Lumentum Announces Fiscal Fourth Quarter And Full Year 2020 Results

SAN JOSE, Calif., Aug. 11, 2020 /PRNewswire/ -- Lumentum Holdings Inc. ("Lumentum" or the "Company") today reported results for its fiscal fourth quarter and full year ended June 27, 2020.

"Strong market demand and solid execution drove better than projected results across all financial metrics in our fourth quarter, especially gross margin and EPS," said Alan Lowe, President and CEO. "We head into fiscal 2021 with demand increasingly driven by new products and technologies, strengthened market positions, and an improving financial model with accruing benefits from acquisition synergies. We became a standalone public company five years ago and since then have significantly improved our financial performance every year. While we have accomplished a lot over the past five years, I believe our future is brighter than ever."

Full Fiscal Year 2020 Highlights:

Net revenue for fiscal year 2020 was $1,678.6 million, with GAAP net income attributable to common stockholders of $135.5 million, or $1.75 per diluted share. Net revenue for fiscal year 2019 was $1,565.3 million, with GAAP net loss attributable to common stockholders of $(37.9) million, or $(0.54) per diluted share. Results include the impact of the Oclaro acquisition starting from December 10, 2018.

Non-GAAP net income for fiscal year 2020 was $420.5 million, or $5.42 per diluted share. Non-GAAP net income for fiscal year 2019 was $305.4 million, or $4.25 per diluted share.

Fiscal Fourth Quarter Highlights:

Net revenue for the fiscal fourth quarter of 2020 was $368.1 million, with GAAP net loss attributable to common stockholders of $(4.6) million, or $(0.06) per diluted share. Net revenue for the fiscal third quarter of 2020 was $402.8 million, with GAAP net income of $43.4 million, or $0.56 per diluted share. Net revenue for the fiscal fourth quarter of 2019 was $404.6 million, with GAAP net loss attributable to common stockholders of $(25.8) million, or $(0.34) per diluted share.

Non-GAAP net income for the fiscal fourth quarter of 2020 was $91.7 million, or $1.18 per diluted share. Non-GAAP net income for the fiscal third quarter of 2020 was $98.0 million, or $1.26 per diluted share. Non-GAAP net income for the fiscal fourth quarter of 2019 was $70.4 million, or $0.91 per diluted share.

The Company held $1,553.8 million in total cash, cash equivalents, and short-term investments at the end of the fiscal fourth quarter of 2020, up $102.4 million from third quarter of 2020.



     
              Financial Overview - Fiscal Fourth Quarter Ended June 27, 2020




                                                                         
            
       GAAP Results ($ in millions)

                                                                                                                              ---

                                                  Q4                                             Q3                     Q4                         Change



                                               FY 2020                                        FY 2020                FY 2019            
          
       Q/Q    
        
             Y/Y



      Net revenue                                              $
            368.1                                               $
       402.8                          $
            404.6             (8.6)% (9.0)%


      Gross
       margin                             36.9
          %                                                  39.2
          %                     21.5
       %          
          (230)bps      
      1,540bps


      Operating
       margin
       (loss)                              7.3
          %                                                  10.6
          %                    (3.4)
       %          
          (330)bps      
      1,070bps




                                                                       
            
       Non-GAAP Results ($ in millions)


                                                  Q4                                             Q3                     Q4                         Change



                                               FY 2020                                        FY 2020                FY 2019            
          
       Q/Q    
        
             Y/Y



      Net revenue                                              $
            368.1                                               $
       402.8                          $
            404.6             (8.6)% (9.0)%


      Gross
       margin                             47.2
          %                                                  45.5
          %                     38.9
       %           
          170bps        
      830bps


      Operating
       margin                             24.8
          %                                                  25.0
          %                     19.0
       %           
          (20)bps       
      580bps


                                              
              
       Net Revenue by Segment ($ in millions)



                                Q4                 % of                                     Q3         Q4            Change



                             FY 2020           Net Revenue                               FY 2020    FY 2019          Q/Q        Y/Y



      Optical Communications         $
     330.3                                                89.7
                                                                                               %            $
     359.3         $
         356.8          (8.1)% (7.4)%



