Fabrinet (NYSE:FN) Q1 2027 Earnings Call

0:00 Good afternoon and welcome to FRABINET's Financial Results Conference Call for the first quarter of fiscal year 2027. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I'll now turn the call over to your host, Garo Toomajanian, VP of Investor Relations.

0:28 Thank you, Operator, and good afternoon, everyone. Welcome to today's conference call to discuss Fibernet's financial and operating results for the first quarter of fiscal year 2027, which ended September 25, 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 at investor.fibernet.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.

1:17 In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Both 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 call, 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 FTC filing, in particular the section captioned Risk Factors in our Form 10-K, filed on August 18, 2026. We will begin the call with remarks from Seamus and Csaba, followed by time for questions.

2:05 I would now like to turn the call over to Aberneth's Chairman and CEO, Seamus Grady. Seamus?

2:09 SEAMUS GRADY Thank you, Garo. Good afternoon, everyone, and thank you for joining our call today. We are off to an excellent start to fiscal 2027, with first quarter revenue that was well above our guidance range and represents another quarter of accelerating growth. First quarter revenue of $1.474 billion increased a remarkable 51% from a year ago and 12% from the fourth quarter, with strong year-over-year and sequential growth from all three of our key revenue categories. In addition to delivering our highest top-line growth in 10 years, our revenue performance helps generate record non-GAAP earnings per share of $4.34, also well above the high end of our guidance range.

3:02 Our impressive results are being driven by broad-based demand across multiple product areas, including continued strong momentum for data center interconnect, growing demand for data center transceivers, and expansion in high performance computing. Looking to the second quarter, we expect new program wins and ramps in addition to growth from existing programs to further enhance our growth profile while also supporting our industry-leading margins. We have discussed some of the new programs that we expect to contribute to our growth this year, in particular, hyperscale direct transceivers and merchant transceivers for the data center market. We are installing capacity to meet demand for optical circuit switches and multi-rail systems. We are also working with a number of customers on NPO and CPO opportunities and expect contributions from these programs toward the end of fiscal 2027.

4:04 We continue to be extremely enthusiastic about these opportunities and their role in further scaling our business. In order to support the rapidly increasing demand and New Programme Wins across our business, we have taken a number of important steps. During the first quarter, we completed our purchase of a new site in Santa Clara, more than doubling our capacity in Silicon Valley. We are already in discussions with a handful of customers about leveraging this additional capacity. In Thailand, we have been expanding at multiple sites. We are just a few months away from completing Building 10. adding more than 50% to our global footprint. Having accelerated construction and qualification on portions of Building 10, we are already generating initial revenue from the facility.

4:56 Our manufacturing expansion at Pinehurst and our new Navanacorn site, which is now up and running, are further helping us to stay ahead of increasing customer demand. However, even with this significant expansion, we foresee the need for additional space based on rapid growth from current engagements, combined with new programs that will be ramping in the quarters ahead. As such, we have made the decision to begin construction of Building 11 at our Chonburi campus as soon as Building 10 is completed in January. Building 11 will add approximately 1.5 million square feet, with incremental revenue capacity of approximately $3 billion. Even as we begin executing plans for Building 11, we are already exploring potential new sites to further support the unprecedented levels of customer activity we are experiencing.

5:51 In summary, we delivered an excellent first quarter for a strong start to the fiscal year. We are seeing growing demand across the markets we serve and remain focused on executing to meet the exacting needs of our customers. At the same time, Thank you Seamus and good afternoon everyone.

6:34 They are also an excellent start to fiscal year 2027 with first quarter revenues that was well above our guidance range. Revenue of $1.474 billion grew 51% from a year ago for another quarter of accelerating revenue growth. These results flow through the bottom line, producing record non-GET EPS of $4.34, which was also well above our guidance range. Looking at the details of the quarter, It had a very strong performance from data center products, which grew 78% from a year ago and 16% from Q4 to $777 million, or 53% of total revenue.

