Good day, ladies and gentlemen. Welcome to Sarbanet's Financial Results Conference Call for the Second Quarter of Fiscal Year 2018. At this time, all participants are As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Tomaginian, 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 second quarter of fiscal year 18, which ended December 29, 2017. With me on the call today are Tom Mitchell, Founder and Executive Chairman, Chamus Grady, Chief Executive Officer and TS Ng, Fabrinet's Chief Financial Officer. This call is being webcast a replay will be available on the Investors section of our website located at investor. Fabrinet.com.
Please refer to our website for important information in including our earnings press release and investor presentation, which includes a 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 November 7, 2017. We will begin the call with remarks from Tom, Seamus, and TS followed by time for questions.
I would now like to turn the call over to Fabrinet's Executive Chairman, Tom Mitchell. Tom? Hey, Gary, and good afternoon, everyone. I'm pleased with our 2nd quarter results. And believe our new programs and diversification will continue to contribute to success in the future.
I'd like now to turn the call over to Seamus for his remarks. Thank you, Tom, and good afternoon, everyone. I have spent my 1st 4 months at Fabrinet, meeting with customers and employees, and I am even more enthusiastic about the quality of our business, and the strength of our customer relationships than when I spoke with you a few months ago. Our experience and reputation as a technology driven manufacturer positions us uniquely in the marketplace. Since our founding, we have had a strong presence in hospital communications, and I'm looking forward the continued expansion of our business in this dynamic market.
And advanced packaging to other markets that are adjacent to the optical communications market. We already have a strong presence in the industrial laser or remote and sensor markets, and we remain committed to our longer term target revenue mix of 50% of our business coming from optical communications and 50% from other markets, namely Industrial, Automotive And Medica. While we continue to make steady progress with organic growth, We also believe combinations could be lengthy as we look for candidates that have the right balance of new market opportunities, reliable business trends, competitive margins and strong reputations. We believe that this more diverse revenue mix will drive more balanced revenue term. Looking at our fiscal second quarter in more detail, we're pleased to report revenue of $337,000,000, and non GAAP EPS of $0.72 per diluted share, both of which were above the high end of our guidance ranges.
This performance reflects the combination of continued weakness in the optical communications market, growth in our non communications business, and a meaningful contribution from new business. In fact, this new business represented 35% of our overall revenue in the 2nd quarter, and that $119,000,000 was consistent with our first quarter performance. While we don't break out financials by facility, we continue to see Fabrinet West And Fabrinet UK contributing to our overall growth. At the same time, but still relatively small, we are excited by the ramping production at our new campus in Chauntlery. Looking ahead to the 3rd quarter, while we expect our revenue to decline on a sequential basis, We expect the full impact of cost saving measures taken in Q2 and further efficiencies to produce non GAAP EPS which is roughly flat sequentially.
Despite an anticipated decrease in revenue. In summary, I'm pleased that we exceeded our revenue and profitability expectations for the second quarter. More importantly, I believe that Fabrinet remains uniquely positioned to generate profitable growth over the long term as we leverage our manufacturing expertise both within the optical communications market and in other markets where our know how can drive a compelling value proposition for our customer Now let me turn the call over to TS to discuss the details of our second quarter performance and our outlook. TS?
Thank you, Shemas. I will provide you with more details on our performance by end market and our financial results in Q2 of fiscal year 2018, as well as our guidance for Q3. Total revenue in the quarter was $337,100,000, a decrease of 4% from a year ago but above our guidance range. Non GAAP net income was $0.72 per share compared to $0.91 per share in the same quarter a year ago. In the second quarter, we experienced a 1,300,000 of $0.04 per share foreign exchange headwind compared to $1,900,000 or $0.05 tailwind in a quarter a year ago.
Despite this foreign exchange headwind, non GAAP net income per share still exceeded the upper end of our guidance range. As Seamus mentioned, non optical communication revenue continued to grow but did not quite offset declines in optical communication revenue. Optical communication represented 72% of total revenue compared to 77% in the first quarter, and non optical increased to 28% of total revenue. Within optical, Telecom was again 60% while datacom was 40%. Reflecting the overall decline in optical revenue.
100 gig solution were 133,000,000 compared to $157,000,000 in the first quarter, while 400 gig solutions were roughly flat at $16,000,000. Revenue from QSFP28 transceivers was $42,000,000 compared with $48,000,000 in the first quarter as the numbers of customers continue to transition to low cost CWDM4 variant. Silicon's electronic revenue was $74,000,000, down slightly from $77,000,000 in Q1. Turning to our non optical communication performance. We have a strong overall performance as anticipated with record revenues of 95,200,000.
