VIAVI Solutions Inc. — Form 10-Q Summary
Reporting period: First quarter fiscal 2024, the three months ended September 30, 2023, compared with the three months ended October 1, 2022. Amounts are in millions of dollars except per-share data. The company provides network testing, monitoring and assurance products and services, and optical security and performance products.
Financial performance
| Metric | Q1 FY2024 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $247.9 | $310.2 | Down 20.1% |
| Gross profit / margin | $144.4 / 58.2% | $184.8 / 59.6% | Margin down 1.4 percentage points |
| Operating income / margin (GAAP) | $16.0 / 6.5% | $49.8 / 16.1% | Margin down 9.6 percentage points |
| Operating income / margin (non-GAAP) | $30.8 / 12.4% | $67.4 / 21.7% | Margin down 9.3 percentage points |
| Net income | $9.8 | $32.6 | Down 69.9% |
| Diluted EPS (GAAP / non-GAAP) | $0.04 / $0.09 | $0.14 / $0.23 | Both declined |
| Cash from operating activities | $50.3 | $26.6 | Up $23.7 |
Product revenue fell 23.2% to $205.6; service revenue was nearly flat at $42.3. By segment, Network Enablement revenue declined 23.7% to $150.0, Service Enablement declined 8.9% to $20.4, and Optical Security and Performance Products declined 15.1% to $77.5. Network and Service Enablement operating margin dropped to 0.9% from 13.2%; Optical Security and Performance Products margin declined to 37.8% from 42.3%.
Cash and cash equivalents were $520.6 at quarter-end; short-term investments were $20.5 and restricted cash was $7.3. Total debt carrying value was $727.3 ($96.2 short-term and $631.1 long-term). The company had no borrowings under its asset-based revolving facility and reported approximately $152.1 of available capacity, net of standby letters of credit. Debt covenants were met. The $96.4 principal amount of 1.00% convertible notes is due March 1, 2024; other principal obligations include $250.0 of 1.625% convertible notes due 2026 and $400.0 of 3.75% notes due 2029.
Operating cash flow benefited from a $38.0 reduction in accounts receivable, primarily reflecting collections exceeding billings. Investing cash use was $12.6, including net purchases of short-term investments and $6.7 of capital expenditures. Financing cash use was $16.1, including $10.0 of share repurchases and $9.1 of tax withholding on vested stock awards.
Material changes and notable items
- Management attributed the revenue decline mainly to weaker service-provider spending and lower anti-counterfeiting demand. Product revenue decreased across all segments; service revenue was stable.
- Interest and other income increased to $10.2 from $1.1, including a favorable $7.3 legal settlement payment. Interest expense increased to $7.8 from $6.1, primarily due to accretion of debt discount on the 2026 convertible notes.
- Foreign-currency translation reduced other comprehensive income by $20.4; comprehensive loss was $10.7 despite reported net income of $9.8.
- The fiscal 2023 restructuring plan is expected to affect approximately 5% of the global workforce and generate estimated annualized gross savings of approximately $28.0. The second phase, focused mainly on Service Enablement, was expected to be substantially complete by the end of Q2 FY2024. Estimated remaining FY2024 cash payments were $1.5.
- The company repurchased 1.0 million shares for $10.0 during the quarter; $224.8 remained authorized under its repurchase plan.
Outlook, commentary and risks
Management expected Q2 FY2024 revenue to be relatively flat sequentially, citing slow recovery in service-provider spending and continued softness in anti-counterfeiting as customers adjusted year-end inventories. For calendar 2024, management anticipated possible recovery or increased demand in Wireless Lab, avionics, military and PNT products, Fiber and Lab and Production, and Service Enablement. These are expectations, not guaranteed outcomes; the filing provides no specific numerical full-year guidance.
Management described end-market spending as challenging, particularly among North American service providers. Risks highlighted include uncertain customer infrastructure spending and procurement timing, customer concentration and pricing pressure, competition and product commoditization, supply-chain and component constraints, foreign-exchange movements, and geopolitical and trade tensions—especially involving China. The filing also identifies risks from delayed adoption of 5G and other technologies, restructuring execution, and changes in customer buying patterns.
Other exposures include $50.7 of unrecognized tax benefits, with $3.0 accrued for interest and penalties; the company cannot estimate the full range of possible tax adjustments. Pension and post-retirement obligations were reported at $52.0, and management estimated approximately $9.4 of fiscal 2024 pension cash outlays. Ordinary-course legal matters could have an adverse impact if resolved unfavorably, though management did not believe their resolution would currently have a material adverse effect. Disclosure controls were assessed as effective. A new CFO was announced to join effective November 7, 2023.
Important facts for investors to verify
- Whether service-provider spending and anti-counterfeiting demand stabilize, and whether management’s Q2 sequentially flat revenue expectation is achieved.
- How quickly the anticipated 2024 demand recovery develops across Wireless, Fiber, PNT, avionics, military and Service Enablement products.
- Progress on restructuring, including realization of estimated $28.0 annualized gross savings and completion of its second phase.
- Liquidity and refinancing plans for the $96.4 principal convertible notes due March 2024, alongside total debt and revolving-credit availability.
- Whether operating cash generation remains sufficient if collections, deferred revenue or other working-capital items reverse direction.
- Potential changes in tax exposures, pension funding requirements, legal contingencies, foreign-exchange effects and geopolitical or supply-chain risks.