[RISK FACTORS SUMMARY](index=4&type=section&id=RISK%20FACTORS%20SUMMARY) This section summarizes key risks including customer concentration, market consolidation, operational volatility, supply chain dependencies, international operational challenges, and macroeconomic conditions - Sales depend on a small number of customers, making the company vulnerable to order reductions or loss[10](index=10&type=chunk) - Market consolidation could reduce potential customers and increase pricing pressure[10](index=10&type=chunk) - Significant fluctuations in quarterly revenues, gross profit margins, and operating results are expected, leading to potential share price volatility[10](index=10&type=chunk) - Reliance on single or limited suppliers for critical materials poses risks of shortages, quality issues, or increased costs[10](index=10&type=chunk) - International operations face risks from foreign currency fluctuations, U.S.-China trade disputes, and political/economic instability[10](index=10&type=chunk)[12](index=12&type=chunk) - Unfavorable worldwide economic conditions, including inflation and supply chain disruptions, may negatively affect business and financial results[12](index=12&type=chunk) [PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Fabrinet's unaudited condensed consolidated financial statements, including balance sheets, income statements, equity statements, and cash flow statements, with detailed notes on business and accounting policies [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This item provides the unaudited condensed consolidated financial statements of Fabrinet, including the balance sheets, statements of operations and comprehensive income, statements of shareholders' equity, and statements of cash flows, along with comprehensive notes detailing the company's business, accounting policies, and specific financial instrument disclosures [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position at specific points in time, detailing assets, liabilities, and shareholders' equity **Condensed Consolidated Balance Sheet Highlights (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :-------------------------- | :------------------- | :------------ | :----- | | Total Assets | $1,864,389 | $1,835,641 | +$28,748 | | Total Liabilities | $562,023 | $581,959 | -$19,936 | | Total Shareholders' Equity | $1,302,366 | $1,253,682 | +$48,684 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section details the company's financial performance over specific periods, including revenues, expenses, and net income **Condensed Consolidated Statements of Operations Highlights (Three Months Ended, in thousands of U.S. dollars, except per share data)** | Item | September 30, 2022 | September 24, 2021 | Change (YoY) | | :-------------------------------- | :------------------- | :------------------- | :------------- | | Revenues | $655,429 | $543,322 | +$112,107 (+20.6%) | | Gross profit | $82,756 | $63,597 | +$19,159 (+30.1%) | | Operating income | $62,191 | $43,010 | +$19,181 (+44.6%) | | Net income | $64,615 | $44,651 | +$19,964 (+44.7%) | | Diluted Earnings per share | $1.76 | $1.20 | +$0.56 (+46.7%) | [Condensed Consolidated Statements of Shareholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in the company's equity over time, reflecting net income, other comprehensive income, and share transactions **Changes in Shareholders' Equity (Three Months Ended, in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | | :-------------------------- | :------------------- | :------------ | | Balances at period end | $1,302,366 | $1,253,682 | | Net income | $64,615 | N/A | | Other comprehensive income (loss) | $(2,265) | N/A | | Share-based compensation | $7,723 | N/A | | Repurchase of treasury shares | $(4,900) | N/A | [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities over specific periods **Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended, in thousands of U.S. dollars)** | Cash Flow Activity | September 30, 2022 | September 24, 2021 | Change (YoY) | | :--------------------------------------- | :------------------- | :------------------- | :------------- | | Net cash provided by operating activities | $60,634 | $36,911 | +$23,723 (+64.3%) | | Net cash provided by (used in) investing activities | $23,367 | $(47,535) | +$70,902 | | Net cash used in financing activities | $(27,485) | $(22,112) | -$5,373 (-24.3%) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $56,516 | $(32,736) | +$89,252 | | Cash, cash equivalents and restricted cash at end of period | $255,401 | $270,066 | -$14,665 (-5.4%) | [Notes to Condensed Consolidated Financial Statements](index=15&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, covering business operations, accounting policies, and specific financial disclosures [1. Business and organization](index=15&type=section&id=1.%20Business%20and%20organization) This note describes Fabrinet's core business, its manufacturing services, and operational focus - Fabrinet provides advanced optical packaging and precision manufacturing services to OEMs of complex products[30](index=30&type=chunk) - The company offers comprehensive manufacturing capabilities from design to final assembly and testing[30](index=30&type=chunk) - Fabrinet focuses on low-volume, high-mix products with capacity for high-volume production[30](index=30&type=chunk) [2. Accounting policies](index=15&type=section&id=2.%20Accounting%20policies) This note outlines the significant accounting principles and methods used in preparing the financial statements, including estimates and recent pronouncements - Unaudited condensed consolidated financial statements adhere to U.S. GAAP for interim reporting and SEC rules[31](index=31&type=chunk) - Management relies on significant estimates for share-based compensation, doubtful accounts, income taxes, and inventory obsolescence[33](index=33&type=chunk) - ASU 2021-10 adoption in Q1 FY2023 had no material impact on financial statements[35](index=35&type=chunk) - The three months ended September 30, 2022, comprised 14 weeks, compared to 13 weeks in the prior year period[34](index=34&type=chunk) [3. Revenues from contracts with customers](index=17&type=section&id=3.