10-QPeriod: Q1 FY2019

Lumentum Holdings Inc. Quarterly Report for Q1 Ended Sep 29, 2018

Filed November 1, 2018For Securities:LITE

Summary

Lumentum Holdings Inc. reported strong financial performance for the three months ended September 29, 2018, with net revenue increasing by 45.6% year-over-year to $354.1 million. This significant growth was driven by increased sales across its Optical Communications (OpComms) segment, particularly in 3D sensing for mobile devices and Telecom products, as well as growth in its Lasers segment. The company's profitability saw a substantial improvement, with income from operations rising to $57.1 million from $2.7 million in the prior year's comparable period. Gross margin also expanded to 35.6% from 28.2%, attributed to higher-margin product sales in 3D sensing and lasers, and improved manufacturing utilization. The company also highlighted its pending acquisition of Oclaro, Inc., which is expected to be funded by a combination of cash, stock, and debt, and is subject to regulatory approvals.

Financial Highlights

50 data points
Beta

Revenue

$354.10M

35.6% Gross Margin

Net Income

$47.40M

13.4% Net Margin

EPS (Diluted)

$0.72

Total Assets

$1.65B

Cash & Equivalents

$459.40M

Free Cash Flow

$27.60M

Financial Statements
Beta
Revenue$354.10M
Cost of Revenue$227.30M
Gross Profit$126.00M
R&D Expenses$34.60M
SG&A Expenses$33.00M
Operating Expenses$68.90M
Operating Income$57.10M
Interest Expense$5.10M
Net Income$47.40M
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)63.10M
Shares Outstanding (Diluted)63.90M

Key Highlights

  • 1Net revenue surged by 45.6% to $354.1 million, compared to $243.2 million in the prior year period.
  • 2Income from operations dramatically improved to $57.1 million, a significant increase from $2.7 million in the prior year period.
  • 3Gross margin expanded to 35.6% from 28.2%, driven by sales of higher-margin products like 3D sensing and lasers.
  • 4Optical Communications (OpComms) segment revenue grew by 49.2%, primarily fueled by 3D sensing and Telecom product sales.
  • 5The company is progressing with its planned acquisition of Oclaro, Inc., with expected funding from Lumentum stock, debt, and cash.
  • 6Operating expenses as a percentage of net revenue decreased to 19.5% from 27.0%, indicating improved operational efficiency.
  • 7Cash and cash equivalents increased by $62.1 million to $459.4 million, driven by strong operating cash flows.

Frequently Asked Questions

Lumentum's revenue growth was primarily driven by increased sales in its Optical Communications segment, particularly in 3D sensing for mobile devices and Telecom products. The Lasers segment also contributed with increased sales of kilowatt class fiber lasers. The company saw a significant surge in OpComms revenue by 49.2% and Lasers revenue by 24.6% year-over-year.

Profitability saw a substantial improvement, with income from operations increasing significantly to $57.1 million from $2.7 million in the prior year. This improvement is due to a higher gross margin (35.6% vs. 28.2%), driven by a favorable product mix including higher-margin 3D sensing and laser products, and improved manufacturing utilization. Additionally, operating expenses as a percentage of revenue decreased, indicating better operational leverage.

Lumentum is actively pursuing the acquisition of Oclaro, Inc., which has received approval from Oclaro's stockholders and under the Hart-Scott Rodino Act. The company is awaiting antitrust approval in China. The transaction is expected to be funded by approximately $1.6 billion, consisting of $600 million in Lumentum common stock, $500 million in new debt, and the remainder from the combined company's cash balances. Lumentum has also secured a $550 million senior secured term loan facility commitment for this purpose.

Lumentum's liquidity remains strong, with cash and cash equivalents increasing to $459.4 million as of September 29, 2018, up from $397.3 million at the end of the prior quarter. This increase was primarily due to robust operating cash flows. The company believes its current cash position and expected operating cash flows are sufficient to meet its liquidity and capital expenditure requirements for at least the next 12 months. The Oclaro acquisition is expected to be funded through a mix of cash, debt, and equity, which may impact future liquidity.