Viavi Solutions Inc. (VIAV) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with record high revenue, improved cash flow, and strategic growth in high-demand sectors like data centers and aerospace. The acquisition of Spirent and partnerships like Corning-Meta provide extended demand visibility. Despite some unclear responses, the guidance remains optimistic with expected growth in key areas, driving a positive sentiment for the stock price over the next two weeks.
Key Financial Performance
Net Revenue $369.3 million, up 36.4% year-over-year. The increase was driven by acquisitions of Inertial Labs and Spirent product lines, as well as strong demand for lab, production, and field products in the data center ecosystem.
Operating Margin 19.3%, up 440 basis points year-over-year. The increase was primarily due to higher fall-through.
Earnings Per Share (EPS) $0.22, up $0.09 year-over-year. The increase reflects improved profitability.
NSE Revenue $291.5 million, up 45.8% year-over-year. Growth was driven by acquisitions of Inertial Labs and Spirent product lines, and strong demand from the data center ecosystem and aerospace and defense customers.
NSE Gross Margin 64.7%, down 10 basis points year-over-year. The slight decline was not elaborated upon.
NSE Operating Margin 15.6%, up from 8.7% year-over-year. The increase was driven by higher fall-through.
OSP Revenue $77.8 million, up 9.7% year-over-year. The increase was due to strength in anti-counterfeiting and other products.
OSP Gross Margin 50.8%, up 20 basis points year-over-year. The increase was attributed to improved operational efficiencies.
OSP Operating Margin 33.4%, up 100 basis points year-over-year. The increase was slightly below guidance due to higher variable costs.
Cash and Short-term Investments $772.1 million, up from $549.1 million in the prior quarter. The increase was due to improved cash flow management.
Cash Flow from Operating Activities $42.5 million, down from $44.7 million year-over-year. The decrease was attributed to timing of working capital.
Capital Expenditures (CapEx) $5.6 million, down from $8.2 million year-over-year. The decrease reflects reduced investment in capital projects.
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Operating Highlights
Spirent product lines and Inertial Labs acquisition: Acquisition contributed to a 45.8% year-over-year increase in NSE revenue. Spirent product lines slightly underperformed expectations due to timing of opportunities.
Fiber field instruments: Emerging strong demand from hyperscalers and service providers for next-generation fiber networks.
Data center ecosystem: Strong demand for lab and production products driven by AI data center build-out. Revenue momentum expected to continue through 2026.
Aerospace and Defense: High demand for positioning, navigation, and timing products. Growth expected to persist through 2026.
Restructuring and workforce reduction: Plan to reduce 5% of global workforce, incurring $32 million in charges but saving $30 million annually. Savings to be reinvested in high-growth areas.
Debt management: Prepaid $100 million of Term Loan B and exchanged $100 million convertible notes for shares, reflecting financial discipline.
Diversification and investment strategy: Focused on data center and aerospace/defense applications over the past 5 years, positioning the company for strong growth in these markets.
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Risk or Challenges
Revenue from Spirent: Revenue from Spirent was slightly below expectations due to timing of certain opportunities, which could indicate challenges in aligning sales cycles or customer demand with projections.
NSE Gross Margin: NSE gross margin for the quarter was 10 basis points lower year-over-year, suggesting potential cost pressures or pricing challenges in this segment.
OSP Operating Margin: OSP operating margin came in slightly below guidance due to slightly higher variable costs, indicating challenges in cost management or unexpected expenses.
Restructuring and Workforce Reduction Plan: The company announced a restructuring and workforce reduction plan impacting 5% of the global workforce, which could lead to operational disruptions and employee morale issues during the transition.
Wireless Infrastructure Test Demand: Demand for wireless infrastructure test continues to be weak but stable, highlighting ongoing challenges in this market segment.
Spirent Product Line Performance: The Spirent product line came in slightly below expectations due to timing of several opportunities, indicating potential challenges in integrating or capitalizing on this acquisition.
