Good afternoon. Welcome to Fabrinet's Financial Results conference call for the fourth quarter of fiscal year 2021. At this time, all participants are in 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 now like to turn the call over to your host, Garo Toomajanian, Investor Relations.
Thank you, operator. Good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2021, which ended June 25, 2021. With me on the call today are Seamus Grady, Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investors section of our website, located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP 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, 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-Q filed on May 4, 2021. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's CEO, Seamus Grady.
Thank you, Garo. Good afternoon, everyone, and thank you for joining us on today's conference call. We had an excellent fourth quarter to finish a strong fiscal year. With robust demand trends continuing across our business, combined with excellent execution by our team, we delivered a number of records in the quarter. Revenue was well above our guidance range, and for the first time exceeded half a billion dollars at $509.6 million. In addition to record revenue, we also delivered record non-GAAP operating margins of 9.9%, resulting in an all-time high non-GAAP earnings per share of $1.31 in the fourth quarter. For the full fiscal year, we produced record revenue of $1.88 billion, representing industry-leading growth of 14% from the prior year. Non-GAAP net income was $4.67 per share. Total operating cash flow for the year was $118.7 million, and free cash flow was $76.1 million.
Looking at some of the highlights of the fourth quarter, Optical Communications revenue reached another new record, driven by strong Telecom demand. Non-Optical Communications revenue also reached another record in Q4. Looking ahead, we remain encouraged by healthy demand trends across all lines of business as we continue to successfully navigate and manage component supplies. We estimate that the supply constraints we are experiencing impacted our fourth quarter revenue by approximately $25 million-$30 million, and we expect to see a similar impact in Q1. Despite this headwind, we anticipate that revenue will continue to grow sequentially to a new record in Q1, as Csaba will outline in a moment. We are also optimistic from a profitability standpoint. That said, in Q1, we anticipate a small, non-recurring headwind to net income.
As you may have heard, Thailand, along with other countries in Southeast Asia, has recently seen a rapidly growing number of COVID-19 cases. In response, lockdowns and other measures have been imposed, which primarily impact social gatherings. Our manufacturing facilities are fully operational, but we have implemented additional safeguards beyond what we have been doing for the past one and a half years in order to protect our staff. This includes increased testing and sending people home with pay if they test positive for COVID-19. In addition, we have been granted permission by the Thai government to vaccinate our employees and have been carrying out this initiative for the past several weeks at our expense.
We are very pleased that at this time, the vast majority of our employees have already received their second doses, such that by the end of this month, approximately 90% of our employees in Thailand will be considered fully vaccinated. We're proud to be able to carry out this effort that has both a very positive social impact while also being good for our business, and we believe it will further enhance our very favorable reputation as an excellent employer in Thailand. As we communicated earlier this year, we have broken ground on a new 1-million-square-foot building at our Chonburi campus. Construction is progressing, and we expect the building to be complete in about one year. We also previously discussed our intention to add approximately 100,000 sq ft of manufacturing space at our Pinehurst campus.
Just after the end of the fourth quarter, we completed the acquisition of 15 acres of land that had become available adjacent to our Pinehurst facility. This site will enable us to relocate some non-manufacturing activities from the current campus, which will allow us to increase our manufacturing footprint within our existing buildings. As a result, we are confident that we will continue to have ample capacity to satisfy the growing customer demand we are experiencing. In summary, we had a very strong finish to a record year. We are optimistic about demand trends from all the markets we serve, and we are well-positioned to continue to deliver excellent results over the longer term. Now I'd like to turn the call over to Csaba Sverha for additional financial details and our guidance for the first quarter of fiscal 2022. Csaba?
Thank you, Seamus, and good afternoon, everyone. We had a strong finish to a record year with record revenue and non-GAAP earnings. Revenue of $509.6 million, up 6% from Q3 and 26% from a year ago, and was above our guidance range. We also executed very well with our highest gross margin in four years and record operating margins to produce non-GAAP earnings of $1.31 per share, which also exceeded our guidance. Looking at revenue in more detail, Optical Communications was $387.8 million or 76% of total revenue, up 7% from Q3. Non-Optical Communications revenue was $121.7 million, or 24% of total revenue, and increased 4% from Q3. Within Optical Communications, Telecom revenue was $310.7 million, up 10% from last quarter. Datacom revenue was $77.1 million, down very modestly from Q3. By technology, silicon photonics products made up 22% of total revenue, or $110.2 million, up 5% from Q3.
