Fabrinet (NYSE:FN) Q1 2023 Earnings Conference Call November 7, 2022 5:00 PM ET Company Participants Garo Toomajanian – Vice President of Investor Relations Seamus Grady – Chief Executive Officer Csaba Sverha – Chief Financial Officer Conference Call Participants Alex Henderson – Needham Samik Chatterjee – J.P. Morgan Fahad Najam – Loop Capital Operator Good afternoon. Welcome to Fabrinet’s Financial Results Conference Call for the First Quarter of Fiscal Year 2023. At this time, all participants are in a l ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________ FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2022 OR ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from__________to__________ Commission File Number: 001-34775 FABRINET (Exact name of registrant as specified in ...

fabrinet August 15, 2022 . SEELLI Company Overview Disclaimer This presentation and the accompanying oral presentation contain "forward-looking" statements that are based on our management's beliefs and assumptions and on information currently available to management. Forward-looking statements include all statements other than statements of historical fact contained in this presentation, including information concerning our business plans and objectives, potential growth opportunities, competitive position ...

Financial Data and Key Metrics Changes - The company reported revenue of $587.9 million for Q4 2022, a 15% increase year-over-year and a 4% increase from Q3 2022 [6][13] - Non-GAAP earnings per share reached a record $1.68, which is 28% higher than the previous year and 12% higher than Q3 2022 [13][19] - For the full fiscal year 2022, revenue was $2.26 billion, up 20% from the prior year, with non-GAAP earnings per share increasing by 31% to $6.13 [7][19] Business Line Data and Key Metrics Changes - Optical communications revenue was $464.7 million, up 20% year-over-year and 6% sequentially, with Telecom revenue at a record $371.9 million [15] - Datacom revenue increased to $92.8 million, reflecting a 20% year-over-year and 14% sequential growth [15] - Non-optical communications revenue was $123.2 million, with automotive revenue reaching a record $56 million, up 5% from the previous quarter [16] Market Data and Key Metrics Changes - The company continues to face supply chain constraints affecting all end markets, but has seen some improvements in supply availability for certain parts [9][54] - Demand for services remains strong across all markets, with particular strength in Telecom and Datacom segments [11][30] Company Strategy and Development Direction - The company is expanding its manufacturing capacity with the opening of a new one million square foot facility, Building 9, which increases its global footprint by approximately 50% [10] - The long-term strategy focuses on driving top-line growth while expanding operating margins, with a new target for non-GAAP operating margins set above 10% [12][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth prospects despite ongoing supply chain challenges, indicating strong demand across key markets [11][24] - The company anticipates revenue for Q1 2023 to be between $620 million and $640 million, with expectations of slightly lower gross and operating margins due to annual merit increases [23] Other Important Information - The company repurchased approximately 353,000 shares at an average price of $88.67 per share during the quarter, reflecting a commitment to return value to shareholders [21] - Cash, restricted cash, and investments totaled $478.5 million at the end of Q4 2022, down from the previous quarter [20] Q&A Session Summary Question: Can you discuss the structure of your hedges and the impact of exchange rates? - The company maintains a layered hedge program, fully hedged for the next quarter and gradually decreasing thereafter, with a gross margin tailwind from exchange rates [27] Question: What are your growth expectations for FY 2023? - Management is guiding one quarter at a time, noting strong demand but limited by component supply, with optimism about the overall demand environment [30] Question: Can you provide insights on the systems business and its growth? - The company is pursuing new systems business but faces challenges due to the current supply environment, making it difficult to predict timing for new wins [41] Question: How is the 400 gig segment performing? - The 400ZR segment is ramping up and represents a high single-digit portion of revenue, with growth expected despite temporary supply-related declines in other areas [60] Question: Are component shortages concentrated in specific segments? - Component shortages are broadly distributed across all segments, primarily affecting standard commodity-type electronic components [54]

