Fabrinet(FN) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements for the quarter ended December 29, 2023, detail the company's financial position and performance Condensed Consolidated Balance Sheets Total assets grew to $2.13 billion, driven by higher current assets, while stable liabilities boosted shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Account | Dec 29, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,806,363 | $1,652,540 | | Total Assets | $2,133,138 | $1,979,648 | | Total Current Liabilities | $486,777 | $481,885 | | Total Liabilities | $521,756 | $510,990 | | Total Shareholders' Equity | $1,611,382 | $1,468,658 | - Inventories decreased from $519.6 million at June 30, 2023, to $414.8 million at December 29, 2023, indicating improved inventory management[16] Condensed Consolidated Statements of Operations and Comprehensive Income Revenue and net income grew for both the three and six-month periods ending December 29, 2023, driven by strong performance Key Performance Indicators (in thousands USD, except per share data) | Metric | Q2 FY24 (Three Months) | Q2 FY23 (Three Months) | Six Months FY24 | Six Months FY23 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $712,694 | $668,656 | $1,398,171 | $1,324,085 | | Gross Profit | $88,330 | $85,215 | $172,734 | $167,971 | | Operating Income | $69,014 | $66,285 | $132,989 | $128,476 | | Net Income | $69,110 | $63,157 | $134,199 | $127,772 | | Diluted EPS | $1.89 | $1.71 | $3.67 | $3.47 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased significantly due to a substantial positive change in inventories Cash Flow Summary (Six Months Ended, in thousands USD) | Cash Flow Activity | Dec 29, 2023 | Dec 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $229,214 | $105,100 | | Net cash used in investing activities | ($101,853) | ($21,580) | | Net cash used in financing activities | ($24,818) | ($31,045) | | Net increase in cash | $102,543 | $52,475 | - The significant increase in operating cash flow was primarily driven by a $104.8 million positive change from inventories, compared to a $20.5 million positive change in the prior year period[29] Notes to Condensed Consolidated Financial Statements Disclosures highlight a revenue shift towards the Asia-Pacific region and ongoing share repurchase activity Revenue by End Market (Six Months Ended, in thousands USD) | End Market | Dec 29, 2023 | % of Total | Dec 30, 2022 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Optical communications | $1,101,191 | 78.8% | $1,003,617 | 75.8% | | Automotive, lasers and other | $296,980 | 21.2% | $320,468 | 24.2% | | Total | $1,398,171 | 100.0% | $1,324,085 | 100.0% | Revenue by Geographic Region (Six Months Ended) | Geographic Region | % of Total Revenue (FY24) | % of Total Revenue (FY23) | | :--- | :--- | :--- | | North America | 35.8% | 50.8% | | Asia-Pacific and others | 57.3% | 40.5% | | Europe | 6.9% | 8.7% | - As of December 29, 2023, the company had purchase obligations of $1.00 billion and capital expenditure commitments of $13.1 million[114][115] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue growth was driven by strong demand for optical communications products, offsetting declines in other sectors Results of Operations Q2 FY24 revenue grew 6.6% YoY, led by a 12.2% rise in optical communications, offsetting declines in other segments - Revenue from optical communications products increased by $61.9 million (12.2%) YoY for the quarter, primarily due to higher demand for data communication products for artificial intelligence applications[167] - Revenue from non-optical communications products decreased by $17.8 million (11.0%) YoY for the quarter, mainly due to a decline in revenues from automotive products[167] - Interest income for the quarter increased by 234.8% YoY to $7.7 million, driven by higher interest rates and a larger average cash and short-term investment balance[178] Liquidity and Capital Resources The company maintains a robust liquidity position, with cash from operations significantly increased by efficient inventory management Cash and Debt Position (in millions USD) | Metric | Dec 29, 2023 | Dec 30, 2022 | | :--- | :--- | :--- | | Cash, cash equivalents, and short-term investments | $740.6 | $527.6 | | Outstanding debt | $6.1 | $18.3 | - The increase in cash from operating activities was primarily driven by efficient cash-favorable working capital changes, mainly from inventory management[197] - The company believes its current cash, cash flow from operations, and available credit will be sufficient to meet its needs for at least the next 12 months[195] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and foreign currency, primarily the U.S. dollar versus the Thai baht - The company's primary foreign currency risk is the fluctuation of the Thai baht against the U.S. dollar, as a majority of payroll and operating expenses are in Thai baht while revenues are in U.S. dollars[206] - To manage interest rate risk on its floating-rate debt, the company uses interest rate swap agreements to effectively convert the floating rate to a fixed rate[203] - A hypothetical 10% weakening in the U.S. dollar against the Thai baht, RMB, and GBP would have resulted in a decrease in the company's net dollar position of approximately $8.4 million as of December 29, 2023[209] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[211] - 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[212] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no material legal claims or actions are currently pending or threatened against it - As of the filing date, Fabrinet is not involved in any material pending or threatened legal proceedings[213] Item 1A. Risk Factors Key business risks include customer concentration, supply chain dependencies, and international financial exposures - The company depends on a small number of customers, with three customers accounting for 57.0% of revenues in the three months ended December 29, 2023[215] - The business is exposed to supply chain risk, as it relies on single or limited-source suppliers for critical materials, with semiconductor shortages being a particular concern[233] - Significant operational and financial risks stem from international operations, including currency fluctuations (primarily Thai baht vs. USD), political conditions in Thailand, and U.S.-China trade tensions[245][255][254] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 38,239 ordinary shares for $6.4 million, with $93.6 million remaining under its repurchase authorization Share Repurchase Activity (Q2 FY24) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (in millions) | | :--- | :--- | :--- | :--- | | Q2 FY2024 | 38,239 | $166.61 | $6.4 | - As of December 29, 2023, the company had a remaining authorization to repurchase up to $93.6 million of its ordinary shares[311] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the last fiscal quarter[313] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications and XBRL data files - Exhibits filed include CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and XBRL data files[314]