Core Viewpoint - Natural Alternatives International, Inc. (NAII) has experienced significant stock declines following its second-quarter fiscal 2026 results, with a 25.3% drop compared to a 0.3% return for the S&P 500 index during the same period [1] Financial Performance - For the second quarter ended December 31, 2025, the company reported a net loss of $2.6 million, or 42 cents per diluted share, compared to a net loss of $2.2 million, or 37 cents per diluted share, in the prior-year period [2] - Net sales increased by 2% year over year to $34.8 million from $34.1 million, while gross profit improved to $2.5 million, or 7.2% of net sales, from $1.7 million, or 4.9% [2] - For the first six months of fiscal 2026, net sales rose 8% to $72.5 million from $67.2 million, and the net loss narrowed to $2.8 million, or 47 cents per share, from a $4.2 million loss, or 70 cents per share, a year earlier [3] Segment & Channel Performance - Private-label contract manufacturing, the company's core business, increased by 2% in the quarter to $32.8 million, with private-label sales climbing 9% to $68.9 million for the first six months of fiscal 2026 [4] - On a trailing 12-month basis, private-label manufacturing accounted for approximately 94.5% of total revenues, highlighting its importance in the revenue mix [4] - CarnoSyn beta-alanine royalty, licensing, and raw material sales rose 13% year over year in the second quarter to $2 million from $1.8 million, but for the first six months, CarnoSyn revenues declined 15% to $3.7 million from $4.3 million [5] Management Commentary & Operating Environment - The company faces challenges in forecasting demand from clients in multi-level marketing and direct selling channels across various regions, leading to underutilization of manufacturing capacity [7] - Despite improved gross margins and a slight decline in selling, general, and administrative expenses, the company continues to incur operating losses due to fixed manufacturing costs being spread over lower-than-expected volumes [8] - Management noted growth in other sales channels, including large retailers and internet-based direct-to-consumer sales [8] Strategic Initiatives - The company emphasizes the strategic importance of expanding the CarnoSyn patent estate, particularly through TriBsyn, a new formulation aimed at improving bioavailability [9] - There are opportunities for TriBsyn and sustained-release CarnoSyn in wellness and healthy aging markets, especially related to the use of GLP-1 medications [9] Liquidity & Financial Position - As of December 31, 2025, cash and cash equivalents totaled $3.8 million, down from $12.3 million at June 30, 2025, with working capital at $28.7 million [10] - The company had $5.8 million outstanding under its line of credit, with $10 million in available borrowing capacity, and total assets were $153.3 million with stockholders' equity at $67 million [10] Outlook - Management expects sales revenues to increase in the remaining two quarters of fiscal 2026 compared to both prior-year periods and the first half of the current fiscal year, but anticipates a net loss in the second half of fiscal 2026 [11]

Core Insights - Wasatch Global Investors reported a challenging Q4 2025 for its Small Cap Growth Strategy, with small-cap equities underperforming broader market indices due to investor caution and preference for larger stocks [1] - The Russell 2000® Growth Index gained 1.22% in Q4 2025, while the Wasatch strategy finished in negative territory, highlighting stock-specific factors rather than macroeconomic stress [1] - Biotechnology was a strong segment within small-cap stocks, with its component in the Russell 2000® Growth Index rising nearly 27% [1] - For the full year 2025, the Russell 2000 Growth Index advanced 13.01%, contrasting with the Wasatch strategy's loss, attributed to earnings volatility and valuation compression [1] Company Insights - Fabrinet (NYSE:FN) is highlighted as a significant contributor in the Q4 2025 investor letter, providing advanced optical and electronic manufacturing services [2][3] - The stock of Fabrinet had a one-month return of -0.90%, with shares trading between $464.00 and $504.03 over the last 52 weeks, and a market capitalization of approximately $17.555 billion [2] - Fabrinet's optical transceivers are noted for maintaining precise thermal control during high-speed data transmission, with increased demand driven by data center upgrades for AI workloads [3] - Despite being held by 44 hedge fund portfolios at the end of Q3 2025, Fabrinet is not among the 30 most popular stocks among hedge funds, with a belief that other AI stocks may offer higher returns in a shorter timeframe [4]

