Viavi Solutions(VIAV) - 2021 Q4 - Annual Report

PART I ITEM 1. BUSINESS VIAVI provides global network test, monitoring, and assurance solutions, and is a leader in optical applications for 3D sensing and anti-counterfeiting - VIAVI is a global provider of network test, monitoring, and assurance solutions, and a leader in management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, aerospace, automotive, and medical applications[14] - The company operates in three business segments: Network Enablement (NE), Service Enablement (SE), and Optical Security and Performance Products (OSP)[17] - VIAVI's near-term strategy focuses on growth, both organic and inorganic, by leveraging major secular growth trends in 5G Wireless, Fiber, and 3D Sensing to achieve higher revenue and profitability[28] - The company invests heavily in R&D to develop new and enhanced products across its segments, focusing on portable test instruments, network operations software, and innovative optical technologies for anti-counterfeiting, 3D sensing, and smart phone sensors[74][75][76] - As of July 3, 2021, VIAVI had approximately 3,600 employees worldwide, representing over 30 nationalities across 30 countries, with a commitment to diversity, equity, and inclusion, talent development, and competitive talent rewards[82][85][90] General This section provides an overview of Viavi Solutions Inc.'s business, market position, and strategic focus Network Enablement This section details the Network Enablement segment's offerings and market focus Service Enablement This section describes the Service Enablement segment's solutions and target customers Optical Security and Performance Products This section outlines the Optical Security and Performance Products segment's technologies and applications Acquisitions This section discusses the company's strategy and activities related to business acquisitions Restructuring Programs This section provides information on the company's restructuring initiatives and their impact Research and Development This section highlights the company's investment in research and development for product innovation Manufacturing This section describes the company's manufacturing operations and processes Sources and Availability of Raw Materials This section addresses the company's supply chain for raw materials and their availability Patents and Proprietary Rights This section covers the company's intellectual property, including patents and proprietary rights Backlog This section provides information on the company's order backlog Seasonality This section discusses the seasonal trends affecting the company's business operations Human Capital Management This section details the company's approach to managing its human resources and talent ITEM 1A. RISK FACTORS VIAVI faces significant risks including the ongoing impact of the COVID-19 pandemic, rapid technological change, and reliance on a limited customer base - The COVID-19 pandemic has significantly affected VIAVI's business, financial condition, results of operations, and liquidity, causing disruptions in facilities, suppliers, contract manufacturers, and shipping logistics, with ongoing uncertainty due to new variants and vaccine rollout challenges[97][99][103] - Rapid technological change in the industry, including the transition to 5G and virtualized networks, presents risks if VIAVI cannot deliver new products on time and at acceptable costs, potentially leading to lower demand for legacy hardware and increased competition[108][112][117] - VIAVI relies on a limited number of customers for a significant portion of its revenues, which exposes the company to risks of order reductions and increased pressure on pricing and contract terms, especially with industry consolidation[115] - International operations expose VIAVI to risks such as foreign exchange rate fluctuations, compliance with diverse laws and regulations, difficulties in enforcing intellectual property rights, tariffs, political instability, and challenges in staffing and management[121] - The company faces risks related to information security, including cyber-attacks and system failures, and compliance with evolving data privacy laws like GDPR and CCPA, which could result in financial losses, regulatory fines, and reputational damage[132][133][135][136] - VIAVI's ability to use its net operating loss (NOL) carryforwards to offset future taxable income may be limited by ownership changes and the uncertainty of generating sufficient taxable income before expiration[152][153][154] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments to report - No unresolved staff comments were reported[164] ITEM 2. PROPERTIES This item is not applicable to the report - The item regarding properties is not applicable[165] ITEM 3. LEGAL PROCEEDINGS Information on legal proceedings is incorporated by reference from Note 18. Commitments and Contingencies in the Notes to Consolidated Financial Statements - Legal proceedings information is incorporated by reference from Note 18. Commitments and Contingencies in the Notes to Consolidated Financial Statements[166] ITEM 4. MINE SAFETY DISCLOSURE This item is not applicable to the report - The item regarding mine safety disclosure is not applicable[167] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES VIAVI's common stock trades on the Nasdaq Global Select Market, with no anticipated cash dividends, and the company has a stock repurchase program - VIAVI's common stock is traded on the Nasdaq Global Select Market under the symbol VIAV[169] - As of July 31, 2021, the closing price was $16.69, with 228,472,709 shares of common stock outstanding and 2,072 holders of record[4][169] - The company has not paid cash dividends and does not anticipate doing so in the foreseeable future[169] - During fiscal 2021, VIAVI repurchased and retired shares of its common stock under a Board-authorized program[170] Cumulative Total Return ($100 invested on 6/30/16) | | 6/2016 | 6/2017 | 6/2018 | 6/2019 | 6/2020 | 6/2021 | |:---|:---|:---|:---|:---|:---|:---| | VIAVI | $ 100.00 | $ 158.82 | $ 154.45 | $ 200.45 | $ 188.54 | $ 263.50 | | S&P 500 | $ 100.00 | $ 115.46 | $ 129.52 | $ 140.16 | $ 143.37 | $ 207.37 | | Nasdaq Composite | $ 100.00 | $ 126.80 | $ 155.09 | $ 