Viavi Solutions(VIAV) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fiscal Q2 revenue was $299.9 million, a 4.4% year-on-year decline but a 5.3% quarter-on-quarter growth, driven by recovery in NSE and strong OSP performance [7][8] - Operating margin reached a record 22.3%, expanding 70 basis points year-on-year, exceeding the guidance range of 19% to 20% [8] - EPS was $0.23, matching the record EPS from a year ago and exceeding the guidance range of $0.18 to $0.20 [8] Business Segment Data and Key Metrics Changes - NSE revenue was $206.7 million, declining 11.7% year-on-year but growing 12.6% sequentially; NE revenue was $180.9 million, down 10.9% year-on-year due to pandemic-related declines [9][10] - OSP revenue was $93.2 million, up 17.2% year-on-year, with a record gross margin of 62.7%, up 790 basis points year-on-year [12] Market Data and Key Metrics Changes - NSE gross margin was 63.3%, declining 310 basis points year-on-year; SE gross margin increased 150 basis points year-on-year to 68.2% due to favorable product mix [10] - OSP's operating margin was a record 47.9%, up 970 basis points from last year, driven by higher gross margin and operational expense management [12] Company Strategy and Development Direction - The company expects continued recovery in NSE demand in calendar 2021, with above-seasonal demand outlook in fiscal Q3; 5G Field Instrument demand is anticipated to pick up in the second half of calendar 2021 [21][22] - OSP's strong performance is driven by demand for Anti-Counterfeiting and 3D Sensing products, with expectations for sustainable strength in the foreseeable future [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of NSE and OSP segments, with expectations for SE revenue to rebound in fiscal Q4 [20][21] - The company sees 800 GigE and O-RAN technology as key drivers for future growth in lab and production and wireless segments [19][21] Other Important Information - The company has repurchased approximately $17.1 million of stock in Q2, with a total of $68.3 million repurchased under the share buyback plan [14] - The search for a new CFO is ongoing, with an announcement expected in March [25] Q&A Session Summary Question: Outlook on Anti-Counterfeiting strength - Management expects the momentum in Anti-Counterfeiting to sustain for the foreseeable future, driven by global stimulus and inventory replenishment needs [30][34] Question: Recovery in NE business - The recovery is primarily driven by demand for fiber and 5G wireless, with expectations for continued strength in traditional broadband instrumentation [38][40] Question: 3D Sensing and Android involvement - Management anticipates increased activity in 3D Sensing from Android OEMs, with expectations for significant volume growth in the near future [61][102] Question: 5G field test cycle - Management believes the 5G field test cycle will last for seven to eight years, with initial deployments followed by densification [88] Question: Opportunities in optical and RF - The convergence of fiber and RF is seen as a unique opportunity, with instruments capable of testing both [125][131]