Lumentum Announces Fiscal Second Quarter 2020 Financial Results
SAN JOSE, Calif., Feb. 4, 2020 /PRNewswire/ -- Lumentum Holdings Inc. ("Lumentum" or the "Company") today reported results for its fiscal second quarter of 2020 ended December 28, 2019.
Net revenue for the fiscal second quarter of 2020 was $457.8 million, with GAAP net income of $49.1 million, or $0.63 per diluted share. Net revenue for the fiscal first quarter of 2020 was $449.9 million, with GAAP net income of $47.6 million, or $0.61 per diluted share. Net revenue for the fiscal second quarter of 2019 was $373.7 million, with GAAP net income attributable to common stockholders of $5.4 million, or $0.08 per diluted share.
Non-GAAP net income for the fiscal second quarter of 2020 was $119.4 million, or $1.53 per diluted share. Non-GAAP net income for the fiscal first quarter of 2020 was $111.4 million, or $1.44 per diluted share. Non-GAAP net income for the fiscal second quarter of 2019 was $78.0 million, or $1.15 per diluted share.
The Company held $1,315.6 million in total cash and short-term investments at the end of the fiscal second quarter of 2020.
"The themes of the prior quarter - strong customer demand for our differentiated products, an improving financial model due to increasing levels of new and innovative products and increasing scale and acquisition synergies - drove new record revenue, gross margin and operating margin in the second quarter," said Alan Lowe, President and CEO. "Adding to these themes in calendar year 2020, we are seeing telecom transport demand strengthening, we are ramping our DCO modules now and expect 400G and above products to ramp later in the year, and we expect a strong expansion of the market for world-facing 3D sensing lasers."
Financial Overview - Fiscal Second Quarter Ended December 28, 2019
GAAP Results ($ in millions)
Q2 Q1
Q2
Change
FY 2020 FY 2020
FY 2019 Q/Q Y/Y
Net revenue $457.8 $449.9 $373.7 1.8% 22.5%
Gross margin 41.3% 37.3% 33.4% 400bps 790bps
Operating margin 16.3% 13.3% 3.1% 300bps 1,320bps
Non-GAAP Results ($ in millions)
Q2 Q1
Q2
Change
FY 2020 FY 2020
FY 2019 Q/Q Y/Y
Net revenue $457.8 $449.9 $373.7 1.8% 22.5%
Gross margin 47.4% 45.8% 40.1% 160bps 730bps
Operating margin 28.8% 27.3% 22.0% 150bps 680bps
Net Revenue by Segment ($ in millions)
Q2 % of Q1 Q2
Change
FY 2020 Net Revenue FY 2020 FY 2019 Q/Q Y/Y
Optical Communications $
409.4 89.4
% $
416.1 $
325.4 (1.6) 25.8
% %
Lasers 48.4 10.6
% 33.8 48.3 43.2 0.2
% %
Total $
457.8 100.0 $
449.9 $
373.7 1.8 22.5
% % %
The tables above provide comparisons of quarterly results to prior periods, including sequential quarterly and year-over-year changes. A reconciliation between GAAP and non-GAAP measures is contained in this release under the section titled "Use of Non-GAAP Financial Measures."
Effective June 30, 2019, we adopted Topic 842, using the modified retrospective transition approach. We applied the new guidance to all leases existing as of the date of adoption. Our reported results for the first and second quarters of fiscal 2020 reflect the application of Topic 842, while fiscal 2019 amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.
Business Outlook
The projections we are providing today incorporate an approximate $15 million to $20 million reduction in revenue at the mid-point, and a wider than normal revenue range, due to the anticipated impact of the 2019 novel coronavirus outbreak.
Lumentum expects the following for the fiscal third quarter 2020:
-- Net revenue in the range of $400 million to $425 million
-- Non-GAAP operating margin of 21% to 23%
-- Non-GAAP diluted earnings per share of $1.00 to $1.17
We have not provided reconciliations from GAAP to non-GAAP measures for our outlook. A large portion of non-GAAP adjustments, such as restructuring charges, stock-based compensation, acquisition-related costs, non-cash income tax expense and credits, amortization of fair value adjustments, integration related costs, impairment charges, inventory write down due to plans to exit certain product lines and other costs and contingencies unrelated to current and future operations are by their nature highly volatile and we have low visibility as to the range that may be incurred in the future.
