Fabrinet 2026 Q4 Earnings Call

Thank you, operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the fourth quarter of fiscal year 2026, which ended June 26, 2026. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the investors section of our website, located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the investor section of our website for important information, including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation, as well as additional details of our revenue breakdown.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events, except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on May 5, 2026. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's Chairman and CEO, Seamus Grady.

Seamus? Thank you, Garo. Good afternoon, everyone, and thank you for joining our call today.

We are delighted to report an outstanding fourth quarter that ended a remarkable year of accelerating year-over-year revenue growth, and we are enthusiastic that our momentum will extend in the first quarter and through fiscal year 2027. Fourth quarter revenue of $1.316 billion increased 45% year-over-year and exceeded the top end of our guidance range. This revenue upside flowed through to the bottom line with non-GAAP EPS of $4.10, which was also above our guidance range. We were pleased to see success from multiple sustainable growth drivers simultaneously supporting our business as we closed out fiscal 2026, and we are excited to anticipate an even stronger fiscal 2027. For all of fiscal 2026, revenue was an impressive $4.6 billion, increasing 36% from fiscal 2025.

And with strong execution, net income grew even faster than revenue, producing non-GAAP EPS of $14.09 for the year. What is most noticeable to us is that this performance did not come from any one product category or customer, but from increasing demand trends across numerous customers in multiple markets, particularly evident at customers addressing the data center market, as well as those serving the communications infrastructure market. Demand from these markets continues to increase, which makes us optimistic about the long-term durability of these trends. Before we get into the details of our results, I would like to highlight a change in the way we will be reporting our revenue breakdown going forward.

As complex optical and electronic products become more and more prevalent inside, across, and between data centers, it is evident that hyperscalers and other data center service providers are the ultimate customers of many of the products we manufacture, including some of those that have been characterized as telecom products in the past. At the same time, communications infrastructure continues to be an important part of our business, driven by general purpose, longer reach products with broader applications that are not specific to data centers. Therefore, in order for our revenue breakdown to better reflect the end markets we ultimately serve, going forward, we will focus on three revenue categories. Number one, data centers. Number two, communications infrastructure. And number three, automotive, industrial, and other revenue. In addition to being better aligned with the markets we ultimately serve, this also simplifies our reporting.

We will continue to provide color on trends within all of these categories to extend our transparent revenue reporting practices and to help investors better understand the underlying drivers of our business. I would now like to talk about capacity. As you know, we have been rapidly increasing our manufacturing footprint in order to stay ahead of rising demand, and we are excited to report a number of milestones. At Building 10 in our Chonburi campus, we remain on track to complete Building 10 by early 2027, which will add a total of 2 million square feet to our footprint. We have already qualified 250,000 square feet on the first floor of this facility, and we expect a similar amount on the third floor to be qualified this quarter. At our Pinehurst campus, we have completed the conversion of 120,000 square feet of office space into manufacturing space.

We have also completed the acquisition of our new site in Navanakorn earlier in the fourth quarter, and we are happy to report that this building has just been commissioned, adding another 200,000 square feet of space. In addition to these capacity increases in Thailand, we have also been focused on expanding our footprint at Fabrinet West. Our Santa Clara operations are primarily focused on helping customers, many of which are in the same neighborhood, bring new products to market. Since Fabrinet West is an on-ramp to Bangkok, success here is measured by how efficiently we transfer production of products to Thailand for higher volume, low cost manufacturing at scale. To support increasing demand for these new product introduction and related services, we recently completed the acquisition of a campus at Great America Place in Santa Clara, less than 1 mile away from our existing facility on Patrick Henry Drive.

This campus consists of two office buildings and a large manufacturing space of approximately 130,000 sq ft. That will more than double our Silicon Valley footprint and help support our long-term growth. Looking back at fiscal 2026, it was a remarkable year with accelerating revenue growth and record profits. More importantly, we have set the stage for another incredible year in fiscal 2027 as our strategy plays out. In addition to increasing demand across our existing business, we will see our growth bolstered by recent program wins as we continue to pursue further opportunities across our key markets. In summary, this is an incredible time at Fabrinet as we benefit from our focus on complex, high-growth markets, and we are proud to be winning more than our fair share of the opportunities.

With accelerating year-over-year revenue growth, we are enthusiastic about the strong demand trends we are seeing and confident in our ability to extend our strong track record into the new year. Now, I'd like to turn the call over to Csaba for more details on our fourth quarter results and our outlook for the first quarter of fiscal 2027.

Csaba. Thank you, Seamus, and good afternoon, everyone.

We delivered an excellent fourth quarter with year-over-year revenue growth accelerating to 45% and continued strong earnings growth. Revenue reached a record $1.316 billion, above the high end of our guidance range. We also continued to generate operating leverage, resulting in record non-GAAP EPS of $4.10, which also exceeded our expectations. As Seamus described, we have updated our revenue mix reporting to better reflect the end markets we serve and where our customers' products are ultimately deployed. The investor deck posted on our website provides a 12-quarter history under the new reporting structure, along with the reconciliation of our Q4 results to the prior categories. This change is purely presentational and has no impact on total revenue in any period. Now turning to the details, beginning with data center revenue.

This category includes optical and interconnect products deployed within data centers, including data center networking with an expanded view of DCI, high-performance computing, and other AI infrastructure applications. Data center revenue was $669 million in the fourth quarter, representing growth of 68% from a year ago and 13% from Q3. This is now our largest category, representing 51% of total revenue. DCI products were the largest contributor to data center growth in the fourth quarter, with an annualized revenue run rate exceeding $1 billion. High-performance computing, or HPC, also made a substantial contribution to data center revenue with solid growth in the quarter. Looking ahead, we expect the momentum we saw in the fourth quarter to continue into fiscal 2027, supported further by the new transceiver wins we discussed last quarter. Moving to communications infrastructure. This category includes optical and networking products used in telecommunications and enterprise networks, excluding products specific to data center applications.