SEC Filing | Fabrinet

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from__________to__________

Commission File Number: 001-34775

____________________________

FABRINET

(Exact name of registrant as specified in its charter)

____________________________


Cayman Islands (State or other jurisdiction of incorporation or organization)			98-1228572 (I.R.S. Employer Identification No.)

c/o Intertrust Corporate Services

One Nexus Way, Camana Bay

Grand Cayman

Cayman Islands

(Address of principal executive offices)

KY1-9005

(Zip Code)

+66 2-524-9600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary Shares, $0.01 par value

New York Stock Exchange

____________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the

registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

As of April 28, 2023, the registrant had 36,297,059 ordinary shares, $0.01 par value, outstanding.

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FABRINET

FORM 10-Q

QUARTER ENDED MARCH 31, 2023

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			Page No.
RISK FACTORS SUMMARY			3
PART I. FINANCIAL INFORMATION			5

Item 1. Financial Statements			5

Condensed Consolidated Balance Sheets as of March 31, 2023 and June 24, 2022 (unaudited)			5

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended March 31, 2023 and March 25 , 20 2 2 (unaudited)			6

Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended March 31, 2023 and March 25 , 202 2 (unaudited)			7

Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and March 25 , 202 2 (unaudited)			9

Notes to Condensed Consolidated Financial Statements (unaudited)			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31

Item 3. Quantitative and Qualitative Disclosures About Market Risk			43

Item 4. Controls and Procedures			44

PART II. OTHER INFORMATION			45

Item 1. Legal Proceedings			45

Item 1A. Risk Factors			45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			62

Item 6. Exhibits			63

Signature			64

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RISK FACTORS SUMMARY

You should carefully consider the information set forth below under the heading “Risk Factors” in Part II, Item 1A before deciding whether to invest in our securities. Below is a summary of the principal risks associated with an investment in our securities.

•Our sales depend on a small number of customers. A reduction in orders from any of these customers, the loss of any of these customers, or a customer exerting significant pricing and margin pressures on us could harm our business, financial condition and operating results.

•Consolidation in the markets we serve could harm our business, financial condition and operating results.

•If the optical communications market does not expand as we expect, our business may not grow as fast as we expect.

•Our quarterly revenues, gross profit margins and operating results have fluctuated significantly and may continue to do so in the future, which may cause the market price of our ordinary shares to decline or be volatile.

•If we are unable to continue diversifying our precision optical and electro-mechanical manufacturing services across other markets within the optics industry, or if these markets do not grow as fast as we expect, our business may not grow as fast as we expect.

•We face significant competition in our business. If we are unable to compete successfully against our current and future competitors, our business, financial condition and operating results could be harmed.

•Cancellations, delays or reductions of customer orders and the relatively short-term nature of the commitments of our customers could harm our business, financial condition and operating results.

•Our exposure to financially troubled customers or suppliers could harm our business, financial condition and operating results.

•We purchase some of the critical materials used in certain of our products from a single source or a limited number of suppliers. Supply shortages have in the past, and could in the future, impair the quality, reduce the availability or increase the cost of materials, which could harm our revenues, profitability and customer relations.

•Managing our inventory is complex and may require write-downs due to excess or obsolete inventory, which could cause our operating results to decrease significantly in a given fiscal period.

•If we fail to adequately expand our manufacturing capacity, we will not be able to grow our business, which would harm our business, financial condition and operating results. Conversely, if we expand too much or too rapidly, we may experience excess capacity, which would harm our business, financial condition and operating results.

•We may experience manufacturing yields that are lower than expected, potentially resulting in increased costs, which could harm our business, operating results and customer relations.

•If the products that we manufacture contain defects, we could incur significant correction costs, demand for our services may decline and we may be exposed to product liability and product warranty claims, which could harm our business, financial condition, operating results and customer relations.

•If we fail to attract additional skilled employees or retain key personnel, our business, financial condition and operating results could suffer.

•Fluctuations in foreign currency exchange rates and changes in governmental policies regarding foreign currencies could increase our operating costs, which would adversely affect our operating results.

•We conduct operations in a number of countries, which creates logistical and communications challenges for us and exposes us to other risks and challenges that could harm our business, financial condition and operating results.

