LITE Lumentum (United States) 10-Q 2026-09-26 section summaries

Lumentum Holdings (LITE) — Q1 FY2027

Three months ended September 26, 2026; USD millions except per-share amounts and percentages.

Consolidated results

Revenue increased 136.5%, led by demand for optical products supporting cloud, AI/ML, data centers and communications networks. Operating expenses included a $6.9 million net gain on a product-line sale; the prior-year quarter included $8.3 million of restructuring charges. The current-quarter tax provision included a $37.0 million discrete benefit, primarily from stock-compensation vesting windfalls.

Revenue mix and concentration

Lumentum operates as one integrated reportable segment; management evaluates performance using consolidated net income. Components and Systems are the principal product categories.

Components represented 59.7% of revenue, down from 71.0%; Systems grew to 40.3% from 29.0%. By initial shipping location, Americas revenue was $529.3 million versus $175.9 million, Asia-Pacific $685.5 million versus $321.7 million, and EMEA $47.8 million versus $36.2 million. Shipping location may differ from the end customer’s location.

Two end customers contributed 37% and 11% of revenue, compared with 22% and 21% a year earlier. Three customers represented 33.4%, 13.7% and 11.3% of gross receivables, including accrued receivables. One contract manufacturer accounted for 14% of net inventory purchases, down from 20%.

Balance sheet, liquidity and cash flow

Intangibles comprised $170.6 million of developed technologies and $123.5 million of customer relationships. Equity less goodwill and other intangibles was $3,208.6 million. Cash plus short-term investments declined to $1,979.6 million. The investments had $713.9 million amortized cost and $707.4 million fair value, including $6.6 million of gross unrealized losses; none had been held at a loss for more than 12 months, and no impairment was recorded.

Cash fell $771.3 million during the quarter. Working-capital outflows included accounts receivable of $105.4 million, inventory of $114.2 million, prepayments and other assets of $114.2 million, and income taxes of $78.8 million. Financing cash outflow was $804.4 million, including $493.3 million for convertible-note conversions and $306.9 million of taxes withheld on net share settlement of restricted stock units.

Debt, investment and dilution

Convertible-note principal declined to $1,317.5 million from $1,554.3 million; carrying value was $1,308.8 million, compared with $1,544.6 million. The remaining principal comprised $4.2 million of 2026 Notes, $21.1 million of 2028 Notes, $27.2 million of 2029 Notes and $1,265.0 million of 2032 Notes. The 2032 Notes dominate future maturities; total scheduled convertible-note principal and interest payments are $1,345.1 million, including $1,269.8 million thereafter. Note principal is payable in cash on conversion, while excess conversion value may be settled in cash, shares or both. All note series were convertible at holders’ option in Q2 FY2027. Estimated fair value of convertible notes was $6,997.5 million, versus $7,607.2 million at June 27, 2026.

Japan term loans had $90.8 million carrying value. The $400 million senior secured revolver had no borrowings outstanding; its covenants require secured net leverage no higher than 3.25:1.00 (with a temporary acquisition step-up) and interest coverage of at least 3.00:1.00. A potential earlier maturity is tied to liquidity or leverage conditions. The debt is unsecured and has no financial covenants except as noted for the revolver and Japan loans.

Common shares outstanding increased from 88.6 million at June 27 to 90.6 million at September 26; Series A preferred shares remained 2.9 million. Diluted weighted-average shares were 101.7 million versus 78.3 million, including 6.5 million shares issuable on convertible notes and 2.5 million from RSUs/PSUs. Stock-based compensation rose to $132.5 million from $42.4 million, including $89.4 million of modification-related accelerated expense for a retiring executive. Approximately 2.5 million shares were subject to outstanding awards at quarter-end; unrecognized compensation cost totaled $502.1 million across award types.

On March 2, 2026, NVIDIA invested $2.0 billion for approximately 2.9 million Series A convertible preferred shares at $695.31 per share. They convert one-for-one into common shares after applicable antitrust waiting periods, creating potential dilution.