%20Revenues%20from%20contracts%20with%20customers) This note details the company's revenue recognition policies, including disaggregation of revenue by geographic region and end market, and information on contract assets and liabilities **Total Revenues by Geographic Region (Three Months Ended, in thousands of U.S. dollars, except percentages)** | Region | September 30, 2022 | % of Total | September 24, 2021 | % of Total | | :---------------------- | :------------------- | :--------- | :------------------- | :--------- | | North America | $348,704 | 53.2% | $246,590 | 45.4% | | Asia-Pacific and others | $248,294 | 37.9% | $206,183 | 37.9% | | Europe | $58,431 | 8.9% | $90,549 | 16.7% | | **Total Revenue** | **$655,429** | **100.0%** | **$543,322** | **100.0%** | **Revenues by End Market (Three Months Ended, in thousands of U.S. dollars, except percentages)** | End Market | September 30, 2022 | % of Total | September 24, 2021 | % of Total | | :------------------------ | :------------------- | :--------- | :------------------- | :--------- | | Optical communications | $497,561 | 75.9% | $427,301 | 78.6% | | Lasers, sensors and other | $157,868 | 24.1% | $116,021 | 21.4% | | **Total** | **$655,429** | **100.0%** | **$543,322** | **100.0%** | **Contract Assets and Liabilities (in thousands of U.S. dollars)** | Item | June 24, 2022 | September 30, 2022 | | :-------------------- | :------------ | :------------------- | | Contract Assets | $13,464 | $14,220 | | Contract Liabilities | $1,982 | $6,348 | [4. Earnings per ordinary share](index=18&type=section&id=4.%20Earnings%20per%20ordinary%20share) This note provides a breakdown of basic and diluted earnings per ordinary share, including the calculation methodology and relevant share counts **Earnings Per Ordinary Share (Three Months Ended, in thousands of U.S. dollars, except per share data)** | Item | September 30, 2022 | September 24, 2021 | | :---------------------------------------------------------------- | :------------------- | :------------------- | | Net income attributable to shareholders | $64,615 | $44,651 | | Weighted-average number of ordinary shares outstanding (Basic) | 36,528 | 36,877 | | Weighted-average number of ordinary shares outstanding (Diluted) | 36,758 | 37,328 | | Basic earnings per ordinary share | $1.77 | $1.21 | | Diluted earnings per ordinary share | $1.76 | $1.20 | [5. Cash, cash equivalents and short-term investments](index=19&type=section&id=5.%20Cash,%20cash%20equivalents%20and%20short-term%20investments) This note details the composition of cash, cash equivalents, and short-term investments, along with their classification criteria and maturities **Cash, Cash Equivalents, and Short-term Investments (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | | :-------------------------- | :------------------- | :------------ | | Cash and cash equivalents | $255,260 | $197,996 | | Short-term investments | $244,536 | $280,157 | | **Total** | **$499,796** | **$478,153** | - Highly liquid investments with original maturities of three months or less are classified as cash equivalents[43](index=43&type=chunk) - Short-term investments generally have maturities ranging from three months to three years[43](index=43&type=chunk) [6. Fair value of financial instruments](index=19&type=section&id=6.%20Fair%20value%20of%20financial%20instruments) This note describes the company's use of derivative financial instruments for hedging and provides fair value measurements of financial assets and liabilities - Derivative financial instruments are used to hedge foreign exchange and interest rate risks on long-term debt[48](index=48&type=chunk) **Fair Value Measurements at Reporting Date (in thousands of U.S. dollars)** | Item | September 30, 2022 (Total) | June 24, 2022 (Total) | | :-------------------------------- | :------------------------- | :-------------------- | | Assets (Cash equivalents, securities, derivatives) | $258,660 | $290,633 | | Liabilities (Derivative liabilities) | $(10,489) | $(7,579) | - As of September 30, 2022, AOCI expected to be reclassified into earnings within 12 months included a **$6.3 million loss** for foreign currency forward contracts and a **$0.2 million loss** for interest rate swaps[55](index=55&type=chunk)[63](index=63&type=chunk) [7. Inventories](index=23&type=section&id=7.%20Inventories) This note provides a breakdown of inventory components, including raw materials, work in progress, finished goods, and goods in transit **Inventories (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :---------------- | :------------------- | :------------ | :----- | | Raw materials | $196,196 | $275,730 | -$79,534 | | Work in progress | $268,075 | $217,638 | +$50,437 | | Finished goods | $24,587 | $15,203 | +$9,384 | | Goods in transit | $39,192 | $48,574 | -$9,382 | | **Total inventories** | **$528,050** | **$557,145** | **-$29,095 (-5.2%)** | [8. Leases](index=23&type=section&id=8.%20Leases) This note describes the company's lease agreements, including lease liabilities maturities and rental expenses - The company leases facilities, equipment, and vehicles under non-cancelable operating lease agreements expiring through 2025[68](index=68&type=chunk) **Operating Lease Liabilities Maturities (as of September 30, 2022, in thousands of U.S. dollars)** | Year | Amount | | :------------------------ | :----- | | 2023 (remaining nine months) | $1,749 | | 2024 | $1,238 | | 2025 | $37 | | **Total undiscounted lease payments** | **$3,024** | - Rental expense for long-term operating leases was **$0.6 million** for the three months ended September 30, 2022, a decrease from **$0.7 million** in the prior year period[71](index=71&type=chunk) [9. Intangibles](index=25&type=section&id=9.%20Intangibles) This note provides details on the company's intangible assets, including their carrying amounts, amortization expense, and weighted-average remaining useful lives **Intangibles, Net (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :-------------------- | :------------------- | :------------ | :----- | | Software | $2,783 | $2,803 | -$20 | | Customer relationships | $565 | $705 | -$140 | | **Total intangibles** | **$3,348** | **$3,508** | **-$160 (-4.6%)** | - Amortization expense for intangibles was **$0.4 million** for both the three months ended September 30, 2022, and September 24, 2021[74](index=74&type=chunk) **Weighted-Average Remaining Life of Intangibles (in years)** | Item | September 30, 2022 | June 24, 2022 | | :-------------------- | :------------------- | :------------ | | Software | 3.7 | 3.8 | | Customer relationships | 2.9 | 3.1 | | **Total intangibles** | **3.7** | **3.8** | [10. Borrowings](index=26&type=section&id=10.