7:19 Growth in data center revenue was broad-based, driven by strong demand across transceivers, data center interconnect, and high-performance computing, with continued momentum across all three categories. We continue to see growing demand and improving visibility from customers across the data center market, giving us strong confidence in our outlook for Q2. Looking ahead, the full year also looks very promising. Supported by continued growth in existing programs and additional contributions from new transceiver programs as they begin to wrap. Communications infrastructure revenue was $444 million. An increase of 35% from a year ago and 8% from Q4.

8:05 Growth was broad-based across a diverse range of customer programs and applications, including telecom system, components, and satellite communications. Automotive, industrial, and other revenue was $253 million, up 20% from a year ago and 8% from Q4. In the first quarter, the laser market contributed the most to our sequential growth in this category, as we make headway with customers who have historically focused on in-house manufacturing. As I discuss the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis unless otherwise noted. Gross margin in the first quarter was 12.1%, a 10 basis point decline from Q4, primarily due to annual merit increases that take effect in Q1.

8:59 Gross margin declined 20 basis points from a year ago, primarily due to FX headwinds. Operating expenses remained well controlled at 1.3% of revenue in the first quarter, consistent with Q4. As a result, operating margin was 10.8%, down 10 basis points sequentially, but up 20 basis points year over year. Our operating model continues to deliver leverage with operating margin increasing from a year ago, despite a slight decline in gross margin. Interest income was $6 million, and we had a relatively small foreign exchange revaluation loss of $220,000. Our non-GAAP tax expense was $6 million, excluding a $20 million non-cash pillar 2 top-up tax provision, resulting in a non-GAAP effective tax rate of 4%.

9:51 Tax credits intended to mitigate the impact of Pillar 2 are progressing in Thailand, but have not yet been implemented. As a result, we expect some variability in our reported tax expense over the coming quarters. In addition to the top-up tax provision, GAAP net income includes a $21 million non-cash unrealized loss related to our minority investment in Raytech, which is also excluded from our non-GAAP results. GAAP net income was $103 million for $2.86 per diluted share. Non-GAAP net income reached $157 million for $4.34 per diluted share, marking another all-time high for the company.

10:38 Turning to our balance sheet, we ended the first quarter with cash and short-term investments of $757 million, down $119 million from the end of Q4. Operating cash flow for the quarter was $21 million. CapEx increased to $169 million, driven by investments in growth and capacity expansion. This included the $77 million acquisition of our second campus in Santa Clara, as well as continued construction costs associated with building 10 in Chamburi and another capacity expansion initiatives. As a result, free cash flow was an outflow of $137 million in the quarter.

11:23 In the first quarter, we repurchased approximately 77,000 shares at an average price of approximately $380 per share for a total cash outlay of $29 million. Since the end of the quarter, our board authorized an additional $110 million for repurchases, bringing the total remaining authorization to $200 million. Turning to our guidance for the second quarter of fiscal 2027. We are encouraged by the increasing demand trends that we are seeing across our business. We expect that our growth will again be led by data center revenue, with expansion from data center interconnect and transceiver programs, further bolstered by new programs that we expect to continue increasingly over the course of the year.

12:13 Data center growth will be complemented by sequential and year-over-year growth in communication infrastructure, as well as in automotive, industrial, and other revenues. For the second quarter, we anticipate revenue to be in the range of $1.6 billion to $1.65 billion, representing year-over-year growth of 43% at the midpoint. From a profitability perspective, we expect to see efficiencies and leverage drive incremental improvements in margins. We anticipate non-GET EPS to be between $4.77 and $4.92. In summary, our impressive first quarter results represent a strong start to fiscal year 2027.

13:00 With multiple significant programs ramping over the next few quarters, We are also very optimistic that we can deliver a terrific second quarter with momentum expanding through the rest of the fiscal year. Operator, we are now ready to open the call for questions. Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to one question and a follow-up. Please stand by while we compile the Q&A roster. And our first question comes from the line of Christopher Rowland of Swiss Quahanna. Your line is now open.

