Lumentum Holdings 10-Q 2021-10-02

Filed 2021-11-04. 7 sections, 334K characters. Original on sec.gov · Markdown · JSON

Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 2, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number 001-36861

Lumentum Holdings Inc.

(Exact name of Registrant as specified in its charter)


Delaware						47-3108385
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

1001 Ridder Park Drive, San Jose, California 95131

(Address of principal executive offices including Zip code)

(408) 546-5483

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, par value of $0.001 per share			LITE			Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer			x			Accelerated filer			o			Non-accelerated filer			o			Smaller reporting company			☐
																		Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of October 29, 2021, the Registrant had 72.3 million shares of common stock outstanding.


TABLE OF CONTENTS
			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Operations for the Three Months Ended October 2, 2021 and September 26, 2020	2
		Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended October 2, 2021 and September 26, 2020	3
		Condensed Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021	4
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended October 2, 2021 and September 26, 2020	5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 2, 2021 and September 26, 2020	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
	Item 4.	Controls and Procedures	45

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	46
	Item 1A.	Risk Factors	46
	Item 2 .	Unregistered Sales of Equity Securities and Use of Proceeds	70
	Item 6.	Exhibits	71

SIGNATURES			72

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(Unaudited)


	Three Months Ended
	October 2, 2021		September 26, 2020
Net revenue	$	448.4	$	452.4
Cost of sales	200.4		231.7
Amortization of acquired developed intangibles	15.8		15.0
Gross profit	232.2		205.7
Operating expenses:
Research and development	54.1		50.4
Selling, general and administrative	63.3		56.3
Restructuring and related charges	(1.1)		—


Total operating expenses	116.3		106.7
Income from operations	115.9		99.0
Interest expense	(16.9)		(16.0)
Other income, net	0.6		0.6
Income before income taxes	99.6		83.6
Provision for income taxes	18.1		16.5
Net income	$	81.5	$	67.1

Net income per share:
Basic	$	1.12	$	0.89
Diluted	$	1.08	$	0.86

Shares used to compute net income per share:
Basic	72.7		75.3
Diluted	75.4		78.2

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)


	Three Months Ended
	October 2, 2021		September 26, 2020
Net income	$	81.5	$	67.1
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on available-for-sale securities	0.3		(1.5)


Other comprehensive income (loss), net of tax	0.3		(1.5)
Comprehensive income, net of tax	$	81.8	$	65.6

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(Unaudited)


	October 2, 2021		July 3, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	611.0	$	774.3
Short-term investments	1,273.6		1,171.7
Accounts receivable, net	263.2		212.8
Inventories	207.0		196.4
Prepayments and other current assets	68.2		81.6
Total current assets	2,423.0		2,436.8
Property, plant and equipment, net	353.2		361.1
Operating lease right-of-use assets, net	75.2		67.4
Goodwill	368.9		368.9
Other intangible assets, net	219.8		241.2
Deferred tax asset	72.9		72.9
Other non-current assets	6.0		3.3
Total assets	$	3,519.0	$	3,551.6
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	101.6	$	116.9
Accrued payroll and related expenses	42.9		54.3
Accrued expenses	40.4		33.1
Convertible notes, current	395.8		390.7
Operating lease liabilities, current	11.7		11.8
Other current liabilities	19.3		57.8
Total current liabilities	611.7		664.6
Convertible notes, non-current	800.0		789.8
Operating lease liabilities, non-current	57.5		47.6
Deferred tax liability	35.5		35.9
Other non-current liabilities	42.9		40.9
Total liabilities	1,547.6		1,578.8
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.001 par value, 990 authorized shares, 72.3 and 73.0 shares issued and outstanding as of October 2, 2021 and July 3, 2021, respectively	0.1		0.1
Additional paid-in capital	1,752.1		1,743.6
Retained earnings	210.7		220.9
Accumulated other comprehensive income	8.5		8.2
Total stockholders’ equity	1,971.4		1,972.8
Total liabilities and stockholders’ equity	$	3,519.0	$	3,551.6

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions)

(Unaudited)

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with the unaudited condensed consolidated financial statements and the corresponding notes included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”). This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to, among other things, our markets and industry, products and strategy, the impact of export regulation changes, the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our business and results of operations, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, product development and R&D efforts, manufacturing plans, litigation, effective tax rates and tax reserves, our corporate and financial reporting structure, our plans for growth and innovation, our expectations regarding US-China relations, market and regulatory conditions, trends and uncertainties in our business and financial results, and are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” “contemplate,” “believe,” “predict,” “potential” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” included under Part II, Item 1A of this Quarterly Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are an industry-leading provider of optical and photonic products defined by revenue and market share, addressing a range of end-market applications including Optical Communications (“OpComms”) and Commercial Lasers (“Lasers”) for manufacturing, inspection and life-science applications.

We have two operating segments, OpComms and Lasers. The two operating segments were primarily determined based on how the Chief Operating Decision Maker (“CODM”) views and evaluates our operations. Operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segments and to assess their performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered in determining the formation of these operating segments.

