Q1 2025 Viavi Solutions Inc Earnings Call
Hello everyone, my name is Khamika and welcome to Viavis Illusion's fiscal 1st quarter, 2025 earnings call.
All lions have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I will now turn the conference over, too.
Vietnam, Niyar, the obvious solutions head of the best relations, please go ahead.
Vietnam Niyar: Thank you to Mika.
Speaker Change: Good afternoon, everyone.
Vietnam Niyar: Welcome to Viyabhi Solutions, fiscal 1st quarter 2020-5 earnings calls.
Vibuti Nair: My name is Vibuti Nair, head of Investual Relations for Viyabi Solutions.
With me on the call today is Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO.
Please note this call will include forward-looking statements about the company's financial performance.
These statements are subject to risks and uncertainties that could cause actual results to deformaterally from occurence expectations and estimations.
We encourage you to review our most recent annual reports in SEC Finlings.
Vibuti Nair: Particularly the risk factors described in those filings.
The forward-looking statements, including guidance that we provide during this call, are valid only as us today.
Speaker Change: We are the undertakes, no obligations to update these statements.
Speaker Change: Please also note that unless we stayed otherwise, all results discussed on this call except revenue or non-gap.
We reconciled these non-gap results to our preliminary gap financials and discussed the usefulness and limitations in today's earnings release.
The release, as well as our supplemental earnings slides, which include historical financial tables, are available on viaveeswebsite at www.investor.viavecolutions.com.
Finally, we are recording today's call and we'll make the recording available on our website by 430pm Pacific Time this evening.
Speaker Change: With that, I would now like to turn the call over to Ilan Ilan
Speaker Change: Net revenue for the quarter was 238.2 million dollars, which is slightly below the midpoint of our guidance range of 235 to 245 million dollars.
Revenue was down 5.5% sequentially, and on a year of the year basis was down 3.9%.
Operating margin for the first fiscal quarter was 10%, a low end of our guidance range of 9.9 to 11.7%.
Operating margin decreased 90 basis points from the prior quarter, and on a year of year basis was down 240 basis points.
EPS at 6 cents had a midpoint of our guidance range of 5-7 cents and was down 2 cents sequentially.
On a year of a year basis, EPS was down 3 cents.
Speaker Change: Moving on to our Q1 results by business segment.
NSC revenue for the first fiscal quarter came in at 159.4 million dollars, which is around the low end of our guidance range of 160 to 168 million dollars.
It was mainly driven by slower order days from service providers for field instruments.
On a year of year basis, NSera Venu was down 6.5%.
An e-revenue for the quarter was $141.6 million, which is a 5.6% year-of-year decline as a result of continued conservative spend by service providers and next.
S.E. revenue was $17.8 million and declined 12.7% from the same period last year, driven mainly by conservative spend by enterprise customers.
NSE Gross Margin for the quarter was 60.9% which is 270 basis points lower on a year of year basis.
An e-growth margin was 60.9% which is at the crease of 220 basis points from the same period last year due to lower volume and product mix.
SE Grossmargen was 60.7% which is a decrease of 650 basis points from the same period last year as a result of lower revenue.
NSE's operating margin for the quarter was negative 4.6% which is a 550 basis points decline on a year of a year basis.
Speaker Change: NSE operating margin was below our guidance range due to low revenue and gross margin for throw.
Osp revenue for the first fiscal quarter came in at 78.8 million dollars, which was above the high end of our guidance range of 75 to 77 million dollars, primarily driven by anti-controfeeding and 3D sensing.
Speaker Change: On a year of the year basis, revenue was at 1.7% driven by strength across all products.
Speaker Change: OSP Gross Margin was 55.3% up to 180 basis points from the same period last year and was primarily driven by higher volume.
Speaker Change: Westpiece Operating Margin was 39.6% which is an increase of 180 basis points on a year of year basis as a result of a higher gross margin for the stream.
Oisp operating margin exceeded the high end of our guidance range of 33-35%.
Moving on to the balance sheet and cash flow.
Total Kesh and short-term investments, at the end of Q1, was $497.9 million, compared to $496.2 million in the fourth quarter of fiscal 2024.
Keshlo from operating activities for the quarter was $13.5 million versus $50.3 million in the same period last year.