Revenue from industry laser was a record $43,000,000, up 15% from Q1 and 20% from a year ago. Automotive revenue was also a quarterly record at nearly $26,000,000, increased 20% from Q1 and 18% from a year ago. Sensors revenue was stable at approximately 4,000,000. Other revenue was $17,000,000, up 20% from Q1 and 44% from a year ago, with contribution from 7 Net West and 7 Net U. K.
New business is an important contributor to our overall revenue. In Q2, new business revenue was $119,000,000, consistent with the first quarter and represented 35 percent of total revenue. Now turning to the details of our P and L, A reconciliation on GAAP to non GAAP measures is included in our earnings press release and investor presentation, which you can find on our website. Non GAAP gross margin in the 2nd quarter was 11.6%, slightly lower than at Q1 and below our target range of 12% to 12.5%, primarily due to the decrease in revenue as well as the continued strengthening of the Thai butt from the first quarter. We continue to expect cost cutting measures taken earlier in the quarter, and improved efficiency to drive improved gross margin in the second half of the year.
Non GAAP operating income in the second quarter was 30,000,000 and operating margin was 8.9 percent, flat from Q1, due primarily to tight controls on non GAAP operating expenses, including savings from the reduction we look for that we made earlier in the quarter. Taxes in the quarter were a net expense of $1,600,000 and our normalized effective tax rate was 6.3%, consistent with Q1 and in line with our expected range of 6% to 7%. We continue to anticipate an effective tax rate of 6 to 7% for fiscal year 2018. Non GAAP net income was 27,300,000 in the 2nd quarter or $0.72 per diluted share compared to $0.75 in Q1 and $0.91 a year ago. On a GAAP basis, which include share based compensation expenses, costs related to the reduction in force we announced last quarter, amortization for debt issuing costs and costs related to the completions of our CEO search Net income for the second quarter was 19,300,000 or 51¢ per diluted share compared with 25,300,000 of $0.55 per diluted share in the second quarter of fiscal year 2017.
As I mentioned earlier, we experienced a $1,300,000 or $0.04 per share negative impact from a stronger tieback on our GAAP and non GAAP bottom line results for the second quarter. Moving on to the balance sheet and cash flow statement. At the end of the second quarter, cash and investments were $287,700,000, This represents an increase of approximately $21,000,000 from the end of the first quarter, primarily from the operating cash flows $40,200,000, offset by CapEx of $10,200,000 and share repurchases of $10,000,000. We expect CapEx in FY18, all of which is maintaining a CapEx to be approximately 35,000,000. During the second quarter, we were active in our share repurchase program and bought back approximately $316,000 share at an average price of $31.36 per share.
Our Board of Directors has doubled the size of our share repurchase program from $30,000,000 to $60,000,000. As a result, $50,000,000 now remain in our authorization, and we expect to remain active with a buyback in the third quarter. I would now like to discuss guidance for the 3rd quarter. We expect revenue to decline in Q3. From a profitability perspective, We expect to see more meaningful benefits from the cost reduction we make earlier in the year and other efficiency combined to produce non GAAP EPS debt roughly flat sequentially despite an expected dip in revenue.
Therefore, for the third quarter of fiscal 2018, we expect revenue of between $316,000,000 324,000,000. We anticipate non GAAP net income per share in the third quarter to be in the range of $0.70 to $0.73. And GAAP net income per share of $0.50 to $0.53 based on approximately 37,900,000 fully diluted share outstanding. In summary, we expect the full impact of cost saving measures to offset some of the top line impact, highlighting the flexibility of our operating model. Importantly, We continue to be well positioned to benefit from improved market trends and increased diversification as we look ahead.
Operator, we will now
Our first question comes from the line of Patrick Newton with Stifel. Your line is now open.
Thank you for taking my questions. I guess, jumping right in on the guidance TS, you talked about cost cutting initiative But I'm curious if you have any directional guidance you can provide us on gross margin, whether it's going to be up, down, or flat. And then as we look at your various segments, sequentially, specifically focusing on optical, is there an area whether telecom or datacom that sequentially should have a larger sequential downtick?
Hey. That's it. This is TS. So if you look at the implied EPS, 70% to 73%. It worked backwards.