%20Borrowings) This note outlines the company's long-term debt obligations, including terms, interest rates, repayment schedules, and compliance with financial covenants **Long-term Borrowings, Net (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :------------------------------------ | :------------------- | :------------ | :----- | | Long-term borrowings, current portion, net | $12,156 | $12,156 | $0 | | Long-term borrowings, non-current portion, net | $9,117 | $15,202 | -$6,085 | | **Total Long-term Borrowings, Net** | **$21,273** | **$27,358** | **-$6,085 (-22.2%)** | - The term loan accrues interest at 3-month LIBOR plus 1.35% and is repayable in quarterly installments of **$3.0 million**, maturing on June 30, 2024[79](index=79&type=chunk) - As of September 30, 2022, the company complied with all financial covenants under the Term Loan Agreement[81](index=81&type=chunk) [11. Income taxes](index=27&type=section&id=11.%20Income%20taxes) This note provides information on the company's income tax liabilities, effective tax rate, and open tax years subject to examination **Income Tax Liability (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :------------------------------------ | :------------------- | :------------ | :----- | | Liability for uncertain tax positions | $800 | $1,600 | -$800 (-50.0%) | - The effective tax rate for the three months ended September 30, 2022, was **1.1%**, a decrease from **1.3%** in the prior year, primarily due to increased non-taxable income[86](index=86&type=chunk) - Tax years 2015-2021 remain open for examination by U.S. federal, state, and foreign tax authorities[85](index=85&type=chunk) [12. Share-based compensation](index=28&type=section&id=12.%20Share-based%20compensation) This note details the company's share-based compensation plans, including expense recognition, unrecognized compensation, and share settlement activities **Share-based Compensation Expense (Three Months Ended, in thousands of U.S. dollars)** | Type of Award | September 30, 2022 | September 24, 2021 | Change (YoY) | | :-------------------------- | :------------------- | :------------------- | :------------- | | Restricted share units | $4,901 | $4,924 | -$23 | | Performance share units | $2,822 | $4,368 | -$1,546 | | **Total expense** | **$7,723** | **$9,292** | **-$1,569 (-16.9%)** | - As of September 30, 2022, unrecognized share-based compensation expense totaled **$20.0 million** for restricted share units and **$14.9 million** for performance share units, amortized over 2.9 and 1.6 years respectively[95](index=95&type=chunk) - The company withheld **162,985 shares** and remitted **$16.5 million** in cash for employee tax withholding related to share settlements[96](index=96&type=chunk) [13. Shareholders' equity](index=30&type=section&id=13.%20Shareholders'%20equity) This note provides information on the company's authorized share capital, share issuances, and share repurchase activities - Fabrinet's authorized share capital includes **500,000,000 ordinary shares** and **5,000,000 preferred shares**, each with a par value of **$0.01** per share[97](index=97&type=chunk) - During the three months ended September 30, 2022, Fabrinet issued **196,847 ordinary shares** upon vesting of restricted and performance share units[97](index=97&type=chunk) - The company repurchased **46,977 shares** for **$4.9 million** during the three months ended September 30, 2022, with a remaining authorization of **$95.1 million**[100](index=100&type=chunk) [14. Accumulated other comprehensive income (loss)](index=30&type=section&id=14.%20Accumulated%20other%20comprehensive%20income%20(loss)) This note details the components of accumulated other comprehensive income (loss), including unrealized gains/losses on securities and derivatives, and foreign currency translation adjustments **Accumulated Other Comprehensive Income (Loss) (in thousands of U.S. dollars)** | Item | September 30, 2022 | June 24, 2022 | Change | | :------------------------------------ | :------------------- | :------------ | :----- | | Unrealized net (Losses)/Gains on Available-for-sale Securities | $(7,479) | $(6,018) | $(1,461) | | Unrealized net (Losses)/Gains on Derivative Instruments | $(6,300) | $(5,082) | $(1,218) | | Retirement benefit plan - Prior service cost | $(635) | $(803) | $168 | | Foreign Currency Translation Adjustment | $(644) | $(890) | $246 | | **Total** | **$(15,058)** | **$(12,793)** | **$(2,265) (-17.7%)** | [15. Commitments and contingencies](index=31&type=section&id=15.%20Commitments%20and%20contingencies) This note outlines the company's various commitments and potential liabilities, including bank guarantees, purchase obligations, and capital expenditure commitments - As of September 30, 2022, outstanding bank guarantees totaled **$1.4 million** for Thailand and **$0.1 million** for the PRC[103](index=103&type=chunk) - The company had purchase obligations and other commitments to third parties of **$1.39 billion** as of September 30, 2022[105](index=105&type=chunk) - Capital expenditure commitments to third parties amounted to **$25.9 million** as of September 30, 2022[106](index=106&type=chunk) [16. Business segments and geographic information](index=32&type=section&id=16.