Fabrinet Co. Ltd.

11/03/2026 | Press release | Distributed by Public on 11/03/2026 07:15

Quarterly Report for Quarter Ending September 25, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
•our goals and strategies;
•our and our customers' estimates regarding future revenues, operating results, expenses, capital requirements and liquidity;
•our belief that we will be able to maintain favorable pricing on our services;
•our expectation that the portion of our revenues attributable to customers in regions outside of North America for the remainder of fiscal year 2027 will be in line with the portion of revenues attributable to such customers during the three months ended September 25, 2026;
•our expectation that our fiscal year 2027 selling, general and administrative ("SG&A") expenses will increase compared to our fiscal year 2026 SG&A expenses;
•our expectation that our employee costs will increase in Thailand and the PRC;
•our future capital expenditures, including the expansion of our manufacturing capacity;
•the growth rates of our existing markets and potential new markets;
•our ability, and the ability of our customers and suppliers, to respond successfully to technological or industry developments;
•our expectations regarding the potential impact of macroeconomic conditions and international political instability on our business, financial condition and operating results;
•our suppliers' estimates regarding future costs;
•our ability to increase our penetration of existing markets and to penetrate new markets;
•our plans to diversify our sources of revenues;
•our plans to execute acquisitions;
•trends in the data center, communications infrastructure, automotive, industrial lasers and other markets, including trends to outsource the production of components used in those markets;
•our ability to attract and retain a qualified management team and other qualified personnel and advisors; and
•competition in our existing and new markets.
These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, in particular, the risks discussed under the heading "Risk Factors" in Part II, Item 1A as well as those discussed in other documents we file with the Securities and Exchange Commission. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. "We," "us" or "our" collectively refer to Fabrinet and its subsidiaries.
Overview
We provide advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers ("OEMs") of complex products such as optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices and sensors. We offer a broad range of advanced optical and electro-mechanical capabilities across the entire manufacturing process, including process design and engineering, supply chain management, manufacturing, complex printed circuit board assembly, advanced packaging, integration, final assembly and testing. We are capable of producing a wide variety of high complexity products in any mix and any volume. Based on our extensive experience and the positive feedback we have received from our customers, we believe we are a global leader in providing these services to the optical communications, automotive, and industrial lasers markets.
Our customer base includes companies in complex industries that require advanced precision manufacturing capabilities such as optical communications, automotive, industrial lasers, medical, and sensors. The products that we manufacture for our OEM customers include selective switching products; tunable lasers, transponders and transceivers; active optical cables; solid state, diode-pumped, gas and fiber lasers; and sensors. In many cases, we are the sole outsourced manufacturing partner used by our customers for the products that we manufacture for them.
We also design and fabricate application-specific crystals, lenses, prisms, mirrors, laser components, and substrates (collectively referred to as "customized optics") and other custom and standard borosilicate, clear fused quartz, and synthetic fused silica glass products (collectively referred to as "customized glass"). We incorporate our customized optics and glass into many of the products we manufacture for our OEM customers, and we also sell customized optics and glass in the merchant market.
Revenues
We believe we are able to expand our relationships with existing customers and attract new customers due to, among other factors, our broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, process optimization capabilities, advanced supply chain management, excellent customer service, and experienced management team. Although we expect the prices we charge for our manufactured products to decrease over time (partly as a result of competitive market forces), we believe we will be able to continue to maintain favorable pricing for our services because of our ability to reduce cycle time, adjust our product mix by focusing on more complicated products, improve product quality and yields, and reduce material costs for the products we manufacture. We believe these capabilities have enabled us to help our OEM customers reduce their manufacturing costs while maintaining or improving the design, quality, reliability, and delivery times for their products.
Revenues by Geography
We generate revenues from three geographic regions: Asia-Pacific and others, North America, and Europe. Revenues are attributed to a particular geographic area based on the ship-to location of our customers, notwithstanding that the products may be billed to a different geographic region. The substantial majority of our revenues are derived from our manufacturing facilities in Asia-Pacific.
The percentage of our revenues generated from a ship-to location outside of North America decreased from 76.3% in the three months ended September 26, 2025 to 75.4% in the three months ended September 25, 2026, primarily because of an increase in revenue from customers in the United States.