Core Insights - The FPA Queens Road Small Cap Value Fund returned -0.36% in Q4 2025, underperforming the Russell 2000 Value Index which gained 3.26% during the same period [1] - For the full year 2025, the Fund achieved a return of 13.36%, slightly outperforming the Index's 12.59% gain [1] - The Fund's strategy focuses on quality and value to protect clients from market drawdowns, but it underperformed in the second half of 2025 due to a market preference for speculative and low-quality stocks [1] Company Analysis: Fabrinet (NYSE:FN) - Fabrinet is a contract manufacturer specializing in optical networking equipment and modules, dominating its niche with impressive historical revenue growth and increasing operating margins [3] - As of February 12, 2026, Fabrinet's stock closed at $462.05 per share, with a one-month return of -6.55% and a 12-month increase of 107.16% [2] - The company reported record revenue of $1.13 billion in Q2 fiscal 2026, reflecting a 36% year-over-year growth [5] - Fabrinet's products are in high demand in data centers, particularly for training artificial intelligence models, with Nvidia being a significant customer [3] - Despite its strong position, the Fund has been trimming its holdings in Fabrinet due to concerns that stock price expectations may have outpaced actual spending in data centers [3] Hedge Fund Interest - Fabrinet was held by 44 hedge fund portfolios at the end of Q3 2025, an increase from 32 in the previous quarter [5] - The company is not listed among the 30 most popular stocks among hedge funds, indicating a mixed sentiment in the investment community [5]

Financial Data and Key Metrics Changes - For Q2 FY 2026, total revenue was $96.3 million, down from $113.9 million in the same period of FY 2025, primarily due to reduced demand from a longstanding customer and the transition of an End-of-Life program [3][4] - The net loss for Q2 FY 2026 was $8.6 million or $0.79 per share, compared to a net loss of $4.9 million or $0.46 per share in Q2 FY 2025 [7] - Adjusted gross margin for Q2 FY 2026 was 7.9%, down from 6.8% in the same period of FY 2025, while operating margin was -10.7% compared to -1.0% [5][6] Business Line Data and Key Metrics Changes - The company initiated a wind down of manufacturing operations in China, which is expected to save approximately $1.2 million per quarter once completed [5] - The company is also reducing its workforce in Mexico, aiming for savings of approximately $1.5 million per quarter [5] - The consigned materials program is ramping up, with potential revenue growth of over $25 million annually, equivalent to a $100 million turnkey program [16] Market Data and Key Metrics Changes - Inventory decreased by $12.3 million or 12% year-over-year, while accounts receivable days sales outstanding (DSOs) improved to 77 days from 99 days a year ago [8] - The company continues to face uncertainties in the global economy and volatile trade policies, impacting customer demand [4][9] Company Strategy and Development Direction - The company is focusing on nearshoring and tariff mitigation strategies to reduce costs while maintaining operational flexibility [4] - Manufacturing operations are being shifted from China to Vietnam and the U.S. to better align with strategic initiatives and customer demand [12][15] - The company anticipates that by the end of FY 2026, approximately half of its manufacturing will occur in the U.S. and Vietnam [15] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are uncertainties in the global economy, new programs are gradually ramping up, and cost efficiencies from recent overhead reductions are taking hold [9][10] - The company is not providing forward-looking guidance for Q3 FY 2026 due to the uncertainty of new product ramps [10] - Management expressed confidence in the potential for profitable long-term growth despite current challenges [19] Other Important Information - The company has reduced its total debt year-over-year by approximately $13.4 million, reflecting its ability to generate cash from operations [8] - Capital expenditures for FY 2026 are expected to be around $8-$10 million, focusing on new production equipment and automation [9] Q&A Session Summary Question: Can you provide more details on the increased demand from existing customers? - Management indicated that the increased demand is primarily from two longstanding customers, with a significant revenue impact from product maturation and an End-of-Life program [23][24] Question: What is the size and timing of the new programs won? - The automotive program is expected to generate up to $5 million and will be manufactured in Mexico, while pest control and industrial equipment programs are expected to generate $2-$5 million and will be produced in the U.S. [25] Question: What are the tariff mitigation strategies being implemented? - The company is focusing on lower-cost production facilities in Vietnam and Mexico, leveraging the USMCA agreement to mitigate tariffs [26][28] Question: What is the outlook for gross margin and revenue growth? - Management expects to achieve breakeven by the end of the fiscal year, with anticipated revenue growth and margin expansion from the consigned program [40][41] Question: How is the restructuring in Mexico expected to impact future growth? - Management believes that recent efficiency improvements and automation investments will make the Mexico facility more competitive, with expectations for growth moving forward [44][45]