     Lasers                    37.8                       10.3
                                                             %                                         43.5             47.8       (13.1)% (20.9)%




     Total                          $
     368.1                                               100.0
                                                                                               %            $
     402.8         $
         404.6          (8.6)% (9.0)%



     
                Financial Overview - Fiscal Year Ended June 27, 2020




                                                                                    
          
             GAAP Results ($ in millions)



                                                                              FY 2020                                          FY 2019                 Change Y/Y




     Net revenue                                                                     $
         1,678.6                                                $
         1,565.3                     7.2%



     Gross margin                                                      38.7
           %                                                   27.2
        %                 
             1,150bps



     Operating margin (loss)                                           12.2
           %                                                  (1.4)
        %                 
             1,360bps






                                                                                  
          
             Non-GAAP Results ($ in millions)



                                                                              FY 2020                                          FY 2019                 Change Y/Y




     Net revenue                                                                     $
         1,678.6                                                $
         1,565.3                     7.2%



     Gross margin                                                      46.5
           %                                                   39.5
        %                   
             700bps



     Operating margin                                                  26.6
           %                                                   20.5
        %                   
             610bps






                                                                                                Net Revenue by Segment ($ in millions)



                                                                              FY 2020                                          FY 2019                 Change Y/Y




     Optical Communications                                                          $
         1,515.1                                                $
         1,370.2                    10.6%



     Lasers                                                                    163.5                                                         195.1                    (16.2)%




     Total                                                                           $
         1,678.6                                                $
         1,565.3                     7.2%

The tables above provide comparisons of quarterly and annual 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 year ended June 27, 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

Lumentum expects the following for the fiscal first quarter of 2021:

    --  Net revenue in the range of $430 million to $455 million
    --  Non-GAAP operating margin of 28.0% to 30.0%
    --  Non-GAAP diluted earnings per share of $1.40 to $1.55

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 August 11, 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 August 18, 2020, at 11:59 pm ET. To listen to the live conference call, dial (866) 270-1533 or (412) 317-0797 and reference the passcode 10146626. To access the replay, dial (877) 344-7529 or (412) 317-0088 and reference the passcode 10146626. 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. Lumentum has used, and intends to continue to use, its Investor Relations website as means of disclosing material nonpublic information and for complying with its disclosure obligations under Regulation FD. 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 optical components and subsystems are part of virtually every type of telecom, enterprise, and data center network. Lumentum 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 and technology, future financial performance, including the general trends and dynamics 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, anticipated trends in our markets and our market position, and the impact of the COVID-19 pandemic and related responses of businesses and governments to the pandemic on our markets, operations, and future financial performance. 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) the COVID-19 pandemic and related impacts, which may continue to adversely impact our business, financial performance and results of operations; (b) quarter-over-quarter product mix fluctuations which can materially impact profitability measures due to the broad gross margin ranges across our portfolio; (c) continued decline of average selling prices across our businesses; (d) effects of seasonality; (e) the ability of our suppliers and contract manufacturers to meet production and delivery requirements for our forecasted demand; (f) inherent uncertainty related to global markets, including the impact of the COVID-19 pandemic, 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; (g) changes in customer demand; (h) our ability to attract and retain new customers, particularly in the 3D sensing market; (i) 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; and (j) the risk that Lumentum's financing or operating strategies will not be successful. 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 March 28, 2020 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 27, 2020, which will be filed within sixty days of our fiscal year end. 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, 408-546-5405; 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                                                                       Twelve Months Ended

                                                                                              ---

                                             June 27, 2020                                June 29, 2019                                     June 27, 2020                                    June 29, 2019

                                                                                                                                                                                         ---


     Net revenue                                           $
        368.1                                                                                       $
              404.6                           $
       1,678.6   $
      1,565.3



     Cost of sales                                  217.4                                                   304.6                                                                 974.6                        1,092.9


      Amortization of acquired
       developed intangibles                          15.0                                                    13.2                                                                  53.8                           46.5



     Gross profit                                   135.7                                                    86.8                                                                 650.2                          425.9




     Operating expenses:


          Research and development                    49.0                                                    49.5                                                                 198.6                          184.6


