Viavi Solutions(VIAV) - 2025 Q4 - Annual Report

Part I Item 1. Business Viavi Solutions Inc. provides network testing, monitoring, and optical technologies through its NSE and OSP segments, focusing on core leadership and growth - Effective March 30, 2025, the company realigned its reporting structure, combining NE and SE segments into a single Network and Service Enablement (NSE) segment[16] - The corporate strategy focuses on defending leadership in core segments, investing in secular growth trends like fiber and wireless, and extending technologies into adjacent markets such as aerospace and defense[18] - As of June 28, 2025, the company employed approximately 3,600 people across 31 countries[68] Business Segments The company operates two segments: Network and Service Enablement (NSE) for network solutions and Optical Security and Performance Products (OSP) for optical technologies - The NSE segment provides solutions for lab, production, network management, and AIOps, serving major customers including AT&T, Cisco, and Verizon[21][22][27] - The OSP segment's technologies include Optical Variable Pigment (OVP®) for anti-counterfeiting on banknotes in over 100 countries and optical filters for 3D sensing[34][35][36] - A key strategic alliance for the OSP segment is with SICPA Holding SA Company for global marketing and sales of OVP and OVMP products for banknote anti-counterfeiting[40] Research and Development Viavi invests substantially in R&D for new products and technologies, securing a $21.7 million grant for ORAN testing - In fiscal 2024, the company received approval for a grant of approximately $21.7 million over three years from the Public Wireless Supply Chain Innovation Fund to support Open Radio Access Network (ORAN) automated testing[54] Seasonality The company's business experiences seasonality, with NSE revenue peaking in Q2/Q4 and OSP revenue highest in Q1/Q2 due to market cycles - NSE revenue is typically highest in Q2 and Q4 and weakest in Q3, influenced by customer calendar year spending and budget cycles[66] - OSP revenue is seasonally higher in Q1 and Q2 due to smartphone market exposure, with demand declining in Q3 and Q4[67] Human Capital Management Viavi manages human capital for 3,600 employees across 31 countries, focusing on culture, talent, and rewards, with a best-in-class safety record - The company's safety program achieved a best-in-class Total Recordable Injury Rate (TRIR) of 0.08 injuries per 100 full-time workers per year[80] Item 1A. Risk Factors The company faces diverse risks including geopolitical, technological, customer concentration, operational, cybersecurity, regulatory, environmental, and financial leverage - Global risks, including geopolitical tensions in Ukraine, the Middle East, and U.S.-China relations, could cause market instability, supply chain pressure, and increased costs[83] - Reliance on a limited number of customers, including a strategic alliance with SICPA for OVP and OVMP products, creates vulnerability to order reductions or loss of key relationships[93][94] - Risks associated with the Inertial Labs acquisition and proposed Spirent acquisition include failure to realize anticipated benefits and integration challenges[97][98] - Outstanding debt, including Senior Convertible Notes due 2026 and Senior Notes due 2029, increases leverage, potentially limiting operational flexibility and future financing access[128][130] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments - None[146] Item 1C. Cybersecurity Viavi maintains a comprehensive cybersecurity risk management strategy, overseen by the Audit Committee, with no material security breaches in the last three fiscal years - The company's cybersecurity approach utilizes NIST and ISO frameworks and includes an Incident Response Plan[148][149] - Cybersecurity oversight is delegated to the Audit Committee, which formed a Cybersecurity Steering Committee including independent directors and key management[153] - The company has not experienced any material information security breach incidents in the last three fiscal years, with immaterial related expenses[151] Item 2. Properties This item is not applicable Item 3. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 18, 'Commitments and Contingencies,' in the financial statements - Information for this section is located in Note 18 of the financial statements[160] Item 4. Mine Safety Disclosures This item is not applicable Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under VIAV, with 1,392 holders, no cash dividends, and $198.4 million authorized for repurchases - The company has not paid cash dividends on its common stock and does not anticipate paying them in the foreseeable future[163] - No shares were repurchased in Q4 FY2025, leaving $198.4 million authorized under the September 2022 stock repurchase plan[164] Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2025, Viavi's net revenue grew 8.4% to $1.08 billion, with improved operating margins and $89.8 million in operating cash flow, driven by strategic acquisitions Fiscal 2025 Financial Highlights (Year-over-Year) | Metric | Fiscal 2025 | Change vs. FY2024 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $1.08 billion | +$83.9 million | +8.4% | | GAAP Operating Margin | 5.3% | +320 bps | N/A | | Non-GAAP Operating Margin | 14.2% | +270 bps | N/A | | GAAP Diluted EPS | $0.15 | +$0.27 | +225.0% | | Non-GAAP Diluted EPS | $0.47 | +$0.14 | +42.4% | - The company agreed to acquire Spirent Communications plc's high-speed ethernet, network security, and channel emulation testing businesses for $425 million, expected to close by September 2025[177] - In fiscal 2025, the company generated $89.8 million in operating cash flow, used $121.7 million for the Inertial Labs acquisition, and repurchased $16.4 million of common stock[182] Results of Operations Fiscal 2025 net revenue increased 8.4% to $1,084.3 million, driven by NSE growth, with gross margin slightly down and income from operations significantly up to $57.5 million Consolidated Statement of Operations Summary (FY2025 vs. FY2024) | Metric (in millions) | 2025 | 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $1,084.3 | $1,000.4 | $83.9 | 8.4% | | Gross Profit | $621.1 | $575.9 | $45.2 | 7.8% | | Gross Margin | 57.3% | 57.6% | -0.3 p.p. | N/A | | R&D Expense | $208.7 | $201.9 | $6.8 | 3.4% | | SG&A Expense | $349.4 | $333.3 | $16.1 | 4.8% | | Restructuring Charges | $0.7 | $13.6 | ($12.9) | (94.9)% | | Income from Operations | $57.5 | $20.8 | $36.7 | 176.4% | - Net revenue growth was primarily driven by the data center ecosystem and aerospace and defense products, including a $25.2 million contribution from the Inertial Labs acquisition, partially offset by declines in wireless and cable spending[199] Operating Segment Information In fiscal 2025, NSE revenue grew 10.6% to $776.6 million with expanded margin, while OSP revenue increased 3.1% to $307.7 million with slight margin improvement Segment Performance (FY2025 vs. FY2024) | Segment | Metric (in millions) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | | NSE | Net Revenue | $776.6 | $702.0 | 10.6% | | | Operating Income | $41.6 | $8.0 | 420.0% | | | Operating Margin | 5.4% | 1.1% | +4.3 p.p. | | OSP | Net Revenue | $307.7 | $298.4 | 3.1% | | | Operating Income | $112.3 | $107.0 | 5.0% | | | Operating Margin | 36.5% | 35.9% | +0.6 p.p. | - NSE revenue growth was driven by higher volume in Lab and Production and Aerospace and Defense, including a $25.2 million contribution from the Inertial Labs acquisition[228] - OSP revenue growth was primarily driven by higher Anti-Counterfeiting and Other revenues, partially offset by a decrease in 3D sensing revenue[230] Liquidity and Capital Resources As of June 28, 2025, cash decreased by $49.7 million to $432.1 million, with $89.8 million from operations, $128.4 million used in investing, and $23.6 million in financing Cash Flow Summary (Fiscal Year 2025) | Cash Flow Activity | Amount (in millions) | | :--- | :--- | | Net cash provided by operating activities | $89.8 | | Net cash used in investing activities | ($128.4) | | Net cash used in financing activities | ($23.6) | | Net decrease in cash | ($49.7) | - The company secured commitments for a $600 million 7-year Term Loan B facility to fund the pending Spirent acquisition and for general corporate purposes, closing concurrently with the acquisition[239] Material Contractual Obligations as of June 28, 2025 | Obligation Type | Total (in millions) | Due in < 1 year | Due in 1-3 years | Due in 3-5 years | Due > 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt (Principal & Interest) | $722.6 | $269.7 | $30.4 | $422.5 | $0 | | Purchase obligations | $160.7 | $141.7 | $18.5 | $0.4 | $0.1 | | Operating lease obligations | $41.2 | $10.6 | $16.6 | $6.0 | $8.0 | | Total | $1,008.9 | $432.9 | $85.8 | $447.8 | $42.4 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency, investments, and debt, managing foreign exchange with forward contracts totaling $60.4 million to purchase and $24.1 million to sell - The company uses foreign exchange forward contracts to hedge currency risk, with notional amounts of $60.4 million to purchase and $24.1 million to sell foreign currencies as of June 28, 2025[256][258] Fair Value of Debt as of June 28, 2025 | Debt Instrument | Carrying Value (in millions) | Fair Value (in millions) | | :--- | :--- | :--- | | 1.625% Senior Convertible Notes due 2026 | $246.2 | $252.0 | | 3.75% Senior Notes due 2029 | $396.3 | $373.6 | Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2023-2025, including the auditor's report, core statements, and detailed notes Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on financial statements and internal controls, identifying NSE revenue recognition and Inertial Labs acquisition valuation as Critical Audit Matters - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements and internal controls[268] - Critical Audit Matters included NSE segment revenue recognition and the valuation of contingent consideration and developed technology from the Inertial Labs acquisition[275][277][281] Consolidated Financial Statements The consolidated financial statements show fiscal 2025 net revenue of $1,084.3 million, income from operations of $57.5 million, and total assets of $1,993.8 million Key Financial Statement Data (Fiscal Year 2025) | Metric (in millions) | Amount | | :--- | :--- | | Statement of Operations | | | Total Net Revenue | $1,084.3 | | Gross Profit | $621.1 | | Income from Operations | $57.5 | | Net Income | $34.8 | | Balance Sheet (as of June 28, 2025) | | | Total Assets | $1,993.8 | | Total Liabilities | $1,213.6 | | Total Stockholders' Equity | $780.2 | Notes to Consolidated Financial Statements The notes provide detailed accounting policies and financial data, including acquisitions (Note 5), debt (Note 11), and segment realignment (Note 19) - Note 5: On January 28, 2025, the company acquired Inertial Labs for approximately $134.4 million in cash and up to $175.0 million in contingent consideration, resulting in $130.3 million of goodwill[395][396][399] - Note 11: As of June 28, 2025, total debt carrying value was $642.5 million, comprising $246.2 million in short-term debt (2026 Notes) and $396.3 million in long-term debt (2029 Notes)[459] - Note 19: The company realigned segments into Network and Service Enablement (NSE) and Optical Security and Performance Products (OSP), with FY2025 revenues of $776.6 million for NSE and $307.7 million for OSP[585][589] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[600] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 28, 2025, excluding the recently acquired Inertial Labs - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 28, 2025[601] - Management concluded that internal control over financial reporting was effective as of June 28, 2025, excluding the recently acquired Inertial Labs (2.3% of consolidated revenue, 2.1% of total assets)[602][603] Item 9B. Other Information No directors or Section 16 officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during Q4 fiscal 2025 - No directors or Section 16 officers adopted, modified, or terminated a Rule 10b5-1 trading plan in the fourth fiscal quarter of 2025[607] Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2025 Definitive Proxy Statement Item 11. Executive Compensation Information on executive compensation, including Compensation Discussion and Analysis, is incorporated by reference from the company's 2025 Proxy Statement Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference from the company's 2025 Proxy Statement Item 13. Certain Relationships and Related Transactions and Director Independence Information on related person transactions and director independence is incorporated by reference from the company's 2025 Proxy Statement Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2025 Proxy Statement Part IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, including corporate documents and certifications Item 16. 10-K Summary The company reports no 10-K summary - None[628]