Viavi Solutions Inc. Stock price
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
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Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $8.73b | Revenue (TTM) = $1.52b
Market Cap = $8.73b | Estimated Revenue = $1.91b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $8.73b | Revenue (TTM) = $1.52b
Enterprise Value = $8.73b | Forward Revenue = $1.91b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Viavi Solutions Inc. Stock Analysis
Analyst Opinions
15 Analysts have issued a Viavi Solutions Inc. forecast:
Analyst Opinions
15 Analysts have issued a Viavi Solutions Inc. forecast:
Viavi Solutions Inc. Events
Past Events
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AUG
17
Rosenblatt's 6th Annual Technology Summit: The Age of AI (Part II)
about one month ago
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AUG
5
Q4 2026 Earnings Call
about 2 months ago
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APR
29
Q3 2026 Earnings Call
5 months ago
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JAN
28
Q2 2026 Earnings Call
8 months ago
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NOV
12
Shareholder/Analyst Call - Viavi Solutions Inc.
10 months ago
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OCT
29
Q1 2026 Earnings Call
11 months ago
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StocksGuide Free
Viavi Solutions Inc. — Rosenblatt's 6th Annual Technology Summit: The Age of AI (Part II)
1. Question Answer
Hi, everyone. Good afternoon. Welcome to the Rosenblatt Age of AI Technology Conference. This is a fireside chat with Viavi Solutions. I'm Mike Genovese, the cloud and communications equipment analyst. Super pleased today to be joined by the management team of Viavi Solutions, Oleg Khaykin and Ilan Daskal. And we also have Vibhuti Nayar from IR on the panel as well, just off camera right now. So we've got the whole team and hi, guys. Great to see you.
Mike, good to see you again. Been a long of time. A whole week.
Well, bear with me here because my first questions tend to be a little bit worry and have a little bit of wind up to them. But I just want to level set the audience here because you just reported fourth quarter, as you said, fourth quarter '26, the June quarter. And you said that data center within your NSE segment, your big segment, was about 50% of the revenues, aerospace and defense, about 17% and telco is the rest. So given that, I mean, it looks like to investors that 800G test transceiver-type testing is probably the highest volume lab and production driver. And there's a surge in transceiver production across North America and Asia. So what do you view your market share is in 800G and Ethernet testing today? How does that differ between the Western and the Asian transceiver makers? And how much tailwind remains in upgrading from 400 to 800 before 800 peaks?
[ Let me ] remind before Oleg addresses the first question, just [ reading ] in the safe harbor, [indiscernible] we get in front of [indiscernible]. Obviously, we'll be discussing today some forward-looking in nature's data. And everything is subject to recent uncertainties, as we all know, and everything that we discuss today is for today is only, and we undertake no obligation to update these statements. [indiscernible].
Thank you. Your line is also our general counsel [indiscernible]. So your question again in terms of market share monitoring, means, in testing measurement is kind of a difficult number because there's no third-party sizing of this thing. But I'll go the following. So if you take top 5 transceiver manufacturers in the world, we'll be working with all of them. The question really becomes to what extent and how deep we are. I would say our level of engagement is very high with probably 4 out of 5, 1 of the 5, they may be doing some internal engineering so that a bit less. But I would say from #1, #2 and #3, we are very much in all of their labs, so they use our equipment to design it and then they buy our test equipment to build it out.
But it's no longer just a -- when we talk about production, test and measurement our market has been expanding significantly. In the old days, when you did a 400 gig, a, just in production, you measure a deal. Is your laser working? How good is your dispersion? Power in, power out. And kind of [indiscernible] and it's done, right? As you get into 800, you now worry more about lasers, so you need a more precise, better laser measurement. You're looking at the insertion losses, you're looking at some maybe transceiver test, you do more. As you go to 1.6, it's a whole new ball game, you're getting much more optical and you have a more extensive test and now you're actually doing a lot more functional test on the line. So the content for test is actually increasing, not only there is an intensity of test, but there's also more equipment you have to buy to test these things. And that's a traditional market.
But then there's a whole thing with the fiber with the [indiscernible], multicore, multi -- like ribbon cable that you plug in like 8, 16, 32. Before we never really cared about it. Now the customers worry about make sure that connector is good because if 1 fiber is bad, you throw away the entire connector. And these are very expensive connectors. So you're looking for how clean is your surface? What is the interferometry on the quality of the surface because you're at the higher the speeds you are using any kind of imperfection can impact the quality of service. So we're opening all new markets now in manufacturing for fiber.
And now the last but not the least, that's probably going to be the biggest segment when we now start talking about CPO, that's a completely different ballgame. We were never in the semiconductor test but now we are being pulled in right there with the likes of Advantest, Teradyne, and form factor in that setup to do the [indiscernible] testing. So I mean, it's no longer just a play of transceiver test.
Yes, there's a lot of different things to follow up on there. So we'll go one at the time. Well, so a transceiver company that I follow on their earnings call said, "Well, we've built our capacity so that we can make 800G and 1.6 transceivers on the same equipment, really all we have to do is we have to buy new test equipment for 1.6." Which I think is what you sell, which is a great thing. And I also think that while the transceiver price maybe as you move from 800 to 1.6 is as much as double, what's the ASP up rise for you moving from 800 to 1.6. But where are we? I mean, how early are we in 1.6? How much have you seen so far? And as you look at the next 1, 2, 3 quarters, is there an inflection in 1.6 happening right now?
Well, we've been selling 1.6 equipment for now for over a year, mainly to the developers. It's more or more of a lab system vendors, module vendors, silicon vendors. The production, I think, started, I'd say, probably early production beginning of this year. And it's still, I'd say, maybe third inning for 1.6, second, third inning depending on what we're talking to. And remember, 1.6 is an interesting thing because as far as the test equipment goes, it's always backward compatible. 1.6 can test 800 gig, and it can test 400 gig. So with 1.6, you can test 4 400 gig modules or 2 00 gig or 1.6. So it's very good in terms of economics. The cost per bit is much lower.
Now the cost per box is much higher. So often what they do is, now, they are going to throw away 800? No, they probably will move them to test 400 gig and things like that, but they will buy new stuff because the production line stays the same, but now with 1 high-performance tester, they can service multiple lines at the same time.
Got it. And the ASP outlook, I mean, I think you said in the past about 50% that box [indiscernible]?
Generally, you see about 50% price increase. And that's because I'm very simple. I mean, the components are much more expensive. So early on, you always kind of -- I mean, what you say is a cost per gigabit goes down. Your cost for the whole box goes up, about 50%. And it's not different from what you see with wafers. When TSMC goes from 1 node to the next node, they don't leave the price per wafer for the same. It usually goes up about 1.5x
Now. I think you've also -- you said in the past that your market share of testing for optical circuit switching, OCS is extremely high. And just this last quarter, we had very, very positive guidance on OCS saying this current quarter will be a $100 million quarter. And then I actually just spoke to Wupen, so this is Lumentum. You're old...
Our cousins, yes.
Your cousin, yes, separated it later in life, not at birth, but separated later in life. But Wupen been said, look, over the next several quarters, it's going to double, it will be $100 million plus this quarter and then double that the next quarter and double that the next quarter. And I assume that you'd be seeing [indiscernible] related to that.
I just say -- the saying goes, his mouth to god's ears. And the more the area I love these guys. And I hope all of that comes through because clearly, it's a great news for us. And it's not only the -- then because remember, there's also some hyperscalers who do it directly. And I think it's catching on people are realizing there's not enough power in the world to power all these data centers more and more, people adopt more optical architecture rather than electrical to do more in optical domain. And you could say that from a sustainability point of view, that's a much more environmentally friendly approach. I think -- and that's going to be the case. And I mean when you're doing this very big switches, you always ask yourself, what's the cost of failure that 1 of those port payers doesn't work. Well, the cost of failure, you switch is back. So I mean, they test everything to the ampdegree making sure that everything leaves the factory, every connection works and that requires significant investment in test infrastructure. And that's why we said, as you go into higher speeds and you go to more of these complex products like OCS, our content is actually growing per test versus the traditional simple pluggable transceivers.
So can you be -- just on that market share comment that you made in the past, I mean, is it only the OVI doing testing in this market? Or are there others involved?
Well, there are some people may be making in-house equipment. But generally, I mean, anybody who is buying merchant equipment, we are the dominant supplier.
And is there a way to think about this question, which is -- now the OCS market, 1 company, Coherent has talked about a $4 billion TAM. Lumentum, I think, actually said, we think it's going to be a $10 billion TAM by 2030. So let's just say it's somewhere in between those numbers. Is there a way to think about it? Is the percentage of the TAM that would then be the testing opportunity?
Well, give me a couple of quarters. So I have more than 1 a couple of data points. We can tell you the trend because 1 quarter doesn't make trend. But generally, I think when you look at the size of the market, depending on the capacity, you say 10% of the annual size is what the test and measurement market ought to be.
So that's a remember I've been using. But I've been using that number more for OCS and for CPO that has more complexity. And then for transceivers, I've been using a lower number. Is that...
It's a lower number for transceiver. I'm talking about the higher-end stuff.
Yes. Okay. Great. Good.
And who Knows? I mean, because initially, when they start just everything, over time, as the yields get better, they may do sample tests or every other port or things like that. Although for 100 terabit switch, I don't think anybody is going to skip any tests.
Great. Well, before we get into CPO and NPL, I wanted to ask a question because it seems like in your business, right, I mean, so data center and aerospace and defense, 2/3 of NSE revenue is now more than probably half of the revenues of the whole company, just hitting that to be more than 50%. I mean, it's growing very, very fast. And then just people think of, okay, telco is a low-growth market. But I'm wondering because I keep hearing more and more and bigger numbers and more bullishness about scale across. And maybe it's a little bit early, but we're just -- it's just maybe a low billion-dollar market now, but people are talking about cross going tens of billions of dollars within a few years. And so I'm wondering, could that be a driver of your telco business, if you're...
No. Absolutely. So when we say maybe there's -- let's clarify some definitions, right? When we say data center ecosystem, if we are selling to like a Tier 2 player like, say, Lumen or Zayo who are interconnecting all those data centers, right, we count it as a data center revenue, right? Because to us, it's who pays for all that equipment. If Verizon sells to data centers, will count their revenue as a scale across. When we say service provider, that's your traditional metro fiber to the home, the wireless carriers, these kind of laps, right? So today, I mean, that business is growing low single digits. Although I'd say wireless is fairly anemic, but the fiber business is doing very well. Cable is actually going to have some really nice pop-up quarters as they go to the DAA architectures. So even that business is actually doing pretty well, but it cannot compare what we've seen with the data center ecosystem for us, it's semis module systems, hyperscalers and the people who interconnect them, right? So that's what we say when we say data center ecosystem.
Got it. So basically what I'm asking about scale across -- I mean, obviously, it is big data center operators building these things that is counted. And then -- if you're selling to Ciena for that application to a hyperscaler, I mean I should -- or Ciena Nokia, Cisco, that kind of company, that kind of OEM company, you would also include that data center because...
It counts as a data center. Exactly.
Got it. Got it. Okay. Helpful. Super helpful. Okay. Well, let's talk about CPO NPO. Investors were freaking out that CPO is delayed. But now everybody is reported and all the vendors and everybody said, "No, it's right on track." And it's -- the demand is higher than before. And CPO is basically NVIDIA but there's all of these other companies that want to do NPL and NVIDIA wants to do NPL as well. So what are you seeing on the timing for NPO CPO and when and how that hits your revenues? And then we'll have follow-up questions on all these insertion [indiscernible].
Why do people want to do CPO? It's much more complex and all that. Why not do NPO? Why not do just pluggable? Well, it's very simple. It's power and performance. I mean, in a nutshell, if you really want to get really high level, if I have n-1 no silica, and I put it into the advanced heterogeneously integrated module with a CPO. I get a performance of the end node, right? So if I have a 3-nanometer silicon, and I use all this clever packaging technology, I get the same performance as a 2 nanometer without paying the 2-nanometer mass cost and all the development, it's a huge economic stimulus for me to be able to do it. But yes, if I do have a 2-nanometer silicon, and I still also do all this other stuff. I get a performance of 2x, 4x better performance than otherwise. So that's what it is. So this is the cost is not an object because you're -- it's all about making the most of your power budget that you have and making the most your performance that you have. So it's your bandwidth and the thermals that you generate. And also you need fewer lasers if you're using CPO, right? So I mean that's what it's all about.
Now it's a very complex technology, and there's 2 caps. There are haves and have nots. There are companies who are far ahead on CPO, who have been doing it for years, and you named 1 of them. And then there are those who have been a laggard thing, it will happen when it happened. Well, the ones who don't have it, they are [indiscernible] a lot of it. But I'll tell you 1 thing, those who are ahead of it. They're going full speed, and they're going to have a performance advantage that the others cannot dream of. And for us, it's actually I mean, I want to improve disclosure, the more we move towards CPO, the greater our content per port goes up, right? I mean, pluggable is ANA power dispersion insertion loss. As you go to CPO, it's multiple insertions. It's a lot of functional test, much more advanced test and fundamentally, you have much tighter customer intimacy, working directly with them from the point when they are laying out their silicon and thinking about packaging to all the way until when they do the deployment in the field.
Right. Right. So yes, look, I think you mentioned some of the players that you -- that are also doing various parts of testing measurement. And I think in CPO NPO, it's a larger group of the test and measurement players versus, say, transceiver modules. But the question is, is the content are the insertion opportunities, the numbers of times you test and the complexity of the test. Does that actually make your opportunity in a CPO world larger with a smaller share then versus transceivers. I mean how do you think about that?
Well, I don't know, actually. I think as it gets to a point of CPO, we should probably have a higher share because what we have is an integrated platform that is automatable and we have 2,500 SKUs for any kind of measurement modules you can put in a mix and match to make it. So you're generally going to have an IC tester in the configuration companies like Advantest to Teradyne. You're going to have a prober form factor. And you're going to have optical rack that has all the instruments. And they are going to be interconnected and they are going to be testing different parts of the equation.
That's helpful. That's a good way to...
It's not a point solution kind of like you put a little box here and there. It's all got to look very automatable and it's got to be all integrated. So there are companies that do nothing but integrating all these pieces together at behalf of our leading players to provide them with the platform to test our products.
Can you kind of walk us through the process of creating the optics, creating the laser, what tests are needed and then you build an optical engine and what tests are needed and then you build an ASIC and [indiscernible]?
Look, we talk about yield management. It might -- in our past life, I ran an offset player, right? And whenever you talk -- you heard the customer say, I want a system in a package today, they call it heterogeneous integration. He had a cringe because the question was who is going to take the yield loss. And the more things you pack into this thing any 1 thing goes wrong and this module is bad. The question becomes who is liable for the throwaway module. So what you do in these kind of things is you do extensive known good start with that. You take a long, good die for electronic IC. We take a good known good guy photonic integrated circuits and you just see each of them, make sure they are good. Then that's your first insertion. Then you put them together and you build an optical engine, okay?
Now typically, electronic IC should not change. Normally, it's come through many cycles through reflows and all that. So it's going to work just fine. The problem you have with optics, you can change the characteristics of optics. So then now you've got to retest their optical engine, make sure it's still good, and you get the first fall out, then you throw those away. And you only pass through the non good optical engines. Then you take all these optical engines and combine it with a very complex substrate, right? So you put them all on it and you connect all the cables, everything. And now you test this full contraction, make sure that you have a known good interconnect platform, okay? And only when that thing is good, do you put down the ASIC and memory on it because now the price of that module skyrockets. And when it's all said and down, you're talking thousands of dollars, right? And then you test the whole system. So if you don't do all these other things ahead of it and make sure that all the pieces that you're putting together and the final product is good, and you just go ahead and build it and they put ASIC, you will be throwing away tens of millions of dollars, right? So that's why it is so critical because optics is more like an analog rather than digital. If you don't handle it right, you will change the characteristic of optical components.
Yes. Makes sense. Okay. And then on the timing of -- I mean is there -- some of the companies that are making lasers and things in this quarter's earnings such as well, we'll see maybe NPO demand 1 quarter before we see CPO demand. Are you able to see things -- are you seeing that similar kind of thing?