•We are subject to governmental export and import controls in several jurisdictions that subject us to a variety of risks, including liability, impairment of our ability to compete in international markets, and decreased sales and customer orders.

•We are subject to risks related to the ongoing U.S.-China trade dispute, including increased tariffs on materials that we use in manufacturing, which could adversely affect our business, financial condition and operating results.

•Political unrest and demonstrations, as well as changes in the political, social, business or economic conditions in Thailand, could harm our business, financial condition and operating results.

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•We expect to continue to invest in our manufacturing operations in the People's Republic of China ("PRC"), which will continue to expose us to risks inherent in doing business in the PRC, any of which risks could harm our business, financial condition and operating results.

•Natural disasters, epidemics (including COVID-19), acts of terrorism and political and economic developments could harm our business, financial condition and operating results.

•Unfavorable worldwide economic conditions (including inflation and supply chain disruptions) may negatively affect our business, financial condition and operating results.

•The loan agreements for our long-term debt obligations and other credit facilities contain financial ratio covenants that may impair our ability to conduct our business.

•The phase-out of the London Interbank Offered Rate ("LIBOR") could affect interest rates under our existing credit facility agreement, as well as our ability to seek future debt financing.

•We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our shareholders.

•Our investment portfolio may become impaired by deterioration of the capital markets.

•We are not fully insured against all potential losses. Natural disasters or other catastrophes could adversely affect our business, financial condition and operating results.

•There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial condition and operating results.

•Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure and/or cyber security attacks.

•Intellectual property infringement claims against our customers or us could harm our business, financial condition and operating results.

•Any failure to protect our customers’ intellectual property that we use in the products we manufacture for them could harm our customer relationships and subject us to liability.

•We are subject to the risk of increased income taxes, which could harm our business, financial condition and operating results.

•We have incurred and will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to continue to devote substantial resources to various compliance initiatives.

•If we are unable to meet regulatory quality standards applicable to our manufacturing and quality processes for the products we manufacture, our business, financial condition and operating results could be harmed.

•Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, financial condition and operating results.

•Our share price may be volatile due to fluctuations in our operating results and other factors, including the activities and operating results of our customers or competitors, any of which could cause our share price to decline.

•If securities or industry analysts do not publish research or if they publish misleading or unfavorable research about our business, the market price and trading volume of our ordinary shares could decline.

•We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

•Our business and share price could be negatively affected as a result of activist shareholders.

•Certain provisions in our constitutional documents may discourage our acquisition by a third party, which could limit our shareholders' opportunity to sell shares at a premium.

•Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.

•Certain judgments obtained against us by our shareholders may not be enforceable.

•Energy price volatility may negatively impact our business, financial condition and operating results.

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PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FABRINET

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands of U.S. dollars, except share data and par value)	March 31, 2023		June 24, 2022
Assets
Current assets
Cash and cash equivalents	$	230,743	$	197,996
Short-term restricted cash	—		220
Short-term investments	307,980		280,157
Trade accounts receivable, net of allowance for doubtful accounts of $1,031 and $1,271, respectively	540,343		439,330
Contract assets	21,081		13,464
Inventories	554,247		557,145
Prepaid expenses	10,606		11,626
Other current assets	39,610		25,233
Total current assets	1,704,610		1,525,171
Non-current assets
Long-term restricted cash	—		149
Property, plant and equipment, net	308,365		292,277
Intangibles, net	2,471		3,508
Operating right-of-use assets	2,210		4,084
Deferred tax assets	10,487		9,800
Other non-current assets	658		652
Total non-current assets	324,191		310,470
Total Assets	$	2,028,801	$	1,835,641
Liabilities and Shareholders’ Equity
Current liabilities
Long-term borrowings, current portion, net	$	12,156	$	12,156
Trade accounts payable	436,085		439,684
Fixed assets payable	20,116		9,085
Contract liabilities	3,249		1,982

Operating lease liabilities, current portion	1,634		2,319
Income tax payable	2,785		2,898
Accrued payroll, bonus and related expenses	28,899		20,374
Accrued expenses	23,428		24,758
Other payables	26,637		25,231
Total current liabilities	554,989		538,487
Non-current liabilities
Long-term borrowings, non-current portion, net	3,039		15,202
Deferred tax liability	6,159		6,001

