10-QPeriod: Q2 FY2023

Lumentum Holdings Inc. Quarterly Report for Q2 Ended Oct 1, 2022

Filed November 8, 2022For Securities:LITE

Summary

Lumentum Holdings Inc. reported a challenging quarter with a net loss of $0.4 million (or $0.01 per diluted share) for the three months ended October 1, 2022, a significant shift from the $81.5 million net income ($1.08 per diluted share) reported in the same period last year. This decline was primarily driven by increased operating expenses, particularly in R&D and SG&A, and a substantial decrease in gross profit margin, which fell to 39.7% from 51.8% year-over-year. The company completed two significant acquisitions during the quarter: NeoPhotonics Corporation and IPG Photonics’ telecom transmission product lines. These acquisitions contributed to a 13.0% increase in net revenue to $506.8 million, primarily from the OpComms segment. However, the integration of these businesses, along with increased amortization expenses and supply chain costs, impacted profitability. The substantial increase in goodwill and intangible assets reflects these acquisitions. Despite the reported net loss, Lumentum maintained a strong liquidity position with $605.3 million in cash and cash equivalents and $1,019.6 million in short-term investments. The company continues to invest in R&D, signaling a focus on future growth despite the near-term profitability pressures. Investors should monitor the integration progress of recent acquisitions and the impact of ongoing supply chain constraints on future margins.

Financial Highlights

49 data points
Beta

Revenue

$506.00M

32.8% Gross Margin

Net Income

-$400K

-0.1% Net Margin

EPS (Diluted)

$-0.46

Total Assets

$4.42B

Cash & Equivalents

$592.10M

Free Cash Flow

-$2.10M

Financial Statements
Beta
Revenue$506.00M
Gross Profit$166.20M
R&D Expenses$75.80M
SG&A Expenses$98.40M
Operating Expenses$188.10M
Operating Income-$21.90M
Interest Expense$8.90M
Net Income-$400K
EPS (Basic)$-0.46
EPS (Diluted)$-0.46
Shares Outstanding (Basic)68.30M
Shares Outstanding (Diluted)68.30M

Key Highlights

  • 1Net loss of $0.4 million ($0.01 EPS) compared to net income of $81.5 million ($1.08 EPS) in the prior year period.
  • 2Net revenue increased 13.0% year-over-year to $506.8 million, driven by acquisitions and improved OpComms segment performance.
  • 3Gross margin significantly decreased to 39.7% from 51.8% in the prior year, impacted by acquisition-related amortization, higher supply chain costs, and a less favorable product mix.
  • 4Operating expenses increased substantially, with R&D up 34.4% and SG&A up 67.0%, largely due to headcount additions from recent acquisitions and higher stock-based compensation.
  • 5The company completed two significant acquisitions: NeoPhotonics Corporation and IPG Photonics’ telecom transmission product lines.
  • 6Goodwill and intangible assets increased significantly due to the acquisitions, reflecting the strategic expansion.
  • 7Maintained a healthy liquidity position with $605.3 million in cash and cash equivalents and $1,019.6 million in short-term investments.

Frequently Asked Questions

The decrease in net income and gross margin was primarily driven by higher operating expenses, particularly in R&D and SG&A, due to recent acquisitions and increased stock-based compensation. Additionally, the gross margin was negatively impacted by increased amortization of acquired intangibles, higher supply chain procurement costs, and a less favorable product mix within the OpComms segment.

The acquisitions significantly increased net revenue by 13.0% to $506.8 million, primarily in the OpComms segment. However, they also led to a substantial increase in operating expenses (R&D and SG&A) and amortization of acquired intangible assets, which negatively impacted profitability and gross margin in the current quarter. The balance sheet reflects a significant increase in goodwill and intangible assets due to these transactions.

Lumentum maintains a strong liquidity position with $605.3 million in cash and cash equivalents and $1,019.6 million in short-term investments as of October 1, 2022. The company believes its current cash and cash flows from operations are sufficient to meet its liquidity and capital spending requirements for at least the next 12 months.

Key challenges include the successful integration of the recently acquired businesses, ongoing global supply chain constraints that affect component availability and costs, and managing increased operating expenses. The company also faces market competition, potential shifts in customer demand, and macro-economic uncertainties.