We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that increase the need for our photonics products and technologies. We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum’s products and technology enable the scaling of these optical networks and data centers to higher capacities. We expect the accelerating shift to digital and virtual approaches to all aspects of work and life that is driving staggering amounts of data in the world’s networks and cloud datacenters will continue into the future. Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new technology challenges that our technology addresses. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser based approaches, including the types of lasers Lumentum supplies. Laser based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles over time significantly adds to our long-term market opportunity. Frictionless and contactless biometric security and access control is of increasing focus globally given the world’s experience with the COVID-19 pandemic. Additionally, we expect 3D enabled machine vision solutions to expand significantly in industrial applications in the coming years.

To maintain and grow our market and technology leadership positions, we are continually investing in new and differentiated products and technologies and customer programs that address both nearer-term and longer-term growth opportunities, both organically and through acquisitions, as well as continually improving and optimizing our operations. Over many years, we have developed close relationships with market leading customers. We seek to use our core optical and photonic technology and our volume manufacturing capability to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide.

Impact of COVID-19 to our Business

The COVID-19 pandemic has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines, closure or restrictions on business and quarantine or other types of “shelter-in-place” orders in many regions of the world. The pandemic and these related responses have caused, and are expected to continue to cause a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains, labor shortages, and significant volatility and potential disruption of financial markets. We have adopted several measures in response to the COVID-19 outbreak including complying with local, state or federal orders that require employees to work from home, instructing employees to work from home in certain jurisdictions, limiting the number of employees onsite which slowed our manufacturing operations in certain countries, enhanced use of personal protective equipment and restricting non-critical business travel by our employees.

In the geographies where we have operations, we have, in general, been deemed an essential business and been permitted to continue manufacturing and conducting new product development operations in a more limited capacity during the pandemic. This stems from our critical role in global supply chains for the world’s communications and health-care systems. Given the continually evolving situation, it is difficult to predict the magnitude and duration of the impact of the COVID-19 pandemic to our markets or precisely when our ability to supply our products will return to full capacity. We are continuing to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, communities, business partners, suppliers and stockholders, or as required by federal, state, or local authorities. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees and prospects, or on our financial results for fiscal year 2022.

While COVID-19 did not have a material adverse effect on our reported results for our first quarter of fiscal 2022, we are actively monitoring the impact of the pandemic on our operations. The extent to which our operations will be impacted by the outbreak will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and additional variants, the speed, efficacy and acceptance of vaccine distributions, variant strains of the virus, actions by government authorities and private businesses to contain the severity of the outbreak and emerging variants in various geographies and the speed and trajectory of any recovery from the impact of the pandemic, among other things.

COVID-19 has also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products. These shortages have impacted our ability to generate revenue from certain products in early fiscal 2022 and, if our ability to procure needed semiconductor components does not improve, this will impact our ability to supply our products to our customers and may reduce our revenue and profit margin. In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue. The impact of semiconductor component shortages may increase in the near term as supplier and customer buffer inventories and safety stocks are exhausted.

Our primary strategic focus for several years has been technology and product leadership combined with close customer relationships in long-term healthy and growing markets. We believe this strategy is even more apt, and our long-term opportunity is not diminished, with COVID-19. We believe there are long-term opportunities, as the world’s experience with COVID-19 could drive an increasingly digital and virtual world touching all aspects of life and work that increasingly emphasizes communications systems, cloud services, augmented and virtual reality, and enhanced security. Additionally, ever advancing electronic devices are needed to consume, produce, and communicate digital and virtual content. All these trends could drive the need for higher volumes of higher performing optical devices that we could supply. As such, we expect to continue to invest strongly in new products, technology and customer programs.

For more information on risks associated with the COVID-19 outbreak and regulatory actions, see the section titled “Risk Factors” in Item 1A of Part II.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”), and we consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission (“SEC”). GAAP, as set forth within the ASC, requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Inventory Valuation
Revenue Recognition
Income Taxes

Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended July 3, 2021 provides a more complete discussion of our critical accounting policies and estimates. There have been no significant changes to these policies during the three months ended October 2, 2021.

Recently Issued Accounting Pronouncements

Refer to “Note 2. Recently Issued Accounting Pronouncements” in the notes to condensed consolidated financial statements.