Operating lease liability, non-current portion	235		1,476
Severance liabilities	21,267		18,384
Other non-current liabilities	1,531		2,409
Total non-current liabilities	32,231		43,472
Total Liabilities	587,220		581,959
Commitments and contingencies (Note 15)
Shareholders’ equity
Preferred shares (5,000,000 shares authorized, $0.01 par value; no shares issued and outstanding as of March 31, 2023 and June 24, 2022)	—		—
Ordinary shares (500,000,000 shares authorized, $0.01 par value; 39,274,783 shares and 39,048,700 shares issued at March 31, 2023 and June 24, 2022, respectively; and 36,578,909 shares and 36,436,683 shares outstanding at March 31, 2023 and June 24, 2022, respectively)	393		390
Additional paid-in capital	200,141		196,667
Less: Treasury shares (2,695,874 shares and 2,612,017 shares as of March 31, 2023 and June 24, 2022, respectively)	(156,475)		(147,258)
Accumulated other comprehensive income (loss)	(6,281)		(12,793)
Retained earnings	1,403,803		1,216,676
Total Shareholders’ Equity	1,441,581		1,253,682
Total Liabilities and Shareholders’ Equity	$	2,028,801	$	1,835,641

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (unaudited)


	Three Months Ended				Nine Months Ended
(in thousands of U.S. dollars, except per share data)	March 31, 2023		March 25, 2022		March 31, 2023		March 25, 2022
Revenues	$	665,281	$	564,395	$	1,989,366	$	1,674,350
Cost of revenues	(579,274)		(493,702)		(1,735,388)		(1,470,689)
Gross profit	86,007		70,693		253,978		203,661
Selling, general and administrative expenses	(18,309)		(17,034)		(57,804)		(55,412)
Restructuring and other related costs	(5,872)		—		(5,872)		(135)
Operating income	61,826		53,659		190,302		148,114
Interest income	3,317		414		7,210		1,470
Interest expense	(399)		(73)		(1,179)		(347)
Foreign exchange gain (loss), net	(1,303)		(410)		(3,122)		998
Other income (expense), net	31		(36)		(178)		(1,351)
Income before income taxes	63,472		53,554		193,033		148,884
Income tax expense	(4,117)		(2,893)		(5,906)		(4,693)
Net income	59,355		50,661		187,127		144,191
Other comprehensive income (loss), net of tax:
Change in net unrealized gain (loss) on available-for-sale securities	2,046		(2,455)		1,768		(3,615)
Change in net unrealized gain (loss) on derivative instruments	(5,535)		666		4,435		2,743
Change in net retirement benefits plan – prior service cost	113		124		338		448
Change in foreign currency translation adjustment	(191)		(34)		(29)		(198)
Total other comprehensive income (loss), net of tax	(3,567)		(1,699)		6,512		(622)
Net comprehensive income	$	55,788	$	48,962	$	193,639	$	143,569
Earnings per share
Basic	$	1.62	$	1.37	$	5.12	$	3.90
Diluted	$	1.60	$	1.35	$	5.07	$	3.85
Weighted-average number of ordinary shares outstanding (thousands of shares)
Basic	36,608		36,940		36,575		36,945
Diluted	36,989		37,473		36,895		37,451

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

For the Three Months Ended March 31, 2023


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at December 30, 2022	39,251,581	$	393	$	194,366	$	(152,362)	$	(2,714)	$	1,344,448	$	1,384,131
Net income	—	—		—		—		—		59,355		59,355
Other comprehensive income (loss)	—	—		—		—		(3,567)		—		(3,567)
Share-based compensation	—	—		6,719		—		—		—		6,719
Issuance of ordinary shares	23,202	—		—		—		—		—		—
Repurchase of 35,232 shares held as treasury shares	—	—				(4,113)		—		—		(4,113)
Tax withholdings related to net share settlement of restricted share units	—	—		(944)		—		—		—		(944)
Balances at March 31, 2023	39,274,783	$	393	$	200,141	$	(156,475)	$	(6,281)	$	1,403,803	$	1,441,581

