Lumentum Holdings 10-Q 2024-09-28

Filed 2024-11-08. 8 sections, 414K characters. Original on sec.gov · Markdown · JSON

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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 September 28, 2024

☐ 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 31, 2024, the Registrant had 68.7 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 S eptember 28 , 2024 and September 30 , 20 23	2
		Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 28, 2024 and September 30, 2023	3
		Condensed Consolidated Balance Sheets as of September 28 , 2024 and Ju ne 29 , 202 4	4
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 28, 2024 and September 30, 2023	5
		Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 28, 2024 and September 30, 2023	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	54

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	55
	Item 1A.	Risk Factors	56
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
	Item 5.	Other Information	86
	Item 6.	Exhibits	87

SIGNATURES			88

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
	September 28, 2024		September 30, 2023
Net revenue	$	336.9	$	317.6
Cost of sales	236.5		222.9
Amortization of acquired developed intangibles	22.5		18.0
Gross profit	77.9		76.7
Operating expenses:
Research and development	74.3		73.5
Selling, general and administrative	76.3		73.0
Restructuring and related charges	9.7		11.0


Total operating expenses	160.3		157.5
Loss from operations	(82.4)		(80.8)
Interest expense	(5.5)		(9.7)
Other income, net	8.7		21.2
Loss before income taxes	(79.2)		(69.3)
Income tax provision (benefit)	3.2		(1.4)
Net loss	$	(82.4)	$	(67.9)

Net loss per share:
Basic	$	(1.21)	$	(1.02)
Diluted	$	(1.21)	$	(1.02)

Shares used to compute net loss per share:
Basic	68.3		66.7
Diluted	68.3		66.7

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

(Unaudited)


	Three Months Ended
	September 28, 2024		September 30, 2023
Net loss	$	(82.4)	$	(67.9)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—		(0.2)
Net change in unrealized gain on available-for-sale securities	2.3		1.3


Other comprehensive income, net of tax	2.3		1.1
Comprehensive loss, net of tax	$	(80.1)	$	(66.8)

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)


	September 28, 2024		June 29, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	489.2	$	436.7
Short-term investments	426.9		450.3
Accounts receivable, net	198.5		194.7
Inventories	403.3		398.4
Prepayments and other current assets	118.3		110.0
Total current assets	1,636.2		1,590.1
Property, plant and equipment, net	638.4		572.5
Operating lease right-of-use assets, net	35.7		72.8
Goodwill	1,060.9		1,055.8
Other intangible assets, net	573.9		617.5
Deferred tax asset	12.5		10.7
Other non-current assets	12.0		12.5
Total assets	$	3,969.6	$	3,931.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	163.1	$	126.3
Accrued payroll and related expenses	42.0		36.1
Accrued expenses	39.7		52.4
Current portion of long-term debt	10.8		—

Operating lease liabilities, current	11.9		13.4
Other current liabilities	37.6		41.1
Total current liabilities	305.1		269.3
Long-term debt	2,569.2		2,503.2

Operating lease liabilities, non-current	29.8		43.0
Deferred tax liability	53.4		55.7
Other non-current liabilities	116.2		103.4
Total liabilities	3,073.7		2,974.6
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.001 par value, 990 authorized shares, 68.6 and 67.9 shares issued and outstanding as of September 28, 2024 and June 29, 2024, respectively	0.1		0.1
Additional paid-in capital	1,853.7		1,835.0
Accumulated deficit	(969.5)		(887.1)
Accumulated other comprehensive income	11.6		9.3
Total stockholders’ equity	895.9		957.3
Total liabilities and stockholders’ equity	$	3,969.6	$	3,931.9

See accompanying Notes to Condensed Consolidated Financial Statements.

LUMENTUM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(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 expected benefits of our acquisitions, including Cloud Light and the ongoing integration of Cloud Light and NeoPhotonics, macroeconomic conditions, including supply chain conditions and inventory management by our customers, the effects of the COVID-19 pandemic, instability and uncertainty in the banking and financial services markets, and tightening credit markets on our business and results of operations, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, product development and research and development 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 U.S.-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, essential to range of cloud, artificial intelligence and machine learning (“AI/ML”), telecommunications, consumer, and industrial end-market applications.

We have two operating segments, Cloud & Networking and Industrial Tech. 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 will 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. The advent of AI/ML has caused a dramatic surge in the growing demands on data networking in cloud data centers and accelerated the usage of optical components and modules. We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life 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 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. 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.

Cloud & Networking

Our Cloud & Networking products include comprehensive portfolio of optical and photonic chips, components, modules, and subsystems supplied to cloud data center operator, AI/ML infrastructure provider, and network equipment manufacturer customers who are building cloud data center and network infrastructures. Our products enable high-capacity optical links in cloud, AI/ML and DCI applications, and communications service provider networks, including products for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) network infrastructure. Our Cloud & Networking products also support network equipment manufacturers building enterprise network infrastructure, including SANs, LANs, and WANs. Demand for our Cloud & Networking products is driven by the continual growth in network capacity required for cloud computing and services, including for AI/ML, streaming video and video conferencing, wireless and mobile services, and IoT.

