Fabrinet(FN) - 2025 Q4 - Annual Report

Part I Business Fabrinet provides advanced optical packaging and precision manufacturing services to OEMs, achieving 18.6% revenue growth to $3.42 billion in fiscal year 2025 driven by diverse market demand - Fiscal Year 2025 vs 2024 Financial Highlights | Metric | Fiscal Year 2025 | Fiscal Year 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $3.42 billion | $2.88 billion | +18.6% | | Optical Communications Revenue % | 76.6% | 79.4% | -2.8 p.p. | | Automotive, Industrial Lasers, Other Revenue % | 23.4% | 20.6% | +2.8 p.p. | - The company provides advanced optical packaging and precision manufacturing services to OEMs of complex products including optical communication components, industrial lasers, automotive components, medical devices, and sensors[21] - Key growth strategies include strengthening its presence in the optical communications market, leveraging technology to diversify into industrial lasers and medical markets, extending vertical integration in customized optics, and expanding its client base geographically[37] - As of June 27, 2025, the company's facilities comprised approximately 3.7 million total square feet, with the majority (3.3 million sq. ft.) located in Thailand[28] - The company has a high customer concentration, with NVIDIA Corporation and Cisco Systems, Inc. contributing 27.6% and 18.2% of revenues, respectively, in fiscal year 2025[50] Risk Factors The company faces significant risks including high customer concentration, foreign currency fluctuations, intense competition, and geopolitical instability in key operating regions - The company is highly dependent on a small number of customers, with two customers accounting for 45.8% and 48.5% of revenues in fiscal years 2025 and 2024, respectively[79][80][82] - A majority of operating expenses are paid in Thai baht while revenues are primarily in U.S. dollars, creating significant exposure to currency exchange rate fluctuations, with the U.S. dollar depreciating approximately 8.5% against the Thai baht since June 30, 2023[111] - The company's primary competition comes from the internal manufacturing capabilities of its current and prospective customers, especially when they have excess capacity[90] - Operations are subject to governmental export and import controls, with the addition of Huawei to the U.S. BIS Entity List in May 2019 immediately impacting customer orders and expected to continue to adversely affect orders[117][118] - The majority of assets and manufacturing operations are located in Thailand, making the business susceptible to political, social, and economic instability in the country[122][123] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[177] Cybersecurity Fabrinet's cybersecurity program, based on ISO and NIST frameworks, is overseen by the Audit Committee and has not experienced a material breach in the past three years - The company's cybersecurity program is based on the International Organization for Standardization (ISO) and the National Institute of Standards and Technology (NIST) Cybersecurity Framework[179] - The Audit Committee of the Board of Directors oversees cybersecurity risk, receiving quarterly briefings from the VP of Information Technology and Information Security[183] - The company has not experienced a material security breach in its systems, or to its knowledge, in its third-parties' systems, in the past three years[181] Properties The company's principal facilities are located in Thailand, China, the United States, and Israel, with the largest owned campuses in Thailand totaling over 3.2 million square feet - Principal Facilities as of June 27, 2025 | Location | Owned/Leased | Approximate Square Footage | | :--- | :--- | :--- | | Pinehurst Campus, Bangkok, Thailand | Owned | 1,731,000 | | Hemaraj Campus, Chonburi, Thailand | Owned | 1,522,000 | | Fuzhou, Fujian, PRC | Leased | 348,000 | | Santa Clara, California, United States | Owned | 72,000 | | Mountain Lakes, New Jersey, United States | Leased | 28,000 | | Yokneam Illit, Israel | Leased | 27,000 | Legal Proceedings The company is involved in a legal proceeding in China regarding a purported 1997 investment in a subsidiary, with potential liability currently unquantifiable - A complaint was filed against the company's PRC subsidiary, Casix, alleging unjust enrichment related to a 1997 investment, predating Fabrinet's acquisition, with plaintiffs seeking RMB 400 million plus interest[188] - The initial lawsuit was dismissed on jurisdictional grounds in September 2024, but the plaintiffs have appealed the ruling, and the company cannot quantify potential liability at this early stage[189] Mine Safety Disclosures This item is not applicable to the company - Not applicable[192] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Fabrinet's ordinary shares are listed on the NYSE under "FN", with no current dividend plans, and a share repurchase program with $174.3 million remaining authorization as of June 27, 2025 - The company currently intends to retain any earnings for use in its business and does not intend to pay dividends on its ordinary shares[196] - Share Repurchase Activity (FY 2025) | Metric | Value | | :--- | :--- | | Aggregate Authorization | $534.3 million | | Shares Repurchased in FY2025 | 561,858 | | Aggregate Purchase Price in FY22025 | $125.7 million | | Average Price Per Share | $223.76 | | Remaining Authorization (as of June 27, 2025) | $174.3 million | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting an 18.6% revenue increase to $3.42 billion in fiscal 2025, strong liquidity, and key financial risks including foreign exchange exposure - Revenues by Geographic Region (% of Total Revenues) | Region | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | North America | 43.4% | 36.5% | 48.0% | | Asia-Pacific | 48.4% | 57.1% | 43.2% | | Europe | 8.2% | 6.4% | 8.8% | - Revenues by End Market (in thousands) | End Market | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Optical Communications | $2,619,355 | $2,289,015 | $2,008,347 | | Datacom | $1,155,944 | $1,150,307 | $520,796 | | Telecom | $1,463,411 | $1,138,708 | $1,487,551 | | Non-Optical Communications | $799,972 | $593,952 | $636,890 | | Automotive | $464,369 | $327,188 | $368,581 | | Industrial Laser | $153,068 | $122,722 | $125,415 | | Others | $182,535 | $144,042 | $142,894 | | Total Revenue | $3,419,327 | $2,882,967 | $2,645,237 | - FY2025 revenue increased by 18.6% to $3.42 billion, primarily due to increased demand for both optical communications products (up 14.4%) and non-optical communications products (up 34.7%)[259] - The company's effective tax rate increased to 6.4% in FY2025 from 4.9% in FY2024, primarily due to higher income subject to tax and an IRS audit assessment[267] - As of June 27, 2025, the company had $934.2 million in cash, cash equivalents, and short-term investments with no outstanding debt[282] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate, foreign currency, and credit risks, with significant foreign currency exposure to the Thai baht and RMB, which it hedges using derivatives - The company has significant foreign currency risk as a substantial portion of payroll and operating expenses are in Thai baht and RMB, while the majority of revenues are in U.S. dollars[299] - A hypothetical 10% weakening in the U.S. dollar against the Thai baht and RMB would have resulted in a decrease in the company's net dollar position of approximately $9.4 million as of June 27, 2025[302] - Interest rate risk exists for the company's cash, cash equivalents, and short-term investments totaling $934.2 million, where a 10 basis point decline in interest rates during fiscal year 2025 would have decreased interest income by approximately $0.9 million[296] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2023-2025, along with the independent auditor's report and detailed notes on accounting policies - The independent auditor, PricewaterhouseCoopers ABAS Ltd., issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of June 27, 2025[309] - Consolidated Balance Sheet Highlights (in thousands) | Account | June 27, 2025 | June 28, 2024 | | :--- | :--- | :--- | | Total Assets | $2,831,432 | $2,338,519 | | Cash and cash equivalents | $306,425 | $409,973 | | Short-term investments | $627,819 | $448,630 | | Trade accounts receivable, net | $758,894 | $592,452 | | Inventories | $581,015 | $463,206 | | Total Liabilities | $849,620 | $592,774 | | Trade accounts payable | $637,417 | $441,835 | | Total Shareholders' Equity | $1,981,812 | $1,745,745 | - Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Revenues | $3,419,327 | $2,882,967 | $2,645,237 | | Gross Profit | $413,349 | $356,118 | $336,273 | | Operating Income | $324,447 | $277,605 | $251,704 | | Net Income | $332,527 | $296,181 | $247,913 | | Diluted EPS | $9.17 | $8.10 | $6.73 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - Not applicable[518] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of June 27, 2025, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[519] - Based on an assessment using the COSO framework, management concluded that the company maintained effective internal control over financial reporting as of June 27, 2025[524] - There were no changes in internal control over financial reporting during the fourth quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, internal controls[520] Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fourth quarter of fiscal 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 27, 2025[525] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[526] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive proxy statement for its 2025 annual general meeting of shareholders - Information for this item is incorporated by reference from the 2025 Proxy Statement[528] Executive Compensation Information for this item is incorporated by reference from the company's definitive proxy statement for its 2025 annual general meeting of shareholders - Information for this item is incorporated by reference from the 2025 Proxy Statement[529] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive proxy statement for its 2025 annual general meeting of shareholders - Information for this item is incorporated by reference from the 2025 Proxy Statement[530] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement for its 2025 annual general meeting of shareholders - Information for this item is incorporated by reference from the 2025 Proxy Statement[531] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's definitive proxy statement for its 2025 annual general meeting of shareholders - Information for this item is incorporated by reference from the 2025 Proxy Statement[532] Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Annual Report on Form 10-K, including financial statements, an index of exhibits, and certifications - This section contains the index of all exhibits filed with or incorporated by reference into the Form 10-K[535][536][538] Form 10-K Summary This item is not applicable to the company - Not applicable[541]