Based on the short and medium-term indications and forecasts from our customers, we expect that the portion of our future revenues attributable to customers in regions outside North America for the remainder of fiscal year 2027 will be in line with the portion of revenues attributable to such customers during the three months ended September 25, 2026.
The following table presents percentages of total revenues by geographic region:
Three Months Ended
September 25, 2026 September 26, 2025
Asia-Pacific and others 72.0 % 72.7 %
North America 24.6 23.7
Europe 3.4 3.6
Total revenues 100.0 % 100.0 %
Our Contracts
We enter into supply agreements with our customers which generally have an initial term of up to three years, subject to automatic renewals for subsequent one-year terms unless expressly terminated. Although there are no minimum purchase requirements in our supply agreements, our customers provide us with rolling forecasts of their demand requirements. Our supply agreements generally include provisions for pricing and periodic review of pricing, consignment of our customer's unique production equipment to us, and the sharing of benefits from cost-savings derived from our efforts. We are generally required to purchase materials, which may include long lead-time materials and materials that are subject to minimum order quantities and/or non-cancelable or non-returnable terms, to meet the stated demands of our customers. After procuring materials, we manufacture products for our customers based on purchase orders that contain terms regarding product quantities, delivery locations and delivery dates. Our customers generally are obligated to purchase finished goods that we have manufactured according to their demand requirements. Materials that are not consumed by our customers within a specified period of time, or that are no longer required due to a product's cancellation or end-of-life, are typically designated as excess or obsolete inventory under our contracts. Once materials are designated as either excess or obsolete inventory, our customers are typically required to purchase such inventory from us even if they have chosen to cancel production of the related products. The excess or obsolete inventory is shipped to the customer and recognized as an offset against cost of revenue upon shipment.
Cost of Revenues
The key components of our cost of revenues are material costs, employee costs, and infrastructure-related costs. Material costs generally represent the majority of our cost of revenues. Several of the materials we require to manufacture products for our customers are customized for their products and often sourced from a single supplier or in some cases, our own subsidiaries. Shortages from sole-source suppliers due to yield loss, quality concerns and capacity constraints, among other factors, may increase our expenses and negatively impact our gross profit margin or total revenues in a given quarter. Material costs include scrap material. Historically, scrap rate diminishes during a product's life cycle due to process, fixturing and test improvement and optimization.
A second significant element of our cost of revenues is employee costs, including indirect employee costs related to design, configuration and optimization of manufacturing processes for our customers, quality testing, materials testing and other engineering services, and direct costs related to our manufacturing employees. Direct employee costs include employee salaries, insurance and benefits, merit-based bonuses, recruitment, training and retention. Historically, our employee costs have increased primarily due to increases in the number of employees necessary to support our growth and, to a lesser extent, costs to recruit, train and retain employees. Our cost of revenues is significantly impacted by salary levels in Thailand and the PRC, the fluctuation of the Thai baht and RMB against our functional currency, the U.S. dollar, and our ability to retain our employees. We expect our employee costs to increase as wages continue to increase in Thailand and the PRC. Wage increases may impact our ability to sustain our competitive advantage and may reduce our profit margin. We seek to mitigate these cost increases through improvements in employee productivity, employee retention and asset utilization.
Our infrastructure costs are comprised of depreciation, utilities, facilities management and overhead costs. Most of our facility leases are long-term agreements. Our depreciation costs include buildings and fixed assets, primarily at our Pinehurst and Chonburi campuses in Thailand, and capital equipment located at each of our manufacturing locations.
Selling, General and Administrative Expenses
Our SG&A expenses primarily consist of corporate employee costs for sales and marketing, general and administrative and other support personnel, including research and development expenses related to the design of customized optics and glass, travel expenses, legal and other professional fees, share-based compensation expense and other general expenses not related to cost of revenues.
In fiscal year 2027, we expect our SG&A expenses will increase compared with our fiscal year 2026 SG&A expenses, primarily due to an increase in research and development (R&D) expenses, information technology related expenses and employee costs.
