Viavi Solutions Inc. (NASDAQ:VIAV) is a global provider of network test, monitoring, and assurance solutions for telecommunications, cloud, enterprises, first responders, military, aerospace, and railway. VIAV is also a leader in light management technologies for 3D sensing, anti-counterfeiting, consumer electronics, industrial, automotive, government, and aerospace applications.

Financials

In the fiscal year ended June 29, 2024, Viavi reported annual revenue of $1,106.1 million and net income of $25.5 million. VIAV generated annual operating cash flow of $114.1 million and free cash flow of $63.0 million. These financial results demonstrate Viavi's ability to navigate the evolving technology landscape and deliver value to its diverse customer base.

During the third quarter of fiscal 2024, Viavi's revenue came in at $246.0 million, slightly above the low end of the company's guidance range of $245 million to $253 million. However, revenue was down 0.7% year-over-year, reflecting the continued challenges in the service provider and enterprise customer segments. VIAV's operating margin for the quarter was 9.3%, slightly above the low end of the guidance range of 8.8% to 12%, but down 210 basis points year-over-year. Earnings per share (EPS) was $0.06, within the guidance range of $0.05 to $0.09, but down $0.02 year-over-year.

Viavi's Network and Service Enablement (NSE) segment, which includes the Network Enablement (NE) and Service Enablement (SE) businesses, reported revenue of $169.8 million, down 4.2% year-over-year. The NE business saw a 0.1% year-over-year decline in revenue, while the SE business experienced a 28.7% decline, primarily due to a slowdown in enterprise customer spending. The NSE segment's operating margin was negative 1.8%, a 320-basis-point decline year-over-year, reflecting the impact of lower volumes and less favorable product mix.

In contrast, Viavi's Optical Security and Performance (OSP) segment reported revenue of $76.2 million, up 8.1% year-over-year and exceeding the high end of the guidance range of $72 million to $74 million. The OSP segment's operating margin was 34.3%, down 230 basis points year-over-year, primarily due to a reversal of variable incentive compensation that had benefited the prior-year quarter.

Outlook

Looking ahead, Viavi expects revenue in the fourth quarter of fiscal 2024 to be in the range of $246 million to $258 million. VIAV anticipates an operating margin of 10.6% plus or minus 120 basis points and EPS between $0.06 and $0.08. For the NSE segment, Viavi expects revenue of approximately $184 million plus or minus $5 million and an operating margin of 2.5% plus or minus 110 basis points. The OSP segment is expected to generate revenue of approximately $68 million, plus or minus $1 million, with an operating margin of 32.5% plus or minus 150 basis points.

Geographically, Viavi's revenue from customers outside the Americas represented 64.1% and 61.0% of total revenue during the third quarter and first nine months of fiscal 2024, respectively, highlighting the company's global reach and diversification. The Americas, Asia-Pacific, and Europe, Middle East, and Africa (EMEA) regions contributed 35.9%, 36.5%, and 27.6% of third-quarter revenue, respectively.

Business Overview

Viavi's business is divided into three main segments: Network Enablement (NE), Service Enablement (SE), and Optical Security and Performance (OSP). The NE segment provides an integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks, including instruments, software, and services. The SE segment offers embedded systems and enterprise performance management solutions that provide global communications service providers, enterprises, and cloud operators with visibility into network, service, and application data. The OSP segment leverages its core optical coating technologies and volume manufacturing capability to design, manufacture, and sell technologies for the anti-counterfeiting, consumer electronics, industrial, government, and automotive markets.

VIAV's strategy continues to focus on defending and consolidating its leadership in core business segments, investing in secular trends to drive growth and expand its total addressable market, extending its technologies and platforms into adjacent markets and applications, and driving ongoing productivity improvements in operations, research and development, and selling, general, and administrative functions.

Liquidity

Viavi's liquidity position remains strong, with total cash and short-term investments of $486.1 million as of the end of the third quarter of fiscal 2024. VIAV generated $19.5 million in cash flow from operating activities during the quarter and has not repurchased any shares of its stock during the period. Viavi's balance sheet is further strengthened by its $300 million senior secured asset-based revolving credit facility, which provides additional financial flexibility.

Risks and Challenges

However, Viavi faces several risks and challenges in the evolving technology landscape. VIAV operates in highly competitive and rapidly changing markets, where it must continuously invest in research and development to maintain its technological edge and meet the evolving needs of its customers. Viavi also faces risks related to global economic conditions, supply chain disruptions, and the potential impact of geopolitical tensions and trade policies on its operations and financial performance.

Conclusion

Despite these challenges, Viavi remains well-positioned to capitalize on the growing demand for its network test, monitoring, and assurance solutions, as well as its light management technologies for various applications. VIAV's diversified business model, strong liquidity position, and strategic focus on innovation and productivity improvements position it to navigate the current market environment and deliver long-term value to its shareholders.