Part I [Business](index=8&type=section&id=Item%201.%20Business) Fabrinet provides advanced optical packaging and precision manufacturing services, with FY2022 revenues growing 20.4% to $2.26 billion, primarily from optical communications products Key Financial Metrics | Financial Metric | Fiscal Year 2022 | Fiscal Year 2021 | Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $2.26 billion | $1.88 billion | +20.4% | | **Optical Communications Revenue %** | 78.8% | 76.7% | +2.1 p.p. | | **Lasers, Sensors, Other Revenue %** | 21.2% | 23.3% | -2.1 p.p. | - The company provides manufacturing services for complex products including **optical communication devices**, industrial lasers, and sensors for automotive and medical applications[22](index=22&type=chunk)[25](index=25&type=chunk) - Fabrinet's growth strategy focuses on strengthening its **optical communications presence**, diversifying into industrial lasers and medical markets, and expanding its client base globally[40](index=40&type=chunk) - The company's main manufacturing facilities are in **Thailand**, with additional sites globally, totaling approximately **3.7 million square feet**[27](index=27&type=chunk) [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from customer concentration, supply chain disruptions, foreign currency fluctuations, and geopolitical instability affecting international operations - Dependence on a small number of customers is a key risk, with **three customers accounting for 48.2% of total revenues in FY2022**[82](index=82&type=chunk) - The company is exposed to **supply chain risks**, relying on single-source suppliers for critical materials, which could impair production and harm profitability[98](index=98&type=chunk)[100](index=100&type=chunk) - Significant international operations, primarily in **Thailand**, expose the company to political unrest, currency fluctuations, and changes in local laws[111](index=111&type=chunk)[113](index=113&type=chunk)[120](index=120&type=chunk) - The **U.S.-China trade dispute** and tariffs could increase material costs, disrupt the supply chain, and reduce sales, impacting revenues[119](index=119&type=chunk) [Unresolved Staff Comments](index=36&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - Not applicable[178](index=178&type=chunk) [Properties](index=36&type=section&id=Item%202.%20Properties) The company's principal facilities are in Thailand, PRC, U.S., U.K., and Israel, with two owned campuses in Thailand totaling over 3.2 million square feet Principal Facilities Overview | Location | Ownership | Approx. Square Footage | | :--- | :--- | :--- | | Pinehurst Campus, Thailand | Owned | 1,731,000 sq ft | | Hemaraj Campus, Thailand | Owned | 1,496,000 sq ft | | Fuzhou, PRC | Leased | 303,000 sq ft | | Santa Clara, CA, USA | Owned | 72,000 sq ft | | Wiltshire, UK | Leased | 71,000 sq ft | [Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no material legal claims or actions pending or threatened against it - The company may be involved in litigation in the ordinary course of business, but **no material claims are present**[181](index=181&type=chunk) [Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[182](index=182&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Fabrinet's ordinary shares trade on the NYSE under 'FN', with no current dividend plans, and an active share repurchase program with $21.3 million remaining - The company's ordinary shares are listed on the **New York Stock Exchange** under the symbol **'FN'**[185](index=185&type=chunk) - The company currently intends to retain earnings for business use and **does not plan to pay dividends**[187](index=187&type=chunk) Share Repurchase Program Summary | Metric | Value | | :--- | :--- | | Shares Repurchased in FY2022 | 628,428 | | Average Price Per Share | $95.32 | | Total Purchase Price | $59.9 million | | Remaining Authorization (as of June 24, 2022) | $21.3 million | [Reserved](index=40&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved[195](index=195&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses FY2022 financial performance, including a 20.4% revenue increase to $2.26 billion, improved gross margin, liquidity, and critical accounting policies [Results of Operations](index=48&type=section&id=Results%20of%20Operations) FY2022 revenue increased 20.4% to $2.26 billion, with net income rising to $200.4 million, driven by optical communications demand and improved margins Consolidated Statements of Operations (in thousands) | (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Revenues** | $2,262,224 | $1,879,350 | $1,641,836 | | **Gross Profit** | $278,594 | $221,363 | $186,105 | | **Operating Income** | $204,518 | $150,753 | $117,402 | | **Net Income** | $200,380 | $148,341 | $113,479 | Revenues by End Market (in thousands) | End Market (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Optical communications** | $1,782,799 | $1,441,338 | $1,248,174 | | **Lasers, sensors, and other** | $479,425 | $438,012 | $393,662 | [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 24, 2022, the company had $478.2 million in cash and investments, $27.4 million in debt, and management believes liquidity is sufficient for the next 12 months Liquidity Position (in millions) | (in millions) | As of June 24, 2022 | As of June 25, 2021 | | :--- | :--- | :--- | | Cash, cash equivalents, and short-term investments | $478.2 | $547.9 | | Outstanding debt | $27.4 | $39.5 | Cash Flow Summary (FY 2022, in millions) | Cash Flow Activity (FY 2022, in millions) | Amount | | :--- | :--- | | Net cash provided by operating activities | $124.2 | | Net cash used in investing activities | $(135.5) | | Net cash used in financing activities | $(92.9) | - Capital expenditures in FY2022 were **$80.5 million**, primarily for a new manufacturing building in Thailand, with expected