Business developments and risks

A customer’s September manufacturing-capacity reservation agreement generated a $100.0 million first installment recorded as accrued receivables, with an offsetting contract liability; it was not recognized as revenue. Purchase obligations totaled $2,948.9 million, generally expected to be fulfilled within one year. Lumentum relies on a limited number of suppliers and contract manufacturers, exposing it to supply interruptions, higher input costs and tariff risks.

The company acquired a Greensboro manufacturing facility for $38.0 million cash in March 2026 to expand fabrication capacity. A roughly 15-month transitional wafer-supply agreement is accounted for net because Lumentum acts as agent; $1.9 million of the related contract liability was recognized as revenue this quarter. In July, a product-line sale generated a $6.9 million gain.

Management cautions that changing trade policies, tariffs and rare-earth mineral restrictions could affect future results, although tariff-related assessments had no material effect on the quarter’s statements. No goodwill or long-lived-asset impairment was identified. A $2.5 million write-off of acquired in-process R&D in FY2026 related to a discontinued project.

Subsequent event: On November 1, 2026, Lumentum agreed to be acquired by Marvell. Each common share is to convert into 4.500 Marvell common shares, subject to customary closing conditions and approvals. Specified termination events could require a $2.9 billion fee from Lumentum, a $5.8 billion fee from Marvell, or a $3.2 billion regulatory termination fee.

Q1 FY2027 results

Lumentum’s revenue surged on strong demand for cloud, AI/data-center and optical-networking products. The company reports one operating segment.

*Cost of revenue is calculated as revenue less gross profit.

Components revenue grew 98.9%, led by laser chips and laser assemblies for intra-data-center, DCI and long-haul uses, with the balance primarily from data-transport products. Systems revenue grew 228.8%, driven by cloud transceivers (up more than 266% on higher shipment volume) and optical circuit switches, which contributed more than $108.0M.

Gross margin improvement reflected higher revenue across product lines: management attributed 42% of the gross-profit increase to lower manufacturing costs as a share of revenue, principally better internal-factory utilization; 45% to favorable product mix; and 13% to lower acquired-intangible amortization. R&D expense rose sharply, including $89.7M of the increase from stock-based compensation tied to an executive-retirement-related award modification. Higher payroll, headcount and equity-related taxes added $10.7M, while R&D program charges added $8.6M. SG&A growth mainly reflected payroll, benefits and equity-related taxes. The quarter also included a $6.9M net gain on sale of a business.

Interest expense declined to $2.4M from $5.7M, mainly following early conversions of the 2026, 2028 and 2029 Notes and prior-period equitization, partly offset by interest on the 2032 Notes. Net other income was $12.9M versus $4.2M. Interest and investment income increased to $20.4M from $8.6M, supported by investment of proceeds from the $2.0B Series A Convertible Preferred Stock issued in FY2026. Foreign exchange was a $6.7M loss versus a $1.5M gain, reflecting dollar weakness against currencies underlying certain liabilities, including term loans. The $10.0M income-tax provision included a reported $37.0M discrete tax benefit, primarily from stock-compensation vesting windfalls. Unrecognized tax benefits rose to $89.4M from $67.2M.

Cash flow and liquidity

Operating cash flow increased alongside net income, but working-capital uses included increases of $105.4M in receivables, $114.2M in inventory and $114.2M in prepayments and other assets; an $87.0M increase in payables partly offset those uses. Cash and equivalents fell $771.3M, from $2.0435B at June 27, 2026 to $1.2722B at September 26, 2026. Short-term investments were $707.4M versus $694.9M; $426.9M of cash was held by non-U.S. entities, compared with $417.9M.

Current-quarter financing uses included $493.3M for note conversions and $306.9M in taxes on net share settlement of restricted stock. Prior-year financing cash inflow included $1.2557B net proceeds from 2032 Notes issuance, offset principally by $843.1M to partially repurchase 2026 Notes and $102.0M for 2032 Capped Call Options.

Debt and commitments

At June 27, 2026, total convertible-note carrying amount was $1.5446B and estimated fair value was $7.6072B. All series remained holder-convertible in Q2 FY2027 because the stock-price conversion test was met. By October 30, early conversion requests totaled $779.9M principal; $756.2M cumulative principal had been cash-settled by September 26, versus $519.4M by June 27. Japan term-loan principal was $90.8M ($51.5M short-term and $39.3M long-term), down from $92.8M at June 27. The $400.0M senior secured revolver was undrawn.