Results of Operations

The results of operations for the periods presented are not necessarily indicative of results to be expected for future periods. The following table summarizes selected unaudited condensed consolidated statements of operations items as a percentage of net revenue:


	Three Months Ended
	October 2, 2021		September 26, 2020
Segment net revenue:
OpComms	90.5	%	94.7	%
Lasers	9.5		5.3
Net revenue	100.0		100.0
Cost of sales	44.7		51.2
Amortization of acquired developed intangibles	3.5		3.3
Gross profit	51.8		45.5
Operating expenses:
Research and development	12.1		11.1
Selling, general and administrative	14.1		12.4
Restructuring and related charges	(0.2)		—


Total operating expenses (income)	25.9		23.6
Income from operations	25.8		21.9
Interest expense	(3.8)		(3.5)
Other income, net	0.1		0.1
Income before income taxes	22.2		18.5
Provision for income taxes	4.0		3.6
Net income	18.2	%	14.8	%

Financial Data for the three months ended October 2, 2021 and September 26, 2020

The following table summarizes selected unaudited condensed consolidated statements of operations items (in millions, except for percentages):


	Three Months Ended
	October 2, 2021			September 26, 2020			Change		Percentage Change
Segment net revenue:
OpComms	$	406.0		$	428.5		$	(22.5)	(5.3)	%
Lasers	42.4			23.9			18.5		77.4
Net revenue	$	448.4		$	452.4		$	(4.0)	(0.9)	%

Gross profit	$	232.2		$	205.7		$	26.5	12.9	%
Gross margin	51.8		%	45.5		%

Research and development	$	54.1		$	50.4		$	3.7	7.3	%
Percentage of net revenue	12.1		%	11.1		%

Selling, general and administrative	$	63.3		$	56.3		$	7.0	12.4	%
Percentage of net revenue	14.1		%	12.4		%

Restructuring and related charges	$	(1.1)		$	—		$	(1.1)	100.0	%
Percentage of net revenue	(0.2)		%	—		%

Net Revenue

Net revenue decreased by $4.0 million, or 0.9%, during the three months ended October 2, 2021 compared to the three months ended September 26, 2020. This decrease was due to $22.5 million lower OpComms revenue, partially offset by increased sales of Lasers of $18.5 million.

OpComms net revenue decreased by $22.5 million, or 5.3%, during the three months ended October 2, 2021 compared to the three months ended September 26, 2020. Within OpComms, Telecom and Datacom decreased by $45.3 million primarily a result of continued material and component shortages and lower demand due to continued delays in 5G deployments. Industrial and Consumer increased by $22.8 million due primarily to seasonality and timing of customer product releases, as well as an expansion of the available market as a result of an increased dollar content of 3D sensing lasers and higher adoption rates of 3D sensing in consumer electronic devices compared with the prior period.

Lasers net revenue increased by $18.5 million, or 77.4%, during the three months ended October 2, 2021 compared to the three months ended September 26, 2020, primarily due to a return in customer demand for our kilowatt class fiber lasers following the COVID-19 disruption in fiscal 2021.

During the three months ended October 2, 2021, our net revenue from a single customer, which represented 10% or greater of total net revenue was concentrated with one customer, who accounted for 41% of our total net revenue.

During the three months ended September 26, 2020, our net revenue from a single customer, which represented 10% or greater of total net revenue was concentrated with one customer, who accounted for 35% of our total net revenue.

Revenue by Region

We operate in three geographic regions: Americas, Asia-Pacific and EMEA. Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country; however, the location of the end-customers may differ. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries within those regions that represented 10% or more of our total net revenue (in millions, except for percentages):


	Three Months Ended
	October 2, 2021				September 26, 2020
	Amount		% of Total		Amount		% of Total
Americas:
United States	$	28.1	6.3	%	$	20.3	4.5	%
Mexico	33.0		7.4		39.8		8.8
Other Americas	2.0		0.4		2.8		0.6
Total Americas	$	63.1	14.1	%	$	62.9	13.9	%

Asia-Pacific:
Hong Kong	$	142.3	31.7	%	$	144.4	31.9	%
Philippines	9.1		2.0		62.8		13.9
South Korea	105.1		23.4		56.0		12.4


Other Asia-Pacific	103.0		23.0		91.6		20.2
Total Asia-Pacific	$	359.5	80.1	%	$	354.8	78.4	%

EMEA	$	25.8	5.8	%	$	34.7	7.7	%

Total net revenue	$	448.4			$	452.4

For the three months ended October 2, 2021 and September 26, 2020, net revenue from customers outside the United States, based on customer shipping location, represented 93.7% and 95.5% of net revenue, respectively.

Our net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States as presented above. We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities. However, regulatory and enforcement actions by the United States and other governmental agencies, as well as changes in tax and trade policies and tariffs, have impacted and may continue to impact net revenue from customers outside the United States.

Gross Margin and Segment Gross Margin

The following table summarizes segment gross margin for the periods presented (in millions, except for percentages):


	Three Months Ended
	Gross Profit				Gross Margin
	October 2, 2021		September 26, 2020		October 2, 2021		September 26, 2020
OpComms	$	225.9	$	224.8	55.6	%	52.5	%
Lasers	20.8		10.4		49.1	%	43.5	%
Segment total	$	246.7	$	235.2	55.0	%	52.0	%
Unallocated corporate items:
Stock-based compensation	(4.6)		(3.7)
Amortization of acquired intangibles	(15.8)		(15.0)

Inventory and fixed asset write down due to product line exits	—		(0.3)


Other (charges) gains (1)	5.9		(10.5)
Total	$	232.2	$	205.7	51.8	%	45.5	%

(1) “Other (charges) gains” of unallocated corporate items for the three months ended October 2, 2021 primarily relate to $5.9 million gain as a result of selling equipment that was no longer needed after we transferred certain product lines to new production facilities in fiscal 2021. “Other (charges) gains” of unallocated corporate items for the three months ended September 26, 2020 primarily include costs of $2.1 million of transferring certain product lines to new production facilities and excess and obsolete inventory charges of $5.9 million driven by U.S. trade restrictions and the related decline in demand from Huawei.