Conference Call
Lumentum will host a conference call on February 4, 2020, at 5:30 am PT/8:30 am ET. A live webcast of the call and the replay will be available on the Lumentum website at http://investor.lumentum.com through February 11, 2020, at 11:59 pm ET. To listen to the live conference call, dial (833) 287-7900 or (647) 689-4464 and reference the passcode 8884386. A replay of the conference call will be available through February 11, 2020. To access the replay, dial (800) 585-8367 or (416) 621-4642. The passcode for the replay is 8884386. Supporting materials outlining the Company's latest financial results will be posted on http://investor.lumentum.com under the "Events and Presentations" section concurrently with this earnings press release. This press release is being furnished as an exhibit to a Current Report on Form 8-K filed with the Securities and Exchange Commission and will be available at http://www.sec.gov/.
About Lumentum
Lumentum (NASDAQ: LITE) is a market-leading designer and manufacturer of innovative optical and photonic products enabling optical networking and laser applications worldwide. Lumentum's optical components and subsystems are part of virtually every type of telecom, enterprise, and data center network. Lumentum's lasers enable advanced manufacturing techniques and diverse applications including next-generation 3D sensing capabilities. Lumentum is headquartered in San Jose, California with R&D, manufacturing, and sales offices worldwide. For more information, visit www.lumentum.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include strategies and our expectations with regard to such strategies, our expectations for our markets, any anticipation or guidance as to demand for our products, future financial performance, including the general trends in our business and the industries in which we operate, and our guidance with respect to future net revenue, earnings per share, and operating margins, and anticipated trends in our markets. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Among the factors that could cause actual results to differ from those contemplated are: (a) quarter-over-quarter product mix fluctuations which can materially impact profitability measures due to the broad gross margin ranges across our portfolio; (b) continued decline of average selling prices across our businesses; (c) effects of seasonality; (d) the ability of our suppliers and contract manufacturers to meet production and delivery requirements for our forecasted demand; (e) inherent uncertainty related to global markets, including changes in the political or economic environment and the imposition of tariffs or other duties, and the effect of such markets on demand for our products; (f) changes in customer demand; (g) our ability to attract and retain new customers, particularly in the 3D sensing market; (h) the risk that synergies and non-GAAP earnings accretion related to the acquisition of Oclaro will not be realized or realized to the extent anticipated or that we will incur significant costs and charges to achieve such synergies; (i) the risk that Lumentum's financing or operating strategies will not be successful; and (j) disruption related to the acquisition and integration of Oclaro making it more difficult to maintain customer, supplier, key personnel and other strategic relationships. For more information on these and other risks, please refer to the "Risk Factors" section included in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 28, 2019 to be filed with the Securities and Exchange Commission, and in the Company's other filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 2019, filed by Lumentum with the Securities and Exchange Commission on August 27, 2019. The forward-looking statements and preliminary financial results contained in this press release are made as of the date hereof and the Company assumes no obligation to update such statements, except as required by applicable law.
Contact Information
Investors: Jim Fanucchi, 408-404-5400; investor.relations@lumentum.com
Media: Sean Ogarrio, 408-404-5400; media@lumentum.com
The following financial tables are presented in accordance with GAAP, unless otherwise specified.
LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---
December 28, December 29, December 28, December 29,
2019 2018 2019 2018
---
Net revenue $
457.8 $
373.7 $
907.7 $
727.8
Cost of sales 256.3 244.5 526.0 471.8
Amortization of
acquired developed
intangibles 12.4 4.4 24.9 5.2
Gross profit 189.1 124.8 356.8 250.8
Operating expenses:
Research and
development 51.0 42.8 100.9 77.4
Selling, general and
administrative 62.4 62.7 119.1 95.7
Restructuring and
related charges 0.9 7.8 2.2 9.1
Total operating
expenses 114.3 113.3 222.2 182.2
Income from
operations 74.8 11.5 134.6 68.6
Unrealized gain on
derivative
liability - 10.9 8.8
Interest expense (18.3) (8.5) (29.7) (13.6)
Other income
(expense), net 1.2 3.8 6.2 6.5
Income before income
taxes 57.7 17.7 111.1 70.3
Provision for income
taxes 8.6 1.4 14.4 6.6
Net income $
49.1 $
16.3 $
96.7 $
63.7
Items reconciling net income to net
income attributable to common
stockholders:
Less: Cumulative
dividends on Series
A Preferred Stock - (0.1) (0.3)
Less: Earnings
allocated to Series
A Preferred Stock - (0.1) (1.2)
Net income
attributable to
common stockholders
-Basic $
49.1 $
16.1 $
96.7 $
62.2
Add: Earnings
allocated to Series
A Preferred Stock - 0.1 1.2
Less: Unrealized
gain on derivative
liability on Series
A Preferred Stock - (10.9) (8.8)
Add: Cumulative
dividends on Series
A Preferred Stock - 0.1 0.3
Net income
attributable to
common stockholders
-Diluted $
49.1 $
5.4 $
96.7 $
54.9
Net income per share attributable
to common stockholders:
Basic $
0.64 $
0.24 $
1.26 $
0.96
Diluted $
0.63 $
0.08 $
1.24 $
0.82
Shares used to compute net income
per share attributable to common
stockholders:
Basic 76.8 66.8 76.9 65.0
Diluted 78.0 67.8 77.8 66.6
LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
December 28,
2019 June 29, 2019
---
ASSETS
Current assets:
Cash and cash equivalents $
1,085.0 $
432.6
Short-term investments 230.6 335.9
Accounts receivable, net 292.0 238.0
Inventories 179.6 228.8
Prepayments and other current
assets 95.8 97.5
Total current assets 1,883.0 1,332.8
Property, plant and equipment,
net 421.0 433.3
Operating lease right-of-use
assets, net 84.7
Goodwill 368.9 368.9
Other intangible assets, net 358.0 395.4
Deferred income taxes 101.1 169.6
Other non-current assets 4.5 16.6
Total assets $
3,221.2 $
2,716.6
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
143.7 $
160.8
Accrued payroll and related
expenses 53.7 42.3
Accrued expenses 37.2 46.7
Term loan, current - 5.0
Operating lease liabilities,
current 11.7
Other current liabilities 57.9 39.2
Total current liabilities 304.2 294.0
Convertible notes 1,092 351.9
Term loan, non-current - 484.0
Operating lease liabilities,
non-current 62.5
Deferred tax liability 47.9 55.9
Other non-current liabilities 33.0 33.7
Total liabilities 1,539.6 1,219.5
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value,
990,000,000 authorized shares,
74,716,401 and 76,653,478
shares issued and outstanding
as of December 28, 2019 and
June 29, 2019, respectively 0.1 0.1
Additional paid-in capital 1,648.7 1,360.8
Retained earnings 25.8 129.1
Accumulated other comprehensive
income 7.0 7.1
Total stockholders' equity 1,681.6 1,497.1
Total liabilities and
stockholders' equity $
3,221.2 $
2,716.6
Use of Non-GAAP Financial Measures
In this press release, Lumentum provides investors with gross margin, gross profit, research and development expense, selling, general and administrative expense, operating margin, operating income, interest and other income (expense), net, income before income taxes and certain expenses, provision for taxes, net income , and net income per share on a non-GAAP basis as well as the non-GAAP measure of Adjusted EBITDA. Lumentum believes this non-GAAP financial information provides additional insight into the Company's on-going business operations and results, as well as cash generation and has therefore chosen to provide this information to investors for a more consistent basis of comparison and to help them evaluate the results of the Company's on-going operations and enable more meaningful period to period comparisons. Specifically, the Company believes that providing this information allows investors to better understand the Company's cash flows and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such cash flows. However, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures used in this press release should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future. Further, these non-GAAP financial measures may not be comparable to similarly titled measurements reported by other companies.
Non-GAAP gross margin, non-GAAP gross profit, non-GAAP expenses, non-GAAP operating margin, non-GAAP operating income, non-GAAP income before income taxes, non-GAAP net income, and non-GAAP net income per share exclude (i) stock-based compensation, (ii) inventory write-downs and fixed asset impairment due to cancelled programs, plans to exit certain lines of business and other costs and contingencies unrelated to current and future operations, (iii) acquisition related costs, (iv) integration related costs, (v) amortization of acquired intangibles, (vi) amortization of fair value adjustments, (vii) restructuring and related charges, (viii) non-cash interest expense, (ix) foreign exchange (gains) losses, net, (x) unrealized gain (loss) on derivative liability, (xi) transferring product lines to Thailand, (xii) excess and obsolete inventory charges driven by the decline in demand from Huawei, and (xiii) non-cash income tax provision impacts. The presentation of these and other similar items in Lumentum's non-GAAP financial results should not be interpreted as implying that these items are non-recurring, infrequent or unusual.
