Lumentum Holdings Inc.

Good day, everyone, and welcome to the Lamentum Holdings third quarter fiscal year 2022 earnings call. All participants will be in the listen-only mode. Please also note today's event is being recorded for replay purposes. At this time, I would like to turn the conference call over to Kathy Tarr, Vice President of Investor Relations. Ms. Tarr, please.

Thank you, Operator. Welcome to Lamentum's fiscal third quarter 2022 earnings call. This is Kathy Tau, Lumentum's Vice President of Investor Relations. Joining me today are Alan Lowe, President and Chief Executive Officer, Wajid Ali, Chief Financial Officer, and Chris Coldren, Senior Vice President and Chief Strategy and Corporate Development Officer. Today's call will include forward-looking statements, including statements regarding our expectations regarding the pending acquisition of Neopatonic, including market opportunity, expected synergies, financial and operating results, and expectations regarding accretion, time to close, strategies of the combined company, and benefits to customers and the markets in which we operate, as well as the impact of COVID-19 on our business and continuing uncertainty in this regard. Trends and expectations for our products and technology, our markets, market opportunity and customers, and our expected financial performance, including our guidance, as well as statements regarding our future revenues, our financial model, and our margin targets. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations, particularly the risk factors described in our SEC filings. We encourage you to review our most recent filings with the SEC. particularly the risk factors described in the quarterly report on form 10Q for the quarter ended January 1st, 2022, and those in the 10Q for the quarter ended April 2nd, 2022 to be filed by Lumentum with the SEC today. The forward-looking statements provided during this call are based on Lumentum's reasonable beliefs and expectations as of today. Lamentum undertakes no obligation to update these statements, except as required by applicable law. Please also note, and thus otherwise stated, all results and projections discussed in this call are non-GAAP. Non-GAAP financials are not to be considered as a substitute for or superior to financials prepared in accordance with GAAP. Lamentum's press release with the fiscal third quarter 2022 results and accompanying supplemental slides are available on our website at www.lumentum.com under the investor section. This includes additional details about our non-GAAP financial measures and a reconciliation between our historical GAAP and non-GAAP results. With that, I'll turn the call over to Alan.