165.33 | $ 201.48 | $ 302.30 | | Nasdaq Telecommunications | $ 100.00 | $ 113.80 | $ 134.59 | $ 158.43 | $ 161.18 | $ 205.28 | ITEM 6. SELECTED FINANCIAL DATA Selected historical financial data for the last five fiscal years has been omitted in accordance with amendments to Item 301 of Regulation S-K - Selected historical financial data for the last five fiscal years has been omitted due to amendments to Item 301 of Regulation S-K[177] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes VIAVI's financial condition and operational results, detailing revenue, gross margin, and operating expenses, alongside liquidity and capital resources - Net revenue increased by $62.6 million, or 5.5%, during fiscal 2021 compared to fiscal 2020, primarily driven by strength in the OSP segment, partially offset by a decrease in the SE segment[220] - Gross margin increased by 1.1% to 59.6% in fiscal 2021 from 58.5% in fiscal 2020, mainly due to higher revenue volume, favorable product mix, and improved factory utilization within the OSP segment[228] - Operating income for fiscal 2021 was $142.2 million, up from $118.1 million in fiscal 2020, reflecting improved gross profit and managed operating expenses[213][215] - Cash provided by operating activities was $243.3 million in fiscal 2021, an increase from $135.6 million in fiscal 2020, indicating strong liquidity[255][301] - The company's principal growth drivers, 5G Wireless, Fiber, and 3D Sensing, are expected to continue driving growth and profitability in fiscal 2022[188] Our Industries and Developments This section discusses the industry landscape and recent developments impacting the company COVID-19 Pandemic Update This section provides an update on the impact of the COVID-19 pandemic on the company's operations Recently Issued Accounting Pronouncements This section outlines recently issued accounting pronouncements relevant to the company's financial reporting Critical Accounting Policies and Estimates This section details the critical accounting policies and estimates used in preparing the financial statements Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and profitability Operating Segment Information This section provides financial information broken down by the company's operating segments Liquidity and Capital Resources This section discusses the company's cash flows, financial resources, and capital management ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK VIAVI is exposed to foreign exchange risk, which it mitigates using foreign exchange forward contracts, and also faces interest rate and market price risk on its debt - VIAVI uses foreign exchange forward contracts to hedge foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily short-term intercompany receivables and payables[269] - As of July 3, 2021, the notional amounts of forward contracts to purchase foreign currencies were $114.0 million, and to sell foreign currencies were $27.8 million[271] - The majority of investments have maturities of 90 days or less, limiting exposure to interest rate changes, and are held in high-quality, investment-grade debt instruments to mitigate credit risk[273][274] - The fair values of the 2023 and 2024 Senior Convertible Notes are subject to interest rate and market price risk. The 2024 Notes were reclassified to short-term debt as of July 3, 2021, due to the common stock price exceeding 130% of the conversion price for a specified period[275][276] - The elimination of LIBOR after June 2023 may affect financial results, potentially leading to higher interest costs if LIBOR-based borrowings convert to replacement rates like SOFR[251] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents VIAVI's audited consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with the independent auditor's report and detailed notes - PricewaterhouseCoopers LLP provided an unqualified opinion on VIAVI's consolidated financial statements and the effectiveness of its internal control over financial reporting as of July 3, 2021[281] Consolidated Statements of Operations (in millions) | Years Ended | July 3, 2021 | June 27, 2020 | June 29, 2019 | |:---|:---|:---|:---| | Total net revenue | $ 1,198.9 | $ 1,136.3 | $ 1,130.3 | | Gross profit | $ 714.4 | $ 665.3 | $ 651.4 | | Income from operations | $ 142.2 | $ 118.1 | $ 67.4 | | Income from continuing operations before income taxes | $ 109.4 | $ 94.0 | $ 39.3 | | Net income | $ 46.1 | $ 28.7 | $ 5.4 | | Net income per share - diluted | $ 0.20 | $ 0.12 | $ 0.02 | Consolidated Balance Sheets (in millions) | As of | July 3, 2021 | June 27, 2020 | |:---|:---|:---| | Total assets | $ 1,961.4 | $ 1,776.3 | | Total current liabilities | $ 705.0 | $ 232.8 | | Long-term debt | $ 209.8 | $ 600.9 | | Total stockholders' equity | $ 774.8 | $ 711.4 | Consolidated Statements of Cash Flows (in millions) | Years Ended | July 3, 2021 | June 27, 2020 | June 29, 2019 | |:---|:---|:---|:---| | Net cash provided by operating activities | $ 243.3 | $ 135.6 | $ 138.8 | | Net cash (used in) provided by investing activities | $ (48.7) | $ (29.8) | $ 80.6 | | Net cash used in financing activities | $ (58.8) | $ (71.7) | $ (300.4) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $ 161.0 | $ 17.0 | $ (93.9) | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM This section contains the independent auditor's opinion on the company's financial statements and internal control over financial reporting VIAVI SOLUTIONS INC. CONSOLIDATED STATEMENTS OF OPERATIONS This section presents the company's consolidated statements of operations for the reported fiscal periods VIAVI SOLUTIONS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) This section presents the company's consolidated statements of comprehensive income (loss) VIAVI SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS This section presents the company's consolidated balance sheets as of the reported fiscal year-ends VIAVI SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the company's consolidated statements of cash flows for the reported fiscal periods VIAVI SOLUTIONS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY This section presents the company's consolidated statements of stockholders' equity for the reported fiscal periods Note 1. Basis of Presentation This note describes the basis of presentation for the consolidated financial statements Note 2. Recently Issued Accounting Pronouncements This note details recently issued accounting pronouncements and their impact on the company Note 3. Earnings Per Share This note provides information on the calculation of earnings per share Note 4. Accumulated Other Comprehensive Loss This note details the components of accumulated other comprehensive loss Note 5. Acquisitions This note provides information on the company's business acquisitions Note 6. Balance Sheet and Other Details This note provides additional details on various balance sheet accounts Note 7. Investments and Forward Contracts This note describes the company's investments and foreign exchange forward contracts Note 8. Fair Value Measurements This note provides information on fair value measurements of financial instruments Note 9. Goodwill This note details the company's goodwill and related impairment testing Note 10. Acquired Developed Technology and Other Intangibles This note provides information on acquired developed technology and other intangible assets Note 11. Debt This note details the company's debt obligations, including convertible notes Note 12. Leases This note provides information on the company's lease arrangements Note 13. Restructuring and Related Charges This note details the costs and activities associated with restructuring programs Note 14. Income Taxes This note provides information on the company's income tax expense and related balances Note 15. Stockholders' Equity This note details changes in the company's stockholders' equity Note 16. Stock-Based Compensation This note provides information on the company's stock-based compensation plans Note 17. Employee Pension and Other Benefit Plans This note details the company's employee pension and other post-retirement benefit plans Note 18. Commitments and Contingencies This note describes the company's commitments and contingent liabilities Note 19. Operating Segments and Geographic Information This note provides financial information by operating segment and geographic region Note 20. Selected Quarterly Financial Information (unaudited) This note presents unaudited selected quarterly financial data ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[594] ITEM 9A. CONTROLS AND PROCEDURES Management concluded that VIAVI's disclosure controls and procedures and internal control over financial reporting were effective as of July 3, 2021 - The CEO and CFO concluded that VIAVI's disclosure controls and procedures were effective at the reasonable assurance level as of July 3, 2021[595] - Management concluded that the internal control over financial reporting was effective as of July 3, 2021, based on the COSO framework[597] - There were no material changes in internal control over financial reporting during the quarter ended July 3, 2021[598] ITEM 9B. OTHER INFORMATION The Board of Directors extended the stock repurchase program of up to $200 million until September 30, 2022 - The Board of Directors extended the stock repurchase program of up to $200 million until September 30, 2022[600] - As of July 3, 2021, approximately $112.9 million remained under the stock repurchase program[600] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to the report - The item regarding disclosure about foreign jurisdictions that prevent inspections is not applicable[601] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding directors, executive officers, corporate governance, and compliance with Section 16(a) of the Exchange Act is incorporated by reference from the Company's Definitive Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement[603][604] - VIAVI has adopted the 'VIAVI Code of Business Conduct' as its code of ethics, applicable to all employees, officers, and directors, and available on its website[606] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation, director compensation, and compensation program risk assessment is incorporated by reference from the Proxy Statement - Executive compensation information is incorporated by reference from the Proxy Statement[609] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information on security ownership of certain beneficial owners and management, as well as equity compensation plans, is incorporated by reference from the Proxy Statement - Information on security ownership and equity compensation plans is incorporated by reference from the Proxy Statement[610][611] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information regarding certain relationships and related person transactions, and director independence, is incorporated by reference from the Proxy Statement - Information on certain relationships, related person transactions, and director independence is incorporated by reference from the Proxy Statement[612] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[613] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - The section includes the Report of Independent Registered Public Accounting Firm and the Consolidated Financial Statements (Operations, Comprehensive Income (Loss), Balance Sheets, Cash Flows, Stockholders' Equity, and Notes)[615] - Financial statement schedules have been omitted as the required information is either not present in sufficient amounts, not applicable, or included within the Consolidated Financial Statements or Notes[618] - A comprehensive list of exhibits is provided, including corporate governance documents, debt agreements, employment contracts, and certifications, many of which are incorporated by reference from prior SEC filings[616][617] ITEM 16. 10-K SUMMARY This section indicates that there is no 10-K summary provided - No 10-K summary is provided in this report[620] SIGNATURES The report is duly signed on behalf of Viavi Solutions Inc. by its authorized officers and Board of Directors, confirming compliance with the Securities Exchange Act of 1934 - The report is signed by the President and Chief Executive Officer, Oleg Khaykin, and the Executive Vice President and Chief Financial Officer, Henk Derksen, on August 23, 2021[623][626] - The signatures confirm that the report complies with the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934[622][625]