Lumentum Holdings Inc.

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

Financial data for the three months ended September 26, 2026

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

Net Revenue

Net revenue increased by $728.8 million, or 136.5%, during the three months ended September 26, 2026 compared to the three months ended September 27, 2025, driven by a $375.0 million increase in Components products and $353.8 million increase in Systems products.

The Components products net revenue growth was primarily driven by the ramp of laser chip and laser assembly product shipment, which represent 66% of the total growth to support strong, broad-based demand across intra-data center, data center interconnect, and long-haul applications. The remaining 34% of Components net revenue growth was primarily due to an increase in shipment volume of data transport products, encompassing line subsystems solutions for long-haul terrestrial networks and charge pump products used in undersea network installations.

The Systems products net revenue growth was primarily driven by our cloud transceiver product lines which increased by more than 266% due to an increase in shipment volume. We also continued the ramp of optical circuit switch shipments, which contributed more than $108.0 million of revenue during the three months ended September 26, 2026 and we remain on track for manufacturing expansion over the coming quarters to support future growth.

During the three months ended September 26, 2026, two end customers individually accounted for 37% and 11% of our total net revenue, respectively. During the three months ended September 27, 2025, two end customers individually accounted for 22% and 21% of our total net revenue, respectively. We had no other end customers that represented 10% or greater of our total net revenue for the respective periods.

Revenue by Region

We operate in three geographic regions: Americas, Asia-Pacific, and EMEA (Europe, Middle East, and Africa). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers.

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

For the three months ended September 26, 2026, net revenue from customers outside the United States, based on customer shipping locations, represented 76.4% of net revenue.

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

Gross Margin

Gross margin for the three months ended September 26, 2026 increased to 51.0% from 34.0% for the three months ended September 27, 2025, primarily driven by higher revenue from our laser chip, laser assembly, and data transport products as well as our cloud transceiver product lines and optical circuit switch products. Approximately 42% of the gross margin dollar increase was driven by lower manufacturing costs as a percentage of revenue, primarily due to higher internal factory utilization. Additionally, 45% of the gross margin increase was driven by a mix shift to higher margin products. The remaining 13% increase in gross margin relates to the decrease in amortization of acquired intangibles.

The markets in which we sell products are undergoing product, architectural and business model transitions, driven in part by the deployment of AI, high customer concentrations, are highly competitive, are price sensitive and/or are affected by customer seasonality and have variants in buying patterns. We expect these factors to result in variability of our gross margin, and our gross margin may be subject to increasing downward pressure due to these factors.

Research and Development (“R&D”)

R&D expense increased by $110.4 million, or 135.6% during the three months ended September 26, 2026 compared to the three months ended September 27, 2025, primarily due to an $89.7 million increase in stock-based compensation expense driven by equity award modification associated with the retirement of a certain executive announced during the quarter, $10.7 million increase in payroll related expenses and benefits primarily driven by higher headcount and equity-related taxes, and an $8.6 million increase in charges related to R&D programs.

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

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

SG&A expense increased by $14.2 million, or 16.7%, during the three months ended September 26, 2026 compared to the three months ended September 27, 2025, primarily due to a $12.4 million increase in payroll related expenses and benefits primarily driven by higher headcount and equity-related taxes, and a $2.0 million increase in stock-based compensation.

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

Restructuring and Related Charges

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

During the three months ended September 26, 2026, we did not record any restructuring and related charges compared to $8.3 million of restructuring and related charges for the three months ended September 27, 2025 related to a reduction in force in order to enhance operational efficiency and realign our investments toward the most critical initiatives.

Interest Expense

Interest expense is primarily driven by interest on our convertible notes and term loans. During the three months ended September 26, 2026 and September 27, 2025, we recorded interest expense of $2.4 million and $5.7 million, respectively. The decrease in interest expense for the three months ended September 26, 2026 was primarily due to the early conversion of the 2026 Notes, 2028 Notes and 2029 Notes in the first quarter of fiscal year 2027 and fiscal year 2026 as well as the equitization of a portion of those Notes in fiscal year 2026, offset in part by the interest expense from the 2032 Notes issued in September 2025. Interest expense also includes the amortization of the debt issuance costs of our convertible notes.