decreases in FY2023[288](index=288&type=chunk) [Critical Accounting Policies and Use of Estimates](index=45&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) The company's critical accounting policies involve significant management judgment and estimates, including revenue recognition, inventory valuation, long-lived asset impairment, doubtful accounts, and deferred tax assets - **Revenue Recognition:** Management uses judgment to identify performance obligations and determine when control of goods transfers, impacting revenue timing[234](index=234&type=chunk)[236](index=236&type=chunk) - **Inventory Valuation:** Provisions for excess and obsolete inventory are based on demand forecasts; a **10% estimate change would impact FY2022 net income by $0.7 million**[239](index=239&type=chunk)[240](index=240&type=chunk) - **Deferred Income Taxes:** Deferred tax asset valuation assumes sufficient future taxable income, with a valuation allowance for the U.K. subsidiary[241](index=241&type=chunk)[244](index=244&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to interest rate risk, foreign currency risk, and credit risk, managed through swaps, forward contracts, and monitoring of counterparties - **Interest Rate Risk:** A **100 basis point LIBOR increase would raise interest expense by $0.3 million**, managed with interest rate swaps[292](index=292&type=chunk)[293](index=293&type=chunk) - **Foreign Currency Risk:** Significant exposure to Thai baht, RMB, and GBP, with a **10% USD weakening impacting the net dollar position by $5.3 million**, managed with forward contracts[296](index=296&type=chunk)[299](index=299&type=chunk) - **Credit Risk:** Concentrated with a small number of customers and financial institutions, mitigated by monitoring their financial health[300](index=300&type=chunk) [Financial Statements and Supplementary Data](index=58&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements for FY2022, FY2021, and FY2020, along with the independent auditor's report from PricewaterhouseCoopers ABAS Ltd Consolidated Balance Sheet Highlights (in thousands) | (in thousands) | As of June 24, 2022 | As of June 25, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,525,171 | $1,352,507 | | **Total Assets** | $1,835,641 | $1,616,122 | | **Total Current Liabilities** | $538,487 | $444,358 | | **Total Liabilities** | $581,959 | $503,602 | | **Total Shareholders' Equity** | $1,253,682 | $1,112,520 | Consolidated Statements of Operations Highlights (in thousands) | (in thousands, except per share data) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | **Revenues** | $2,262,224 | $1,879,350 | | **Net Income** | $200,380 | $148,341 | | **Diluted EPS** | $5.36 | $3.95 | - PricewaterhouseCoopers ABAS Ltd. issued an **unqualified opinion**, affirming fair financial statement presentation and effective internal controls[306](index=306&type=chunk) - A critical audit matter identified was the **timing of revenue recognition**, involving significant management judgment in evaluating contract terms[313](index=313&type=chunk)[314](index=314&type=chunk) [Controls and Procedures](index=110&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 24, 2022, with no material changes during the quarter - Management concluded that **disclosure controls and procedures were effective** as of the fiscal year-end[537](index=537&type=chunk) - Management's assessment concluded that the company maintained **effective internal control over financial reporting** as of June 24, 2022[542](index=542&type=chunk) - **No material changes** were made to the internal control over financial reporting during the last fiscal quarter[538](index=538&type=chunk) Part III [Directors, Executive Compensation, Security Ownership, and Accountant Fees](index=111&type=section&id=Items%2010-14) Information for Items 10 through 14, covering Directors, Executive Compensation, Security Ownership, Related Transactions, and Accountant Fees, is incorporated by reference from the 2022 proxy statement - **Item 10: Directors, Executive Officers and Corporate Governance** information is incorporated by reference from the 2022 Proxy Statement[546](index=546&type=chunk) - **Item 11: Executive Compensation** information is incorporated by reference from the 2022 Proxy Statement[547](index=547&type=chunk) - **Item 12: Security Ownership** information is incorporated by reference from the 2022 Proxy Statement[548](index=548&type=chunk) - **Item 13: Certain Relationships and Related Transactions** information is incorporated by reference from the 2022 Proxy Statement[549](index=549&type=chunk) - **Item 14: Principal Accountant Fees and Services** information is incorporated by reference from the 2022 Proxy Statement[550](index=550&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=112&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with or incorporated by reference into the Form 10-K, including articles of association, equity plans, agreements, and CEO/CFO certifications - The report includes a list of all exhibits filed, such as the **Amended and Restated Memorandum and Articles of Association** (Exhibit 3.1)[554](index=554&type=chunk) - **Management contracts and compensatory plans**, including the 2020 Equity Incentive Plan, are filed as exhibits[554](index=554&type=chunk)[556](index=556&type=chunk) - **CEO and CFO certifications** pursuant to the Sarbanes-Oxley Act of 2002 are included as Exhibits 31.1, 31.2, and 32.1[558](index=558&type=chunk) [Form 10-K Summary](index=115&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company's filing - Not applicable[559](index=559&type=chunk)

