 Total other comprehensive income, net of tax 998 — 998 Net comprehensive income $ 35,346 $ 94 $ 35,440

Earnings per share Basic $ 0.93 $ 0.00 $ 0.93 Diluted $ 0.92 $ 0.00 $ 0.92 Weighted-average number of ordinary shares outstanding (thousands of shares) Basic 36,891 — 36,891 Diluted 37,539 — 37,539 FABRINET

RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

Three Months Ended Nine Months Ended

March 29, 2019(ASC 606)

March 30, 2018(ASC 605)

March 29, 2019(ASC 606)

March 30, 2018(ASC 605)

(in thousands of U.S. dollars,

except per share data)

Netincome

DilutedEPS

Netincome

DilutedEPS

Netincome

DilutedEPS

Netincome

DilutedEPS

GAAP measures 28,635 0.76 21,053 0.55 87,998 2.35 61,399 1.61 Items reconciling GAAP net income & EPS to non-GAAP net income & EPS: Related to cost of revenues: Share-based compensation expenses

1,237

0.03

1,564

0.04

4,384 0.12 5,277 0.14 Depreciation of fair value uplift

0.00

255 0.01 241 0.00 ASC 606 adoption impact on gross profit

(31)

(0.00)

Total related to gross profit

1,319

0.04

1,652

0.04

4,608 0.12 5,518 0.14 Related to selling, general and administrative expenses: Share-based compensation expenses

3,187

0.08

3,762

0.10

8,989 0.24 12,427 0.33 Expenses related to CFO/CEO search

285

0.01

857

0.02

204 0.00 Amortization of intangibles

163

0.00

205

0.01

531

0.01

582

0.02

Business combination expenses

0.00

328 0.01 117 0.00 Severance payment 348 0.01 - - 949 0.03 - - Total related to selling, general and administrative expenses

4,071

0.11

3,967

0.11

11,654

0.31

13,329

0.35

Related to other incomes and other expenses: Other expenses in relation to reduction in workforce

323

0.01

727

0.02

1,776

0.05

Amortization of debt issuance costs

238 0.01

778 0.02 Total related to other incomes and other expenses 323 0.01 238 0.01 727 0.02 2,554 0.07 Total related to net income & EPS

5,713

0.15

5,857

0.16

16,989

0.45

21,401

0.56

Non-GAAP measures 34,348 0.92 26,910 0.71 104,987 2.81 82,800 2.17 Shares used in computing diluted net income per share GAAP diluted shares 37,539 38,055 37,383 38,125 Non-GAAP diluted shares 37,539 38,055 37,383 38,125

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

(amount in thousands) Three Months Ended Nine Months Ended

March 29,2019

March 30,2018

March 29,2019

March 30,2018

Net cash provided by operating activities

36,206

52,681

105,504

89,794

Less: Purchase of property, plant and equipment

(3,479

)

(6,863

)

(13,211

)

(28,268

)

Non-GAAP free cash flow $ 32,727 $ 45,818 $ 92,293 $ 61,526

FABRINETGUIDANCE FOR QUARTER ENDING JUNE 28, 2019RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES

DilutedEPS GAAP net income per diluted share: $0.78 to $0.82 Related to cost of revenues: Share-based compensation expenses 0.04 Total related to gross profit 0.04 Related to selling, general and administrative expenses: Share-based compensation expenses 0.09 Expenses related to our CFO search 0.01 Total related to selling, general and administrative expenses 0.10 Total related to net income & EPS 0.14 Non-GAAP net income per diluted share $0.92 to $0.96

View source version on businesswire.com: https://www.businesswire.com/news/home/20190506005637/en/

Investor Contact:Garo Toomajanianir@fabrinet.com

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