Industrial Tech

Our Industrial Tech products include short pulse solid-state lasers, kilowatt-class fiber lasers, diode lasers, and gas lasers, which address applications in numerous end-markets. In the consumer end-market, our laser light sources are integrated into our customers’ 3D sensing cameras, which are used in mobile devices, payment kiosks, and other consumer electronics devices to enable applications including biometric identification, computational photography and virtual and augmented reality. In the automotive end-market, our lasers are used in our customers’ LiDAR and other optical sensor devices, which are increasingly being used in advanced driver assistance systems (“ADAS”) and in-cabin driver and occupant monitoring systems. In the industrial manufacturing end-market, our lasers are incorporated into our customers’ manufacturing machine tools used for the precision processing of materials in a range of industries including semiconductor device and microelectronics fabrication, electric vehicle and battery production, metal cutting and welding, and advanced manufacturing. Our products can also be used in the industrial end-market in imaging and sensing systems for process feedback and control, quality assurance, and waste

reduction. Adoption of our products in the industrial end-market is driven by the needs of customers to advance semiconductor and microelectronics industry roadmaps, and by Industry 4.0/5.0 trends, including increasing manufacturing precision and flexibility and reducing waste and environmental impact. Demand for our products in the industrial end-market is driven by end-customer investments in manufacturing capacity. Our lasers also address certain semiconductor inspection and life-science applications.

Acquisition of Cloud Light

On November 7, 2023 (the “Cloud Light Closing Date”), we completed the acquisition of Cloud Light. Cloud Light designs, markets, and manufactures advanced optical modules for data center interconnect applications. The acquisition enables us to be well-positioned to serve the growing needs of cloud & networking customers, particularly those focused on optimizing their data center infrastructure for the demands of AI/ML. On the Cloud Light Closing Date, we paid $705.0 million of total cash consideration to Cloud Light. Additionally, each of Cloud Light’s outstanding options was exchanged for a combination of cash and options to acquire Lumentum common stock having equivalent value (the “replacement options”). These replacement options have a total fair value of $38.9 million as of the Cloud Light Closing Date, of which $23.5 million attributed to pre-acquisition service is recorded as part of purchase price consideration and the remaining $15.4 million is recorded as post-acquisition stock-based compensation expense over the vesting period of three years from the Cloud Light Closing Date. We incurred a total of $9.6 million of acquisition-related costs, representing professional and other direct acquisition costs, which was recorded as general and administrative expense in the consolidated statement of operations for the year ended June 29, 2024. Refer to “Note 4. Business Combinations” in the notes to condensed consolidated financial statements.

We evaluate strategic opportunities regularly and, where appropriate, may acquire additional businesses, products, or technologies that are complementary to, or broaden the markets for our products. We believe we have strengthened our business model by expanding our addressable markets, customer base and expertise, diversifying our product portfolio and fortifying our core businesses from acquisitions as well as through organic initiatives.

Supply Chain and Inventory Management

Our business and our customers’ businesses were negatively impacted by worldwide logistics and supply chain issues during the COVID-19 pandemic, including constraints on available cargo capabilities and limited availability of once broadly available supplies of both raw materials and finished components. COVID-19 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. Although the supply chain constraints started to improve in the latter half of fiscal 2023, we felt its ongoing effects in fiscal 2024, as described below, and these constraints or effects may impact our ability to supply our products to our customers and may reduce our revenue and profit margin if they continue to reoccur. In addition, if our customers are unable to procure needed semiconductor components, their demand for our products will decrease. Due to the global supply chain constraints, we had to incur incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers.

In addition, in response to component shortages, certain of our customers accumulated inventory that they began managing down in fiscal year 2024 as supply conditions improved. Accordingly, customer orders have declined in recent periods and certain customers have not taken the shipments we had originally projected due to their inventory management. As customers have been managing their inventory down, our revenue has declined and our margins have been adversely impacted as we have not able to fully recover costs, such as underutilized manufacturing capacity. However, we have recently seen signs of inventory normalization at network equipment manufacturers during the first fiscal quarter of 2025.

For more information on risks associated with supply chain constraints and customer inventory management, see the section titled “Risk Factors” in Item 1A of Part II of this report.

Critical Accounting Policies and Estimates

Our condensed and 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”). We also 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
Business Combinations
Goodwill and Intangible Assets - Impairment Assessment

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 June 29, 2024 provides a complete discussion of our critical accounting policies and estimates. There have been no changes to these policies during the three months ended September 28, 2024.