Revenue from products rated at speeds of 400G or higher was $133.3 million, up 27% from the prior quarter. This more than offset a 4% sequential decline of 100G products to $133.6 million in the fourth quarter. In Q1, we expect the Optical Communications growth trend to continue. Looking at our Non-Optical Communications business, Automotive revenue was $48.6 million, a slight decline from our record third quarter results. Industrial Laser revenue more than offset this at $41.1 million, up 14% from the third quarter. Sensor revenue was $3.6 million, and other Non-Optical Communications revenue was up 14% to $28.3 million. Now turning to the details of our P&L. Unless otherwise noted, profitability metrics are on a non-GAAP basis. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release and investor presentation, which you can find on our website.
Gross margin was 12.3%, up 10 basis points from Q3 and was at the highest level in four years. Operating expenses in the quarter were $12 million or 2.4% of revenue, reflecting our operating leverage, resulting in operating income of $50.5 million or 9.9% of revenue, a record for the company. During the fourth quarter, we have recorded a tax benefit of $2.1 million. This is primarily due to the reversal of a valuation allowance related to certain subsidiaries as a result of better operating performance and effective control of operating expenses. We anticipate that our effective tax rate in fiscal year 2022 will be approximately 4%. Non-GAAP net income was a record at $49.4 million, or $1.31 per diluted share. On a GAAP basis, net income was also a record at $42.4 million, or $1.13 per diluted share.
For the full year, revenue was $1.88 billion, an increase of 14% from the prior year. Non-GAAP gross margin was 12.1%, and operating margins were 9.5% of revenue. Non-GAAP EPS for the year was $4.67, up a strong 25% from fiscal year 2020. We report 10% customers annually, and in fiscal year 2021, we had three 10% customers. Cisco and Lumentum both represented 14% of revenue, and Infinera represented 12% of revenue for the year. Note that the Cisco revenue contribution includes a partial year impact from Cisco's acquisition of Acacia. Excluding the impact of the acquisition, Acacia would also have been a 10% customer in fiscal year 2021. Our top 10 customers represented 78% of revenue compared to 79% in fiscal year 2020. Turning to the balance sheet and cash flow statement.
At the end of the fourth quarter, cash, restricted cash, and investments were $548.1 million, an increase of $39.2 million from the end of the third quarter. Operating cash flow was $43.5 million. With CapEx of $13.5 million, free cash flow was $30 million in the quarter. In addition to expenses related to construction at our Chonburi campus, we recently purchased 15 acres of land adjacent to our Pinehurst campus that will facilitate the manufacturing expansion we have in progress at that campus. Of the $13.2 million purchase price, 10% was paid during the fourth quarter and the remainder was paid in the first quarter of fiscal 2022. We remained active in our share repurchase plan. During the fourth quarter, we repurchased approximately 123,000 shares at an average price of $85.88 for a total cash outlay of $10.5 million. Approximately $81.2 million remains in our buyback authorization.
Now, l would like to turn to our guidance for the first quarter of fiscal year 2022. We are entering the year from a position of strength and remain optimistic about the markets we serve and our ability to execute. For the first quarter, we anticipate revenue in the range of $510 million-$530 million, which would represent another record quarter for Fabrinet. From a profitability perspective, we anticipate non-GAAP net income to be in the range of $1.29-$1.36 per diluted share. I'd like to point out that this guidance includes the impact of our customary annual merit increases, as well as approximately a $0.04-$0.05 impact from the cost we are incurring in order to safeguard our employees through the vaccination program that Seamus described.
We believe these employee safety costs are non-recurring and that this program benefits our employees and their families, as well as the continued operational success of our business. If not for this non-recurring cost, our non-GAAP net income guidance for Q1 would have represented another quarterly record for the company. In summary, we are proud of our record fourth quarter and fiscal 2021 performances. We are excited about the prospects ahead and look forward to continued success for all our stakeholders. Operator, we are now ready to open the call for questions.
As a reminder, to ask a question you will need to press star one on you touchtone telephone, if you are using a speakerphone, please pick up your handset before pressing the keys, to withdraw your question please press star two. Our first question comes from the line of John Marchetti of Stifel. Your question, please.