So generally, customers make a bet when they order equipment. So that -- I mean, for example, we've been working on a CPO test now for well over close to 2 years, right? So we're now starting shipping, I'll say even this quarter is currently shipments. So generally, the capacity is being facilitized and it's being put in place. At what point, usually you put a test capacity ahead of the demand. And then as it gets to about 60%, 70% utilization at the next incremental capacity. So I think lasers, I mean, they are more like quarter-to-quarter forecast driven.
Okay. Is there anything else on the sort of the data center business that you want to highlight before I move on to...
I think the -- when we talk about level production that has been the biggest beneficiary of the data center growth. But 1 big surprise for us was our traditional field instruments. I mean today, that business is over 40% data center [indiscernible]. And that's really advanced stuff as fiber monitoring. Because what data center operators have realized is you need to police people who build your network because it's like -- to paraphrase Forrest Gump, "Life is like a box of chocolates. You never know what to get." Well, the same thing was true for the -- you can use a quote on your note. If you're a data center hyperscale buying a fiber network ended up being like a box of chocolates. Sometimes the fiber work to buying a lot of dark fiber, you don't use it. But when you turn it on, you find it doesn't work. So they wisened up very quickly and said, "You know what, I'm not going to play this game. I'm going to monitor the whole -- I'm going to get really smart on the whole networking." And they extended they're putting fiber monitoring on the edge. And they are monitoring all the buildout. They're making sure that every fiber is truly connected and tested and qualified and they are monitoring it all through. So when they are ready to turn on more capacity, they can pick exactly the fiber that gives them the best performance.
So that has driven significant growth for our field instrumentation business because now they really appreciate the whole automation and the workflow automation, workforce automation and monitoring and collecting all the data so they can predict any kind of outage in their network that may be coming based on the parametrics that they're collecting while they monitor the fiber.
I mean, I think if you ask me who is the state-of-the-art fiber operator today, it will be the hyperscalers. They know more about fiber optic networks than the traditional fiber optic operators.
Yes. I mean you've been doing this testing measurement for a long time now. And just a high-level kind of view on how sort of seemingly different things are now than the way they used to be. I mean I think that to the old forecast we used to give, and they were all in the single digits for a sustainable growth rate of the company. And it seems to have changed. But I don't know that's sustainable part.
I mean that's a difference of telecom market where people don't spend the money they need to spend because network performance is an afterthought, right? It's kind of -- eventually, if there's a good quarter, can we throw some money, spend it do that. It's not the priority. It's like dividends, retiring debt and buying back stock is -- it's very much a financial kind of management business, whereas it's like somebody building a bus versus somebody's building a Formula 1 car. Hyperscalers when they build AI network, it's a Formula 1 car. Everything needs to be perfect, right? If somebody is running, you're running fiber to the home. Well, if this goes down, okay, we'll switch. There is some inconvenience who cares well up and running. If you don't get the performance, even though you say you get gig, but you really measure 600 meg, so what, right?
So I mean this is the difference. And because it's not the revenue-generating arm, it's a cost part of the equation for the service provider. Whereas for the hyperscaler, when they are running their -- those AI data centers, it is the revenue generating. Performance of data center is the revenue. So people will spend always more money to drive revenue than they would to drive cost. I mean, if you get what I'm talking about.
Absolutely, absolutely.
And that's why it is. I mean -- but I tell you on the positive note, today, wireless is still a huge laggard. And people say, "Wow, why didn't you shut down this business? Why don't you reduce investment." Well, very simple reason. Once all those data centers are up and running and all their interconnect and you have this wonderful fiber network. The next thing is going to be inference. And most of the influence will be with a mobile phone, right? You're going to be accessing. And you need to put inference on the edge. So the next big thing somebody is going to address is the sorry state of the wireless net and how it's not ready for the AI connectivity. And I think there'll be the next area where some serious money is going to be coming into.
You think that there was a capacity upgrade related to that, like a 5G to 6G or 5G to [indiscernible]?
It's both capacity and technology upgrade because you need a latency, you need the performance, and you need bandwidth. So you need technology that gives you more bandwidth, technology that gives you better latency responsiveness and you need to kind of put something on the edge that you don't drive all the traffic through the network to data center and back something that responds much quicker. So I mean, there's many we are a very active participant in the AI, [indiscernible] and so is NVIDIA. I mean you can see who is really thinking forward and who is involved in the standard bodies. And I would say that's like 2, 3 years out, will be the next biggest thing. That's why we feel our wireless business will be just as the kind of data centers are saturating will be the next wave of growth, and it will be a lot of it on the wireless edge. Because you cannot have any of this physical AI unless you have a near 0 latency connectivity to the network.
Makes sense. Makes sense. The next part of your business that I want to talk about is a part I feel like we don't have as many -- nearly as many details on, and that's probably because it's secret. The aerospace and defense part, that's some very sensitive stuff. But we just spent half an hour talking about the drivers of your data center business. And I have a feeling we're probably going to spend 1 or 2 minutes on this. But any detail you can provide on the -- growth rate of that, is it similar to the data center growth rate? Is it lower? Is it higher? And anything else that like what's driving it would be -- that you can share.
I would say it's higher -- much higher than the telecom and it's somewhat lower, but more, I'll say, sustainable over long term because this business for us is a product business. We win business, we get a design win. And then we have to wait until the platform takes off. And when it takes off, it grows very rapidly. So overall, I'd say that business has more than doubled for us in the last 2 years. We made a conscious point when we thought about getting into aerospace and defense, which we kind of got into by buying this [indiscernible] business, part of it was a mission-critical communication in avionics. And we said, we are going to compete with these big Tier 1s. But the thing we saw was about 6, 7 years ago, the GPS is not all stable. I'd say, what if you have more access to GPS. And we said, "Oh my God, nothing is going to work." So we said, "You know what, let's invest." When we enter aerospace, defense, the whole area we want to focus is called -- it has a name for ALP GNSS, alternative to the GNSS system, which means it's called resilient PNT, positioning, navigation and timing. So that takes 2 things. You need a very precise timing, where you're going to need -- don't rely on a GPS satellite for timing. And you need a combination of inertial sensors and inertial navigation systems that can provide you a direction and navigation. And what really made this business take off is the whole emergence of drones as the new phenomena in the modern military and it has been -- I mean, that business -- if I count my design wins and future bookings, it's best, if not faster than AI. But what you always got to do and also, this is a very different part of Viavi, whereas testing measurement is a lot of it kind of book ship business. This 1 is a design win business. So as we win a lot of designs and they start going into production, that's a business that lasts you for many years and you build on top of the other. And then there's the next platform and the next platform. And today, it's the drones, it's intelligent munitions. It's everything. It's physically AI. So forget the military, if you go now into any kind of autonomous things like excavator or a bulldozer, you need all of those. You need dozens of these sensors because every element of that machine needs to send the data of what's the position, how is it moving and how do you control it. And we find it to be a very attractive market.
Do you use the Cesium clock for timing or something else?
Say it again?
Do you use the Cesium clock for timing or it's something else?
We use Cesium clocks. We use Rubidium clocks, and we've developed technology that is using things like MEMS clocks, they are as good as the Cesium clocks. And that is a huge game changer there.
Great. Great. Just the last piece of business. I want to touch on you purchase some financial questions is the OSP segment, right, which seems pretty steady, growing, highly profitable. In the past, in the kind of core OSP part, which does ink and holograms for anti-counterfeit. In the past, sometimes, we've seen inventory builds or inventory drawdowns. I don't think that's as important anymore. But even if it happened, the data center is growing so fast, the A&D is growing so fast. But OSP, is it a steady growth business? Can it be lumpy? What's going on [indiscernible]?
So I mean, the only time we saw a big inventory buildup was during COVID because every government was afraid to be -- unable to print money, right? So that caused -- gave us about 2 years of getting all the inventory back into equilibrium. Right now, it's an equilibrium steady eddy, low single growth, very solid business. It's doing very well. The consumer electronics, the 3D sensing, actually growing, we're seeing more and more applications emerging even with a handset. I mean, it used to be a face idea. It used to be the world facing. Now we're seeing many other applications. People use them for proximity sensors, autonomous driving, especially in China is growing. And we're seeing a lot of opportunities popping up in the aerospace and defense as well. Now these are much longer lead times. And when these programs happen 5, 6 years out, it could be a nice big pop up in the revenue. But I think generally, that business, you could take mid- to high single-digit year-on-year growth and it comes in at very nice margins. And we are very selective what business we take because that's a business where we have to put bricks and mortar in the ground. We have to buy capital. So we don't take spot market business. We take on the business, and we know we'll have sustainable loading and demand over many years. So it's a very nice business for us, and we continue to develop it further. And there's also a lot of very exciting things we are seeing with things like some of the photonic advanced photonics actually start benefiting from the technologies we have in that business.
Great. So if you take the sequential growth recently. I mean, clearly, in the telecom business, there's seasonality, stronger and weaker quarters. But if we just kind of average the sequential growth of the last few quarters, and we put it ahead to the next couple of quarters, it seems to us that you should be at $500 million in revenue per quarter pretty far ahead of what you've actually said, which is towards the end of calendar '27. I don't think calendar '26 is ahead of the question, certainly early '27. I guess my question is, is there a reason we think that the growth that you've put up the last couple of quarters shouldn't continue and you shouldn't continue to be ahead in [indiscernible]?
I think I mean, I think we're going to see -- if you talk about absolute dollars growth like quarter-on-quarter, I think that's reasonable. People say percentage room when you go on the higher -- bigger number, percentages get smaller. But I think the -- I mean, from a -- even with the -- because there's so much demand the seasonality in the service provider gets masked a bit. But still, generally, December quarters coming, pop up a bit more. June quarter's pop up a bit more. March and September quarter go up a bit less. So I think, look, we're going to be probably not far from $500 million in the December quarter. if demand strengthens up, we may even hit it. But definitely next year, if the demand continues, it will be sooner than the December quarter of next year. I mean if demand really strengthens up, we could get very close in the risk curve even like this December quarter. But I think it's a little too early to talk about.
Yes. And Mike, we did mention it in the last earnings call 3 months ago, we thought about it more fiscal '28, in terms of getting to the $500 million we mentioned in the last call that we now see in earlier and coupled with all the operating leverage that we have been working on [indiscernible] the fund line also would say we now differently than what we previously time of [indiscernible].
And for us, top line revenue growth is a huge leverage point because you get significant operating leverage at the operating income and then you get further operating leverage on a net income because with our virtually 0 tax rate on incremental dollars because most of them fall within the U.S. jurisdiction and delevering of the balance sheet, so we have a lower interest payment that operating margin actually gets juiced up when it gets to the net margins.
So if the things hold up as they are and we keep growing and we get through $500 million, I mean long is a 30% operating margin within the model.
Yes.
The high 20s is not an unrealistic number to get to when we get to the $500 million. That's not an unrealistic thinking.
Yes. And just to be clear, it was Lumentum who earned all those NOLs, right, by losing money for so many years. And then you tell...
We get the benefit of all that. In fact, all of that NOLs, the JDS accumulated was all Lumentum businesses, because they acquired all of these companies that they have written down. So we kept all the NOLs and all the convertible debt and they went out debt-free, but also NOL-free. Now that we're making very nice profits, it's a huge blessing, especially in 23%, 25% capital -- the tax -- corporate tax rate.
And most of those NOLs, we converted to amortizable assets. So they lost a bit longer and they're more usable and traditional NOLs.
Yes.
And the balance sheet is really strong balance sheet with the equity offering recently paying off the term loan. And Oleg, you've always been, I'd say good at M&A and also look super disciplined on price more than anyone had ever met before to stay super disciplined on the price they will pay for an asset, but very strategic about M&A over the years. And I guess what do you think -- what should we be thinking about M&A from here as a -- how important is it [indiscernible]?
So we do -- I mean, we look at -- we walk away from a lot of deals. I mean there was just 1 deal announced today, and just we thought it was -- I mean I was blown away. I mean the price phase is like it was 2x more than what we were prepared to pay and we know the market, right? So I mean, to me, it's like -- there's always going to be somebody who will overpay and that's usually sign of the peak market because my view on it is, especially if I buy it with a stock and if your stock is really highly valued, which I don't think we are quite there yet, I mean, that's part of the problem. But if you're buying it with debt, all I remember is when the market adjusts and there's a slowdown, the debt is forever, right? And your future EBITDA is -- everybody has a big hockey stick 3 years out and EBITDA doesn't always happen. So what we do is we go deeper and we look further and we identify, like we just bought this company called digital optical research corp or for sure to Dork. It's a very exciting technology. It's interferometry. It's a very well-established technology. But when we put it into our production test, it will go from a couple of millions to tens of millions of dollars. That's the force multiplier we're looking at. When we bought Inertia Labs, there was no banker. There was no -- we just -- we purely found them because we were working with them on the resilient timing, right? This is how you find things and then you just do a deal of that end. My view is, in the end, I have no problem paying somebody premium, but then I need to know what's in it for me. It needs to be good for me right away. And when somebody says, "Hey, you got to buy all this." And in 2 years, I'm going to deliver this big think it reminds me of the old Popeye cartoon. We had this guy at [indiscernible] for hamburger today, I'll gladly pay you on Tuesday. We prefer you pay me today, and I'll give you Hamburger on Tuesday.
So anyway, so that's a -- we [indiscernible].
A lot more revenue was exposed to telecom and it was growing much slower. I think -- and because you are #1 pretty much everywhere, sometimes #2, mostly #1 in your markets, consolidating and using the NOLs and driving synergies, right? That was a big part of the story. But now you're in these very high-growth markets. So it's...
It's that kind of growth. Organic high growth is what you want or you buy a company and then it just goes like a rocket, no point intended, right? I mean that's what ultimately you want, right? And I mean, okay, we also had some companies we bought, which thought they're pretty good, ended up to be average. But I mean the ones -- the big ones that we did, I think Carbon acquisition was a huge success, although now wireless is a bit slow. I think the Spirent deal was a very good 1 for us on the big ones. But our smaller deals are really the ones who truly have outperformed against all our expectations. And it really comes down to, I'd call it, bang for the buck that you get not overpaying for the deals and structuring them the right way.
I'd probably talk to you all day, but we're actually out of time. It's great talking both of you.
We are going to be at ECOC conference in Malaga in the end of September in Spain. It's your big European fiber optic. So we'll be more than happy to meet with anybody who stops by our booth.
Yes, I think I have a meeting with you there, and I'm going to break clients [indiscernible] for people to sign up.
Yes. And it's a great opportunity to touch and feel everything we've been talking about because we'll have it all on display.
Perfect. All right. Gentlemen, great to see you. Thanks so much for doing this. Great conversation, and thanks to the audience for joining us. Have a great night.
Thanks, Mike.
All right. Take care.
Viavi Solutions Inc. — Q4 2026 Earnings Call
1. Management Discussion
Good afternoon. My name is Kendra, and I will be your conference operator today. At this time, I would like to welcome everyone to Viavi Solutions Fiscal Fourth Quarter and Fiscal 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.
Thank you, Kendra. Good afternoon, everyone, and welcome to Viavi Solutions Fourth Quarter and Fiscal 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call 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 differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call and our expectations regarding the end markets and acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements.
Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their 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 Viavi's website at www.investor.viavisolutions.com.
We are recording today's call, and we will make the recording available on our website by 4:30 p.m. Pacific Time this evening.
Now I would like to turn the call over to Ilan. Ilan?
Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the fourth quarter of fiscal year 2026. Net revenue for the quarter was $443.1 million, which is above the high end of our guidance range of $427 million to $437 million. Revenue was up 8.9% sequentially and on a year-over-year basis was up 52.5%. Operating margin for the fourth fiscal quarter was 24%, above the high end of our guidance range of 22.2% to 23.2%. Operating margin increased 280 basis points from the prior quarter and on a year-over-year basis was up 960 basis points. During the quarter, we received $1.5 million tariff refund, which slightly benefited operating margin.
