Viavi Solutions Inc. (NASDAQ:VIAV) Q1 2024 Earnings Call Transcript

Viavi Solutions Inc. (NASDAQ:VIAV) Q1 2024 Earnings Call Transcript November 2, 2023

Viavi Solutions Inc. misses on earnings expectations. Reported EPS is $0.04371 EPS, expectations were $0.1.

Operator: Hello, everyone. My name is Alexis. Welcome to the Viavi Solutions First Quarter Full Year 2024 Earnings Call. [Operator Instructions]. I will now turn the line over to Pam Avent, Viavi Solutions Interim CFO. Please go ahead.

Pam Avent: Thank you, Alexis. Welcome to Viavi Solutions' First Quarter fiscal year 2024 earnings call. My name is Pam Avent, Viavi Solutions Interim CFO. Also joining me on today's call is Oleg Khaykin, our President and CEO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance we provide during this call, are valid only as of today. Viavi undertakes no obligation to update these statements.

A close-up view of telecommunications infrastructure towers, emitting radio signals across vast rural landscapes.

Please also note that, unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release plus our supplemental earnings slides, which include historical financial tables, are available on Viavi Solutions's website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available by 4:30 p.m. Pacific Time this evening on our website. Let's start with our quarterly financial results. Fiscal Q1 revenue came in at $247.9 million, slightly below the midpoint of our guidance range $240 million to $260 million. Revenue was down sequentially 6% and down 20.1% on a year-over-year basis.

Operating profit margin of 12.4% was slightly below our guidance range of 12.7% to 14.2%, up by 70 basis points from the prior quarter, and down 930 basis points from the prior year. EPS at $0.09 met the low end of our guidance range of $0.09 to $0.11, down $0.01 sequentially and down $0.14 year over year. The current fully diluted share count was 224.2 million shares during the quarter, down from 230.4 million shares in the prior year. Cash flow from operations for our first quarter was $50.3 million versus $26.6 million a year ago. Now moving to our quarterly results, by business segment for Q1. Starting with NSE. NSE revenue came in at $170.4 million, above the low end of our guidance range of $167 million to $183 million, and down 22.2% year-over-year, primarily as a result of weaker spend in the service provider market.

NE revenue at $150 million declined 23.7% year-over-year. SE revenue at $20.4 million declined 8.9% from last year. NSE gross profit margin at 63.6% increased a 150 basis points sequentially, and decreased by 110 basis points year-over-year. Within NSE, NE gross profit margin at 63.1% decreased 140 basis points from the prior year, primarily due to a combination of lower volume and product mix. SE gross profit margin at 67.2% increased 110 basis points from last year, driven by richer product mix. NSE's operating profit margin at 0.9% came in below our guidance range of 3% to 5%, as a result of lower volumes and less favorable product mix. Now turning to OSP. Driven by higher demand for the anti-counterfeiting and 3D sensing products, first quarter revenue came in at $77.5 million, slightly above the high end of our guidance range of $73 million to $77 million, and was down 15.1% year-over-year.

Gross profit margin at 52.5% decline 420 basis points year-over-year. Operating margin at 37.8% also exceeded the high-end of our guidance range and declined 450 basis points year-over-year. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $544.5 million, up $27.4 million compared to the prior year. As previously mentioned, operating cash flows for the quarter was $50.3 million an increase of $26.8 million from the prior quarter and an increase of $23.7 million year-over-year. In addition, capital expenditures during the quarter of $6.7 million were down from the $14.8 million in the prior year when we were completing construction of our new facility in Chandler. In addition, during fiscal Q1, we repurchased 1 million shares of our common stock for $10 million.

As you may recall, in September of last year, we announced a new common stock repurchase program for up to $300 billion. At the end of fiscal Q1 2024, we had $224.8 million available into this program. Now onto guidance, we expect our fiscal second quarter 2024 revenue to be in the range of $240 million to $260 million. Operating profit margin is expected to be 11.2%, plus or minus 160 basis points, and EPS to be $0.06 to $0.10. We expect NSC revenue to be approximately $177 million, plus or minus $8 million. With an operating profit margin of 2% plus or minus 200 basis points. OSP revenue is expected to be approximately $73 million plus or minus $2 million. With an operating profit margin of 33.5% plus or minus a hundred basis points, our tax expense is expected to be around $8 million, plus or minus half $1 million for the second quarter as a result of jurisdictional mix.

We expect other income and expenses to be a net expense of approximately $3 million, and the share count is expected to be around 222 million shares. With that, I will turn the call over to Oleg.

Oleg Khaykin: Thank you, Pam. During the September quarter, our end-market spend environment continued to be challenging, particularly with the service providers in North America. In view of these continued headwinds, our revenue came in slightly below the midpoint of our guidance with stronger OSP demand helping to offset weaker telecom service provider revenues. Our EPS came in at the low end of our guidance range, driven by lower volume and higher taxes due to less favorable geographic revenue mix. With NSC, we saw a mixed performance. The demand for our field fiber, cable, service enablement and wireless lab products came in weaker than expected due to tight span and CapEx environment at tier-1 service providers. The demand for lab fiber avionics and op coms products was robust and continue to see good momentum.

The net result was NSC revenue coming in slightly below the midpoint of our guide. Now turning to OSP. OSP business segment results came in slightly better than expected, but both revenue and profitability exceeding our expectations. The results were driven by stronger than expected demand for both counterfeiting and 3D sensing products. Looking ahead, at the December quarter, we expect revenue to be seasonally down, primarily due to lower anti-counterfeiting demand as our customers work to adjust their year-end inventories. We also seeing slightly softer 3D sensing demand after strong Q1 orders. Looking into early calendar 2024, we expect the following demand dynamics for our major product areas. First is continued slow recovery in service provider spend impacting our field instruments business.

The second continued weaker demand for our anti-contributing products. A tight fiscal policy slowed down the inventory consumption by major customers. Third, beginning of recovery of wireless lab products as major wireless NEMs continue 5G product development and increase 6G investment. The fourth accelerated the recovery in our fiber lab and production product demand driven by strong optical demand by data center, optical NEMs, optical module, and semiconductor customers. Fifth, growing service enablement product demand as our new architecture against instruction and acceptance with major customers. And last but not the least, growing demand for our avionics, Mil/Aero and resilient P&T products. Despite the near-term macroeconomic headwinds, our long-term growth strategy thesis built around 5G and 6G wireless fiber, new service enablement, product portfolio 3G sensing and emerging resilient P&T technology remains intact.

In conclusion, I would like to thank my Viavi team for managing in this challenging environment and express my appreciation to our employees, customers, and shareholders for their support. With that, I will now turn it over to operator for Q&A.

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