10-QPeriod: Q2 FY2024

Lumentum Holdings Inc. Quarterly Report for Q2 Ended Dec 30, 2023

Filed February 8, 2024For Securities:LITE

Summary

Lumentum Holdings Inc. (LITE) reported a significant year-over-year decline in net revenue for the second quarter of fiscal year 2024, down 27.5% to $366.8 million. This revenue decrease was driven by both segments: Cloud & Networking (down 25.1%) and Industrial Tech (down 34.9%). The company attributed these declines primarily to customer inventory management actions, market competition, and a less favorable product mix. Consequently, gross margins contracted sharply to 17.4% from 32.8% in the prior year period, impacted by lower volumes, underutilization of manufacturing capacity, and elevated excess and obsolete inventory charges, particularly due to U.S. trade restrictions. The company reported a substantial net loss of $99.1 million for the quarter, a significant increase from the $31.7 million net loss in the same period last year. This was driven by lower gross profit and increased operating expenses, including research and development, as a percentage of revenue. The acquisition of Cloud Light in November 2023 contributed $59.5 million in revenue but also added to integration costs and R&D expenses. Despite the challenging revenue environment, Lumentum ended the quarter with $469.3 million in cash and cash equivalents, and its cash flow from operations was nearly breakeven ($3.8 million used), indicating a focus on managing cash amidst the downturn.

Financial Highlights

49 data points
Beta

Revenue

$366.80M

17.4% Gross Margin

Net Income

-$99.10M

-27.0% Net Margin

EPS (Diluted)

$-1.47

Total Assets

$4.66B

Cash & Equivalents

$469.30M

Free Cash Flow

-$32.50M

Financial Statements
Beta
Revenue$366.80M
Gross Profit$64.00M
R&D Expenses$78.30M
SG&A Expenses$85.10M
Operating Expenses$169.20M
Operating Income-$105.20M
Interest Expense$9.70M
Net Income-$99.10M
EPS (Basic)$-1.47
EPS (Diluted)$-1.47
Shares Outstanding (Basic)67.20M
Shares Outstanding (Diluted)67.20M

Key Highlights

  • 1Net revenue declined 27.5% year-over-year to $366.8 million, impacted by both Cloud & Networking and Industrial Tech segments.
  • 2Gross margin significantly decreased to 17.4% from 32.8% in the prior year quarter, primarily due to lower volumes, underutilization, and inventory charges.
  • 3The company reported a net loss of $99.1 million, a substantial increase from a $31.7 million loss in the prior year period.
  • 4Operating expenses increased as a percentage of revenue, with R&D and SG&A rising due to the Cloud Light acquisition and integration efforts.
  • 5The Cloud Light acquisition, completed in November 2023, contributed $59.5 million in revenue during the quarter.
  • 6Cash used in operating activities was $3.8 million for the six-month period, showing a near breakeven operational cash flow.
  • 7Cash and cash equivalents stood at $469.3 million at the end of the quarter, with $569.6 million remaining under the share buyback program.

Frequently Asked Questions

The primary drivers for the revenue decline were customers engaging in inventory management actions due to previously high inventory levels and a softening demand environment. Market competition, particularly in the Industrial Tech segment, and a less favorable product mix also contributed to the decrease.

The Cloud Light acquisition, completed in November 2023, contributed $59.5 million in net revenue during the quarter. However, it also led to increased integration-related costs and expenses, including R&D and SG&A, impacting the company's profitability.

The company expects the trend of customers managing down their inventory levels to continue impacting revenue and margins. This, combined with potential supply chain improvements easing, has led to reduced customer orders. Lumentum anticipates this trend to persist through calendar year 2024, potentially leading to underutilization of manufacturing capacity and further inventory charges.

Lumentum has $319.7 million of 2024 Notes classified as current liabilities, with a maturity date of March 15, 2024. The company believes its cash and cash equivalents, along with cash flows from operations, will be sufficient to meet its liquidity requirements, including the repayment of these notes. They also have access to a share buyback program with $569.6 million remaining authorization.