Lumentum Holdings Inc.

11/03/2026 | Press release | Distributed by Public on 11/03/2026 15:53

Quarterly Report for Quarter Ending September 26, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the unaudited condensed consolidated financial statements and the corresponding notes included elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see "Risk Factors" and "Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements relate to, among other things, our proposed Merger with Marvell, our markets and industry, products and strategy, the impact of import and export regulation changes, the expected benefits of our acquisitions, macroeconomic conditions, including supply chain conditions and inventory management by our customers, instability and uncertainty in the banking and financial services markets, and tightening credit markets on our business and results of operations, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, product development and research and development efforts, manufacturing plans, litigation, effective tax rates and tax reserves, our corporate and financial reporting structure, our plans for growth and innovation, our expectations regarding U.S.-China relations, international trade regulation and restrictions (including tariffs, duties, and export controls to be implemented by the U.S. and other countries), market and regulatory conditions, trends and uncertainties in our business and financial results, and are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "project," "seek," "should," "target," "will," "would," "contemplate," "predict," "potential" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" included under Part II, Item 1A of this Quarterly Report and Part I, Item IA of our Annual Report on Form 10-K for the year ended June 27, 2026. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are a global leader in optical and photonic technologies and an industry-leading provider of optical and photonic products based on revenue and market share. Our products are essential to a range of cloud, artificial intelligence and machine learning ("AI/ML"), telecommunications, consumer, and industrial end-market applications.
We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that will increase the need for our photonics products and technologies. We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum's products and technology enable the scaling of these optical networks and data centers to higher capacities. AI/ML has caused a dramatic surge in the growing demands on data networking in cloud data centers and accelerated the usage of optical components and modules. We expect that the accelerating shift to digital and virtual approaches to many aspects of work and life will continue into the future. Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technologies address. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser-based approaches, including the types of lasers Lumentum supplies. Laser-based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles will over time significantly add to our long-term market opportunity.
To maintain and grow our market and technology leadership positions, we are continually investing in new and differentiated products and technologies and customer programs that address both nearer-term and longer-term growth opportunities, both organically and through acquisitions, as well as continually improving and optimizing our operations. Over many years, we have developed close relationships with market-leading customers. We seek to use our core optical and photonic technologies and our volume manufacturing capability to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide.
We disaggregate revenue by type of product, which are Components and Systems, and by geography. A Components product is defined as one of the individual building blocks that goes into creating a larger solution. It is typically not a complete solution on its own but rather a specialized element that enables system functionality. This includes semiconductor laser chips, laser sub-assemblies, line subsystems and wavelength management systems. These are supplied to customers who then integrate them into their own full system solutions. Components represent foundational parts that support or enable that system's operation and include optical chips and subsystems that are supplied to cloud data center operators, AI/ML infrastructure providers, and network equipment manufacturer customers.
A Systems product is defined as a complete, stand-alone solution that delivers full functionality to the end customer. It is typically self-contained and ready to operate within a customer's network or application environment. This includes optical modules, optical circuit switches, and industrial lasers such as short-pulse solid-state lasers and kilowatt-class fiber lasers. These products integrate multiple technologies and subsystems into a finished solution that directly addresses a customer's needs. A system represents the end-product that can be deployed and used independently.
Our products enable high-capacity optical links for cloud computing, AI/ML workloads, and data center interconnect ("DCI") applications, as well as for communications service provider networks. Our offerings support access (local), metro (intracity), long-haul (intercity and global), and submarine (undersea) network infrastructure. Our products serve enterprise network infrastructure needs, including storage area networks ("SANs"), local area networks ("LANs"), and wide area networks ("WANs"). Demand for our products is fueled by the ongoing expansion of network capacity required to support cloud services, AI/ML processing, streaming video, video conferencing, wireless and mobile connectivity, and the internet of things ("IoT"). In addition, our industrial laser products are used for precision material processing across diverse industries, including semiconductor and microelectronics fabrication, electric vehicle and battery production, metal cutting and welding, and advanced manufacturing that emphasize greater manufacturing precision, flexibility, and sustainability.
Operating Segment Information
We operate in one reportable segment as a single, integrated enterprise, with a unified management team overseeing operations across the entire company, rather than through discrete operating segments. The chief operating decision maker ("CODM") is our Chief Executive Officer, who reviews financial information presented as a single enterprise for purposes of allocating resources and evaluating financial performance.