Interest and Other Income, Net

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

Other income, net for the three months ended September 26, 2026 increased by $8.7 million compared to the three months ended September 27, 2025 primarily due to an increase of $11.8 million in interest and investment income driven by the $2.0 billion proceeds from issuance of Series A Convertible Preferred Stock in fiscal year 2026, which was invested in money market funds. In addition, there was no inducement expense in the three months ended September 26, 2026 compared to $5.9 million in the three months ended September 27, 2025 related to the partial repurchase of 2026 Notes. These were offset in part by an increase in net foreign exchange losses of $8.2 million as the U.S. dollar weakened against the underlying currencies for certain of our liabilities, including term loans.

Provision for Income Taxes

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

We recorded a tax provision of $10.0 million and $1.0 million for the three months ended September 26, 2026 and September 27, 2025, respectively. Our tax provision for the three months ended September 26, 2026 includes a discrete tax benefit of 37.0 million primarily related to the tax benefit from a windfall in connection with stock-based compensation vested during the quarter. Our tax provision for the three months ended September 27, 2025 includes a discrete tax benefit of $0.6 million primarily related to the tax benefit from a windfall in connection with stock-based compensation vested during the quarter and foreign return to provision differences, partially offset by the tax expense from currency re-measurement of certain tax related accounts.

Our estimated effective tax rate for the three months ended September 26, 2026 differs from the 21% U.S. statutory rate primarily due to the income tax benefits from foreign rate differential and various income tax credits, partially offset by the income tax expense from foreign income inclusions in the U.S.

We regularly assess our ability to realize our deferred tax assets on a quarterly basis and will establish a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. As of September 26, 2026, we maintain a valuation allowance on deferred tax assets related to U.S. federal foreign tax credit carryforwards and California research and development credit carryforwards. We also maintain a full valuation allowance on our Canada deferred tax assets, and a partial valuation allowance on our U.K. deferred tax assets. We will continue to assess the need for a valuation allowance against our remaining deferred tax assets and may increase or decrease our valuation allowance materially in the future. Any such change will be recognized as a component of the provision for income taxes in the period in which the change in assessment occurs.

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

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

Financial Condition

Liquidity and Capital Resources

As of September 26, 2026 and June 27, 2026, our cash and cash equivalents were $1,272.2 million and $2,043.5 million, respectively. As of September 26, 2026 and June 27, 2026, our short-term investments of $707.4 million and $694.9 million, respectively, were all held in the United States. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit, and commercial paper. Our investment policy and strategy provide for diversification of investments and is focused on the preservation of capital and supporting our liquidity requirements.

The total amount of cash held by the non-United States entities as of September 26, 2026 and June 27, 2026 was $426.9 million and $417.9 million, respectively, which was primarily held by entities incorporated in the United Kingdom, Japan, Hong Kong, China, Switzerland, and Thailand. Although cash currently held in the United States, as well as cash generated in the United States from future operations, is expected to cover our normal operating requirements, a substantial amount of additional cash could be required for other purposes, such as capital expenditures to support our business and growth, including costs associated with increasing internal and external manufacturing capabilities, strategic transactions and partnerships, and future acquisitions.

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

Beginning in fiscal year 2023, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize research and development expenditures and amortize domestic expenditures over five years and foreign expenditures over fifteen years. The One Big Beautiful Bill Act (“OBBBA”) enacted in July 2025 eliminates capitalization of domestic research and development expenditures for taxable years beginning on or after January 1, 2025, but retains the requirement to amortize foreign research and development expenditures over 15 years. In addition, the OBBBA permits all taxpayers who paid or incurred domestic research and development expenses in tax years beginning on or after January 1, 2022 and before January 1, 2025 to elect to deduct any remaining unamortized amount over a one-year period or ratably over a two-year period (at the taxpayer’s election), accelerating the benefit of such expenses. We have evaluated these changes and included their impact in our tax provision for fiscal year 2026.

Liquidity and Capital Resources Requirements

We believe that our cash and cash equivalents as of September 26, 2026, available borrowing capacity under our Credit Agreement, and cash flows from our operating activities will be sufficient to meet our liquidity and capital spending requirements for at least the next 12 months from the issuance of our financial statements for the first quarter of our fiscal year 2027.