A quantitative reconciliation between GAAP and non-GAAP financial data with respect to historical periods is included in the supplemental financial table attached to this press release.
LUMENTUM HOLDINGS INC.
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
December 28, September 28, December 29, December 28, December 29,
2019 2019 2018 2019 2018
Gross profit on GAAP
basis $
189.1 $
167.7 $
124.8 $
356.8 $
250.8
Stock-based compensation 4.1 4.2 5.2 8.3 8.5
Inventory write down and
fixed asset impairment
due to product lines
exit (3) 2.6 1.1 3.7
Integration related costs - 3.4 3.4
Amortization of acquired
intangibles 12.4 12.5 4.4 24.9 5.2
Amortization of fair
value adjustments (2) 2.1 2.2 1.3 4.3 1.3
Other charges (1) 6.5 15.0 14.0 21.5 26.5
Gross profit on non-GAAP
basis $
216.8 $
206.1 $
149.7 $
422.9 $
292.3
Gross margin on non-GAAP 47.4 45.8 40.1 46.6 40.2
basis % % % % %
Research and development
on GAAP basis $
51.0 $
49.9 $
42.8 $
100.9 $
77.4
Stock-based compensation (4.1) (3.8) (3.4) (7.9) (6.2)
Other charges (0.1) 0.2 (0.1) 0.1 (0.3)
Research and development
on non-GAAP basis $
46.8 $
46.3 $
39.3 $
93.1 $
70.9
Selling, general and
administrative on GAAP
basis $
62.4 $
56.7 $
62.7 $
119.1 $
95.7
Stock-based compensation (12.0) (8.7) (21.1) (20.7) (25.8)
Acquisition related costs - (12.0) (13.1)
Integration related costs (2.9) (3.2) (6.1)
Amortization of acquired
intangibles (6.2) (6.3) (0.8) (12.5) (0.8)
Other charges (3.3) (1.4) (0.6) (4.7) (1.5)
Selling, general and
administrative on non-
GAAP basis $
38.0 $
37.1 $
28.2 $
75.1 $
54.5
Income from operations on
GAAP basis $
74.8 $
59.8 $
11.5 $
134.6 $
68.6
Stock-based compensation 20.2 16.7 29.7 36.9 40.5
Inventory write down and
fixed asset impairment
due to product lines
exit (3) 2.6 1.1 3.7
Acquisition related costs - 12.0 13.1
Integration related costs 2.9 6.6 9.5
Amortization of acquired
intangibles 18.6 18.8 5.2 37.4 6.0
Amortization of fair
value adjustments (2) 2.1 2.2 1.3 4.3 1.3
Restructuring and related
charges 0.9 1.3 7.8 2.2 9.1
Other charges 9.9 16.2 14.7 26.1 28.3
Income from operations on
non-GAAP basis $
132.0 $
122.7 $
82.2 $
254.7 $
166.9
Operating margin on non- 28.8 27.3 22.0 28.1 22.9
GAAP basis % % % % %
Interest and other income
(expense), net on GAAP
basis $
(17.1) $
(6.4) $
(4.7) $
(23.5) $
(7.1)
Other interest and
(income) expense
adjustments - 2.2 2.0
Foreign exchange (gains)
losses, net (4) 2.1 (1.1) (0.3) 1.0
Non-cash interest
expense on convertible
notes and term loan 14.4 4.9 4.5 19.3 8.8
Interest and other income
(expense), net on non-
GAAP basis $
(0.6) $
(2.6) $
1.7 $
(3.2) $
3.7
Income before income
taxes on GAAP basis $
57.7 $
53.4 $
17.7 $
111.1 $
70.3
Stock-based compensation 20.2 16.7 29.7 36.9 40.5
Inventory write down and
fixed asset impairment
due to product lines
exit (3) 2.6 1.1 3.7
Acquisition related costs - 12.0 13.1
Integration related costs 2.9 6.6 9.5
Amortization of acquired
intangibles 18.6 18.8 5.2 37.4 6.0
Amortization of fair
value adjustments (2) 2.1 2.2 1.3 4.3 1.3
Restructuring and related
charges 0.9 1.3 7.8 2.2 9.1
Other interest and
(income) expense
adjustments - 2.2 2.0
Foreign exchange (gains)
losses, net (4) 2.1 (1.1) (0.3) 1.0
Non-cash interest
expense on convertible
notes and term loan 14.4 4.9 4.5 19.3 8.8
Unrealized gain on
derivative liability - (10.9) (8.8)
Other charges 9.9 16.2 14.7 26.1 28.3
Income before income
taxes on non-GAAP basis $
131.4 $
120.1 $
83.9 $
251.5 $
170.6
Provision for income
taxes on GAAP basis $
8.6 $
5.8 $
1.4 $
14.4 $
6.6
Income tax adjustments 3.4 2.9 4.5 6.3 (0.1)
Provision for income
taxes on non-GAAP basis $
12.0 $
8.7 $
5.9 $
20.7 $
6.5
Net income on GAAP basis $
49.1 $
47.6 $
16.3 $
96.7 $
63.7
Stock-based compensation 20.2 16.7 29.7 36.9 40.5
Inventory write down and
fixed asset impairment
due to product lines
exit (3) 2.6 1.1 3.7
Acquisition related costs - 12.0 13.1
Integration related costs 2.9 6.6 9.5
Amortization of acquired
intangibles 18.6 18.8 5.2 37.4 6.0
Amortization of fair
value adjustments (2) 2.1 2.2 1.3 4.3 1.3
Restructuring and related
charges 0.9 1.3 7.8 2.2 9.1
Other interest and
(income) expense
adjustments - 2.2 2.0
Foreign exchange (gains)
losses, net (4) 2.1 (1.1) (0.3) 1.0
Non-cash interest
expense on convertible
notes and term loan 14.4 4.9 4.5 19.3 8.8
Unrealized gain on
derivative liability - (10.9) (8.8)
Other charges 9.9 16.2 14.7 26.1 28.3
Income tax adjustments (3.4) (2.9) (4.5) (6.3) 0.1
Net income on non-GAAP
basis $
119.4 $
111.4 $
78.0 (4) $
230.8 $
164.1 (4)
Net income per share on
non-GAAP basis $
1.53 $
1.44 $
1.15 (4) $
2.97 $
2.46 (4)
Shares used in per share
calculation - diluted
on GAAP basis and non-
GAAP basis 78.0 77.6 67.8 77.8 66.6
(1) Other charges for the three and six
months ended December 28, 2019,
primarily include costs of transferring
product lines to new production
facilities, including Thailand of $2.0
million and $8.1 million, respectively.
We also incurred excess and obsolete
inventory charges driven by the decline
in demand from Huawei of $6.0 million
and $12.7 million during the three and
six months ended December 28, 2019.
Other charges for the three and six
months ended December 29, 2018,
including costs of transferring product
lines to Thailand of $14.5 million and
$27.2 million, respectively.
(2) In connection with the acquisition of
Oclaro in fiscal 2019, we recorded a
fair value adjustment of $60.3 million
to inventory, resulting in $2.1 million
and $4.3 million of amortization expense
of the fair value adjustment during the
three and six months ended December 28,
2019, respectively.
(3) For the three and six months ended
December 28, 2019, we recorded an
inventory write down charge and fixed
assets impairment of $2.6 million and
$3.7 million, respectively, related to
the decision to exit the Datacom module
and Lithium Niobate product lines.
(4) The non-GAAP financial measures for
the three and six months ended December
29, 2018 have been adjusted to conform
to the current period presentation, by
removing foreign exchange (gains)
losses, net.
LUMENTUM HOLDINGS INC.
RECONCILIATION OF GAAP NET INCOME TO EBITDA
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
---
December 28, September 28, December 28, December 29,
2019 2019 2019 2018
---
GAAP Net income $
49.1 $
47.6 $
96.7 $
63.7
Interest and other
expense (income),
net 17.1 6.4 23.5 7.1
Provision for income
taxes 8.6 5.8 14.4 6.6
Depreciation 28.7 31.6 60.3 45.7
Amortization of
acquired
intangibles 18.6 18.8 37.4 6.0
EBITDA 122.1 110.2 232.3 129.1
Amortization of fair
value adjustments 2.1 2.2 4.3 1.3
Restructuring and
related charges 0.9 1.3 2.2 9.1
Stock-based
compensation 20.2 16.7 36.9 40.5
Acquisition related
costs - 13.1
Unrealized gain on
derivative
liability - (8.8)
Inventory write down
and fixed asset
impairment due to
product lines exit 2.6 1.1 3.7
Integration related
costs 2.9 6.6 9.5
Other charges 9.9 16.2 26.1 28.3
Adjusted EBITDA $
160.7 $
154.3 $
315.0 $
212.6
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SOURCE Lumentum
