Lumentum Holdings Inc. (NASDAQ:LITE) Q3 2022 Earnings Conference Call May 4, 2022 8:30 AM ET Company Participants Kathryn Ta - Vice President of Investor Relations Alan Lowe - President and Chief Executive Officer Wajid Ali - Executive Vice President and Chief Financial Officer Chris Coldren - Senior Vice President, Chief Strategy and Corporate Development Officer Conference Call Participants Simon Leopold - Raymond James & Associates Samik Chatterjee - JPMorgan Alex Henderson - Needham & Company George Not ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section details the company's unaudited financial performance, condition, and cash flows for the reported periods [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited financial statements, with nine-month net revenue of **$1,290.5 million** and net income of **$164.2 million** [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 FY22 net revenue decreased to **$395.4 million**, with net income at **$26.0 million**, impacted by a prior-year merger termination fee Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended April 2, 2022 | Three Months Ended April 3, 2021 | Nine Months Ended April 2, 2022 | Nine Months Ended April 3, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net revenue** | $395.4 | $419.5 | $1,290.5 | $1,350.7 | | **Gross profit** | $167.2 | $185.0 | $606.9 | $620.3 | | **Income from operations** | $46.8 | $266.9 | $247.9 | $481.2 | | **Net income** | $26.0 | $225.5 | $164.2 | $375.8 | | **Diluted EPS** | $0.35 | $2.85 | $2.19 | $4.78 | - The significant decrease in income from operations and net income for both the three and nine-month periods compared to the prior year is primarily due to the absence of the **$207.5 million** net merger termination fee received in the quarter ended April 3, 2021[10](index=10&type=chunk)[41](index=41&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$4,133.5 million**, driven by cash and investments, while stockholders' equity slightly decreased Balance Sheet Summary (in millions) | Account | April 2, 2022 | July 3, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,130.3 | $774.3 | | Short-term investments | $1,433.8 | $1,171.7 | | Total current assets | $3,100.6 | $2,436.8 | | Total assets | $4,133.5 | $3,551.6 | | Convertible notes, non-current | $1,447.6 | $789.8 | | Total liabilities | $2,221.4 | $1,578.8 | | Total stockholders' equity | $1,912.1 | $1,972.8 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased to **$345.0 million**, with financing activities providing **$380.0 million** from new notes and share repurchases Cash Flow Summary (in millions) | Activity | Nine Months Ended April 2, 2022 | Nine Months Ended April 3, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $345.0 | $614.5 | | Net cash used in investing activities | ($369.0) | ($196.3) | | Net cash provided by (used in) financing activities | $380.0 | ($28.5) | | **Increase in cash and cash equivalents** | **$356.0** | **$389.7** | - Financing activities in the nine months ended April 2, 2022, were significantly impacted by the net proceeds of **$854.8 million** from the issuance of 0.50% Convertible Notes due 2028, partially offset by **$448.6 million** used for common stock repurchase[23](index=23&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the pending NeoPhotonics acquisition, issuance of **$861.0 million** in convertible notes, and segment performance - On November 4, 2021, Lumentum announced a merger agreement to acquire NeoPhotonics Corporation for approximately **$918 million** in cash, expected to close in the second half of calendar year 2022[36](index=36&type=chunk)[38](index=38&type=chunk) - In March 2021, a prior merger agreement with Coherent, Inc. was terminated, resulting in Lumentum receiving a termination fee of **$217.6 million**, recorded as a net gain of **$207.5 million** in the prior fiscal year[40](index=40&type=chunk)[41](index=41&type=chunk) - The company's two reportable segments are Optical Communications (OpComms) and Commercial Lasers (Lasers), with OpComms serving Telecom, Datacom, Consumer, and Industrial markets, and Lasers serving applications like sheet metal processing and precision machining[146](index=146&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a **5.7%** Q3 revenue decrease, segment performance, gross margin decline, the NeoPhotonics acquisition, and liquidity [Results of Operations](index=43&type=section&id=Results%20of%20Operations) Q3 FY22 net revenue decreased **5.7%** to **$395.4 million**, driven by OpComms decline and Lasers growth, with gross margin falling to **42.3%** Net Revenue by Segment (in millions) | Segment | Three Months Ended April 2, 2022 | Three Months Ended April 3, 2021 | % Change | | :--- | :--- | :--- | :--- | | OpComms | $344.2 | $387.9 | (11.3)% | | Lasers | $51.2 | $31.6 | 62.0% | | **Total Net Revenue** | **$395.4** | **$419.5** | **(5.7)%** | - The decrease in OpComms revenue was primarily due to continued material and component shortages for Telecom products and a decrease in the average selling price for Industrial and Consumer chips due to a smaller design[196](index=196&type=chunk) - The increase in Lasers revenue was driven by a return in customer demand for kilowatt class fiber lasers following the recovery in industrial production from COVID-19 disruptions[197](index=197&type=chunk)[201](index=201&type=chunk) - Q3 FY22 gross margin decreased to **42.3%** from **44.1%** YoY, primarily due to a less profitable product mix, **$5.8 million** in charges to acquire components from brokers, and a temporary factory closure in China due to COVID-19 mandates[210](index=210&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and investments totaled **$2,564.1 million**, with liquidity supported by **$861.0 million** in new convertible notes and **$445.5 million** in share repurchases Cash and Investments (in millions) | Item | April 2, 2022 | July 3, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,130.3 | $774.3 | | Short-term investments | $1,433.8 | $1,171.7 | | **Total** | **$2,564.1** | **$1,946.0** | - In March 2022, the company issued **$861.0 million** of 0.50% Convertible Notes due 2028, receiving net proceeds of **$854.8 million**[78](index=78&type=chunk)[79](index=79&type=chunk)[251](index=251&type=chunk) - During the nine months ended April 2, 2022, the company repurchased a total of **4.7 million** shares for an aggregate price of **$445.5 million**, including **2.7 million** shares under the buyback program and **2.0 million** shares concurrent with the 2028 Notes offering[240](index=240&type=chunk)[242](index=242&type=chunk) - The company's 2024 Notes, with a carrying amount of **$406.1 million**, were reclassified to current liabilities as they became convertible at the option of the holders[237](index=237&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks including COVID-19 impacts, foreign exchange, equity price, and interest rate risks on its investment portfolio - Market risks related to the COVID-19 pandemic include potential bad debt expenses, inventory obsolescence from supply chain shortages, and impairment risk for long-term assets[254](index=254&type=chunk)[258](index=258&type=chunk) - The company has foreign currency exchange risk related to expenses denominated in currencies such as the Chinese Yuan, Canadian Dollar, Thai Baht, and Japanese Yen[257](index=257&type=chunk) - The fixed-income investment portfolio is subject to interest rate risk, where a hypothetical **1%** (100 basis points) change in interest rates would result in an approximate **$9.0 million** change in the portfolio's fair value[262](index=262&type=chunk) - Equity price risk exists due to the conversion options on the 2024, 2026, and 2028 Convertible Notes, as the value of shares distributed upon conversion fluctuates with the company's stock price[259](index=259&type=chunk)[260](index=260&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of April 2, 2022[265](index=265&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[266](index=266&type=chunk) [PART II - OTHER INFORMATION](index=56&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, and required exhibits [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not anticipate a material adverse impact on financial results - Management does not currently believe that resolving outstanding legal claims will have a material adverse impact on the company's financial position or results of operations[270](index=270&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) Key risks include COVID-19 impacts, supply chain constraints, intense competition, customer concentration, Huawei restrictions, and NeoPhotonics acquisition challenges - The COVID-19 pandemic continues to negatively impact business through operational disruptions, supply chain delays, and limitations on manufacturing and R&D activities[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - The company is experiencing significant supply chain constraints, especially for semiconductor components, which has adversely affected availability, lead times, and costs, and has impacted the ability to meet customer demand[282](index=282&type=chunk) - A significant portion of sales comes from a limited number of customers, and this concentration, particularly in 3D sensing and commercial lasers, makes the company vulnerable to changes in their purchasing behavior[286](index=286&type=chunk) - U.S. Department of Commerce restrictions on Huawei have limited and will continue to limit business with this significant customer, potentially impacting financial results and leading to excess inventory charges[287](index=287&type=chunk)[288](index=288&type=chunk)[290](index=290&type=chunk) - The proposed acquisition of NeoPhotonics is subject to closing conditions, including regulatory approvals in China, and faces risks such as failure to complete the transaction, integration challenges, and incurring significant transaction-related costs[371](index=371&type=chunk)[373](index=373&type=chunk)[377](index=377&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **3.3 million** shares for **$97.74** average price in Q3 FY22, with **$513.5 million** remaining in the buyback program Issuer Purchases of Equity Securities (Q3 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2 - Jan 29, 2022 | — | $— | | Jan 30 - Feb 26, 2022 | 1,032,469 | $96.38 | | Feb 27 - Apr 2, 2022 | 2,281,663 | $98.35 | | **Total** | **3,314,132** | **$97.74** | - On March 3, 2022, the board of directors increased the share buyback program authorization from **$700.0 million** to an aggregate of **$1.0 billion**, extending through May 2024[388](index=388&type=chunk) - As of April 2, 2022, approximately **$513.5 million** remained available for future repurchases under the authorized plan[388](index=388&type=chunk) [Item 6. Exhibits](index=85&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including convertible notes indenture, purchase agreement, and certifications

Q3 FY22 Conference Call May 4, 2022 Forward Looking Statements and Financial Presentation This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include any anticipation or guidance as to future financial or operating performance, trends in our business, including our market position and trends in demand for our products and technology, supply and manufacturing trends inclu ...

Lumentum Holdings Inc. (NASDAQ:LITE) Q2 2022 Earnings Conference Call February 3, 2022 8:30 AM ET Company Participants Kathy Ta – Vice President-Investor Relations Alan Lowe – President and Chief Executive Officer Wajid Ali – Chief Financial Officer Chris Coldren – Senior Vice President, Chief Strategy and Corporate Development Officer Conference Call Participants Samik Chatterjee – JPMorgan Tom O’Malley – Barclays Alex Henderson – Needham Rod Hall – Goldman Sachs Simon Leopold – Raymond James George Notter ...

Q2 FY22 Conference Call February 3, 2022 Forward Looking Statements and Financial Presentation This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include any anticipation or guidance as to future financial or operating performance, trends in our business, including our market position and trends in demand for our products and technology, supply and manufacturing trends ...

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 January 1, 2022 OR ☐ 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 001-36861 Lumentum Holdings Inc. (Exact name of Registrant as specified in its charter) Delaware 47-3108385 (State or other jurisd ...

Lumentum Holdings Inc. (NASDAQ:LITE) Q1 2022 Earnings Conference Call November 4, 2021 8:30 AM ET Company Participants Alan Lowe - President, Chief Executive Officer Wajid Ali - Executive Vice President, Chief Financial Officer Tim Jenks - Chairman, President, Chief Executive Officer, NeoPhotonics Chris Coldren - Senior Vice President, Strategy and Corporate Development Jim Fanucchi - Darrow Associates Conference Call Participants Rod Hall - Goldman Sachs Alex Henderson - Needham Samik Chatterjee - JP Morga ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited financial statements, management's analysis, market risk disclosures, and control procedures [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for the three months ended October 2, 2021, and September 26, 2020, along with detailed notes [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance through its condensed consolidated statements of operations Consolidated Statements of Operations Highlights (in millions) | Metric | Three Months Ended Oct 2, 2021 | Three Months Ended Sep 26, 2020 | YoY Change | | :--- | :--- | :--- | :--- | | **Net revenue** | $448.4 | $452.4 | -0.9% | | **Gross profit** | $232.2 | $205.7 | +12.9% | | **Income from operations** | $115.9 | $99.0 | +17.1% | | **Net income** | $81.5 | $67.1 | +21.5% | | **Diluted EPS** | $1.08 | $0.86 | +25.6% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position through its condensed consolidated balance sheets Consolidated Balance Sheet Highlights (in millions) | Metric | As of Oct 2, 2021 | As of July 3, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $611.0 | $774.3 | | Short-term investments | $1,273.6 | $1,171.7 | | Total current assets | $2,423.0 | $2,436.8 | | **Total assets** | **$3,519.0** | **$3,551.6** | | Total current liabilities | $611.7 | $664.6 | | **Total liabilities** | **$1,547.6** | **$1,578.8** | | **Total stockholders' equity** | **$1,971.4** | **$1,972.8** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows through its condensed consolidated statements of cash flows Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Three Months Ended Oct 2, 2021 | Three Months Ended Sep 26, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $61.9 | $104.7 | | Net cash used in investing activities | $(116.9) | $(114.0) | | Net cash used in financing activities | $(108.3) | $(19.2) | | **Decrease in cash and cash equivalents** | **$(163.3)** | **$(28.5)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and context for the condensed consolidated financial statements - The company operates in two segments: Optical Communications (OpComms) and