Thanks very much. Seamus, I wonder if you could just give us a little bit more color on that $25 million-$30 million headwind that you referenced, both in terms of this quarter and the guide. Obviously, having a fairly solid quarter here and the guidance certainly above where most of us were expecting certainly indicates that you're managing through this. Can you talk at all about maybe where you're seeing some of those challenges? You mentioned it lasting into September. I guess asking for the crystal ball, do you think it goes much further than that?
Hi, John. The shortages that we saw in Q3 really continued into Q4. I think that's the case for everybody. We expect that we'll see them at least for another couple of quarters. We have been focused on being as proactive as possible to minimize the impact. In the end, in Q4, we believe revenue could have been about $25 million-$30 million higher or about 6% higher if not for the shortages. The impact would have been much greater if we weren't doing a really good job partnering with our customers and our suppliers to mitigate these supply constraints, including having longer visibility to demand requirements from our customers and then sharing that with our suppliers. We don't have any special or proprietary knowledge, John, about when the shortages may end.
It could be a few more quarters, we think, but we'll continue to anticipate and really manage through the shortages as best we can. As regards which part of the business was impacted the most, it's really spread across all parts of the business. We've been working diligently to secure component supplies for products across our entire portfolio. Probably where we felt the most pain was in the Automotive part of our business and the Datacom markets. In fact, in the end, we were able to get all the components that we needed to make sure we got the customers what they needed. We would have seen revenue growth from those parts of the business instead of the decreases that we experienced. A mixed bag overall.
It's really spread across all parts of the business, John, and we expect it to continue for at least a few more quarters.
Got it. That's helpful, Seamus. Maybe just into that telecom demand specifically, obviously a pretty big bounce here, both sequentially and year-over-year. Sounds like you're expecting that to continue here in the start of the new fiscal year. Any color you can share there? Is this a situation where you think you're obviously leaving some of that demand on the table, but with visibility maybe increasing a little bit because people are putting orders in a little bit earlier, do you get a sense that strength is likely to continue, as we look out maybe even a little bit further past September?
Yeah. We obviously don't guide beyond the quarter. We guide one quarter at a time. I would say overall, we're quite upbeat about the demand trends we're seeing. It seems to be quite robust across all the markets we serve, really. The biggest challenge we have is the supply constraints. We're not really constrained by demand right now. It's a case of making sure we secure supply of the components we need. That demand strength that we're seeing is pretty pervasive across most of the markets we serve.
Got it. Maybe just one last one, and I'll jump back into the queue. For Csaba, the $0.04 or $0.05 headwind that you talked about with some of the new COVID testing and some of the measures you're putting in place there, I'm assuming that comes out of gross margin here in the September quarter. We should expect at least those costs to bounce back or be taken back out when we look at the December quarter.
Hi, John. Yes, basically, most of that cost is going to come out from our gross margin. Most of that profit is going to be related to our gross margin. That includes cost of vaccination of people and also putting them on pay while they are isolated to protect them and also to prevent the wider spread in the factories. Obviously, again, we are not guiding beyond one quarter at a time. As you know, we also have our merit increases baked in our Q1 forecast. We feel very optimistic about our efforts in making efficiency improvements to keep our gross margin and our guidance range between 12% and 12.5%.
Thank you very much.
Thank you. Our next question comes from Samik Chatterjee of JP Morgan. Your line is open.
Hi. Good afternoon. Thanks for taking my question. I guess it clearly looks like Telecom demand is quite strong. Wanted to see if you can offer how you're thinking about Datacom here. Looks like even as Telecom growth was quite solid, Datacom was more flat year-over-year in revenues. Any kind of update or can you share what you're thinking in terms of Datacom more from a fiscal first quarter or even kind of from a full-year outlook that will be helpful, what happens in terms of growth outlook there? Then I have a follow-up, please.
Yeah, I think our strength in Telecom in particular is very encouraging and it's really a function of a lot of the large new business wins that we've had over the last year, 18 months. That's a big driver of that growth. Another driver in our Telecom space is driven by the Data Center business, even though in our categorization, we categorize DCI, Data Center Interconnect, as Telecom. A lot of the drivers behind that are actually Datacom business. We feel quite good about the Datacom business generally. We're seeing some strength then and some increasing strength, I would say, in, let's say, 400ZR. We see that as a good driver of growth in the future. Again, that would be a mix of Telecom and Datacom.