%20Business%20segments%20and%20geographic%20information) This note provides information on the company's operating segments, geographic distribution of long-lived assets, and customer concentration - The company operates and manages a single operating segment[109](index=109&type=chunk) **Long-Lived Assets by Country (in thousands of U.S. dollars)** | Country | September 30, 2022 | June 24, 2022 | | :-------------- | :------------------- | :------------ | | Thailand | $244,548 | $240,750 | | U.S. | $26,234 | $25,938 | | China | $18,851 | $19,686 | | Israel | $3,678 | $4,025 | | U.K. | $1,015 | $1,281 | | Cayman Islands | $551 | $597 | | **Total** | **$294,877** | **$292,277** | - Three customers each contributed **10% or more** of total trade accounts receivable as of September 30, 2022, and June 24, 2022[111](index=111&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Fabrinet's financial condition and results of operations, discussing key factors influencing performance, recent developments, and future outlook, including detailed comparisons of financial results [Overview](index=34&type=section&id=Overview) This section provides a general description of Fabrinet's business, its manufacturing services, and product offerings - Fabrinet provides advanced optical packaging and precision manufacturing services to OEMs of complex products[115](index=115&type=chunk) - The company manufactures products for optical communications, industrial lasers, automotive, medical devices, and sensors[115](index=115&type=chunk) - Fabrinet designs and fabricates customized optics and glass products for OEM integration and merchant market sales[117](index=117&type=chunk) [Recent Developments Related to COVID-19](index=34&type=section&id=Recent%20Developments%20Related%20to%20COVID-19) This section discusses the impact of the COVID-19 pandemic on the company's operations, supply chain, and financial position - Thailand relaxed COVID-19 measures in October 2022, reclassifying it as a communicable disease under surveillance[118](index=118&type=chunk) - The company experienced no significant operational or customer demand disruptions during the three months ended September 30, 2022[118](index=118&type=chunk) - Inflationary pressures and supply chain issues are expected to continue negatively affecting gross margins[120](index=120&type=chunk) - Fabrinet maintains a strong capital position with **$499.8 million** in cash, cash equivalents, and short-term investments, and approximately **$21.3 million** in total debt as of September 30, 2022[120](index=120&type=chunk) [Revenues](index=36&type=section&id=Revenues) This section discusses factors influencing the company's revenue generation, including pricing strategies, supply chain disruptions, and customer demand - The company aims to maintain favorable pricing through cycle time reduction, product mix adjustment, quality improvements, and material cost reduction[121](index=121&type=chunk) - Supply chain disruptions, intensified by COVID-19 lockdowns and geopolitical conflicts, continue to significantly impact revenue generation despite strong demand[122](index=122&type=chunk) - Securing alternative supply chain sources involves lengthy requalification, negatively impacting revenue timing[122](index=122&type=chunk) [Revenues by Geography](index=36&type=section&id=Revenues%20by%20Geography) This section analyzes the company's revenue distribution across different geographic regions and highlights shifts in customer locations - Revenues are attributed by customer bill-to-location, with the majority derived from Asia-Pacific manufacturing facilities[123](index=123&type=chunk) **Percentage of Total Revenues by Geographic Region** | Region | Three Months Ended September 30, 2022 | Three Months Ended September 24, 2021 | | :---------------------- | :------------------------------------ | :------------------------------------ | | North America | 53.2% | 45.4% | | Asia-Pacific and others | 37.9% | 37.9% | | Europe | 8.9% | 16.7% | | **Total** | **100.0%** | **100.0%** | - Revenues from bill-to locations outside North America decreased from **54.6%** in Q1 FY2022 to **46.8%** in Q1 FY2023[124](index=124&type=chunk) [Our Contracts](index=36&type=section&id=Our%20Contracts) This section describes the nature of the company's supply agreements with customers, including terms, demand forecasting, and inventory obligations - Customer supply agreements typically have initial terms of up to three years, with automatic one-year renewals[127](index=127&type=chunk) - Customer demand forecasts are non-binding and subject to change, potentially leading to excess materials[127](index=127&type=chunk) - Customers are generally obligated to purchase finished goods and designated excess or obsolete inventory, even if production is canceled[128](index=128&type=chunk) [Cost of Revenues](index=37&type=section&id=Cost%20of%20Revenues) This section discusses the primary components of the cost of revenues and factors that may influence gross profit margins, such as material costs, employee expenses, and supply shortages - Material costs constitute the majority of cost of revenues, followed by employee and infrastructure-related costs[129](index=129&type=chunk) - Supply shortages from sole-source suppliers can increase expenses and negatively impact gross profit margins[129](index=129&type=chunk) - Employee costs are expected to increase due to rising wages in Thailand and the PRC, potentially reducing profit margins[130](index=130&type=chunk) - The company anticipates incremental costs of revenue from planned expansion into new geographic markets[132](index=132&type=chunk) [Selling, General and Administrative Expenses](index=37&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) This section outlines the composition of selling, general, and administrative expenses and discusses expected trends - SG&A expenses primarily comprise corporate employee costs for sales, marketing, general and administrative, and R&D for customized optics and glass[133](index=133&type=chunk) - SG&A expenses are projected to increase in fiscal year 2023 compared to fiscal year 2022, primarily due to higher employee costs[133](index=133&type=chunk) [Additional Financial Disclosures](index=37&type=section&id=Additional%20Financial%20Disclosures) This section provides further details on specific financial aspects, including foreign exchange risks, currency regulations, income tax, and critical accounting policies [Foreign Exchange](index=37&type=section&id=Foreign%20Exchange) This section discusses the company's exposure to foreign currency exchange rate risk and its strategies for managing this risk - The company faces foreign exchange risk from expenses in Thai baht, RMB, and GBP, while most revenues are in