Core Viewpoint - Flex is set to announce its third quarter fiscal year 2026 financial results on February 4, 2026, before market opening, followed by a conference call to discuss the results [1]. Group 1: Financial Results Announcement - The financial results will be announced before the market opens on February 4, 2026 [1]. - A conference call to discuss the results will take place at 7:30 AM CT / 8:30 AM ET on the same day [1]. Group 2: Webcast Information - A live webcast of the presentation will be available on the Flex investor relations website [2]. - A replay of the webcast and supporting materials will be accessible on the investor relations website after the event [2]. Group 3: Company Overview - Flex is a manufacturing partner that assists leading brands in designing, building, and managing products aimed at improving the world [3]. - The company operates in 30 countries, providing advanced manufacturing and supply chain solutions, innovative products, and lifecycle services [3]. - In the AI era, Flex is focused on accelerating data center deployment by addressing power, heat, and scale challenges with advanced technology [3].

Core Insights - Celestica (CLS) has evolved from a lesser-known contract manufacturer to a significant player in the AI infrastructure sector, indicating a substantial transformation that the market may still be undervaluing [1] Company Overview - The company is positioned as a critical enabler of the AI infrastructure boom, suggesting strong growth potential in this emerging market [1] Investment Philosophy - The investment approach highlighted emphasizes growth prospects and the potential for high profitability within 1-2 years, aligning with the company's current trajectory [1]

Core Insights - Celestica (CLS) has evolved from a lesser-known contract manufacturer to a significant player in the AI infrastructure sector, indicating a substantial transformation that the market may still be undervaluing [1] Company Overview - The company is positioned as a critical enabler of the AI infrastructure boom, suggesting strong growth potential in this emerging market [1] Investment Perspective - The investment philosophy associated with Celestica emphasizes long-term discipline and consistent alpha generation, with a focus on companies that exhibit aggressive growth prospects [1]

Company Overview - Jabil Inc. (NYSE:JBL) is a contract manufacturer that has transformed from a low-multiple manufacturer to a company that assists clients in product design and manufacturing location decisions, which is increasingly important due to tariffs [1][2] - The company provides a range of services including manufacturing, design, and product management, serving various industries such as healthcare, automotive, and electronics [2] Financial Performance - Jabil reported a strong quarterly performance with better-than-expected guidance for the current quarter, indicating robust operational capabilities [2] - The company's share count has decreased by 43.6% since the end of 2015, reflecting a significant share buyback activity [1] Market Sentiment - Jim Cramer expressed bullish sentiment on Jabil, highlighting it as one of his favorite stocks within the contract manufacturing sector, which is currently experiencing a quiet bull market [2] - Despite an initial stock price increase of nearly 10% following the earnings report, Jabil's stock eventually retraced most of those gains due to a broader sector sell-off, although the stock has appreciated by 50% overall [1]

