Viavi Solutions(US:VIAV)2025-10-29 21:32Financial Data and Key Metrics Changes - Net revenue for Q1 fiscal 2026 was $299.1 million, exceeding guidance of $290 million to $298 million, representing a 3% sequential increase and a 25.6% year-over-year increase [4] - Operating margin for the quarter was 15.7%, above guidance of 14.6% to 15.4%, and increased by 130 basis points sequentially and 570 basis points year-over-year [4] - EPS was $0.15, above guidance of $0.13 to $0.14, and increased by $0.02 sequentially and $0.09 year-over-year [4] Business Segment Data and Key Metrics Changes - NSC revenue was $216 million, above guidance of $208 million to $214 million, with a year-over-year increase of 35.5% driven by strong demand in the data center ecosystem and the acquisition of Inertia Labs [5][6] - OSP revenue was $83.1 million, in line with guidance of $82 million to $84 million, with a year-over-year increase of 5.5% primarily due to strength in anti-counterfeiting products [7] - NSC gross margin was 63%, up 210 basis points year-over-year, while OSP gross margin was 52.3%, down 300 basis points year-over-year due to unfavorable product mix [6][7] Market Data and Key Metrics Changes - The data center ecosystem is driving strong demand for lab and production products, particularly in support of AI data center build-outs [13] - Aerospace and defense business saw strong growth, with continued high demand for positioning, navigation, and timing products [14] - The service providers' business remained stable, with a gradual recovery in fiber offset by soft demand for wireless products [14] Company Strategy and Development Direction - The company plans to leverage the complementary product portfolio from the Spirent acquisition and report NSC as one business segment going forward [11] - The focus is on increasing exposure to the data center ecosystem, which is expected to surpass traditional service provider revenue in the near future [19][20] - The company aims to enhance operational efficiency and expand margins through integration of the Spirent business [66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong demand from the data center ecosystem and aerospace and defense sectors throughout fiscal 2026 [15] - The company anticipates a seasonal decline in OSP revenue in Q2 due to lower demand for anti-counterfeiting and 3D sensing products [10] - Management highlighted the potential for significant operating leverage as the business recovers, with EPS potentially reaching close to $1 if wireless demand rebounds [32] Other Important Information - Total cash and short-term investments at the end of Q1 were $549.1 million, up from $429 million in the previous quarter [8] - The company successfully refinanced $250 million in convertible notes and repurchased approximately 2.7 million shares for about $30 million [8] Q&A Session Summary Question: Update on revenue mix between core telecom service provider and new products - Management indicated a shift in revenue mix to approximately 45% service provider, 40% data center ecosystem, and 15% aerospace and defense post-Spirent acquisition [19] Question: Growth breakdown between data center and aerospace and defense - Management noted strong demand for field instruments from the data center ecosystem and gradual growth in aerospace and defense, with wireless remaining a weak segment [24][25] Question: Operating margin guidance for NSC - Management expects NSC operating margins to improve with Spirent's contribution, projecting around $165 million in quarterly run rate [27] Question: Impact of wireless recovery on earnings - Management acknowledged that a recovery in wireless could significantly enhance earnings, as it has been a lagging segment [32] Question: Margin profile of the Spirent business - Management confirmed that Spirent's business has a higher gross margin than the average NSC and is expected to be accretive post-integration [66][67] Question: Trends in large service providers' wireline networks - Management observed a gradual recovery in fiber spending among major service providers, with expectations for increased purchasing in the coming year [60]