Fabrinet (NYSE:FN) Q3 2022 Earnings Conference Call May 2, 2022 5:00 PM ET Company Participants Garo Toomajanian - IR Seamus Grady - CEO Csaba Sverha - CFO Conference Call Participants Alex Henderson - Needham & Company Angela Jin - JPMorgan Operator Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Third Quarter of Fiscal Year 2022. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions on how to participat ...

[Risk Factors Summary](index=4&type=section&id=RISK%20FACTORS%20SUMMARY) The company faces principal risks from customer concentration, supply chain vulnerabilities, foreign operational risks, and financial exposures including currency volatility and debt covenants - Sales are concentrated with a small number of customers, making the company vulnerable to order reductions or customer loss[10](index=10&type=chunk) - The business is exposed to supply chain disruptions due to reliance on single-source or limited suppliers for critical materials[10](index=10&type=chunk) - Operations are primarily conducted in foreign countries, particularly Thailand and the PRC, exposing the company to geopolitical, economic, and currency risks[10](index=10&type=chunk)[12](index=12&type=chunk) - Financial risks include fluctuations in foreign currency exchange rates, restrictive covenants in loan agreements, and uncertainties related to the phase-out of LIBOR[10](index=10&type=chunk)[12](index=12&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 25, 2022, detailing balance sheets, income, equity, cash flows, and accounting notes [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.78 billion** from **$1.62 billion**, with liabilities rising to **$551.4 million** and shareholders' equity growing to **$1.23 billion** as of March 25, 2022 Condensed Consolidated Balance Sheets (in thousands) | Account | March 25, 2022 | June 25, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,470,148 | $1,352,507 | | **Total Assets** | **$1,780,139** | **$1,616,122** | | **Total Current Liabilities** | $502,659 | $444,358 | | **Total Liabilities** | **$551,412** | **$503,602** | | **Total Shareholders' Equity** | **$1,228,727** | **$1,112,520** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Quarterly revenues increased to **$564.4 million** with net income of **$50.7 million**, while nine-month revenues reached **$1.67 billion** and net income **$144.2 million** Key Performance Indicators (Three Months Ended, in thousands) | Metric (in thousands) | March 25, 2022 | March 26, 2021 | | :--- | :--- | :--- | | Revenues | $564,395 | $479,317 | | Gross Profit | $70,693 | $56,778 | | Operating Income | $53,659 | $37,676 | | Net Income | $50,661 | $37,493 | | Diluted EPS | $1.35 | $1.00 | Key Performance Indicators (Nine Months Ended, in thousands) | Metric (in thousands) | March 25, 2022 | March 26, 2021 | | :--- | :--- | :--- | | Revenues | $1,674,350 | $1,369,783 | | Gross Profit | $203,661 | $160,279 | | Operating Income | $148,114 | $107,158 | | Net Income | $144,191 | $105,928 | | Diluted EPS | $3.85 | $2.82 | [Condensed Consolidated Statements of Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Total shareholders' equity increased to **$1.23 billion**, driven by **$144.2 million** net income, partially offset by **$28.6 million** in share repurchases and tax withholdings - Key activities affecting shareholders' equity in the nine months ended March 25, 2022, included net income of **$144.2 million**, share-based compensation of **$21.7 million**, and share repurchases of **$28.6 million**[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating activities provided **$107.9 million** cash, while investing used **$83.2 million** and financing used **$58.2 million**, resulting in a **$33.5 million** net cash decrease Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | March 25, 2022 | March 26, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $107,897 | $79,316 | | Net cash used in investing activities | $(83,218) | $(36,414) | | Net cash used in financing activities | $(58,204) | $(28,915) | | **Net (decrease) increase in cash** | **$(33,525)** | **$13,987** | [Notes to Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail business, accounting policies, and financial instruments, including revenue by end market (optical communications **78.7%**), derivative hedging, borrowings, and **$1.41 billion** in purchase obligations Revenues by End Market (Nine Months Ended March 25, 2022, in thousands) | End Market | Revenue (in thousands) | % of Total | | :--- | :--- | :--- | | Optical communications | $1,318,087 | 78.7% | | Lasers, sensors and other | $356,263 | 21.3% | | **Total** | **$1,674,350** | **100.0%** | - The company uses foreign currency forward contracts and interest rate swaps to manage financial risks. As of March 25, 2022, it had outstanding U.S. dollar forward contracts with a notional amount of **$135.0 million** against the Thai baht[56](index=56&type=chunk)[62](index=62&type=chunk)[68](index=68&type=chunk) - As of March 