Commercial Lasers (Lasers), serving OEMs in networking, manufacturing, and consumer electronics (3D sensing)[23](index=23&type=chunk) Revenue by Segment (in millions) | Segment | Q1 FY22 (ended Oct 2, 2021) | Q1 FY21 (ended Sep 26, 2020) | YoY Change | | :--- | :--- | :--- | :--- | | OpComms | $406.0 | $428.5 | -5.3% | | Lasers | $42.4 | $23.9 | +77.4% | | **Total Net Revenue** | **$448.4** | **$452.4** | **-0.9%** | OpComms Revenue Disaggregation (in millions) | OpComms Market | Q1 FY22 (ended Oct 2, 2021) | Q1 FY21 (ended Sep 26, 2020) | YoY Change | | :--- | :--- | :--- | :--- | | Telecom and Datacom | $216.0 | $261.3 | -17.3% | | Consumer and Industrial | $190.0 | $167.2 | +13.6% | | **Total OpComms** | **$406.0** | **$428.5** | **-5.3%** | - Customer concentration remains high, with one customer accounting for **41% of total net revenue in Q1 FY22**, up from **35% in Q1 FY21**[128](index=128&type=chunk) - Subsequent to the quarter's end, on November 4, 2021, Lumentum announced a merger agreement to acquire NeoPhotonics Corporation for approximately **$918 million in cash**[134](index=134&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the first quarter fiscal 2022 financial results, highlighting revenue trends, gross margin improvements, and impacts of the COVID-19 pandemic and supply chain issues [Results of Operations](index=37&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, focusing on revenue, gross margin, and operating expenses by segment - OpComms revenue decreased by **$22.5 million (5.3%) YoY**, driven by a **$45.3 million drop in Telecom and Datacom** due to component shortages and 5G deployment delays, partially offset by a **$22.8 million increase in Industrial and Consumer revenue**[157](index=157&type=chunk) - Lasers revenue increased by **$18.5 million (77.4%) YoY**, primarily due to a recovery in customer demand for kilowatt-class fiber lasers following COVID-19 disruptions[158](index=158&type=chunk) - Overall gross margin increased to **51.8% from 45.5% YoY**, driven by a more profitable product mix, particularly higher-margin 3D sensing products, and lower excess and obsolescence charges[166](index=166&type=chunk)[169](index=169&type=chunk) - Operating expenses increased, with R&D up **7.3% to $54.1 million** and SG&A up **12.4% to $63.3 million**, primarily due to increased headcount and compensation expenses[171](index=171&type=chunk)[173](index=173&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=41&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) This section assesses the company's financial health, liquidity position, and capital management strategies - The company ended the quarter with **$611.0 million in cash and cash equivalents** and **$1,273.6 million in short-term investments**, with management believing liquidity is sufficient for at least the next 12 months[180](index=180&type=chunk)[183](index=183&type=chunk) - Under its share buyback program, the company repurchased **1.1 million shares** of common stock for an aggregate price of **$91.7 million** during the first quarter of fiscal 2022[192](index=192&type=chunk) - Cash from operations was **$61.9 million**, a decrease from **$104.7 million** in the prior-year period, mainly due to changes in operating assets and liabilities, including a **$50.4 million increase in accounts receivable**[196](index=196&type=chunk) - The **2024 Convertible Notes**, with a carrying amount of **$395.8 million**, were reclassified to current liabilities as they became convertible at the option of the holders during the quarter[190](index=190&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company details its exposure to market risks, including foreign exchange fluctuations, equity price risk from convertible notes, and interest rate risk on its investment portfolio - The company is exposed to foreign exchange risk as a portion of its operating expenses are denominated in currencies other than the U.S. Dollar, including the Chinese Yuan, Canadian Dollar, Thai Baht, and Japanese Yen[204](index=204&type=chunk) - The fixed-income investment portfolio is subject to interest rate risk, where a hypothetical **1% (100 basis points) change** would result in an approximate **$9.6 million change** in its fair value[208](index=208&type=chunk) - The company faces equity price risk related to the conversion options embedded in its **2026 and 2024 Convertible Notes**, as their value fluctuates with the company's stock price[205](index=205&type=chunk)[206](index=206&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on an evaluation as of October 2, 2021, the company's Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures were effective - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[211](index=211&type=chunk) - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[212](index=212&type=chunk) [PART II - OTHER INFORMATION](index=48&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report [Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various claims that arise in the ordinary course of business, including ongoing litigation related to the Oclaro acquisition - The company is subject to various legal claims, including ongoing litigation related to its acquisition of Oclaro (the Karri Lawsuit), currently in the discovery phase[113](index=113&type=chunk)[216](index=216&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section details significant business risks, including impacts from the COVID-19 pandemic, customer and supplier concentration, export restrictions, and strategic transaction complexities [Risks Related to Our Business](index=50&type=section&id=Risks%20Related%20to%20Our%20Business) This section outlines key operational and strategic risks impacting the company's business performance - The COVID-19 pandemic continues to pose risks, causing disruptions in manufacturing, supply chain delays (particularly for semiconductor components), and limitations on R&D activities[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - The company relies on a limited number of customers for a significant portion of sales, creating concentration risk where changes in their purchasing behavior could significantly impact revenue[232](index=232&type=chunk) - U.S. government restrictions on sales to Huawei and other entities on the Entity List have limited and will continue to limit business, potentially leading to excess inventory charges and underutilized capacity[233](index=233&type=chunk)[234](index=234&type=chunk)[236](index=236&type=chunk) - The pending acquisition of NeoPhotonics is subject to closing conditions, including regulatory approvals, and failure to complete the merger could result in significant termination fees and other adverse consequences[317](index=317&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk) [Legal, Regulatory and Compliance Risks](index=66&type=section&id=Legal%2C%20Regulatory%20and%20Compliance%20Risks) This section addresses potential legal, regulatory, and compliance challenges affecting the company's operations - The company's sales are subject to U.S. export control laws, and failure to obtain necessary licenses could limit sales to certain countries and customers, particularly with increased scrutiny on Chinese entities[295](index=295&type=chunk)[297](index=297&type=chunk) - Operations are subject to numerous worldwide regulations, including environmental (REACH, RoHS), conflict minerals disclosure, and data privacy laws (GDPR, CCPA), which could increase expenses and harm operating results if not complied