The CODM assesses performance and allocates resources based on condensed consolidated net income from our condensed consolidated statements of operations. This metric is used to set budgets, evaluate performance, review actual results, and determine whether to reinvest profits, pursue acquisitions, or make other capital management decisions. Segment expenses are reflected in our condensed consolidated statements of operations and cash flows, while segment assets are measured through the consolidated assets on the condensed consolidated balance sheets.
Industry Conditions
Through fiscal year 2024, we experienced significant fluctuations in demand as customers delayed projected shipments or built up inventory in response to supply shortages and then brought down inventories as supply chain constraints eased. Our revenue fluctuated in response to these changes in demand and our margins were adversely impacted as we were not able to fully recover costs, such as underutilized manufacturing capacity. However, beginning in the first quarter of fiscal year 2025, network equipment manufacturers normalized inventory levels; and since then, we have seen increasing demand from AI and cloud customers as they continue to expand their data centers, driven in part by the continued advances in cloud and AI infrastructure. This demand is outpacing our current supply, which has required us to make decisions on supply allocation. We are investing in manufacturing capacity, both internally and with contract manufacturers, to address increased demand.
Our supply chain is complex, and we need to manage long-term supply of certain components required to build our products while confronted with fluctuating demand from our customers. From time to time, we experience logistics and supply chain issues and shortages of the types of components we and our customers require in our products, and when we experience these shortages, we have had to incur incremental supply and procurement costs in order to increase our ability to fulfill demands from our customers or make allocation decisions, which may harm our relationships with our customers.
Due to worldwide operations, we and our customers are also subject to risks relating to the global trade environment. We are actively monitoring and assessing the global trade environment, particularly with respect to various proposed and enacted changes in tariff regulations and trade restrictions. The ongoing uncertainty surrounding trading policies, including the potential for additional tariffs, restrictions related to our customers and retaliatory measures by non-U.S. governments, continues to create a volatile environment that could disrupt our operations. The imposition of tariffs on certain imported goods and materials and export controls on critical components may increase our costs and place upward pressure on the cost of goods sold, which, in turn, may reduce our gross margins if we are unable to pass these costs onto customers through price increases.
For more information on risks associated with supply chain constraints and customer inventory management, see the section titled "Risk Factors" in Item 1A of Part II of this report.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP") as set forth in the Financial Accounting Standards Board's Accounting Standards Codification ("ASC"). We also consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission ("SEC"). GAAP, as set forth within the ASC, requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
•Inventory Valuation
•Revenue Recognition
•Income Taxes
•Business Combinations
•Goodwill and Intangible Assets - Impairment Assessment
Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended June 27, 2026 provides a complete discussion of our critical accounting policies and estimates. There have been no significant changes to these policies during the three months ended September 26, 2026.
Recently Issued Accounting Pronouncements
Refer to "Note 2. Recently Issued Accounting Pronouncements" in the notes to condensed consolidated financial statements.