The unallocated corporate items for the periods presented include the effects of amortization of acquired developed technologies and other intangibles, share-based compensation and certain other charges. We do not allocate these items to the gross margin for each segment because management does not include such information in measuring the performance of the operating segments.

Gross Margin

Gross margin for the three months ended October 2, 2021 increased to 51.8% from 45.5% for the three months ended September 26, 2020. The increase was primarily driven by higher gross margin from both OpComms and Lasers segment for the three months ended October 2, 2021 compared to the three months ended September 26, 2020. The increase in gross margin during the three months ended October 2, 2021 as compared to the three months ended September 26, 2020 was also due to lower excess and obsolescence charges.

We sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive, are price sensitive and/or are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of our gross margin.

Although the magnitude of the impact of COVID-19 on our business operations remains uncertain and difficult to predict, and this remains a highly dynamic situation, we have experienced, and we expect that we may continue to experience disruptions to our and our customers’ businesses that will adversely impact our business, financial condition and results of operations.

Segment Gross Margin

OpComms

OpComms gross margin for the three months ended October 2, 2021 increased to 55.6% from 52.5% for the three months ended September 26, 2020. The increase was primarily due to a more profitable mix of products, including higher sales of higher margin 3D sensing products and benefits from ongoing operational improvements.

Lasers

Lasers gross margin for the three months ended October 2, 2021 increased to 49.1% from 43.5% for the three months ended September 26, 2020. This increase was primarily due to the higher manufacturing levels related to the return in customer demand for our kilowatt class fiber products, following the COVID-19 disruption in fiscal 2021.

Research and Development (“R&D”)

R&D expense increased by $3.7 million, or 7.3%, for the three months ended October 2, 2021 compared to the three months ended September 26, 2020. The increase in R&D expense was primarily driven by increased payroll and compensation expenses due to additional headcount and increased costs in supplies and tooling for R&D projects.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives. Despite the uncertainty related to COVID-19 and the global economic outlook, we plan to continue to invest in R&D and new products that we believe will further differentiate us in the marketplace and expect our investment in R&D to increase in absolute dollars in future quarters.

Selling, General and Administrative (“SG&A”)

SG&A expense increased by $7.0 million, or 12.4%, during the three months ended October 2, 2021 compared to the three months ended September 26, 2020. The increase in SG&A expense was primarily attributable to increased payroll and compensation expenses due to additional headcount and expenses incurred related to optimizing our tax structure.

From time to time, we incur non-recurring expenses, such as mergers and acquisition-related expenses, for example, those related to our pending acquisition of NeoPhotonics, which will likely increase our SG&A expenses in the near term and potentially impact our profitability expectations in any particular quarter.

Restructuring and Related Charges

We have initiated various strategic restructuring events primarily intended to reduce costs, consolidate our operations, rationalize the manufacturing of our products and align our business in response to market conditions.

During the three months ended October 2, 2021, we recorded a net reversal to our restructuring and related charges of $1.1 million in our condensed consolidated statements of operations which was attributable to lower than anticipated employee severance charges primarily as a result of retaining and re-assigning certain employees.

During the three months ended September 26, 2020, we did not record any restructuring and related charges in our condensed consolidated statements of operations.

Interest Expense

For the three months ended October 2, 2021 and September 26, 2020, we recorded interest expense of $16.9 million and $16.0 million, respectively. The increase was driven by the amortization of the debt discount and issuance costs of our 2024 Notes and 2026 Notes.

Other Income (Expense), Net

The components of other income (expense), net are as follows (in millions):


	Three Months Ended
	October 2, 2021		September 26, 2020
Foreign exchange gains (losses), net	$	(0.1)	$	(2.3)
Interest and investment income	0.6		2.4
Other income (expense), net	0.1		0.5
Total other income (expense), net	$	0.6	$	0.6

For the three months ended October 2, 2021, other income (expense), net remained constant as compared to the three months ended September 26, 2020. During the three months ended October 2, 2021, we recorded $2.2 million less in foreign exchange losses as compared to the three months ended September 26, 2020 as a result of more stable exchange rates between the U.S. dollar and certain foreign currencies. The $1.8 million decrease in interest and investment income during the three months ended October 2, 2021 as compared to the three months ended September 26, 2020 is a result of our cash equivalent and investments acquired before COVID-19 maturing and being reinvested at lower yielding investments, while our average maturity and liquidity profile remained consistent.