with[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk) [Risks Related to Our Common Stock](index=67&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) This section discusses risks specifically related to the company's common stock and convertible notes - Servicing the **2024 and 2026 convertible notes** requires significant cash, and the company's ability to make payments depends on future performance, potentially limiting operational flexibility[307](index=307&type=chunk)[309](index=309&type=chunk) - Conversion of the **2024 and 2026 notes** could dilute the ownership interest of existing stockholders, and any sales of common stock issuable upon conversion could depress the stock price[311](index=311&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on the company's stock repurchase activities, including the 2021 share buyback program Issuer Purchases of Equity Securities (Q1 FY22) | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (approx. in millions) | | :--- | :--- | :--- | :--- | | July 4 - July 31, 2021 | 0 | $— | $0 | | Aug 1 - Aug 28, 2021 | 752,000 | $81.03 | $61.0 | | Aug 29 - Oct 2, 2021 | 360,000 | $85.43 | $30.7 | | **Total** | **1,112,000** | **$82.45** | **$91.7** | - The repurchases were made under the **2021 share buyback program**, approved on May 7, 2021, which authorizes up to **$700.0 million** in share purchases over two years[328](index=328&type=chunk) [Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including employment agreements and required certifications - The report includes several exhibits, such as an Amended and Restated Employment Agreement for CEO Alan Lowe, and certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[331](index=331&type=chunk)

```markdown PART I [ITEM 1. BUSINESS](index=4&type=section&id=ITEM%201.%20BUSINESS) Lumentum is a leading provider of optical and photonic products for OpComms and Lasers, expanding into 3D sensing and LiDAR, driven by data and precision manufacturing trends - **Lumentum is an industry-leading provider** of optical and photonic products for Optical Communications (OpComms) and Commercial Lasers (Lasers) markets[15](index=15&type=chunk) - **The company's strategy involves** expanding into attractive emerging markets such as **3D** sensing for consumer electronics and diode light sources for various applications, leveraging its core optical and photonic technology and volume manufacturing capability[15](index=15&type=chunk) - **Global market trends**, including increasing data reliance, demand for higher precision manufacturing, and the rapid development of **3D** sensing and LiDAR for security, industrial, and automotive applications, are expected to drive the need for Lumentum's photonics products[16](index=16&type=chunk) - **Lumentum operates in two reportable segments**: OpComms and Lasers, with a global marketing, sales, and manufacturing footprint across North America, Asia-Pacific, and Europe[17](index=17&type=chunk)[18](index=18&type=chunk) - **The company's history includes** its spin-off from JDS Uniphase Corporation in **2015** and strategic acquisitions like Oclaro in **2018**, which strengthened its product portfolio in optical networks and high-speed interconnects[19](index=19&type=chunk) - **The OpComms segment addresses** telecommunications, data communications, and consumer and industrial markets, providing components, modules, and subsystems for carrier networks, data centers, and **3D** sensing applications[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - **The Lasers segment serves** markets such as sheet metal processing, general manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining with a portfolio including diode-pumped solid-state, fiber, diode, direct-diode, and gas lasers[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) - **Lumentum invests significantly in R&D** to develop new and enhanced products, focusing on technology leadership, cost efficiency, and functional integration in both OpComms (e.g., ROADMs, tunable devices, DML/EML/VCSEL chips, **3D** sensing) and Lasers (e.g., solid-state and fiber lasers for various industrial and scientific applications)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - **The company utilizes a combination of internal manufacturing facilities** (US, Thailand, China, UK, Slovenia, Japan) and contract manufacturers (Thailand, Taiwan, Malaysia) for production[67](index=67&type=chunk)[71](index=71&type=chunk) - **Lumentum holds approximately 950 U.S. patents** and **865** foreign patents, with **580** patent applications pending, to protect its intellectual property[73](index=73&type=chunk) - **As of July 3, 2021, Lumentum employed approximately 5,618** full-time employees globally, with a strong focus on diversity, inclusion, and belonging, and a commitment to pay equity and increasing representation of underrepresented populations[18](index=18&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - **International operations account for a significant majority of net revenue** (**92.3%** in fiscal **2021**), exposing the company to various economic, business, regulatory, social, and political conditions in foreign countries[86](index=86&type=chunk)[111](index=111&type=chunk) [ITEM 1A. RISK FACTORS](index=15&type=section&id=ITEM%201A.%20RISK%20FACTORS) Lumentum faces high risks from COVID-19, intense competition, limited customer base, supply chain dependencies, manufacturing challenges, IP protection, and international regulations - **The COVID-19 pandemic has negatively impacted** Lumentum's business operations, manufacturing, R&D, and supply chain due to travel restrictions, social distancing, and component shortages, particularly semiconductors[26](index=26&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) - **Lumentum operates in dynamic and complex markets** characterized by rapid technological change, intense competition (especially from Asia-Pacific competitors), and continuous price pressures, requiring constant innovation and cost control[101](index=101&type=chunk)[102](index=102&type=chunk)[109](index=109&type=chunk) - **The company relies on a limited number of customers** for a significant portion of its sales, with Apple (**30.2%**), Huawei (**10.8%**), and Ciena (**10.1%**) being major customers in fiscal **2021**. The majority of customers do not have contractual purchase commitments, leading to potential volatility from order changes or cancellations[34](index=34&type=chunk)[103](index=103&type=chunk)[270](index=270&type=chunk) - **U.S. government restrictions**, such as those imposed by the BIS on Huawei Technologies Co. Ltd., have limited Lumentum's ability to sell certain products to Huawei, impacting revenue and potentially leading to excess inventory charges[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - **Manufacturing operations are complex** and rely on internal facilities and contract manufacturers, primarily in Asia. Disruptions from natural disasters, COVID-19, or supply chain issues (e.g., semiconductor shortages) could severely impact production and financial results[26](index=26&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk) - **Lumentum depends on a limited number of suppliers** for raw materials and components, with some being sole sources. Failures or delays from these suppliers, or increased costs due to supply constraints, could adversely affect business and operations[125](index=125&type=chunk) - **The company faces risks related to strategic transactions**, including difficulties in identifying, completing, and integrating acquisitions (as seen with the