Fabrinet — FY2021 Form 10-K Summary
Period clarification: The filing is an annual report for the 52-week fiscal year ended June 25, 2021, compared with the fiscal year ended June 26, 2020. It does not provide a standalone “2020 Q4” financial summary.
Business context and reporting period
Fabrinet provides optical, electro-mechanical and electronic manufacturing services, primarily to original equipment manufacturers. Optical communications accounted for 76.7% of FY2021 revenue; lasers, sensors and other markets accounted for 23.3%. Manufacturing is concentrated in Thailand, with additional facilities in China, the U.S., the U.K., Israel and the Cayman Islands.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,879.4 million | $1,641.8 million |
| Gross profit / margin | $221.4 million / 11.8% | $186.1 million / 11.3% |
| Operating income / margin | $150.8 million / 8.0% | $117.4 million / 7.1% |
| Net income / margin | $148.3 million / 7.9% | $113.5 million / 6.9% |
| Diluted EPS | $3.95 | $3.01 |
| Cash from operations | $118.7 million | $150.7 million |
Revenue rose 14.5%, mainly on higher demand for optical communications manufacturing, particularly telecom products. Gross margin improved by 0.5 percentage point, while operating margin rose 0.9 point. Net income increased 30.7%. The effective tax rate was 1.4%, down from 4.8%, primarily due to more income not subject to tax.
Cash, cash equivalents and short-term investments totaled $547.9 million at year-end, versus $488.1 million a year earlier. Total debt was approximately $39.5 million, down from $51.7 million. Current assets were $1,352.5 million and current liabilities were $444.4 million. Cash from operations declined 21.2%, principally reflecting higher inventory and receivables, partly offset by increased payables. Capital expenditures were $48.6 million. The company said available resources and operating cash flow should cover working capital and capital requirements for at least 12 months.
Material changes and notable items
- Optical communications revenue increased to $1,441.3 million from $1,248.2 million. Lasers, sensors and other revenue rose to $438.0 million from $393.7 million, though their share of total revenue fell to 23.3% from 24.0%.
- Three customers represented 39.1% of revenue, essentially unchanged from 39.0% in FY2020. Cisco, Lumentum and Infinera contributed 13.9%, 13.6% and 11.6%, respectively, in FY2021.
- Inventory increased by $112.3 million and accounts receivable by $63.8 million. The company cited new business and higher sales/timing of collections as contributors.
- Net foreign-exchange results shifted to a $0.5 million gain from a $3.8 million loss. Other income/expense was a net expense of $3.5 million, compared with net income of $1.1 million in FY2020; the filing’s cited discussion does not provide a clear breakdown of that FY2021 expense.
- Other comprehensive loss was $5.1 million, versus income of $1.2 million, mainly reflecting derivative and available-for-sale investment valuation changes.
- Fabrinet repurchased 239,486 shares for $18.8 million during FY2021; $81.2 million remained authorized at year-end. The company stated it does not currently intend to pay dividends.
Outlook, risks and contingencies
Management did not provide specific revenue or earnings guidance. It expected FY2022 SG&A and capital expenditures to increase year over year, and anticipated incremental cost of revenue from geographic expansion. It also expected higher employee costs in Thailand and China. Management warned that supply-chain constraints and COVID-related safeguards could pressure gross margins; semiconductor shortages had already reduced revenue in FY2021’s fourth quarter. Longer term, management sees rising bandwidth demand as supportive of its markets, while emphasizing the uncertainty of the pandemic’s effects.
- Customer concentration, short-term and cancellable purchase orders, and customer pricing leverage expose revenue and margins to order changes.
- Single- or limited-source materials, semiconductor shortages, supplier constraints, inventory obsolescence and manufacturing yields could disrupt production or increase costs.
- Most manufacturing is in Thailand, creating exposure to local political conditions, natural disasters and operational interruptions; COVID-19 outbreaks could prompt facility restrictions.
- Foreign-exchange exposure is significant, especially to the Thai baht; the company uses hedges that generally mature within 12 months.
- The $39.6 million term loan is secured by Thai property and subject to financial and other covenants. Fabrinet reported compliance at year-end. The loan bears interest at three-month LIBOR plus 1.35%; interest-rate swaps were used to fix the effective rate.
- At June 25, 2021, purchase obligations and other commitments to third parties were $918.7 million, and outstanding capital expenditure commitments were $66.6 million. A Chonburi construction contract was approximately $50.3 million.
- No material litigation was pending or threatened. The independent auditor issued unqualified opinions on the financial statements and internal controls. Revenue recognition was identified as a critical audit matter because contract terms determine when control transfers and revenue is recognized.
Investor verification priorities
- Confirm the reporting-period match: this is FY2021, not a standalone 2020 Q4 filing.
- Track major-customer orders, concentration and receivables, and assess whether revenue growth is sustainable.
- Monitor semiconductor and other supply availability, inventory growth and working-capital conversion, given lower operating cash flow.
- Check gross-margin trends against input-cost inflation, wage increases, COVID-related costs and geographic expansion spending.
- Review the scale and timing of construction, land and other capital commitments alongside the share-repurchase program.
- Assess the low effective tax rate’s sustainability, Thai tax-incentive conditions, foreign-exchange exposure and LIBOR transition provisions.