The compensation committee of our board of directors approved a fiscal year 2027 executive incentive plan with quantitative objectives based solely on achieving certain revenue targets and non-GAAP operating margin targets for fiscal year 2027. Bonuses under the fiscal year 2026 executive incentive plan were paid after the end of fiscal year 2026. In fiscal year 2026, the compensation committee approved a fiscal year 2026 executive incentive plan with quantitative objectives that were based solely on achieving certain revenue targets and non-GAAP operating margin targets for fiscal year 2026.
Additional Financial Disclosures
Foreign Exchange
As a result of our international operations, we are exposed to foreign exchange risk arising from various currency exposures, and primarily with respect to the Thai baht. Although a majority of our total revenues is denominated in U.S. dollars, a substantial portion of our payroll plus certain other operating expenses are incurred and paid in Thai baht. The exchange rate between the Thai baht and the U.S. dollar has fluctuated substantially in recent years and may continue to fluctuate substantially in the future. We report our financial results in U.S. dollars and our results of operations have been and could in the future be negatively impacted if the Thai baht appreciates against the U.S. dollar. Smaller portions of our expenses are incurred in a variety of other currencies, including RMB, GBP, Canadian dollars, Euros, and Japanese yen, the appreciation of which may also negatively impact our financial results.
In order to manage the risks arising from fluctuations in foreign currency exchange rates, we use derivative instruments. We may enter into foreign currency exchange forward or put option contracts to manage foreign currency exposures associated with certain assets and liabilities and other forecasted foreign currency transactions and may designate these instruments as hedging instruments. The forward and put option contracts generally have maturities of up to 12 months. All foreign currency exchange contracts are recognized in the unaudited condensed consolidated balance sheets at fair value. Gains or losses on our forward and put option contracts generally present gross amount in the assets, liabilities, and transactions economically hedged.
We had foreign currency denominated assets and liabilities in Thai baht, RMB and GBP as follows:
As of September 25, 2026
As of June 26, 2026
(in thousands, except percentages) Foreign
Currency 		$ % Foreign
Currency 		$ %
Assets
Thai baht 1,828,525 54,664 80.3 1,132,961 33,921 77.0
RMB 75,861 11,240 16.5 53,167 7,800 17.7
GBP 1,657 2,190 3.2 1,763 2,325 5.3
Total $ 68,094 100.0 % $ 44,046 100.0 %
Liabilities
Thai baht 10,292,971 307,712 94.9 7,086,071 212,158 93.1
RMB 111,825 16,569 5.1 106,118 15,568 6.8
GBP 46 60 0.0 78 103 0.1
Total $ 324,341 100.0 % $ 227,829 100.0 %
The Thai baht assets represent cash and cash equivalents, trade accounts receivable, deposits and other current assets. The Thai baht liabilities represent trade accounts payable, accrued expenses, income tax payable, accrued employee benefits, borrowings and other payables. We manage our exposure to fluctuations in foreign exchange rates by the use of foreign currency contracts and offsetting assets and liabilities denominated in the same currency in accordance with management's policy. As of September 25, 2026, there was $292.0 million of foreign currency forward contracts outstanding on the Thai baht payables. As of June 26, 2026, there was $280.0 million of foreign currency forward contracts outstanding on the Thai baht payables.
The RMB assets represent cash and cash equivalents, trade accounts receivable, other receivables, and other current assets. The RMB liabilities represent trade accounts payable, accrued expenses, income tax payable, accrued payroll, bonus and related expenses, and other payables. As of September 25, 2026 and June 26, 2026, we did not have any derivative contracts denominated in RMB.
The GBP assets represent cash, trade accounts receivable, and other current assets. The GBP liabilities represent trade accounts payable, accrued expenses, and other payables. As of September 25, 2026 and June 26, 2026, we did not have any derivative contracts denominated in GBP.
For the three months ended September 25, 2026 and September 26, 2025, we recorded an unrealized gain of $1.2 million and unrealized loss of $1.3 million, respectively, related to derivatives that are not designated as hedging instruments in the unaudited condensed consolidated statements of operations and comprehensive income.
Currency Regulation and Dividend Distribution
Foreign exchange regulation in the PRC is primarily governed by the following rules:
•Foreign Currency Administration Rules, as amended on August 5, 2008, or the Exchange Rules; and
•Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.
