10-QPeriod: Q2 FY2023

Lumentum Holdings Inc. Quarterly Report for Q2 Ended Dec 31, 2022

Filed February 9, 2023For Securities:LITE

Summary

Lumentum Holdings Inc. reported a net loss of $31.7 million, or $0.46 per diluted share, for the fiscal second quarter ended December 31, 2022. This marks a significant decline from the net income of $56.7 million, or $0.75 per diluted share, recorded in the same period last year. The decrease in profitability was primarily driven by a substantial rise in operating expenses, including increased R&D and SG&A costs, largely due to the integration of recent acquisitions, notably NeoPhotonics. Furthermore, the company experienced a significant decrease in gross margin to 32.8% from 46.5% year-over-year, impacted by a less favorable product mix, higher amortization expenses from intangible assets, and charges related to acquiring components amid supply chain constraints. Despite the quarterly loss, Lumentum's net revenue saw a healthy increase of 13.3% to $506.0 million, driven by growth in its Optical Communications (OpComms) segment, particularly from the contribution of NeoPhotonics. The Commercial Lasers segment also contributed with a 16.0% revenue increase. However, the company's financial performance was weighed down by substantial operating expenses and a lower gross margin. Management highlighted ongoing supply chain challenges and incremental procurement costs as factors affecting profitability. Investors should monitor the company's ability to manage integration costs, improve gross margins, and navigate persistent supply chain issues in the upcoming quarters.

Key Highlights

  • 1Net loss of $31.7 million in Q2 FY23, compared to a net income of $56.7 million in Q2 FY22.
  • 2Diluted loss per share of $0.46, a decrease from diluted earnings per share of $0.75 in the prior year period.
  • 3Net revenue increased by 13.3% to $506.0 million, driven by strong performance in the Optical Communications segment, including contributions from the NeoPhotonics acquisition.
  • 4Gross margin significantly decreased to 32.8% from 46.5% year-over-year, impacted by product mix, increased amortization, and supply chain related charges.
  • 5Operating expenses increased substantially, with R&D up 42.5% and SG&A up 42.6%, primarily due to increased headcount and integration costs from acquisitions.
  • 6The company ended the quarter with $592.1 million in cash and cash equivalents, a decrease from $1,290.2 million at the start of the fiscal year, reflecting cash used in investing activities for acquisitions.
  • 7Restructuring and related charges amounted to $13.9 million for the quarter, primarily related to integration efforts following the NeoPhotonics merger.

Frequently Asked Questions

Lumentum reported a net loss of $31.7 million, or $0.46 per diluted share, for the quarter ended December 31, 2022. This compares to a net income of $56.7 million, or $0.75 per diluted share, in the same quarter of the prior year.

Net revenue increased by 13.3% to $506.0 million for the quarter ended December 31, 2022, compared to $446.7 million in the prior year period. This growth was primarily driven by the Optical Communications segment, boosted by the acquisition of NeoPhotonics.

The gross margin declined to 32.8% from 46.5% year-over-year. Key drivers for this decrease include a less favorable product mix with higher sales of lower-margin telecom products from NeoPhotonics, increased amortization expenses related to acquired intangible assets from recent acquisitions, and additional charges incurred due to supply chain constraints and the need to procure components from brokers.

Lumentum's cash and cash equivalents decreased from $1,290.2 million as of July 2, 2022, to $592.1 million as of December 31, 2022. This reduction was mainly due to cash used in investing activities, notably the acquisition of NeoPhotonics and IPG Photonics' telecom transmission product lines.

Operating expenses, specifically Research & Development (R&D) and Selling, General & Administrative (SG&A), saw significant increases. R&D expenses rose by 42.5% and SG&A by 42.6% compared to the prior year's quarter. These increases are largely attributable to higher headcount resulting from the NeoPhotonics merger and the acquisition of IPG product lines, as well as integration-related costs.