For the Nine Months Ended March 31, 2023


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at June 24, 2022	39,048,700	$	390	$	196,667	$	(147,258)	$	(12,793)	$	1,216,676	$	1,253,682
Net income	—	—		—		—		—		187,127		187,127
Other comprehensive income (loss)	—	—		—		—		6,512		—		6,512
Share-based compensation	—	—		21,217		—		—		—		21,217
Issuance of ordinary shares	226,083	3		(3)		—		—		—		—
Repurchase of 83,857 shares held as treasury shares	—	—		—		(9,217)		—		—		(9,217)
Tax withholdings related to net share settlement of restricted share units	—	—		(17,740)		—		—		—		(17,740)
Balances at March 31, 2023	39,274,783	$	393	$	200,141	$	(156,475)	$	(6,281)	$	1,403,803	$	1,441,581

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FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

For the Three Months Ended March 25, 2022


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at December 24, 2021	39,008,996	$	390	$	185,940	$	(91,776)	$	(5,189)	$	1,109,826	$	1,199,191
Net income	—	—		—		—		—		50,661		50,661
Other comprehensive income (loss)	—	—		—		—		(1,699)		—		(1,699)
Share-based compensation	—	—		5,723		—		—		—		5,723
Issuance of ordinary shares	30,729	—		—		—		—		—		—
Repurchase of 237,339 shares held as treasury shares	—	—		—		(24,191)		—		—		(24,191)
Tax withholdings related to net share settlement of restricted share units	—	—		(958)		—		—		—		(958)
Balances at March 25, 2022	39,039,725	$	390	$	190,705	$	(115,967)	$	(6,888)	$	1,160,487	$	1,228,727

For the Nine Months Ended March 25, 2022


	Ordinary Share			Additional Paid-in Capital		Treasury Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
(in thousands of U.S. dollars, except share data)	Shares	Amount
Balances at June 25, 2021	38,749,045	$	388	$	189,445	$	(87,343)	$	(6,266)	$	1,016,296	$	1,112,520
Net income	—	—		—		—		—		144,191		144,191
Other comprehensive income (loss)	—	—		—		—		(622)		—		(622)
Share-based compensation	—	—		21,701		—		—		—		21,701
Issuance of ordinary shares	290,680	2		(2)		—		—		—		—
Repurchase of 275,608 shares held as treasury shares	—	—		—		(28,624)		—		—		(28,624)
Tax withholdings related to net share settlement of restricted share units	—	—		(20,439)		—		—		—		(20,439)
Balances at March 25, 2022	39,039,725	$	390	$	190,705	$	(115,967)	$	(6,888)	$	1,160,487	$	1,228,727

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Nine Months Ended
(in thousands of U.S. dollars)	March 31, 2023		March 25, 2022
Cash flows from operating activities
Net income for the period	$	187,127	$	144,191
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	32,504		28,907
Non-cash restructuring charges and other related costs	2,201		—
(Gain) loss on disposal and impairment of property, plant and equipment	(1,630)		(175)
(Gain) loss from sales and maturities of available-for-sale securities	92		(13)
Amortization of discount (premium) of short-term investments	300		3,038
Amortization of deferred debt issuance costs	24		24
(Reversal of) allowance for doubtful accounts	(240)		(39)
Unrealized loss (gain) on exchange rate and fair value of foreign currency forward contracts	693		(1,422)

Amortization of fair value at hedge inception of interest rate swaps	(478)		(736)
Share-based compensation	21,217		21,701
Deferred income tax	(276)		563
Other non-cash expenses	(151)		1,067
Changes in operating assets and liabilities
Trade accounts receivable	(98,212)		(109,334)
Contract assets	(7,617)		(1,690)
Inventories	2,720		(30,503)
Other current assets and non-current assets	(11,807)		(11,221)
Trade accounts payable	(5,028)		55,333
Contract liabilities	1,267		243
Income tax payable	(262)		(872)
Severance liabilities	1,917		1,883
Other current liabilities and non-current liabilities	17,861		6,952
Net cash provided by operating activities	142,222		107,897
Cash flows from investing activities
Purchase of short-term investments	(154,033)		(119,853)
Proceeds from sales of short-term investments	30,179		19,463
Proceeds from maturities of short-term investments	97,408		92,862
Purchase of property, plant and equipment	(43,422)		(75,327)
Purchase of intangibles	(698)		(592)
Proceeds from disposal of property, plant and equipment	117		229
Net cash used in investing activities	(70,449)		(83,218)
Cash flows from financing activities
Repayment of long-term borrowings	(12,187)		(9,141)