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
	September 28, 2024		September 30, 2023
Segment net revenue:
Cloud & Networking	83.8	%	72.3	%
Industrial Tech	16.2		27.7	%
Net revenue	100.0		100.0
Cost of sales	70.2		70.2
Amortization of acquired developed intangibles	6.7		5.7
Gross profit	23.1		24.1
Operating expenses:
Research and development	22.1		23.1
Selling, general and administrative	22.6		23.0
Restructuring and related charges	2.9		3.5


Total operating expenses	47.6		49.6
Loss from operations	(24.5)		(25.4)
Interest expense	(1.6)		(3.0)
Other income, net	2.6		6.7
Loss before income taxes	(23.5)		(21.8)
Income tax provision (benefit)	0.9		(0.4)
Net loss	(24.5)	%	(21.4)	%

Financial data for the three months ended September 28, 2024

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


	Three Months Ended
	September 28, 2024			September 30, 2023			Change		Percentage Change
Segment net revenue:
Cloud & Networking	$	282.3		229.7			$	52.6	22.9	%
Industrial Tech	54.6			87.9			(33.3)		(37.9)	%
Net revenue	$	336.9		$	317.6		$	19.3	6.1	%

Gross profit	$	77.9		$	76.7		$	1.2	1.6	%
Gross margin	23.1		%	24.1		%

Research and development	$	74.3		$	73.5		$	0.8	1.1	%
Percentage of net revenue	22.1		%	23.1		%

Selling, general and administrative	$	76.3		$	73.0		$	3.3	4.5	%
Percentage of net revenue	22.6		%	23.0		%

Restructuring and related charges	$	9.7		$	11.0		$	(1.3)	(11.8)	%
Percentage of net revenue	2.9		%	3.5		%

Net Revenue

Net revenue increased by $19.3 million, or 6.1%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023, driven by a $52.6 million increase in Cloud & Networking revenue offset by a $33.3 million decrease in Industrial Tech revenue. The increase in Cloud & Networking net revenue is primarily due to higher revenue from cloud and AI/ML customers, which increased by $71.0 million, inclusive of revenue from Cloud Light, which we acquired in the second quarter of fiscal 2024. This was partially offset by a reduction in shipments to a specific customer in China driven by U.S. trade restrictions. The decrease in Industrial Tech net revenue is primarily due to higher market competition in the consumer end-market, a reduction in demand due to declines in macro-economic factors globally year over year, and customers continuing to reduce high levels of inventory they purchased for security of supply during the COVID-19 pandemic.

During the three months ended September 28, 2024, two customers individually accounted for 15% and 12% of our total revenue, respectively. During the three months ended September 30, 2023, three customers individually accounted for 15%, 13% and 10% of our total net revenue, respectively. We had no other customers that represented 10% or greater of our total net revenue.

Revenue by Region

We operate in three geographic regions: Americas, Asia-Pacific, and EMEA (Europe, Middle East, and Africa). 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, which may differ from the location of their end customers.

The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that generally represented 10% or more of our total net revenue (in millions, except percentage data):


	Three Months Ended
	September 28, 2024				September 30, 2023
	Amount		% of Total		Amount		% of Total
Net revenue:
Americas:
United States	$	65.4	19.4	%	$	41.1	12.9	%
Mexico	33.9		10.0		23.7		7.5
Other Americas	2.9		0.9		1.2		0.4
Total Americas	$	102.2	30.3	%	$	66.0	20.8	%

Asia-Pacific:
Hong Kong	$	88.7	26.4	%	$	64.9	20.4	%

South Korea	8.8		2.6		25.0		7.9
Japan	16.9		5.0		25.4		8.0
Thailand	52.5		15.6		64.2		20.2
Other Asia-Pacific	37.2		11.0		39.5		12.4
Total Asia-Pacific	$	204.1	60.6	%	$	219.0	68.9	%

EMEA	$	30.6	9.1	%	$	32.6	10.3	%

Total net revenue	$	336.9	100.0	%	$	317.6	100.0	%

For the three months ended September 28, 2024 and September 30, 2023, net revenue from customers outside the United States, based on customer shipping location, represented 80.6% and 87.1% 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

Gross margin for the three months ended September 28, 2024 decreased to 23.1% from 24.1% for the three months ended September 30, 2023. The 1% decrease was primarily due to less profitable mix of products, which impacted gross margin by 2%, mainly due to higher sales of laser chips and modules driven by AI and the cloud, which together have a lower than average margin compared to our other products. This was mostly offset by the impact of higher revenue. Gross margin was negatively impacted by approximately 4% due to lower factory utilization as a result of lower production levels, as customers continue to work to reduce their elevated inventory levels, as well as $4.4 million of higher amortization of intangibles due to the Cloud Light acquisition. This was partially offset by a $8.4 million decrease in excess and obsolete inventory charges, and approximately $5.5 million of lower post-acquisition charges such as integration and manufacturing consolidation.

The markets in which we sell products are 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 variants in buying patterns. We expect these factors to result in variability of our gross margin and our gross margin maybe subject to increasing downward pressure due to these factors.

