Viavi Solutions Inc. VIAV reported strong second-quarter fiscal 2025 results, with both adjusted earnings and revenues surpassing the respective Zacks Consensus Estimate. 

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The company reported revenue growth backed by healthy growth in the Network Enablement (NE) segment. Management’s strong emphasis on various markets such as wireless & fiber, optical transport, Ethernet, broadband access, video test and storage network testing are key growth drivers. However, a constrained spending environment owing to macroeconomic challenges is worrisome.

Net Income

On a GAAP basis, net income in the quarter was $9.1 million or 4 cents per share compared with $10.7 million or 5 cents per share in the year-ago quarter. Despite top-line growth, the decline in GAAP earnings was primarily due to high operating expenses and income tax provisions during the reported quarter. 

Non-GAAP net income was $29.4 million or 13 cents per share compared with $23.7 million or 11 cents per share in the prior-year quarter. The bottom line surpassed the Zacks Consensus Estimate by 3 cents.

Revenues

Quarterly revenues were $270.8 million, up 6.4% from $254.5 million in the year-ago quarter. The healthy demand in the NE segment cushioned the top line. Revenues beat the Zacks Consensus Estimate of $260 million.

Net sales in the NE segment were $179 million, up from $155.5 million in the year-ago quarter. The 15.1% growth was primarily driven by the strong demand from service providers and network equipment manufacturers for both lab and field instruments.

Revenues from the Service Enablement (SE) segment were $20.9 million, down 13.3% year over year, owing to the conservative spending behavior of enterprise customers.

Optical Security and Performance Products (OSP) revenues declined to $70.9 million from the year-earlier quarter’s tally of $74.9 million, primarily due to weaker demand for 3D sensing products.

Net sales from America contributed $116.1 million to revenues, up from $103.1 million reported in the year-ago quarter. Revenues from Asia-Pacific were $93.6 million, up 17.7% from the year-earlier quarter’s tally of $79.5 million. Revenues from EMEA decreased to $61.1 million from $71.9 million reported in the prior-year quarter.

Other Details

In the second quarter of fiscal 2025, the non-GAAP gross margin was 61.1%, up 110 basis points (bps) from the prior-year quarter. GAAP gross margin in the NE segment was 64.5%, up 200 bps year over year, as a result of higher volume and product mix. SE segment’s gross margin decreased to 67.5% from 68.9% in the prior-year quarter. OSP segment’s gross margin decreased to 50.6% from 52.1% in the year-ago quarter. The year-over-year decline was primarily driven by lower volume and product mix.

Non-GAAP operating margin increased 170 bps year over year to 14.9%. Operating margin in the Network and Service Enablement (NSE) business increased 510 bps year over year to 8.7%, driven by higher gross margin fall through. OSP segment’s operating margin decreased to 32.4% from 36.4% in the prior-year quarter.

Cash Flow & Liquidity

During the December quarter, Viavi generated $44.7 million of cash from operating activities, a significant increase from $20.4 million in the year-ago period. As of Dec. 28, 2024, the company had $488 million in cash and cash equivalents and $639.3 million of long-term debt.

Outlook

For the third quarter of fiscal 2025, management expects revenues in the range of $276-$288 million. Non-GAAP operating margin is expected to be in the range of 13%-15%, with non-GAAP earnings per share between 10 and 13 cents.

For the NSE business, revenues are projected to be between $202 and $212 million, with a non-GAAP operating margin of 6-8%. Revenues for the OSP segment are anticipated to be in the band of $74-$76 million, with a non-GAAP operating margin of 32-34%. 

VIAV’s Zacks Rank

Viavi currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Releases

Pinterest, Inc. PINS is scheduled to release fourth-quarter 2024 earnings on Feb. 6. The Zacks Consensus Estimate for earnings is pegged at 63 cents per share, indicating growth of 18.9% from the year-ago figure. 
 
Zillow Group, Inc. ZG is scheduled to release fourth-quarter earnings on Feb. 11. The Zacks Consensus Estimate for earnings is pegged at 34 cents per share, indicating growth of 50% from the year-ago figure. 

Light and Wonder LNW is scheduled to release fourth-quarter earnings on Feb. 25. The Zacks Consensus Estimate for earnings is pegged at $1.08 per share, indicating growth of 47.95% from the year-ago figure.

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