Repayment of finance lease liability	(7)		—
Repurchase of ordinary shares	(9,217)		(28,624)
Withholding tax related to net share settlement of restricted share units	(17,740)		(20,439)
Net cash used in financing activities	(39,151)		(58,204)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	32,622	$	(33,525)
Movement in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of period	$	198,365	$	303,123
Increase (decrease) in cash, cash equivalents and restricted cash	32,622		(33,525)
Effect of exchange rate on cash, cash equivalents and restricted cash	(244)		(301)
Cash, cash equivalents and restricted cash at the end of period	$	230,743	$	269,297
Non-cash investing and financing activities
Construction, software and equipment-related payables	$	20,116	$	14,060

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FABRINET

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows:


(in thousands of U.S. dollars)	As of March 31, 2023		As of March 25, 2022
Cash and cash equivalents	$	230,743	$	269,140
Restricted cash	—		157
Cash, cash equivalents and restricted cash	$	230,743	$	269,297

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FABRINET

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands of U.S. dollars unless otherwise noted)

1. Business and organization

General

Fabrinet (“Fabrinet” or the “Parent Company”) was incorporated on August 12, 1999, and commenced operations on January 1, 2000. The Parent Company is an exempted company incorporated in the Cayman Islands, British West Indies. The “Company” refers to Fabrinet and its subsidiaries as a group.

The Company provides 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. The Company offers 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. The Company focuses primarily on the production of low-volume, high-mix products. The principal subsidiaries of Fabrinet include Fabrinet Co., Ltd. (“Fabrinet Thailand”), Casix, Inc. (“Casix”), Fabrinet West, Inc. (“Fabrinet West”) and Fabrinet Israel Ltd. (“Fabrinet Israel”).

2. Accounting policies

Basis of presentation

The accompanying unaudited condensed consolidated financial statements for Fabrinet as of March 31, 2023 and for the three and nine months ended March 31, 2023 and March 25, 2022 include normal recurring adjustments necessary for a fair statement of the financial statements set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or "GAAP") for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in Fabrinet’s Annual Report on Form 10-K for the year ended June 24, 2022.

The balance sheet as of June 24, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The results for the three and nine months ended March 31, 2023 may not be indicative of results for the year ending June 30, 2023 or any future periods.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amount of total revenues and expenses during the year. The Company bases estimates on historical experience and various assumptions about the future that are believed to be reasonable based on available information. The Company’s reported financial position or results of operations may be materially different under different conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies, which are discussed below. Significant assumptions are used in accounting for share-based compensation, allowance for doubtful accounts, allowance for expected credit losses, income taxes, inventory obsolescence, goodwill and valuation of intangible assets related to business acquisition, among others. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be different from these estimates. In the event that the Company's estimates or assumptions prove to be different from actual results, adjustments will be made in subsequent periods to reflect more current information. Additionally, the extent to which the evolving COVID-19 pandemic impacts the Company’s unaudited condensed consolidated financial statements will depend on a number of factors, including the magnitude and duration of the pandemic. These estimates may change, as new events occur and additional information is obtained, or based upon the occurrence of other factors related to the COVID-19 pandemic that could result in material impacts to the Company's unaudited condensed consolidated financial statements in future reporting periods.

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Fiscal years

The Company utilizes a 52-53 week fiscal year ending on the Friday in June closest to June 30. The three months ended March 31, 2023 and March 25, 2022 consisted of 13 weeks. The nine months ended March 31, 2023 and March 25, 2022 consisted of 40 weeks and 39 weeks, respectively. Fiscal year 2023 will comprise 53 weeks and will end on June 30, 2023.

Adoption of New Accounting Standards

In November 2021, the Financial Accounting Standard Board issued Accounting Standards Update ("ASU") 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance,” which requires annual disclosures that increase the transparency of transactions involving government assistance, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for all entities within the ASU's scope for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted this standard in the first quarter of fiscal year 2023 with no material impact on its unaudited condensed consolidated financial statements.

