Viavi Solutions Inc. (NASDAQ:VIAV) Q2 2024 Earnings Call Transcript

In this article:

Viavi Solutions Inc. (NASDAQ:VIAV) Q2 2024 Earnings Call Transcript February 1, 2024

Viavi Solutions Inc. beats earnings expectations. Reported EPS is $0.11, expectations were $0.08. VIAV isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, everyone. My name is Rob. Welcome to Viavi Solutions Second Quarter Fiscal Year 2024 Earnings Call [Operator Instructions]. I will now turn the line over to Ilan Daskal, Viavi Solutions’ CFO. Please go ahead.

Ilan Daskal: Thank you, operator. Good afternoon, everyone. And welcome to Viavi Solutions' second quarter fiscal year 2024 earnings call. My name is Ilan Daskal, Viavi Solutions’ CFO. And with 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 that we provide during this call, are valid only as of today.

Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on this call 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 as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi’s website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available on our Web site by 4:30 p.m. Pacific Time this evening. Now I would like to review the results of the second quarter of fiscal year 2024. Net revenue for the quarter was $254.5 million, which was above the midpoint of our guidance range of $240 million to $260 million.

Revenue was up sequentially by 2.7% and on a year-over-year basis was down 10.5%. Operating margin for the second fiscal quarter was 13.2% and exceeded the high end of our guidance range of 9.6% to 12.8%. Operating margin increased 80 basis points from the prior quarter and on a year-over-year basis was down 300 basis points. EPS at $0.11 exceeded the high end of our guidance range of $0.06 to $0.10 and was up $0.02 sequentially, and on a year-over-year basis was down $0.03. Moving on to our Q2 results by business segment. NSC revenue for the second fiscal quarter came in at $179.6 million, which is above the midpoint of our guidance range of $169 million to $185 million. On a year-over-year basis, revenue was down 13.3%, primarily due to lower CapEx spent by NEMs and weaker spend by service providers.

NE revenue for the quarter was $155.5 million, which is a 15.2% year-over-year decline. SE revenue was $24.1 million and grew 1.3% from the same period last year. NSC gross margin for the quarter was 63.4%, which is 100 basis points lower on a year-over-year basis. NE gross margin was 62.5%, which is a decrease of 190 basis points from the same period last year, and was primarily due to a combination of product mix and lower volume. SE gross margin was 68.9%, which is an increase of 460 basis points from the same period last year and benefited from higher margin product mix. NSC’s operating margin was 3.6%, which is an increase of 270 basis points sequentially and the decrease of 530 basis points on a year-over-year basis. NSC operating margin was above the midpoint of our guidance range of 0% to 4%.

OSP revenue for the second fiscal quarter came in at $74.9 million, which was at the high end of our guidance range of $71 million to $75 million and was down 3.2% on a year-over-year basis. OSP gross margin was 52.1%, which is a decrease of 20 basis points from the same period last year, and was primarily due to lower volume and unfavorable product mix. OSP operating margin was 36.4%, which is 140 basis points lower sequentially and increased 90 basis points on a year-over-year basis. OSP operating margin exceeded the high end of our guidance range of 32.5% to 34.5%. Moving on to the balance sheet and cash flow. Total cash and short term investments at the end of Q2 was $571.8 million compared to $489.7 million in the same period last year.

A closeup of a telecom tower with power lines connecting to it, representing the strength and reliability of network services.
A closeup of a telecom tower with power lines connecting to it, representing the strength and reliability of network services.

Cash flow from operating activities for the quarter was $20.4 million versus $46.2 million in the same period last year. We have not purchased any shares of our stock in the second quarter as we plan to retire the outstanding balance of our March 2024 convertible notes in the amount of $96.4 million. The fully diluted share count for the quarter was 223.5 million shares, down from 227.1 million shares in the prior quarter and was -- versus 222 million shares in our guidance for the second quarter. CapEx for the quarter was $5.8 million, which is $12.3 million lower versus the same period last year when we were completing the construction of our new facility in Chandler. Moving on to our guidance. For the third fiscal quarter of 2024, we expect revenue in the range of $245 million and $253 million.

Operating margin is expected to be 10.4% plus or minus 160 basis points and EPS to be between $0.05 and $0.09. We expect NSE revenue to be approximately $176 million plus or minus $3 million with an operating margin of 1.5% plus or minus 150 basis points. OSP revenue is expected to be approximately $73 million plus or minus $1 million with an operating margin of 31.8% plus or minus 200 basis points. Our tax expenses for the third quarter are expected to be around $8 million as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3 million. And the share count is expected to be around 224.7 million shares. With that, I will turn the call over to Oleg. Oleg?

Oleg Khaykin: Thank you, Ilan, and welcome to your first earnings call with Viavi. The fiscal second quarter 2024 came in stronger than expected. Revenue was slightly above the midpoint of our guidance, helped by stronger demand for 400 gig and 800 gig fiber, middle ARO and SE products. EPS came in above the high end of our guidance, driven by richer margin revenue mix and lower OpEx. In the near term, we expect stronger demand in the above product areas to help offset continued weakness in the service provider spend. Starting with NSC, the second fiscal quarter NSC revenue came in above the midpoint of our guidance range. Although, the NSC revenue declined on year-over-year basis, driven by a slowdown in 5G and fiber build outs by major service providers, there was a number of bright spots.

Fiber 11 production has continued to recover, driven by strong 800 gig demand, offsetting weakness in computing and storage. Aerospace and defense products saw robust growth driven by strong demand for avionics and PNT or positioning navigation and timing products. And the new SE products continue to perform well, resulting in a slight year-over-year growth despite the decline in service provider spend. Looking ahead, we expect continued demand recovery and growth in our Fiber 11 production, aerospace and defense and SE products, compensating for the continued near term weakness in the service provider spend. Now turning to OSP. OSP declined on a year-over-year basis, primarily driven by lower demand for anti-counterfeiting products. This decline was partially offset by strong 3D sensing demand.

Overall, OSP results came in at higher end of our guidance range. In the March quarter, we expect OSP to be slightly down from the December quarter with a stronger demand for anti-counterfeiting products offsetting the seasonal decline in 3D sensing. Looking ahead to calendar ‘24, we expect telecom service provider spend to continue to be soft with a notable exception of the North American cable operators. We expect cable spend to ramp in the middle or second half of calendar year 2024. That said, our strategy in the past six years to diversify outside the service providers into 11 production and aerospace and defense makes it easier to ride out the telecom cycle downturn. 11 production spend is seeing a faster recovery versus service providers, driven by the demand for the new technologies such as 800 gig and Open RAN.

Recently Viavi was awarded a $21.7 million grant by NTIA to create an advanced test lab to empower and accelerate the development of Open RAN technologies and components. This award reflects Viavi’s technology leadership in 5G, upcoming 6G and ORAN. Our aerospace and defense products are seeing strong demand and growth, driven by the next gen avionics and the need to protect critical infrastructure and assets against jamming, spoofing and cyber warfare. In conclusion, I'd 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 back to the operator and Q&A.

See also 13 Best Consumer Staples Dividend Stocks To Buy Now and Wall Street Analysts Just Trimmed Price Targets for These 10 Stocks.

To continue reading the Q&A session, please click here.

Advertisement