          Selling, general and
           administrative                             54.8                                                    49.4                                                                 235.2                          200.3


          Restructuring and
           related charges                             3.1                                                     1.7                                                                   8.0                           31.9


          Impairment charges                           1.8                                                                                                                          4.3                           30.7


      Total operating expenses                       108.7                                                   100.6                                                                 446.1                          447.5



      Income (loss) from
       operations                                     27.0                                                  (13.8)                                                                204.1                         (21.6)


      Unrealized gain on
       derivative liability                              -                                                                                                                                                       8.8


      Interest expense                              (15.9)                                                 (11.4)                                                               (61.2)                        (36.3)


      Other income, net                                3.5                                                     4.1                                                                  31.4                           15.8


      Income (loss) before
       income taxes                                   14.6                                                  (21.1)                                                                174.3                         (33.3)


      Provision for income
       taxes                                          19.2                                                     4.7                                                                  38.8                            3.1


      Net income (loss)                              (4.6)                                                 (25.8)                                                                135.5                         (36.4)





      Items reconciling net income (loss) to
       net income (loss) attributable to
       common stockholders:


      Less: Cumulative
       dividends on Series A
       Preferred Stock                                   -                                                                                                                                                     (0.3)


      Less: Earnings allocated
       to Series A Preferred
       Stock                                             -                                                                                                                                                     (1.2)


      Net income (loss)
       attributable to common
       stockholders -Basic
       and Diluted                                          $
        (4.6)                                                                                     $
              (25.8)                            $
       135.5    $
      (37.9)





      Net income (loss) per share
       attributable to common stockholders:



         Basic                                            $
        (0.06)                                                                                     $
              (0.34)                             $
       1.79    $
      (0.54)



         Diluted                                          $
        (0.06)                                                                                     $
              (0.34)                             $
       1.75    $
      (0.54)




      Shares used to compute net income
       (loss) per share attributable to
       common stockholders:



         Basic                                       75.0                                                    76.5                                                                  75.9                           70.7



         Diluted                                     75.0                                                    76.5                                                                  77.6                           70.7


                                               
            
                LUMENTUM HOLDINGS INC.


                                        
              
              CONDENSED CONSOLIDATED BALANCE SHEETS


                                   
              
              (in millions, except share and per share data)


                                                     
            
                (unaudited)




                                                                   June 27, 2020                                June 29, 2019




     
                ASSETS



     Current assets:


      Cash and cash equivalents                                                      $
              298.0                    $
        432.6


      Short-term investments                                             1,255.8                          335.9


      Accounts receivable, net                                             233.5                          238.0



     Inventories                                                          188.9                          228.8


      Prepayments and other current
       assets                                                               73.8                           97.5



     Total current assets                                               2,050.0                        1,332.8


      Property, plant and equipment,
       net                                                                 393.0                          433.3


      Operating lease right-of-use
       assets, net                                                          78.7



     Goodwill                                                             368.9                          368.9


      Other intangible assets, net                                         316.8                          395.4


      Deferred income taxes                                                 81.2                          169.6


      Other non-current assets                                               4.0                           16.6



     Total assets                                                                 $
              3,292.6                  $
        2,716.6



                   LIABILITIES AND STOCKHOLDERS' EQUITY



     Current liabilities:



     Accounts payable                                                               $
              150.8                    $
        160.8


      Accrued payroll and related
       expenses                                                             53.4                           42.3



     Accrued expenses                                                      23.7                           46.7



     Term loan, current                                                       -                           5.0


      Operating lease liabilities,
       current                                                              10.8


      Other current liabilities                                             44.3                           39.2


      Total current liabilities                                            283.0                          294.0



     Convertible notes                                                  1,120.3                          351.9


      Term loan, non-current                                                   -                         484.0


      Operating lease liabilities,
       non-current                                                          57.6


      Deferred tax liability                                                46.5                           55.9


      Other non-current liabilities                                         36.0                           33.7



     Total liabilities                                                  1,543.4                        1,219.5




     Commitments and contingencies



     Stockholders' equity:


      Common stock, $0.001 par value,
       990,000,000 authorized shares,
       75,100,664 and 76,653,478
       shares issued and outstanding
       as of June 27, 2020 and June
       29, 2019, respectively                                                0.1                            0.1


      Additional paid-in capital                                         1,676.6                        1,360.8



     Retained earnings                                                     64.6                          129.1


      Accumulated other comprehensive
       income                                                                7.9                            7.1


      Total stockholders' equity                                         1,749.2                        1,497.1



      Total liabilities and
       stockholders' equity                                                        $
              3,292.6                  $
        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 and Adjusted EBITDA 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 and disposition 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) impairment charges, (xi) transferring product lines to Thailand, (xii) excess and obsolete inventory charges driven by the decline in demand from Huawei, (xiii) certain expenses related to the COVID-19 outbreak, and (xiv) 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                                                                                               Twelve Months Ended



                                               June 27,                                      March 28,               June 29,                                                      June 27,                         June 29,

                                                          2020                                                                      2019                                                       2020                          2019

                                                                                                2020





                   Gross profit on GAAP basis                   $
          135.7                                                              $
              157.7                                                                         $
          86.8               $
         650.2     $
           425.9


      Stock-based compensation                             3.5                                             4.3                                                                                  3.4                                           16.1       15.1


      Inventory and fixed asset
       write down due to product
       lines exit (1)                                      1.0                                             2.3                                                                                  1.4                                            7.0       20.8


      Integration related costs                            1.8                                           (0.3)                                                                                 3.8                                            4.9        6.6


      Amortization of acquired
       intangibles                                        15.0                                            13.9                                                                                 13.3                                           53.8       46.6


      Amortization of fair value
       adjustments (2)                                       -                                            1.5                                                                                 38.8                                            5.8       54.6


      Expenses related to COVID-
       19 outbreak (3)                                     5.0                                             1.6                                                                                                                                6.6


      Other charges (4)                                   11.9                                             2.4                                                                                  9.9                                           35.8       48.9



                   Gross profit on non-GAAP
                    basis                                       $
          173.9                                                              $
              183.4                                                                        $
          157.4               $
         780.2     $
           618.5



      Gross margin on non-GAAP                            47.2                                            45.5                                                                                 38.9                                           46.5       39.5
       basis                                                 %                                              %                                                                                   %                                             %         %




                   Research and development on
                    GAAP basis                                   $
          49.0                                                               $
              48.7                                                                         $
          49.5               $
         198.6     $
           184.6


      Stock-based compensation                           (3.8)                                          (4.2)                                                                               (3.1)                                        (15.9)    (13.8)


      Expenses related to COVID-
       19 outbreak (3)                                   (0.5)                                                                                                                                                                            (0.5)



     Other charges                                        1.2                                           (0.2)                                                                                                                               1.1      (0.7)


                   Research and development on
                    non-GAAP basis                               $
          45.9                                                               $
              44.3                                                                         $
          46.4               $
         183.3     $
           170.1





                   Selling, general and
                    administrative on GAAP
                    basis                                        $
          54.8                                                               $
              61.3                                                                         $
          49.4               $
         235.2     $
           200.3


      Stock-based compensation                           (9.8)                                         (10.7)                                                                               (7.7)                                        (41.2)    (41.8)


      Acquisition related costs                              -                                                                                                                              (0.3)                                                  (15.6)


      Integration related costs                          (1.1)                                          (5.0)                                                                               (1.7)                                        (12.2)     (3.0)


      Amortization of acquired
       intangibles                                       (6.2)                                          (6.1)                                                                               (3.6)                                        (24.8)     (8.0)



     Other charges                                      (1.1)                                          (1.1)                                                                               (1.8)                                         (6.9)     (4.1)


                   Selling, general and
                    administrative on non-
                    GAAP basis                                   $
          36.6                                                               $
              38.4                                                                         $
          34.3               $
         150.1     $
           127.8





                   Income (loss) from
                    operations on GAAP basis                     $
          27.0                                                               $
              42.5                                                                       $
          (13.8)              $
         204.1    $
           (21.6)


      Stock-based compensation                            17.1                                            19.2                                                                                 14.2                                           73.2       70.7


      Inventory and fixed asset
       write down due to product
       lines exit (1)                                      1.0                                             2.3                                                                                  1.4                                            7.0       20.8


      Acquisition related costs                              -                                                                                                                                0.3                                                     15.6


      Integration related costs                            2.9                                             4.7                                                                                  5.5                                           17.1        9.6


      Amortization of acquired
       intangibles                                        21.2                                            20.0                                                                                 16.9                                           78.6       54.6


      Amortization of fair value
       adjustments (2)                                       -                                            1.5                                                                                 38.8                                            5.8       54.6


      Restructuring and related
       charges                                             3.1                                             2.7                                                                                  1.7                                            8.0       31.9


      Expenses related to COVID-
       19 outbreak (3)                                     5.5                                             1.6                                                                                                                                7.1


      Impairment charge (5)                                1.8                                             2.5                                                                                                                                4.3       30.7



     Other charges                                       11.8                                             3.7                                                                                 11.7                                           41.6       53.7


                   Income from operations on
                    non-GAAP basis                               $
          91.4                                                              $
              100.7                                                                         $
          76.7               $
         446.8     $
           320.6



      Operating margin on non-                            24.8                                            25.0                                                                                 19.0                                           26.6       20.5
       GAAP basis                                            %                                              %                                                                                   %                                             %         %




                   Interest and other
                    (expense) income, net on
                    GAAP basis                                 $
          (12.4)                                                               $
              6.1                                                                        $
          (7.3)             $
         (29.8)   $
           (20.5)


      Other interest and (income)
       expense adjustments                                   -                                          (2.0)                                                                                                                             (2.0)     (0.5)


      Gain on sale of product
       lines                                             (0.7)                                         (13.8)                                                                                                                            (14.5)


      Foreign exchange (gains)
       losses, net (6)                                     1.1                                           (0.7)                                                                               (0.4)                                           1.4        0.6


      Non-cash interest expense
       on convertible notes and
       term loan                                          14.3                                            14.0                                                                                  4.9                                           47.6       18.5



                   Interest and other
                    (expense) income, net on
                    non-GAAP basis                                $
          2.3                                                                $
              3.6                                                                        $
          (2.8)                $
         2.7     $
           (1.9)





                   Income (loss) before income
                    taxes on GAAP basis                          $
          14.6                                                               $
              48.6                                                                       $
          (21.1)              $
         174.3    $
           (33.3)


      Stock-based compensation                            17.1                                            19.2                                                                                 14.2                                           73.2       70.7


      Inventory and fixed asset
       write down due to product
       lines exit (1)                                      1.0                                             2.3                                                                                  1.4                                            7.0       20.8


      Acquisition related costs                              -                                                                                                                                0.3                                                     15.6


      Integration related costs                            2.9                                             4.7                                                                                  5.5                                           17.1        9.6


      Amortization of acquired
       intangibles                                        21.2                                            20.0                                                                                 16.9                                           78.6       54.6


      Amortization of fair value
       adjustments (2)                                       -                                            1.5                                                                                 38.8                                            5.8       54.6


      Restructuring and related
       charges                                             3.1                                             2.7                                                                                  1.7                                            8.0       31.9


      Expenses related to COVID-
       19 outbreak (3)                                     5.5                                             1.6                                                                                                                                7.1


      Impairment charge (5)                                1.8                                             2.5                                                                                                                                4.3       30.7


      Other interest and (income)
       expense adjustments                                   -                                          (2.0)                                                                                                                             (2.0)     (0.5)


      Gain on sale of product
       lines                                             (0.7)                                         (13.8)                                                                                                                            (14.5)


      Foreign exchange (gains)
       losses, net (6)                                     1.1                                           (0.7)                                                                               (0.4)                                           1.4        0.6


      Non-cash interest expense
       on convertible notes and
       term loan                                          14.3                                            14.0                                                                                  4.9                                           47.6       18.5


      Unrealized gain on
       derivative liability                                  -                                                                                                                                                                                      (8.8)



     Other charges                                       11.8                                             3.7                                                                                 11.7                                           41.6       53.7


                   Income before income taxes
                    on non-GAAP basis                            $
          93.7                                                              $
              104.3                                                                         $
          73.9               $
         449.5     $
           318.7