terminated Coherent merger agreement) and potential challenges with divestitures[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - **Protecting intellectual property** (patents, trade secrets, trademarks) is critical but challenging, with risks of infringement claims from third parties (including patent-holding companies) and the need for licenses to third-party technologies[153](index=153&type=chunk)[157](index=157&type=chunk) - **International operations** (**92.3%** of net revenue in fiscal **2021**) expose Lumentum to economic, regulatory, social, and political risks in foreign countries, including trade protection laws, tariffs, sanctions, and foreign currency fluctuations[86](index=86&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) - **Changes in tax laws** (e.g., proposed U.S. corporate tax rate increase, global minimum tax) and interpretations of existing laws could materially affect Lumentum's effective tax rate, cash tax expenses, and deferred tax assets[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) - **The company's ability to recruit and retain key personnel**, especially specialized engineers and sales staff, is critical to its success, and challenges in this area (including increased employee mobility due to remote work) could harm product development and market efforts[166](index=166&type=chunk) - **Lumentum is subject to various legal proceedings and claims**, including merger litigation (Karri Lawsuit related to Oclaro acquisition), which can be costly, time-consuming, and divert management attention[159](index=159&type=chunk)[193](index=193&type=chunk)[197](index=197&type=chunk) - **The company's stock price may be volatile** due to general economic conditions, market fluctuations, operating results, competition, and corporate actions, and it does not expect to pay dividends in the foreseeable future[179](index=179&type=chunk)[183](index=183&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=35&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC - **No unresolved staff comments**[188](index=188&type=chunk) [ITEM 2. PROPERTIES](index=36&type=section&id=ITEM%202.%20PROPERTIES) Lumentum owns and leases approximately 1.8 million square feet of global properties for operations, including headquarters and manufacturing sites - **Lumentum owns and leases approximately 1.8 million** square feet of properties across the United States and eleven other countries[190](index=190&type=chunk) - **The properties are used for** executive and administrative offices, data centers, product development, customer service, and manufacturing facilities[190](index=190&type=chunk) - **Key owned properties include the 238,000** sq ft corporate headquarters in San Jose, California, a **560,000** sq ft manufacturing site in Thailand, and a **25,000** sq ft manufacturing site in Slovenia[190](index=190&type=chunk) - **Larger leased sites are located in** Canada, China, Japan, Italy, the United Kingdom, and the United States[190](index=190&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=37&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Lumentum is involved in various legal proceedings, including Oclaro merger litigation, which could materially impact financial position - **Lumentum is subject to various claims and suits** in the ordinary course of business, with management believing current resolutions will not materially impact financial position[193](index=193&type=chunk) - **Merger litigation related to the Oclaro acquisition** involved seven lawsuits, with one (Karri Lawsuit) remaining pending as of the report date, alleging violations of the Securities Exchange Act of **1934**[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - **The Karri Lawsuit**, which now names Lumentum as a defendant, is in discovery, and defendants intend to vigorously defend it[197](index=197&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=37&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Lumentum has no disclosures related to mine safety - **No mine safety disclosures are applicable** to Lumentum[198](index=198&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=38&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Lumentum's common stock trades on NASDAQ, with no foreseeable dividends, and the company executed share repurchases in fiscal 2019 and 2021 - **Lumentum's common stock is listed** on the Nasdaq Global Select Market under the symbol "LITE"[201](index=201&type=chunk) - **As of August 23, 2021, the company had 2,519** stockholders of record[201](index=201&type=chunk) - **Lumentum does not expect to pay cash dividends** on its common stock in the foreseeable future[183](index=183&type=chunk)[201](index=201&type=chunk) - **In December 2019, Lumentum repurchased approximately $200.0 million** (**2.9 million** shares) of its common stock[206](index=206&type=chunk)[601](index=601&type=chunk) - **On May 7, 2021, the board approved a $700.0 million** share buyback program, authorized for **2** years. In Q4 fiscal **2021**, the company repurchased **3.1 million** shares for **$241.0 million**[207](index=207&type=chunk)[210](index=210&type=chunk)[317](index=317&type=chunk)[602](index=602&type=chunk) Share Repurchase Activity (May 7, 2021 - July 3, 2021) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased under Publicly Announced Plans | Maximum Dollar Value Remaining | | :----------------------- | :--------------------- | :--------------------------- | :-------------------------------------------- | :----------------------------- | | May 7, 2021 to May 29, 2021 | 2,104,427 | $76.01 | 2,104,427 | $540.0 million | | May 30, 2021 to July 3, 2021 | 992,000 | $81.72 | 992,000 | $459.0 million | [ITEM 6. SELECTED FINANCIAL DATA](index=40&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) This section summarizes Lumentum's selected consolidated financial data for five fiscal years, highlighting impacts from the Coherent termination fee and Oclaro acquisition Consolidated Statements of Operations Data (in millions, except per share amounts) | Years Ended | July 3, 2021 | June 27, 2020 | June 29, 2019 | June 30, 2018 | July 1, 2017 | | :------------------------------------------------ | :------------- | :-------------- | :-------------- | :-------------- | :------------- | | Net revenue | $1,742.8 | $1,678.6 | $1,565.3 | $1,247.7 | $1,001.6 | | Gross profit | $783.1 | $650.2 | $425.9 | $432.1 | $318.1 | | Income (loss) from operations | $527.0 | $204.1 | $(21.6) | $139.9 | $47.6 | | Net income (loss) | $397.3 | $135.5 | $(36.4) | $248.1 | $(102.5) | | Net income (loss) attributable to common stockholders | $397.3 | $135.5 | $(37.9) | $241.5 | $(103.4) | | Basic EPS | $5.27 | $1.79 | $(0.54) | $3.88 | $(1.71) | | Diluted EPS | $5.07 | $1.75 | $(0.54) | $3.82 | $(1.71) | | Basic Shares | 75.4 | 75.9 | 70.7 | 62.3 | 60.6 | | Diluted Shares | 78.4 | 77.6 | 70.7 | 63.3 | 60.6 | Consolidated Balance Sheet Data (in millions) | As of | July 3, 2021 | June 27, 2020 | June 29, 2019 | June 30, 2018 | July 1, 2017 | | :---------------------- | :------------- | :-------------- | :-------------- | :-------------- | :------------- | | Cash and cash equivalents | $774.3 | $298.0 | $432.6 | $397.3 | $272.9 | | Short-term investments | $1,171.7 | $1,255.8 | $335.9 | $314.2 | $282.4 | | Total assets | $3,551.6 | $3,292.6 | $2,716.6 | $1,581.5 | $1,232.9 | | Convertible notes | $1,180.5 | $1,120.3 | $351.9 | $334.2 | $317.5 | | Term loan, non-current | — | — | $484.0 | — | — | | Total stockholders' equity| $1,972.8 | $1,749.2 | $1,497.1 | $926.1 | $618.8 | - **Fiscal 