Under the Exchange Rules, RMB is freely convertible into foreign currencies for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. However, conversion of RMB for capital account items, such as direct investments, loans, security investments and repatriation of investments, is still subject to the approval of SAFE.
Under the Administration Rules, foreign-invested enterprises may only buy, sell, or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents and relevant supporting documents and, in the case of capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of the PRC are also subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the State Development and Reform Commission.
On January 5, 2007, SAFE promulgated the Detailed Rules for Implementing the Measures for the Administration on Individual Foreign Exchange, or the Implementation Rules. Under the Implementation Rules, PRC citizens who are granted share options by an overseas publicly-listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures.
In addition, the General Administration of Taxation has issued circulars concerning employee share options. Under these circulars, our employees working in the PRC who exercise share options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee share options with relevant tax authorities and withhold individual income taxes of those employees who exercise their share options.
Furthermore, our transfer of funds to our subsidiaries in Thailand and the PRC are each subject to approval by governmental authorities in case of an increase in registered capital, or subject to registration with governmental authorities in case of a shareholder loan. These limitations on the flow of funds between our subsidiaries and us could restrict our ability to act in response to changing market conditions.
Income Tax
Our effective tax rate is a function of the mix of tax rates in the various jurisdictions in which we do business. We are domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to tax in the Cayman Islands on income or capital gains until March 6, 2039.
Throughout the period of our operations in Thailand, we have generally received income tax and other incentives from the Thailand Board of Investment. Preferential tax treatment from the Thai government in the form of a corporate tax exemption on income generated from projects to manufacture certain products at our Chonburi campus was available to us through June 2026, followed by a 50% exemption between July 2026 and June 2031. Preferential tax treatment is available to us for products manufactured at our Chonburi campus Building 9, where income generated will be tax exempt through 2031, capped at our actual investment amount. Preferential tax treatment will be available to us for products manufactured at our Navanakorn campus for 8 years beginning in August 2027, capped at our actual investment amount. Such preferential tax treatment is contingent on various factors, including the export of our customers' products out of Thailand and our agreement not to move our manufacturing facilities out of our current province in Thailand for at least 15 years from the date on which preferential tax treatment was granted. Currently, the corporate income tax rate for our Thai subsidiary is 20%.
As of September 25, 2026, the corporate income tax rates for our subsidiaries in the PRC, the U.S., the U.K. and Israel are 25%, 21%, 25% and 23%, respectively.
The OECD introduced a global minimum tax framework ("Pillar Two") that imposes a minimum tax rate of 15% on multinational enterprise groups with annual consolidated revenue exceeding €750 million. Pillar Two includes a Qualified Domestic Minimum Top-up Tax ("QDMTT"), an Income Inclusion Rule ("IRR"), and an Undertaxed Profits Rule ("UTPR").
The OECD has issued Pillar Two model rules and continues to release guidance on these rules. As of September 25, 2026, these rules are either effective or have been adopted in draft form in various countries. We evaluated the applicable tax law changes resulting from Pillar Two implementation in the countries where we operate. Fabrinet is incorporated in a jurisdiction that has not adopted Pillar Two rules. Certain other jurisdictions in which we operate, including Thailand, have enacted legislation to implement Pillar Two.
For the three months ended September 25, 2026, we recognized $19.9 million of current income tax expense related to enacted Pillar Two legislation. The related liability is included within income tax payable in the unaudited condensed consolidated balance sheets. We continue to evaluate enacted legislation, administrative guidance, and the application of transitional safe harbors in the jurisdictions in which we operate. Future changes in enacted tax laws and interpretations could materially affect our future effective tax rate and cash tax obligations.
Our deferred income tax assets represent temporary differences between the carrying amount and the tax basis of existing assets and liabilities that will result in deductible and payable amounts in future years, including net operating loss carry forwards. Based on estimates, the carrying value of our net deferred tax assets assumes that it is more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize these deferred income tax assets. Our judgments regarding future profitability may change depending on future market conditions, changes in U.S. or international tax laws, or other factors. If these estimates and related assumptions change in the future, we may be required to increase or decrease our valuation allowance against the deferred tax assets, resulting in additional or lesser income tax expense.
