Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Q4 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 Timajanian, Investor Relations.
Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results For the Q4 of fiscal year 2021, which ended June 25, 2021. With me on the call today are Seamus Grady, 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, and 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 Chaba, followed by time for questions. I would now like to turn the call over to Fabadex'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 4th 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 $500,000,000 at $509,600,000 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 4th quarter.
For the full fiscal year, we produced record revenue of $1,880,000,000 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 $118,700,000 and free cash flow was $76,100,000 Looking at some of the highlights of the Q4, 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 4th quarter revenue by approximately $25,000,000 to $30,000,000 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 Chhaba will outline in a moment. We are also optimistic from a profitability standpoint. That said, in Q1, we anticipate a small non recurring headwind As you may have heard, Thailand along with other countries in Southeast Asia has recently seen a rapidly growing number of COVID-nineteen 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 year and a half in order to protect our staff.
This includes increased testing and sending people home with pay if they test positive for COVID-nineteen. 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 1,000,000 square foot building at our Chonburi campus. Construction is progressing and we expect the building to be complete in about 1 year. We also previously discussed our intention to add approximately 100,000 square feet manufacturing space at our Pinehurst campus. Just after the end of the Q4, 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 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 Chava for additional financial details and our guidance for the Q1 of fiscal 2022. Chhaba?
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 $509,600,000 up 6% from Q3 and 26% from a year ago and was above our guidance We also executed very well with our highest gross margin in 4 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 $387,800,000 or 76% of total revenue, up 7% from Q3. Non optical communications revenue was $121,700,000 or 24% of total revenue And increased 4% from Q3.
Within optical communications, telecom revenue was $310,700,000 up 10% from last quarter. Datacom revenue was $77,100,000 down very modestly from Q3. By technology, Silicon photonics products made up 22 percent of total revenue or $110,200,000 up five Revenue from products rated at speeds of 400 gig or higher was 133,300,000 up 27% from the prior quarter. This more than offset a 4% sequential decline of 100 gig products to $133,600,000 in the 4th quarter. In Q1, we expect the optical communications growth Looking at our non optical communications business, automotive revenue was 48,600,000 A slight decline from our record 3rd quarter results.
Industrial laser revenue more than offset this at $41,100,000 up 14% from the 3rd quarter. Sensor revenue was 3,600,000 And other non optical communications revenue was up 14% to $28,300,000 Now turning to the details of our P and Unless otherwise noted, profitability metrics are on a non GAAP basis. A reconciliation of GAAP to non GAAP measures Gross margin was 12.3%, up 10 basis points from Q3 and was at the highest level in 4 years. Operating expenses in the quarter were $12,000,000 or 2.4 percent of revenue, reflecting our operating leverage, resulting in operating income of $50,500,000 or 9.9 percent of revenue, a record for the During the Q4, we have recorded a tax benefit of 2,100,000 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 2020 will be approximately 4%.
Non GAAP net income was a record at $49,400,000 or 1 point $3.1 per diluted share. On a GAAP basis, net income was also a record at 42,400,000 or $1.13 per diluted share. For the full year, revenue was $1,880,000,000 an increase of 14% from the prior year. Non GAAP gross margin was 12.1% and operating margins were 9.5% 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 3 10% customers. Cisco and Lumentum both represented percent 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 Q4, cash, restricted cash and investments were 548,100,000 an increase of $39,200,000 from the end of the Q3. Operating cash flow was 43,500,000 With CapEx of $13,500,000 free cash flow was $30,000,000 in the quarter. In addition to expenses related to construction at our Tchomboni campus, we recently purchased 15 acres of land adjacent to our Pinehurst That will facilitate the manufacturing expansion we have in progress at that campus. Of the $13,200,000 purchase price, 10% was paid during the Q4 and the remainder was paid in the Q1 of fiscal 2022. We remain active in our share repurchase plan.
And during the Q4, we repurchased approximately 123,000 shares at an average price of $85.88 for a total cash outlay of $10,500,000 Approximately $81,200,000 remains in our buyback authorization. Now I would like to turn to our guidance for the Q1 of fiscal year 2022. We are entering the year from and remain optimistic about the markets we serve and our ability to execute. For the Q1, We anticipate revenue in the range of $510,000,000 to $530,000,000 which will represent another record quarter From a profitability perspective, we anticipate non GAAP net income to be in the range of 1 point $2.9 to $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 to 0 point Our employees through the vaccination program that Chambers described.
