Lumentum(US:LITE)2023-05-09 13:23Mergers and Acquisitions - The merger with NeoPhotonics was completed on August 3, 2022, with a total transaction consideration of $934.4 million, including $867.3 million in cash paid to NeoPhotonics shareholders [191][194]. - The acquisition of IPG Photonics' telecom transmission product lines was finalized on August 15, 2022, for a total cash purchase price of $55.9 million, enhancing the OpComms segment [196]. - The company recorded $24.2 million in merger-related costs associated with the NeoPhotonics merger, impacting selling, general, and administrative expenses [194]. - Restructuring and related charges for the nine months ended April 1, 2023 totaled $24.8 million, primarily due to integration efforts from the NeoPhotonics merger [238]. Financial Performance - Net revenue decreased by $12.0 million, or 3.0%, during the three months ended April 1, 2023, compared to the same period in 2022, primarily due to a $9.1 million decrease in OpComms revenue and a $2.9 million decrease in Lasers revenue [209]. - Net revenue increased by $105.7 million, or 8.2%, during the nine months ended April 1, 2023, compared to the same period in 2022, driven by a $89.7 million increase in OpComms revenue and a $16.0 million increase in Lasers revenue [211]. - For the three months ended April 1, 2023, net revenue from customers outside the United States represented 82.2% of total net revenue, a decrease from 90.8% in the same period in 2022 [216]. Operating Expenses - Total operating expenses increased to 42.6% of net revenue during the three months ended April 1, 2023, compared to 30.5% in the same period in 2022 [208]. - Research and development expenses increased by 50.6% to $85.4 million during the three months ended April 1, 2023, representing 22.3% of net revenue [208]. - SG&A expense increased by $12.6 million, or 19.7%, during the three months ended April 1, 2023 compared to the same period in 2022, driven by increased payroll and employee compensation expenses [233]. - SG&A expense increased by $84.4 million, or 43.0%, during the nine months ended April 1, 2023 compared to the same period in 2022, primarily due to additional headcount from the NeoPhotonics merger [234]. Gross Margin and Profitability - Gross profit decreased by $55.2 million, or 33.0%, during the three months ended April 1, 2023, resulting in a gross margin of 29.2% compared to 42.3% in the same period in 2022 [208]. - Gross margin for the three months ended April 1, 2023 decreased to 29.2% from 42.3% for the same period in 2022, primarily due to lower gross margin from the OpComms segment [221]. - OpComms gross margin for the three months ended April 1, 2023 decreased to 40.8% from 49.0% for the same period in 2022, driven by a less profitable mix of products [225]. Supply Chain and Market Demand - As of April 1, 2023, the company incurred $10.8 million in incremental supply and procurement costs due to global supply chain constraints, which may impact gross margins [202]. - The company expects ongoing challenges with component supply in the remaining fiscal 2023, affecting its ability to meet customer demand [202]. - The company anticipates continued strong demand for optical devices driven by the shift to digital and virtual environments, emphasizing the importance of communications systems and cloud services [200]. - The impact of COVID-19 has led to a global slowdown in economic activity, affecting demand and supply chains, with ongoing monitoring of the situation [199]. Cash Flow and Liquidity - As of April 1, 2023, the company's cash and cash equivalents decreased to $549.2 million from $1,290.2 million as of July 2, 2022 [248]. - Cash provided by operating activities was $130.6 million during the nine months ended April 1, 2023, reflecting a net loss of $71.4 million [264]. - Cash used in investing activities totaled $803.1 million during the nine months ended April 1, 2023, primarily due to the acquisition of NeoPhotonics and IPG product lines for $861.6 million [266]. - The company has a total of $2,868.2 million in contractual obligations as of April 1, 2023, with $828.8 million due within the next year [253]. - The company’s liquidity position may be impacted by global economic conditions, demand fluctuations, and changes in accounts receivable and inventory [252]. Tax and Interest - The company recorded a tax benefit of $9.4 million for the three months ended April 1, 2023, and a tax provision of $14.4 million for the nine months ended April 1, 2023 [244]. - The company’s estimated effective tax rate for fiscal 2023 differs from the 21% U.S. statutory rate primarily due to the income tax expense from GILTI [246]. - Interest expense for the three months ended April 1, 2023 was $8.7 million, a decrease from $19.7 million for the same period in 2022, primarily due to the adoption of ASU 2020-06 [241]. Investments and Risks - The company is exposed to equity price risk related to the conversion options embedded in its 2028, 2026, and 2024 Notes, with an aggregate principal amount of $2,361.0 million [275]. - A hypothetical 1% increase or decrease in interest rates would result in a fair value change of approximately $7.1 million in the investment portfolio as of April 1, 2023 [278]. - The company has significant net operating losses (NOLs) in the U.S. which could impact the recoverability of deferred tax assets in the future [271]. - As of April 1, 2023, the company had approximately $257.5 million of unrestricted cash in operating accounts, which could be impacted by the failure of financial institutions [279].