Viavi Solutions(VIAV)2025-01-31 21:15Financial Performance - Net revenue for the second quarter of fiscal 2025 was $270.8 million, an increase of $16.3 million or 6.4% year-over-year [183]. - GAAP operating margin was 8.2%, a decrease of 60 basis points year-over-year, while non-GAAP operating margin improved to 14.9%, an increase of 170 basis points year-over-year [183]. - GAAP net income was $9.1 million, down $1.6 million or 15.0% year-over-year, whereas non-GAAP net income rose to $29.4 million, up $5.7 million or 24.1% year-over-year [183]. - GAAP diluted EPS was $0.04, a decrease of $0.01 or 20.0% year-over-year, while non-GAAP diluted EPS increased to $0.13, up $0.02 or 18.2% year-over-year [183]. - Total net revenue for the three months ended December 28, 2024, increased by $16.3 million, or 6.4%, compared to the same period a year ago, driven by higher spending by service providers and Network Equipment Manufacturers (NEMs) [194]. - Product revenues increased by $14.8 million, or 7.0%, during the three months ended December 28, 2024, primarily due to revenue increases in the NE segment [196]. - Service revenues increased by $1.5 million, or 3.4%, during the three months ended December 28, 2024, driven by the NE segment [197]. Operational Insights - The Network and Service Enablement (NSE) business environment is showing signs of stabilization, indicating a gradual recovery driven by service providers and enterprise customer markets [179]. - The performance of Optical Security and Performance Products (OSP) was marginally impacted by slower demand for 3D sensing products [179]. - The company continues to monitor near-term demand for anti-counterfeiting products as end customers work down their inventories [179]. - NE net revenue increased by $23.5 million, or 15.1%, during the three months ended December 28, 2024, driven by higher volume in various segments [228]. - SE net revenue decreased by $3.2 million, or 13.3%, during the three months ended December 28, 2024, primarily due to lower Assurance revenue [230]. - OSP net revenue decreased by $4.0 million, or 5.3%, during the three months ended December 28, 2024, primarily driven by lower consumer and industrial revenue [233]. Cost and Expense Management - Research and development expenses rose by $2.6 million, or 5.3%, during the three months ended December 28, 2024, representing 19.2% of net revenue [192]. - Selling, general and administrative expenses increased by $9.5 million, or 12.7%, during the three months ended December 28, 2024, accounting for 31.1% of net revenue [192]. - Provision for income taxes increased by $1.9 million, or 25.0%, during the three months ended December 28, 2024, representing 3.5% of net revenue [192]. - Interest expense decreased by $0.4 million, or 5.1%, during the three months ended December 28, 2024, due to lower outstanding debt [222]. Margins and Profitability - Gross margin improved by 1.2 percentage points from 58.2% to 59.4% during the three months ended December 28, 2024, mainly attributed to the NE segment [203]. - Gross margin increased by 0.1 percentage points to 58.3% for the six months ended December 28, 2024, compared to 58.2% in the same period a year ago [204]. - OSP gross margin increased by 0.8 percentage points to 53.1% for the six months ended December 28, 2024, compared to 52.3% in the same period a year ago [235]. - NSE operating margin increased by 5.1 percentage points to 8.7% during the three months ended December 28, 2024, compared to 3.6% in the same period a year ago [232]. - OSP operating margin decreased by 4.0 percentage points to 32.4% for the three months ended December 28, 2024, down from 36.4% in the same period a year ago [235]. Strategic Outlook - The company plans to defend and consolidate leadership in core business segments and invest in secular trends to drive growth and expand Total Addressable Market (TAM) [181]. - Future expectations include continued productivity improvements in Operations, Research and Development (R&D), and Selling, General and Administrative (SG&A) [181]. - The company is focused on executing strategic priorities to drive revenue and earnings growth, capture market share, and optimize capital structure [181]. - The company anticipates ongoing industry and market risks, including uncertainties around customer procurement decisions and the adoption of 5G technology [198]. Cash Flow and Capital Management - Cash provided by operating activities was $58.2 million for the six months ended December 28, 2024, consisting of net income of $7.3 million adjusted for non-cash charges totaling $44.1 million [244]. - Cash used in investing activities was $15.8 million, primarily for capital expenditures of $15.5 million during the six months ended December 28, 2024 [245]. - Cash used in financing activities was $21.9 million, mainly due to $16.4 million for share repurchases and $8.3 million in withholding tax payments [246]. - The company repurchased 2.0 million shares of common stock for $16.4 million under the 2022 Repurchase Plan, with remaining authorization of $198.4 million [247]. - As of December 28, 2024, the company had no borrowings under its $300.0 million credit facility, with available borrowing capacity of approximately $153.5 million [242]. - The company maintains a focus on capital preservation and liquidity requirements, with investments primarily in high credit quality securities [239]. Pension and Workforce - The fair value of pension plan assets decreased approximately 5.2% since June 29, 2024, resulting in an under-funding of $48.8 million [252]. - The company expects approximately 7% of its global workforce to be affected by the restructuring plan, estimating annualized gross cost savings of approximately $25.0 million [214].