Speaker Change: During the quarter we purchased 2 million shares of our stock for about $16.4 million.
Speaker Change: The fully diluted share count for the quarter was 224 million shares, down from 224.2 million shares in the prior year, and versus 224.2 million shares in our guidance for the first fiscal quarter.
Speaker Change: Khaypaks for the quarter was $7.3 million versus $6.7 million in the same period last year.
Moving on to our guidance.
For NSE, we are seeing signs of recovery and normalization of seasonality trend and expect a stronger second fiscal quarter.
For OSP, we expect a seasonally weaker second fiscal quarter, mainly driven by softer demand in anti counterfeiting products.
Speaker Change: We expect the near-turned-demand for anti-contraffeding products to be on the softer side as the end customers work down their inventories.
For the second fiscal quarter of 2025, we expect revenue in the range of 255 and 265 million dollars.
Operating margin is expected to be 12.4% plus or minus 100 basis points.
Speaker Change: and EPS to be between 9th and 11th.
Speaker Change: We expect NSC revenue to be approximately $188 million, plus or minus $4 million, with an operating margin of 4.8% plus or minus 100 basis points.
OESP revenue is expected to be approximately 72 million dollars, plus or minus 1 million dollars, with an operating margin of 32.3% plus or minus 100 basis points.
Speaker Change: Our tax expenses for the second quarter are expected to be around $7 million plus or minus $500,000 is a result of jurisdiction on mix.
We expect other income and expenses to reflect a net expense of approximately $3.5 million.
Speaker Change: And the share count is expected to be around 224 million shares.
We there, I will turn the call over to Oleg. Oleg?
Thank you. Thank you, Alon. During the September quarter, our revenue came in at a lower end of our guidance range.
With stronger OSP's demand partially of setting weaker NSE demands.
The EPS was a demitt point of our guidance range.
Speaker Change: On the positive side, we are seeing many of the NSC's traditional and markets showing signs of stabilization. We believe it marks the beginning of NSC recovery and expected will continue into the second half of this calls 25.
Now let's look at in more detail at each of our businesses, starting with NSC.
The NSC-Aravenu in Fiscal Q1 declined on the year over year basis, driven by softer demand for field instruments and wireless products.
Lawors of Timber Quarter demand notwithstanding, we are seeing positive signs around order stabilization which imply the beginning of recovery in Q2 and continuing into second half of fiscal 25. A bit more collar on individual product segments.
A declining field instruments was driven by Lord demand from North American cable and service providers.
At the same time, their signs of stabilization and improved ornamental leading to demand recovery starting in the December quarter and continuing into the second half of this cult's 25.
In addition, we also seeing stabilization in our wireless business and expected to start recovering in the second half of fiscal 25, which is earlier than previously anticipated.
Fiber 11 production demands will slightly down.
Speaker Change: Subtemporal court are not sustaining, we expect to see significant growth in this business for the remainder of fiscal 25, driven by high demand for our 800th gig and recently launched 1.6-terabit, Fiberum and High speed Ethernet products.
Our Mill Air of Business continued its robust year on your growth driven by growth in mission critical products, including communication, avionics and PNG.
Lastly, as he was down year and year, primarily driven by law and to price customer spend.
Looking ahead for NSE, we expect a seasonally stronger Q2 across all product segments, with continued gradual recovery momentum in the second half of this coach 25.
Not turning to a SPF.
During the fiscal first quarter, Ospig grew on a year-over-year basis, driven by higher demand for anti-contraffating and 3G-sensing products. Overall Ospir results exceeded the higher end of our guide search.
For OSP, we expect a seasonally weaker second fiscal quarter mainly joined by softer demand for anti-contabating products. We expect the near term demand for anti-contabating products to be on the softer side, as the end customers work down their inventory.
Speaker Change: In summary, Q1 not for standing, we expect Q2 rebound to be the beginning of gradual recovery.
Speaker Change: Despite the challenging environment over the last two years, the Aveh has continued to invest in advanced products and technologies to maintain our industry leadership.
Speaker Change: With that in mind, I would like to recognize the VIAVI team for achieving two major milestones during the September quarter. The first milestone is the launch of the Volar Lab in General Arizona, which will provide test-of-the-service for open-brand ecosystem.
Speaker Change: The second milestone is the release of industry's first 1.6-teravit per second high speed Ethernet testing for AI workloads.