Segment Profit (Loss)

The following table summarizes segment profit (loss) for each of our operating segments for the periods presented (in millions):


	Three Months Ended
	September 28, 2024		September 30, 2023





Cloud & Networking	$	36.5	23.9
Industrial Tech	2.2		15.3

Cloud & Networking segment profit increased by $12.6 million, or 52.7%, during the three months ended September 28, 2024 as compared to the three months ended September 30, 2023 primarily due to higher sales of laser chips and modules driven by AI and cloud demand, partially offset by lower sales from telecom products. Industrial Tech segment profit decreased by $13.1 million, or 85.6%, during the three months ended September 28, 2024 as compared to the three months ended September 30, 2023 primarily due to lower revenue, including lower sales of imaging and sensing products.

Research and Development (“R&D”)

R&D expense increased by $0.8 million, or 1.1% for the three months ended September 28, 2024 compared to the three months ended September 30, 2023, primarily due to $2.9 million of higher spending in software and computer supplies used for R&D purposes and a charge of $1.9 million related to a write-off of in-process research and development intangible assets acquired from NeoPhotonics for projects that we subsequently decided not to pursue. These increases were partially offset by lower payroll related expenses as a result of restructuring actions.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to continue to invest in R&D and new products that we believe will further differentiate us in the marketplace.

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

SG&A expense increased by $3.3 million, or 4.5%, during the three months ended September 28, 2024 compared to the three months ended September 30, 2023. The increase was driven by $8.1 million of incremental amortization of intangible assets associated with the Cloud Light acquisition, substantially offset by a reduction in payroll related expenses as a result of recent restructuring actions and $3.2 million of lower outside consultant costs as a result of business and system integrations efforts being completed in the prior periods.

From time-to-time, we incur expenses that are not part of our ordinary operations, such as mergers and acquisition-related and litigation expenses, which generally increase our SG&A expenses and potentially impact our profitability expectations in

any particular period.

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 and as a result of recent acquisitions.

During the three months ended September 28, 2024, we recorded restructuring and related charges of $9.7 million, which includes $6.0 million of asset write-offs primarily due to integration efforts to consolidate our sites, $3.0 million of charges related to the discontinuation of our in-house development of coherent DSPs and RFICs and the remaining restructuring charges due to company-wide cost reduction initiatives.

During the three months ended September 30, 2023, we recorded restructuring and related charges of $11.0 million in our condensed consolidated statements of operations, which were primarily due to company-wide cost reduction initiatives, as well as our integration efforts as a result of the merger with NeoPhotonics.

Interest Expense

For the three months ended September 28, 2024 and September 30, 2023, we recorded interest expense of $5.5 million and $9.7 million, respectively. Interest expense is primarily driven by the amortization of the debt discount and issuance costs of our convertible notes. The decrease in interest expense for the three months ended September 28, 2024 is mainly due to the repayment of our 2024 Notes (as defined below) upon maturity in March 2024.

Other Income, Net

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


	Three Months Ended
	September 28, 2024		September 30, 2023
Foreign exchange and other gains (losses), net	$	(0.7)	$	(0.5)
Interest and investment income, net	9.4		21.7

Total other income, net	$	8.7	$	21.2

Other income, net for the three months ended September 28, 2024 decreased by $12.5 million compared to the three months ended September 30, 2023 primarily due to the lower short term investment balances, as we used cash to purchase Cloud Light as well as the repayment of the 2024 Notes in March 2024.

Provision (Benefit) for Income Taxes

The following table summarizes provision (benefit) for income taxes for the periods presented (in millions):


	Three Months Ended
	September 28, 2024		September 30, 2023
Income tax provision (benefit)	$	3.2	$	(1.4)

We recorded a tax provision of $3.2 million and a tax benefit of $1.4 million for the three months ended September 28, 2024 and September 30, 2023, respectively. Our tax provision for the three months ended September 28, 2024 is primarily related to the tax expense associated with interest on uncertain tax positions, partially offset by the tax benefit from currency re-measurements. Our tax provision for the three months ended September 30, 2023 includes a discrete tax benefit of $1.8 million primarily related to a tax benefit from changes in prior year uncertain tax positions, partially offset by the tax expenses related to a shortfall in connection with stock-based compensation vested during the quarter and foreign return to provision differences.

Our estimated effective tax rate for the three months ended September 28, 2024 differs from the 21% U.S. statutory rate primarily due to the income tax expense from foreign rate differential, non-deductible stock-based compensation, uncertain tax positions, and current year valuation allowance changes, partially offset by the income tax benefit from various income tax credits.

We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. As of September 28, 2024, we maintain a full valuation allowance on U.S. federal and state and certain foreign deferred tax assets. We will continue to assess the need for a valuation allowance against our remaining deferred tax assets and may increase or decrease our valuation allowance materially in the future.

Our provision for incomes taxes may be impacted by changes in the geographic mix of earnings, acquisitions, changes in the realizability of deferred tax assets, changes in our uncertain tax positions, the results of income tax audits, settlements with tax authorities, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, and changes in tax laws and regulations. It is also possible that significant negative or positive evidence may become available that causes us to change our conclusion regarding whether a valuation allowance is needed on certain of our deferred tax assets, which would affect our income tax provision in the period of such change.