Overall, I think we're quite, I would say, quite upbeat about both Telecom and Datacom, even though, like I say, it appears that a lot of the strength is in Telecom, but Datacom is actually quite strong as well, if you understand my point that some of our Datacom business is categorized as Telecom because it's DCI.
Got it. If I can just follow up on the Industrial Laser segment, clearly a strong rebound here into the fourth quarter. What are you seeing in terms of the recovery there? Do we get to kind of what we've seen, I guess, as more recent peak of almost like mid-40s per quarter or even higher pretty quickly with the recovery that you're seeing? Any kind of what you just hearing from customers would be helpful.
Yeah. We're pretty pleased, I would say, with the growth in the laser market, and we expect that business to be stable, to growing a little bit in Q1. Longer term, as we always have been, we're very optimistic about our position in the laser market. It is more of a, if you like, a slow build for us. We're really reliant on a lot of those bigger laser companies outsourcing more. Overall, we feel quite upbeat about the laser market. Guiding beyond Q1, we wouldn't be ready to do that, but we do feel quite good about the laser market.
Okay, got it. Thank you. Thanks for that color. Thank you.
No problem. Thank you, Samik.
Thank you. Again, to ask a question, please press star one on your touch-tone telephone. Again, that's star one on your touch-tone telephone to ask a question. Our next question comes from Fahad Najam of MKM Partners. Your line is open.
Thank you for taking my question. I may have missed if you gave this earlier, but I joined the call late. Can you provide us any color on revenue from silicon photonics this quarter?
Hi, Fahad, this is Csaba Sverha. Our silicon photonics revenue was around $110 million for the quarters. It was up about 5% sequentially and the highest levels so far. We see the silicon photonics growth to continue and we are really optimistic and upbeat about that segment as well.
Got it. Thank you for that. If I may follow up on that, what's driving the strength in silicon photonics? Because clearly datacom was flat. Are you beginning to see some incremental opportunities from 400ZR? Anything you can describe in terms of the adoption of 400ZR? Obviously, you've got a sizable customer that's leading that product market, any color you can present there would be appreciated.
The silicon photonics revenue is actually driven by two factors. Obviously, we are winning new businesses from our existing customers in the silicon photonics part of our business. That's continuing to gain market. We are also continuing to gain market share in that space. As you noted, 400ZR, we have handful of customers in that space as well, and we started to see that we shipped 400ZR revenue in our fiscal Q4, even though it was not material. Based on the outlook we are seeing, we are very optimistic about that area. Therefore, silicon photonics is something that has been growing. If you look at our year-on-year numbers, it grew about 27% on a year-on-year basis, and we continue to be very optimistic about that segment.
Appreciate the color there. Just one last one for me on telecom, just staying there. Obviously, you're clearly seeing the benefit your customers have highlighted of strong demand for them and you're impeded by component. A lot of your customers have highlighted they think that component shortages are worsening in Q3. Some may say that Q4 might be the worst, some say maybe Q4 is slightly better. Can you give us some sense on how you are seeing the supply for components?
Yeah, Fahad, this is Seamus. I think we're hearing the same thing, unfortunately. There doesn't seem to be any end in sight right now, at least. We said, I think, in our prepared remarks, we see it happening for another two quarters at least, but it's probably more like another three or four quarters of a constrained component environment. I suppose like our customers, we don't have a crystal ball. We are getting better visibility, I think, than we've ever gotten from our customers, and we're sharing that visibility with our supply base. We don't see it improving, certainly in the next two quarters, we don't see it improving, unfortunately.
Is it getting worse?
Hard to say. I think it's certainly not improving. I think we've done a good job, I think, positioning ourselves for success, making sure we factor it in and take into account the constrained environment when we set our guidance, but also when we make our commitments to our customers. It's a very challenging environment, but it's another new normal, I think, seems to be the phrase for the last year or so, and we just have to make sure we manage our way through it as best we can.
Thank you. Appreciate the answers.
No problem. Thank you, Fahad.
Thank you. At this time, I'd like to turn the call back over to the CEO, Seamus Grady, for closing remarks. Sir?
Thank you for joining our call today. We had a strong end to a record year with healthy market demand trends and a demonstrated ability to execute. We remain optimistic about our future. We look forward to speaking with you again soon. Goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.