Convertible Notes and Debt Management: The company has remaining principal amount of $50 million on convertible notes and is prioritizing debt management, which could limit flexibility for other investments.
3D Sensing Demand: 3D sensing demand was in line with seasonal expectations but did not show significant growth, which could indicate limited expansion opportunities in this area.
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Guidance & Outlook
Revenue Guidance for Q3 FY2026: Viavi expects revenue in the range of $386 million to $400 million, with NSE revenue between $304 million and $316 million, and OSP revenue between $82 million and $84 million.
Operating Margin Guidance for Q3 FY2026: Viavi projects an operating margin of 19.7%, plus or minus 50 basis points. NSE operating margin is expected to be 15.5%, plus or minus 50 basis points, and OSP operating margin is expected to be 35.3%, plus or minus 50 basis points.
Earnings Per Share (EPS) Guidance for Q3 FY2026: EPS is expected to be between $0.22 and $0.24.
Tax Rate Outlook: The tax rate is expected to be in the mid-teens on a go-forward basis due to greater profits in the U.S. and utilization of NOLs.
Data Center Ecosystem Growth: Strong and growing customer demand for data center ecosystem products, including lab and production products and fiber field instruments, is expected to continue through calendar 2026.
Aerospace and Defense Market Growth: Continued high demand for positioning, navigation, and timing products is anticipated to persist through the rest of calendar 2026.
OSP Segment Outlook: OSP revenue is expected to grow quarter-over-quarter in Q3 FY2026, driven by seasonally higher demand for anti-counterfeiting and other products.
Restructuring and Workforce Reduction Plan: Viavi plans to reduce approximately 5% of its global workforce, incurring $32 million in restructuring charges by December 2026, with expected annual savings of $30 million to be reinvested in higher growth areas.
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Shareholder Return Plan
Share Repurchase: During the quarter, we did not purchase any shares of our stock as we prioritized our capital allocation towards debt management.
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Key Q&A
Q:What is the current mix of the NSE business in terms of data center, aerospace and defense, and telco?
A:The mix has shifted to approximately 40% service provider, 45% data center, and 15% aerospace and defense. Service provider exposure is slightly below 40%, aerospace and defense is trending above 15%, and data center is above 45%. This shift is due to significant growth in data center and aerospace and defense, while service provider remains steady with slight recovery.
Q:How does the guidance for the March quarter look in terms of growth?
A:The guidance indicates strong growth in the data center ecosystem, including semiconductors, modules, systems, and NEMs. There is also a growing component of traditional field instruments, with about one-third of field instrument revenue now coming from data centers. This growth is driven by hyperscalers investing in fiber monitoring and measurement systems to optimize data center performance.
Q:Does the partnership between Corning and Meta provide extended visibility on demand?
A:Yes, the partnership and similar multi-quarter commitments provide extended visibility on demand. The company now has a view of base demand up to three quarters ahead, compared to the traditional 1-1.5 quarter visibility.
Q:What is the focus of the restructuring efforts?
A:The restructuring is aimed at improving efficiency across multiple functions, not targeting specific areas. Savings will be reinvested in higher growth areas like data center ecosystem and aerospace and defense. Most cost reductions are from slower or stagnant product segments, freeing resources for growth areas.
Q:What are the exciting defense and aerospace programs the company is involved in?
A:The company is focused on resilient PNT (position, navigation, and timing) systems, which are alternatives to GPS. These systems are used in drones, autonomous systems, robotic vehicles, and heavy industrial machinery. There is also emerging demand for PNT timing in data centers for synchronization as speeds increase.
Q:What is the demand trend in the optical domain and data centers?
A:Demand is growing across all segments, including semiconductors, modules, systems, and field instruments. There is strong engagement in lab instruments for 1.6T and PCIe 6.0/7.0, and production is driven by volume. Field instruments are increasingly used by hyperscalers for fiber monitoring and performance optimization.