13:46 Hi. Thank you so much for the questions. I guess my first one, like in your prepared remarks and also the press release you talked about, broad-based demand across multiple significant programs and then new product ramps for their supporting growth. I guess first, the existing programs, were those specifically the hyperscale and merchant opportunity and secondly, the new programs, was that OCS and multi-rail? and if you could provide any more color as to these new opportunities, the size, engagements, that would be great.

14:30 The growth, Christopher, the growth we're seeing is pretty broad-based. The heartening thing from our point of view is it's across really all of the industries that we serve and all of the customers. You know, the growth has been very strong in our data center business, in our communications infrastructure business, and even our automotive and industrial and other business has been growing nicely. And some of that growth is with the programs you mentioned. Our DCI business continues to be very strong, and we're just starting to get going with the two programs that you mentioned, Multirail and OCS. So the growth vectors, if you like, are multiple and across really all aspects of our business.

15:16 you know even though we've grown as we said in the prepared remarks you know we were up 51% compared to the same quarter a year ago we're looking at continued very strong momentum as you go into Q2 and a lot of these newer programs are really just beginning to get going so we're pretty excited about what's in front of us.

15:36 Thank you Seamus and maybe another one just the NPO CPO opportunity I think there's a lot more discussion about early programs starting in late 27. Maybe if you can talk about the parts of that opportunity you might be able to supply. Is it just NPO? Is it also HPC boards, and how big do you think this can be for you overall?

16:11 Yeah, we have a number of NPO programs that we're confident we will start to see revenue from those towards the latter half of this fiscal year, and also some CPO programs with serving customers. The nice thing, I suppose, about our business is it's not really either or. We've always said that NPO and CPO will be complementary to pluggables, so we see pluggables continuing for a long time. We'll probably see more immediate opportunities with NPO. CPO seems to be still a little bit further out, but we have several programs for both NPO and CPO. We're finding, as years go by we're engaging much earlier with the customers so we're getting involved right at the very early stage in some cases at the concept stage with customers and really helping the customers figure out how to build these remarkable products that they design so our manufacturing expertise is a real benefit to our customers in that we're able to help them figure out you know how to make the products Manufacturable with a Predictable Yield. So that's really being of benefit to us and our customers in that we're involved very early and really getting to see those latest and greatest products, in many cases years before they're being talked about.

17:32 So we're very excited about that. Thank you, Seamus. Thank you, Chris. Thank you, Wilma, for our next question. Our next question comes from Linus Carr-Alkerman of B&B Peribus. Your line is now open.

17:50 Yes, thank you. Seamus or Csaba, could you speak to the main drivers of your December 4 outlook by segment? I guess in particular, you know, within data center, I think you've got a merchant transceiver program layering into your existing Datacom scale-out transceiver business as well as a new customer graphic across coherent plugables. So maybe you could discuss how you see the scale-out versus scale-across growth opportunity progressing. Thank you.

18:16 Yeah, we don't guide by segments. Obviously, we talk about the segments when we report the quarter to send it. We don't break out the guidance by segment for the quarter in front of us. But, you know, I would say that the growth is broad-based and it's across really all the segments, including the programs that you just mentioned. The merchant programs are beginning to get going as are the hyperscale direct. We're ramping those currently. So, you know, we have several... several programs. Again, I wouldn't want to call out or give specific guidance in any one segment or any one product, but we're on track, I would say, to deliver good, solid growth in Q2. Got

18:57 it. Thank you. Maybe for Saba, if I could sneak one more in, please. I know your share repurchases are opportunistic, but does the expansion of your repurchase program suggest you'll be more aggressive given where the stock is here? I guess why the need to broaden the repurchase program today and give the capital requirements for building 1011 Is there a minimum cash level you need to invest in the business? Thank you.