Speaker Change: These two achievements positioned the Aving Well for the leadership in wireless data center and high performance computing market segments.
Lastly, I would like to thank our customers and shareholders for their continued support.
Speaker Change: With that, we'll now turn it back to the operator for the Q&A.
Thank you. As a reminder to ask a question, press star 1 on your telephone keypad. If you would like to withdraw your questions, press star 1 again.
The ask today that you limit yourself to one question and one follow-up.
Speaker Change: Please stand by for your first question.
Your first question is from the line of building Roy, the stethel.
Thank you. Thanks for taking my questions. Hi Oleg, Anilan.
Oleg, thanks for going through some detail on the segments and sort of the order moment. And wondering if you could just drill into any a little bit further and talk about linearity through the quarter.
We're the bookings fairly linear, or did I pick up towards the end of the quarter? And then I had two qualifallips. Thank you.
So, well, as we start at 4pm, we have a backlog and then there is...
Some expected orders that come in within the quarter. And I would say that largely linearity was pretty much as we expected.
But we did have several major service providers indicated that it would prefer to start taking product in the second fiscal quarter. That's some of the revenue in NSC got pushed out. But it also was very evident.
Is that much bigger engagement than orders?
Speaker Change: Looking at the Q2, Q3, and a little bit further into Q4 from not only Nams and Semikondactor Vanders, but also from service providers.
And we've seen a number very interesting dynamics emerge. You know, I was talking for the last, let's say, year and a half about this, what I would call a Mexican standoff between all the operators.
Speaker Change: For they are all signaling to each other that they're not really investing, they're not spending. And what we have seen change during this quarter.
is a number of big events. I mean, first of all, he saw AT&T became very vocal and very aggressive about their upcoming fiber deployment in calendar 25.
Then we saw Verizon, one hour, they actually re-entered the fiber market buying frontier into which they dumped their fiber assets about eight years ago or so.
And of course, as the telecom players becoming aggressive and fibre, it actually spurs a lot of the cable providers.
Speaker Change: To accelerate their plans to upgrade or at least make their networks more competitive.
With all of that, it's actually overson, everything went from...
Talk and no action to a lot of action and a lot of discussion or orders placements and things like that.
which truly marked a big pivot in the behavior among the operators. And what's also was very interesting is the wireless operator's overson.
Speaker Change: K-Mail of Hybernation, I guess.
One, it rains at the tors.
Speaker Change: and also starting talking about accelerating 5G.
Speaker Change: Identification and deployment and actually starting placing.
Field Equipment, Field Test Equipment Orders, which is usually a good indication of them deploying Equipment and expanding the network.
Speaker Change: In that respect we believe the respective.
Follow up from the wireless.
Nam's in the second half of the fiscal year probably to be stronger demand than we initially anticipated. If you may remember last quarter we kind of thought wireless with the middle of next.
Calendar year for recovery I think now we are a bit more positive on it and the thing is going to be more of a fiscal second half which is the first calendar half of next year.
So hopefully that gives you a bit more perspective and by the way.
We're seeing the same thing now being murdered in India.
and other geographic markets. So I think maybe the interest rate, cotton, September was one of the critical catalysts that's poured a lot of the money being released into the network upgrades and maintenance.
That's great. Thanks for all that detail. Oleg and you hit on sort of my follow up, but I guess...
You know, just to make sure I understand on the wireless side and sort of the sooner than expected.
Speaker Change: I was going to ask if that was...
You know, sort of project-based. Obviously we're hearing about a K&T in O'eran, but it sounds like it's broader than that. And I guess if we're thinking through that earlier than expected, recovery as we look ahead.
2. This second half of your fiscal year, you know, would you say and maybe you long you could chime in that we should think about seasonality any differently, you know, as we think about the second half that's all I have. Thank you.
Well, I mean, as you know, I generally for us first fiscal quarter and third day of the week or once.
Speaker Change: Clearly to the extent a lot of these indications and materialized in the March quarter. NSE may be a little bit stronger seasonally than would be otherwise.
Speaker Change: Because we do see some of the orders, I mean, believe it or not, with this rapid order placement.
As much as there is inventory in the channel, it's never the perfect inventory in a channel and for some of the more specialized parts we actually
Um, have leaps of time longer than 8 to 10 weeks.