Q:How does the data center business break down across lab, production, and field?
A:The company does not break down the data center business into lab, production, and field due to variability in mix. Lab instruments are driven by R&D CapEx, production by volume demand, and field instruments by the number of data centers being built.
Q:What is the expected growth trend for the data center business?
A:Lab instruments are expected to grow consistently with R&D investments, production will see higher growth driven by volume, and field instruments will grow with the number of data centers. The cycle is expected to see significant growth over the next two years, with technology nodes turning over every two years.
Q:Why is the NSE operating margin guide flat despite revenue growth?
A:The flat operating margin guide is due to mix and seasonality. Operating expenses are higher in the first calendar quarter due to statutory costs like social security. This offsets the revenue growth.
Q:What is driving the strong growth in the March quarter despite seasonality?
A:The growth is driven by strength in data center, aerospace and defense, and the Spirent business, which offsets the seasonal weakness in service provider dynamics. The March quarter is expected to be up for NSE.
Q:What is the outlook for the June quarter?
A:The June quarter is expected to be stronger than the March quarter, with continued strength in data center and aerospace and defense, and a tailwind from service providers.
Q:Review of Unclear Management Responses
A:Management avoided providing a detailed breakdown of the data center business across lab, production, and field, citing variability in mix. Additionally, they did not provide specific financial details on the Spirent contribution for the March quarter, only general trends and seasonality.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Labs Spirent
Labs calendar
Labs profit
Loan line
NOLs tax
NSE acquisition
Relations result
Spirent expectation
Spirent product
Viavi Solutions
Viavi share
acquisition Spirent
allocation debt
amount note
area majority
basis income
capital period
cash premium
center ecosystem
charge connection
charge end
completion initiative
connection plan
debt share
defense week
demand lab
discipline share
earn
field product
lab production
non
note share
product center
product line
production field
saving
today Viavi
workforce
VIAV Transcript
Viavi Solutions Inc. (VIAV) Q2 2026 Earnings Call Transcript
Positive1-29
The earnings call indicates strong financial performance with record high revenue, improved cash flow, and strategic growth in high-demand sectors like data centers and aerospace. The acquisition of Spirent and partnerships like Corning-Meta provide extended demand visibility. Despite some unclear responses, the guidance remains optimistic with expected growth in key areas, driving a positive sentiment for the stock price over the next two weeks.
Viavi Solutions Inc. (VIAV) Q1 2026 Earnings Call Transcript
Positive10-29
The earnings call indicates strong financial performance and growth prospects, especially in the data center and aerospace sectors. The Spirent acquisition is expected to be accretive sooner than expected, and there's optimism around wireless recovery and Tier 1 service provider spending. While there are some concerns about the smartphone segment and unclear responses, overall sentiment is positive. Considering the company's market cap, the predicted stock price movement is likely to be positive, between 2% to 8%.
Viavi Solutions Inc. (VIAV) Q4 2025 Earnings Call Transcript
Positive8-7
The earnings call summary reflects a positive sentiment with strong financial performance, including record-high revenue and improved margins. The Q&A section reveals optimistic guidance, particularly in the data center and aerospace sectors. Despite some uncertainties in specific segments, the overall outlook is favorable, with growth in key areas and strategic acquisitions. The market cap of $1.5 billion suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8%.
Viavi Solutions Inc. (VIAV) Q3 2025 Earnings Call Transcript
Positive5-1
The company reported strong financial performance with revenue and EPS growth, and higher operating margins. Despite tariff concerns, management is optimistic about passing costs to customers and expects strong demand in key segments like aerospace and defense. The acquisition of Inertial Labs and growth in fiber monitoring systems and wireless business further enhance prospects. However, the lack of share repurchases and vague responses on tariffs and fiber lab impact are slight concerns. Given the market cap and overall positive indicators, a stock price increase of 2% to 8% is anticipated.
VIAV Slides
VIAV Report
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