Also during the quarter, we completed a follow-on offering and issued approximately 12.78 million shares at a share price of $45 for a total gross amount of $575 million. The proceeds were used to pay off the remaining balance of the Term Loan B, and the excess amount is included in the cash balance at the end of the quarter. EPS at $0.34 was above the high end of our guidance range of $0.29 and $0.31 and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.21. The lower interest expenses in the quarter, as well as the tariff refund in the quarter contributed about $0.02 to the EPS.
Moving on to our Q4 results by business segment. NSE revenue for the fourth fiscal quarter came in at $353.9 million, which is above the high end of our guidance range of $340 million to $348 million. Revenue from Spirent product lines was $47.7 million. On a year-over-year basis, NSE revenue was up 69.2% as a result of continued strong demand for our lab and production and field products driven by the data center ecosystem, as well as the acquisition of Spirent product lines. We also saw strong demand for our aerospace and defense products. NSE gross margin for the quarter was 64.1%, which is 190 basis points higher on a year-over-year basis and was mainly driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 20% versus 4.6% during the same quarter last year. NSE operating margin was above our guidance range of 18.2% to 19.2%, mainly as a result of higher fall-through.
OSP revenue for the fourth fiscal quarter came in at $89.2 million, which is at the high end of our guidance range of $87 million to $89 million. On a year-over-year basis, OSP revenue was up 9.6%, driven by strength in 3D sensing and anti-counterfeiting and other products. OSP gross margin was 55.2%, up 50 basis points on a year-over-year basis, primarily driven by higher volume and favorable product mix. OSP's operating margin was 40%, which is above our guidance range of 38% to 38.8% as a result of higher fall-through. OSP operating margin increased 40 basis points on a year-over-year basis.
Moving on to the full year results of fiscal year 2026. For the full fiscal year, revenue was $1.518 billion, which is up 40% on a year-over-year basis. Spirent product lines that were acquired in the second quarter of fiscal 2026 contributed $145 million to the full fiscal year revenue. The revenue growth was mainly driven by lab and production and field products, primarily from the data center ecosystem, as well as demand for our aerospace and defense products, and also included the contribution from the acquisitions of Spirent product lines and Inertial Labs. For OSP, we saw year-over-year growth across all of its product lines.
Full year operating margin for Viavi was 20.6%, up 630 basis points from fiscal year 2025 and was a result of higher fall-through driven by higher revenue and favorable product mix. Full EPS -- full year EPS was $1 versus $0.47 in the prior year. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q4 were $656.7 million compared to $508 million in the third fiscal quarter of 2026. Cash flow from operating activities for the quarter was $66.7 million versus $23.8 million in the same period last year and was driven by higher net income and timing of working capital. CapEx for the quarter was $11.1 million versus $5.5 million in the same period last year. CapEx for the full fiscal year was $31.1 million versus $27.8 million in the prior year.
During the fourth quarter, we did not purchase any shares of our stock as we prioritized debt management. During the full fiscal year of 2026, we purchased approximately 2.7 million shares of our stock for about $30 million. This repurchase was in conjunction with the exchange of our convertible notes that we completed during the first fiscal quarter of 2026. We have almost $170 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 261 million shares, up from 227 million shares in the prior year and versus 256.1 million shares in our guidance for the fourth fiscal quarter.
Moving on to our guidance for the first quarter of fiscal year 2027. Viavi typically operates on a 13-week fiscal quarter. This requires us to add 1 week to the first fiscal quarter every 5 or 6 years. We are adding 1 week to the first quarter of fiscal year 2027, hence, it will include some elevated variable costs. In addition, we received approximately $11 million tariffs refund in July of 2026 that will primarily benefit our Q1 cost of goods sold. We expect the first fiscal quarter revenue for Viavi to be up sequentially, driven by continued strength in many of our end markets. For NSE, we expect first fiscal quarter revenue to be up relative to the prior quarter, which reflects a seasonally strong quarter across many of our end markets. For OSP, we also expect the quarter-over-quarter revenue to be higher, driven by stronger demand for 3D sensing products.
For the first fiscal quarter of 2027, we expect Viavi revenue in the range of $450 million and $460 million. We expect NSE revenue between $360 million and $368 million. OSP revenue is expected to be in the range of $90 million and $92 million. Operating margin for Viavi is expected to be 27.1%, plus or minus 40 basis points. The operating margin includes a net benefit of about 100 basis points from the tariffs refund, which will be offset by the additional 1 week of variable costs, and it will primarily benefit NSE's operating margins. NSE operating margin is expected to be 23.1%, plus or minus 50 basis points.
OSP operating margin is expected to be 43.2%, plus or minus 20 basis points, and EPS is expected to be between $0.40 and $0.42. This includes a net benefit of about $0.02 from tariff refunds and from the additional 1 week of variable expenses that I mentioned earlier. Our tax expenses for the first quarter are expected to be around $12 million, plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $2.5 million, and the share count is expected to be around 268 million shares.
With that, I will turn the call over to Oleg. Oleg?
Thank you, Ilan. Fiscal '26 ended on a strong note with Viavi's financial performance in the fourth quarter exceeding expectations. The year-on-year performance was driven by strong growth in many of our end markets. NSE revenue in fiscal Q4 grew approximately 70% year-over-year, primarily driven by continued strong demand from the data center ecosystem and aerospace and defense customers. More specifically, the data center ecosystem, which includes high-performance semis, optical modules, NEMs and hyperscalers, drove strong demand for lab and production and field instruments in support of data center build-out, maintenance and monitoring.
The recently acquired Spirent high-speed Ethernet product lines are performing well and have also contributed to our growth this quarter. We have recently extended our leadership in this segment with the launch of industry's first validation solution for Ultra Ethernet Transport, which is purpose-built to support large-scale AI and high-performance computing workloads. The data center ecosystem customer demand for our products remains very strong, and we expect continued robust growth in this segment for the next several quarters.
Our aerospace and defense business also saw another quarter of strong year-on-year growth, driven by strong demand for our positioning, navigation and timing products. We expect PNT to be a multiyear growth driver for our A&D business. The service providers business, which includes field instruments, wireless and service enablement products, was up, driven by stronger seasonal demand. The highlights included increased demand for our fiber monitoring solutions in support of fiber build-outs and for our cable instruments in support of DAA cable architecture migration.
Conversely, our wireless products continue to see the anemic -- to the same anemic, although stable customer demand. That said, we remain optimistic regarding the longer-term demand for our wireless products. Now turning to OSP. OSP saw strong year-on-year growth, driven by strength in 3D sensing and anti-counterfeiting and other products. Looking ahead to Q1, historically, Q1 has been a softer quarter for NSE. However, this time around, we expect NSE revenue to be up quarter-on-quarter, driven by strong and growing demand from data center and aerospace and defense customers.
We also expect OSP to be up quarter-on-quarter, driven by seasonally stronger demand for 3D sensing products. Our diversification strategy into data center ecosystem and aerospace and defense end markets has been a key growth driver for us during fiscal '26. We expect this strategy to continue driving our growth for the next several quarters. In conclusion, I'd like to thank the Viavi team for their strong innovation and execution and thank our customers and shareholders for their continued support.
With that, I will now turn it back to operator for Q&A.
[Operator Instructions] Your first question comes from the line of Ryan Koontz with Needham & Company.
2. Question Answer
Great. Appreciate that. Look, maybe you can help us out a little bit in understanding this terrific quarter you had. Obviously, data center and optical a big part there. Can you give us an idea of the scale of optical and data center within your NSE domain? And what kind of growth rate you're seeing there now for those products?
Well, I mean, pretty much when we talk about data center, it's all optical, right? It's both optical on the R&D side, the lab side, it's optical for the production test. It's optical for fiber monitoring and the data center build-out. So in that respect, it's -- I mean, pretty much all optical products. There's very little copper or anything like -- if anything at all.
And I mean the growth is...
Scale of that -- sorry, you're saying.
Okay. Scale. I mean, in terms of revenue you're talking about? I mean...
Rough percentage within the NSE bucket?
Well, I think the -- I think as we're saying, I mean, our data center is now running at about 50% of the NSE revenue. A&D is, I would say, probably about 17%, and the rest is service provider business.
Great. And maybe as a follow-up, we're on the verge of this 1.6T cycle here with some new Broadcom switches coming to market, and obviously, kind of the optical layer will go that way in a hurry here. Where do you feel like we are in that cycle for 1.6T adoption as it relates to your business? Obviously, you sell to the lab in the early part and then the production and then field. But how long does it take you -- or how long do you think it will be until you see a peak in 1.6 demand for your products?
I mean, if I look at today in terms of sheer volume, 800G is still the biggest driver, but 1.6 is ramping very quickly, and that's mainly a lot of the production, things moving to production. And I would say probably I mean in '27, it may get to probably parity between 800 and 1.6 and then 1.6 will continue to get bigger while 800 gig may pull back. But I think 800 gig will be a big driver for a long time because a lot of the data centers are 800 gig. Only the new stuff is going to be 1.6. So there's a big installed base that's being upgraded as well. So I mean, it's still very much -- but 1.6 is really what's, kind of, the primary performance driver today.
Got it. Sounds like it could be a couple of years, though, until you have a peak and maybe a shift...
I think we will -- I think -- look, we're still seeing a lot of 400. It's going to be multiple nodes in parallel running and the mix gradually shifting to 1.6, taking the lead followed by 800. And I mean, 400 gig is going to be around for quite a while as well. They just don't go away.
Your next question is from the line of Ruben Roy with Stifel.
I have a quick clarification question and then a follow-up. Ilan, I know you mentioned the 14-week quarter and the costs associated with that. Does the extra week have any meaningful revenue contribution? I'm just trying to put apples-to-apples together on the September guide, especially given that traditionally your service provider is seasonally weaker. I'm just trying to understand the moving parts for the September quarter given that you have the extra week.
Yes. I would say revenue, if there is any, it's de minimis, it's very small. The revenue shipments are nonlinear in the quarter anyhow. And generally, revenue is linked to the customers' end of the quarter, whereas our OpEx is linked to a number of weeks in the quarter for us. So in that respect, I mean, whether you have 1 week more or less, it really doesn't make a difference.
Most of our revenue is shipped in the last 4 weeks of the quarter. I mean, just kind of you're keeping up with the customers' end quarter revenue requirements. So in that respect, I don't think there is any revenue swing one way or the other with if you have, like, 1 week more, 1 week less. It's really more linked to the calendar quarter.
And Ruben, I can add also that without guiding anything in terms of the December quarter, if it was impacting or shifting, then it would impact the December quarter, but that's not the trajectory that we see for the December quarter.
Yes.
Right, right. There would be an extra week of incremental shipping capacity into December. Okay. That's really helpful, guys. And then I guess for both of you, just thinking through the margin structure of the business now that the data center strategy is continuing to, sort of, ramp here. So you're guiding 27.1% operating margin. It seems like you're getting a better view on field production -- sorry, lab and production versus field.
And I'm just wondering if you could talk a little bit about how you're thinking about longer-term operating margins as some of the new programs ramp, 1.6T and otherwise, Ilan, as well, the R&D fell in absolute dollars here and with other things that you guys are working on, whether it's CPO, OCS, AI-RAN, 3.2T, you name it, what's sort of, the sustainable investment level? And I guess, if you could tie that back to the operating margin view longer term, that would be helpful.
Sure. So I mean, the thing -- I would say, clearly, all these -- there's some product lines are higher, some are lower. But generally, NSE is north of 60%, right? And anywhere from, I'd say, low 60s on some of the field instruments into the high 70s on some of the lab products, right? So as that becomes bigger and bigger share of revenue vis-a-vis, let's say, OSP, the gross margin will keep trending up. Now there's clearly some headwinds on, let's say, the semiconductor pricing, it can obviously slow down some of the growth because your cost of goods.
But so far, we've been just passing all those increases to our customers as part of the price adjustment. So in that respect, it's going to be really a weighting average between -- on a gross margin between NSE and OSP since NSE is growing much faster, the gross margin will continue to creep up. Now when it comes to OpEx, our OpEx is scaling very well. I mean, clearly, we are putting some money into reinvestment.
But relatively speaking, I mean, our OpEx is growing much slower than our revenue. As a result, its all drops to the operating margin. So I would say, if we continue on a certain -- this trajectory, I think high -- mid- to high 20% operating margins in a not-too-distant future is probably the expectation.
Ruben, I will echo what Oleg just said in terms of the continued leverage that we expect in terms of the operating expenses. And specifically, you asked about the R&D. It's not going to be materially higher. I mean, there is always the marginal commissions, et cetera. But the leverage, kind of -- will continue to play in favor of the operating margin. And again, it can continue throughout the fiscal year to, as Oleg mentioned, from the mid- to the high 20s.
And what's really good is on R&D, we're actually getting a bigger operating leverage because the volumes in lab and production are just so much higher than what we've been used to in field instruments. So you spend this R&D, but you get much more margin dollars within a fairly short period of time. And there is really no up and down.
And before -- just as you start reaching the peak of the -- one technology cycle, the next one starts ramping up. And then all of that technology actually flows down to some field instruments, which needs relatively little investment to incorporate it all. So it's just basically better leverage of the R&D all around.
Congrats on the continued momentum.
Thank you.
Thank you.
Your next question comes from the line of Andrew Spinola from UBS.
I wanted to ask, Oleg, you typically described the data center business growing about 50%. I was wondering if you could just give us an update on how it grew in the fourth quarter and what's in your Q1 guide in terms of expectations for that business?
Well, I mean, the -- it is growing very rapidly. And I think we are [indiscernible] cases in the early stages of penetration. I mean, today, it's mostly high-performance semis in the lab. But what's growing really, really fast is the production piece of it. And it's everything from making fiber optic modules to making fiber optic cables to now getting into the CPO testing, where we are entering the semiconductor -- traditional semiconductor test, but we play the optical plane of the semiconductor test.
And that's a completely new market. So I don't want to give out percentages, but let's put it this way. I think that business, even if I take out Spirent, it's more than doubled for us year-over-year.
Makes sense. And just a follow-up on that. I guess one of the reasons I was asking is it looks like your guide in NSE is something like 3% sequentially to the midpoint. So I was just -- I've been thinking about 2027 is the year where things -- or fiscal '27 is where things will accelerate as 1.6T, as earlier questions mentioned, accelerates, and then just looking at the supply chain and some of the numbers that are there for '27 in terms of compute growth, et cetera. Is there anything slowing in your business that you're going to grow 3% here sequentially? Or is this just the trend?
Well, I think you have to remember, September quarter generally for us was a down quarter for NSE. The mere fact it's up means the lab and production piece in aerospace and defense is more than offsetting any kind of the service provider/wireless customer, right? So you got to look at the -- you got to deaverage the growth, right? In terms of the 1.6, if it's growing, great. But remember, some of that is going to be substitution against 800; what's really going to be driving the growth is the broader and broader adoption of the technology and the volumes of production scaling, right?
So for example, for production, you're looking really at the capacity being in place or capacity being replaced because that's what's ultimately driving your dollars, right? So if you go, let's say, from -- if you tell me somebody is going to spend this year $600 billion and next year, they're going to spend $1 trillion, I should expect at least that, kind of, growth, right? Now granted, some of it is construction and digging trenches, but there is the CapEx that is equipment.
So that ultimately will translate to us. And in some of these cases, we are not even present, but we will be present with 1.6. So our market is actually going to expand. So I think on this particular product lines, we should do better than the purely CapEx growth. But then there is, of course, the base business service provider that's growing 1%, 2%. So you have to take the weighted average of the two to calculate the total growth.
Your next question is from the line of Michael Genovese with Rosenblatt Securities.
Right, can we get an update on you from the timing of what's going on with OCS and then what's going on with CPO? So one OCS question, one CPO question.
Well, there's been a lot of industry talk was, like, oh, because the yield is going to be slower, that's all nonsense. CPO and all that thing is moving forward. Are there issues? Of course, there are. But if you look at the -- the reason people are doing CPO and all the other things, it's all about performance and power. And to manage yields, you just do more tests.