U.S. dollars[135](index=135&type=chunk)[188](index=188&type=chunk) - Derivative instruments, such as foreign currency forward contracts, are used to manage foreign exchange risk, typically with maturities up to 12 months[136](index=136&type=chunk) **Foreign Currency Denominated Assets (in thousands of U.S. dollars)** | Currency | As of September 30, 2022 ($) | % | | :------- | :--------------------------- | :-- | | Thai baht | $23,022 | 70.4% | | RMB | $3,987 | 12.2% | | GBP | $5,678 | 17.4% | | **Total** | **$32,687** | **100.0%** | **Foreign Currency Denominated Liabilities (in thousands of U.S. dollars)** | Currency | As of September 30, 2022 ($) | % | | :------- | :--------------------------- | :-- | | Thai baht | $75,112 | 88.2% | | RMB | $7,814 | 9.2% | | GBP | $2,225 | 2.6% | | **Total** | **$85,151** | **100.0%** | [Currency Regulation and Dividend Distribution](index=38&type=section&id=Currency%20Regulation%20and%20Dividend%20Distribution) This section addresses foreign exchange regulations, particularly in the PRC, and their potential impact on fund flows and dividend distributions - PRC foreign exchange regulations permit free convertibility for current account items but restrict capital account items without SAFE approval[142](index=142&type=chunk) - Circular 142 restricts the use of RMB converted from foreign currencies to approved business scope, prohibiting equity investments within the PRC[145](index=145&type=chunk) - Limitations on intercompany fund flows could restrict the ability to respond to changing market conditions[148](index=148&type=chunk) [Income Tax](index=39&type=section&id=Income%20Tax) This section discusses the company's effective tax rate, preferential tax treatments, and corporate income tax rates in various jurisdictions - The effective tax rate for the three months ended September 30, 2022, was **1.1%**, down from **1.3%** in the prior year, primarily due to increased non-taxable income[86](index=86&type=chunk)[168](index=168&type=chunk) - Fabrinet benefits from preferential tax treatment in Thailand, including corporate tax exemptions for certain manufacturing projects through June 2026, June 2025, and 2030, contingent on various factors[150](index=150&type=chunk) - Corporate income tax rates for subsidiaries are **20%** in Thailand, **25%** in PRC, **21%** in the U.S., **19%** in the U.K. (increasing to **25%** on April 1, 2023), and **23%** in Israel[151](index=151&type=chunk) [Critical Accounting Policies and Use of Estimates](index=39&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section highlights the critical accounting policies and the significant estimates and assumptions made by management in preparing the financial statements - U.S. GAAP financial statement preparation requires management estimates and assumptions affecting reported assets, liabilities, revenues, and expenses[152](index=152&type=chunk) - Estimates are based on historical experience and future assumptions, and actual results may differ[152](index=152&type=chunk) - No changes occurred in the company's critical accounting policies during the three months ended September 30, 2022[153](index=153&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three months ended September 30, 2022, versus the prior year period [Comparison of Three Months Ended September 30, 2022 with Three Months Ended September 24, 2021](index=41&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030,%202022%20with%20Three%20Months%20Ended%20September%2024,%202021) This section analyzes the period-over-period changes in key financial metrics, including revenues, gross profit, operating income, and net income **Key Financial Performance Comparison (Three Months Ended, in thousands of U.S. dollars)** | Item | September 30, 2022 | September 24, 2021 | Change (YoY) | | :-------------------------- | :------------------- | :------------------- | :------------- | | Revenues | $655,429 | $543,322 | +$112,107 (+20.6%) | | Gross profit | $82,756 | $63,597 | +$19,159 (+30.2%) | | Operating income | $62,191 | $43,010 | +$19,181 (+44.7%) | | Net income | $64,615 | $44,651 | +$19,964 (+44.7%) | - Revenue increase primarily driven by higher demand for optical communications manufacturing services and an additional week of revenue[159](index=159&type=chunk) - Gross profit margin improved from **11.7%** to **12.6%**, and operating income margin improved from **7.9%** to **9.5%**[156](index=156&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk) - Interest income increased by **104.9%** to **$1.6 million** due to a higher weighted average interest rate[164](index=164&type=chunk) - Interest expense increased by **$0.4 million**, primarily due to lower capitalized interest and reduced amortization of interest rate swap fair value[165](index=165&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash, its working capital position, and its capacity to meet short-term and long-term financial obligations [Cash Flows and Working Capital](index=42&type=section&id=Cash%20Flows%20and%20Working%20Capital) This section provides an overview of the company's cash flow generation and its working capital management strategies - The company primarily finances operations through cash flow from operations[171](index=171&type=chunk) **Cash, Cash Equivalents, and Short-term Investments (in thousands of U.S. dollars)** | Item | September 30, 2022 | September 24, 2021 | Change (YoY) | | :------------------------------------ | :------------------- | :------------------- | :------------- | | Cash, cash equivalents, and short-term investments | $499,800 | $528,400 | -$28,600 (-5.4%) | | Outstanding debt | $21,300 | $36,600 | -$15,300 (-41.8%) | - Management believes current cash, cash equivalents, short-term investments, and operating cash flow will suffice for working capital and capital expenditure needs for at least the next 12 months[175](index=175&type=chunk) [Operating Activities](index=43&type=section&id=Operating%20Activities) This section details the cash generated or used by the company's primary business operations - Cash provided by operating activities increased to **$60.6 million** for the three months ended September 30, 2022, from **$36.9 million** in the prior year, driven by higher net income and favorable