25, 2022, the company had a share repurchase program with a remaining authorization of **$52.5 million**. During the nine months ended, **275,608 shares** were repurchased for **$28.6 million**[111](index=111&type=chunk) - The company has significant purchase obligations of **$1.41 billion** and capital expenditure commitments of **$17.7 million** as of March 25, 2022[116](index=116&type=chunk)[117](index=117&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting **17.7%** quarterly revenue growth and **22.2%** nine-month growth, improved gross margins, COVID-19 impacts, foreign exchange risks, and sufficient liquidity - The COVID-19 pandemic continues to create challenges, including supply chain disruptions and fluctuations in material availability, which are expected to negatively affect gross margins for the foreseeable future[130](index=130&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) Revenue Comparison (in millions) | Period | March 25, 2022 | March 26, 2021 | % Change | | :--- | :--- | :--- | :--- | | **Three Months Ended** | $564.4 | $479.3 | 17.7% | | **Nine Months Ended** | $1,674.4 | $1,369.8 | 22.2% | Gross Profit Comparison (in millions) | Period | March 25, 2022 | March 26, 2021 | | :--- | :--- | :--- | | **Three Months Ended** | $70.7M (12.5% of revenue) | $56.8M (11.8% of revenue) | | **Nine Months Ended** | $203.7M (12.2% of revenue) | $160.3M (11.7% of revenue) | - The company believes its cash position of **$515.0 million** in cash, cash equivalents, and short-term investments, along with cash flow from operations, is sufficient to meet working capital and capital expenditure needs for at least the next 12 months[135](index=135&type=chunk)[204](index=204&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company details market risks, including interest rate risk mitigated by swaps, and significant foreign currency exposure from operations in Thailand, PRC, and UK, partially hedged by derivatives - A hypothetical **100 basis point increase** in LIBOR would have increased interest expense by approximately **$0.3 million** for the nine months ended March 25, 2022[215](index=215&type=chunk) - The company has significant exposure to fluctuations in the Thai baht, RMB, and GBP against the U.S. dollar, as most revenues are in USD while a substantial portion of operating expenses are in local currencies[220](index=220&type=chunk)[221](index=221&type=chunk) - A hypothetical **10% weakening** of the U.S. dollar against the Thai baht, RMB, and GBP would have resulted in a decrease in the company's net dollar position by approximately **$5.5 million** as of March 25, 2022[222](index=222&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were **effective** as of March 25, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[224](index=224&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[225](index=225&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal claims or actions are currently pending or threatened against it - As of the filing date, the company is not involved in any material pending or threatened legal proceedings[227](index=227&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section details significant business risks, including customer concentration, supply chain disruptions, intense competition, international operational risks, financial covenants, and intellectual property and cybersecurity concerns - The company depends on a small number of customers for a significant portion of its revenue. In the three months ended March 25, 2022, **three customers** accounted for **53.5%** of total revenues[232](index=232&type=chunk) - The optical communications market represented **78.0%** of revenues for the three months ended March 25, 2022, making the company's growth dependent on this market's expansion[237](index=237&type=chunk) - The company faces significant competition from customers' internal manufacturing capabilities and other third-party manufacturers[242](index=242&type=chunk) - A substantial portion of operating expenses are paid in Thai baht, while revenues are primarily in U.S. dollars, creating significant exposure to currency exchange rate fluctuations[268](index=268&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **237,339 ordinary shares** for **$24.2 million** during the quarter, with **$52.5 million** remaining authorized for future repurchases Share Repurchase Activity (Three Months Ended March 25, 2022) | Metric | Value | | :--- | :--- | | Total Shares Purchased | 237,339 | | Average Price Paid Per Share | $101.90 | | Total Cost (in millions) | $24.2 | | Remaining Authorization (in millions) | $52.5 | [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including a consulting agreement, CEO/CFO certifications, and Inline XBRL data files - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and Inline XBRL financial data files (101 series)[336](index=336&type=chunk)

Fabrinet (NYSE:FN) Q2 2022 Earnings Conference Call January 31, 2022 5:00 PM ET Company Participants Garo Toomajanian - IR Seamus Grady - CEO Csaba Sverha - CFO Conference Call Participants Alex Henderson - Needham Samik Chatterjee - JPMorgan Operator Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the Second Quarter of Fiscal Year 2022. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, In ...

