Fabrinet has recently released its 10-K report, providing a detailed look at the company's financial performance and operations. Fabrinet is a leading provider of optical packaging and precision optical, electro-mechanical, and electronic manufacturing services, serving original equipment manufacturers of optical communication components, modules and sub-systems, industrial lasers, automotive components, medical devices, and sensors. The company operates in North America, the Asia-Pacific, and Europe, offering a range of advanced optical and electro-mechanical capabilities in the manufacturing process.
In its ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Fabrinet acknowledges that it relies on a small number of customers for a significant percentage of its total revenues, which presents a risk of revenue reduction and adverse effects on its business, operating results, and share price. The company also highlights its efforts to expand relationships with existing customers and attract new ones, emphasizing its broad range of complex engineering and manufacturing service offerings, flexible low-cost manufacturing platform, and process optimization capabilities.
Fabrinet's revenues are generated from three geographic regions: North America, Asia-Pacific and others, and Europe. The company noted that the percentage of its revenues generated from a bill-to location outside of North America increased from 52.0% in fiscal year 2023 to 63.5% in fiscal year 2024, indicating a shift in revenue sources. However, the company expects disruptions in its supply chain and fluctuations in the availability of parts and materials to continue to have an adverse impact on its ability to generate revenue, despite strong demand from its customers.
The key components of Fabrinet's cost of revenues are material costs, employee costs, and infrastructure-related costs. Material costs represent the majority of its cost of revenues, and the company highlighted the impact of shortages from sole-source suppliers on its expenses and gross profit margin. Employee costs, including direct and indirect costs, and infrastructure costs such as depreciation, utilities, facilities management, and overhead costs, also contribute significantly to the company's cost of revenues.
Additionally, the company expects its selling, general and administrative (SG&A) expenses to increase in fiscal year 2025 compared to fiscal year 2024, primarily due to increases in compensation-related expenses and investments in information technology hardware. Fabrinet also noted the inclusion of share-based compensation expenses and discretionary merit-based bonus awards in its SG&A expenses for fiscal years 2024, 2023, and 2022.
The market has reacted to these announcements by moving the company's shares 18.7% to a price of $274.75. Check out the company's full 10-K submission here.