Contractual obligations totaled $4.5748B: $2.9489B of purchase obligations, including $2.1991B due within one year; $1.3175B of convertible-note principal, including $4.2M due within one year; and $90.8M of term-loan principal, including $51.5M due within one year. Management expects cash, available credit and operating cash flow to fund liquidity and capital needs for at least 12 months, while identifying note conversions, manufacturing investment, working capital, demand and trade-policy changes, customer payment delays, FX and financing availability as sensitivities. The company intends to reinvest most foreign-held funds indefinitely; repatriation could trigger material taxes.

Market conditions and risks

Demand for AI and cloud infrastructure has accelerated since Q1 FY2025 and currently exceeds available supply. Lumentum is allocating products and investing in internal manufacturing capacity and contract manufacturers, with optical-circuit-switch manufacturing expansion planned over coming quarters. Long lead times, component shortages and incremental procurement costs could constrain supply or harm customer relationships; tariffs, export controls and retaliatory measures could disrupt operations, raise costs and pressure margins. Management also cites customer concentration, competition, price sensitivity, seasonality and product transitions as sources of potential margin variability. Two end customers represented 37% and 11% of revenue, compared with 22% and 21% a year earlier. Customers outside the U.S. accounted for 76.4% of revenue.

The company points to opportunities in AI/ML and cloud data-center expansion, higher optical-network capacity, industrial lasers, and developing LiDAR and 3D-sensing markets, supported by continued product investment and manufacturing expansion. The filing identifies a proposed merger with Marvell as a forward-looking matter but provides no transaction terms. Critical accounting policies were unchanged during the quarter.

Market risk and liquidity

Lumentum’s principal market risks are foreign-exchange movements, stock-price exposure related to convertible notes, interest-rate sensitivity in its investment portfolio and revolving credit facility, and concentration of cash deposits at financial institutions.

Foreign exchange

Sales are primarily denominated in U.S. dollars, while expenses are exposed chiefly to the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, Hong Kong Dollar, UK Pound, Swiss Franc, and Euro. A rise in foreign-currency-denominated assets, liabilities, sales, or expenses could increase the effect of exchange-rate movements on results.

Convertible notes and equity-price exposure

At September 26, 2026, Lumentum had the following convertible-note principal outstanding:

The notes have fixed coupons, so changes in market interest rates do not affect their financial-statement exposure; however, the value of shares deliverable upon conversion fluctuates with Lumentum’s stock price. Capped-call options associated with the 2032 Notes initially had a cap of $268.24 per share, subject to adjustment. If the stock price exceeds the cap, dilution could occur and/or the options may not offset potential cash payments above note principal.

Investment portfolio and interest-rate sensitivity

Cash, cash equivalents, and short-term investments totaled $1.9796 billion at September 26, 2026. The portfolio is designed to preserve capital and provide liquidity, with an approximately 12-month weighted-average life. It consists primarily of money market funds, Treasuries, agency securities, high-quality investment-grade fixed-income securities, certificates of deposit, and commercial paper.

Revolving credit facility

A credit agreement dated December 19, 2025 established a $400 million senior secured revolving facility, including a $23 million letter-of-credit sublimit. Borrowings bear variable interest based on either a base rate or term SOFR, plus a margin determined by secured net leverage. No borrowings were outstanding at September 26, 2026; future draws would expose interest expense to rate fluctuations.

Bank-deposit concentration and counterparty risks

Unrestricted operating-account cash, excluding cash equivalents, was approximately $489.2 million at September 26, 2026, held at domestic and international financial institutions. Lumentum reported no losses to date and full access to its accounts, but cautioned that institutional failures or liquidity constraints could make deposits inaccessible and affect short-term operating funding. Failures or illiquidity among financial institutions, vendors, or customers could also affect investment values, raw-material supply, or customer collections.

