Business context and reporting period
Viavi Solutions Inc. filed this unaudited Form 10-Q for its second quarter and first six months of fiscal 2022, ended January 1, 2022. The company provides network test, monitoring and assurance solutions and optical security and performance products. Its reportable segments are Network Enablement (NE), Service Enablement (SE), and Optical Security and Performance Products (OSP). Comparisons are with the periods ended January 2, 2021.
Financial and operating highlights
All dollar amounts are in millions except per-share data.
| Metric | Three months ended Jan. 1, 2022 | Year-over-year change | Six months ended Jan. 1, 2022 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $314.8 | Up 5.0% | $641.6 | Up 9.8% |
| Gross profit / margin | $190.5 / 60.5% | $180.1 / 60.1% | $385.5 / 60.1% | $349.5 / 59.8% |
| Operating income | $49.3 | $42.3 | $96.2 | $73.6 |
| Net income (loss) | $34.6 | $27.3 | ($20.2) | $47.0 |
| Diluted EPS | $0.14 | $0.12 | ($0.09) | $0.20 |
- Quarterly revenue growth reflected NE revenue up 18.5% and SE up 15.5%, partly offset by OSP down 24.2%. For the six-month period, NE rose 22.2%, SE 11.9%, and OSP fell 12.8%.
- Quarterly gross margin improved on higher volume and favorable mix in the network segments, partly offset by weaker OSP margin. Six-month R&D was $104.1, while SG&A was $180.0.
- Six-month operating cash flow was $75.6, down from $132.6 a year earlier. Investing activities used $32.5, including $34.1 of capital expenditures. Cash, cash equivalents and restricted cash totaled $743.7 at period end, up $35.3 from fiscal year-end.
- Cash, short-term investments and short-term restricted cash were $738.5. Current assets were $1,180.6 and current liabilities $285.1.
- Debt had a carrying value of $755.8, versus $680.7 at July 3, 2021. The company issued $400.0 of 3.75% senior notes due 2029 and had no borrowings under its new $300.0 asset-based revolving facility. It reported compliance with debt covenants.
Material changes, outlook and risks
- The six-month net loss includes a $92.3 loss on convertible-note settlements; excluding that item, reported operating income was $96.2. During the six months, the company settled $320.6 principal of 2023 and 2024 convertible notes for cash and 10.6 million shares. It also repurchased common stock for $125.6.
- Management said it expects 5G wireless and fiber to drive growth and profitability in fiscal 2022. The filing provides no numerical revenue or earnings guidance.
- Management reported higher-than-expected supply-chain, manufacturing, logistics and procurement costs from inflationary pressures in the first half and expects elevated costs through the rest of fiscal 2022. COVID-19 disruptions, component shortages, shipping delays and possible labor impacts from vaccine mandates remain risks.
- Other cited risks include variable customer demand and product mix, pricing competition and customer concentration, slower-than-expected 5G or 3D-sensing adoption, foreign-exchange exposure, and trade restrictions. OSP’s decline was attributed primarily to lower 3D Sensing and anti-counterfeiting revenue.
- The company disclosed a $98 pension-plan underfunding, ongoing tax examinations and a U.K. pension-related dispute; it accrued a $9.5 liability for the latter. It said ordinary-course claims are subject to uncertainty and an unfavorable outcome could be material.
- After quarter-end through February 4, 2022, the company repurchased approximately 3.9 million shares for $64.4 under its 2021 plan.
Important facts for investors to verify
- Whether NE and SE growth can continue and offset OSP weakness, including the trajectory of OSP demand and margins.
- Whether elevated supply-chain and inflationary costs affect future margins, deliveries or cash generation as management expects.
- The cash, share dilution, remaining principal and future interest implications of the convertible-note settlements and 2029 notes, as well as the pace of share repurchases.
- Developments in the pension dispute, tax examinations and other contingencies, and any changes to the company’s liquidity or covenant position.