                   Provision for income taxes
                    on GAAP basis                                $
          19.2                                                                $
              5.2                                                                          $
          4.7                $
         38.8       $
           3.1


      Income tax adjustments                            (17.2)                                            1.1                                                                                (1.2)                                         (9.8)      10.2



                   Provision for income taxes
                    on non-GAAP basis                             $
          2.0                                                                $
              6.3                                                                          $
          3.5                $
         29.0      $
           13.3





                   Net income (loss) on GAAP
                    basis                                       $
          (4.6)                                                              $
              43.4                                                                       $
          (25.8)              $
         135.5    $
           (36.4)


      Stock-based compensation                            17.1                                            19.2                                                                                 14.2                                           73.2       70.7


      Inventory and fixed asset
       write down due to product
       lines exit (1)                                      1.0                                             2.3                                                                                  1.4                                            7.0       20.8


      Acquisition related costs                              -                                                                                                                                0.3                                                     15.6


      Integration related costs                            2.9                                             4.7                                                                                  5.5                                           17.1        9.6


      Amortization of acquired
       intangibles                                        21.2                                            20.0                                                                                 16.9                                           78.6       54.6


      Amortization of fair value
       adjustments (2)                                       -                                            1.5                                                                                 38.8                                            5.8       54.6


      Restructuring and related
       charges                                             3.1                                             2.7                                                                                  1.7                                            8.0       31.9


      Expenses related to COVID-
       19 outbreak (3)                                     5.5                                             1.6                                                                                                                                7.1


      Impairment charge (5)                                1.8                                             2.5                                                                                                                                4.3       30.7


      Other interest and (income)
       expense adjustments                                   -                                          (2.0)                                                                                                                             (2.0)     (0.5)


      Gain on sale of product
       lines                                             (0.7)                                         (13.8)                                                                                                                            (14.5)


      Foreign exchange (gains)
       losses, net (6)                                     1.1                                           (0.7)                                                                               (0.4)                                           1.4        0.6


      Non-cash interest expense
       on convertible notes and
       term loan                                          14.3                                            14.0                                                                                  4.9                                           47.6       18.5


      Unrealized gain on
       derivative liability                                  -                                                                                                                                                                                      (8.8)



     Other charges                                       11.8                                             3.7                                                                                 11.7                                           41.6       53.7


      Income tax adjustments                              17.2                                           (1.1)                                                                                 1.2                                            9.8     (10.2)



                   Net income on non-GAAP
                    basis                                        $
          91.7                                                               $
              98.0                                                                         $
          70.4               $
         420.5     $
           305.4





                   Net income per share on
                    non-GAAP basis                               $
          1.18                                                               $
              1.26                                                                         $
          0.91                $
         5.42      $
           4.25




                   Shares used in per share
                    calculation -diluted on
                    GAAP basis                            75.0                                            77.5                                                                                 76.5                                           77.6       70.7


      Non-GAAP adjustment (7)                              2.5                                                                                                                                 0.6                                                      0.6


      Effect of diluted
       securities from Series A
       Preferred Stock                                       -                                                                                                                                                                                        0.5


                   Shares used in per share
                    calculation - diluted on
                    non-GAAP basis                        77.5                                            77.5                                                                                 77.1                                           77.6       71.8



               (1) For the three and twelve months
                ended June 27, 2020, we recorded
                inventory and fixed asset write
                down charges of $1.0 million and
                $7.0 million, respectively,
                related to the decision to exit
                the Datacom module and Lithium
                Niobate product lines.




               (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 $5.8
                million of amortization expense of
                the fair value adjustment during
                the twelve months ended June 27,
                2020.




               (3) During the three and twelve
                months ended June 27, 2020, we
                recorded expenses of $5.5 million
                and $7.1 million, respectively,
                related to the COVID-19 outbreak,
                which included incremental costs
                for payroll expense such as
                overtime pay, pay for employees
                who are not working, facilities
                costs such as gloves, masks and
                temperature gauges, and under-
                utilized capacity at certain
                facilities, in which manufacturing
                output was impacted. These COVID-
                19 related costs were partially
                offset by benefits realized from
                government credits for employers'
                payroll tax.