Item 4 — Controls and Procedures

As of September 26, 2026, Lumentum’s CEO and CFO concluded that the company’s disclosure controls and procedures were effective at a reasonable-assurance level. During the quarter ended September 26, 2026, no changes were identified that materially affected, or were reasonably likely to materially affect, internal control over financial reporting.

Management cautioned that controls provide reasonable, not absolute, assurance and cannot prevent or detect every error or instance of fraud. Their design also reflects resource constraints and cost-benefit considerations.

Risk Factors

Lumentum reported no material changes to the risk factors in its FY2026 Form 10-K other than the newly added risks summarized below.

Potential FCC restrictions

The FCC is reportedly considering adding optical transceivers to its Covered List, but has not issued a final rule specifically addressing them; the timing and scope remain uncertain. Restrictions affecting Lumentum’s products, or products sold by its suppliers or customers, could limit U.S. authorization, importation, marketing or sales, disrupt sourcing and supply chains, or reduce demand. Redesigning products, qualifying alternative components or suppliers, or changing manufacturing and supply chains could increase costs, delay deliveries, compress margins, and reduce sales or market share.

Proposed merger with Marvell

Under the merger agreement entered into November 1, 2026, Lumentum would become a wholly owned Marvell subsidiary. Each eligible Lumentum common share would convert into 4.500 Marvell common shares, with cash paid for fractional shares. Series A convertible preferred holders would receive Marvell shares at that ratio or could elect new Marvell Series B preferred shares. Because the exchange ratio is fixed and will not adjust for either company’s share-price movements, the value of the consideration at closing could differ materially from its value at announcement or at reporting, proxy, or shareholder-meeting dates.

Completion is subject to shareholder approvals, expiration of the HSR waiting period and other regulatory approvals, absence of legal restraints or a material adverse effect, an effective Form S-4, Nasdaq listing approval, and other conditions. Regulators could delay or deny approval or require divestitures, IP licenses, or other commitments that reduce the merger’s expected benefits; Marvell is not required to accept certain materially adverse remedies. Either party may terminate if the merger has not closed by November 1, 2027, subject to specified extensions to February 1, May 1, or August 1, 2028 in certain circumstances.

If the merger fails, Lumentum could experience a share-price decline if investors had priced in completion, incur transaction expenses regardless of closing, face disruption to relationships with customers, suppliers, partners, and employees, become subject to litigation, and lose business opportunities because of interim restrictions. In specified termination circumstances—including a change in the board’s recommendation or a qualifying alternative proposal—Lumentum may owe Marvell a $2.9 billion termination fee, creating material financial-condition and liquidity risk. Other strategic alternatives may be unavailable or less favorable.

Until closing or termination, Lumentum generally must operate in the ordinary course and needs Marvell’s consent for specified actions. Restrictions may limit acquisitions, investments, capital expenditures, asset sales, debt, equity issuance, and material contracts, potentially constraining responses to competition, industry developments, and customer demand—or leaving Lumentum at a disadvantage if the transaction fails. No-shop provisions restrict soliciting or negotiating alternative transactions. Limited exceptions, Marvell’s matching rights, and the potential termination fee could deter a higher-value competing bid.

Shareholder, integration, workforce, and litigation risks

After closing, Lumentum shareholders would own a substantially smaller portion of the combined company and have less voting influence; only three current Lumentum directors are expected to join Marvell’s board. Integration could be costly and difficult, with risks of losing employees, customers, suppliers, or partners; challenges combining operations, technology, facilities, supply chains, and systems; unexpected costs or delays; and management distraction. Failure to achieve anticipated synergies, or regulatory conditions, could weigh on Marvell’s share price and the value of merger consideration. Marvell’s business, financial position, risks, and governance documents differ from Lumentum’s, and issuance and subsequent public sales of a substantial number of Marvell shares could pressure its share price.

Merger-related uncertainty could prompt key-employee departures, complicate hiring, and impair execution; these effects could worsen if closing is delayed or the deal fails. Merger litigation could add costs and management distraction, result in damages or settlements, or delay or prevent closing through an injunction.

During the last fiscal quarter, no director or Rule 16a-1(f) officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement.