VIAVI Solutions Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended July 2, 2022 (52 weeks), compared with fiscal 2021 ended July 3, 2021 (53 weeks). VIAVI provides network test, monitoring and assurance solutions and optical security and performance products through Network Enablement (NE), Service Enablement (SE), and Optical Security and Performance Products (OSP).
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $1,292.4 million | $1,198.9 million | Up 7.8% |
| Gross profit / margin | $773.5 million / 59.8% | $714.4 million / 59.6% | Margin up 0.2 percentage points |
| GAAP operating income / margin | $185.0 million / 14.3% | $142.2 million / 11.9% | Margin improved |
| Non-GAAP operating income / margin | $286.8 million / 22.2% | $253.5 million / 21.1% | Margin up 1.1 percentage points |
| GAAP net income / diluted EPS | $15.5 million / $0.07 | $67.5 million / $0.29 | Down substantially |
| Non-GAAP net income / diluted EPS | $225.3 million / $0.95 | $195.2 million / $0.83 | EPS up 14.5% |
| Operating cash flow | $178.1 million | $243.3 million | Down $65.2 million |
| Capital expenditures | $72.5 million | $52.1 million | Up $20.4 million |
Net income included a $101.8 million loss on convertible-note settlements. The company reported $49.6 million of income tax expense; non-GAAP results exclude specified items, including stock-based compensation, acquired-intangible amortization and the note-settlement loss.
Segments and key changes
- NE: Revenue of $845.8 million, up 13.3%, supported by wireless and optical lab and production products. Gross margin increased to 64.3% from 63.5%.
- SE: Revenue of $103.3 million, up 13.1%, driven by data center and growth assurance products. Gross margin increased to 69.2% from 65.6%.
- OSP: Revenue of $343.3 million, down 4.9%, primarily due to lower 3D sensing demand. Gross margin declined to 56.4% from 60.4%, reflecting higher input and new-facility startup costs.
Financial position, debt and liquidity
- Cash and cash equivalents were $559.9 million; cash, cash equivalents and restricted cash totaled $572.8 million at year-end, down $135.6 million from fiscal 2021.
- Current assets were $1,005.1 million and current liabilities were $369.3 million. Debt carrying value totaled $684.9 million: $68.4 million short-term and $616.5 million long-term.
- Debt included $400 million of 3.75% senior notes due 2029, $223.9 million principal of 1.00% convertible notes due 2024, and $68.1 million principal of 1.75% convertible notes due 2023. The company reported compliance with debt covenants at year-end.
- A $300 million asset-based revolving facility, maturing in 2026, had no borrowings and approximately $206.4 million of available borrowing capacity at year-end.
- Financing activity included issuing the $400 million 2029 notes and using cash and shares to retire portions of the convertible notes. The company repurchased 14.8 million shares for $235.5 million during the year. It does not anticipate paying cash dividends in the foreseeable future.
- Operating cash flow was $178.1 million; after $72.5 million of capital expenditures, implied cash flow after capital expenditures was approximately $105.6 million.
Outlook, commentary and risks
- Management’s FY2023 commentary emphasizes revenue and earnings growth, market-share gains, capital-structure optimization and improved profitability through operating leverage. The filing provides no specific numerical revenue or earnings guidance.
- Management cited strong NE and SE demand and said securing components and building inventory helped meet customer demand despite supply-chain disruption, higher material and shipping costs, and inflation.
- Key risks include supply availability and cost, inflation, COVID-19-related disruption, customer spending variability, rapid technology shifts and competition. Results are also exposed to customer concentration; SICPA generated $178.4 million, about 13.8% of FY2022 revenue, and is VIAVI’s exclusive sales and marketing partner for key banknote anti-counterfeiting products.
- Other material exposures include foreign exchange, tariffs and U.S.-China trade restrictions, cybersecurity and privacy risks, and uncertainty in adoption of 5G, fiber and 3D sensing. The company suspended transactions in Russia following the invasion of Ukraine; regional sales were described as not material.
- The company recorded a $13.2 million foreign tax expense related to an internal intellectual-property transaction and increased its deferred-tax valuation allowance by $11.9 million. Tax benefits from net operating losses may be limited by ownership-change rules.
- A U.K. pension-related legal matter had an accrued liability of £5.4 million ($6.5 million). Management said other ordinary-course claims were not expected to have a material adverse effect, while noting litigation outcomes remain uncertain.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Revenue recognition for certain NE and SE contracts was identified as a critical audit matter because identifying distinct performance obligations requires judgment.
Important facts for investors to verify
- Whether NE and SE growth continues and whether OSP demand and margins recover from FY2022 declines.
- Whether supply constraints, inflation and higher facility costs ease, and how they affect margins and customer deliveries.
- Remaining convertible-note principal, upcoming maturities and cash requirements, alongside available revolver capacity and covenant compliance.
- The sustainability of cash generation given higher capital spending, share repurchases and working-capital investment.
- Customer concentration, particularly SICPA’s role and revenue contribution, and the effect of any changes in that relationship.
- Tax valuation allowances, NOL usability and the outcome of the U.K. pension matter and other contingencies.