We also evaluate changes to regulations and requirements in the international jurisdictions where we conduct our business. For additional information, refer to Part II Item 1A “Risk Factors”.

Financial Condition

Liquidity and Capital Resources

As of September 28, 2024 and June 29, 2024, our cash and cash equivalents were $489.2 million and $436.7 million, respectively. As of September 28, 2024 and June 29, 2024, our short-term investments of $426.9 million and $450.3 million, respectively, were all held in the United States. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit and commercial paper. Our investment policy and strategy provide for diversification of investments and is focused on the preservation of capital and supporting our liquidity requirements.

The total amount of cash held by the non-United States entities as of September 28, 2024 and June 29, 2024 was $394.8 million and $306.9 million, respectively, which was primarily held by entities incorporated in the United Kingdom, the British Virgin Islands, Japan, Hong Kong, China, Switzerland, the Cayman Islands, Thailand and Brazil. Although cash currently held in the United States, as well as 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, strategic transactions and partnerships, and future acquisitions.

Our intent is to indefinitely reinvest funds held outside the United States. Except for the funds held in the Cayman Islands, the British Virgin Islands, and Hong Kong, as well as certain subsidiaries in China and Japan, 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 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, it may create dilution to our existing stockholders. 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 September 28, 2024 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.

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 uncertainty in the banking and financial services industries;
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, including increases in manufacturing capacity;
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;
cost and availability of credit, which may impact available financing for us, our customers or others with whom we do business;
volatility in foreign exchange markets, which impacts our financial results;
possible 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;
potential funding of pension liabilities either voluntarily or as required by law or regulation;
acquisitions or strategic transactions, in particular our recently completed acquisition of Cloud Light;
the settlement of any conversion or redemption of our convertible notes in cash; and
common stock repurchases under the share buyback program.

Contractual Obligations

The following table summarizes our contractual obligations as of September 28, 2024, and the effect such obligations are expected to have on our liquidity and cash flow (in millions):


	Payments Due
	Total		Less Than 1 Year		More Than 1 Year
Contractual Obligations
Asset retirement obligations	$	7.0	$	—	$	7.0

Operating lease liabilities, including imputed interest (1)	45.1		13.5		31.6
Pension plan contributions (2)	1.6		1.6		—
Purchase obligations (3)	589.2		542.9		46.3
Term loans - principal (5)	76.1		10.8		65.3
Term loans - interest (5)	2.2		0.6		1.6

Convertible notes - principal (4)	2,514.7		—		2,514.7
Convertible notes - interest (4)	80.1		18.7		61.4
Total	$	3,316.0	$	588.1	$	2,727.9

(1) The amounts of operating lease liabilities do not include any sublease income amounts nor do they include payments for short-term leases or variable lease payments. As of September 28, 2024, we expect to receive sublease income of approximately $2.9 million over the sublease periods.

(2) The amount of pension plan contributions 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) The amounts related to convertible notes include principal and interest on our 0.50% Convertible Senior Notes due 2026 (the “2026 Notes”), principal and interest on our 0.50% Convertible Senior Notes due 2028 (the “2028 Notes”), and principal and interest on our 1.50% Convertible Senior Notes due 2029 (the “2029 Notes”). The 2026 Notes have a maturity date of December 15, 2026, the 2028 Notes have a maturity date of June 15, 2028, and the 2029 Notes have a maturity date of December 15, 2029. The principal balances of our convertible notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversions. On March 15, 2024, the maturity date of the 2024 Notes, we repaid the outstanding $323.1 million principal amount of the 2024 Notes in full. Refer to “Note 9. Debt” in the notes to condensed consolidated financial statements.

(5) The amounts related to term loans include principal and interest on our Sumitomo Mitsui Banking Corporation (“SMBC”) term loan with a fixed annual interest rate of 0.88% and Mizuho Bank, Ltd. (“Mizuho”) term loan with a fixed annual interest rate of 0.90%. The SMBC term loan requires monthly principal payments with the remaining principal due on the loan maturity date of July 31, 2029 while the Mizuho term loan requires quarterly principal payments with the final payment date on September 20, 2029.

We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, which 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 September 28, 2024, the net carrying amount of our 2029 Notes of $599.6 million (principal balance of $603.7 million maturing in 2029) is presented in non-current liabilities. If the closing price of our stock exceeds $90.40 (or 130% of the conversion price of $69.54) for 20 of the last 30 trading days of any future quarter, the 2029 Notes would become convertible at the option of the holders during the subsequent fiscal quarter and the debt would be reclassified to current liabilities in our consolidated balance sheets.