Financial Performance - Fabrinet achieved record Q2 revenue of $566.6 million, exceeding the guidance range[16] - Year-over-year revenue increased by 25% from $453.8 million in the previous year[15] - Non-GAAP gross profit was $70.8 million, resulting in a gross margin of 12.5%[15] - Non-GAAP operating profit reached $58.7 million, with an operating margin of 10.4%[15] - Non-GAAP net income was $56.2 million, leading to a diluted EPS of $1.50, which was above the guidance range[15, 16] Revenue Breakdown - Optical communications accounted for 80% of total revenue in F2Q22[22] - Non-optical communications represented 20% of total revenue in F2Q22[22] Balance Sheet - The company's cash, cash equivalents, including marketable securities and restricted cash, totaled $520.2 million[17] - Working capital stood at $478.4 million[17] - Total debt was $33.4 million[17] - Total shareholders' equity amounted to $1,199.2 million[17]

[Risk Factors Summary](index=4&type=section&id=RISK%20FACTORS%20SUMMARY) [Risk Factors Summary](index=4&type=section&id=RISK%20FACTORS%20SUMMARY) This section outlines principal investment risks, including customer dependence, market consolidation, operational challenges, international exposures, financial risks, and cybersecurity threats - Sales are dependent on a small number of customers, and a reduction in orders or loss of any of these customers could significantly harm business results[9](index=9&type=chunk) - The business is exposed to risks from international operations, including political unrest in Thailand, the ongoing U.S.-China trade dispute, and fluctuations in foreign currency exchange rates[9](index=9&type=chunk) - Supply chain risks are significant, as the company relies on single-source or limited suppliers for critical materials, which could lead to shortages and increased costs[9](index=9&type=chunk) - Financial risks include the potential impairment of business due to financial ratio covenants in loan agreements and the impact of the phase-out of the London Interbank Offered Rate (LIBOR)[11](index=11&type=chunk) - The company faces risks related to cybersecurity attacks on its IT infrastructure and potential intellectual property infringement claims[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, with accompanying notes [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $1.75 billion, driven by receivables and inventories, while liabilities rose to $551.6 million, and shareholders' equity reached $1.20 billion Condensed Consolidated Balance Sheet Highlights (as of December 24, 2021 vs. June 25, 2021) | Account | Dec 24, 2021 (in thousands) | June 25, 2021 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $1,439,987 | $1,352,507 | | Inventories | $484,873 | $422,133 | | **Total Assets** | **$1,750,795** | **$1,616,122** | | **Total Current Liabilities** | $500,037 | $444,358 | | Trade accounts payable | $391,176 | $346,555 | | **Total Liabilities** | **$551,604** | **$503,602** | | **Total Shareholders' Equity** | **$1,199,191** | **$1,112,520** | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Revenues for the three months ended December 24, 2021, increased 24.9% to $566.6 million, with net income rising to $48.9 million and diluted EPS reaching $1.30 Statement of Operations Highlights (Three Months Ended) | Metric | Dec 24, 2021 (in thousands) | Dec 25, 2020 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $566,633 | $453,827 | +24.9% | | Gross Profit | $69,371 | $53,021 | +30.8% | | Operating Income | $51,445 | $35,865 | +43.4% | | Net Income | $48,879 | $35,384 | +38.1% | | Diluted EPS | $1.30 | $0.94 | +38.3% | Statement of Operations Highlights (Six Months Ended) | Metric | Dec 24, 2021 (in thousands) | Dec 25, 2020 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $1,109,955 | $890,466 | +24.6% | | Gross Profit | $132,968 | $103,501 | +28.5% | | Operating Income | $94,455 | $69,482 | +35.9% | | Net Income | $93,530 | $68,435 | +36.7% | | Diluted EPS | $2.50 | $1.83 | +36.6% | [Condensed Consolidated Statements of Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Total shareholders' equity increased from $1.11 billion to $1.20 billion, primarily due to net income, partially offset by share settlements and repurchases - For the six months ended December 24, 2021, total shareholders' equity increased by **$86.7 million**, from **$1,112.5 million** to **$1,199.2 million**[20](index=20&type=chunk) - Key activities affecting shareholders' equity during the six-month period included net income of **$93.5 million**, share-based