Critical Accounting Policies and Use of Estimates
We prepare our unaudited condensed consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities on the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Because the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our unaudited condensed consolidated financial statements, as their application places the most significant demands on our management's judgment.
Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the fiscal year ended June 26, 2026. The adoption of new accounting policies and accounting standards are disclosed in Note 2 to the unaudited condensed consolidated financial statements. There were no changes to our accounting policies.
Results of Operations
The following table sets forth a summary of our unaudited condensed consolidated statements of operations and comprehensive income. Note that period-to-period comparisons of operating results should not be relied upon as indicative of future performance.
(in thousands) Three Months Ended
September 25,
2026 		September 26,
2025
Revenues $ 1,474,459 $ 978,128
Cost of revenues (1,300,661) (861,689)
Gross profit 173,798 116,439
Selling, general and administrative expenses (26,744) (22,246)
Restructuring and other related costs (1,049) -
Operating income 146,005 94,193
Interest income 5,539 9,417
Interest expense (231) -
Foreign exchange gain (loss), net (220) (2,060)
Other income (expense), net (21,592) (122)
Income before income taxes 129,501 101,428
Income tax expense (26,004) (5,502)
Net income 103,497 95,926
Other comprehensive income (loss), net of tax (2,326) (2,962)
Net comprehensive income $ 101,171 $ 92,964
The following table sets forth a summary of our unaudited condensed consolidated statements of operations and comprehensive income as a percentage of revenues for the periods indicated.
Three Months Ended
September 25,
2026 		September 26,
2025
Revenues 100.0 % 100.0 %
Cost of revenues (88.2) (88.1)
Gross profit 11.8 11.9
Selling, general and administrative expenses (1.8) (2.3)
Restructuring and other related costs (0.1) -
Operating income 9.9 9.6
Interest income 0.4 1.0
Interest expense (0.0) -
Foreign exchange gain (loss), net (0.0) (0.2)
Other income (expense), net (1.5) (0.0)
Income before income taxes 8.8 10.4
Income tax expense (1.8) (0.6)
Net income 7.0 9.8
Other comprehensive income (loss), net of tax (0.1) (0.3)
Net comprehensive income 6.9 % 9.5 %
The following table presents revenues by end market and product category:
(in thousands, except percentages) Three Months Ended
September 25, 2026 		As a % of Total
Revenues 		Three Months Ended
September 26, 2025 		As a % of Total
Revenues
Data center (1)
$ 777,132 52.7 % $ 437,610 44.7 %
Communications infrastructure (2)
443,917 30.1 % 329,602 33.7 %
Automotive, Industrial and Others (3)
253,410 17.2 % 210,916 21.6 %
Total revenue $ 1,474,459 100.0 % $ 978,128 100.0 %
(1)Data center includes data center interconnect (DCI), high-performance computing (HPC), and other data center-specific applications.
(2)Communications infrastructure includes communications and networking products that are not specific to data center applications, primarily telecommunications products excluding DCI.
(3)Automotive, Industrial and Others includes products serving automotive components, industrial, medical devices and sensors.
Comparison of Three Months Ended September 25, 2026 with Three Months Ended September 26, 2025
Revenues
Our revenues increased by $496.4 million, or 50.8%, to $1,474.5 million for the three months ended September 25, 2026, compared with $978.1 million for the three months ended September 26, 2025. This increase was primarily due to an increase in our key customers' demand for both data center products and communications infrastructure products. Revenues from data center products, which represented $777.1 million, or 52.7%, of our revenues for the three months ended September 25, 2026, increased by $339.5 million, or 77.6%, compared to the same period in the prior fiscal year. Revenues from communications infrastructure products, which represented $443.9 million, or 30.1%, of our revenues for the three months ended September 25, 2026, increased by $114.3 million, or 34.7%, compared to the same period in the prior fiscal year. Revenues from automotive, industrial and others products, which represented $253.4 million, or 17.2%, of our revenues for the three months ended September 25, 2026, increased by $42.5 million, or 20.1%, compared to the same period in the prior fiscal year.