As of September 28, 2024, the net carrying amount of our 2028 Notes of $856.9 million (which have an aggregate principal amount of $861.0 million outstanding that matures in 2028) is presented in non-current liabilities in our condensed consolidated balance sheets. If the closing price of our stock exceeds $170.34 (or 130% of the conversion price of $131.03) for 20 of the last 30 trading days of any future fiscal quarter, our 2028 Notes would become convertible at the option of the holders during the subsequent fiscal quarter and the debt would be reclassified to current liabilities in our condensed consolidated balance sheet.

As of September 28, 2024, the net carrying amount of our 2026 Notes of $1047.4 million (which have an aggregate principal amount of $1,050.0 million outstanding that matures in 2026) is presented in non-current liabilities in our condensed consolidated balance sheets. If the closing price of our stock exceeds $129.08 (or 130% of the conversion price of $99.29) for 20 of the last 30 trading days of any future fiscal quarter, our 2026 Notes would become convertible at the option of the holders during the subsequent fiscal quarter and the debt would be reclassified to current liabilities in our condensed consolidated balance sheet.

On March 15, 2024, our 0.25% Convertible Senior Notes due 2024 (the “2024 Notes”) reached maturity. We fully repaid the remaining principal amount of $323.1 million at the maturity date.

As of September 28, 2024, the Company has $44.5 million in principal amount outstanding on our SMBC term loan, of which the short-term portion of $4.5 million is recorded as current liabilities while the long-term portion of $40.0 million is recorded as long-term debt in the Company’s condensed consolidated balance sheets.

As of September 28, 2024, the Company has $31.6 million in principal amount outstanding on our Mizuho term loan, of which the short-term portion of $6.3 million is recorded as current liabilities while the long-term portion of $25.3 million is recorded as long-term debt in the Company’s condensed consolidated balance sheets.

Share Buyback Program

We have a share buyback program that authorizes us to utilize up to an aggregate amount of $1.2 billion to purchase our own shares of common stock through May 2025. During the three months ended September 28, 2024 and September 30, 2023, we did not repurchase any shares of our common stock. Since the board of directors initially approved the share buyback program, we have repurchased 7.7 million shares in aggregate at an average price of $81.66 per share for a total purchase price of $630.4 million. We recorded the $630.4 million aggregate purchase price as a reduction of retained earnings within our condensed consolidated balance sheet. All repurchased shares were retired immediately. As of September 28, 2024, we have

$569.6 million remaining under the share buyback program.

The price, timing, amount, and method of future 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 the Company and our stockholders. The stock repurchase program may be suspended or terminated at any time.

Unrecognized Tax Benefits

As of September 28, 2024 and June 29, 2024, our other non-current liabilities include unrecognized tax benefit for uncertain tax positions of $94.4 million and $83.0 million, respectively. We are unable to reliably estimate the timing of future payments related to uncertain tax positions.

Cash Flows

Our balance of cash and cash equivalents increased by $52.5 million from $436.7 million as of June 29, 2024 to $489.2 million as of September 28, 2024. The increase in cash and cash equivalents during the three months ended September 28, 2024 was due to cash from financing activities of $60.0 million and cash from operating activities of $39.6 million, offset by cash used in investing activities of $47.1 million.

Operating Cash Flow

Cash from operating activities was $39.6 million during the three months ended September 28, 2024, which reflects a net loss of $82.4 million, offset by non-cash items of $112.1 million and changes in operating assets and liabilities of $9.9 million. Changes in operating assets and liabilities were primarily driven by an increase in accounts payable of $32.6 million primarily due to higher inventory purchases and capital expenditures and an increase in income tax liabilities of $7.2 million primarily due to income tax provision for the three months ended September 28, 2024, offset by an increase of $16.6 million in prepayments and other current and non-current assets related mainly to value-added-tax receivables driven by higher recent capital expenditures and inventory purchases, and a decrease of $9.7 million in accrued expenses and other current and non-current liabilities primarily due to payment of the net settlement amount of the Oclaro merger litigation.

Cash used in operating activities was $2.3 million during the three months ended September 30, 2023, which reflects a net loss of $67.9 million and non-cash items of $89.9 million for the three months ended September 30, 2023, offset by $24.3 million changes in our operating assets and liabilities. Changes in our operating assets and liabilities were mainly driven by an increase in inventories of $16.8 million primarily due to purchases made to support our manufacturing transition and lower shipments than expected, a decrease in accounts payable of $28.0 million primarily due to lower purchases from our contract manufactures and linearity of payments, and a decrease in income taxes of $19.9 million due to annual income tax payment in Japan, offset by a decrease in accounts receivable of $26.1 million due to lower revenue.

Investing Cash Flow

Cash used in investing activities of $47.1 million during the three months ended September 28, 2024 was attributable to capital expenditures of $74.1 million, offset by net proceeds from sales or maturities of short-term investments of $26.8 million and proceeds from sales of property and equipment of $0.2 million.

Cash provided by investing activities of $17.8 million during the three months ended September 30, 2023 was attributable to the net proceeds from sales or maturities of short-term investments of $78.6 million partially offset by capital expenditures of $57.8 million and a $3.0 million payment for an intangible asset acquisition.