working capital changes[177](index=177&type=chunk)[178](index=178&type=chunk) [Investing Activities](index=43&type=section&id=Investing%20Activities) This section outlines the cash flows related to the purchase and sale of long-term assets and investments - Cash provided by investing activities was **$23.4 million** for the three months ended September 30, 2022, compared to cash used of **$47.5 million** in the prior year, due to fewer investment purchases, increased proceeds from short-term investment sales, and decreased capital expenditures[177](index=177&type=chunk)[179](index=179&type=chunk) [Financing Activities](index=43&type=section&id=Financing%20Activities) This section describes the cash flows associated with debt, equity, and dividend transactions - Cash used in financing activities increased to **$27.5 million** for the three months ended September 30, 2022, from **$22.1 million** in the prior year, due to increased debt repayment and share repurchases, partially offset by lower withholding tax[177](index=177&type=chunk)[180](index=180&type=chunk) [Recent Accounting Pronouncements](index=43&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to disclosures regarding recently adopted or issued accounting standards and their impact on the financial statements - Refer to Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for recent accounting pronouncement details[181](index=181&type=chunk) - ASU 2021-10 adoption in Q1 FY2023 had no material impact on unaudited condensed consolidated financial statements[35](index=35&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item discusses the company's exposure to market risks, specifically interest rate risk and foreign currency risk, and the strategies employed to manage these risks, including derivative instruments. It also addresses credit risk [Interest Rate Risk](index=44&type=section&id=Interest%20Rate%20Risk) This section describes the company's exposure to interest rate fluctuations, particularly concerning investments and LIBOR-based debt, and its hedging strategies - The company faces interest rate risk from highly liquid investments and LIBOR-based interest-bearing liabilities[183](index=183&type=chunk)[184](index=184&type=chunk) - Interest rate swap agreements convert floating debt rates to fixed rates, designated as cash flow hedges to manage risk[185](index=185&type=chunk) - A **10 basis point** decline in interest rates would decrease interest income by approximately **$0.1 million** for both periods[183](index=183&type=chunk) - A **100 basis point** increase in LIBOR would increase interest expense by approximately **$0.1 million** for both periods[184](index=184&type=chunk) [Foreign Currency Risk](index=44&type=section&id=Foreign%20Currency%20Risk) This section details the company's exposure to foreign currency exchange rate fluctuations and its use of derivative instruments to mitigate this risk - Significant foreign currency risk arises from expenses, assets, and liabilities in Thai baht, RMB, and GBP, while most revenues are in U.S. dollars[188](index=188&type=chunk)[189](index=189&type=chunk) - Derivative instruments, typically 1 to 18 months, hedge exchange rate risks, with foreign currency forward contracts designated as cash flow hedges[190](index=190&type=chunk) - A **10%** weakening in the U.S. dollar against the Thai baht, RMB, and GBP would have decreased the net dollar position by approximately **$5.9 million** as of September 30, 2022[190](index=190&type=chunk) [Credit Risk](index=46&type=section&id=Credit%20Risk) This section discusses the company's exposure to credit risk from financial institutions, suppliers, and customers, and its risk management practices - The company faces credit risk from financial institutions, suppliers, and customers, especially given global economic conditions[191](index=191&type=chunk) - Cash and cash equivalents are held with institutions rated A- or above, and short-term investments are in securities rated A1, P-1, F1 or better[191](index=191&type=chunk) - Management believes the company will not incur material losses from credit risk exposure[191](index=191&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This item details management's evaluation of the effectiveness of disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=46&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section describes management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022[192](index=192&type=chunk) - Disclosure controls and procedures were deemed effective in providing reasonable assurance of timely information recording, processing, summarizing, and reporting[192](index=192&type=chunk) [Changes in Internal Control over Financial Reporting](index=46&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any changes in the company's internal control over financial reporting during the period - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2022[193](index=193&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers other information, including legal proceedings, updated risk factors, equity security sales, and a list of filed exhibits [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This item states that the company is not currently involved in any material legal claims or actions - No material claims or actions are currently pending or threatened against the company[194](index=194&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This item outlines a comprehensive list of risks that could materially affect Fabrinet's business, financial condition, and operating results, categorized into macroeconomic, operational, international, financial, intellectual property, compliance, and share ownership risks [COVID-19 and Macroeconomic Environment Updates](index=47&type=section&id=COVID-19%20and%20Macroeconomic%20Environment%20Updates) This section updates on risks related to the COVID-19 pandemic and broader macroeconomic conditions, including global supply chain disruptions and political instability - The COVID-19 pandemic adversely affected the global economy, disrupted supply chains, and created financial market volatility[196](index=196&type=chunk) - Thailand terminated its COVID-19 emergency decree on September 30, 