Provision for Income Taxes


(in millions)	Three Months Ended
	October 2, 2021		September 26, 2020
Provision for income taxes	$	18.1	$	16.5

We recorded a tax provision of $18.1 million and $16.5 million for the three months ended October 2, 2021 and September 26, 2020, respectively. Our tax provision for the three months ended October 2, 2021 includes a discrete tax expense of $1.1 million primarily related to return-to-provision differences. Our estimated effective tax rate for fiscal 2022 differs from the 21% U.S. statutory rate primarily due to the income tax benefit from the earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate and U.S. federal R&D tax credits, partially offset by the income tax expense from the tax effect of Global Intangible Low-Taxed Income (“GILTI”), net of benefit for foreign tax credits, subpart F inclusion and non-deductible stock-based compensation.

Financial Condition

Liquidity and Capital Resources

As of October 2, 2021 and July 3, 2021, our cash and cash equivalents of $611.0 million and $774.3 million, respectively, were largely held in the United States. As of October 2, 2021 and July 3, 2021, our short-term investments of $1,273.6 million and $1,171.7 million, respectively, were all held in the United States. Cash equivalents and short-term investments are primarily comprised of money market funds and US treasury securities. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements.

The total amount of cash outside the United States held by the non-United States entities as of October 2, 2021 was $185.3 million, which was primarily held by entities incorporated in the United Kingdom, the British Virgin Islands, Japan, Hong Kong, China, Canada and Thailand. Although the cash currently held in the United States, as well as the cash generated in the United States from future operations, is expected to cover our normal operating requirements, a substantial amount of additional cash could be required for other purposes, such as capital expenditures to support our business and growth, including costs associated with increasing internal manufacturing capabilities, particularly in our Thailand facility, strategic transactions and partnerships, and future acquisitions.

Our intent is to indefinitely reinvest funds held outside the United States and, except for the funds held in the Cayman Islands, the British Virgin Islands, Japan and Hong Kong, our current plans do not demonstrate a need to repatriate them to fund our domestic operations. However, if in the future, we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through borrowings, equity offerings, or other internal or external sources, or the cost to bring back the money is not significant from a tax perspective, we may determine that cash repatriations are necessary or desirable. Repatriation could result in additional material taxes. These factors may cause us to have an overall tax rate higher than other companies or higher than our tax rates have been in the past. Additionally, if conditions warrant, we may seek to obtain additional financing through debt or equity sources. To the extent we issue additional shares, our existing stockholders may be diluted. However, any such financing may not be available on terms favorable to us, or may not be available at all.

Liquidity and Capital Resources Requirements

We believe that our cash and cash equivalents as of October 2, 2021 and cash flows from our operating activities will be sufficient to meet our liquidity and capital spending requirements for at least the next 12 months. However, if market conditions are favorable, we may evaluate alternatives to opportunistically pursue additional financing.

There are a number of factors that could positively or negatively impact our liquidity position, including:

global economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers, including the impact of COVID-19;
fluctuations in demand for our products as a result of changes in regulations, tariffs or other trade barriers, and trade relations in general;
changes in accounts receivable, inventory or other operating assets and liabilities, which affect our working capital;
increase in capital expenditures to support our business and growth;
the tendency of customers to delay payments or to negotiate favorable payment terms to manage their own liquidity positions;
timing of payments to our suppliers;
volatility in fixed income and credit, which impact the liquidity and valuation of our investment portfolios;
volatility in foreign exchange markets, which impacts our financial results;
investments or acquisitions of complementary businesses, products or technologies, or other strategic transactions or partnerships;
issuance of debt or equity securities, or other financing transactions, including bank debt;
funding of pension liabilities either voluntarily or as required by law or regulation;
the settlement of any conversion or redemption of the 2024 Notes and the 2026 Notes in cash;
common stock repurchases under the 2021 share buyback program;
payment of tax obligations; and
acquisitions, in particular our recently announced acquisition of NeoPhotonics

The following table summarizes certain of our contractual obligations as of October 2, 2021, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in millions):


	Payments due by period
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Contractual Obligations
Asset retirement obligations	$	4.7	$	—	$	1.6	$	1.6	$	1.5

Operating lease liabilities, including imputed interest (1)	77.8		13.7		23.4		16.3		24.4
Pension plan contributions (2)	0.5		0.5		—		—		—
Purchase obligations (3)	260.4		247.7		12.6		0.1		—


Convertible notes - principal (4)	1,500.0		—		450.0		—		1,050.0
Convertible notes - interest (4)	31.6		6.4		12.2		10.5		2.5
Total	$	1,875.0	$	268.3	$	499.8	$	28.5	$	1,078.4

(1) The amounts of operating lease liabilities in the table above do not include any sublease income amounts nor do they include payments for short-term leases or variable lease payments. As of October 2, 2021, we expect to receive sublease income of approximately $2.8 million over the next two years. Refer to “Note 7. Leases” in the notes to condensed consolidated financial statements.