compensation of **$16.0 million**, share repurchases of **$4.4 million**, and tax withholdings on restricted share units of **$19.5 million**[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $57.6 million, while investing activities used $53.8 million and financing activities used $29.8 million, resulting in $276.8 million cash at period-end Cash Flow Summary (Six Months Ended) | Cash Flow Activity | Dec 24, 2021 (in thousands) | Dec 25, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $57,568 | $41,314 | | Net cash used in investing activities | ($53,777) | ($24,346) | | Net cash used in financing activities | ($29,773) | ($23,629) | | **Net decrease in cash** | **($25,982)** | **($6,661)** | | Cash at end of period | $276,845 | $226,776 | - The increase in cash from operations was mainly due to higher net income, offset by significant increases in inventories (**$62.7 million**) and trade accounts receivable (**$48.0 million**)[27](index=27&type=chunk) - Investing activities included **$51.9 million** for the purchase of property, plant, and equipment[27](index=27&type=chunk) - Financing activities included **$19.5 million** for withholding tax on restricted share units, **$6.1 million** for repayment of long-term borrowings, and **$4.2 million** for share repurchases[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on accounting policies, revenue recognition, financial instruments, inventory, leases, borrowings, taxes, share-based compensation, and commitments Revenue by End Market (Three Months Ended) | End Market | Dec 24, 2021 (in thousands) | % of Total | Dec 25, 2020 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Optical communications | $450,783 | 79.6% | $347,840 | 76.6% | | Lasers, sensors and other | $115,850 | 20.4% | $105,987 | 23.4% | | **Total** | **$566,633** | **100.0%** | **$453,827** | **100.0%** | Revenue by Geographic Region (Three Months Ended Dec 24, 2021) | Region | Revenue (in thousands) | % of Total | | :--- | :--- | :--- | | North America | $247,277 | 43.6% | | Asia-Pacific and others | $222,040 | 39.2% | | Europe | $97,316 | 17.2% | | **Total** | **$566,633** | **100.0%** | - As of December 24, 2021, the company had a purchase obligation of **$1,301.7 million** and capital expenditure commitments of **$19.9 million**, primarily for a new manufacturing building[117](index=117&type=chunk)[120](index=120&type=chunk) - The company repurchased **38,269 shares** for **$4.4 million** during the three and six months ended December 24, 2021, with **$76.7 million** remaining under the share repurchase authorization[112](index=112&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and results, highlighting strong revenue growth, improved margins, and solid liquidity, alongside COVID-19 impacts, cost structures, and foreign exchange risks [Overview and COVID-19 Impact](index=38&type=section&id=Overview%20and%20COVID-19%20Impact) Fabrinet provides optical manufacturing services, navigating COVID-19 supply chain challenges with strong liquidity of $519.9 million in cash and investments, while benefiting from long-term internet bandwidth demand - The company believes that growing global demand for internet bandwidth, driven by work-from-home protocols, will have a positive long-term impact on its business[137](index=137&type=chunk) - Near-term challenges from COVID-19 include disruptions in the supply chain and fluctuations in material availability, which are expected to continue impacting revenue generation and negatively affecting gross margins[137](index=137&type=chunk) - As of December 24, 2021, the company reported a strong capital position with **$519.9 million** in cash, cash equivalents, and short-term investments, and total debt of approximately **$33.5 million**[137](index=137&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Quarterly revenues grew 24.9% to $566.6 million, with gross margin improving to 12.2% and operating income increasing 43.2% to $51.4 million Quarterly Performance Comparison (Q2 FY22 vs Q2 FY21) | Metric | Q2 FY22 | Q2 FY21 | Change | | :--- | :--- | :--- | :--- | | Revenues | $566.6M | $453.8M | +24.9% | | Gross Profit | $69.4M | $53.0M | +30.8% | | Gross Margin | 12.2% | 11.7% | +50 bps | | Operating Income | $51.4M | $35.9M | +43.2% | | Operating Margin | 9.1% | 7.9% | +120 bps | - The increase in revenue for both the three and six-month periods was primarily due to higher demand for optical communications manufacturing services from key customers[176](index=176&type=chunk)[177](index=177&type=chunk) - SG&A expenses increased by **$0.6 million** for the quarter, mainly due to higher share-based compensation and R&D expenses, offset by lower start-up costs in Israel[182](index=182&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $519.9 million in cash and investments, generating $57.6 million from operations, and believes it can meet future capital needs Six-Month Cash Flow Summary | Activity | Six Months Ended Dec 24, 2021 (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $57,568 | | Net cash used in investing activities | ($53,777) | | Net cash used in financing activities | ($29,773) | - Cash from operations of **$57.6 million** was driven by net income of **$93.5 million**, offset by increases in inventories (**$62.7 million**) and accounts receivable (**$48.0 million**)[207](index=207&type=chunk) - The company believes its current cash, investments, and cash flow from operations will be sufficient to meet its needs for at least the next 12 months[204](index=204&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rates, foreign currency fluctuations (especially Thai baht), and credit exposure, which are managed through derivative instruments and diversified investments - The company has significant foreign currency risk, particularly from the Thai baht, as most revenues are in USD while a substantial portion of payroll and operating expenses are in THB. A **10% weakening** of the USD against the THB, RMB, and GBP would have resulted in a net dollar position decrease of approximately **$6.6 million** as of December 24, 2021[220](index=220&type=chunk)[222](index=222&type=chunk) - Interest rate risk exists for both investment income and debt expense. A **10 basis point decline** in interest rates would have decreased interest income by approximately **$0.2 million** for the six-month period. A **100 basis point increase** in LIBOR would have increased interest expense by a similar amount, though this is mitigated by interest rate swap agreements[214](index=214&type=chunk)[215](index=215&type=chunk) - The company uses derivative instruments, including foreign currency forward contracts and interest rate swaps, to manage market risks. Certain foreign currency and interest rate hedges are designated as cash flow hedges and qualify for hedge accounting[216](index=216&type=chunk)[222](index=222&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 24, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[224](index=224&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[225](index=225&type=chunk) [PART II. OTHER INFORMATION](index=53&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal claims or actions currently pending or threatened against it - There are currently no material legal claims or actions pending or threatened against the company[227](index=227&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section details significant business and investment risks, including COVID-19 impacts, customer concentration, supply chain vulnerabilities, international operational risks, financial risks, and cybersecurity threats - Customer concentration is a major risk, with **three customers** accounting for **54.8%** of revenues in the three months ended December 24, 2021[232](index=232&type=chunk) - The company is currently experiencing impacts from the significant global semiconductor shortage, which can cause disruptions to production schedules and adversely affect financial results[248](index=248&type=chunk) - The majority of operations are in Thailand, exposing the company to political, social, and economic risks specific to that country[270](index=270&type=chunk) - The U.S. Commerce Department's addition of Huawei to the BIS Entity List has adversely affected orders from some of the company's customers and is expected to continue to do so[265](index=265&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 38,269 ordinary shares for $4.4 million during the quarter, with $76.7 million remaining under the share repurchase authorization Share Repurchase Activity (Three Months Ended Dec 24, 2021) | Metric | Value | | :--- | :--- | | Total Shares Purchased | 38,269 | | Average Price Paid Per Share | $115.82 | | Total Purchase Price | $4.4 million | | Remaining Authorization | $76.7 million | [Item 6. Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO and CFO certifications and Inline XBRL financial data - Filed exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[335](index=335&type=chunk) - The filing includes financial data in Inline XBRL format as required by the SEC[335](index=335&type=chunk)