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

•the settlement of any conversion or redemption of our convertible notes in cash;

•global economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers, including the impact of uncertainty in the banking and financial services industries;

•fluctuations in demand for our products as a result of changes in regulations, tariffs or other trade barriers, and trade relations in general;

•changes in accounts receivable, inventory or other operating assets and liabilities, which affect our working capital;

•increase in capital expenditures to support our business and growth, including increases in manufacturing capacity;

•the tendency of customers to delay payments or to negotiate favorable payment terms to manage their own liquidity positions;

•timing of payments to our suppliers;

•volatility in fixed income and credit, which impact the liquidity and valuation of our investment portfolios;

•cost and availability of credit, which may impact available financing for us, our customers or others with whom we do business;

•volatility in foreign exchange markets, which impacts our financial results;

•possible investments or acquisitions of complementary businesses, products or technologies, or other strategic transactions or partnerships;

•issuance of debt or equity securities, or other financing transactions, including bank debt;

•potential funding of pension liabilities either voluntarily or as required by law or regulation; and

•acquisitions or strategic transactions.

Contractual Obligations

The following table summarizes our contractual obligations as of September 26, 2026, and the effect such obligations are expected to have on our liquidity and cash flow (in millions):

(1) The amounts of operating lease liabilitiesdo not include any sublease income nor do they include payments for short-term leases or variable lease payments. As of September 26, 2026, we expect to receive sublease income of approximately $4.6 million over the remaining sublease periods.

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

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

(4) The amounts related to convertible notes include principal and interest on our 0.50% Convertible Senior Notes due 2026 (the “2026 Notes”), principal and interest on our 0.50% Convertible Senior Notes due 2028 (the “2028 Notes”), principal and interest on our 1.50% Convertible Senior Notes due 2029 (the “2029 Notes”), and principal and interest on our 0.375% Convertible Senior Notes due 2032 (the “2032 Notes”). The 2026 Notes have a maturity date of December 15, 2026, the 2028 Notes have a maturity date of June 15, 2028, the 2029 Notes have a maturity date of December 15, 2029, and the 2032 Notes have a maturity date of March 15, 2032. The principal balances of our convertible notes are reflected in the payment periods in the table above based on their respective contractual maturities, which may be accelerated if the holders elect to convert the notes prior to maturity. The principal amounts of all of our outstanding convertible notes must be settled in cash. The actual cash settlement may be higher if we decide to settle the conversion value in excess of the principal amounts in cash, rather than issuing shares of common stock. Refer to “Note 9. Debt” for further details.

(5) The amounts related to term loans include principal and interest on our Sumitomo Mitsui Banking Corporation (“SMBC”) 2029 and 2026 Term Loans with a fixed annual interest rate of 0.88% and 1.44%, respectively, and Mizuho Bank, Ltd. (“Mizuho”) term loan with a fixed annual interest rate of 0.90%. The SMBC Term Loans require monthly principal payments with the remaining principal due on the loan maturity dates of July 31, 2029 and December 19, 2026 while the Mizuho term loan requires quarterly principal payments with the final payment due on September 20, 2029.

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

Indebtedness

The carrying amounts and estimated fair values of the convertible notes are as follows for the periods presented (in millions):

The table below summarizes the applicable conversion price and the equivalent 130% of the conversion price of each series of Notes (per share amount):

(1) Since the closing price of our stock continued to be at least 130% ofthe applicable conversion price for each series of Notesfor 20 of the last 30 trading days of our first quarter of fiscal year 2027, all of our Notes remain convertible at the option of the holders during the second quarter of fiscal year 2027. The outstanding Notes are recorded as current portion of long-term debt, which is presented as current liabilities in our condensed consolidated balance sheets as of September 26, 2026 and June 27, 2026, net of unamortized debt issuance costs. If the Notes are converted by holders, we are required to satisfy our conversion obligations with respect to each series of converted Notes by paying cash equal to the principal amounts of such series of converted Notes and paying or delivering, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at our election, with respect to any conversion value in excess thereof.

As of October 30, 2026, we have received early conversion requests totaling $779.9 million aggregate principal amount of the Notes (or the “Converted Notes”), which principal amount will be settled in cash and the conversion value in excess thereof will be settled in cash, shares of common stock, or a combination of cash and shares of common stock, at our election, in accordance with Indenture governing the applicable series of Converted Notes. As of September 26, 2026 and June 27, 2026, the aggregate cumulative principal amount of the Converted Notes settled in cash was $756.2 million and $519.4 million, respectively. We accounted for these conversions in accordance with ASC 470-20 Debt with Conversion and Other Options wherein the carrying amount of the Converted Notes, including any unamortized issuance costs, forfeited interest, and cash transferred are recognized in additional paid-in capital account to reflect the shares issued and no gain or loss is recognized.