Speaker Change: So that kind of puts the...
Speaker Change: These orders more into the March quarter rather than being able to execute them in the December quarter. So I think it's a bit early to say, but there's definitely an opportunity for NSC to be stronger in the March quarter than normally would be.
And Ruben, I would add that we continue obviously to monitor the macro environment and the post-delection and the...
Kind of interest rates kind of dynamics. I mean, Oleg mentioned earlier, you know, the first kind of said move. I mean, probably was the inflection point.
Speaker Change: But we have to see kind of how it continues from here and that would be another factor. So generally speaking, we are thinking about, you know, moment to continuing, but we have to continue to monitor the macroeconomics.
Speaker Change: Threaders, thank you.
Speaker Change: Thank you.
Your next question is from a line of Ryan Khones.
Speaker Change: Whitney, Adam.
Speaker Change: Thanks for the question. Great to hear your coming alive here with Doug.
Cable and Fiber and as well even wireless, which is a bit of a surprise. But maybe we can touch on...
Ryan Khones: Your comments around Europe a little more and is it sounds like there's a little movement there. Number one and the second question is about your 1.6T opportunity with data centers and the AI builds. Can you maybe unpack those a little bit for us? Thank you.
So we'll just take it as two questions, so there's no freebies, but it's alright, you can always ask me So, I mean, I was never as bad as North America, but also we do see, I mean the fiber never really worn down because there's a lot of...
Speaker Change: Um...
A state sponsored activity to keep rolling out fiber in Europe.
But I would say the wireless was particularly hard hit in Europe.
And we do see fiber continues to be doing fairly well in Europe and improvement in North America, with North America doing and then they kind of follow it.
In that respect, I'd say, you know, we've seen this.
This couple behavior, right? If you as goes down, Europe goes down.
Speaker Change: If he goes up, your goes up. So I think it's in the way it's kind of bit of a herd mentality.
On the 1.6-chair of it, that is of course all driven by AI and data centers.
Speaker Change: An interesting thing, you know, up until 400, you could bid for seconds. It was all driven by telecom operators.
and generally transition notes to note.
was about, I'll say, 4 to 6 years, like, you know, from 100 gig to 400 gig and then, you know, so on and so forth. What we are seeing with the data centers that transition period is more like, I'll say, 3 to 4 years.
Speaker Change: And it's currently a ramping very rapidly with 800 gigabits and already a lot of design activity and a lot of pressure to start sampling the 1.6-terabits.
And that is all being driven by data center. So while the telecoms drove 400 gig deployment, and then of course data center is going to join the, you know, it's a piggyback on it.
The 800 gig and 1.6 therapists
I would say 100%
Adriven by Chip Vendors, by module of Vendors and System Vendors, who are all being driven by the AID data center operator.
In that respect, I think we're already selling this quarter, you know, some of the 1.6-jar bid systems mainly to the leading, I won't say which companies that leading player, equipment and semiconductor.
Vendors, and I expect that to accelerate into the next year by 800 gig is now really entering the high volume production.
Are these, at the 1.60, are these new customers to you or customers you've always had? They just are taking a bigger slice to pie.
It's clearly on a semiconductor and Nams, these are the same customers, but what we are increasingly seeing is the all the, you know, dozens of fiber optic module vendors in Asia.
Is that go out just for production then mostly for them, their marginal makers? So initially the first one point six is of course for development and then they're transitioning to the production. I'll say
Probably late next calendar year.
Speaker Change: I think most of the 25 will be driven by R&D, CapEx for 1.6, would maybe initial production orders for 1.6 towards the end of the calendar year.
God, it's super helpful, thanks Oleg. And on the, you mentioned briefly the enterprise world, sounds like that still fairly soft, is that more around Wi-Fi testing, typically in what's that environment been like.
Well, this is mainly our enterprise service assurance, it's a software and you know, reality is most of our customers in that space are big.
Financial Services, Healthcare Institutions at that customers and we just been seeing a much more conservative enterprise software spending environment, at least for our type of product.
Speaker Change: So it's, you know, there, you know, you can have a million plus orders. All it takes is one or two of them push out and it actually drives quite a bit of volatility.
Got it. Great, that's a really helpful. That's all I have for now. I'll get back in the queue if I need something to do the question. Thank you.
