0001408710-25-000056
SEC filingRevenue rose 21.6% to $978.1M, led by optical telecom and DCI, while gross margin contracted to 11.9%.
For the three months ended September 26, 2025, Fabrinet reported revenue of $978.1M, a 21.6% increase from $804.2M in the prior-year period. The growth was broad-based, with optical communications revenue rising 19.3% to $746.9M and non-optical communications revenue surging 30.0% to $231.2M. Gross profit increased 17.6% to $116.4M, but gross margin contracted 40 basis points to 11.9% from 12.3%, as cost of revenue grew faster (22.2%) than revenue, largely due to higher material and employee costs. Operating income rose 22.5% to $94.2M, with operating margin stable at 9.6% as SG&A expenses increased only 0.9% (to $22.2M) and provided leverage. Net income grew 23.9% to $95.9M, benefiting from lower foreign exchange losses and higher operating income.
Optical communications revenue increased by $120.6M, driven by strong demand in telecom (up $110.1M to $335.7M) and datacenter interconnect (up $66.3M to $138.1M), partially offset by a decline in datacom (down $55.8M to $273.1M). Non-optical communications revenue grew $53.3M, led by automotive (up $19.2M to $121.9M) and high-performance computing (new contribution of $15.4M), alongside industrial laser (up $4.4M to $39.7M) and other segments (up $14.4M to $54.2M). Geographically, North America revenue share increased to 43.1% from 38.5%, while Asia-Pacific and others declined to 47.2% from 54.3%.
Management expects the portion of revenue from outside North America to remain consistent with the current quarter for the remainder of fiscal 2026. SG&A expenses are anticipated to rise year-over-year due to increased IT and employee costs. Employee costs in Thailand and China are expected to increase, which could pressure margins. The company continues to invest in capacity, with a new $132.5M manufacturing facility under construction at the Chonburi campus. No specific quantitative revenue or margin guidance was provided, but the executive incentive plan ties bonuses to revenue and non-GAAP operating margin targets for fiscal 2026.
As of September 26, 2025, Fabrinet held $305.0 million in cash and cash equivalents and $663.8 million in short-term investments, totaling $968.8 million in highly liquid assets. The company has no outstanding debt, with total shareholders' equity of $2,061.2 million. Inventory increased to $722.2 million from $581.0 million as of June 27, 2025, reflecting a buildup to support anticipated demand.
Fabrinet disclosed $1.54 billion in purchase obligations, primarily for inventory and other operational needs, expected to be fulfilled within one year. Additionally, capital expenditure commitments totaled $196.0 million, including a $132.5 million construction contract for a new manufacturing building at its Chonburi campus. These commitments highlight significant investment in capacity expansion.
During the quarter, Fabrinet repurchased 970 shares for $0.3 million at an average price of $276.22 per share. The remaining share repurchase authorization stood at $174.0 million. The company paid no dividends. No debt was issued or repaid; the $30 million credit facility remained undrawn. Capital expenditures reported in the cash flow statement were $45.3 million, though this figure is not within the notes.
Fabrinet operates as a single operating segment. Revenue by geography: North America 43.1%, Asia-Pacific 47.2%, Europe 9.7%. By end market, optical communications contributed 76.4% of revenue (telecom 34.3%, datacom 27.9%, datacenter interconnect 14.1%), and non-optical communications 23.6% (automotive 12.5%, industrial laser 4.1%, high-performance computing 1.6%, others 5.5%).
Net income for Q1 FY2026 was $95.9 million, while operating cash flow (CFO) was $102.6 million, resulting in a CFO/Net Income ratio of 1.07, indicating healthy cash generation relative to earnings. The main non-cash adjustments were depreciation/amortization ($14.9M) and share-based compensation ($9.1M). Inventories increased by $143.5 million, a significant use of cash, partially offset by a $51.8 million decrease in receivables and a $59.5 million increase in payables. Capital expenditures (capex) rose sharply to $45.3 million from $20.3 million in the prior year, representing a capex intensity (capex/CFO) of 44%. Free cash flow (CFO minus capex) was $57.3 million (not explicitly stated). The company returned $0.3 million to shareholders via share repurchases and had $22.7 million in tax withholdings for net share settlement of RSUs. No extraordinary items were noted.