The principal amount outstanding of our SMBC Term Loans and the Mizuho Term Loan, collectively referred to as Japan Term Loans, are as follows for the periods presented (in millions):

The short-term portion of the Japan Term Loans is recorded as current liabilities while the long-term portion is recorded as long-term debt in our condensed consolidated balance sheets.

On December 19, 2025, we entered into a Credit Agreement providing for a senior secured revolving credit facility in an aggregate principal amount of $400.0 million, including a $23.0 million sublimit for the issuance of letters of credit. As of September 26, 2026, there were no borrowings outstanding under the revolving credit facility. For additional information regarding the Credit Agreement, refer to “Note 9. Debt”, in the condensed consolidated financial statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q. For additional information, refer to “Part II. Item 1A. Risk Factors”.

Unrecognized Tax Benefits

As of September 26, 2026 and June 27, 2026, our other non-current liabilities include unrecognized tax benefit for uncertain tax positionsof $89.4 million and $67.2 million, respectively. We are unable to reliably estimate the timing of future payments related to uncertain tax positions.

Cash Flows

Our balance of cash and cash equivalents decreased by $771.3 million from $2,043.5 million as of June 27, 2026 to $1,272.2 million as of September 26, 2026. The decrease in cash and cash equivalents during the three months ended September 26, 2026 was due to cash used in financing activities of $804.4 million and cash used in investing activities of $234.6 million, offset by cash from operating activities of $267.7 million.

Operating Cash Flow

Cash from operating activities was $267.7 million during the three months ended September 26, 2026, which primarily reflects a net income of $360.3 million and non-cash items of $208.6 million, partially offset by changes in operating assets and liabilities of $301.2 million. Changes in operating assets and liabilities were primarily driven by a $105.4 million increase in accounts receivable mainly driven by higher revenue, a $114.2 million increase in inventories driven by inventory builds to support market demand and a $114.2 million increase in prepayments and other current and non-current assets primarily driven by increase in value-added-tax receivables due to higher capital expenditures and inventory purchases and inventory-related prepayments with certain suppliers, a $78.8 million decrease in income tax liabilities primarily due to income tax payments, and a $13.6 million decrease in accrued payroll and related expenses mainly driven by payments of employee cash bonuses, offset by an $87.0 million increase in accounts payable primarily due to higher inventory purchases and capital expenditures, and a $38.5 million increase in accrued expenses and other current and non-current liabilities driven by contractual liabilities.

Cash from operating activities was $57.9 million during the three months ended September 27, 2025, which primarily reflects a net income of $4.2 million and non-cash items of $108.3 million, offset by changes in operating assets and liabilities of $54.6 million. Changes in operating assets and liabilities were primarily driven by a $28.8 million increase in accounts payable primarily due to higher inventory purchases and capital expenditures, an $11.4 million increase in accrued payroll and related expenses mainly driven by our accrual on employee cash bonuses, outstanding payroll taxes related to stock-based compensation and ESPP contribution, and a $24.8 million increase in accrued expenses and other current and non-current liabilities driven by contractual liabilities, accrued interest on convertible notes and provision for non-cancellable commitments, offset by a $56.9 million increase in accounts receivable mainly driven by higher revenue, and a $57.5 million increase in inventories driven by inventory builds to support market demand.

Investing Cash Flow

Cash used in investing activities of $234.6 million during the three months ended September 26, 2026 was attributable to $229.8 million of capital expenditures, $16.3 million of net payments from sales or maturities of short-term investments, and a $5.0 million purchase of an investment, offset by $10.9 million of net proceeds from the sale of a business, and $5.6 million of proceeds from sale of assets.

Cash used in investing activities of $67.8 million during the three months ended September 27, 2025 was attributable to $76.2 million of capital expenditures, offset by $8.4 million of net proceeds from sales or maturities of short-term investments.

Financing Cash Flow

Cash used in financing activities of $804.4 million during the three months ended September 26, 2026 was attributable to $493.3 million of payments for Notes conversions, $306.9 million of tax payments related to net share settlement of restricted stock, and $4.7 million of principal payments on term loans, offset by $0.5 million of proceeds from employee stock plans.

Cash from financing activities of $262.1 million during the three months ended September 27, 2025 was attributable to $1,255.7 million of net proceeds from the issuance of 2032 Notes and $1.5 million of proceeds from employee stock plans, offset by $843.1 million of payments for partial repurchase of the 2026 Notes, $102.0 million of payments for the 2032 Capped Call Options, $47.4 million of tax payments related to net share settlement of restricted stock, and $2.6 million of principal payments on term loans.