Equity

12 Months Ended

Jun. 29, 2024

Equity [Abstract]

Equity

Note 14. Equity

Description of Lumentum Stock-Based Benefit Plans

Equity Incentive Plan

On November 17, 2023, our stockholders approved amendments to the Amended and Restated 2015 Equity Incentive Plan (the “2015 Plan”) to increase the number of shares of common stock reserved for issuance by an additional 3.0 million shares.

As of June 29, 2024, we had 4.7 million shares subject to stock options, restricted stock units, restricted stock awards, and performance stock units issued and outstanding under the 2015 Plan. Restricted stock units, restricted stock awards, and performance stock units are performance-based, time-based or a combination of both and are expected to vest within four years. The fair value of these grants is based on the closing market price of our common stock on the date of grant. The exercise price for stock options is equal to the fair value of the underlying stock at the date of grant. We issue new shares of common stock upon exercise of stock options. Options generally have a vesting period of three years. As of June 29, 2024, 4.3 million shares of common stock under the 2015 Plan were available for grant.

On November 28, 2023 we adopted and assumed the Cloud Light Share Option Scheme (the “Cloud Light Scheme”) in connection with the Cloud Light acquisition and we have reserved a total of 1.5 million shares of common stock for issuance thereunder, of which stock options covering 1.1 million shares were granted at the Cloud Light Closing date.

Stock Options

In connection with the acquisition of Cloud Light, each of Cloud Light’s outstanding options was exchanged for a combination of cash and options to acquire Lumentum common stock having equivalent value (the “replacement options”) using an exchange ratio of 0.04375 according to the terms in the Merger Agreement. At the Cloud Light Closing date, the replacement options covered 1.1 million shares with a weighted average grant date fair value of $34.63. These replacement options have a total fair value of $38.9 million as of the Closing date, of which $23.5 million attributable to pre-acquisition service was recorded as part of the purchase price consideration and the remaining $15.4 million is recorded as post-acquisition stock-based compensation expense over the vesting period of three years from the Cloud Light Closing date. Refer to “Note 4. Business Combination.”

We estimate the fair value of the replacement options on the date of grant using the Black-Scholes option-pricing model. The assumptions used to estimate the fair value of the replacement options are as follows:

	At the Acquisition Date
Expected terms (years)	3.0
Expected volatility	45.0	%
Risk-free interest rate	5.0	%
Dividend yield	—	%

Restricted Stock Units

Restricted stock units (“RSUs”) under the 2015 Plan are grants of shares of our common stock, the vesting of which is based on the requisite service requirement. Generally, our RSUs are subject to forfeiture and are expected to vest within four years. For annual refresh grants, RSUs generally vest ratably on an annual, or combination of annual and quarterly, basis over three years.

During fiscal 2024, our board of directors approved grants of 2.0 million shares which primarily vest over three years.

In connection with the NeoPhotonics acquisition, we issued awards to certain NeoPhotonics employees, consisting of restricted stock units in exchange for their NeoPhotonics equity awards. The terms of these replacement awards are substantially similar to the original NeoPhotonics equity awards. The replacement awards consisted of 0.4 million restricted stock units with a grant date fair value of $93.4 per share, which represents our closing stock price on August 3, 2022, the acquisition closing date. The total fair value of these replacement awards is $40.2 million, $3.5 million of which is attributable to employee services rendered through the acquisition closing date and was recognized as a component of the purchase consideration. The remaining $36.7 million of the replacement awards is recorded as stock-based compensation over the remaining vesting period.

Performance Stock Units

Performance stock units (“PSUs”) under the 2015 Plan are grants of shares of our common stock that vest upon the achievement of certain performance and service conditions. We begin recognizing compensation expense when we conclude that it is probable that the performance conditions will be achieved. We reassess the probability of vesting at each reporting period and adjust our compensation cost based on this probability assessment. Our PSUs are subject to risk of forfeiture until performance and service conditions are satisfied and generally vest within three years.