(2) The amount in the preceding table represents planned contributions to our defined benefit plans. Although additional future contributions will be required, the amount and timing of these contributions will be affected by actuarial assumptions, the actual rate of returns on plan assets, the level of market interest rates, legislative changes, and the amount of voluntary contributions to the plan. Any contributions for the following fiscal year and later will depend on the value of the plan assets in the future and thus are uncertain. As such, we have not included any amounts beyond one year in the table above.

(3) Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Refer to “Note 14. Commitments and Contingencies” in the notes to condensed consolidated financial statements.

(4) Includes principal and interest payment in cash on our 0.25% Convertible Notes due in 2024 (the “2024 Notes”) through March 2024, and principal and interest on our 0.50% Convertible Notes due in 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) through December 2026. We have the right to redeem the 2024 Notes and the 2026 Notes in whole or in part at any time on or after March 15, 2024 and on or after December 15, 2026, respectively. The principal balances of our Notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversion. Refer to “Note 9. Debt” in the notes to condensed consolidated financial statements.

We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our liquidity or capital resources that are material to investors.

Indebtedness

As of October 2, 2021, the debt component of our 2024 Notes of $395.8 million (principal balance of $450.0 million maturing in 2024) is presented in current liabilities in our condensed consolidated balance sheet since our stock price exceeded $78.80 for 20 of the last 30 trading days of the quarter ended October 2, 2021 and the 2024 Notes are convertible at the option of the holders. During the three months ended October 2, 2021, we received conversion requests for less than $0.1 million principal amount of the 2024 Notes, which were settled in cash in the first quarter of fiscal 2022.

As of October 2, 2021, the debt component of our 2026 Notes of $800.0 million (principal balance of $1,050.0 million maturing in 2026) is presented in non-current liabilities. If the closing price of our stock exceeds $129.08 for 20 of the last 30 trading days of any future quarter, our 2026 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.

Share Buyback Program

On May 7, 2021, our board of directors approved the two year share buyback program, which authorizes the repurchase of up to $700.0 million of our own shares of common stock, in the open market or in privately negotiated transactions. In the fiscal first quarter of 2022, we repurchased 1.1 million shares of our common stock at an average price of $82.45 per share for an aggregate purchase price of $91.7 million.

Since the share buyback program was approved by the board of directors, we have repurchased in aggregate, a total of 4.2 million shares of our common stock at an average price of $79.05 per share for total proceeds of $332.7 million. All repurchased shares were retired immediately. The price, timing, amount, and method of such repurchases will be determined based on the valuation of market conditions and other factors, at prices determined to be attractive and in the best interests of both Lumentum and our stockholders.

Unrecognized Tax Benefits

As of October 2, 2021, our other non-current liabilities also include $24.7 million of unrecognized tax benefit for uncertain tax positions. We are unable to reliably estimate the timing of future payments related to uncertain tax positions.

Cash Flows

As of October 2, 2021, our balance of cash and cash equivalents decreased by $163.3 million, to $611.0 million from $774.3 million as of July 3, 2021. The decrease in cash and cash equivalents during the three months ended October 2, 2021 was due to lower cash provided by operating activities of $61.9 million, and higher cash used in investing activities of $116.9 million and financing activities of $108.3 million, respectively.

Operating Cash Flow

Cash provided by operating activities was $61.9 million during the three months ended October 2, 2021. Our net income was $81.5 million for the three months ended October 2, 2021. Cash provided by operating activities was also generated from $79.9 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs, and other non-cash charges), offset by $99.5 million of changes in our operating assets and liabilities. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of $50.4 million and inventories of $10.3 million, offset by a decrease in income taxes, net of $18.1 million, a decrease of accrued payroll and related expenses of $11.4 million, and a decrease in accounts payable of $10.5 million.

Cash provided by operating activities was $104.7 million during the three months ended September 26, 2020. Our net income was $67.1 million for the three months ended September 26, 2020. Cash provided by operating activities was generated primarily from $80.3 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our convertible notes, and other non-cash charges), offset by $42.7 million of changes in our operating assets and liabilities. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of $30.3 million and inventories of $22.9 million, offset by an increase in accrued expenses and other current and non-current liabilities of $16.3 million.

Investing Cash Flow

Cash used in investing activities of $116.9 million during the three months ended October 2, 2021 was primarily attributable to purchases of short-term investments, net of sales and maturities of $104.9 million, capital expenditures of $17.9 million, partially offset by proceeds from the sales of property, plant and equipment of $5.9 million.

Cash used in investing activities of $114.0 million during the three months ended September 26, 2020 was primarily attributable to purchases of short-term investments, net of sales and maturities of $88.2 million and capital expenditures of $26.3 million.

Financing Cash Flow

Cash used in financing activities of $108.3 million during the three months ended October 2, 2021 resulted primarily from the repurchase of shares of our common stock of $91.7 million and tax payments related to restricted stock of $16.6 million.