Financing Cash Flow

Cash from financing activities of $60.0 million during the three months ended September 28, 2024 was attributable to $76.5 million of proceeds from SMBC and Mizuho term loans and $0.9 million of proceeds from the exercise of stock options, offset by tax payments related to net share settlement of restricted stock of $16.0 million, payment for an intangible asset acquisition holdback of $1.0 million and $0.4 million of principal payments on term loans.

Cash used in financing activities of $12.9 million during the three months ended September 30, 2023 was attributable to tax payments related to net share settlement of restricted stock of $12.9 million.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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, we recorded a net foreign exchange loss of $0.7 million and loss of $0.5 million, respectively, in the condensed consolidated statements of operations for the three months ended September 28, 2024 and September 30, 2023.

Although we sell primarily in the U.S. Dollar, we have foreign currency exchange risks related to our expenses and working capital denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc, Euro and Brazilian Real. In addition, in the first quarter of fiscal year 2025, we entered into term loan agreements denominated in Japanese Yen. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. In the event our foreign currency denominated monetary assets and liabilities, sales or expenses increase, our operating results may be affected to a greater extent by fluctuations in the exchange rates of the currencies in which we do business as compared with the U.S. dollar.

Equity Price Risk

We are exposed to equity price risk related to the conversion options embedded in our convertible notes.

We issued the 2029 Notes in June 2023, the 2028 Notes in March 2022, the 2026 Notes in December 2019 and the 2024 Notes in March 2017. The 2024 Notes matured in March 2024. As of September 28, 2024, the aggregate principal amount of the 2029 Notes, 2028 Notes and 2026 Notes is $603.7 million, $861.0 million, $1,050.0 million, respectively, and bear interest at a rate of 1.50%, 0.50% and 0.50% per year, respectively. Since the convertible 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 convertible notes changes when the market price of our stock fluctuates. The 2029 Notes, 2028 Notes and 2026 Notes will mature on December 15, 2029, June 15, 2028 and December 15, 2026, respectively, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $69.54 per share for the 2029 Notes, $131.03 per share for the 2028 Notes and $99.29 per share for the 2026 Notes.

Interest Rate Fluctuation Risk

As of September 28, 2024, we had cash, cash equivalents, and short-term investments of $916.1 million. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit and commercial paper. 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 September 28, 2024, the weighted-average life of our investment portfolio was approximately five 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 September 28, 2024, 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 $2.2 million, and a hypothetical increase or decrease in interest rates of 0.50% (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $1.1 million.

Bank Liquidity Risk

As of September 28, 2024, we had approximately $284.9 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. The value of our investment portfolio could also be impacted if we hold debt instruments which were issued by any institutions that fail or become illiquid. Our ability to obtain raw materials for our supply chain and collections of cash from sales may be unduly impacted if any of our vendors or customers are affected by illiquidity events.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 28, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15 and 15d-15 under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 28, 2024, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the quarter ended September 28, 2024 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. As such, we regularly evaluate developments in legal matters that could affect the amount of the previously accrued liability and record adjustments as appropriate. 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” in the 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 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, which could cause our actual results to be harmed, including risks regarding the following:

Risks Related to our Business

unfavorable economic and market conditions;
our reliance on a limited number of suppliers and customers;
order cancellations, reductions or delays in delivery schedules by our customers or distributors;
failure of banking institutions and liquidity concerns at other financial institutions;
our backlog may not be an accurate indicator of our level and timing of future revenue;
our gross margins and operating margins may vary overtime;
challenges relating to supply chain constraints;
changes in technology and intense competition;
our ability to sell to a significant customer, as well as tariffs and other trade restrictions between the U.S. and China;
the impact of a widespread health crisis;
our international operations structure;
volatility and maintenance of our real property portfolio;
our ability to timely procure components needed to manufacture our products;
our ability to manufacture our products;
our leverage in negotiations with large customers;
design and manufacturing defects or quality issues in our products;
changes in laws and the adoption and interpretation of administrative rules and regulations, including U.S. and international customs and export regulations;
our strategic transactions and implementation strategy for our acquisitions, including the recently completed acquisition of Cloud Light;
restructuring and related charges;
changes in spending levels, demand and customer requirements for our products;
changes in tax laws;
fluctuations in foreign currency;
our future capital requirements;
actual or perceived security or privacy breaches or incidents, as well as defects, errors or vulnerabilities in our technology and that of third-party providers;
the unpredictability of our results of operations;
our ability to protect our product and proprietary rights;
factors relating to our intellectual property rights as well as the intellectual property rights of others;
litigation risks, including intellectual property litigation;
our reliance on licensed third-party technology; and
our ability to maintain an effective system of disclosure controls and internal control over financial reporting

Risks Related to Human Capital

our ability to hire and retain key personnel;
the effects of immigration policy on our ability to hire and retain employees; and
employment related disputes and claims

Risks Related to Legal, Regulatory and Compliance

our ability to obtain government authorization to export our products; and
changes in social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands

Risks Related to Our Common Stock

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

Risks Related to Our Business

Our operating results may be adversely affected by unfavorable changes in macroeconomics and market conditions and the uncertain geopolitical environment.