During fiscal 2024, our board of directors approved a grant of 0.3 million PSUs with an aggregate grant date fair value of $16.1 million to executive and non-executive employees as part of our revised Annual Incentive Plan. These PSUs are subject to performance targets and service conditions, with a vesting period of one year. The board of directors also approved a grant of 0.4 million PSUs with an aggregate grant date fair value of $20.8 million to certain executive officers and senior management. These PSUs will vest subject to the achievement of revenue targets and certain non-financial performance measurements, as well as service conditions, over three years.

Employee Stock Purchase Plan

The 2015 Purchase Plan provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions and provides a 15% purchase price discount as well as a 6-month look-back period. The 2015 Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. The 2015 Purchase Plan will terminate upon the date on which all shares available for issuance have been sold. Of the 3.0 million shares authorized under the 2015 Purchase Plan, 0.7 million shares remained available for issuance as of June 29, 2024.

Stock-Based Compensation

The impact on our results of operations of recording stock-based compensation by function during the periods presented was as follows (in millions):

	Years Ended
	June 29, 2024		July 1, 2023		July 2, 2022
Cost of sales	$	31.7	$	30.1	$	20.8
Research and development	38.1		41.4		22.1
Selling, general and administrative	59.0		76.9		60.2
Total stock-based compensation	$	128.8	$	148.4	$	103.1

Stock-based compensation for fiscal 2024, 2023 and 2022 includes $6.6 million, $16.0 million and $16.8 million, respectively, of expenses related to PSUs. The amount of stock-based compensation expense recognized in any one period related to PSUs can vary based on the achievement or anticipated achievement of the performance conditions. If the performance conditions are not met or not expected to be met, no compensation expense would be recognized on the underlying PSUs, and any previously recognized compensation expense related to those PSUs would be reversed.

Total income tax benefit associated with stock-based compensation recognized in our consolidated statements of operations during the years presented was as follows (in millions):

	Years Ended
	June 29, 2024		July 1, 2023		July 2, 2022
Income tax benefit associated with stock-based compensation	$	7.5	$	10.4	$	12.5

Approximately $14.4 million and $14.2 million of stock-based compensation was capitalized to inventory as of June 29, 2024 and July 1, 2023, respectively.

As of June 29, 2024, $118.8 million of stock-based compensation cost related to RSU awards granted to our employees remains to be amortized. This expense is expected to be recognized over an estimated amortization period of 1.8 years.

Stock Award Activity

The following table summarizes our awards activity in fiscal 2024, 2023 and 2022 (in millions, except per share amounts):

	Stock Options			Restricted Stock Units			Performance Stock Units
	Number of Shares	Weighted-Average Exercise Price per Share		Number of Shares	Weighted-Average Grant Date Fair Value per Share		Number of Shares	Weighted-Average Grant Date Fair Value per Share
Balance as of July 3, 2021	—	$	—	1.8	$	76.0	0.3	$	75.7
Granted	—	—		1.5	87.8		0.2	85.7
Vested/Exercised	—	—		(1.1)	73.4		(0.2)	76.1
Canceled	—	—		(0.2)	79.9		—	58.7
Balance as of July 2, 2022	—	$	—	2.0	$	85.9	0.3	$	81.9
Replacement Awards Issued	—	—		0.4	93.4		—	n/a
Granted	—			1.8	85.1		0.6	87.9
Vested/Exercised	—	—		(1.3)	85.8		(0.2)	73.2
Canceled	—	—		(0.3)	87.7		(0.1)	89.2
Balance as of July 1, 2023	—	$	—	2.6	$	85.0	0.6	$	89.1
Replacement options in connection with Cloud Light acquisition	1.1	$	34.6	—	—		—	—
Granted	—	—		2.0	52.2		0.7	52.8
Vested/Exercised (1)	—	8.2		(1.3)	85.7		(0.1)	87.7
Canceled	—	—		(0.6)	68.7		(0.3)	78.7
Balance as of June 29, 2024	1.1	$	34.6	2.7	$	62.5	0.9	$	65.5

(1) Vested/exercised number of shares related to stock options is less than 0.1 million.