Cash used in financing activities of $19.2 million during the three months ended September 26, 2020 resulted primarily from tax payments related to restricted stock of $19.1 million.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COVID-19 Risk

There are a number of market risk factors related to the COVID-19 pandemic and associated global economic impacts. We continue to actively evaluate these risks, and have taken reserves and financial positions as of October 2, 2021 that we believe are reasonable based on the information currently available. However, the COVID-19 pandemic and related regional shelter-in-place orders are unprecedented events that are continually evolving, and there could be significant changes and/or charges resulting in the future. These market risks include, for example:

Accounts receivable collectability - there could be significant bad debt expenses incurred if our customers experience financial difficulties.
Accounts receivable collections timing - our working capital and cash flows could be impacted if we start to agree to longer payment terms for our customers. Although we have not done so, a broader market move to longer payment terms could delay our collection timing as well.
Inventory (excess and obsolete) - our customers may not be able to purchase inventory that we have built for them, or their demand may slow down to a point where inventory becomes aged.
Short-term investment values - an increase in prevailing interest rates occasioned by US Federal monetary policy “tapering” to address supply-induced inflation could lead to a decrease in the value of our investment portfolio.
Long-term assets such as fixed assets, goodwill, and intangibles - a market slowdown could impair the value of these assets.
Tax valuation - we have significant net operating losses (“NOLs”) in the United States which have associated deferred tax assets on our balance sheet, and these could be deemed unrecoverable in the future.

In addition, all of the below market risks are heightened in light of the current market situation. Foreign exchange markets could be impacted and cause significant fluctuations in our future expenses. The price of our common stock has fluctuated significantly in the past and global equity markets are experiencing significant volatility following the COVID-19 outbreak. Interest rates have already reduced dramatically since the onset of the outbreak, and our future income from these investments likely will be negatively impacted in the future.

Foreign Exchange Risk

We conduct our business and sell our products to customers primarily in Asia, Europe and North America. Due to the impact of changes in foreign currency exchange rates between the U.S. Dollar and foreign currencies, for the three months ended October 2, 2021 and September 26, 2020, we recorded foreign exchange gains (losses), net of $0.1 million loss and a $2.3 million loss, respectively, in the other income (expense), net in the condensed consolidated statements of operations.

Although we sell primarily in the U.S. Dollar, we have foreign currency exchange risks related to our expenses denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc and Euro. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. In the event our foreign currency denominated assets, liabilities, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business.

Equity Price Risk

We are exposed to equity price risk related to the conversion options embedded in our 2026 Notes and 2024 Notes.

We issued the 2026 Notes in December 2019 and the 2024 Notes in March 2017 with an aggregate principal amount of $1,050 million and $450 million, respectively. Both the 2026 Notes and the 2024 Notes are carried at face value less amortized discount on the condensed consolidated balance sheet. The 2026 Notes and the 2024 Notes bear interest at a rate of 0.50% and 0.25% per year, respectively. Since the Notes bear interest at fixed rates, we have no financial statement risk associated with changes in market interest rates. However, the potential value of the shares to be distributed to the holders of our Notes changes when the market price of our stock fluctuates. The 2026 Notes will mature on December 15, 2026, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $99.29 per share. The 2024 Notes will mature on March 15, 2024, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $60.62 per share.

Interest Rate Fluctuation Risk

As of October 2, 2021, we had cash, cash equivalents, and short-term investments of $1,884.6 million. Cash equivalents and short-term investments are primarily comprised of money market funds and US treasury securities. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investments for trading or speculative purposes. As of October 2, 2021, the weighted-average life of our investment portfolio was about eight months.

Our fixed-income portfolio is subject to fluctuations in interest rates, which could affect our results of operations. Based on our investment portfolio balance as of October 2, 2021, a hypothetical increase or decrease in interest rates of 1% (100 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $9.6 million, and a hypothetical increase or decrease of 0.50% (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $4.8 million.

Bank Liquidity Risk

As of October 2, 2021, we had approximately $196.1 million of unrestricted cash (excluding cash equivalents) in operating accounts that are held with domestic and international financial institutions. These cash balances could be lost or become inaccessible if the underlying financial institutions fail or if they are unable to meet the liquidity requirements of their depositors and if they are not supported by the national government of the country in which such financial institution is located. Notwithstanding, we have not incurred any losses to date and have had full access to our operating accounts. We believe any failures of domestic and international financial institutions could impact our ability to fund our operations in the short term.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered by this Quarterly Report, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c) Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, recognizes that our disclosure controls and procedures or our internal control over financial reporting cannot prevent or detect all possible instances of errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. Should we experience an unfavorable final outcome, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable. For a description of our material pending legal proceedings, refer to “Note 14. Commitments and Contingencies” of the notes to condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Item 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our condensed consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risk Factor Summary

Our business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following:

General economic factors

the impact of the COVID-19 pandemic and responsive measures;