We believe this employee safety costs are non reoccurring 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 costs, 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 4th quarter and fiscal 2021 performances. We are excited about the prospects ahead and look forward to continued
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 $25,000,000 to 30,000,000 We're expecting certainly indicates that you're managing through this. Can you talk at all about maybe where you're seeing some of those challenges? And You mentioned it lasting into September. Do you I guess asking for the crystal ball, do you think it goes much further than that?
Yes. Hi, John. So the shortages that we saw in Q3 really continued into Q4, And I think that's the case for everybody. And we expect that we'd see them at least for another couple of quarters. We have been focused On being as proactive as possible to minimize the impact, but in the end, in Q4, we believe revenue could have been about $25,000,000 to $30,000,000 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 What was impacted the most, we have been really working it's really spread across all parts of the business. It's 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.
But 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. So a mixed bag overall, it's really spread across all parts of the business, we expect to continue for at least a few more quarters.
Got it. That's helpful, Seamus. And then maybe just Into that telecom demand specifically, obviously, a pretty big bounce here, both sequentially and year over year. It sounds like you're expecting that to continue here in The start of the new fiscal year, any color you can share there? I mean, is this a situation where you think you're obviously, you're 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 that Strength is likely to continue as we look out, maybe even a little bit further past September?
Yes. I mean, we obviously don't guide Beyond the quarter, we guide 1 quarter at a time. But 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. And 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. But 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 Chava, 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, but then we should expect at least those costs to bounce back or
Yes, basically, most of that cost is going to come out 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. And obviously, again, we are not guiding beyond 1 quarter at a time. And as you know, we also have our merit increases baked in our Q1 forecast, But we feel very optimistic about our efforts in making efficiency improvements to Keep our gross margin in our guidance range between 12% to 10.5%.
Thank you very much.
Thank you. Our next question comes from Samik Chatterjee of JPMorgan. Your line is open. Hi, good afternoon. Thanks for taking my
I guess, clearly looks like telecom demand is quite strong. Wanted to see if you can offer what how you're 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 Q1 or even kind of from a full Your outlook that would be helpful. What happens in terms of growth outlook there? And then I have a follow-up please.
Yes, 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 it's categorized in our categorization, we categorized DCI, data center interconnect As telecom, but a lot of the drivers behind that are actually datacom business. So we feel quite good about the datacom business generally and We're seeing some strength then and some increasing strength, I would say, in, let's say, 400 ZR. We see that as a good driver of growth in the future. And again, that will be a mix of telecom and datacom.
But overall, I think we're quite I would say quite upbeat about both telecom and datacom even though it 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. And then if I can Follow-up on the industrial laser segment, clearly a strong rebound here into the 4th quarter. What are you seeing in terms of the Do we get to kind of what you'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're just hearing from customers
Yes, I mean, 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. But 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, Suneet.
Thank you. Our next question comes from Fahad Najam of MKM Partners. Your line is open.
Thank you for taking my question.
I wanted
to I may have missed if you gave this earlier, but I joined the call late. Can you Provide us any color on revenue for silicon photonics this quarter?
Hi, Fahad. This is Chava. So our silicon photonics revenue was around $110,000,000 For the quarters, it was up about 5% sequentially and the highest levels so far. So we see the silicon
for that. So if I may follow-up on that. What's driving the strength in silicon photonics? Because clearly Datacom was flat. So are you beginning to see some incremental opportunities from 400 gig ZR?
Anything you can Clive, in terms of the adoption of 400 gig ZR, obviously, you've got a sizable
So, the silicon photonics revenue is actually driven by 2 factors. Obviously, we are bidding new businesses from our existing customers in the silicon photonics It's part of our business. So that's continuing to gain market. We are also continuing to gain market share In that space, as you noted, 400 ZR, we have handful of customers in that space as well, and we started to see that we issued 400 ZR revenue in our Q4, fiscal Q4, even though it was not material, but based on the outlook we are seeing, we are very optimistic about that area. So silicon 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. So in terms of just one last 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. Any sense on like How I mean, 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 slightly better, but can you give us some sense on how you are seeing the supply for
Yes. Fahad, this is Seamus. I think we're hearing the same thing unfortunately There's no there doesn't seem to be any end in sight right now, at least. I mean, we said, I think, in our prepared remarks, we see it happening for Another couple of quarters at least, but it's probably more like another 3 or 4 quarters of a constrained component environment. Like I suppose like our customers, we don't have a crystal ball.
We are getting better visibility, I think, than we've We're getting from our customers and we're sharing that visibility with our supply base. So but we don't see it improving certainly in the next couple of quarters. We don't see it improving unfortunately. 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. So it's a very challenging environment, but it's like a lot of it's another new normal, I think, It 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 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.
And this concludes today's conference call. Thank you for participating. You may now disconnect.