You do more of a known good die, known good optical engine, known good substrate and all these kind of things, which means a lot of testing, which ultimately pretty good for us. But also at the same time, the process is being improved and things are getting better. And it's -- from my perspective, it's progressing, and I have POs to show for that.
So just, in terms of -- like if we -- I'm going to come back to CPO, but if we just look at OCS, is there -- are there already OCS revenues in the numbers? And what is the step-up of that like expected to look like over the next couple of quarters?
There is some OCS, but I think majority of OCS probably will be coming in the next revenue will be coming in the next several quarters. I mean there is already some installed capacity. And remember, we've been selling equipment to a big OCS vendor, hyperscaler who makes their own stuff. But now it's becoming broader and going into the other companies introducing OCS. And many other companies are looking to do more optical switching in their core. So I see this demand as being very healthy.
And I think previously, you said CPO revenues begin in the fall. Is that commentary still relatively on track?
Yes. We're getting some this quarter and probably in December, we will start accelerating.
And then finally for me, in the past -- well, last quarter, right, you started to mention when in the future you could see a $500 million-plus revenue quarter. And has -- could you just remind us of that language? And then has anything -- like has this beat and raise here, has that increased the confidence? Or then anything -- any kind of update to that at all?
I would say, if I kind of take my tone from before $500 million, I think -- I would say this quarter, I think the $500 million will likely come a bit sooner than what we were originally thinking, given the trajectory and the growth.
Can you just remind me...
Originally -- we were talking about the end of our next calendar year. Exiting fiscal '28, I think we may see $500 million in the next calendar year.
Sorry, it was originally exiting '28 or exiting '27?
Fiscal '28.
It was exiting fiscal '28. It was originally -- we talked in fiscal '28. I think we are now -- I'm looking like calendar -- sometime in calendar 2027. So if you look at calendar, instead of being, let's say, exiting like a June quarter '29 -- '28, June quarter '28, you're looking at some time during calendar '27.
Your final question comes from the line of Tim Savageaux with Northland Capital Markets.
Congrats on the results. I had a question around Spirent. You saw a pretty decent decline there from Q3 and yet we're able to grow NSE pretty substantially despite that. I wonder if you could talk about what may have accelerated in the organic business to enable that in the quarter. And I assume what most of Spirent is also cloud driven. If we can get an update on that. You made a comment kind of about growth, excluding Spirent. And then what might you expect for Spirent here in your fiscal Q1 guide?
Well, I think the -- remember, we actually felt Spirent did pretty well. Remember, the first half of the calendar year is the -- about 45% of their revenue and 55% of revenues in the second half. So -- and in March quarter, they had some carryover, so -- but I mean, June quarter came in pretty much as we expected. And as a lot of it is enterprise driven. I mean there were -- the -- like I know, for example, September quarter, they're going to be up around 10% in revenue.
And December is usually their strongest quarter, probably now they're up 10%. But -- Spirent aside, really, the biggest growth was very much lab and production, followed by aerospace and defense. And lab and production, I mean, it's just ticking up double-digit revenue growth in absolute dollars quarter-over-quarter.
Okay. Great. And back to co-packaged optics, you talk about the testing intensity. But do you have any metrics for us as regards kind of how CPO looks relative to pluggables from a test perspective and what that might mean for Viavi.
Well, I mean, listen, pluggables is clearly a simpler architecture. And why would you want to do CPO? You want to do CPO I mean for -- I mean, I would say maybe without really exaggerating here, but if you have a co-packaged optics, your 3-nanometer silicon performs as a 2-nanometer silicon. So you are getting almost a whole node of advantage by co-packaging the optics, right? That's really -- it's -- so you can take it either in performance or you can take it in the cost. So you can use a 3-nanometer silicon and get a 2-nanometer performance with co-packaged optics or have a 2-nanometer silicon and have a pluggable.
Now you combine these things together, you get lower power and higher performance, right? I mean that's really what everybody -- why would anybody go to the length of complexity and yield and all these difficulties to implement this new technology. It's purely because it cuts down on power and/or you can get yourself more performance out of the silicon. So that's -- it's really the optimization game that everybody is playing. Now it comes at a much higher cost. But relatively speaking, if you get the same performance with the older silicon node, then it's worth it.
Okay. And finally, on the -- back to Spirent, I guess, a little bit. But wondering if we can get an update on where you are synergy-wise with that transaction and how you expect that to sort of flow through the income statement or OpEx over the next few quarters here?
It's already all done and implemented and accounted for. We are done with the integration as of June quarter. And we did it not just Spirent, we did it general, both Viavi and Spirent. We rationalized go-to-market and the R&D during the first 2 calendar quarters. And exiting June, we are all set.
Yes. I mean the savings from the restructuring are being realized. And also to your prior comment, Tim, actually, Spirent does grow kind of a single-digit year-over-year. As Oleg mentioned earlier, the core of lab and production is the main growth there. And seasonality for Spirent remains the same. In the first half of the calendar year is usually weaker and the second half of the calendar year is usually much stronger.
So June is traditionally a little bit weaker. But we -- as Oleg mentioned, we see at least 10% quarter-over-quarter growth from June to September with another probably good quarter we expect in December. So I don't think that trajectory for Spirent overall changed. I think it performs really well with good margins, and we are very, very pleased with this.
And if anything, we are ahead of schedule on the roadmap integration. I mean as I mentioned, we just released the first of the Ultra Ethernet Transport testing, which is what you'd use for AI and high-performance compute workloads simulation. So it's actually been much better than I expected.
There are no further questions at this time. I will now turn the call back to Vibhuti Nayar for closing remarks.
Thank you, Kendra. This concludes our earnings call for today. Thank you for joining everyone. Have a good evening.
Viavi Solutions Inc. — Q4 2026 Earnings Call
Viavi Solutions Inc. — Q3 2026 Earnings Call
1. Management Discussion
Good afternoon. My name is Hillary, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Third Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions].
At this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.
Thank you, Hillary. Good afternoon, everyone, and welcome to Viavi Solutions Fiscal Third Quarter 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. And with me on today's call 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 differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings.
The forward-looking statements, including the guidance that we provide during this call, and our expectations regarding the end market and acquired business are valid only as of today. Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on today's call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their 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 Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available on our website by 4:30 p.m. Pacific Time this evening. With that, I would like to now turn the call over to Ilan. Ilan?
Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the third quarter of fiscal year 2026. Net revenue for the quarter was $406.8 million, which is above the high end of our guidance range of $386 million and $400 million.
Revenue was up 10.2% sequentially and on a year-over-year basis was up 42.8%. Operating margin for the third fiscal quarter was 21%, above the high end of our guidance range of 19.2% and 20.2%. Operating margin increased 170 basis points from the prior quarter and on a year-over-year basis was up 430 basis points. EPS at $0.27 was also above the high end of our guidance range of $0.22 to $0.24 and was up $0.05 sequentially. On a year-over-year basis, EPS was up $0.12.
Moving on to our Q3 results by business segment. NSE revenue for the third fiscal quarter came in at $321.5 million, which is above the high end of our guidance range of $304 million and $316 million. Revenue from Spirent product lines was $54.2 million, which was in line with our expectations and included a few opportunities that were pushed out from the prior quarter. On a year-over-year basis, NSE revenue was up 54.4% primarily driven by the acquisition of Spirent product lines.
We also saw strong demand for our level production and field products driven by the data center ecosystem as well as for our aerospace and defense products. NSC gross margin for the quarter was 65.3%, which is 220 basis points higher on a year-over-year basis and was primarily driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 17.2%, an increase of 680 basis points on a year-over-year basis.
NSE's operating margin was also above the high end of our guidance range of 15% to 16% as a result of a higher fall-through. OSP revenue for the third fiscal quarter came in at $85.3 million, also above our guidance range of $82 million to $84 million. On a year-over-year basis, OSP revenue was up 11.4%, primarily driven by strong demand for 3D sensing and anticounterfeiting and other products.
OSP gross margin was 50.3%, down 130 basis points on a year-over-year basis, and it was mainly due to unfavorable product mix. OSP's operating margin was 35.3%, an increase of 140 basis points on a year-over-year basis. OSP's operating margin was in line with our guidance range of 34.8% to 35.8%.
Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q3 were $508 million compared to $772.1 million in the second quarter of fiscal 2026. Cash flow from operating activities for the quarter was a use of $26.3 million versus $7.8 million that we generated in the same period last year. The cash flow was mainly impacted by the earn-out payments to Inertial Labs, timing of working capital and employee variable costs.
CapEx for the quarter was $5.9 million versus $6.8 million in the same period last year. During the quarter, we successfully paid $49 million in cash for the remaining principal of the convertible notes due in March 2026, and we issued about 1.8 million shares for the conversion premium above par. We also prepaid during the quarter, $150 million of the Term Loan B. We currently have $450 million remaining for that loan. The prepayment is in line with our capital allocation priorities.
During the quarter, we did not purchase any shares of our stock as we prioritize our capital allocation towards debt management. The fully diluted share count for the quarter was 249.5 million shares, up from 226.9 million shares in the prior year and versus 245 million shares in our guidance for the third fiscal quarter. Moving on to our guidance for the fourth quarter of fiscal 2026. We expect the fourth fiscal quarter revenue for Viavi to be up sequentially, driven by continued strength in many of our end markets across NSC and OSP.
For NSC, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for our 11 production and field products driven by the data center ecosystem as well as for our aerospace and defense products. For OSP, we expect quarter-over-quarter revenue to be higher, driven by strength across all of the product lines. For the fourth fiscal quarter of 2026, we expect Viavi revenue in the range of $427 million and $437 million. We expect NSE revenue between $340 million and $348 million. OSP revenue is expected to be in the range of $87 million and $89 million.
Operating margin for Viavi is expected to be 22.7%, plus or minus 50 basis points. NSE operating margin is expected to be 18.7%, plus or minus 50 basis points. OSP operating margin is expected to be 38.4% plus or minus 40 basis points. And EPS is expected to be between $0.29 and $0.31. Our tax expenses for the fourth quarter is expected to be about $10 million, plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expense to reflect a net expense of approximately $12 million, and the share count is expected to be around 256 million shares.
With that, I will turn the call over to Oleg. Oleg?
Thank you, Ilan. The results of the third quarter of fiscal '26 exceeded our expectations and came in above the high end of our guidance. The strong year-on-year and quarter-on-quarter performance was driven by strong growth in many of our end markets. NSE revenue in Q3 grew approximately 54% year-over-year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules, NAMs, and the hyperscalers drove strong demand for 11 production and field instruments in support of AI data center build-out.
We are seeing strong demand across all data center segments. Scale up, scale out and scale across. Acceleration of industry investment in ever greater communication speeds and chip-to-chip interconnect technologies are the principal drivers of strong demand for our optical transport silicon photonics and communication protocol and high-speed Ethernet test equipment. The Q3 growth was also helped by a recently acquired Spirent high-speed Ethernet product lines, which gave us access to a large installed base of enterprise customers.
HSE performance came in line with our expectations. Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026. Our Aerospace and Defense business also showed another strong quarter-on-quarter growth, driven by continued growth demand for our positioning, navigation and timing products. We expect this trend to continue through the calendar year. The service provider business, which includes field instruments, wireless and service enablement was in line with seasonality.
As you may recall, the service provider business is seasonally weaker during the March and September quarters and seasonally stronger during the June and December quarters. Some notable on the service provider dynamics during the March quarter included early orders from cable operators relating to the new DAA architecture and continued weak but stable demand for wireless test products. We do not expect to recovering growth in the near term for wireless business.
Now turning to OSP. OSP saw strong year-on-year growth, driven by strong demand for 3D sensing and anticounterfeiting products. Looking ahead to Q4, we expect NSE revenue to be up quarter-on-quarter, driven by continued strong and growing demand from the data center and aerospace and defense customers and seasonally stronger service provider spend. We expect OSP to be up also quarter-on-quarter, driven by strength across all product lines.
In conclusion, we expect our data center and aerospace and defense end markets to be strong drivers for the foreseeable future. I would like to thank the Viavi team for its continued strong innovation and execution and thank our customers and shareholders for their continued support.
With that, I will now turn it back over to the operator for Q&A.
[Operator Instructions]. Your first question comes from the line of Ruben Roy from Stifel. Your line is now open.
2. Question Answer
Great. Thank you. Hi, Oleg and Ilan. Congrats on the momentum here in the business. I guess to start, Oleg, maybe we could just drill into the data center momentum. And if you think about sort of the first half of the year and what you're seeing here with the beat here in the March quarter and the guidance for June. Can you detail out sort of a little more detail around the drivers by production field, and maybe just kind of what you're seeing in terms of visibility from your customers? Obviously, a lot going on with AI infrastructure networks and that type of thing. But just trying to get to a little more detail around lab production at field and how you see that sort of trending from here as you look ahead.
Sure. Well, I mean, the -- on the lab side, it's your classical optical transport and PCIe express test products. So as you develop all these new AI chips for inference or the training, it requires, as you can imagine, very high speeds for all the ports and the overall traffic. So I mean, everybody who is working on any kind of product out there that's going to go into these next-generation systems, be it for AI training or inference is buying our optical transport and our protocol test solutions.
So that's primarily lab, but also exactly same equipment is being bought by NAMs or building optical switches and all the other gear that goes into the systems. And that's kind of on the lab side. On the production, we are seeing a lot of momentum on this whole co-packaged uptick area, and that plays extremely well to the traditional Viavi strength with the old JDS Uniphase products that go into the production line where you're measuring spectral performance, the optical performance of all the various optics, but it's also -- we are selling now a lot of that equipment to the semiconductor vendors as they develop their integrated packaged optic solutions.
So I mean, it's pretty much everything we do in that area relating to the advanced silicon for both training and inference applications and all the optical gear that goes into these data centers is playing perfectly aligned to our portfolio. Now on the field instrumentation side, as all these data centers come up, they are putting a lot of investment into ensuring peak performance. And I tell you, I mean, I've never seen so much demand for our fiber monitoring solutions. I mean, I'd say these data centers buying more equipment than regular service providers for the whole big network.
So that is obviously driving the whole field instrument side of the business. I mean, it's now approaching cost to, let's say, 40%, 45% -- pretty soon probably maybe 50% of the field instruments is actually driven by the data center. So in that respect, it's a very good alignment between what the market needs and what we actually have.
That's great detail. I guess for a follow-up on that. You had started to see some hyperscaler activity around 800 gig, I would assume last year, some of these things that you're talking about in answer to the question and on the call today, things like 1.60 co-packaged optics. They're actually just starting, it seems like. Is that the right way to think about it? And I guess the question...
Go ahead.
I was just going to ask the question, it would be sort of in terms of your mix here, is it -- I would assume it's still more weighted towards some of the older generation technology? Or is that the wrong way to think about it? And kind of how do you think 1.60 and some of these new products layer in, I guess, is the question.
Yes, it's all. I mean the 800 is still very much a high volume driver. But a lot of the new development is using our 1.6. By the way, we released 1.6, 1.5 years ago. So you just see -- actually, ironically, it was initially the NAMs, the optical equipment vendors who deployed it first in development. And now it's spreading to the semis and the whole co-packaged optics. So yes, I mean, 1.6 is ramping in a lab. And we're also having some of the early production products to the module vendors. But there's no like one way or the other, it's actually both of these are -- one is ramping into volume, the other one continues to be strong in the volume.
Your next question comes from the line of Mehdi Hosseini from SIG.
Yes. Oleg, congrats on execution. I want to get a bigger picture and looking more longer term I see your midpoint of your June quarter guide implying annualized earnings of $1.20 which is much higher than the prior peak from FY '22. And with that context, how should we think about company's earning power over the next 1 or 2 years. And I'm not asking for a guide, I just want to get a better picture of how these -- the new vector the demand factors that are materializing are going to enable you longer-term earning power. And I have a follow-up.
No, it's a great question. So I think clearly, I would say our NSE business is now getting very close to 20% operating profit. It's all volume driven. So for every incremental dollar in NSE, I mean, you're getting about what to $0.45 dropping to bottom line. Ilan can give you a lot more detail on that.