I think we project a slight improvement in the gross margin despite the lower revenue. And again, a lot of these are coming from the cost saving, from the reduction in force we took in November. Now in terms of the, you know, mix we foresee most of the downturn from the optical communication area. And then for the non communication sites of the equation, we believe you'll be flat or slightly sequentially slightly lower. Is that helpful?
That's very helpful. And I guess if we focus on that, the, the laser sensors and other revenue was very impressive. Historically, You have a large customer on your fiber lasers, but when they have a product refresh, you tend to get a quarter or 2 of an impact. And then historically, there hasn't been follow through from there. We're hearing from our own checks that it might be different this time.
I'm curious what you're seeing on that laser business that might make you think that perhaps it's a little bit more sustainable from a growth perspective this time around?
Yes, again Patrick, we have about 6 or 7 customer, producing a laser product. So again, sometimes one ups, one downs, and suffice to say that overall, we see, again, you know, pretty strong in that area. So again, fiber laser is only for 1 or 2 customers, and the rest of the customer in general, the trend looked pretty good.
Great. And just one more if I may, I guess, for either Seamus or for TS's, if we kinda dive into the QSFP28, trends, you have the LR4 to CWDM4 transition we have some normal seasonality in the March quarter. I'm curious if we try to ignore the seasonality, do you believe that this transition from LR4 to CWDM4 is largely behind your customers?
Not 100% behind yet. We are very happy with the results on the RAM or the CWDM4. And suffice to say that some of our customers do shipping l l 4 and PSM 4, but you are ramping down. So so, yeah, I mean, the story for FY 2019, it will be all probably all CWDM4.
Great. Thank you for taking my questions. Good luck.
Thank you. And our next question comes from the line of Troy Jensen with Piper Jaffray. Your line is now open.
Hey gentlemen, first off, congrats on the great results here.
Thank you, Troy. Thank you.
Hey, so Seamus, for you, I mean, you touched on M and A here. So just be curious to know if your thoughts are small tuck in deals or if you look to do anything larger or more
So we're pretty much open for both. As you've seen from our our results. Our balance sheet remains pretty strong. We have a pretty sizable nest egg of cash, so I think we're well positioned to really tackle any opportunity that comes our way, either smaller, like you said, took in acquisitions or larger deals. And we're really looking to add capability, not just that revenue.
We want to add capability that's complementary to what we do. We're a technology focused contract manufacturer, we want to keep it that way. So we're really looking to add business that diversifies improves our mix, but is also complementary to the technology we have today. So we're really open to both smaller deals and larger deals. So
you also talked about other markets. Getting into? Are there any specific verticals? Are you talking about different like processes?
Again, similar process to what we do today. We're not going to become a broad based EMS company. We're going to stay focused on our core technology. And then you've developed into other which are complementary. A good example would be some of the autonomous driving technology that's very complementary to what we do in the optical space today.
But also some of the medical equipment, that we're targeting. The medical industry and automotive will be 3, I would say, market segments, but there's a real focus on technology.
Okay. Understood. And for TS, could you give me, I've seen you miss the new products versus existing product?
Okay. The new business, we call it, we had 119,000,000, 35% of the our top line.
35%. It's existing 65%. Okay. And the last question for me, the new facility that you guys opened not so long ago, I'd just be curious to know, how much capacity is currently consumed?
So we have about 20% to 25% occupied right now. And about 45% to 50% what we call spoken for. So it's about, again, 45% to 50% spoken for.
Any thoughts on breaking ground on the next building, or is that far enough out that you don't need to worry about, you said?
I wouldn't worry about it, Todd, for the, for this quarter, certainly. Really the approach we take is once we get up to 60%, 65% output in that facility, it will be the 2nd facility we we generally break ground and add capacity, proactively. We're not going to wait for a customer to come. We're going to add capacity proactively. So Once we get up to, I would say, 65, there are thereabouts output.
We would add a new facility there. And we have enough land and space there to add several facilities, you can probably have enough, certainly in terms of land and capacity, you can have enough to last as far, I would say, you know, 8 to 10 years. All right, perfect. All right, guys. Keep up the good work.
Thank you, Troy.
Thank you. And I'm showing no further questions. I'd like return the call to Mr. Shaneus Grady for any closing remarks.
Okay. Thanks very much everyone. Thank you for joining us on our call today, and we look forward to speaking with you again soon. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.