VIAVI Solutions Inc. — Form 10-Q Summary
Reporting period: The quarter and nine months ended April 2, 2022 (fiscal 2022); comparable period ended April 3, 2021. The request metadata says “2021 Q3,” but the filing itself covers fiscal 2022 Q3.
Business context
Viavi provides network test, monitoring and assurance solutions through Network Enablement (NE) and Service Enablement (SE), and optical products through Optical Security and Performance Products (OSP). Figures are unaudited and in U.S. dollars.
Financial performance
| Metric | Quarter ended Apr. 2, 2022 | Quarter ended Apr. 3, 2021 | Nine months ended Apr. 2, 2022 | Nine months ended Apr. 3, 2021 |
|---|---|---|---|---|
| Revenue | $315.5 million | $303.4 million | $957.1 million | $888.0 million |
| Gross profit / margin | $186.9 million / 59.2% | $182.0 million / 60.0% | $572.4 million / 59.8% | $531.5 million / 59.9% |
| Operating income | $40.8 million | $35.9 million | $137.0 million | $109.5 million |
| Net income (loss) | $19.2 million | $17.2 million | $(1.0) million | $64.2 million |
| Diluted EPS | $0.08 | $0.07 | $(0.00) reported as “—” | $0.27 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $104.5 million | $180.7 million |
- Quarter revenue rose 4.0%; nine-month revenue rose 7.8%. Product revenue was $275.8 million and service revenue $39.7 million for the quarter.
- Quarter operating margin was 12.9%; nine-month operating margin was 14.3% (calculated from reported operating income and revenue).
- Nine-month cash used in investing was $51.2 million, including $53.4 million of capital expenditures. Cash used in financing was $151.3 million. Cash, cash equivalents and restricted cash declined $106.9 million to $601.5 million.
- At April 2, cash and cash equivalents were $589.8 million, short-term investments $1.6 million and current restricted cash $4.6 million. The company reported these combined liquidity assets at $596.0 million, excluding non-current restricted cash.
- Debt carrying value was $706.4 million, comprising $400 million of 3.75% senior notes due 2029 and convertible notes. No debt was classified as short-term at quarter-end. The company had no borrowings on its $300 million asset-based revolver and reported approximately $176.9 million available capacity. It was in compliance with debt covenants.
Material changes and drivers
- NE revenue increased 7.0% for the quarter and 16.8% year to date, supported by field instruments and lab and production equipment, including fiber products. SE revenue grew 30.5% and 17.5%, respectively, with growth in Growth Assurance and Data Center products.
- OSP revenue declined 8.1% for the quarter and 11.3% year to date, primarily due to weaker anti-counterfeiting product sales. Lower volume, manufacturing absorption and unfavorable mix reduced OSP margins.
- Overall quarterly gross margin fell 0.8 percentage points year over year, mainly from NE and OSP pressure; favorable SE mix partly offset the decline. Nine-month gross margin was nearly flat.
- Nine-month net loss included a $98.7 million loss on convertible-note settlements. The settlements used $320.2 million cash and 10.6 million shares across the nine months; remaining principal at quarter-end was $87.4 million of 2023 notes and $227.0 million of 2024 notes.
- The company issued $400 million of 3.75% notes due 2029 in September 2021. Interest expense increased to $17.1 million for the nine months from $10.8 million.
- Share repurchases totaled $207.0 million in cash during the nine months. The $190 million 2021 authorization was fully used; $96.4 million remained under the 2019 plan.
Outlook, risks and contingencies
- Management said it expects 5G wireless and fiber to continue driving growth and profitability in fiscal 2022. It expects elevated supply-chain, manufacturing, logistics and procurement costs to continue through the remainder of fiscal 2022. No specific numerical revenue or earnings guidance is provided in this filing.
- Management believes cash and investments are sufficient for liquidity and capital spending needs over the next 12 months. Results remain exposed to COVID-19-related disruptions, component shortages, shipping delays, inflation, customer demand uncertainty, pricing pressure, product mix, foreign exchange and seasonality.
- The Russia-Ukraine conflict led the company to suspend regional transactions from February 2022. Sales in the region were described as immaterial, but further trade restrictions, retaliation or cyberattacks could affect future operations.
- Ordinary-course legal claims are unresolved; management did not expect them, individually or collectively, to have a material adverse effect, while noting an unfavorable outcome could be material. A U.K. pension-related liability was accrued at £7.0 million ($9.2 million). Unrecognized tax benefits were $50.2 million, with $1.6 million accrued for interest and penalties.
- Defined-benefit pension plans were underfunded by $92 million at April 2, 2022. The company estimated approximately $9.0 million of fiscal 2022 pension cash outlays.
- Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether NE and SE growth can persist and offset continuing OSP declines and margin pressure.
- How supply constraints, inflation and shipping costs affect delivery, revenue, gross margin and cash generation.
- The timing, cash requirements and potential dilution associated with remaining convertible notes and any further repurchases.
- Whether operating cash flow recovers from the year-over-year decline while capital expenditures remain elevated.
- Developments in tax examinations, legal matters, pension funding and the company’s available borrowing capacity.