So clearly, that's driving up the operating margin. Our OSP has always had pretty high operating margin, but also with the higher revenue, and that it's now going from like was in a mid-60s to 70s. Now it's moving to high 80s to maybe low 90, while that gets you a couple of percentage points higher gross margin, which then obviously drops right down to the a couple of percentage points higher operating margin. So already at the blended average, we are, like, what, 23%, 24%.
And as NC keeps getting stronger that will keep moving into the mid-20s and maybe higher. So in that respect, there is a tremendous operating leverage that comes with volume. And also, we've been able to weather pretty well any kind of the price increases due to components and component shortages, and as we probably will try to pass some of that increases to our customers, that will be an additional mitigation of the cost, which will probably give us a little bit more expansion on the gross margin.
So clearly, a combination of keeping up with the price increases and passing around, maintaining healthy gross margins volume growing, driving significant operating leverage. And fundamentally, it scales very nicely from here this point on. I mean as our fixed costs fully covered, every incremental dollar is what, about 40%, 45%.
So for modeling, Mehdi. So on the NSE side, it's around today, the 40% level. And obviously, the top line, we assume will continue to drive as it continues to grow. So when you think about the operating leverage and the operating income, for NSE and the company? I mean...
And I'll say last but not the least, we've talked a lot about our NOLs. Well, guess what? Now that we are generating a lot of profit and a lot of it falls in the U.S. jurisdiction because of where our IP and R&D is, I mean, all that incremental profit comes in at virtually 0 tax in the North America.
This quarter, for example, the effective tax rate is about 12%. So definitely another benefit there.
I mean the only level -- you have is with the converts you get a little bit dilution as your price stock price goes up. So you've got to factor a bit higher share count in your calculations.
Okay. And my second question or follow-up. I want to come back to a scaling right now against midpoint of the June quarter implies about a 25% growth from the prior peak from mid-'22. And back then, 5G wireless was a big factor. I'm on your assumption that wireline, especially as we roll out 1.6 that subsequent to that 3.2% offers the bigger TAM.
And given that setup, yes, you have been able to scale revenue through acquisition, organic growth. But where do we go from here? Is there any way you can help me understand the growth the growth from here, especially cannibalized by 1.6 and 3.2.
Well, so I think the intensity of our equipment increases as you go into higher speeds for both not only the networking speed or bandwidth, but also with a chip-to-chip interconnect. And then on top of it, you throw in things like co-package optics or near package optics and all that. So actually, you're not only growing with the market, you are also having a broadening of areas where our equipment is being bought. I mean, for example, when you start making manufacturing multi-mode and hollow core fiber, you now -- before we never really sold into the manufacturing lines.
Now the level of complexity in this product requires our instruments so we are now seeing opportunities emerging where we will be selling into the production environment on things like fiber manufacturing, right? Things like people making co-packaged optics or integrated optics while now you are selling optical equipment into the lab that before you only used for maybe fiber optic modules. Now they need to characterize and design these optical components and then all these optical components need to be tested in like multiple insertions because the yield is so critical when you build this whole module I mean if you have one device is bad, you throw away the entire once it's completely sealed, you can't rework it. So you have to test every component that goes into the module, then you test it again once you mount it. And only at the end, you put an ASIC on to the module. So in that respect, it drives a tremendous amount of test requirements in the manufacturing process.
I completely understand. I think your booth at OFC in March was illustrated at this increased test insertion points. But I guess back to my question, could this opportunities help you with the $500 million of the quarterly revenue? I'm not asking for a specific timing, but is the $500 million of quarter revenue a realistic target?
I think it's entirely realistic. I mean, look, I think this quarter, we are at midpoint is well around 232. I mean, so it's moving in that direction. Remember, it's not only -- it's, I'd say, it's early on. We're seeing a lot of early demand in this truly as a lot of the next-generation optical equipment and components come into being. I mean you look at some of these new high-power Ethernet, which is a day embedding like optical photonic integrated circuits into substrates and OLED. So it's -- the scope of the market is expanding tremendously. And let's not forget our Aerospace and Defense business. It's also growing very nicely.
So we don't talk much about it, but that business is like also driving the wave. And last but not the least, wireless will not be down forever. Eventually, we do need to consume all the data and all the through our wireless devices. So I think eventually, either the service providers or some other money will come in to take the wireless infrastructure and make it AI rent which will rebound the spend in that market.
And today, our wireless business is down about 45%, depending on the quarter. And that alone could drive $20 million to $30 million additional quarterly revenue.
And maybe, I assume just to make sure that we are levering kind of the expectations here. I assume first you referred on the $500 million to the NSCP [indiscernible] Viavi but it's also not...
I think he;s talking about [indiscernible] of Viavi.
So that's what I wasn't sure. But in any case, this is not necessarily kind of immediate next fiscal year. This is over kind of the next kind of upcycle.
Your next question comes from the line of Ryan Koontz from Needham.
Terrific results, guys, just excellent. Maybe just a quick clarification on the data center customer mix there. It sounds pretty broad and diversified. But as you think about the different types, the semis, the optical, the NEMs, the operators, can you give us maybe an order of kind of which one of those customer segments is driving the are the biggest within the data center mix today?
It's fairly well -- it varies quarter-by-quarter. I mean I mean, let's first way, the actual data centers are buying quite a bit. I mean, so it's -- if you only just take the one single segment, I would say the hyperscalers would be biggest bucket because they not only buy equipment for data centers, but they also run their own R&D, developing their own processors and modules and the ops right.
And within the hyperscalers, I'd say there is the ones who are much more into doing their own staff are actually much bigger and some that are not so big. But it's percolating across, right? And the next big bucket would be the modules -- module makers and the system makers, right? People making optical modules and optical systems. And I would say the next bucket is the silicon vendors. And I mean I mean, I haven't really looked at it, but it's a fairly even balanced distribution.
That's great color. And maybe switching gears to Spirent. Obviously, they're a big part of your success here in data center as you build that momentum. Can you maybe talk about the synergies you're seeing with that business as it relates to both the product side of the house as well as the sales side?
I would say the -- I mean, clearly, they come with a pretty big established customer base. I would say we are really upgrading the performance -- hardware performance of their products, which makes them much more competitive. But they have a very good established reputation and the, I would call it, application hardened software for all kinds of Ethernet traffic. So, in a way, it's a good combination, accelerating our hardware development to the ever higher speeds and bringing their software and combining it together. I'd say the first truly integrated product that we're going to have between them and [indiscernible] 3.2 terabits.
But we are doing very well already leveraging our 800-gig position with their 800-gig Ethernet test and obviously expanding it to our customers who they did not have, but also getting access into their customers, which drives broader discussion and more strategic discussion around not only high-speed Ethernet, but all the other products that we bring into the mix.
That's great. Sounds like the cross-selling is already beginning there. And maybe just some of the emerging -- if I get one last one in here around emerging product areas, obviously, defense is one. How would you characterize where you are in winning share for this P&T with the growth in all the drones? And would you touch on maybe what you're doing in wireless in the satellite arena you see that as an emerging opportunity for LEOs.
So the positioning, navigation, timing, actually, a lot of the revenue that we're seeing today and driving today, most of it was actually designs that were won before we acquired them. But we're now starting to see even things coming ramping up ever since we acquired it. But if I look at the funnel of wins in the last, let's say, 12 months, as these things kick in, that momentum will continue to drive that business. So it's all goodness and it's clearly drones is a big one, but pretty much anything autonomous, I mean, whether it's air, land, sea or undersea vehicles, is -- creates a great pool.
And we are now winning some of the U.S. Tier 1s. I mean, traditionally, they were very strong with Tier 2s and a lot of international. And I would say in the past, year, we have really -- as we brought in a lot of the kind of discipline around the implementing ITAR and various secure access systems we are now being considered by U.S. Tier 1 players, and we are starting to play in much bigger leagues in that respect. So that was the aerospace defense. Your satellite question on wireless.
Well, as I tell my wireless team, when the market is awful, focused on the next generation, and it's 6G, it's NTN and all these kind of applications. And we are very heavily involved with kind of the 5G plus 6G. And a lot of it is really focusing on the two types of communication, the AI RAN, which is basically running AI traffic through the advanced a wireless network and the ground to satellite communication. So this is what a lot of our advanced wireless applications are focused on today.
Your next question comes from the line of Andrew Spinola with UPS.
I wanted to ask on the component shortages and some of the supply constraints. I'm just wondering if during the quarter, you were able to meet all of the supply or all of the demand rather or the supply constraints limited to you? And as a part -- sort of like an addendum to that question, we're starting to see a lot of long-term supply agreements in other areas in this industry to meet the hyperscaler demand and sort of increases in visibility a couple of years out.
So I'm wondering what your visibility is like have you started to enter into any long-term supply agreements with some of your bigger customers? What's evolving on that side?
Thank you, Andrew. Well, I mean, I don't think -- we don't have the volumes to enter into a long-term supply agreement. And remember, test and measurement, usually, it's you're leading a lot of the value market. So you have to buy the latest and greatest. So what's more important for you is not necessarily supply agreement, but the early access. It means you're accessing alpha silicon or beta silicon well before it's released. So you can develop the products there are available even before the qualified silicon is released to the market. So that is where we focus on.
In terms of the availability, in Test and Measurement, you generally pay the highest ASP of their price distribution. So it's never a problem to get it. You just got to make sure you give them -- you get enough notice. So when you -- I would say, if we say supply shortage would not be because we would not give the material. We just didn't get -- we get an upside order with too little lead time to get it in. But generally, you pay more money, you always get the product.
So -- and the nice part about being a bleeding edge of the test and measurement, people need the product that works and pricing is secondary in that respect. Now as you get into more mature products like field instruments, handhelds, yes, their cost is very important. And there, we generally maintain inventory. I mean we got a lot of headache from my CFO and our Audit Committee a few quarters back because we went in and put some product on the shelf because we anticipated the shortage coming in.
And today, we look pretty smart as a result of it and nobody is complaining. So in the end, I mean, you got to manage your supply chain. And last thing you want to do is be pennywise and found foolish. And I mean if you don't pay, then don't complain, nobody is going to give you any availability. So far, we have -- I mean clearly, there is supply shortage, especially memories. I mean, listen, I think memory is going to be a deficit for the -- till 2030 according to some of the studies I've seen. But given our volume requirements, it's not such a big deal. I think having a product available ahead of everybody else and having early access is probably what's more important.
And I can add to that also, if you look at our balance sheet for March, you will see on the inventory level, it's up single-digit million. The majority of it was to secure some additional components for the [indiscernible].
And I mean -- and we look 2, 3, 4 quarters out, and we'll make some bets because it's not the issue if we don't get the product. It's really the lead time. and making sure we give adequate notice to the vendors.
Appreciate that color. One follow-up I wanted to ask. You talked about incremental margins earlier on the call of 40% to 45%. I think that makes a lot of sense. It looks like that's what's in your numbers. And for Q4 in your guide, and I'm trying to think about how to think about fiscal '27. And so my assumption is that you've got the 40% to 45% incremental on the core business as you scale. But what I'm really asking about is you announced last quarter, I think it was about $30 million of restructuring.
I think you acknowledge some of that will probably get reinvested. But I'm wondering, at this point, if you could give us any color on maybe how much of that is going to drop to the bottom line? How much of that is going to be reinvested. And frankly, my assumption would be a good chunk of that is going to hit the bottom line. So maybe incrementals in fiscal '27 are closer to 50%. So I wonder if you could comment on that?
Well, maybe I'll start and Ilan will give you details. So we're going to implement most of it by the end of our fiscal year, so the June quarter. And there's some remainder that probably will go through the end of the calendar year. And I think, Ilan, what is it roughly 1/3 of it gets reinvested.
Yes. And Andrew, the 40% fall-through that we see right now, we probably -- and there is a good reason to assume that it can go higher Specifically, if you think about the second half of the fiscal year next year, meaning 27, there is still the seasonality that Oleg mentioned in the prepared remarks. So if you think about the September quarter, usually it's a down quarter for us, et cetera. And we need all the restructuring to materialize, and that will take also until the end of the calendar year, this calendar year.
So the increase in the fall-through from the 40% level it's fair to assume that with the top line kind of growth will be more visible in the second half of the fiscal year of next fiscal year, meaning it's the first half of the calendar year of '27.
So one thing I just want to clarify. When he launches September quarter is a seasonally down quarter for us for service provider segment, that's what it is. So if you think about it, in the old days before we had this whole data center and aerospace and defense. If you look at the old Viavi, it's like March and September quarter would be the down quarters because that's the type of spending that of service providers. By the way, that pattern is still there, except now it's on a much smaller scale.
But because of the Aerospace and Defense and our data center business is growing so strongly. It's more than offset but you still have that underneath it, you have that up and down. So you would see like a much bigger jump between March and June quarter because you have a tailwind from service providers. Conversely, you'll have a smaller increase in the September quarter because you have a headwind from the service providers. Then in December, you'll have a tailwind again. So I mean, this thing is still there. It's just becoming more and more muted from impact on the overall Viavi.
And on a quarter-on-quarter kind of trajectory overall, December is stronger versus September and September is still more muted relative to the June number.
That's right.
Your next question comes from the line of Michael Genovese from Rosenblatt Securities.
Thanks. Exciting times, guys. Congratulations for being right in the middle of it.Oleg, I keep hearing now as we go to silicon, more silicon photonics and more co-packaged optics that the bottlenecks to the whole thing are moving to the packaging from the foundry players and to the test and measurement for the electronics, the optics, the engines and the ASICs. It seems like there's so much testing to be done with co-packaged optics. So my first question is, do you agree that testing is a bottleneck? And if so, how will you address that over time to take advantage of that?
I'll say, Amen, Brother, you're absolutely right. So I mean, the whole test packaging used to be kind of a back-end afterthought. It is now the system. It's now a strategic asset. So you look at companies like, well, I don't want to name names, but all the leading semiconductor companies, the packaging expertise package is now the system. And you're looking at integrating glass substrates. You're looking putting photonic integrated circuits next to the electronic integrating circuits embedded into this whole coat chip on wafer on substrate, right?
You're building this really complex thing. And then if you look at -- you're putting now all these copackaged optics on a periphery of the chip, this thing is starting to look more like a brick and some of them weigh -- I mean we're talking about the chemos of weight, right? So to me, that's like music to my ears because as you probably know, I started in the [indiscernible] I ran Encore. So it's like all the [indiscernible] field, you get no respect. Well, now the respect is like hugely and I mean, we are seeing now our technologies and our capabilities are being dragged into the straight into this whole value chain of testing from the individual optical components to wafer level packaging to the heterogeneous integration packaging all the way down to being integrated into major test platforms.
And that's like a whole new business that we did not even have. And then last but not the least, this whole rack-mounted systems that are being built as custom test by leading players. We're supplying a lot of the guts and a lot of hardware that goes into those systems. So, as I was saying, I think is like from the old JDS Uniphase date, we still have all these products, and now there's a whole new life being injected into those products. And that's something we didn't even think about, I would say, 3 quarters ago.
Great. And then just as a follow-up, just with newer things like OCS, where I think you're probably going to have very high market share for testing. And then for co-package optics, I mean are these in the numbers at all yet? Or is this is all in the future, I assume. And I guess maybe my question would be how do you define the foreseeable future when you're saying that you feel great about the foreseeable future. Like how far out is that?
I would say it's -- in the current numbers, it's kind of the early sales. But I'd say foreseeable future, you probably you're talking 2 to 3 quarters when it starts ramping up. The future is not that far off. [indiscernible] selling right now is the early inning.
Right. Just to clarify the foreseeable future question. I mean, in the press release, you said something like we feel great about growth into the foreseeable future. So is that multiple years that we're talking about?
No, no, no. I mean generally, we, as a practice, don't want to go beyond end of the calendar year. So when I say foreseeable future like the next 3 quarters.
Your next question comes from the line of Tim Savageaux from Northland Capital Markets.
Congrats on some pretty spectacular results. It's pretty simple question to start with. Well actually a confirmation and a question and maybe I'll get a little more complex on there. So Spirent was 54.2% in the quarter. Is that right?
That's correct.