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3. Revenues from contracts with customers

Revenue by Geographic Area and End Market

Revenues are attributed to a particular geographic area based on the bill-to-location of the Company’s customers. The Company operates in three geographic regions: North America; Asia-Pacific and others; and Europe.

The following table presents total revenues by geographic region:


(in thousands, except percentages)	Three Months Ended March 31, 2023		As a % of Total Revenues		Nine Months Ended March 31, 2023		As a % of Total Revenues
North America
U.S.	$	310,100			$	975,098
Others (1)	6,035				13,693
Total revenue in North America	316,135		47.5	%	988,791		49.7	%
Asia-Pacific and others
India	85,731				247,942
Israel	85,562				182,732
Hong Kong	37,120				109,315
Malaysia	30,688				130,402
Thailand	16,706				45,420
China	11,194				60,738
Japan	10,044				32,129
Others	2,896				7,957
Total revenue in Asia-Pacific and others	279,941		42.1	%	816,635		41.1	%
Europe
U.K.	40,292				103,440
Germany	14,532				40,975
Ireland (2)	176				438
Others	14,205				39,087
Total revenue in Europe	$	69,205	10.4	%	$	183,940	9.2	%
Total revenue	$	665,281	100.0	%	$	1,989,366	100.0	%

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(in thousands, except percentages)	Three Months Ended March 25, 2022		As a % of Total Revenues		Nine Months Ended March 25, 2022		As a % of Total Revenues
North America
U.S.	$	292,475			$	781,469
Others (1)	4,123				8,996
Total revenue in North America	296,598		52.5	%	790,465		47.2	%
Asia-Pacific and others
India	70,956				210,009
Malaysia	51,188				163,306
Hong Kong	17,338				61,575
Israel	16,883				67,318
Japan	16,449				47,258
China	12,843				40,624
Others	10,559				34,349
Total revenue in Asia-Pacific and others	196,216		34.8	%	624,439		37.3	%
Europe
Ireland (2)	28,640				133,024
U.K.	21,632				64,151
Germany	10,688				28,098
Others	10,621				34,173
Total revenue in Europe	$	71,581	12.7	%	$	259,446	15.5	%
Total revenue	$	564,395	100.0	%	$	1,674,350	100.0	%

(1)Others includes revenues from external customers based in our country of domicile, the Cayman Islands, which for each year presented is $0.

(2)Due to change in bill-to-location for a certain customer.

The following table presents revenues by end market:


(in thousands, except percentages)	Three Months Ended March 31, 2023		As a % of Total Revenues		Nine Months Ended March 31, 2023		As a % of Total Revenues
Optical communications	$	502,615	75.5	%	$	1,506,232	75.7	%
Lasers, sensors and other	162,666		24.5	%	483,134		24.3	%
Total	$	665,281	100.0	%	$	1,989,366	100.0	%


(in thousands, except percentages)	Three Months Ended March 25, 2022		As a % of Total Revenues		Nine Months Ended March 25, 2022		As a % of Total Revenues
Optical communications	$	440,003	78.0	%	$	1,318,087	78.7	%
Lasers, sensors and other	124,392		22.0	%	356,263		21.3	%
Total	$	564,395	100.0	%	$	1,674,350	100.0	%

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Contract Assets and Liabilities

A contract asset is recognized when the Company has recognized revenues prior to generating an invoice for payment. Contract assets are classified separately within the unaudited condensed consolidated balance sheets and transferred to accounts receivable when rights to payment become unconditional.

A contract liability is recognized when the Company has advance payment arrangements with customers. The contract liabilities balance is normally recognized as revenue within six months.

The following tables summarize the activity in the Company’s contract assets and contract liabilities during the nine months ended March 31, 2023:


(in thousands)	Contract Assets
Beginning balance, June 24, 2022	$	13,464
Revenue recognized	57,617
Amounts collected or invoiced	(50,000)
Ending balance, March 31, 2023	$	21,081


(in thousands)	Contract Liabilities
Beginning balance, June 24, 2022	$	1,982
Advance payment received during the period	13,073
Revenue recognized	(