2021 results include a $217.6 million** merger termination fee from Coherent, offset by **$10.1 million** in acquisition-related expenses[209](index=209&type=chunk) - **In fiscal 2020, Lumentum fully repaid** its Term Loan Facility and issued **$1,050.0 million** in **2026** Notes[211](index=211&type=chunk) - **Fiscal 2019 includes the acquisition of Oclaro for $1.4 billion**, funded by stock, new debt, and cash[211](index=211&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=42&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes Lumentum's financial performance for fiscal years 2021-2019, covering business, COVID-19 impact, accounting policies, revenue, gross profit, and operating expenses - **Lumentum is an industry-leading provider of optical and photonic products**, operating in two segments: OpComms and Lasers, driven by long-term trends in data, precision manufacturing, and **3D** sensing[213](index=213&type=chunk)[214](index=214&type=chunk) - **The COVID-19 pandemic has caused global economic slowdowns**, supply chain disruptions, and volatility, impacting Lumentum's manufacturing and ability to supply products, with semiconductor shortages expected to affect fiscal **2022** revenue[228](index=228&type=chunk)[231](index=231&type=chunk) - **Lumentum's critical accounting policies include** Inventory Valuation, Revenue Recognition, Income Taxes, Long-lived Asset Valuation, and Goodwill, which involve significant management estimates and judgments[235](index=235&type=chunk)[379](index=379&type=chunk) Net Revenue by Segment (in millions) | Segment | 2021 | 2020 | Change (2021 vs 2020) | 2019 | Change (2020 vs 2019) | | :-------- | :---------- | :---------- | :-------------------- | :---------- | :-------------------- | | OpComms | $1,620.7 | $1,515.1 | $105.6 (7.0%) | $1,370.2 | $144.9 (10.6%) | | Lasers | $122.1 | $163.5 | $(41.4) (-25.3%) | $195.1 | $(31.6) (-16.2%) | | **Total** | **$1,742.8**| **$1,678.6**| **$64.2 (3.8%)** | **$1,565.3**| **$113.3 (7.2%)** | - **OpComms revenue growth in fiscal 2021 was driven by** increased **3D** sensing lasers and Telecom/Datacom products, offsetting declines from exited product lines and **5G** deployment delays in China[266](index=266&type=chunk) - **Lasers net revenue decreased in fiscal 2021** due to reduced customer demand for kilowatt-class fiber lasers, impacted by COVID-19[267](index=267&type=chunk) Gross Profit and Gross Margin by Segment (in millions, except percentages) | Segment | 2021 Gross Profit | 2020 Gross Profit | 2019 Gross Profit | 2021 Gross Margin | 2020 Gross Margin | 2019 Gross Margin | | :-------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | OpComms | $830.2 | $704.0 | $534.1 | 51.2% | 46.5% | 39.0% | | Lasers | $57.3 | $76.2 | $84.4 | 46.9% | 46.6% | 43.3% | | **Total** | **$783.1** | **$650.2** | **$425.9** | **44.9%** | **38.7%** | **27.2%** | - **Gross margin improved in fiscal 2021** due to a higher mix of profitable products (**3D** sensing, pump lasers, HiRel components) and the exit of lower-margin product lines[275](index=275&type=chunk)[279](index=279&type=chunk) - **R&D expense increased by 8.0%** in fiscal **2021** to **$214.5 million**, primarily due to higher payroll and stock-based compensation, reflecting continued investment in new products and technology[264](index=264&type=chunk)[283](index=283&type=chunk)[285](index=285&type=chunk) - **SG&A expense increased by 2.6%** in fiscal **2021** to **$241.4 million**, driven by payroll, stock-based compensation, and legal expenses, partially offset by reduced travel. A **$8.3 million** gain from a property sale also offset expenses[264](index=264&type=chunk)[286](index=286&type=chunk) - **Lumentum recorded a net gain of $207.5 million** in fiscal **2021** from the Coherent merger termination fee, offset by **$10.1 million** in related acquisition expenses[264](index=264&type=chunk)[294](index=294&type=chunk) - **Interest expense increased to $66.7 million** in fiscal **2021**, mainly due to amortization of debt discount and contractual interest on **2026** Notes[297](index=297&type=chunk) - **Other income, net, decreased significantly** in fiscal **2021** to **$2.8 million**, primarily due to lower interest and investment income and the absence of a large gain from the Lithium Niobate business sale recognized in fiscal **2020**[299](index=299&type=chunk) - **The provision for income taxes was $65.8 million** in fiscal **2021**, influenced by foreign subsidiary earnings, tax credits, and U.S. income inclusions[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=56&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Lumentum faces market risks including COVID-19 impacts, foreign exchange, equity price, interest rate fluctuations, and bank liquidity - **COVID-19 has heightened market risks**, including accounts receivable collectability, inventory excess and obsolescence, short-term investment values, long-term asset impairment, and tax valuation of Net Operating Losses (NOLs)[332](index=332&type=chunk) - **Lumentum faces foreign exchange risk** from expenses denominated in currencies other than the U.S. Dollar (e.g., Chinese Yuan, Thai Baht, Japanese Yen, UK Pound), which can impact operating results[334](index=334&type=chunk)[335](index=335&type=chunk) Foreign Exchange Losses, Net (in millions) | Year Ended | Foreign Exchange Losses, Net | | :----------- | :--------------------------- | | July 3, 2021 | $(4.4) | | June 27, 2020| $(1.4) | | June 29, 2019| $(0.6) | - **The company is exposed to equity price risk** related to the conversion options of its **2026** Notes and **2024** Notes, whose potential value changes with Lumentum's stock price[336](index=336&type=chunk)[337](index=337&type=chunk) - **The 2024 Notes became convertible** at holders' option in Q4 fiscal **2021** as the stock price exceeded **$78.80**, and the **2026** Notes would become convertible if the stock price exceeds **$129.08**[338](index=338&type=chunk) - **Lumentum's $1,946.0 million cash**, cash equivalents, and short-term investments are subject to interest rate fluctuation risk; a hypothetical **1%** change in interest rates would impact the portfolio's fair value by approximately **$9.6 million**[339](index=339&type=chunk)[340](index=340&type=chunk) - **The company holds $128.3 million** in unrestricted cash in operating accounts with domestic and international financial institutions, exposing it to bank liquidity risk if these institutions fail[341](index=341&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=62&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents Lumentum's audited consolidated financial statements for fiscal years 2021-2019, with auditor reports and detailed notes - **The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion** on Lumentum's financial statements and internal control over financial reporting as of July **3, 2021**[344](index=344&type=chunk)[345](index=345&type=chunk) - **The valuation of inventory**, particularly management's estimates for excess and obsolete write-downs based on forecasted demand, was identified as a critical audit matter due to the significant assumptions and high degree of auditor judgment required[350](index=350&type=chunk)[351](index=351&type=chunk) Consolidated Statements of Operations (in millions, except per share data) | Years Ended | July 3, 2021 | June 27, 2020 | June 29, 2019 | | :---------------------------------------------- | :----------- | :------------ | :------------ | | Net revenue | $1,742.8 | $1,678.6 | $1,565.3 | | Cost of sales | $898.0 | $974.6 | $1,092.9 | | Amortization of acquired developed intangibles | $61.7 | $53.8 | $46.5 | | Gross profit | $783.1 | $650.2 | $425.9 | | Total operating expenses | $256.1 | $446.1 | $447.5 | | Income (loss) from operations | $527.0 | $204.1 | $(21.6) | | Net income (loss) | $397.3 | $135.5 | $(36.4) | | Basic EPS | $5.27 | $1.79 | $(0.54) | | Diluted EPS | $5.07 | $1.75 | $(0.54) | Consolidated Balance Sheets (in millions) | ASSETS | July 3, 2021 | June 27, 2020 | | :-------------------------------------- | :----------- | :------------ | | Cash and cash equivalents | $774.3 | $298.0 | | Short-term investments | $1,171.7 | $1,255.8 | | Accounts receivable, net | $212.8 | $233.5 | | Inventories | $196.4 | $188.9 | | Total current assets | $2,436.8 | $2,050.0 | | Property, plant and equipment, net | $361.1 | $393.0 | | Goodwill | $368.9 | $368.9 | | Total assets | $3,551.6 | $3,292.6 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $116.9 | $150.8 | | Convertible notes, current | $390.7 | — | | Total current liabilities | $664.6 | $283.0 | | Convertible notes, non-current | $789.8 | $1,120.3 | | Total liabilities | $1,578.8 | $1,543.4 | | Total stockholders' equity | $1,972.8 | $1,749.2 | Consolidated Statements of Cash Flows (in millions) | Years Ended | July 3, 2021 | June 27, 2020 | June 29, 2019 | | :---------------------------------------------- | :----------- | :------------ | :------------ | | Net cash provided by operating activities | $738.7 | $524.3 | $330.1 | | Net cash provided by (used in) investing activities | $1.0 | $(987.7) | $(779.7) | | Net cash (used in) provided by financing activities | $(263.4) | $328.8 | $485.1 | | Increase (decrease) in cash and cash equivalents | $476.3 | $(134.6) | $35.3 | | Cash and cash equivalents at end of period | $774.3 | $298.0 | $432.6 | - **Lumentum adopted Topic 842 (Leases) in fiscal 2020**, using a modified retrospective approach, recognizing operating lease assets of **$91.5 million** and liabilities of **$81.5 million** at adoption[346](index=346&type=chunk)[392](index=392&type=chunk)[516](index=516&type=chunk)[518](index=518&type=chunk) - **The company's revenue recognition policy follows Topic 606**, recognizing revenue when control of goods or services transfers to customers, typically upon shipment or delivery, or when inventory is pulled from VMI hubs[237](index=237&type=chunk)[398](index=398&type=chunk) - **Lumentum's 2024 Notes (0.25% due 2024) and 2026 Notes (0.50% due 2026) are convertible debt instruments**. The **2024** Notes were classified as current liabilities as of July **3, 2021**, due to the stock price exceeding the conversion threshold[538](index=538&type=chunk)[539](index=539&type=chunk)[540](index=540&type=chunk)[546](index=546&type=chunk)[547](index=547&type=chunk)[548](index=548&type=chunk)[555](index=555&type=chunk) - **The company's defined benefit pension plans in Japan, Switzerland, and Thailand had a total projected benefit obligation (PBO) of $20.6 million** as of July **3, 2021**, with a funded status of **$(10.8) million**[605](index=605&type=chunk)[606](index=606&type=chunk)[608](index=608&type=chunk)[609](index=609&type=chunk) - **Lumentum disaggregates revenue by geography and product**, with OpComms (Telecom & Datacom, Consumer & Industrial) and Lasers segments. In fiscal **2021**, OpComms accounted for **93.0%** of net revenue and Lasers for **7.0%**[249](index=249&type=chunk)[410](index=410&type=chunk)[644](index=644&type=chunk)[645](index=645&type=chunk) Net Revenue by Geographic Region (in millions, except percentages) | Region | July 3, 2021 | June 27, 2020 | June 29, 2019 | | :------------ | :----------- | :------------ | :------------ | | Americas | $280.3 (16.1%) | $278.1 (16.5%) | $320.1 (20.4%) | | Asia-Pacific | $1,322.3 (75.9%) | $1,276.8 (76.1%) | $1,082.4 (69.1%) | | EMEA | $140.2 (8.0%) | $123.7 (7.4%) | $162.8 (10.5%) | | **Total** | **$1,742.8** | **$1,678.6** | **$1,565.3** | Net Revenue from Key Customers (Percentage of Total Net Revenue) | Customer | July 3, 2021 | June 27, 2020 | June 29, 2019 | | :--------- | :----------- | :------------ | :------------ | | Apple | 30.2% | 26.0% | 21.0% | | Huawei | 10.8% | 13.2% | 15.2% | | Ciena | 10.1% | * | 13.7% | *Represents less than 10% of total net revenue. [Note 1. Description of Business and Summary of Significant Accounting Policies](index=70&type=section&id=Note%201.%20Description%20of%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Lumentum's business and outlines its significant accounting policies [Note 2. Recently Issued Accounting Pronouncements](index=79&type=section&id=Note%202.%20Recently%20Issued%20Accounting%20Pronouncements) This note details recently issued accounting pronouncements relevant to Lumentum's financial reporting [Note 3. Earnings Per Share](index=81&type=section&id=Note%203.%20Earnings%20Per%20Share) This note provides details on the calculation of Lumentum's basic and diluted earnings per share [Note 4. Business Combinations](index=82&type=section&id=Note%204.%20Business%20Combinations) This note outlines information regarding Lumentum's business combinations and acquisitions [Note 5. Assets Held For Sale and Related Dispositions](index=84&type=section&id=Note%205.%20Assets%20Held%20For%20Sale%20and%20Related%20Dispositions) This note describes assets classified as held for sale and related disposition activities [Note 6. Cash, Cash Equivalents and Short-term Investments](index=85&type=section&id=Note%206.%20Cash%2C%20Cash%20Equivalents%20and%20Short-term%20Investments) This note provides details on Lumentum's cash, cash equivalents, and short-term investment balances [Note 7. Fair Value Measurements](index=87&type=section&id=Note%207.%20Fair%20Value%20Measurements) This note explains Lumentum's fair value measurements for financial and non-financial assets and liabilities [Note 8. Balance Sheet Details](index=89&type=section&id=Note%208.%20Balance%20Sheet%20Details) This note provides additional details and breakdowns for various balance sheet accounts [Note 9. Leases](index=91&type=section&id=Note%209.%20Leases) This note outlines Lumentum's accounting policies and disclosures related to lease arrangements [Note 10. Goodwill and Other Intangible Assets](index=93&type=section&id=Note%2010.%20Goodwill%20and%20Other%20Intangible%20Assets) This note details Lumentum's goodwill and other intangible assets, including their carrying values and impairment testing [Note 11. Non-Controlling Interest Redeemable Convertible Preferred Stock and Derivative Liability](index=94&type=section&id=Note%2011.%20Non-Controlling%20Interest%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Derivative%20Liability) This note describes the accounting for non-controlling interest redeemable convertible preferred stock and derivative liabilities [Note 12. Debt](index=95&type=section&id=Note%2012.%20Debt) This note provides information on Lumentum's outstanding debt instruments, including convertible notes and term loans [Note 13. Accumulated Other Comprehensive Income](index=98&type=section&id=Note%2013.%20Accumulated%20Other%20Comprehensive%20Income) This note details the components of Lumentum's accumulated other comprehensive income (loss) [Note 14. Restructuring and Related Charges](index=99&type=section&id=Note%2014.%20Restructuring%20and%20Related%20Charges) This note outlines Lumentum's restructuring activities and associated charges [Note 15. Impairment and Other Charges](index=99&type=section&id=Note%2015.