Okay. So I guess the simple question is, what do you expect for next quarter for Spirent?
So Spirent benefited from a few orders that we mentioned already in the last quarter that got pushed out to this quarter. So this quarter, that's the reason that it's a little bit stronger than seasonality, we still expect on an annual basis, calendar annual basis, a similar run rate of around about the $200 million that we said with a split of around 45%, 55%. And -- so that takes you to normalize everything still back to just shy of the $50 million, maybe $48 million for the June quarter.
Okay. Well, that's a good answer because that speaks to higher levels of organic growth in your NSE business? Would I see approaching 40% here in Q4. The way I'm dicing things up here and over 30% for the year. So I guess I'll try to tie the last question to this one and say when we see this type of environment for the foreseeable future, do you think you can see those type of organic growth rates, 30%, 40% for, call it, organic NSE continue over the next couple, 3 quarters.
Well, I mean one thing about percentages, it's very hard to maintain same percentage. I mean because 30% on one number is much smaller than 30% on a much bigger number. But I think if you look at that growth in the absolute dollars, I mean that's what we're try to maintain.
And Oleg just mentioned earlier, the service providers, which is part of the core NSE. And so if you think again, the seasonality of September, traditionally does not enjoy the same growth rate if you bundle everything together. So I'm not sure that our assumption is exactly, I mean, right? I mean it's...
I think he's talking about year-on-year. Year-on-year, when you have -- when you needed quarter -- same quarter, same dynamics, Yes, I wouldn't say -- I don't think you could say like a 40%, but I think still a high number should be realistic because 40% on $400 million is one number. 40% on $200 million is a very different number, right?
No, I got it. Although I'd say consensus probably has you at high single digits right now given what you reported. So I could probably do a little bit better than that. [indiscernible] more for the full year of '27. I'm just making serious comments. I'm not asking you to guide anything.
You've been very helpful in giving the breakdown at least some I'll ask for either 1 of 2 ways, which is kind of the data center, defense and service provider breakdown, if we can get an update there and/or growth rates in those categories estimated for what you saw here in fiscal Q3?
Well, I'd tell you, if everybody spends what they claim they're going to spend, I mean, we still got a lot of growth to go on, right? So I mean, if you take those assumptions, I think we're -- I mean, the momentum, I'd say, we're still in the fairly early segment of the ramp.
Message received there. Would you say data center, and again, this kind of with and without Spirent confuses thing. I assume with data centers saw solidly more than 50% of NSE revenue -- but what I was looking for is, however you want to break it down, I think you'd said 45, 15. 40 before.
Yes. I think right now, the data center is -- I mean, the exit velocity this year is inching to the high 40s. The service providers are inching towards mid-30s and Aerospace and Defense is a little over 15%. So I wouldn't be surprised if data center in a not distant future, gets up to about 50% of our NSE revenue.
Your next and final question comes from the line of Andrew Spinola with a follow-up from UPS. Andrew, your line is now open.
I just wanted to ask a higher-level question about your drone business, your module business from inertial how is that business performing? Obviously, there's a lot of demand and new programs in that space. And I'm just wondering what you're seeing in terms of opportunities. How is that business positioned? Do you have all of the approvals and the ability to sell into all of the customers? How should we think about that opportunity over the medium term?
It's a good question, Andrew. I mean so you can judge from it, the mere fact, Ilan said that we just paid out. If you look at our balance sheet, we paid out a pretty big earnout, means these guys have exceeded every forecast that they've given us. And as I tell you, in my career, I've made about close to 40 acquisitions. There's been only two of them have exceeded their first year forecast.
Okay. This is the only one at Viavi. I mean that business is doing extremely well. And they make products anything from the basic sensors that go into the inertial navigation system, to fully blown inertial navigation system that does a sensor fusion of GNSS the location, the ground speed, the LiDAR and all these other things. So -- and we are engaged with pretty much every drone munitions subsystem vendor of interest out there, both in U.S. as well as in the rest of the world. Now clearly, there's a clear guidelines what constitutes control versus not controlled.
When you [indiscernible] sensor, and it's within a certain level of accuracy that for that you need a export approval. If you are making a product that's more commercial, let's say, you're doing a surveillance drone or agricultural drone or something for mining industry. Those things are deemed to be commercial. So we have a very clear boundaries and how we define the products, how we grade them and obviously, how we price them. So all these things are some products so you can only export through the U.S. government export license others, you can just sell as a commercial product.
And just one follow-up on that. It sounds like there's particularly strong growth and demand for lower-cost drones. And I'm just wondering without knowing that market all that well. Would the inertial modules or some of those gyroscopes or sensors that inertial sells, would they be applicable for the lower-end drones for that opportunity?
When you [indiscernible] drones, if you're talking something like $3,000 then no, if you're talking something like $30,000, then yes.
There are no further questions at this time. I will now turn the call back to Vibhuti Nayar for closing remarks.
Thank you, Hilary. This concludes our earnings call for today. Thank you for joining everyone, and have a good afternoon.
This concludes today's call. Thank you for attending. You may now disconnect.
Viavi Solutions Inc. — Q3 2026 Earnings Call
Viavi Solutions Inc. — Q2 2026 Earnings Call
1. Management Discussion
Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Second Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions]
And at this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.
Thank you, Abby. Good afternoon, everyone, and welcome to Viavi Solutions Fiscal Second Quarter 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call 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 differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call and our expectations regarding the acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements.
Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their 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 Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available on our website by 4:30 p.m. Pacific Time this evening.
Now I would like to turn the call over to Ilan. Ilan?
Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the second quarter of fiscal year 2026.
Net revenue for the quarter was $369.3 million which is at the high end of our guidance range of $360 million and $370 million. Revenue was up 23.5% sequentially, and on a year-over-year basis was up 36.4%. Operating margin for the second fiscal quarter was 19.3%, above the high end of our guidance range of 17.3% to 18.5%. Operating margin increased 360 basis points from the prior quarter and on a year-over-year basis, was up 440 basis points. EPS at $0.22 was also above the high end of our guidance range of $0.18 to $0.20 and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.09.
Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at $291.5 million, which is at the high end of our guidance range of $283 million to $293 million. Revenue from Spirent was $43 million, which was slightly below our expectation of $45 million to $55 million due to timing of certain opportunities. On a year-over-year basis, NSE revenue was up 45.8% as a result of the acquisitions of financial apps and Spirent product lines. We also saw strong demand for lead and production and field products driven by the data center ecosystem.
NSE gross margin for the quarter was 64.7% which is 10 basis points lower on a year-over-year basis. NSE's operating margin for the quarter was 15.6% compared to 8.7% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 12.9% to 14.3%, primarily driven by higher fall through.
OSP revenue for the second fiscal quarter came in at $77.8 million, slightly above our guidance range -- sorry, guidance of about $77 million and was up 9.7% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anticounterfeiting and other products. OSP gross margin was 50.8%, up 20 basis points from the same period last year. OSP's operating margin was 33.4% an increase of 100 basis points on a year-over-year basis. OSP operating margin came in slightly below our guidance range of 33.5% to 34.5% due to slightly higher variable costs.
Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 were $772.1 million compared to $549.1 million in the first quarter of fiscal 2026. Cash flow from operating activities for the quarter was $42.5 million versus $44.7 million in the same period last year, mainly due to timing of working capital. CapEx for the quarter was $5.6 million versus $8.2 million in the same period last year.
During the quarter, we successfully exchanged principal amount of about $100 million, 1.625% convertible notes due in March of 2026 for 7.9 million shares of Viavi's common shares at a price per share of $17.88. We have remaining principal amount of about $50 million on these notes which will be paid in cash. The associated premium on these convertible notes will be settled in shares. Additionally, we prepaid in January of 2026, $100 million of the $600 million term loan B. This is in line with our continued financial discipline.
During the quarter, we did not purchase any shares of our stock as we prioritize our capital allocation towards debt management. The fully diluted share count for the quarter was 233.4 million shares up from 224.8 million shares in the prior year and versus 228.7 million shares in our guidance for the second fiscal quarter. Last week, we approved a restructuring and workforce reduction plan to improve operational efficiencies and better align workforce and resources with our current business needs and strategic priorities. We expect approximately 5% of our global workforce to be impacted and estimate to incur approximately $32 million of restructuring charges in connection with this plan. Upon completion of this initiative, we expect annual savings of about $30 million, which will mainly benefit our operating expenses. We intend to reinvest a portion of these savings with higher growth areas of our business.
We expect to recognize majority of these charges by the end of June of 2026 with a plan to be substantially completed by the end of December of 2026. The savings of about $30 million include previously communicated $16 million of synergies from the acquisition of Spirent's product lines.
Moving on to our guidance for the third quarter of fiscal 2026. We expect the third fiscal quarter revenue for Viavi to be up sequentially as a result of continued strength in many of our end markets. For NSE, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for lead and production and field products, which is driven by the data center ecosystem as well as aerospace and defense customers. Our guidance for the third quarter also includes full 13 weeks of Spirent's product lines versus 10 weeks in the prior quarter. For OSP, we expect quarter-over-quarter revenue to be higher, in line with seasonality of higher demand for anti-counterfeiting and other products.
For the third fiscal quarter of 2026, we expect Viavi revenue in the range of $386 million and $400 million. We expect total NSE revenue between $304 million and $316 million. OSP revenue is expected to be in the range of $82 million and $84 million. Operating margin for Viavi is expected to be 19.7%, plus or minus 50 basis points. NSE operating margin is expected to be 15.5%, plus or minus 50 basis points. OSP operating margin is expected to be 35.3%, plus or minus 50 basis points. EPS is expected to be between $0.22 and $0.24. Our tax expense for the third quarter is expected to be around $9 million, plus or minus $500,000 as a result of jurisdictional mix.
Our acquisition of Spirent product lines as well as Inertial Labs has resulted in greater profits in the U.S., which allows us to benefit from our NOLs. As a result, we now expect our tax rate to be in the mid-teens on a go-forward basis. We expect other income and expense to reflect a net expense of approximately $12.5 million and the share count is expected to be around 245 million shares. During the third quarter, we expect to pay earn-out liability for Inertial Labs of about $75 million as a result of their strong performance in calendar 2025.
With that, I will turn the call over to Oleg. Oleg?
Thank you, Ilan. The second quarter of fiscal '26 came in at the high end of our guidance driven by strong growth in many of our end markets. The results were significantly up both year-on-year and quarter-on-quarter.
NSE revenue in Q2 grew approximately 46% year-over-year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules and NAMs drove strong demand for 11 production products in support of AI data center build-out. In addition, we are now also seeing emerging strong demand for our fiber field instruments by hyperscalers and service providers to build, operate and optimize the next generation of fiber networks to interconnect data centers.
The Q2 quarter-on-quarter and year-on-year growth was also helped by the acquisition of Spirent's HSC product line, which came in slightly below our expectations due to the timing of several opportunities. Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026.
Our Aerospace and Defense business also saw another strong quarter of growth, driven by continued high demand for our positioning, navigation and timing products. We expect this trend to continue through the rest of the calendar year. The service providers business was generally stable during the quarter. We are seeing some opportunistic demand from the cable operators as they transition to new DAA architecture and DOCSIS 4.0 standard. The demand for wireless infrastructure test continues to be weak but stable.
Looking ahead to Q3, we expect NSE revenue to be countercyclically up quarter-on-quarter, driven by continued strong and growing demand from data center and aerospace and defense customers.
Now turning to OSP. OSP saw strong year-on-year growth, driven mostly by recovery in anticounterfeiting and other products, 3D sensing demand was in line with seasonal expectations. We expect fiscal Q3 to be up quarter-on-quarter, in line with the seasonally higher demand for anticounterfeiting and other products.
In summary, calendar 2025 was a pivotal year for Viavi. Our diversification and investment strategy over the past 5 years, focused on data center and aerospace and defense P&C applications has positioned us well to ride strong growth in both of these markets. We have exited calendar 2025 with robust bookings and revenue momentum and anticipate these trends to continue through the calendar year.
In conclusion, I would like to thank Viavi team for its continued strong innovation and execution and thank our customers and shareholders for their continued support. With that, I will turn it back over to the operator for Q&A.
[Operator Instructions] And our first question comes from the line of Ruben Roy with Stifel.
2. Question Answer
Congrats on the continued progress and results. Oleg to start, last quarter, you broke out for us a little bit sort of a mix as your NSE business continues to evolve. So thinking about it in terms of data center [indiscernible] events and telco. If you could give us an update on what the mix looks like? And then as we think about the guidance, if you could kind of dial in a little bit into the moving parts on the growth for the March quarter, that would be great.
Sure. So I think last quarter, we kind of talked 45% service provider, 40% data center, 15% aerospace and defense. I think with the significant growth in data center, right? And the other -- I think we are now, I'd say, closer the other way around 40% service provider, 45% data center, around 15% aerospace and defense. To be more precise, I think we're going to see a service provider to kind of trend a little bit below 40%. The Aerospace and Defense turned up about 15% and the data center trend up about 45%.
And it's not because the service provider is going down. Actually, it's steady and showing slight recovery is just fundamentally the percentage allocation and the growth across different segments is vastly different. So that's kind of the mix. So I think now we are, I would say, we are net of it, we're now only about 40%, a little bit under 40% exposed to service provider, additional telecom service provider. And I'd say 60% is driven by the data center ecosystem and the aerospace and defense.
In terms of the guidance on the Q3 that you've seen pretty strong numbers, it's continued very strong growth in the data center ecosystem that's, again, semis, modules, systems and the NAMs, but also it includes a growing component of our traditional field instruments, and it's actually a meaningful pop in that we are now seeing what I call next-gen service providers who are called doing interconnective data centers and the data center operators themselves investing into our fiber monitoring and fiber measurement systems to monitor and optimize performance of their data centers.
And I mean if I looked at a year ago, you might have been single digits data center for our traditional field instruments. I think we are now looking at about 1/3 of our revenue in the field instruments coming out from data centers. So it's been a truly amazing turnaround. And I think the recognition is growing that the fiber networks are generally c**** and they need to be significantly improved. And we are seeing a lot of pressure from the hyperscalers on service providers to improve the performance, but they're also going further and they're putting a lot of what we call monitoring and policing on their networks to ensure that they pay for what they get what they pay for.
So it's actually been another very positive development for us. the fiber instruments. That's on the NSE.
Yes. Yes. I guess I had a follow-up on that. Obviously, with Corning and Meta sort of expanding their partnership and $6 billion commitment on new fiber. I would imagine that, that's something that would play into your longer-term opportunity set for the field instruments. But I guess if I think about that, and I -- you made a statement, leg, on your prepared remarks regarding your expectations for D.C. growth to continue through '26. I mean, are things like that and like the scale across opportunities that you just mentioned, giving you extended visibility on demand relative to sort of what the order book might have looked like 12 months ago? I mean, are you getting a longer look on backlog and bookings at this point?
The answer is yes. I think on this truly big ones. I mean, as you've seen with the Corning deal, right, it's another example of what I've been talking about that the hyperscalers are no longer content pay you the money and you deliver the services and products. They are vertically integrating all the way back into their supply chain through either partnerships or strategic alliances like what you've seen with Corning and Meta. And we're seeing similar things happening with us, where you have a at the very least multi-quarter commitments and multiyear engagements. And so when it comes to data center, I would say, for us, traditionally, we only had like maybe 1, 1.5 quarter visibility. We have a pretty good view at least on the base demand from these type of activities up to 3 quarters ahead.
Got it. If I could sneak one in for Ilan, just on the restructuring, Ilan. Is that impacting any specific product area or group? Or is this just sort of your annual look at the business. And obviously, there's a lot going on in D.C. and aerospace and defense that maybe you want to focus more on? Maybe if you could just help us out on how to think about that restructuring, that would be great.
Yes. So Ruben, thanks for the question. Generally, it's across multiple functions, just to make sure that we have operated under a much higher efficiency. So it's not targeting specific areas. And I wanted also to highlight that some of these savings, we do plan to reinvest in those higher-growth areas that Oleg just discussed. So some of it will be a trade of.