Speaker Change: Good, thank you.
Speaker Change: Your next question is from the line of Michael Janobis, where we're all in blood.
Michael Janobis: For today's Oleg Khaykin, you are talking all about table. How big is your exposure to table now? Are you seeing a pick up in those orders for the next quarter and beyond?
I'm like, um, a shirt.
So I mean the cable is proceeding with upgrades. I mean the clearly they've had some delays due to some architectural and system level.
Speaker Change: and Software Idealase from there.
Network Vendors, but I think it's finally the training starting to move.
in the...
Speaker Change: Second Quar, Second Quar, We have some initial sales in the sub-genre quarter. I think more coming up now and later. And increasingly, I mean, cable is becoming a bit more muted for us.
Because more and more of the cable orders are fiber orders. So they're all kind of becoming part of our fiber customer base. But I think there's probably one more cycle of where you're going to think of our testers and all our co-act testers and all our hybrid fiber and the copper.
But I would, my expectations, is what I'm seeing from a lot of cable vendors, they're starting to look more and more as the service providers.
They're investing a lot more into their assurance.
Kind of high for, to ensure higher performance of their networks.
the investing much more into fibers.
And, incredibly, they actually...
Even going further than many of the traditional
Speaker Change: Fiber Service providers by deploying things like optical monitoring systems, which gives you a much higher level of availability.
Reliability of your fiber optic network.
We're seeing cable going from kind of moving up into the world in terms of the...
Speaker Change: High Performance.
Networking, and I wouldn't be surprised.
Within a year, we don't really start, we'll still call them cable because they're origin, but they're really becoming very much in line with companies like Zayo, French, you know, French here and other fiber operators.
Great, great help for. And I also want to echo that it's great to see service provider in the US.
and the right direction here. That being said, 30-centing these days gets very little attention, and maybe because it's kind of boring. But let me just ask you for any update. Anything we should be thinking about in the 20-centing, what's going on in the market there. Thanks a lot.
So I mean it's still very much our anchor customer. I mean they're doing pretty well. But you know, it's...
For us it's a fairly saturated market.
So I mean we grow if they grow but we're now seeing and I mentioned it earlier in the year. We're seeing some early adoption by Android players.
In, um...
China, in particular, not so much.
in Korea, by China, of 3D sensing, and it's initially on the high-end models, to the extent that they will move more into mid-range and down, and if that happens it actually could become a quite exciting market for us. But at this point in time it's too premature to talk about.
Speaker Change: Thank you.
As a reminder to ask a question, press star one on your telephone keypad. Your next question is an online of metamarshah with Morgan Stanley.
Great, thanks. Maybe a couple questions. So first question, just on, is there any changes on how we should think about kind of the runway of the OSC business?
Speaker Change: In any team does the kind of volumes to reference or how we think about that business. And on the second question, just on S.E.E. Andersen kind of the Enterprise Commentary, but just kind of what are some of the green shoes you're seeing on the S.E.E.S.S. as a business. Okay, sure.
So I would say in OSP, in terms of the runway, clearly, you know, the way we talk about it is the base business, which is the intake counterfeiting, I would say it's kind of industrial, a mill arrow, piece kind of base, and then we talk about 3D sensing. So I think I already provided color and 3D sensing, I think it's...
Speaker Change: Very much.
Speaker Change: Um, you know.
Going with the dynamics of our lead customer for that business, and I don't see it really changing. Going forward, I think it's usually stronger in the first half of the fiscal year and a bit weaker in the second half. Although it's no longer as asymmetric as it used to be. So it's more maybe like, let's say...
55, 45, 60, 40 split between half and half.
On the other counterfeiting, I think there is a...
Several things, I'll say in the near term, there may be a bit of the lower demand.
and it's coupled with some currency with designs at major economies and they want to consume all the inventory of the older products that they have before they place new orders.
Speaker Change: Then there is also obviously...
Speaker Change: Sam sanctions, they have hit number of markets, there were at least to make maybe.
Say, proud Iran, $78 million a year. So that kind of goes away. So I'd say, in the new year term, we think the end of the country, fitting to be more on the conservative side of the spend.
is for the first half of next calendar year. And then we do see a number of new designs and new products. Once the old inventory cycle through and the new nose going to production, we expect to rebound more to its traditional ride rate.