19:20 Hi, Carl. So, let me give you some brief regarding our capital allocation. So, our strategy hasn't changed. So, our number one priority is to continue to invest in growth. As you pointed out, we are using cash and we are using our balance sheet to expand our capacity and working capital requirement as we are going through this staggering growth. As we have always been opportunistic, we have always been strategic with our share buyback program that we continue to designate surplus cash flow to the 10b5 plan as well as remain opportunistic on the market when we see fit and when we are in an open window. The last quarter purchases were mostly driven by our 10b5 plan. and it just happened to be in our first quarter when we review our capital allocation strategy and we launch our new 10b5 plan. So we believe that we will continue to adhere to our policy of number one, Thank you.

20:20 You're welcome. Thank you. One moment for our next question. Our next question comes from the line of Joseph Cardozo of JPMorgan. Your line is now open.

20:57 Hey, good afternoon, and congrats on the results. Maybe for my first one, bigger picture question, you had some large players in the industry announce an acquisition this morning, and I believe there happened to be customers of yours, so maybe curious if you could opine on both whether this, how you get to think about this relative to and opportunity for Fabradant, as well as any bigger picture thoughts on the consolidation between optos and semis and what this means for the industry going forward more broadly. And then I do have a follow-up. Thank you.

21:31 Hi, Joel. Yeah, so we're not familiar with the terms of the deal. It's obviously late-breaking news for all of us, and we haven't had a chance to speak with either company. I would say both companies are customers of FarberNet. Lamentum has been a customer for a very long time, really since the foundation of our company. Lamentum has been a customer of FarberNet and continues to be a really excellent customer for us. Marvell has become a customer more recently. So we're excited about the opportunity in front of us. Historically, when there's been consolidation in the industry, it has tended to benefit FarberNet. If you look back at some of the the consolidations that happened over the last several years. I think at the time, there was maybe a thought that it might be some of those consolidations might be bad for Frabenet, but in all cases, it turned out to be positive for Frabenet, whether you look at the, let's say, the Lamentum acquisition of Neophotonics or when Infinera acquired Coriant, or even the more recent one when Nopia has acquired Infinera. In all cases, we've seen our business subsequently grow with the combined entities. We hope and expect that this will be the same.

22:40 Obviously, our relationship with both companies is really excellent and we look forward to learning more about the merger and understanding what that means for us and how we can continue to help and support both companies or the new company. As regards the overall, let's say, merger between electronics and photonics, it's something that we've been really benefiting from and for a long time really. There is this overarching migration from the electronics world to the photonics world. It was originally, of course, over vast distances, subsea and the like, and now we're down to much closer distances. When you get right down to co-packaged optics and near-packaged optics, you're down to very, very close connections.

23:37 and including products like optical circuit switching and the like, which are really exciting products. And really we are seeing the convergence of, you know, solid state and photonics. And, you know, fortunately, we're right in the middle of that and we feel perfectly poised to benefit as that convergence unfolds and continues. So we're very excited about it. We're excited about the opportunity, not just with the Lamentum Marvell I appreciate the thoughts there Seamus

24:25 And then maybe as my second one, I believe you guys are calling for 1Q to kind of be a trough here for gross margins and then sequential improvement in 2Q. But I kind of wanted to take a step back and just, can you maybe outline how you guys are thinking about the contribution between some of these ramping programs And then as we think about maybe the full year here, are those tailwinds likely to continue? And sorry, last piece of this would just be, one of these new opportunities around OCS, multirail, MPO, CPO. Could these programs be margin accretive to the model or should we think about them kind of triangulating into the average that you guys have talked about in terms of that range?

25:14 Thank you.

25:15 All right, so let me take this step by step. So if you look at historically, one thing we are very pleased is to see the consistency of our gross margin and incremental improvement of our operating margin as we continue to grow the top line. So we have been very disciplined with spending. So our operating leverage does show as the company grows and we are going through this huge phase of growth. Obviously this comes with challenges as well. Sometimes our gross margin gets pressured from early ramp expenses. We want to make sure that we hire ahead of the ramp to support our customer needs. But those initial phases of headwinds tend to fade away after a short period of time. The biggest variable in our business model is and has been exchange rate, which we continue to hedge and try to take out this volatility as much as we can.