Yes. I think clearly, if we look at where most of the cost is coming out, it's coming out of the slower or stagnant product segments. So it's really a point here is to free up resources and take some of it as the financial leverage, but others has the ability to invest and grow the -- could move wood behind the era on things like data center ecosystem, aerospace and defense things like that.
Right. And in addition to some support function optimization.
And our next question comes from the line of Ryan Koontz with Needham.
A lot of activity in Defense and Aerospace of late, Oleg, I hope you could double-click on what you see as exciting defense programs, aerospace programs that you're involved in with your product lines and how you think about that business going forward?
Sure. I think the biggest driver is what we call resilient P&T Position and Navigation timing. In essence, it's alternative GNSS. So everything that allows you to operate in the absence of GPS signal. And as you can imagine, it's drones, drones and more drones. It's very much targeting all autonomous systems like drones, aboveground, robotic vehicles surveillance heavy industrial machinery, underseas and seaborne drones. So it's pretty much anything that's aboveground, underground, underwater, in the air robotic systems. So that's mainly where a lot of these products are going to.
On the other hand is also our P&C timing is we are seeing emerging opportunities in data centers because we're seeing more and more. As you increase the speeds in the data centers you need accurate timing for synchronization. And if you think about traditional distributed clock model from one end goes across all the racks, that may be fine when you're 100 gig data center when you're going to 1.6, 3.2, the latency becomes unbearable. So we are looking -- we are seeing demand for timing at multiple entry points into the data center, so you almost delivered a precise timing directly to the rack or the individual server banks.
So we see that business as, I would say, gaining longer-term momentum, particularly in the data center, but I would say short term and near-term opportunities is a very strong growth in the drone systems. But also our traditional Avionics communication and the spectrum management is also seeing a lot of opportunities.
Great. And in the optical domain, you talked a lot about strength in data center, driving outperformance here. Any evidence you can share with us around cadence of optical innovation, getting to 1.60 broadly within the data center, between the data centers. Where are you seeing the most demand for your products? And what are maybe some new areas of growth, some green shoots that you're excited about in the optical data center domain?
Well, I'd say every segment, we see growing. I mean, clearly, the semiconductors or memory vendors that they are driven by speed and the version of PCI Express, which is chip-to-thip interconnect, right? So -- and I mean, today, we are moving from 800 to 1.6, from PCIe 5.0 to 6.0 and then 7.0. So there is a very heavy engagement with the semiconductor vendors from big ASICs to optical ICs development.
Then -- so that's kind of where you bring in the bleeding edge product for lab. And then the volume really comes in as those things go into production into the -- with the module vendors. Your [indiscernible] so companies in Asia making pluggables and of course, the big leaders in North America for [indiscernible] points, which is optical switches and various modules. And then all the NAMs who are providing equipment into these data centers.
So I would say there's 2 groups. One is the lab, heavily driven, I'd say, everything to do with 1.6 and PCI Express 6.0. And in production heavily with all of our things making anything from testing passive and active components to the final product but also including testing fiber as we're now seeing emergence of [ hole-core ] fiber and multiple fiber. And this is a whole new thing, and that's why part of the reason you see companies like matter investing directly in the -- I'm making long-term agreements with fiber providers. is to exactly develop these kind of products. And those things require a lot of testing and monitoring and in production and final test. So it's a -- I mean the -- it's -- I would say every cylinder in this whole fiber value chain is, say, firing on all at full speed.
And that's broadly stronger in the lab today than field?
It's -- we call lab and production. But I would say starting last quarter, we are seeing what we normally call field is becoming a I mean the hyperscalers themselves. So it's the actual data center is becoming a huge user of field instrumentation. I mean, for example, when you would go to the traditional fiber service providers, they never really care about putting in monitoring of the fiber. Well, if you go to one of these AI data centers, you see at the edge, they want to monitor every incoming wavelength, right? And were they light up or a dark fiber. So they know as they turn on up the bandwidth, they know exactly characterization and bandwidth and latency, they're going to get out of each fiber strength.
And of course, there is an SLA agreements, service level agreements there. They signed with the service providers. So they're monitoring that these things are coming in within a very narrow spec, and they maintain the narrow stack of performance in every fiber. And that's a big departure from the old fashioned while it works, it's good enough. If it's a little bit low see or has a higher latency, so what? Well, that's not something that these guys accept. And the beauty of it is they're deploying these things directly. It's using the same fiber tools, which were developed for traditional service providers, they are really finding converts among the hyperscalers. And that usually means when they deploy it, there's a lag, maybe by a couple of quarters before the service providers recognize, "Wait a second, I'm not being measured. So I better measure myself before I get nailed for my performance problem."
So we see it as a very positive trend to ensure a very high resilient fiber network interconnecting the data centers.
And our next question comes from the line of Andrew Spinola with UBS.
Oleg, can you expand on that a little and give us maybe some color on how your data center business breaks down across lab production in the field?
We don't break those things individually because given any quarter, the mix may be a bit up or down because think about it, right, if you're really launching 1.6 let's say, or PCIe 6.0, 7.0, you will see initially big mix in the -- towards the lab instruments. As these chips get rolled out and they go into production, you're going to see a lot more production. So it's kind of a tick-tock type of things. So it makes -- that's why we don't really break these things down within that category. We just call it generally a data center ecosystem, which includes semis modules, systems and field instruments that are used in data centers themselves.
Makes sense. I'm thinking about how to model that business into like fiscal '27 and beyond. And I wanted to ask you, I might be wrong based on what you just said, but I thought would think about lab as being maybe more consistent as the customers continue to invest in the next generation fiber monitoring, growing as the number of data centers grow. But maybe production being more cyclical and having some bigger swings up and down as various generations get introduced, trying to think about how I should think about production assuming that's a bigger growth driver right now, how to think about how that evolves over a cycle?
So it's a good question. So lab instruments are driven by a number of customers and a number of projects, right? And ultimately, the relates -- best way to look at is the R&D CapEx at semis system vendors and module vendors, right? The production is heavily driven by volume that is demanded, right? And you can see the volume of pluggables and the racks and all this -- I mean that is -- if I look at the where you going to see higher percentage of growth, it's clearly going to be the production because it's -- as you increase the number of units you build in every generation and that's every node. And that's -- you need to basically for every tranche of volume, you need to increase capacity.
So it's heavily linked to the, I would say, a production run rate, okay? And the, I would say, field instruments is, let's say, linked to the number of data centers being built.
Probably we think about the longevity of this cycle is probably...
Yes. From what I see in terms of the pretty much every ounce of capacity that was kind of abandoned by service providers when they cut back about 3 years ago in investment, it's been totally repurposed into the data center and it's a fraction of what they need and where they -- if you take all their announcements, how much they're going to spend, how much they're going to invest, what you have in terms of production capacity, you're going to see significant growth over the next 2 years, right?
And of course, to keep up with it, you need to keep introducing. We now see the new -- each technology node turning over every 2 years. So you no longer, let's say, between 100 gig and 400 gig, you have 6 years, you really now have 2 years between 1.6 and 3.2.
Got it. Makes sense. And I want to ask one financial question. Just on the NSE op margin guide, I guess, it's roughly flat from fiscal Q2 to Q3. Could you give me maybe some of the push and pulls on that given the revenues up $20 million?
Are you asking gross margin, operating margin or?
I'm sorry. The guide for the NSE op margin Ilan were essentially flat sequentially from Q2 to Q3?
He talks operating. It is yes.
Right. So your question, the dynamic of the higher operating margin?
I guess the guide for the NSE op margin is 15.
Right.
Revenue is up $20 million. I was just curious if there are some mix or anything.
So there is some, obviously, mix associated with it, but also in terms of the operating expenses, remember that in the first calendar quarter, all the kind of what we call fringe expenses, like social security, et cetera, get reinstated. So you get a higher operating expenses in the first calendar.
We approve the statutory cost.
[indiscernible] to December. So that's a major kind of get between the last quarter and this quarter. It [indiscernible] seasonality.
Statutory costs.
[Operator Instructions] And our next question comes from the line of Tim Savageaux with Northland Capital Markets.
Congrats on the results and especially the guide, and I wanted to kind of focus in on that a bit. I guess I like you described is countercyclical, you usually see declines. But I guess I'd like to try and parse out you got 13 weeks aspiring at your Q1 run rate -- or sorry, December quarter, I'll just say run rate, that gets you to about, I don't know, $55 million sort of the high end of where you were, where you guided last quarter. Is that a reasonable assumption to try and get to Spirent contribution versus organic growth in fiscal Q3?
So Tim, I can chime in here in terms of the thinking. So first, for last quarter, in the very first few weeks of the quarter, they actually did not have much revenue. The second aspect to call out, and I think we did discuss it in the past several times. When you think about the seasonality for the spring business, usually, the first half of the calendar year is the weaker part and their stronger part is the second half of the calendar year. So it's a little bit lower than you're thinking for Spirent for the March quarter. But again, that does not change our full year thinking about the revenue for Spirent. So not much has changed in terms of what we see in the dynamics of the forecast and thinking.
Yes. Generally, they always said first half of the calendar year was lower, second half was stronger. Now last quarter, there were some government orders that got pushed out into this quarter between the shutdown and of course, this onetime grant to the government employees of Christmas holidays, I mean there basically was fewer days between middle of December and the end of December to get the orders placed. So some of the volume actually pushed out into the March quarter, as a result, we expect March quarter relatively to be stronger for them than it normally would have been, and the December quarter was a bit weaker than it normally would have been.
Right. That's kind of what I'm trying to get to is to the continuation of this organic growth, and it sounds like I'm a little high with my first pass and I think it was a $200 million run rate you were looking for. And if it's stronger in the first and the second. I'd imagine it's below that $50 million level. And if that's the case, you're looking at mid-single-digit sequential growth organically for Viavi in Q1 in a normally seasonally down quarter and coming off 15% sequential growth in the December quarter. So that's pretty extraordinary. What's driving all that? And am I looking at that right number one? And...
You're looking exactly right. So remember, the old -- I'd say old Viavi before data center, aerospace and defense, we were heavily influenced by service provider dynamics. And the days 1 service providers were over 80% of NSE. Remember, first quarter is they don't release their budgets for the year until the end of February. So as a result, you would have a very weak NSE quarter.
By the way, service provider is no different again than it was normally. There's always it is seasonally weaker. But the strength in the data center, aerospace, defense and also the Spirent business is not only offsetting, it's actually more than offsetting. That's why the net-net, the quarter is going to be up for NSE.
Okay. Makes sense. And one final piece of that question, which is the -- again, going back historically, you typically see a nice seasonal uptick at least on the service provider side in your fiscal Q4. Should we assume that a [indiscernible] directionally true for the business? Are there any changes as your mix and exposure becomes more aerospace, defense and AI data center driven what does that do to that normally stronger Q2 -- sorry, fiscal Q4, especially in light of the strength of your March quarter guide.
That's right. So actually, as much as though maybe the service providers a bit of a headwind this quarter, they're going to be tailwind next quarter. So with the continued strength in data center and aerospace and defense, you're actually going to have a tailwind also on the service provider. Our expectation that the June quarter is going to be stronger than the March quarter.
And that concludes our question-and-answer session. I will now turn the conference back over to Vibhuti Nayar for closing remarks.
Thank you, Abby. This concludes our earnings call for today. Thank you for joining, and have a good afternoon.
Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Viavi Solutions Inc. — Q2 2026 Earnings Call
Viavi Solutions Inc. — Shareholder/Analyst Call - Viavi Solutions Inc.
1. Management Discussion
Hello, and welcome to the Annual Meeting of Stockholders of Viavi Solutions Inc. Please note that today's meeting is being recorded. [Operator Instructions]
It is now my pleasure to turn today's meeting over to Richard Belluzzo, Chair of the Board of Directors of Viavi Solutions, Inc. Mr. Belluzzo, the floor is yours.
Thank you. It is 10:00 a.m. and time to call to order this 2025 Annual Meeting of Stockholders of Viavi. My name is Richard Belluzzo, Chair of the Board of Directors of Viavi. And on behalf of the Board of Directors and management team of Viavi, thank you for virtually attending our 2025 Annual Meeting here today.
Joining me are the other members of Viavi's Board of Directors: Keith Barnes, Laura Black, Richard Burns, Donald Colvin, Eugenia Corrales, Doug Gilstrap, Joanne Solomon and Oleg Khaykin, who serves as our President and CEO. I'd also like to introduce several other members of the executive team who are in attendance here today: Ilan Daskal, our CFO; and Kevin Siebert, our General Counsel. Also present are John Russo and [ Matthew Fiorino ] from PricewaterhouseCoopers LLP, our independent public accounting firm. Brooke Webb from Computershare, our transfer agent, will act as the Inspector of Elections of this meeting and has executed an oath of the Inspector of Elections.
The rules of procedures are posted on the virtual annual meeting website. Please review them. In order to conduct an orderly meeting and give all the eligible stockholders and proxy holders an opportunity to participate, we ask that you adhere to these rules at all times. An opportunity will be provided to ask questions during the question-and-answer session, which will take place after the annual meeting has been adjourned.
You may also submit questions at any time during this virtual annual meeting in the space provided in the virtual annual meeting screen. Please follow the instructions provided on the virtual annual meeting screen to submit questions. We intend to make every effort to answer all questions. However, if multiple questions are submitted on the same topic, we will summarize and respond collectively.
I will now turn the meeting over to Kevin Siebert, our General Counsel, who is acting as Secretary for the meeting.
Thank you, Rick. The Board fixed September 23, 2025, is the record date for determining stockholders entitled to notice of and to vote at this meeting. An affidavit has been given to the inspector of elections attesting to the fact that notice of this meeting was duly and timely given to all stockholders of record.
As of the close of business on September 23, 2025, Viavi had outstanding and entitled to vote 223,198,857 shares of common stock, each of which is entitled to one vote. Based on the tabulation of proxies already received from stockholders and to the best of our knowledge, there is present at this meeting a quorum for the transaction of business. The final report of the Inspector of Elections will include the votes, if any, of stockholders present and voting at the meeting.
The list of stockholders of record as of the close of business on September 23, 2025, has been available for examination for the past 10 days. It is 10:03 a.m., and the polls are now open for voting. Any stockholders desiring to vote should do so at this time through the Internet using the virtual annual meeting website.
We have 5 proposals from the company that stockholders are being asked to approve: First, to elect 8 nominees to the Board of Directors; second, to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2026; third, to vote on a nonbinding advisory basis to approve the compensation for named executive officers; fourth, to approve the amendment and restatement of Viavi's 2023 equity incentive plan; and fifth, to approve the amendment and restatement of Viavi Certificate of Incorporation to include an officer exculpation provision. Detailed information concerning these proposals is in the proxy statement sent or made available to Viavi stockholders.
Is there anyone else who wishes to vote at the virtual annual -- virtual meeting and who has not yet submitted their vote? All votes should be submitted through the Internet using the virtual meeting website at this time because votes cannot be accepted after the polls are closed, which will happen momentarily.
It is 10:04 a.m. and the polls are now closed. Based on information we have received from our inspector of elections, I will now announce the preliminary voting results for the meeting, which remains subject to the inspector of election's final report. Each of the nominees has been elected. PricewaterhouseCoopers LLP has been ratified as Viavi's independent registered public accounting firm for fiscal year 2026. The nonbinding vote on an advisory basis on executive compensation has been approved. The amendment and restatement of Viavi's 2003 equity incentive plan has been approved. The amendment and restatement of Viavi Certificate of Incorporation to provide for an officer exculpation provision has been approved.
Final results of the vote will be recorded as stated in the minutes of this meeting and also filed with the Securities and Exchange Commission on a Form 8-K within 4 business days. There being no further formal business, the 2025 Annual Meeting is now adjourned.
Thank you, operator. I will now turn over the meeting to Ilan Daskal, CFO; and Oleg Khaykin for a Q&A session.
Thank you, Kevin. We'll check with the operator if there are any questions. All right. We see that there are no questions in the queue, so I will turn the call now to Oleg.
Thank you, Ilan. I would like to thank everyone for attending today's virtual meeting. We appreciate your continued support of Viavi.
