• Net Revenue: $270.8 million, up 13.7% sequentially and 6.4% year-over-year.
• Operating Margin: 14.9%, increased 490 basis points sequentially and 170 basis points year-over-year.
• EPS: $0.13, up $0.07 sequentially and $0.02 year-over-year.
• NSE Revenue: $199.9 million, up 11.3% year-over-year.
• OSP Revenue: $70.9 million, down 5.3% year-over-year.
• Gross Margin: 64.8%, up 140 basis points year-over-year.
• Cash and Short-term Investments: $512.8 million at the end of Q2.
• Cash Flow from Operating Activities: $44.7 million, compared to $20.4 million in the same period last year.
• CapEx: $8.2 million, compared to $5.8 million in the same period last year.

• Warning! GuruFocus has detected 4 Warning Signs with VIAV.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Viavi Solutions Inc (NASDAQ:VIAV) reported net revenue of $270.8 million for the second quarter, exceeding the high end of their guidance range.
• Operating margin for the quarter was 14.9%, significantly above the guidance range, indicating strong operational efficiency.
• EPS of $0.13 surpassed the high end of the guidance range, showing improved profitability.
• NSE revenue increased by 11.3% year-over-year, driven by strong demand from service providers and NEMs.
• The company closed the acquisition of Inertial Labs, enhancing its position in the positioning, navigation, and timing (PNT) space.

Negative Points

• OSP revenue was slightly below the low end of the guidance range, with a year-over-year decline of 5.3% due to weaker demand for 3D sensing products.
• OSP gross margin decreased by 150 basis points from the same period last year, impacted by lower volume and product mix.
• SE gross margin decreased by 140 basis points year-over-year due to lower revenue.
• The company did not repurchase any shares during the quarter, prioritizing capital allocation towards M&A.
• The enterprise segment experienced a decline, primarily driven by lower enterprise customer spending.

Q & A Highlights

Q: Can you discuss the demand for fiber monitoring and whether hyperscalers are getting involved? A: Oleg Khaykin, President and CEO, explained that while telcos and cable providers are driving demand due to fiber network build-outs, hyperscalers are also emerging as significant players. They are implementing sophisticated fiber monitoring to protect their data centers and ensure connectivity performance, marking a new trend in the industry.

Q: What is the outlook for 800 gig shipments and the potential size of this business? A: Oleg Khaykin noted that 800 gig is currently the main volume driver, with 1.6 terabit products entering R&D labs. The 800 gig demand is expected to grow significantly, driven by AI data center infrastructure needs. The business could potentially double or triple over the next few years due to faster technology node evolution driven by Datacom.

Q: What is Viavi's approach to M&A following the Inertial Labs acquisition? A: Ilan Daskal, CFO, stated that M&A remains a key part of their capital allocation strategy. They are open to further acquisitions if the right opportunities arise, focusing on EPS growth. Oleg Khaykin added that potential targets are evaluated for profitability and margin profiles, ensuring they pay the right price for the right deal.

Q: How much of the quarter's upside was due to cyclical versus secular growth drivers? A: Oleg Khaykin attributed about a third to half of the growth to cyclical recovery, particularly in service providers and wireless field instruments. The rest came from diversification efforts in fiber lab and production, and Aerospace and Defense segments, which saw significant revenue growth and margin expansion.

Q: Can you elaborate on the quick rebound in the wireless segment and its drivers? A: Oleg Khaykin explained that the rebound is driven by cost efficiencies, particularly in converting 4G to 5G spectrum, which significantly reduces cost per bit. This trend is primarily seen in North America, with expectations that Europe will follow due to similar cost pressures.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.