Thank you, Kathy, and good morning, everyone. Strong demand and solid execution by our team around the world resulted in all third quarter financial metrics being at the high end of our guidance range. We are in an excellent position to grow revenue in Q4 and in fiscal 23. And we believe we will see continued revenue growth beyond 2023. Long-term tailwinds are driving our markets and demand for our differentiated products is already strong and growing. Unrelenting growth in data generation and consumption is driving the cloud and networking markets we address. Our customers are just beginning multi-year infrastructure upgrades that require our leading-edge photonics. Use cases for our high-performance lasers for 3D sensing and LiDAR are expanding beyond mobile handsets, and in Q3, we announced a new reference design in building automations. New automotive customers are turning to our lasers for LIDAR and we are engaged with more customers on extended reality applications. Demand for our commercial lasers also continues to grow as industrial and microelectronic factories and semiconductor fabs expand and upgrade their capabilities and increasingly utilize the leading edge lasers we supply. Near term, Telecom customer demand is outpacing the supply of third-party components, most notably semiconductors that we need to build many of our products. Our supply chain team is making excellent progress to alleviate component shortages, which we expect will drive strong sequential growth in telecom revenues in the fourth quarter. We expect this telecom growth combined with the increased output from our recently commissioned Datacom capacity will more than offset normal 3D sensing seasonality in Q4. We expect Q4 revenue will increase sequentially and year on year. Our Q4 revenue outlook would result in a new company high for a fourth quarter. Though component supply is increasing, demand is growing even faster. We expect more than a $100 million revenue impact as a result of the gap between demand and supply in Q4. This is up significantly when compared with an approximate $65 million gap we saw in the third quarter. While we expect these supply shortages to continue to improve with the diligent work of our team and our suppliers, given the accelerating demand environment, we will likely see customer demand outpacing third-party material supply into calendar 2023. neophotonics acquisition remains on track for the previously announced timeline of closing in the second half of calendar 2022. we are working diligently with antitrust authorities in china with their approval being the final key closing condition for the transaction integration planning with the neophotonics team gives me strong conviction that the combination will create value for our customers our suppliers and our shareholders through a more comprehensive portfolio of differentiated products for our cloud, networking, and automotive customers, as well as meaningful cost synergies. Now let me provide some detail on our third quarter results. As expected, telecom and datacom revenue was down quarter on quarter due to supply constraints, despite very strong demand. New applications for our 10G tunable transmission products are accelerating. These include Metro access and fiber deep applications for cable MSO and networking customers, as well as wireless front hall for mobile networking customers. The wireless front hall application is just starting to be deployed and is expected to deliver meaningful revenue by the end of the calendar year. We are increasing our manufacturing capacity for our 10G and soon to be released 25G tunable products in our wafer fab, and our backend assembly and test factories to address the rapid adoption of this differentiated and enabling technology. Pump laser sales are robust and grew more than 50% from the same quarter last year. As we have mentioned previously, elevated pump shipments frequently have been a leading indicator of future telecom demand. In addition, submarine cable suppliers are deploying subsea cables at record levels. driven by the robust demand from hyperscale data center operators. This is another leading indicator of future telecom demand. We expect these infrastructure investments will help propel momentum into double-digit growth starting in fiscal 23 for multiple years. EMLs serving high-speed cloud data center applications reach a new record in revenues. new eml manufacturing capacity will allow us to ramp our datacom shipments even more to help us better fulfill strong customer demand for our differentiated products accordingly we expect fourth quarter eml revenue to increase significantly from the third quarter looking ahead to the fourth quarter we expect telecom and datacom revenue to be up strongly quarter on quarter due to the improvements in IC component supply, but still significantly below the level of customer demand. We continue to work diligently with our suppliers and on alternative sources of supply to alleviate shortages. Turning to industrial and consumer, third quarter revenue was down from last quarter as expected due to 3D sensing seasonality. We are expanding our 3D sensing and LiDAR platforms into new applications in the industrial market. In the third quarter, we announced a reference design with Ambarella for building automation and occupancy sensor systems. The design uses Lumentum's flood illuminator module for high-accuracy time-of-flight 3D sensing, together with Ambarella's AI system on a chip, enabling the application of small sensors with local processing for occupancy monitoring, intelligent space management, and smart retail. In automotive, we have expanded our development activities with new LiDAR customers, and we are very pleased to have entered into a customer-supported development agreement for long-range LiDAR with a market leader in the ADAS space. In addition, we have begun our production ramp of our multi-junction Bixel arrays for HESAI. The customer pipeline for our product-serving in-cabin driver monitoring systems is also growing. In addition, we have early product traction with multiple customers who are developing extended reality solutions, which we expect will come to market in 2023. We expect fourth quarter industrial and consumer revenue to be down sequentially with typical consumer product seasonality. Our commercial lasers revenue was up again quarter on quarter as expected, achieving near record levels, primarily driven by fiber lasers serving automotive and industrial applications. Ultra-fast lasers for manufacturing of semiconductors and consumer electronics also grew sequentially. Looking ahead to the fourth quarter, we expect laser revenue to grow again quarter on quarter, driven by new products and the overall market. We expect laser quarterly revenue to surpass our previous record as this business grows over the coming quarters. Before turning it over to Wajid to run through the numbers, I'd like to acknowledge our employees' commitment to implement sustainable practices. To meet our company-wide goal of net zero carbon emissions by 2030, we have transitioned more sites to renewable energy. Since January, our site in Ottawa holds a renewable energy certificate, and we installed solar panels in our site in Slovenia. Our sites in the United Kingdom started procuring 100% renewable electricity in May, and our San Jose headquarter has achieved the LEED Silver certification, another step forward in our goal of net zero emissions. We are also very proud to have achieved the EcoVadis Gold rating for Lumentum's advanced performance in sustainability. In addition to our progress in sustainability initiatives, I would like to thank our employees around the world all of their hard work and resilience during such challenging times. With that, I'll turn it over to Wajid.