Our business and operating results depend significantly on general market and economic conditions. The current global macroeconomic environment is volatile and continues to be significantly and adversely impacted by inflation and a dynamic demand environment. Additionally, instability in the global credit markets, the impact of uncertainty regarding inflation, banking instability, capital expenditure reductions, unemployment, stock market volatility, the instability in the geopolitical environment in many parts of the world (including as a result of the on-going Russia-Ukraine war, ongoing conflicts in the Middle East, and China-Taiwan relations), the current economic challenges in China, including global economic ramifications of Chinese economic difficulties, and other disruptions may continue to put pressure on global economic conditions. Further, conditions in the global economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction of the global economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors, and regions of the economy, including the markets in which we participate. All aspects of our forecasts depend on estimates of growth or contraction in the markets we serve.

Adverse changes to and uncertainty in the global economy has affected industries in which our customers operate and has resulted in decreases in the rate of demand, consumption or use of certain of our customers’ products which, in turn, has resulted in, and may continue to result in decreased demand for our products, revenue fluctuations, increased price competition for our products, and increased the risk of excess and obsolete inventories as well as higher overhead costs as a percentage of revenue. Additionally, customers who had built up large inventories when supply chains were tight are now bringing down inventories as supply constraints are easing and in some cases these customers have delayed projected shipments. These losses or delays of orders have harmed our revenue and profitability and future losses or delays may further harm our results of operations. The impact of economic challenges on the global financial markets could further negatively impact our operations by affecting the solvency of our customers, the solvency of our key suppliers or the ability of our customers to obtain credit to finance purchases of our products. Further, supply chain disruptions have led and may continue to lead to increased costs and have harmed and may continue to harm our ability to meet customer demand, adversely affecting our revenue and profitability. If global economic and market conditions, or economic conditions in key markets, remain uncertain or deteriorate further, our prospects for growth may be negatively impacted, and we may experience material and adverse impacts on our business, operating results, and financial condition.

We depend on a limited number of suppliers for raw materials, packages and components, and any failure or delay by these suppliers in meeting our requirements could have an adverse effect on our business and results of operations.

We purchase raw materials, packages and components from a limited number of suppliers, who are often small and specialized. Additionally, some of our suppliers are our sole sources for certain materials, equipment and components. We depend on the timely and

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Item 5. OTHER INFORMATION

Securities Trading Plans of Directors and Executive Officers

During our last fiscal quarter, the following directors and officers, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.

On August 22, 2024, Julie Johnson, a member of our board of directors, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 2,058 shares of our common stock. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until August 22, 2025, or earlier if all transactions under the trading arrangement are completed.

On August 26, 2024, Vince Retort, our President, Industrial Tech and Chief Business Officer, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 152,147 shares of our common stock. The actual number of shares sold under the trading arrangement will depend on achievement of performance targets applicable to the performance stock units (“PSUs”) subject to the trading arrangement and be net of shares withheld for taxes upon vesting and settlement of the PSUs subject to the trading arrangement. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until August 29, 2025, or earlier if all transactions under the trading arrangement are completed.

On August 30, 2024, Wajid Ali, our Chief Financial Officer, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate of up to 67,118 shares of our common stock. The actual number of shares sold under the trading arrangement will depend on achievement of performance targets applicable to the PSUs subject to the trading arrangement and be net of shares withheld for taxes upon vesting and settlement of the PSUs subject to the trading arrangement. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until September 26, 2025, or earlier if all transactions under the trading arrangement are completed.

On May 20, 2024, Penny Herscher, a member of our board of directors, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of an aggregate up to 2,167 shares of our common stock. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until May 20, 2025, or earlier if all transactions under the trading arrangement are completed.

Item 6. EXHIBITS

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


Exhibit		Incorporated by Reference				Filed
No.	Exhibit Description	Form	File No.	Exhibit	Filing Date	Herewith
4.1	First Supplemental Indenture, dated as of September 25, 2024, to the Indenture for the 2026 Notes dated December 12, 2019, by and between Lumentum Holdings Inc. and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association).					X
31.1	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.					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 September 28, 2024 formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three months ended September 28, 2024 and September 30, 2023; (ii) Condensed Consolidated Statements of Comprehensive Loss for the three months ended September 28, 2024 and September 30, 2023; (iii) Condensed Consolidated Balance Sheets as of September 28, 2024 and June 29, 2024; (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended September 28, 2024 and September 30, 2023; (v) Condensed Consolidated Statements of Cash Flows for the three months ended September 28, 2024 and September 30, 2023, 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 7, 2024	By: /s/ Wajid Ali
		By: Wajid Ali
		Executive Vice President, Chief Financial Officer