Operational factors

changes in technology and intense competition;
our reliance on a limited number of customers;
our ability to sell to a significant customer;
our reliance on a limited number of suppliers;
our ability to timely procure components needed to manufacture our products;
our ability to manufacture our products;
our leverage in negotiations with large customers;
order cancellations, reductions or delays in delivery schedules by our customers or distributors;
any delay in collecting or failure to collect accounts receivable;
defects in our products;
our international operations;
our strategic transactions;
our implementation strategy for our acquisitions;
changes in demand and customer requirements for our products;
our international tax structure;
fluctuations in foreign currency;
our ability to hire and retain key personnel;
the effects of immigration policy on our ability to hire and retain employees;
our ability to protect our product and proprietary rights;
our reliance on licensed third-party technology;
the unpredictability of our results of operations;
actual or perceived security or privacy breaches, as well as defects, errors or vulnerabilities in our technology and that of third-party providers;
factors relating to our intellectual property rights as well as the intellectual property rights of others; and
merger and acquisition related risks

Regulatory and Legal factors

our ability to obtain government authorization to export our products;
the threat of tariffs;
changes in tax laws;
litigation risks, including intellectual property litigation;
changes in laws and the adoption and interpretation of administrative rules and regulations, including U.S. and international customs and export regulations; and
our ability to maintain an effective system of disclosure controls and internal control over financial reporting;

Financing and Transactional Risks

our future capital requirements; and
our ability to service our current and future debt;

Governance Risks and Risks related to Ownership of our Capital Stock

dilution related to our 2024 Notes and 2026 Notes;
provisions of Delaware law and our certificate of incorporation and bylaws that may make a merger, tender offer or proxy contest difficult;
exclusive forum provisions in our bylaws;
the volatility of the trading price of our common stock; and
our intention not to pay dividends for the foreseeable future.

Risks Related to Our Business

Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives has been affected, and may be materially and adversely affected by the ongoing COVID-19 pandemic.

Our business, results of operations and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.

As a result of the COVID-19 outbreak around the world, beginning in early February 2020, Lumentum implemented certain travel restrictions, temporarily closed or limited the number of employees permitted onsite in our offices and manufacturing sites in several heavily impacted locations, and implemented work-from-home rules at most of our facilities. These measures as well as others taken by us and others have caused, and may continue to cause, disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, particularly in the United States, China, Thailand and the United Kingdom. Our ability to continue certain research and development activities has also been limited, which could materially and adversely affect our ability to develop new products and technologies on the timelines we previously anticipated. New and potentially more contagious variants of the COVID-19 virus are developing in several countries, including regions in which we have significant operations. If there is any further decline of the situation in countries where we operate or if the current situation persists for an extended period, our employees and operations could be significantly impacted.

In addition, we have experienced disruption and delays with our manufacturing partners, for example in Malaysia, limitations were imposed at certain times on which businesses could operate and the amount of the workforce permitted to perform manufacturing operations. These and other limitations have, in some instances, been reinstated, and could be reinstated again, if the number of COVID-19 cases in particular regions increases and there is considerable uncertainty regarding the duration of such limitations and potential future restrictions, and complexity in ensuring compliance. Our supply chain has also been affected by measures implemented in response to the pandemic and in certain cases, our suppliers have not had the materials, capacity or capability to supply us with the components necessary for continuing our manufacturing operations or development efforts at our normal levels, such as the impacts we are experiencing from the shortages in semiconductor components. There are also restrictions and delays on logistics, such as air cargo carriers, as well as increased logistics costs due to limited capacity and high demands for freight forwarders. Similarly, our customers have also experienced, and could continue to experience, disruptions in their operations, which may result in reduced, delayed, or canceled orders, and has increased collection risks, which may adversely affect our results of operations. Further, we have seen delayed deployments of 5G networks, which has harmed and may continue to harm our OpComms revenue. These disruptions, delays and restrictions have adversely affected our revenue and results of operations and could be extended or further restrictions could be put in place in other regions, which would materially and adversely impact our revenue, results of operations and financial condition.

The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability

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Item 6. EXHIBITS

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.


		Incorporated by Reference			Filed
Exhibit No.	Exhibit Description	Form	Exhibit	Filing Date	Herewith




10.1	Amended and Restated Employment Agreement for Alan Lowe				X
10.2	Change in Control and Severance Benefits Plan, as amended and restated on June 2, 2021				X
31.1	Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. to Section 302 of the Sarbanes-Oxley Act of 2002.				X
31.2	Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.1†	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
32.2†	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
101	The following financial information from Lumentum Holdings Inc.’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 2021 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three months ended October 2, 2021 and September 26, 2020; (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended October 2, 2021 and September 26, 2020; (iii) Condensed Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended October 2, 2021 and September 26, 2020; (v) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended October 2, 2021 and September 26, 2020; and (vi) Notes to the Consolidated Financial Statements.				X
104	Cover Page Interactive Data File, formatted in Inline XBRL (included in Exhibit 101).				X

† The certifications furnished in Exhibits 32.1 and 32.2 that accompany this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LUMENTUM HOLDINGS INC.

Date:	November 4, 2021	By: /s/ Wajid Ali
		By: Wajid Ali
		Executive Vice President, Chief Financial Officer