Viavi Solutions NASDAQ: VIAV reported fiscal third-quarter 2026 results that topped the high end of management’s guidance on revenue, operating margin, and earnings per share, citing continued strength across several end markets—particularly data center-related demand and aerospace and defense.
Quarterly results surpass guidance
CFO Ilan Daskal said net revenue for the quarter was $406.8 million, above the company’s guidance range of $386 million to $400 million. Revenue increased 10.2% sequentially and rose 42.8% year over year.
Operating margin was 21%, also above the guidance range of 19.2% to 20.2%, and improved 170 basis points from the prior quarter. Earnings per share were $0.27, above the guided range of $0.22 to $0.24, and up $0.05 sequentially.
Segment performance: NSE boosted by data center and Spirent product lines
In Network Service Enablement (NSE), Daskal reported revenue of $321.5 million, above the guided range of $304 million to $316 million. He said NSE revenue from the acquired Spirent product lines was $54.2 million and “in line with our expectations,” while also including “few opportunities that were pushed out from the prior quarter.” Overall NSE revenue was up 54.4% year over year, which Daskal attributed primarily to the Spirent product line acquisition.
Daskal also cited “strong demand for our lab and production and field products driven by the data center ecosystem, as well as for our aerospace and defense products.” NSE gross margin was 65.3%, up 220 basis points year over year, driven by higher volume and favorable product mix. NSE operating margin was 17.2%, up 680 basis points year over year and above the company’s guidance range of 15% to 16%, which Daskal said was due to “a higher fall-through.”
President and CEO Oleg Khaykin said NSE strength was driven by demand from the data center ecosystem—which he described as including “high-performance semis, optical modules, NEMs, and hyperscalers”—and by aerospace and defense customers. He said AI data center build-outs are supporting demand for lab, production, and field instruments, with industry investment increasing in “chip-to-chip interconnect technologies” and higher communication speeds.
Asked to break down data center momentum, Khaykin described demand across three areas:
- Lab: Optical transport and protocol test solutions used in developing next-generation AI chips and systems.
- Production: Momentum tied to co-packaged optics and related optical performance measurement, including sales to semiconductor vendors developing integrated packaged optics.
- Field: Increased demand for fiber monitoring as data centers invest in ensuring performance; Khaykin said data center demand is approaching “close to…40%, 45%, pretty soon, probably maybe 50%” of field instruments.
On technology mix, Khaykin said 800G remains a “high volume driver,” while 1.6T is ramping in the lab with early production activity. He noted that Viavi released 1.6T “a year and a half ago,” and said early adoption began with network equipment manufacturers before expanding to semiconductor and packaged optics use cases.
OSP growth led by 3D sensing and anti-counterfeiting
In Optical Security and Performance (OSP), Daskal said revenue was $85.3 million, above guidance of $82 million to $84 million, and up 11.4% year over year. He attributed the increase primarily to strong demand for “3D sensing and anti-counterfeiting and other products.” OSP gross margin was 50.3%, down 130 basis points year over year due to unfavorable product mix, while operating margin improved to 35.3% and landed within management’s guided range.
Khaykin echoed that OSP posted “strong year-on-year growth” driven by 3D sensing and anti-counterfeiting demand.
Cash, debt actions, and working capital dynamics
Viavi ended the quarter with $508 million in cash and short-term investments, down from $772.1 million in the prior quarter. Daskal said operating cash flow was a use of $26.3 million, impacted by earn-out payments to Inertial Labs, working capital timing, and employee variable costs.
On capital structure, Daskal said the company paid $49 million in cash for the remaining principal of convertible notes due in March 2026 and issued about 1.8 million shares for the conversion premium above par. Viavi also prepaid $150 million of its Term Loan B, leaving $450 million outstanding. The company did not repurchase shares during the quarter, with Daskal saying it prioritized debt management. Fully diluted share count was 249.5 million, higher than the prior year and above the company’s guided level for the quarter.
Outlook: sequential growth expected in fiscal Q4
For fiscal fourth-quarter 2026, Daskal guided total revenue to $427 million to $437 million, with NSE revenue of $340 million to $348 million and OSP revenue of $87 million to $89 million. Operating margin is expected to be 22.7% plus or minus 50 basis points, and EPS is expected to be $0.29 to $0.31.
Daskal said the company expects sequential growth driven by continued strength in end markets across both segments, including data center ecosystem demand and aerospace and defense. Khaykin added that the service provider business remains seasonal—typically weaker in March and September and stronger in June and December—and said early orders from cable operators related to new distributed access architecture (DAA) contributed in the March quarter. He also said wireless test demand remained “weak but stable,” adding, “We do not expect recovery and growth in the near term for wireless business.”
On longer-term profitability dynamics, Khaykin and Daskal discussed operating leverage, with Khaykin stating that incremental dollars can generate roughly “$0.40–$0.45 dropping to the bottom line,” and Daskal adding that NSE “fall through” is around the 40% level currently. Khaykin also referenced net operating losses, saying incremental profit in the U.S. jurisdiction could come in at “virtually zero tax,” while Daskal cited an effective tax rate of about 12% in the quarter.
During Q&A, Khaykin said the company is seeing early activity in areas such as co-packaged optics and test insertion points tied to advanced packaging and silicon photonics, calling test “a bottleneck” and pointing to increasing test requirements as integration complexity rises. When asked about the time horizon implied by “foreseeable future,” Khaykin said the company generally does not go beyond the end of the calendar year, adding that the phrase refers to “next three quarters.”
Discussing the acquired Spirent product lines, Khaykin said Viavi is “upgrading the hardware performance” and combining its own hardware development with Spirent’s “application-hardened software.” He said the first “truly integrated product” between the two is expected at 3.2 Tb. Daskal said the company still expects a calendar-year run rate around $200 million for Spirent product lines, and suggested that a normalized June quarter for Spirent would be “just shy of the $50 million, maybe $48 million.”
Khaykin also addressed aerospace and defense momentum tied to positioning, navigation, and timing products, saying the business is expanding into larger U.S. defense contractors as the company implements controls and systems required for regulated programs. On Inertial Labs, he pointed to the company’s earn-out payment as evidence of performance, stating the business “exceeded every forecast” it provided and described active engagement across drone and munitions-related customers, with product export requirements varying by performance level and end use.
About Viavi Solutions NASDAQ: VIAV
Viavi Solutions Inc is a provider of network test, monitoring and assurance solutions for communications service providers, cable operators, enterprises and government agencies. The company offers an extensive portfolio of fiber optic and copper cable test and measurement instruments, wireless network testing equipment and network performance monitoring software. Its products are designed to support the deployment, maintenance and optimization of high-speed broadband, 5G wireless, data center and enterprise networks.
Viavi's product offerings are organized into two primary segments: Network & Service Enablement and Optical Security & Performance.
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