Cost of revenues
Our cost of revenues increased by $439.0 million, or 50.9%, to $1,300.7 million, or 88.2% of revenues, for the three months ended September 25, 2026, compared with $861.7 million, or 88.1% of revenues, for the three months ended September 26, 2025. This increase was in line with the increase in sales volume.
Gross profit
Our gross profit increased by $57.4 million, or 49.3%, to $173.8 million, or 11.8% of revenues, for the three months ended September 25, 2026, compared with $116.4 million, or 11.9% of revenues, for the three months ended September 26, 2025. The increase was primarily due to an increase in sales volume.
SG&A expenses
Our SG&A expenses increased by $4.5 million, or 20.3%, to $26.7 million, or 1.8% of revenues, for the three months ended September 25, 2026, compared with $22.2 million, or 2.3% of revenues, for the three months ended September 26, 2025. The increase was primarily due to (1) an increase in share-based compensation expenses of $1.5 million, (2) an increase in R&D expenses of $1.3 million, (3) an increase in executive compensation related expenses of $0.6 million, (4) an increase in sales and marketing expenses of $0.4 million, mainly from commission, (5) an increase in a net realized loss from financial instruments of $0.4 million, and (6) an increase in information technology related expenses of $0.3 million, primarily related to network and security systems.
Restructuring and other related costs
We recorded restructuring and other related costs for the three months ended September 25, 2026, of $1.0 million, due to restructuring in our subsidiary in Thailand. We had no restructuring costs for the three months ended September 26, 2025.
Operating income
Our operating income increased by $51.8 million, or 55.0%, to $146.0 million, or 9.9% of revenues, for the three months ended September 25, 2026, compared with $94.2 million, or 9.6% of revenues, for the three months ended September 26, 2025. The increase was primarily due to an increase in revenues.
Interest income
Our interest income decreased by $3.9 million, or 41.5%, to $5.5 million, or 0.4% of revenues, for the three months ended September 25, 2026, compared with $9.4 million, or 1.0% of revenues, for the three months ended September 26, 2025. The decrease was primarily due to a decrease in average cash balance and short-term investment and a decrease of weighted average interest income rate during the three months ended September 25, 2026 compared to same period in the prior fiscal year.
Interest expense
Our interest expense increased by $0.2 million for the three months ended September 25, 2026, compared with the three months ended September 26, 2025. The increase was primarily due to a new term loan in August 2026.
Foreign exchange gain (loss), net
We recorded foreign exchange loss, net of $0.2 million, or 0.0% of revenues, for the three months ended September 25, 2026, compared with foreign exchange loss, net of $2.1 million, or 0.2% of revenues, for the three months ended September 26, 2025. The decrease in foreign exchange loss was mainly due to (1) realized gain from payment/receipt of $3.0 million, and (2) unrealized gain from mark-to-market forward contracts of $2.5 million, offset by (1) unrealized loss from revaluation of outstanding Thai baht assets and liabilities of $2.5 million, (2) unrealized loss from revaluation of currencies other than Thai baht of $1.0 million, and (3) foreign exchange loss, totaling $0.1 million from our subsidiaries in the PRC and the U.K.
Other income (expense), net
We recorded other expense, net of $21.6 million, or 1.5% of revenues, for the three months ended September 25, 2026, compared with other expense, net $0.1 million or 0.0% of revenues, for the three months ended September 26, 2025. The increase in other expense was primarily due to downward fair value adjustment of non-marketable equity securities of $21.5 million.
Income before income taxes
We recorded income before income taxes of $129.5 million for the three months ended September 25, 2026, compared with $101.4 million for the three months ended September 26, 2025.
Income tax expense
Our provision for income tax reflects effective tax rates of 20.1% and 5.4% for the three months ended September 25, 2026 and September 26, 2025, respectively. The increase was primarily due to top-up taxes under the Pillar Two Model Rules.
Net income
We recorded net income of $103.5 million, or 7.0% of revenues, for the three months ended September 25, 2026, compared with $95.9 million, or 9.8% of revenues, for the three months ended September 26, 2025.