2022, reclassifying it as a communicable disease under surveillance[197](index=197&type=chunk) - Increased international political instability, such as the Russia-Ukraine conflict, may hinder business operations[198](index=198&type=chunk) [Company and Operational Risks](index=47&type=section&id=Company%20and%20Operational%20Risks) This section details risks inherent to the company's operations, including customer concentration, market competition, supply chain dependencies, inventory management, manufacturing capacity, product quality, and personnel retention - Sales depend on a small number of customers (three customers contributed **46.0%** of revenues in Q1 FY2023), making the company vulnerable to order reductions or loss[199](index=199&type=chunk) - Market consolidation can reduce potential customers and increase pricing and margin pressures[202](index=202&type=chunk)[203](index=203&type=chunk) - The optical communications market, accounting for **75.9%** of Q1 FY2023 revenues, must continue to expand for expected business growth[204](index=204&type=chunk) - The company faces significant competition from customer internal manufacturing and other third-party manufacturers[209](index=209&type=chunk)[210](index=210&type=chunk) - Reliance on single or limited suppliers for critical materials, exacerbated by global shortages, can lead to supply disruptions, increased costs, and harm to customer relations[215](index=215&type=chunk)[217](index=217&type=chunk) - Complex inventory management and inaccurate forecasts can lead to excess or obsolete inventory, requiring write-downs and increasing costs[218](index=218&type=chunk) - Risks include inadequate manufacturing capacity expansion to meet demand or, conversely, rapid expansion leading to excess capacity[219](index=219&type=chunk)[221](index=221&type=chunk) - Lower-than-expected manufacturing yields can increase costs and harm operating results and customer relations[222](index=222&type=chunk) - Product defects can lead to significant correction costs, declining demand, and exposure to product liability and warranty claims[223](index=223&type=chunk)[225](index=225&type=chunk) - Failure to attract or retain skilled employees could adversely affect business, financial condition, and operating results[226](index=226&type=chunk) [Risks Related to Our International Operations](index=54&type=section&id=Risks%20Related%20to%20Our%20International%20Operations) This section addresses risks associated with the company's international presence, including foreign currency fluctuations, logistical challenges, export controls, trade disputes, and political instability in key operating regions - Foreign currency exchange rate fluctuations, especially USD against Thai baht, RMB, or GBP, can increase operating costs and adversely affect results[227](index=227&type=chunk)[229](index=229&type=chunk) - Operating in multiple Asia-Pacific countries creates logistical and communication challenges, including time zone management and global supply chain coordination[230](index=230&type=chunk) - The company is subject to governmental export and import controls, which can limit business opportunities and sales (e.g., U.S. restrictions on Huawei)[235](index=235&type=chunk)[236](index=236&type=chunk) - The ongoing U.S.-China trade dispute, including tariffs, could increase costs, disrupt supply chains, and reduce customer orders[237](index=237&type=chunk) - Political unrest, demonstrations, and changes in Thailand's political, social, business, or economic conditions could harm the business, given its asset and manufacturing concentration[238](index=238&type=chunk)[239](index=239&type=chunk) - Continued investment in PRC manufacturing operations exposes the company to political, legal, and economic risks, including an unpredictable climate and law enforcement uncertainties[242](index=242&type=chunk)[243](index=243&type=chunk) - Natural disasters, epidemics (including COVID-19), terrorism, and political/economic developments could severely disrupt manufacturing and increase supply chain costs[244](index=244&type=chunk)[245](index=245&type=chunk)[247](index=247&type=chunk) [Financial Risks](index=57&type=section&id=Financial%20Risks) This section covers financial risks such as unfavorable economic conditions, debt covenants, LIBOR phase-out, capital access, investment portfolio impairment, insurance limitations, and uncertainties in financial estimates - Unfavorable worldwide economic conditions, including inflation and supply chain disruptions, may negatively affect business, financial condition, and operating results[248](index=248&type=chunk)[249](index=249&type=chunk) - Long-term debt agreements contain financial ratio covenants that may impair the company's business operations[250](index=250&type=chunk) - The LIBOR phase-out by June 30, 2023, for USD settings could affect interest rates on existing credit facilities and future debt financing[251](index=251&type=chunk)[255](index=255&type=chunk) - The company may not obtain desired capital on favorable terms, or at all, or without shareholder dilution[256](index=256&type=chunk)[257](index=257&type=chunk) - The fixed-income investment portfolio may become impaired by capital market deterioration[258](index=258&type=chunk)[260](index=260&type=chunk) - The company is not fully insured against all potential losses, and catastrophes could adversely affect business, financial condition, and operating results[261](index=261&type=chunk) - Inherent uncertainties in financial statement estimates, judgments, and assumptions could materially adversely affect business, financial condition, and operating results[262](index=262&type=chunk) [Intellectual Property and Cybersecurity Risks](index=59&type=section&id=Intellectual%20Property%20and%20Cybersecurity%20Risks) This section addresses risks related to information technology infrastructure, cybersecurity attacks, intellectual property infringement claims, and the protection of customer intellectual property - Business and operations would be adversely impacted by IT infrastructure failure or cybersecurity attacks[263](index=263&type=chunk)[264](index=264&type=chunk) - Intellectual property infringement claims against the company or its