Speaker Change: [inaudible]
So I say, SC is a story of two cities. I mean, the enterprise.
Speaker Change: On one hand, it's a very margin-rich, good product, but we've seen, you know, we saw it initially in the March quarter, and again, in September it's taking longer to get customer acceptance, the spend velocity is a lot slower.
So it's a bit on the softer side, on the interestingly wise on telecom size, the operators, and when I would say more on the private networks.
Speaker Change: Oleg Khaykin, Unknown Executive, Pamela Avent, Ilan Daskal, Ilan Daskal, Ilan Daskal, Ilan
is really driving a lot of interest in our products. And we do think
We will get next year into comfortably in the 20s in terms of quarterly run rate. And from there on moving higher as the more and more customers start taking acceptance of the IAPS product.
Speaker Change: And kind of basically you do the land and you expand and then you get different. So the initial acceptances are starting to take place in calendar twenty five. And from there on, there will be a geographic expansion and the breadth of.
Speaker Change: products, domain products that we are selling expansion.
Great. Thanks so much.
Speaker Change: Sure.
Speaker Change: Your next question is from the line of Tim Savago.
Okay, good afternoon. Hopefully, I don't get bounced off again here before I say congratulations on the outlook in particular.
Tim Savago: Took a while, but you do seem to be syncing up with this overall positive environment, especially around fiber spend, but more broadly as well.
Tim Savago: I mean, as you look at that and what's, you know, setting up to be a strong finish to the year for most of the big carriers.
You know, you might want to historically call that a budget flush, although you seem to be characterizing it as more sustained than that, you know, with visibility over multiple quarters.
I wonder if you could provide some color on that in terms of what you're seeing in terms of the carriers, you know,
finishing the year strong but also extending that recovery and what kind of visibility you have there.
So, yeah, I mean, I think it's probably less of a budget flash, but I would probably say it's pent up demand because they really haven't done anything in two years.
Well, you know, when they start spending a bit feels like a feels like a budget flash, because all of a sudden, everybody says, I need it and I need it now. Well,
Three months ago, you said you didn't even want to talk. Right. So there's some of that. But reality is they also quickly realizing
that there is some lead times. I mean, I would not say that there's a shortage of components. It's just, you know, when you don't order anything for a long time to get everything, well, you probably can get 95% of what you need. There's always something that probably has some lead time. So,
I think there's, you know, to me, that is just fundamental based business, just getting back to what it should have been running as a maintenance much into the extent they expand the networks and.
build out, it's actually all positive. Because what it does, it basically lifts the base
Tim Savago: Business of VIAVI.
because then it makes our, I would call them speed boats, our much faster growing
Speaker Change: Military business, the 11 fiber 11 production businesses. These are all becoming quite interesting. And, you know, we're now even starting to see customers approaching 6G topic, which is for advanced development is very positive.
But also, you know, seeing the 5G densification finally starting, at least the talk around it is starting to pick up. That's all positive things. So, in that respect, we feel pretty good about NSC finally turning the corner.
Speaker Change: But if you could, you know, if you want to talk field versus lab or what have you, talk about kind of where your lead times are right now. And imagine they're historically pretty short.
On the fiber field side, is that changing, given your reference to lead times there, or is it really just a matter of logistics and getting the machine cranked back up?
Speaker Change: Well, actually, you know, so the more.
mainstream kind of field product is, the lead times are not.
Speaker Change: Extensive. I mean, there's a ton of inventory of semiconductor devices and connectors and all that stuff out there.
Speaker Change: where we do feel lead time is a big deal is on the bleeding edge products like 1.6 terabit 800 gigabit
There you need to get things like service right and
Speaker Change: As you can imagine, they're all in very high demand and their lead times are, you know, you can tell anyone within three to six months and we tell everybody.
Speaker Change: The more of a bleeding edge product you want, place orders now or deal with, you know, lead times.
that may be not as comfortable for you. So I'd say on the leading node product and node products like three nanometer, you know, and more aggressive than that.
Speaker Change: Great, thanks very much.
Speaker Change: At this time, there are no further questions. Presenters, I'll hand the call back over to you for any closing remarks.
Thank you, Tameka. This concludes our earnings call for today. Thank you, everyone. Have a good afternoon.