Lumentum Holdings Inc. (NASDAQ:LITE)

The common-size income statement reveals significant shifts in the company’s profitability and cost structure over the analyzed period. A notable trend is the increasing proportion of revenue consumed by the cost of sales, alongside escalating operating expenses, ultimately impacting net income.

Gross Profit

Gross profit as a percentage of net revenue initially increased from 38.73% in 2020 to 46.05% in 2022, indicating improved production efficiency or pricing power. However, this trend reversed sharply, declining to 18.50% in 2024 before a partial recovery to 27.96% in 2025. This volatility suggests challenges in maintaining consistent gross margins.

Cost of Sales

The cost of sales percentage increased substantially from -58.06% in 2020 to -75.32% in 2024, representing a significant portion of revenue. While decreasing slightly to -67.05% in 2025, it remains considerably higher than earlier periods, potentially indicating rising input costs or less efficient production processes. This increase directly contributed to the decline in gross profit.

Operating Expenses

Operating expenses, encompassing research and development, selling, general, and administrative costs, and restructuring charges, demonstrate a consistent upward trend as a percentage of net revenue. From -26.58% in 2020, they rose to -50.43% in 2024, before decreasing to -38.91% in 2025. The substantial increase in 2024 was driven by increases in selling, general and administrative expenses and restructuring charges. This expansion of operating expenses significantly eroded profitability.

Research and Development

Research and development expenditure consistently increased as a percentage of net revenue, from -11.83% in 2020 to -22.23% in 2024, before decreasing to -18.47% in 2025. This suggests a growing commitment to innovation, but also contributes to higher operating costs.

Profitability

Income from operations as a percentage of net revenue peaked at 30.24% in 2021 but experienced a dramatic decline, culminating in -31.93% in 2024. While improving to -10.95% in 2025, it remains negative. This indicates a substantial deterioration in core operational profitability. Net income followed a similar pattern, declining from 8.07% in 2020 to -40.21% in 2024, with a recovery to 1.57% in 2025.

Other Items

Several non-recurring items impacted net income. A merger termination fee significantly boosted income in 2021 (11.91%). Restructuring and related charges increased substantially in 2024 (-5.34%). A gain on the sale of a facility appeared in 2025 (2.12%). These items demonstrate volatility in reported earnings.

Tax Rate

The income tax rate fluctuated considerably, shifting from a benefit in some years to a provision in others. The rate in 2024 was particularly high (-10.36%), likely due to the significant loss incurred that year. The 2025 rate was positive (12.04%) due to the small net income.

In summary, the company experienced a period of declining profitability, driven by increasing costs of sales and operating expenses. While there is a slight indication of improvement in 2025, the overall trend suggests significant challenges in maintaining consistent profitability and efficient operations.