Viavi Solutions Inc. (VIAV) Earnings & Analysis

Latest quarter

Viavi reported fiscal first-quarter revenue of $469.3 million, up 56.9% from $299.1 million a year earlier. Revenue and non-GAAP earnings per share both exceeded the consensus, while revenue also finished above the company’s own guidance range.

The filing attributed revenue growth to data center demand for lab, production and field products, the acquisition of Spirent businesses, and demand for aerospace and defense products. The acquired Spirent businesses contributed $52.7 million. Viavi said its Network and Service Enablement business grew, although lower wireless volume offset some of the increase. Optical Security and Performance Products revenue also rose, driven by anti-counterfeiting, other products and 3D sensing.

Viavi’s gross margin increased to 61.2% from 56.5%. The filing attributed the increase to higher volume, product mix and tariff refunds, partly offset by higher amortization of acquired intangibles. Cash provided by operating activities was $104.7 million, which CFO Ilan Daskal attributed to higher net income and the timing of working capital.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

Revenue came in within or above the company’s guide in 2 of the last 2 quarters it guided.

What management said on the call

CEO Oleg Khaykin said data center customers were buying lab, production and field instruments for expanding their infrastructure. He also reported demand for aerospace and defense positioning, navigation and timing products, as well as communications and avionics equipment.

Khaykin said service-provider sales rose with seasonal demand, including orders for fiber monitoring and cable instruments. He saw early signs of a multiyear replacement cycle for equipment bought from 2020 through 2022, while saying wireless products remained constrained by service-provider spending. He expects wireless demand to benefit over the medium term from AI-RAN and 6G development.

In response to questions about semiconductor testing, Khaykin said Viavi had made its first shipments into assembly and test. He expects that business to exceed $100 million in a couple of years, and said fiber-optic and connector manufacturing were also opening markets for its test equipment. On margins, he identified revenue growth as the main driver of operating-margin expansion and said the acquired Spirent business helped because it carried higher margins.

CFO Ilan Daskal said the quarter’s non-GAAP operating margin included a net benefit from tariff refunds, offset by an additional week of some variable costs. He said Viavi spent about $150 million on share repurchases during the quarter and that its board had authorized a new $500 million program. Daskal said capital allocation would continue to focus on organic growth, potential acquisitions and opportunistic repurchases.

For the quarter ahead, Daskal expects demand from data center and aerospace and defense customers to lift Network and Service Enablement revenue. He expects Optical Security and Performance Products revenue to decline sequentially with seasonal demand for 3D sensing, anti-counterfeiting and other products.

Guidance

For fiscal Q2, Viavi expects revenue of $505.0 million to $515.0 million, compared with its prior-quarter guide of $450.0 million to $460.0 million. It expects non-GAAP earnings per share of $0.50 to $0.52, versus the prior-quarter guide of $0.40 to $0.42.

The company expects Network and Service Enablement revenue of $426.0 million to $434.0 million and Optical Security and Performance Products revenue of $79.0 million to $81.0 million. Daskal also expects sequential revenue growth to continue through the rest of the fiscal year.