A summary of awards available for grant for fiscal 2024, 2023 and 2022 is as follows (in millions):

	Awards Available for Grant
Balance as of July 3, 2021	2.3
Authorized	3.0
Granted	(1.7)
Canceled	0.2
Balance as of July 2, 2022	3.8
Assumed in connection with NeoPhotonics acquisition	0.4
Replacement Awards	(0.4)
Authorized	0.9
Granted	(2.4)
Canceled	0.4
Balance as of July 1, 2023	2.7
Authorized in connection with Cloud Light acquisition	1.5
Replacement options in connection with Cloud Light acquisition	(1.1)
Authorized	3.0
Granted	(2.7)
Canceled	0.9
Balance as of June 29, 2024	4.3

Employee Stock Purchase Plan Activity

The 2015 Purchase Plan expense for fiscal 2024, 2023 and 2022 was $4.7 million, $5.0 million, and $4.6 million, respectively. The expense related to the 2015 Purchase Plan is recorded on a straight-line basis over the relevant subscription period. There were 0.4 million, 0.3 million, and 0.2 million shares issued to employees through the 2015 Purchase Plan during fiscal 2024, 2023 and 2022, respectively.

We estimate the fair value of the 2015 Purchase Plan shares on the date of grant using the Black-Scholes option-pricing model. The assumptions used to estimate the fair value of the 2015 Purchase Plan shares during the periods presented were as follows:

	June 29, 2024		July 1, 2023
Expected term (years)	0.5		0.5
Expected volatility	51.9	%	39.7	%
Risk-free interest rate	5.28	%	4.85	%
Dividend yield	—	%	—	%

Repurchase and Retirement of Common Stock

Repurchase Made in Connection with Convertible Note Offering

In fiscal 2023, concurrent with the issuance of the 2029 Notes, we repurchased 2.3 million shares of our common stock in privately negotiated transactions at an average price of $53.49 per share for an aggregate purchase price of $125.0 million. We recorded the aggregate purchase price as a reduction of retained earnings within our consolidated balance sheet. These shares were retired immediately.

In fiscal 2022, concurrent with the issuance of the 2028 Notes, we repurchased 2.0 million shares of our common stock in privately negotiated transactions at an average price of $99.0 per share for an aggregate purchase price of approximately $200.0 million. We recorded the aggregate purchase price as a reduction of retained earnings within our consolidated balance sheet and retired these shares immediately.

Share Buyback Program

On May 7, 2021, our board of directors approved the 2021 share buyback program, which authorizes us to use up to $700.0 million to purchase our own shares of common stock. On March 3, 2022, our board of directors approved an increase in our share buyback program, which authorizes us to use up to an aggregate amount of $1.0 billion (an increase from $700.0 million) to purchase our own shares of common stock through May 2024. On April 5, 2023, our board of directors approved a further increase in our share buyback program to authorize us to use up to an aggregate amount of $1.2 billion (an increase from $1.0 billion) to purchase our own shares of common stock through May 2025.

During fiscal 2024, we did not repurchase any shares of our common stock as part of the share buyback program. During fiscal 2023, we repurchased 0.7 million shares of our common stock as part of the share buyback program at an average price of $65.03 per share for an aggregate purchase price of $40.5 million. Since the approval of the share buyback program by the board of directors, we have repurchased 7.7 million shares in aggregate at an average price of $81.66 per share for a total purchase price of $630.4 million. We recorded the $630.4 million of aggregate purchase price as a reduction of retained earnings within our consolidated balance sheets and immediately retired all repurchased shares. As of June 29, 2024, we have $569.6 million remaining under the share buyback program.

The price, timing, amount, and method of future repurchases will be determined based on the evaluation of market conditions and other factors, at prices determined to be in the best interests of the Company and our stockholders. The stock buyback program may be suspended or terminated at any time.