Other comprehensive income (loss)
We recorded other comprehensive loss of $2.3 million, or 0.1% of revenues, for the three months ended September 25, 2026, compared with other comprehensive loss of $3.0 million, or 0.3% of revenues, for the three months ended September 26, 2025. The change was mainly due to (1) unrealized gain from mark-to-market of forward contracts of $3.9 million, and (2) unrealized gain from foreign currency translation adjustment of $0.1 million, offset by an increase in unrealized loss from mark-to-market of available-for-sale debt securities of $3.3 million.
Liquidity and Capital Resources
Cash Flows and Working Capital
We primarily finance our operations through cash flow from operating activities. As of September 25, 2026 and September 26, 2025, we had cash, cash equivalents, and short-term investments of $755.8 million and $968.8 million, respectively, and outstanding debt of $74.7 million as of September 25, 2026.
Our cash and cash equivalents, which primarily consist of cash on hand, demand deposits, and liquid investments with original maturities of three months or less, are placed with banks and other financial institutions. The weighted-average interest rate on our cash and cash equivalents was 3.5% and 4.0% for the three months ended September 25, 2026 and September 26, 2025, respectively.
Our cash investments are made in accordance with an investment policy approved by the audit committee of our board of directors. In general, our investment policy requires that securities purchased be rated A1, P-1, F1 or better. No security may have an effective maturity that exceeds three years. Our investments in fixed income securities are primarily classified as available-for-sale and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on these securities are recorded as other comprehensive income (loss) and are reported as a separate component of shareholders' equity.
During the three months ended September 25, 2026, we borrowed $74.7 million of the term loan under our 2019 Credit Facility Agreement. As a result, as of September 25, 2026, we had a long-term borrowing of $74.7 million under our 2019 Credit Facility Agreement (see Note 11 of Notes to Unaudited Condensed Consolidated Financial Statements for further details). We anticipate that our internally generated working capital, along with our cash and cash equivalents will be adequate to repay these obligations. To better manage our cash on hand, we held short-term investments of $363.4 million as of September 25, 2026.
We believe that our current cash and cash equivalents, short-term investments, cash flow from operations, and funds available through our credit facility will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part II, Item 1A of this Quarterly Report on Form 10-Q. We also believe that our current manufacturing capacity is sufficient to meet our anticipated production requirements for at least the next few quarters. In February 2025, we began construction of a new manufacturing facility of approximately 2.0 million square feet at our Chonburi campus. The total expected cost of the project is approximately $132.5 million (Thai baht 4.45 billion).
The following table shows our cash flows for the periods indicated:
Three Months Ended
(in thousands) September 25, 2026 September 26, 2025
Net cash provided by operating activities $ 21,287 $ 102,568
Net cash provided by (used in) investing activities $ 2,765 $ (80,960)
Net cash provided by (used in) financing activities $ 21,775 $ (22,965)
Net increase (decrease) in cash, cash equivalents and restricted cash $ 45,827 $ (1,357)
Operating Activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities. The decrease in cash provided by operating activities during the three months ended September 25, 2026 as compared to the three months ended September 26, 2025 was primarily due to (1) an increase in trade receivables due to higher sales volume and timing of collection, and (2) an increase in inventories to support higher demand in the next quarter, partially offset by an increase in trade account payables aligned with the increasing volume of inventories.
Investing Activities
Investing cash flows consist primarily of investment purchases, sales, maturities, and disposals; and capital expenditures. Cash provided by investing activities for the three months ended September 25, 2026 as compared to cash used in investing activities for the three months ended September 26, 2025 was primarily due to an increase in net proceeds of short-term investments, offset by an increase in capital expenditures related to purchase and construction of new facilities in U.S. and Thailand, respectively.
Financing Activities
Financing cash flows consist primarily of proceeds from long-term borrowings, repayment of long-term borrowings, share repurchases, and withholding tax related to net share settlement of restricted share units. Cash provided by financing activities for the three months ended September 25, 2026 as compared to cash used in financing activities for the three months ended September 26, 2025 was primarily due to proceeds from long-term borrowings, offset by an increase in share repurchases and an increase in withholding tax related to net share settlement of restricted share units.
Recent Accounting Pronouncements
See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for recent accounting pronouncements that could have an effect on us.
Fabrinet Co. Ltd. published this content on November 03, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 03, 2026 at 13:16 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]