26:13 So for the rest of the year, exchange rate seems to be flattening out based on the hedges we foresee. So we don't anticipate any more headwinds from exchange rates going to the second half of fiscal 2027. With regards to leverage, obviously, we have a very resilient cost structure with fixed costs being about 5% of our cost. You don't get a lot of fixed cost leverage at gross margin level. However, we do anticipate that our operating margin will continue to expand as we grow. With regards to new programs, again, new program wins and early stage of the life cycle tend to be beneficial from gross margin perspective. Obviously, as the company goes through this transformation, as you also and Seamus mentioned, this convergence between photonics and electronics, we provide a much greater level of value to our customers, which we do anticipate to exceed our margins. So if you look at strategically, we do anticipate our gross margins to improve over time as we continue to deliver higher level of value to our customers.

27:29 I think we are doing a good job with managing and mitigating the exchange rate environment and also being disciplined with our OPEX structure. We continue to expect operating margins to grow as we go through 2027 and years ahead. I hope it covers all your questions. You bet. Thank you. Appreciate it. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Steven Fox of Fox Advisor. Your line is now open.

28:04 Thanks. Good afternoon. I have two questions as well. First of all, maybe just to follow up on the last comment in terms of how convergence with electronics, you were able to add more value. Can you give a couple of examples of how that happens and what kind of impact it has on your profitability and then how to follow

28:23 up? I think the main, you know, example is several examples where we're able to help the customers bring the products to market. The customers tell us that we help them bring the products to market earlier than if they worked with, we call it a traditional country manufacturer. Our expertise in really figuring out early how to put these products together in a way that's cost effective, but also high yield and repeatable. Really helps the customer to get the time to market advantage. There's several examples. I wouldn't want to get too specific, but it's everything from the leading edge transceivers to some of the high performance compute products and these newer products such as optical circuit switching, NPO and CPO. So I think, you know, having the knowledge on really how to put these photonics products together in a cost-effective way and high-yield way gives our customers a big advantage that results in them continuing to reward us with more and more business.

29:25 Got it. That's helpful. And then as a follow-up, just looking at this big revenue beat and raise, I'm not quite sure if I understand all the dynamics of it, Like you mentioned new programs, but you also mentioned demand. So were you seeing forecasts get upsided? Were you able to pull in production? Were you able to add capacity to better meet demand? I'm just not sure, you know, what happened here and what were the big, you know, just sort of broad drivers, forgetting about the product segments for a second.

29:55 Well, I mean, what happened was our revenue accelerated significantly. You know, Q1 It wasn't a one-time event. Q1 marked our 14th consecutive quarter of growth and our seventh consecutive quarter of accelerating year-over-year growth. In Q1, we grew a pretty remarkable 51% year-over-year. That's an increase of 496 million versus the same quarter a year ago. It really is just extraordinary momentum. which we expect to continue into Q2. And the growth we're seeing is broad-based. It's across several customers and segments. It wasn't a one-time big upside from one customer. It's just significant increasing demand across all of our customers.

30:44 In Q1, our data center business was up $340 million versus a year-on-year versus the same quarter a year ago, or 78%. So data center business up 78%. Our communications infrastructure business was up 35% or 114 million versus Q1 of last year. And our industrial, automotive and other business was up 20% or 42 million. So overall up 496 million versus the same quarter year across all the industry segments. And then for Q2, we don't break out by segment for Q2, but for Q2 at the midpoint of our Q2 guidance, we would be up. again versus Q2 of last year we would be up 151 million at the midpoint or 43% so just remarkable growth and we believe sustainable growth that's broad-based and continuing into Q2 and hopefully throughout fiscal 27.

31:43 But just to be clear this was mainly from existing programs or are you able to upside versus original expectations as opposed to new program ramps? going faster than expected?

31:55 It's both. It's both existing programs and, I mean, new programs, as we ramp them, their immediate impact on revenue is not that significant because we're just beginning to ramp them. Obviously, new programs then become existing programs and they ramp rapidly, but it's a combination of both. We have a very healthy pipeline of new programs that we're ramping but also Thank you very much. You're welcome. Thank you. We'll move on to our next question. Our next question comes from George Notter of Wolf Research. Your line is now open.

32:42 Hi guys, thanks very much. I wanted to ask about building 11. It looks like you upsized the size of that building. Can you remind us how big the plan was for that building previously and then what it is now? And then also, just looking at the bigger supply chain environment, it feels like Yeah, maybe componentry is becoming more readily available for you. I guess I'm inferring that based on the upside here and then the upside in terms of the guides from December quarter, but maybe some comments on the supply chain environment would be great. Thanks,

33:16 Colin. Sure. Thanks, sir. So, first of all, on the capacity, so just to recap, our revenue capacity at the end of fiscal 2026 was about $5.8 billion. We have been aggressively increasing our capacity, and we expect our revenue capacity to be around 10 billion at the beginning of January. So in just a few months from now. But the biggest, you know, significant increase in capacity. And the biggest factor driving this will be the completion of building 10 in Chonbury, which adds two million square feet or about $3.5 billion in revenue capacity. To put that in context, just in terms of the physical size, you know, two million square feet is about the surface area taken up by 35 American football fields. So it's quite gigantic.

34:08 And that revenue increase is about 75% of our actual FY26 revenue. We have commissioned our campus in Nava. We call it Nava One, the campus that we purchased recently. And that adds about $400 million of revenue capacity. as well as our expanded footprint in Santa Clara, which adds about 300 million. So all told, you know, we'll start the year at about 10 billion of capacity. And we continue to invest ahead of the demand. We're going to rapidly expand our manufacturing footprint to make sure we stay ahead of the demand we're seeing from our customers. To that end, you know, we're not stopping with building 10. We will be breaking ground on building 11 in Chonbury in January.

34:55 We will probably, you know, coincide the ribbon cutting for building 10 with the groundbreaking for building 11. Building 11 will add about 1.5 million square feet. You're right, that's maybe a little bit bigger than we originally thought. We tend to get a bit smarter as we go along. We learn a few things and for building 11, you know, we don't need much office space in building 11 because we're more than covered with the other buildings on the campus. We don't need much warehousing space so it's, you know, a lot of Thank you very much. Thank you. It's important to note, of course, that this expansion, we funded with our own cash on our balance sheet. As you would have seen, our CapEx was significant last year as we purchased the centre power operation.

36:09 So we continue to fund this growth with our very strong balance sheet. And we continue to deliver ROIC north of 30%. So it's a very compelling business model that we have. All told, if you look at the total Let's say, capacity that we have, if you take building 10, plus what we had before building 10, plus Nava, plus Santa Clara, plus building, you know, building 11. And if we build a building 12 in the future, which we can on the campus in Chonburi, you know, previously we had sized all of that at about $14 billion of capacity. We've now revised that up to about 16. So building 11, we originally said it was about 2.1 billion of capacity. We now think that's closer to 3 billion.

37:02 As the revenue per square foot continues to go in our favour, smaller, denser, more revenue-dense products, I improve the revenue per square foot. So that revenue capacity that we're bringing on will be, like I say, about 10 billion in January, but when Building 11 is completed, that will add another 3 to take us to 13. Building 12 will add another 3 to take us to 16, plus whatever we add in the meantime in terms of other capacity that we uncover as we continue to search for capacity. In terms of components, I'm sorry, go ahead. I was just going to ask you about the follow-up question, the component supply chain question. Go ahead, please.

37:44 Yeah, I was going to say about the components. Yeah, we have been you know making making good progress and getting our fair share and thankfully in some cases our unfair share of the available components you know components are in tight supply across the board obviously demand for everyone is very strong but you know we've been fortunate we've been able to keep ahead of that and uh you know obviously we could we could always ship more if we have more but our our approach is really to work with the customers and the suppliers to make sure we get what we what we need to meet the customer's demands and continue to add capacity to make sure that we're never capacity gated in terms of our ability to grow. So, like I said, we'll continue to add capacity ahead of the demand and we'll continue to work with the customers and the suppliers to make sure we keep the component supply lined up as well.

38:34 Thank you. You're welcome. Thank you. One moment for our next question. Our next question comes from the line of Mike Genovese of Rosa Black Securities. Eli, is that open?

38:49 Great, thanks very much. First of all, on the transceiver OEMs that are coming in, are we talking about one or are we talking about more than one transceiver OEM that's ramping with the company?

39:04 We have more than one.

39:09 Is it more than two? No.

39:11 We're not going to say much more than that, because again, these are always confidential, sensitive conversations that are going on with the customers, and we don't like to say too much, but we have more than one. We continue to ramp those nicely. They're becoming, as you can see, our growth in the data center business was up 78%, and we continue to see strong growth going into Q2.

39:43 Perfect. And just most of my questions have been asked. So I'm going to ask about the CapEx and the financing. There was about $75 million of long-term borrowing in the quarter. What's the fiscal 27 CapEx plan and why borrow rather than fund from cash?

40:01 So let me address the borrowing section first. So we have an actually favorable interest rate environment in Thailand where the cost of borrowing is cheaper than breaking up our cash that is being invested in the U.S. So that's a simple financial decision when we need cash for investment in Thailand. It's cheaper to borrow there than breaking the investment that it earns. So secondly, our CapEx plan, as you have seen, we had an outsized CapEx number in Q1 because of the Santa Clara campus purchase. Other than that, our CapEx is running at about 5% of revenue run rate, which has been somewhat consistent in the last fiscal year. Obviously, as Building 10 comes online, it will be done by January, we will start Building 11. So that will layer on the capex spending.

40:56 As well as Seamus mentioned, we continue to search for additional capacity. So that should come through. We should see some even further increase in our capex spending for 2027. Having said that, if you take this large, chunky capacity addictions aside, our normal, I would say, CapEx run rate to support this outsized growth would be at about 5% of the revenue run rate for the year. Perfect. Okay, thank you. You're welcome. Thank you, Mike. Thank you. One moment for our next question. Our next question comes from the line of Tim Sergei of Northland Capital Markets. The line is now open.

41:46 Okay. Sorry about that. And congrats on the results and guidance. Kind of want to pick up where we left off last quarter, where you expressed some optimism of being able to accelerate revenue growth in fiscal 27 versus 26. I imagine you're feeling far more confident about that now, so I wanted to kind of follow up on that, which is Your first half growth rate was 47%, given where you guided. Talked about that growth being sustainable, and indeed some new program ramps in the second half of the year. So I guess a two-part question.

42:35 You can get an update on your feelings about accelerating growth, and can you sustain something in that range that you're seeing in the first half for the second half?

42:48 Thank you, Tim. You are nothing if not consistent. Yes, I think, you know, if you look at the growth we've been seeing, you know, it's pretty remarkable really to consider the growth, and it's across the industry, as I mentioned, the numbers I walked through a moment ago, you know, 51% in Q1, Q2, our guidance would have us at the at 43% growth, they're up 151 million year-on-year at the midpoint of the guidance. And we're continuing to add capacity as fast as we can. You know, Building 10, you know, we have a clear line of sight to what's going into Building 10 and when it's going into Building 10, hence our decision to pull the trigger on Building 11. but also to look for additional capacity that we can bring on hopefully before building 11 is completed. Building 11 will take about 18 months from when we start, so somewhere around the middle of calendar 2028, so 18, 20 something months from now.

44:01 That's when building 11 will come on stream, but we think we'll need capacity before that, so we're actively looking right now. and others. So, you know, I suppose my feelings about the accelerating growth are as positive as they were when we spoke approximately 90 days ago, if not a little bit more positive, I would say. Sustainability, certainly based on the The signals we see from the customers who are really happy to show us the demand picture really as far as the eye can see, as far ahead as you can see.

44:49 It appears to be very sustainable, but the nice thing I suppose about our business, Tim, as you know, is we tend to have an asset-like model and our fixed cost is very low. So even in the doomsday scenario, if there is a downturn, we haven't added any real significant fixed costs. So we continue to grow and make sure we We benefit from this upside environment that we're in, but also we're always mindful of being ready for if there is any kind of a downturn. We're very optimistic about the future, but also we're pragmatic and we're doing it in a way that we think is low risk and sustainable. To answer the question, I think we're as optimistic as we were, if not a little bit more so than when we spoke 90 days ago, and we do believe that the The growth continues to be sustainable. Again, because it's across all industry segments that we serve and many, many customers.

45:46 Okay, great. Appreciate that. In order to follow up on the NPO-CPO front, obviously, we mentioned talking about a $5 billion win here this morning, and they talked about similar type of members in OCS. I guess, how do you... look at those two opportunities in terms of you know relative potential for Fabriac and you know it sounds like each of these could be you know multi-hundred million if not billion dollar businesses for you guys is that crazy to think about?

46:25 I think that's a fair way to think about it and they're not even in the if you like the numbers yet they're only just getting started but they both look to be very Both of them have very strong demand. OCS, the demand forecast we see for OCS is very strong. And also for these various NPO programs that we're working on, looks to be very strong. Yeah, either of these or both of these could be multi-hundred million dollar opportunities on their own. And as I said, they're just getting started. We haven't even really started to ship anything yet. But yeah, they're very positive, we think, for our business.

47:08 Thanks very much.

47:10 Thank you. Thank you. One moment for our next question. Our next question comes from the line of Ryan Koontz of Needham & Co. Your line is now open.

47:23 Great. Thanks for the question. Real nice numbers. I want to ask your view kind of at the macro level about the transceiver market in light of Investor concerns that, you know, CPO and NPO are going to be, you know, highly candelistic. Maybe from your perspective, you have a little different view there from talking to your customers and your customers' customers about how you think about the durability of the Datacom transceiver market and maybe how the fulfillment models might be changing a bit. Obviously, you're seeing some real nice growth and new screen shoots there. So anything you can share about the transceivers would be appreciated. Thank you.

48:04 Yeah, yeah, thanks. Thanks, Ryan. I think, you know, the idea that it's kind of either or, or that CPO is just going to kind of cannibalize the pluggable transceiver market is, I suppose I'd be kind and call it reductive. I think it's a bit overly simplistic that you think that it's one or the other. We believe that pluggables will continue for a very long time, but that NPO and ultimately CPO will also continue to grow. So we don't really think it's one or the other for a long time to come. You know, if you saw the recent announcement from Cisco and Nvidia, they announced a roadmap for ultra-dense small form factor plugables, this USFP product, you know, which looks to, I guess, continue the pluggable architecture for many years to come. So, you know, we think we're ideally positioned to produce all the products in the space, pluggables, NPO, CPO. We're happy to work with the customers and really our mission is to just always be ready to produce the customers of the future, sorry, the products of the future for the customers, whatever that might entail, whether it's more dense pluggables or NPO or CPO or all of the above. So we don't see it as an either-or situation.

49:24 We see it as an and and an also situation.

49:30 Helpful. Thanks for that. And maybe just to follow up there with regards to your Restraint from the datacom side of the world as well as telecom side of the world. The middle ground there is Coherent Light. Have you announced any Coherent Light wins or is that a market you feel like you're well positioned for?

49:48 Yeah, I mean, we feel we're very well positioned. You know, those products fit perfectly into our kind of capabilities. We haven't announced anything specific in that market, but yeah, they would fit very well with our capabilities.

50:06 Thank you Ryan. Thank you. I'm showing no further questions at this time. I'll now turn it back to Seamus Grady for closing remarks.

50:16 Thank you for joining our call today. We're off to an excellent start in fiscal 2027 with year over year top line growth of nearly $500 million or 51% and strong momentum continuing into Q2. We are staying ahead of the incredible demand by aggressively expanding our capacity We look forward to speaking with you again next quarter. Thanks again and goodbye. Thank you for your participation in SAFE Conference. To this conclude the program, you may now disconnect.