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Why Is Viav Solutions (VIAV) Up 10% Since Last Earnings Report?

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It has been about a month since the last earnings report for Viav Solutions (VIAV). Shares have added about 10% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Viav Solutions due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Viavi Beats Q3 Earnings Estimates on Solid Revenues

Viavi reported impressive third-quarter fiscal 2021 results (ended Apr 3, 2021), with both the bottom and top lines surpassing their respective Zacks Consensus Estimate. The San Jose, CA-based company generated higher revenues on the back of solid demand for wireless, fiber and anti-counterfeiting products.

Bottom Line

On a GAAP basis, net income in the quarter was $11.8 million or 5 cents per share against net loss of $32.8 million or loss of 14 cents per share in the year-ago quarter. The year-over-year improvement was primarily attributable to higher income from operations.

Non-GAAP net income came in at $42.3 million or 18 cents per share compared with $32 million or 14 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

Revenues

Recovering from the pandemic adversities, quarterly total net revenues increased 18.4% year over year to $303.4 million and exceeded the company’s guidance of $280-$300 million. The upsurge was primarily driven by continued strength in wireless and fiber, along with robust demand for anti-counterfeiting products. Also, the top line surpassed the consensus estimate of $291 million.

Segment wise, revenues from NE (Network Enablement) were up 16.5% from the year-ago quarter’s figure to $190.9 million due to increased demand for fiber, cable and wireless products. SE (Service Enablement) revenues fell 12.1% to $20.3 million, mainly due to softness in demand for assurance and data center products. Overall, revenues in the NSE (Network and Service Enablement) segment were above the guidance of $189-$205 million.

NSE’s gross margin was 64.2%, down 10 basis points (bps) year over year. Operating margin of 9.9% increased 250 bps, primarily as a result of higher revenues.

OSP (Optical Security and Performance Products) revenues increased 33.2% year over year to $92.2 million and came within the projected range of $91-$95 million. The improvement was mainly driven by robust demand for anti-counterfeiting and 3D sensing products.

OSP’s gross margin of 60.6% expanded 800 bps year over year owing to higher volume, favorable product mix and high factory utilization. Operating margin of 43.9% improved 890 bps on higher gross margin.

Region wise, Viavi generated 33.6% of total net revenues from the Americas, 33.7% from the Asia-Pacific and 32.7% from EMEA (Europe, Middle East and Africa).

Other Details

Overall, non-GAAP gross profit was $191.4 million with a margin of 63.1% compared with $156.7 million with a margin of 61.2% in the year-ago quarter. Non-GAAP operating income was $61.4 million compared with $38 million in the prior-year quarter with respective margins of 20.2% and 14.8%.

Cash Flow & Liquidity

During the fiscal third quarter, Viavi generated $48.1 million of cash from operations compared with $39.1 million in the year-earlier period. As of Apr 3, 2021, the company had $672.2 million in cash and cash equivalents with $618.1 million of long-term debt.

Q4 Fiscal 2021 Guidance

For the fourth quarter of fiscal 2021 (ending Jul 3, 2021), Viavi expects revenues in the range of $290-$310 million. These include NSE revenue expectations in the range of $219 million to $235 million and OSP revenues in the range of $71 million to $75 million. Non-GAAP earnings are estimated in the band of 18-20 cents per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, Viav Solutions has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Viav Solutions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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