customers could harm business, financial condition, and operating results[265](index=265&type=chunk)[266](index=266&type=chunk) - Failure to protect customer intellectual property in manufactured products could harm customer relationships and incur liability[267](index=267&type=chunk) [Tax, Compliance and Regulatory Risks](index=60&type=section&id=Tax,%20Compliance%20and%20Regulatory%20Risks) This section covers risks related to increased income taxes, compliance with preferential tax treatments, public company operating costs, regulatory quality standards, and environmental laws - The company faces increased income tax risk from audits, rate changes, deferred tax asset valuation, and transfer pricing challenges[268](index=268&type=chunk)[272](index=272&type=chunk) - Preferential tax treatment in Thailand is contingent on various factors, and non-compliance could lead to its loss[270](index=270&type=chunk) - Operating as a public company incurs significant increased costs and requires substantial management resources for compliance initiatives[274](index=274&type=chunk) - Failure to meet regulatory quality standards (e.g., ISO, FDA) could harm business, financial condition, and operating results[276](index=276&type=chunk)[278](index=278&type=chunk) - Failure to comply with environmental laws and regulations, including 'conflict minerals' rules, could have a material adverse effect[279](index=279&type=chunk)[280](index=280&type=chunk) [Risks Related to Ownership of Our Ordinary Shares](index=63&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Ordinary%20Shares) This section discusses risks pertinent to shareholders, including share price volatility, potential adverse U.S. tax consequences, activist shareholder impact, anti-takeover provisions, and challenges in protecting shareholder interests under Cayman Islands law - Share price may be volatile due to fluctuations in operating results, customer/competitor activities, and general market conditions[281](index=281&type=chunk) - Becoming a passive foreign investment company (PFIC) could result in adverse U.S. tax consequences for U.S. investors[285](index=285&type=chunk) - Activist shareholders could negatively affect business by causing disruptions, diverting management attention, and increasing share price volatility[286](index=286&type=chunk) - Certain constitutional provisions may discourage third-party acquisition, limiting shareholder opportunity to sell shares at a premium[287](index=287&type=chunk) - Shareholders may face difficulties protecting interests due to Cayman Islands incorporation, where law is less developed than U.S. law[288](index=288&type=chunk) - Certain U.S. court judgments against the company may not be enforceable in the Cayman Islands, Thailand, or the PRC[296](index=296&type=chunk) [General Risks](index=65&type=section&id=General%20Risks) This section addresses broader risks that could impact the company, such as energy price volatility and its potential effects on costs and customer orders - Energy price volatility may negatively impact business, financial condition, and operating results by increasing raw material and transportation costs[297](index=297&type=chunk) - The company may not sufficiently increase prices to offset rising energy costs, potentially reducing future customer orders[298](index=298&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reports on the company's share repurchase activity for the three months ended September 30, 2022, under its publicly announced program [Sales of Unregistered Securities](index=66&type=section&id=Sales%20of%20Unregistered%20Securities) This section confirms whether any unregistered sales of equity securities occurred during the reporting period - Not applicable; no unregistered equity security sales occurred during the period[299](index=299&type=chunk) [Purchases of Equity Securities by the Issuer and Affiliated Purchasers](index=66&type=section&id=Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20and%20Affiliated%20Purchasers) This section details the company's share repurchase activities, including the number of shares purchased, average price paid, and remaining authorization under the program **Share Repurchase Activity (Three Months Ended September 30, 2022)** | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | June 25, 2022 – July 29, 2022 | — | $— | | July 30, 2022 – August 26, 2022 | 14,100 | $111.63 | | August 27, 2022 – September 30, 2022 | 32,877 | $101.14 | | **Total** | **46,977** | **$104.28 (average)** | - The total purchase price for **46,977 repurchased shares** was **$4.9 million**[300](index=300&type=chunk) - As of September 30, 2022, the company had a remaining authorization to repurchase up to **$95.1 million** worth of ordinary shares[300](index=300&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This item lists all exhibits filed with the Form 10-Q, including various agreements, certifications, and XBRL data files - Exhibits include Change in Control and Severance Agreements, Letter Agreements, and Fiscal 2023 Executive Incentive Plan Description[302](index=302&type=chunk) - CEO and CFO certifications are included per Exchange Act Rules 13a-14(a) and 15d-14(a), and 18 U.S.C. Section 1350[302](index=302&type=chunk) - Inline XBRL Instance and Taxonomy Extension files are provided for financial data[302](index=302&type=chunk) [Signature](index=68&type=section&id=Signature) This section confirms the official signing and authorization of the report by the company's principal financial and accounting officer - The report was signed by Csaba Sverha, Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) on behalf of Fabrinet[306](index=306&type=chunk) - The report was duly authorized and signed on November 8, 2022[305](index=305&type=chunk)

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)

Fabrinet (NYSE:FN) Q1 2022 Earnings Conference Call November 1, 2021 5:00 PM ET Company Participants Garo Toomajanian - IR Seamus Grady - CEO Csaba Sverha - CFO Conference Call Participants Alex Henderson - Needham Fahad Najam - MKM Partners Operator Good afternoon. Welcome to Fabrinet's Results conference call for the first 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, Investor Relat ...