               (4) Other adjustments to gross
                profit on a non-GAAP basis for
                the three and twelve months ended
                June 27, 2020, primarily include
                costs of transferring product
                lines to new production
                facilities, including Thailand of
                $3.0 million and $11.5 million,
                respectively. We also incurred
                excess and obsolete inventory
                charges driven by the decline in
                demand from Huawei $12.8 million
                during the twelve months ended
                June 27, 2020. In addition, during
                the three months ended June 27,
                2020, we incurred $6.2 million
                impairment charges associated with
                excess capacity related to our
                Fiber laser business. Other
                charges to gross profit on a non-
                GAAP basis for the three and
                twelve months ended June 29, 2019,
                included costs of transferring
                product lines to Thailand of $7.3
                million and $45.8 million,
                respectively.




               (5) For the twelve months ended
                June 27, 2020 and June 29, 2019,
                we recorded impairment charges of
                $4.3 million and $30.7 million,
                respectively, in property, plant
                and equipment related to the
                decision to exit the Datacom
                module product line.




               (6) The non-GAAP financial
                measures for the three and twelve
                months ended June 29, 2019 have
                been adjusted to conform to the
                current period presentation, by
                removing foreign exchange (gains)
                losses, net.




               (7) This adjustment represents
                weighted-average potentially
                dilutive securities from our
                stock-based benefit plans
                excluded from the computation of
                diluted net loss per share
                attributable to common
                stockholders on a GAAP basis
                because the effect would have been
                anti-dilutive. This adjustment
                amount is added for the
                computation of diluted net income
                per share on a non-GAAP basis as
                we had a net income on a non-GAAP
                basis.


                                                                                             
            
                LUMENTUM HOLDINGS INC.


                                                                                       
       
             RECONCILIATION OF GAAP NET INCOME (LOSS) TO EBITDA


                                                                                         
         
                (in millions, except per share data)


                                                                                                 
              
                (unaudited)




                                           
          
     Three Months Ended                                                                                             Twelve Months Ended

                                                                             ---

                           June 27,                               March 28,                     June 29,                                                June 27,                       June 29,


                                   2020                                     2020                          2019                                                     2020                            2019

                                                                                                                                                                                                ---

      GAAP Net income
       (loss)                           $
      (4.6)                                                               $
              43.4                                                                       $
       (25.8)            $
       135.5   $
        (36.4)


      Interest and other
       expense (income),
       net                         12.4                                          (6.1)                                                                            7.3                                          29.8      20.5


      Provision for
       (benefit from)
       income taxes                19.2                                            5.2                                                                             4.7                                          38.8       3.1


      Depreciation                 25.5                                           27.5                                                                            28.2                                         113.3     102.9


      Amortization of
       acquired
       intangibles                 21.2                                           20.0                                                                            16.9                                          78.6      54.6



     EBITDA                       73.7                                           90.0                                                                            31.3                                         396.0     144.7


      Amortization of fair
       value adjustments              -                                           1.5                                                                            38.8                                           5.8      54.6


      Restructuring and
       related charges              3.1                                            2.7                                                                             1.7                                           8.0      31.9


      Stock-based
       compensation                17.1                                           19.2                                                                            14.2                                          73.2      70.7


      Acquisition related
       costs                          -                                                                                                                          0.3                                                   15.6


      Unrealized gain on
       derivative
       liability                      -                                                                                                                                                                              (8.8)


      Inventory and fixed
       asset write down
       due to product
       lines exit                   1.0                                            2.3                                                                             1.4                                           7.0      20.8


      Integration related
       costs                        2.9                                            4.7                                                                             5.5                                          17.1       9.6


      Impairment charges            1.8                                            2.5                                                                                                                          4.3      30.7


      Expenses related to
       COVID-19 outbreak            5.5                                            1.6                                                                                                                          7.1


      Other charges                11.8                                            3.7                                                                            11.7                                          41.6      53.7



      Adjusted EBITDA                   $
      116.9                                                               $
              128.2                                                                        $
       104.9             $
       560.1    $
        423.5

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SOURCE Lumentum