Results of Operations
The results of operations for the periods presented are not necessarily indicative of results to be expected for future periods. The following table summarizes selected unaudited condensed consolidated statements of operations items as a percentage of net revenue:
Three Months Ended
September 26, 2026 September 27, 2025
Net revenue by type of products:
Components 59.7 % 71.0 %
Systems 40.3 29.0
Net revenue 100.0 100.0
Cost of sales 47.5 62.3
Amortization of acquired developed intangibles 1.5 3.7
Gross profit 51.0 34.0
Operating expenses:
Research and development 15.2 15.2
Selling, general and administrative 7.9 15.9
Restructuring and related charges - 1.6
Gain on sale of business, net (0.6) -
Total operating expenses 22.5 32.7
Income from operations 28.5 1.3
Other income (expense), net:
Interest expense (0.2) (1.1)
Interest and other income, net 1.0 0.8
Total other income (expense), net 0.8 (0.3)
Income before income taxes 29.3 1.0
Income tax provision 0.8 0.2
Net income 28.5 % 0.8 %
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):
Three Months Ended
September 26, 2026 September 27, 2025 Change Percentage Change
Net revenue by type of products:
Components $ 754.2 $ 379.2 $ 375.0 98.9 %
Systems 508.4 154.6 353.8 228.8 %
Net revenue $ 1,262.6 $ 533.8 $ 728.8 136.5 %
Gross profit $ 644.0 $ 181.5 $ 462.5 254.8 %
Gross margin 51.0 % 34.0 %
Research and development $ 191.8 $ 81.4 $ 110.4 135.6 %
Percentage of net revenue 15.2 % 15.2 %
Selling, general and administrative $ 99.3 $ 85.1 $ 14.2 16.7 %
Percentage of net revenue 7.9 % 15.9 %
Restructuring and related charges $ - $ 8.3 $ (8.3) n/a
Percentage of net revenue n/a 1.6 %
Gain on sale of business, net $ (6.9) $ - $ (6.9) n/a
Percentage of net revenue (0.6) % n/a
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):
Three Months Ended
September 26, 2026 September 27, 2025
Amount % of Total Amount % of Total
Net revenue:
Americas:
United States $ 297.4 23.6 % $ 93.7 17.6 %
Mexico 230.8 18.3 73.6 13.8
Other Americas 1.1 0.1 8.6 1.6
Total Americas $ 529.3 42.0 % $ 175.9 33.0 %
Asia-Pacific:
Hong Kong $ 187.1 14.8 % $ 92.9 17.4 %
Thailand 227.5 18.0 109.1 20.4
China 162.0 12.8 49.3 9.2
Japan 39.0 3.1 21.0 3.9
Other Asia-Pacific 69.9 5.5 49.4 9.3
Total Asia-Pacific $ 685.5 54.2 % $ 321.7 60.2 %
EMEA $ 47.8 3.8 % $ 36.2 6.8 %
Total net revenue $ 1,262.6 100.0 % $ 533.8 100.0 %
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):
Three Months Ended
September 26, 2026 September 27, 2025
Foreign exchange (losses) gains, net $ (6.7) $ 1.5
Interest and investment income, net 20.4 8.6
Inducement expense and others (0.8) (5.9)
Total other income, net $ 12.9 $ 4.2
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):
Three Months Ended
September 26, 2026 September 27, 2025
Income tax provision $ 10.0 $ 1.0
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):
Payments Due
Total Less Than 1 Year More Than 1 Year
Contractual Obligations
Asset retirement obligations $ 9.1 $ 0.1 $ 9.0
Operating lease liabilities, including imputed interest (1)
32.5 14.8 17.7
Pension plan contributions (2)
1.8 1.8 -
Purchase obligations (3)
2,948.9 2,199.1 749.8
Term loans - principal (5)
90.8 51.5 39.3
Term loans - interest (5)
1.0 0.5 0.5
Convertible notes - principal (4)
1,317.5 4.2 1,313.3
Convertible notes - interest (4)
27.6 5.2 22.4
Others 145.6 37.8 107.8
Total $ 4,574.8 $ 2,315.0 $ 2,259.8
(1) The amounts of operating lease liabilities do 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):
September 26, 2026 June 27, 2026
Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value
2032 Notes $ 1,256.4 $ 6,438.4 $ 1,256.1 $ 5,411.1
2029 Notes 27.1 368.1 54.7 640.2
2028 Notes 21.1 151.0 179.1 1,108.7
2026 Notes 4.2 40.0 54.7 447.2
$ 1,308.8 $ 6,997.5 $ 1,544.6 $ 7,607.2
The table below summarizes the applicable conversion price and the equivalent 130% of the conversion price of each series of Notes (per share amount):
Conversion Price (1)
130% of Conversion Price (1)
2032 Notes $ 187.77 $ 244.10
2029 Notes 69.54 90.40
2028 Notes 131.03 170.34
2026 Notes 99.29 129.08
(1) Since the closing price of our stock continued to be at least 130% of the applicable conversion price for each series of Notes for 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):
September 26, 2026 June 27, 2026
Short-term Long-term Total Short-term Long-term Total
SMBC Term Loans $ 45.8 $ 27.8 $ 73.6 $ 46.8 $ 28.0 $ 74.8
Mizuho Term Loan 5.7 11.5 17.2 5.5 12.5 18.0
Total $ 51.5 $ 39.3 $ 90.8 $ 52.3 $ 40.5 $ 92.8
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 positions of $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.
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