Summary of Conference Call Company Overview - The conference call features Fabrinet, a company involved in IT hardware and communications equipment, with a focus on optical and transceiver manufacturing. Key Industry Insights Telecom and Data Center Interconnect (DCI) - Fabrinet has recently separated DCI from its telecom reporting to provide clearer visibility on growth, driven primarily by the Datacom sector [4][14] - DCI products, particularly 400ZR and 800ZR, are experiencing strong growth, with five main customers contributing to this segment [4][5] - The demand for DCI is robust, with expectations for sustainable growth over the coming years [15][14] - Traditional telecom business is growing but at a more stable rate compared to the exponential growth seen in DCI [20][24] High-Performance Computing (HPC) - Fabrinet has initiated a new HPC category, primarily serving AWS, with a revenue of $15 million from qualification volumes [28][30] - The company aims to establish a cost-competitive solution in the HPC market, with potential for significant growth [31][30] - The HPC business is expected to ramp up, with plans for additional product offerings beyond PCBAs [100][105] Capacity Expansion - Fabrinet is constructing Building 10, which will add $2.5 billion in revenue capacity, with a current run rate of $4.5 billion [39][40] - The new facility will be flexible, allowing for quick repurposing based on customer needs [41][44] - The capital expenditure for Building 10 is approximately $130 million, funded from existing cash reserves [45][46] Datacom Demand - Demand for transceivers in the Datacom sector is described as insatiable, particularly with the rise of AI data centers [69][70] - Fabrinet is producing advanced transceivers (200G, 800G, and 1.6T) but faces component shortages that limit production capacity [71][73] - The company is exploring opportunities with various customers, including traditional companies and hyperscalers [78][79] Automotive Sector - Fabrinet's automotive business is stable, with growth in EV charging infrastructure and LiDAR technology [94][95] - The company has captured a significant share of the LiDAR market, positioning itself for future growth as the technology gains traction [95] Financial Performance and Strategy - Fabrinet aims for a gross margin range of 12.5%-13%, with low operating expenses around 1.6%-1.7% of revenue [93][94] - The company has a strong financial position with no debt and approximately $1 billion in cash, allowing for self-funded growth [45][46] - Fabrinet's growth strategy focuses on maintaining a compound annual growth rate of 16% over the past decade, with plans to continue this trend [130][130] Additional Considerations - The company emphasizes the importance of performance and customer satisfaction in securing additional business opportunities [106][107] - Fabrinet is committed to long-term planning, utilizing an eight-quarter rolling revenue forecast to guide its growth strategy [129][130] - The company is open to diversifying its product offerings beyond optical solutions, depending on customer demand [85][86]

Summary of Flex Limited Conference Call Company Overview - **Company**: Flex Limited - **Industry**: Contract Manufacturing - **Revenue**: Approximately $26 billion - **Business Units**: Six, with participation in five major end markets: - Consumer (Lifestyle and Consumer Devices) - Cloud Enterprise Communication (CEC) - Healthcare (particularly devices) - Automotive - Industrial - **Global Presence**: Operates in 30 countries with around 100 manufacturing sites and approximately 140,000 employees [8][9] Core Business Insights - **Data Center and AI Infrastructure**: - 25% of revenue comes from AI data center utility space, growing at 35% - Revenue from this segment projected to reach $6.5 billion in the current fiscal year [9][17] - Focus on compute integration, cooling, and power solutions [17][18] - **Competitive Landscape**: - Flex competes with companies like Delta in embedded power and Eaton, Schneider in electrical distribution - The cooling market is fragmented with many small players [21][22] - **Power Pods**: - Integrated solutions that include power modules, infrastructure, and cooling systems, designed to improve installation speed and reduce labor costs [23][24] Recent Acquisitions - **Crown Technical Systems**: - Acquired to enhance presence in the fragmented U.S. utility market and expand power pod capabilities [25][27] - **JetCool**: - Acquired to strengthen liquid cooling portfolio, focusing on high-density cooling solutions for data centers [30][32] Financial Performance and Growth - **Operating Margin**: - Increased from 3% to 6% over the past seven years, with expectations for continued expansion driven by mix shift and productivity enhancements [15][39] - **Growth Areas**: - Data centers and utilities are identified as key growth sectors, with ongoing investments expected to yield significant returns [40][41] Market Trends and Challenges - **Regionalization Strategy**: - Flex is adapting its footprint to align with growth areas, particularly in North America and Europe, while reducing presence in less profitable regions [36][37] - **Supply Chain and Capacity**: - Capacity constraints are a constant consideration, with ongoing evaluations to meet growing demand [28][29] - **AI Investments**: - Anticipated growth in data center capacity driven by AI investments, with projections for significant infrastructure development in the coming years [41][42] Other Business Lines - **Healthcare**: - Strong performance in medical devices, particularly continuous glucose monitors [33] - **Industrial**: - Mixed performance with growth in infrastructure and energy sectors, while residential renewables have declined [34] - **Automotive**: - Clarity in platform investments is expected to drive growth, with Flex being platform agnostic [34] - **Consumer**: - Flat growth anticipated, with limited focus on this segment [35] Conclusion - Flex Limited is positioned as a leading contract manufacturer with a strong focus on data center and utility solutions, leveraging its global footprint and recent acquisitions to drive growth and enhance operational efficiency. The company is well-prepared to capitalize on emerging trends in AI and infrastructure development while maintaining a disciplined approach to portfolio management and margin expansion [45]