Viavi Solutions Q1 Earnings Call Highlights

Key Points

• Viavi beat fiscal Q1 guidance: Revenue jumped 56.9% year over year to $469.3 million, while adjusted EPS rose to $0.47. Growth was led by data center and aerospace and defense demand.
• The company expects continued growth: Viavi forecast Q2 revenue of $505 million to $515 million and adjusted EPS of $0.50 to $0.52, and expects sequential revenue gains through the rest of fiscal 2027.
• New opportunities and capital returns: Viavi began shipping semiconductor optical-test products and sees that opportunity potentially topping $100 million within a few years. It repurchased $150 million of shares in Q1 and approved a new $500 million buyback plan.

Viavi Solutions NASDAQ: VIAV reported fiscal first-quarter revenue and earnings above its guidance, driven by demand from data center and aerospace and defense customers, and projected further sequential growth throughout fiscal 2027.

Revenue rose 56.9% from a year earlier to $469.3 million, exceeding the company’s forecast of $450 million to $460 million. Adjusted earnings per share were $0.47, up from $0.15 a year earlier and above guidance of $0.40 to $0.42.

For the fiscal second quarter, Viavi forecast revenue of $505 million to $515 million and adjusted earnings of $0.50 to $0.52 per share. President and CEO Oleg Khaykin said the outlook puts the company on track to reach a $2 billion annualized revenue run rate during the quarter, ahead of its previous expectations.

Unless otherwise noted, financial measures other than revenue are non-GAAP, as presented by the company on the call.

Data Center and Defense Demand Drive Growth

Revenue in Viavi’s Network and Service Enablement, or NSE, segment increased 74.1% year over year to $376.1 million, including $52.7 million from acquired Spirent product lines. The segment benefited from demand for lab, production and field products used by data center customers, as well as aerospace and defense demand, CFO Ilan Daskal said.

NSE operating margin rose to 25.5% from 8.2% a year earlier. Khaykin estimated that Viavi’s organic business grew about 50% year over year and said data center growth was nearly double its level from the prior-year quarter.

Revenue in the Optical Security and Performance, or OSP, segment rose 12.2% to $93.2 million, supported by 3D sensing and anti-counterfeiting products. Its operating margin increased to 43.2% from 37.2%.

Companywide operating margin reached 29%, above Viavi’s guidance range of 26.7% to 27.5%. Daskal said the figure included a net benefit of approximately 110 basis points from an approximately $11 million tariff refund, offset by an additional week of some variable costs. Earnings per share included a net benefit of about $0.02 from the refund and additional variable expenses.

Outlook Points to Further Sequential Gains

Viavi expects fiscal second-quarter NSE revenue of $426 million to $434 million, while OSP revenue is projected at $79 million to $81 million. Daskal said the anticipated OSP decline from the first quarter reflects seasonal weakness in 3D sensing and anti-counterfeiting products.

Khaykin estimated that roughly 40% of the projected sequential increase in NSE revenue would come from data center growth, about one-third from aerospace and defense, and the remainder from service providers.

Daskal said Viavi expects quarter-over-quarter revenue growth to continue throughout the rest of the fiscal year. For the second quarter, the company forecast an operating margin of approximately 29.3%, plus or minus 30 basis points.

Khaykin said the company is seeing early signs of a multiyear service-provider equipment refresh cycle, as customers begin replacing products purchased from 2020 through 2022. Wireless products remain weak because of subdued spending, he said, although he expects 6G and AI-related network development to support a longer-term recovery.

New Semiconductor Test Market

Viavi began shipping optical test products into semiconductor packaging and test during the September quarter, Khaykin said. He described the initial shipment as approximately $1 million and said the business is expected to accelerate in subsequent quarters, predominantly supporting co-packaged optics, or CPO.

Khaykin said the semiconductor test opportunity could grow to more than $100 million for Viavi in a couple of years. That estimate excludes optical circuit switching, a separate market where he said test content per port is significant but unit volumes are lower.

In aerospace and defense, Khaykin cited demand for positioning, navigation and timing products used in drone systems and equipment designed to counter signal spoofing and jamming. He also said Viavi’s T/Rx system was selected by the U.S. Army’s Threat Systems Management Office to create electromagnetic environments at test ranges supporting drone, counter-drone and interceptor development.

Cash Flow and Share Repurchases

Operating cash flow rose to $104.7 million from $31 million a year earlier. Cash and short-term investments ended the quarter at $535.3 million, down from $656.7 million in the preceding quarter.

Viavi repurchased approximately 3.95 million shares for $150 million during the quarter. Daskal said about $18 million remained under the existing authorization and that the board had approved a new $500 million buyback plan.

About Viavi Solutions (NASDAQ:VIAV)

Viavi Solutions Inc NASDAQ: VIAV develops equipment, software and services used to test, monitor and secure communications networks. Its solutions support network operators, equipment manufacturers, government agencies and other organizations involved in the design, deployment and operation of wired and wireless networks.

The company's products include fiber-optic and broadband test instruments, network performance and service-assurance software, optical spectrum analyzers, monitoring systems and tools for testing 5G and other advanced communications technologies.

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