Viavi Solutions(VIAV) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) Viavi Solutions reported Q1 FY24 net revenue of $247.9 million, a 20.1% decrease year-over-year, with net income of $9.8 million, total assets of $1.80 billion, and positive operating cash flow of $50.3 million Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Total net revenue | $247.9 million | $310.2 million | | Gross profit | $144.4 million | $184.8 million | | Income from operations | $16.0 million | $49.8 million | | Net income | $9.8 million | $32.6 million | | Diluted EPS | $0.04 | $0.14 | Consolidated Balance Sheet Highlights (Unaudited) | Metric | As of Sep 30, 2023 | As of July 1, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $520.6 million | $506.5 million | | Total current assets | $916.1 million | $945.0 million | | Goodwill, net | $449.6 million | $455.2 million | | Total assets | $1,802.1 million | $1,850.5 million | | Total current liabilities | $310.9 million | $343.5 million | | Long-term debt | $631.1 million | $629.5 million | | Total stockholders' equity | $675.2 million | $690.8 million | Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Oct 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50.3 million | $26.6 million | | Net cash used in investing activities | ($12.6) million | ($29.7) million | | Net cash used in financing activities | ($16.1) million | ($26.8) million | Notes to Consolidated Financial Statements Key notes detail acquisitions like Jackson Labs, significant debt management, ongoing Fiscal 2023 restructuring affecting 5% of the workforce, and segment reporting adjustments - On October 5, 2022, the Company acquired Jackson Labs Technologies, a specialist in Position, Navigation and Timing (PNT) solutions, for approximately $49.9 million in cash at closing and up to $117.0 million in contingent consideration[37][38] - As of September 30, 2023, the company's remaining performance obligations were valued at $226.6 million, with approximately 88% expected to be recognized as revenue within the next 12 months[51] - The Fiscal 2023 restructuring plan is expected to affect approximately 5% of the global workforce and is anticipated to be substantially complete by the end of Q2 fiscal 2024[111][112] - In September 2022, the Board authorized a new stock repurchase plan for up to $300 million. During the three months ended September 30, 2023, the company repurchased 1.0 million shares for $10.0 million[118] - Effective in Q1 fiscal 2024, management moved certain products from the Service Enablement (SE) segment to the Network Enablement (NE) segment to align with operational strategies, with prior period balances recast[150] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a challenging quarter with a 20.1% revenue decline to $247.9 million due to weak service provider spending and lower anti-counterfeiting demand, anticipating recovery in calendar 2024 - The end-market spending environment was challenging, particularly with North American service providers, creating headwinds for Fiber, Cable, and Wireless Lab product revenues in the NSE segment[163] - OSP revenues were impacted by weaker demand for anti-counterfeiting products as tight fiscal policies slowed customer inventory consumption[163] - For Q2 fiscal 2024, revenue is expected to be relatively flat sequentially due to slow recovery in service provider spending and lower anti-counterfeiting demand as customers adjust year-end inventories[166] - Anticipated recovery drivers for calendar year 2024 include: recovery in Wireless Lab products (5G/6G), increased demand for avionics/military/PNT products, recovery in Fiber and Lab/Production demand, and increased SE product demand[168] Results of Operations Total net revenue decreased 20.1% year-over-year to $247.9 million, driven by product revenue decline and gross margin contraction to 58.2%, despite reduced operating expenses Segment Net Revenue (YoY Change) | Segment | Q1 FY24 Revenue | YoY Change | YoY % Change | | :--- | :--- | :--- | :--- | | NE | $150.0 M | ($46.5 M) | (23.7)% | | SE | $20.4 M | ($2.0 M) | (8.9)% | | OSP | $77.5 M | ($13.8 M) | (15.1)% | | Total | $247.9 M | ($62.3 M) | (20.1)% | - Gross margin decreased to 58.2% from 59.6% in the prior year, primarily due to margin reduction in the NE and OSP segments[190] - R&D expense decreased by $2.7 million (5.1%) due to restructuring benefits and variable expense reductions[192] - SG&A expense decreased by $3.0 million (3.7%) due to restructuring, lower commissions, and favorable fair value adjustments of contingent consideration[194] - Interest and other income, net, increased by $9.1 million, primarily driven by a $7.3 million legal settlement and higher interest income[199] Operating Segment