%20Impairment%20and%20Other%20Charges) This note describes impairment charges and other significant non-operating charges incurred by Lumentum [Note 16. Income Taxes](index=100&type=section&id=Note%2016.%20Income%20Taxes) This note provides details on Lumentum's income tax provision, deferred taxes, and effective tax rate [Note 17. Equity](index=103&type=section&id=Note%2017.%20Equity) This note details Lumentum's equity accounts, including common stock, additional paid-in capital, and treasury stock [Note 18. Employee Retirement Plans](index=106&type=section&id=Note%2018.%20Employee%20Retirement%20Plans) This note describes Lumentum's employee retirement plans, including defined benefit and defined contribution plans [Note 19. Commitments and Contingencies](index=110&type=section&id=Note%2019.%20Commitments%20and%20Contingencies) This note outlines Lumentum's significant commitments and contingencies, including legal matters and guarantees [Note 20. Operating Segments and Geographic Information](index=112&type=section&id=Note%2020.%20Operating%20Segments%20and%20Geographic%20Information) This note provides financial information by Lumentum's operating segments and geographic regions [Note 21. Quarterly Financial Information (Unaudited)](index=115&type=section&id=Note%2021.%20Quarterly%20Financial%20Information%20(Unaudited)) This note presents unaudited quarterly financial information for Lumentum [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=117&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) There have been no changes in or disagreements with accountants on accounting and financial disclosure - **No changes in or disagreements with accountants on accounting and financial disclosure**[653](index=653&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=117&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management and auditors concluded Lumentum's disclosure controls and internal control over financial reporting were effective as of July 3, 2021 - **Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures** as of July **3, 2021**, concluding they were effective at a reasonable assurance level[654](index=654&type=chunk) - **Management concluded that its internal control over financial reporting was effective** as of July **3, 2021**, providing reasonable assurance regarding financial reporting reliability[655](index=655&type=chunk) - **Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting** as of July **3, 2021**[656](index=656&type=chunk)[660](index=660&type=chunk) - **There were no material changes in internal control over financial reporting** during the most recently completed fiscal quarter, and remote work due to COVID-19 did not impact these controls[657](index=657&type=chunk) - **Management acknowledges that control systems provide only reasonable, not absolute, assurance** and are subject to inherent limitations[658](index=658&type=chunk)[665](index=665&type=chunk) [ITEM 9B. OTHER INFORMATION](index=119&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) There is no other information to report under this item - **No other information to report**[666](index=666&type=chunk) [ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=119&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to Lumentum - **This item is not applicable**[667](index=667&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=120&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information on directors, executive officers, and corporate governance is incorporated by reference from the proxy statement - **Information for this item is incorporated by reference from the definitive proxy statement for the annual meeting of stockholders**[671](index=671&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=120&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information on executive compensation is incorporated by reference from the definitive proxy statement - **Information for this item is incorporated by reference from the definitive proxy statement for the annual meeting of stockholders**[672](index=672&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=120&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information on security ownership and related stockholder matters is incorporated by reference from the definitive proxy statement - **Information for this item is incorporated by reference from the definitive proxy statement for the annual meeting of stockholders**[673](index=673&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE](index=120&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%20AND%20DIRECTOR%20INDEPENDENCE) Information on certain relationships, related transactions, and director independence is incorporated by reference from the proxy statement - **Information for this item is incorporated by reference from the definitive proxy statement for the annual meeting of stockholders**[674](index=674&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES](index=120&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement - **Information for this item is incorporated by reference from the definitive proxy statement for the annual meeting of stockholders**[675](index=675&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES](index=121&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENTS%20SCHEDULES) This section lists financial statements, schedules, and exhibits filed as part of the 10-K report - **The section lists the financial statements, financial statement schedules, and exhibits included in the report**[678](index=678&type=chunk) - **Financial statements include Consolidated Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Cash Flows, and Redeemable Convertible Preferred Stock and Stockholders' Equity, along with Notes to Consolidated Financial Statements**[679](index=679&type=chunk) - **Financial statement schedules, such as Schedule II - Valuation and Qualifying Accounts, are provided**[680](index=680&type=chunk)[682](index=682&type=chunk) - **Exhibits include various agreements** (e.g., merger agreements, separation agreement), corporate documents (e.g., certificate of incorporation, bylaws), debt instruments (e.g., indentures for convertible notes), and certifications (e.g., CEO/CFO certifications)[686](index=686&type=chunk)[687](index=687&type=chunk)[689](index=689&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=125&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) There is no Form 10-K summary provided in this report - **No Form 10-K summary is included**[692](index=692&type=chunk) [SIGNATURES](index=126&type=section&id=SIGNATURES) This section contains the required signatures for the Annual Report on Form 10-K from key executives and directors - **The Annual Report on Form 10-K is signed by the Registrant's authorized representatives**, including the President, CEO, CFO, Chief Accounting Officer, and Directors[694](index=694&type=chunk)[695](index=695&type=chunk)[697](index=697&type=chunk)[699](index=699&type=chunk) - **Signatures confirm the filing of the report pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934**[694](index=694&type=chunk)[697](index=697&type=chunk) ```

Lumentum Holdings Inc. (NASDAQ:LITE) Q4 2021 Earnings Conference Call August 18, 2021 8:30 AM ET Company Participants Jim Fanucchi - IR, Darrow Associates, Inc. Alan Lowe - President and Chief Executive Officer Wajid Ali - Executive Vice President and Chief Financial Officer Chris Coldren - Senior Vice President, Strategy and Corporate Development Conference Call Participants Tom O'Malley - Barclays Rod Hall - Goldman Sachs Alex Henderson - Needham Meta Marshall - Morgan Stanley Samik Chatterjee - JPMorgan ...