Information NE segment revenue declined 23.7% to $150.0 million with gross margin at 63.1%, while SE revenue decreased 8.9% to $20.4 million with improved gross margin, and OSP revenue dropped 15.1% to $77.5 million with gross margin at 52.5% Segment Performance (YoY Change) | Segment | Q1 FY24 Revenue | Q1 FY24 Gross Margin | Q1 FY24 Operating Margin | | :--- | :--- | :--- | :--- | | NE | $150.0 M (-23.7%) | 63.1% (-1.4 pts) | N/A | | SE | $20.4 M (-8.9%) | 67.2% (+1.1 pts) | N/A | | NSE (Combined) | $170.4 M (-22.2%) | N/A | 0.9% (-12.3 pts) | | OSP | $77.5 M (-15.1%) | 52.5% (-4.2 pts) | 37.8% (-4.5 pts) | - NE revenue decrease was driven by lower volumes in Wireless, Field Instruments and Lab and Production, partially offset by PNT revenue[206] - OSP revenue decrease was primarily driven by lower anti-counterfeiting and consumer and industrial revenue[210] Liquidity and Capital Resources As of September 30, 2023, the company held $527.9 million in cash, generated $50.3 million from operations, used $12.6 million in investing, and $16.1 million in financing, with $152.1 million available on its revolving credit facility - Cash provided by operating activities was $50.3 million, a significant increase from $26.6 million in the same period last year[17][220] - Cash used in financing activities included $10.0 million for common stock repurchases and $9.1 million for withholding tax payments on vested stock awards[222] - As of September 30, 2023, the company had no borrowings under its $300 million revolving credit facility and had an available borrowing capacity of approximately $152.1 million[103][218] Quantitative and Qualitative Disclosure About Market Risks The company states that its market risk, including foreign exchange and interest rate risks, has not materially changed from the disclosures made in its Annual Report on Form 10-K for the fiscal year ended July 1, 2023 - There have been no material changes to the Company's market risk related to foreign exchange and interest rates since the last Annual Report on Form 10-K[241] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023 - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[242] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[243] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various claims and lawsuits that arise in the ordinary course of business, with management not currently believing they will have a material adverse impact - The company is subject to a variety of claims and suits from time to time in the ordinary course of business[246] - Management believes that resolving current claims will not have a material adverse impact, but acknowledges that these matters have inherent uncertainties[246] Risk Factors The company faces key risks including geopolitical instability, rapid technological change, reliance on limited customers, operational challenges, evolving regulatory compliance, and significant debt management - Geopolitical conditions, including the Russian invasion of Ukraine, conflict between Israel and Hamas, and U.S.-China tensions, could negatively impact business results through supply chain pressure, inflation, and market instability[248] - The company's profitability is subject to risks from uncertain telecom spending, adverse product mix changes, pricing pressure, and component shortages[252][255] - Reliance on a limited number of customers, including a strategic alliance with SICPA for anti-counterfeiting products, exposes the company to risks of order reductions and increased pricing pressure[262][263] - The business faces significant cybersecurity risks, including phishing, malware, and ransomware, which could lead to business disruption, data loss, and financial penalties[281][282] - The company's significant debt load could affect its ability to obtain financing, require dedication of cash flow to debt service, and limit operational flexibility[293][295] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended September 30, 2023, the company repurchased 1.0 million shares of its common stock for approximately $10.0 million under the 2022 Repurchase Plan Stock Repurchase Activity (Q1 FY24) | Period | Total Shares Purchased | Average Price Paid per Share | Total Value (approx.) | Remaining Authorization | | :--- | :--- | :--- | :--- | :--- | | Aug 27 - Sep 30, 2023 | 1.0 million | $9.86 | $10.0 million | $224.8 million | Other Information On September 12, 2023, EVP Paul A. McNab entered into a prearranged Rule 10b5-1 trading plan for the potential sale of up to 8,374 shares of common stock - On September 12, 2023, EVP Paul A. McNab entered into a Rule 10b5-1 trading plan to sell up to 8,374 shares of common stock[309] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files