This concludes the meeting. You may now disconnect.
Viavi Solutions Inc. — Q1 2026 Earnings Call
1. Management Discussion
Good afternoon. My name is Jale, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions]
At this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.
Thank you, Jale. Good afternoon, everyone. And welcome to Viavi Solutions Fiscal First Quarter of 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call 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 differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements including the guidance that we provide during this call and our expectations regarding the acquired business are valid only as of today. Viavi undertakes no obligation to update these statements.
Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their 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 Viavi's website at www.investor.viavisolutions.com. Lastly, we are recording today's call and will make the recording available on our website by 4:30 p.m. Pacific Time this evening.
With that, I would now like to turn the call over to Ilan.
Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the first quarter of fiscal year 2026. Net revenue for the quarter was $299.1 million which is above the high end of our guidance range of $290 million and $298 million. Revenue was up 3% sequentially and on a year-over-year basis was up 25.6%. Operating margin for the first fiscal quarter was 15.7%, above the high end of our guidance range of 14.6% to 15.4%. Operating margin increased 130 basis points from the prior quarter and on a year-over-year basis was up 570 basis points. EPS at $0.15 was also above the high end of our guidance range of $0.13 to $0.14, and was up $0.02 sequentially. On a year-over-year basis, EPS was up $0.09.
Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $216 million, which is above the high end of our guidance range of $208 million to $214 million. On a year-over-year basis, NSE revenue was up 35.5% as a result of strong demand for lab and production as well as field products and was mainly driven by data center ecosystem as well as the acquisition of Inertial Labs. NSE gross margin for the quarter was 63%, which is 210 basis points higher on a year-over-year basis and primarily driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 7.5% compared to negative 4.6% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 5.4% to 6.2% primarily driven by higher fall-through.
OSP revenue for the first fiscal quarter came in at $83.1 million, which is in line of our guidance range of $82 million to $84 million, and was up 5.5% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anticounterfeiting and other products. OSP gross margin was 52.3%, down 300 basis points from the same period last year and was mainly due to unfavorable product mix. OSP's operating margin was 37.1%, which is below our guidance range of 38.1% to 38.5% due to product mix and higher manufacturing costs. The operating margin decreased 250 basis points on a year-over-year basis.
Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $549.1 million compared to $429 million in the fourth quarter of fiscal 2025. Cash flow from operating activities for the quarter was $31 million versus $13.5 million in the same period last year. CapEx for the quarter was $8.5 million versus $7.3 million in the same period last year.
During the quarter, we successfully refinanced our $250 million, 1.625%, 3-year convertible notes due in March 2026 with $250 million, 0.625% 5.5 years convertible notes due in March 2031. As part of this transaction, existing convert holders exchanged about $100 million for the new convert and the remaining $150 million raised will serve to pay off the balance of the March 2026 convert. This remaining $150 million is included in the cash balance of $549 million at the end of the first fiscal quarter of 2026.
In conjunction with this transaction, we purchased approximately 2.7 million shares of our stock for about $30 million. We have almost $170 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 227.9 million shares up from 224 million shares in the prior quarter and versus 228.6 million shares in our guidance for the first fiscal quarter.
Moving on to our guidance for the second quarter of fiscal 2026. In mid-October, we successfully closed the acquisition of Spirent's high-speed Ethernet, network security and channel emulation business lines from Keysight. The acquisition of these business lines is expected to add about $200 million of annual revenue run rate, which is above our prior estimate of around $188 million. We also concurrently closed the previously announced $600 million term loan B, which was used to fund the transaction at close as well as general corporate purposes. In addition to the acquisition of Spirent business lines, we expect the second fiscal quarter revenue for Viavi to reflect continued strength in many of our end markets. Our guidance includes financial performance of Spirent's business line for approximately 10 weeks.
For NSE, we expect continued strong demand for lab and production as well as field products driven by the data center ecosystem. For OSP, we expect quarter-over-quarter revenue to be lower, in line with seasonality of lower demand for both anti-counterfeiting and 3D sensing. For the second fiscal quarter of 2026, we expect Viavi revenue in the range of $360 million and $370 million. We expect total NSE revenue between $283 million and $293 million, including revenue from Spirent between $45 million and $55 million. OSP revenue is expected to be approximately $77 million. Operating margin for Viavi is expected to be 17.9%, plus or minus 60 basis points.
Total NSE operating margin is expected to be 13.6%, plus or minus 70 basis points. This includes Spirent's contribution, which is expected to be slightly accretive in to existing NSE margin for this quarter. OSP operating margin is expected to be 34%, plus or minus 50 basis points. EPS is expected to be between $0.18 and $0.20. Viavi stand-alone EPS is expected to be about $0.18 and we estimate Spirent contribution to EPS is in the range of $0.00 to $0.02 after allocating prorata interest on that.
Historically, Spirent's Agency revenue has been stronger in the second half of the calendar year. This strength in revenue is reflected in the guidance for the fiscal second quarter. We currently plan to leverage the complementary product portfolio and capabilities and record NSE as one business segment going forward. Our tax expense for the second quarter are expected to be around $10 million, plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expense to reflect a net expense of approximately $12.2 million, which increased mainly due to the interest on the TLB, and the share count is expected to be around 228.7 million shares.
With that, I will turn the call over to Alex. Oleg?
Thank you, Ilan. The first quarter of fiscal 2016 saw the continuation of strong momentum from the fourth quarter of fiscal '25 coming in above the high end of our guidance. It was also significantly up year-on-year and countercyclically up quarter-on-quarter.
NSE revenue in Q1 grew approximately 35% year-on-year, primarily driven by strong demand from the data center ecosystem in aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules and NEMs drove strong demand for lab and production products in support of the AI data center build-out. We saw strong demand across all optical networking product lines, the 800-gig and 1.6 terabit Ethernet test, chip-to-chip interconnect and protocol test and a broad range of production test equipment. In addition, we are now also seeing a growing demand for our traditional field instruments by hyperscalers as they build out and operate their new AI data centers. We expect this strong momentum to continue well into fiscal 2026.
Lastly, with the recent acquisition of the highly complementary Spirent's high-speed Ethernet product line, we have further strengthened our position in the data center ecosystem, significantly increasing our business footprint there. Our Aerospace and Defense business also saw another strong quarter of growth, driven by continued high-end demand for our positioning, navigation and timing products. We expect the strong demand to continue throughout fiscal 2026. The service provider business was generally stable during the quarter. The gradual recovery in fiber was mostly offset by the continued soft demand for wireless products. We expect this trend to continue in the medium term. Looking ahead, we expect strong quarter-on-quarter growth in NSE driven by both the continued strong demand from the data center ecosystem and aerospace and defense customers for Viavi classic products and the incremental revenue from the recently acquired Spirent product lines.
Now turning to OSP. OSP saw strong year-on-year revenue growth, driven mostly by recovery in anti-counterfeiting in our products. The 3D sensing demand was in line with seasonal expectations. We expect fiscal Q2 to be down quarter-on-quarter, in line with the seasonally lower demand for both anti-counterfeiting and 3D sensing products. In summary, we expect the strong start in Q1 to continue throughout fiscal '26, supported by the stabilization and recovery of our mature end markets, including the service providers, anti-counterfeiting pigments and 3D sensing. And the continued strong demand by the data center ecosystem and aerospace and defense customers.
In conclusion, I would like to welcome our new employees to Viavi and thank the Viavi team for its continued strong innovation and execution. Lastly, I would also like to thank our customers and shareholders for their continued support.
With that, I will now turn it back to the operator for the Q&A.
[Operator Instructions] Your first question comes from the line of Ruben Roy of Stifel.
2. Question Answer
Great to see the progress and congrats on the closing of the Spirent business. I guess the first question, like would be as you continue on the road of diversifying your revenue. Maybe you can give us an update of what the mix is. If you think about your kind of core telecom service provider revenue in NSE versus some of the new products that you're selling into hyperscale. And then obviously, you've been talking a lot about aerospace and defense doing very well with expectations of continued growth. So maybe if you could just give us the mix as the first question.
Sure. Thanks. So I would say if we look at our exit of the fiscal year, we did about 50-30-20, so 50% service provider, 30% data center ecosystem and 20% aerospace and defense. And as we close the Spirent business, it's about, what, 45%, about 40% and then the remainder. So 45% is service provider, 40% data center and 15% aerospace and defense, purely as you average it out.
So we are now getting to the point where the data center revenue is almost approaching the traditional service provider, which significantly derisks the volatility of the service provider spend and the aerospace and defense continues to grow as well. So I think as we look forward, we are going to probably, I would say, exiting this year when we see data center ecosystem so fast a service provider and service provider will still grow, but it's growing at a much lower rate than data center and our aerospace defense will also continue to grow. So we'll have a much more balanced portfolio and less, I would say, dependent on the neurotic service provider spend.
Great. And if I take Spirent out of the guidance, it looks like my math is right, you're still growing around 10% sequentially on that core NSE business, almost 20% year-over-year. And I was wondering if you could maybe break out given that service providers still sort of mix with wireless still having some headwinds, et cetera. If you think about that growth on the core business, can you break it out between sort of what you're seeing in data center versus the aerospace and defense business?
Sure. So I think the -- when we look at data center, we look at everything that pulls into data centers. So we're going to see a very strong demand, believe it or not for our field instruments, but it's a field instrument by the data center ecosystem. It's these specialist fiber companies that are doing now interconnect. I mean, you probably saw some very interesting dynamics with NVIDIA investing in the Nokia, I can elaborate on that. But what we are seeing is, initially, it was all about building our data center, then they realized the fiber interconnect between data center is c***. So they said, okay, we cannot accept the traditional fiber network providers. So there's been a significant investment and emergence of the specialist fiber interconnect companies that are now spending quite a bit of money really improving the reliability and performance of the fiber networks. And we're actually seeing that is driving also the revenue of our traditional, what we call field instrument business.
Then, of course, the classical data center, the 1.6 terabit, 800-gig, the production -- optical production test equipment continues to grow very nicely into the December quarter. And there's going to be an additional momentum building as far further into the March quarter. And aerospace defense will continue to gradually grow on a continued basis that he has been doing.
And the only, I would say, kind of the cylinder in our engine that is still fairly weak as the wireless business due to the wireless spend dynamics by the major wireless carriers. But you saw a very interesting thing. Just as we said about 2 years ago that eventually somebody will wake up that the fiber is awful, and they'll start investing in fiber, and that's already happening now. So this whole thing is trickling down from data center into fiber networks. Well the next bottleneck that is not ready for the whole AI ecosystem is the wireless RAN. And that's why, actually, we were not surprised at all that NVIDIA put in $1 billion into AI RAN in Nokia, and we do hope -- I mean, we are seeing -- that's really accelerating the 5G advanced and 6G development, we will likely pull this and closer. And we know the others are seeing it and they're also going to be start scaling their investments.
So we do think our wireless business probably would be kind of the last cylinder in the engine to turn on into the next calendar year. So that kind of hopefully gives you a good color on all the elements of the NSE business.
Yes, absolutely. If I could sneak one in for Ilan. Great to see the operating margin guidance [indiscernible], obviously, Spirent's starting to contribute there. But can you give us maybe how you're thinking about operating margins as you sort of run rate the business [indiscernible] are kind of exiting fiscal '26 and into fiscal '27?
Sure. Thanks for the question, Ruben. So currently, including Spirent, we are towards kind of the $160 million a quarter. I believe that, obviously, we are still working on just starting to work on integration, et cetera. So probably for the early part of 2026 calendar it can reach maybe 5 million higher or so at around the 165 range.
Your next question comes from the line of Mehdi Hosseini of SIG.
Two from my end. Oleg, juts assume wireless doesn't come back. It was kind of a worst-case scenario. Given the Spirent and the baseline assumption that it would be $0.08 accretive and the strength in fiber and perhaps a slightly higher growth rate for Smart for next year. It seems to me that you should be exiting calendar year '26 at close to like $1 annualized EPS. And if wireless [indiscernible] to come back, there will be growth above that target. And I'm not asking for a guide, but given the scenario you laid out, wireless could come back and just be extra and help you with a higher earning power. Any thoughts here would be great.
Well, so I mean, as you can see, we just as our business started thinking from the cutback in service providers in 2022, I mean, we had a significant operating deleverage. Well, now that we're going in the other direction, we're getting significant operating leverage where every incremental dollar just drops right to the big chunk of it drops to the bottom line. So I mean you're right. I mean getting up to -- if things continue as they are, I mean, it's entirely possible we'll be running around close to $1 a share next year. I mean the awards and [indiscernible].
And you're right, wireless is a significant incremental catalyst once it gets going because it's really been one of the segments that's kind of been left behind in this whole recovery. And I mean clearly, as it starts turning around, it will be a major contributor to the bottom line.
Okay. Great. And just double clicking on the OSP and given the upcoming changes to the form factor for a smartphone application, should I assume that some of the past pricing pressure is going to abate and go away? And at least you should have some operating leverage there. without contemplating what the real smartphone unit growth would be?
Sure. I think you're right. I mean it's a more maturing segment. I mean, the volumes, I mean, we're fairly saturated in that market. So the only incremental growth comes from the unit growth and maybe greater adoption of the world-facing 3D cameras. But we are seeing actually also incremental upticking of the facial recognition technologies with the Android players in Asia. Not the big ones like Samsung, but it's mostly the Chinese. So we do think it will provide some additional growth. And there, we sell wafers to module integrators. And so it provides a bit more leverage there. But also the automotive market with LiDAR and Asia is becoming a big consumer of the 3D sensing filters.
Now we got to put it in perspective. It's kind of hard to compete with 300-plus million units. I mean, automotive is like maybe 10 million. But let's say, it's a nice welcome growth in the unit volume. And in terms of the OSP [indiscernible], I think it's fairly stabilized at this point. And I'd say the volume is the only thing that matters right now in terms of growing the revenue in that segment.
Your next question comes from the line of Ryan Koontz of Needham & Company.
If we could double-click on the data center opportunity. I think that's been a little bit of a quiet market for you in terms of, I think, investors understanding your exposure there. Great to hear your working that up. Look, do you feel like your execution in that customer segment is where it needs to be today? Do you invest more in go-to-market and do those customers have different product requirements that you might need to re-spin new products for data center? Or is it largely the same products as your traditional piece?
Well, it's a great question. We've been investing in this business for the last 3 years. And the term that I've borrowed from distribution business is turns and earns, and let me just clarify what I mean. So what we're seeing today, as we shifted from telecom service providers driving the road map to the data center driving our road map, you're going from anywhere 6 to 8 years between the generations of products to about 2 to 3 years, see a very much faster turnover of the technologies. It means you got to deliver your products now every 2 to 3 years but also because it is driven by engineering labs and new product development, it comes in at a much higher margin. So you are turning the product portfolio much faster, which means you don't have this like a long value of waiting for the next generation, and you're earning higher percentage gross profits because it's a first to market always wins big.
So in that respect, we really like it because it's increasingly the size of the market for us and it's accelerating the revenue velocity for us, and we get paid for the value we deliver by being always the leader in this market. So today, I mean, the reason I use word the data center ecosystem is because our products don't just address a particular segment to address everything along the entire value chain. It's your processor companies. You all know who they are. It's your physical layer, communication companies like SerDes and the module integrators. It's your system companies, optical gear, like Ciena, [ Res ], Cisco and so on and so forth.
And it's actually ultimately the actual hyperscaler who have extensive internal R&D, developing anything from optical modules to MEMS switches to full-blown data center equipment. So I mean, this is like the best thing you can have and you're dealing with engineering budgets and the intense competition where everybody is trying to be first to market with a better technology. So I mean, this is like truly living inside of tornado and our team loves it because that's actually plays very well to our traditional strength to be at the bleeding edge of bringing leading-edge technology to the optical networking.
That's super helpful. Would you say like you had...
And actually, I would add one more thing. I would add one more thing. We talk always about speeds of 400, 800, 1.6, 3.2, that's a network speed. What you also have in parallel is chip-to-chip interconnect. You go from PCIe 3.0, 4.0, 5.0 today is 6.0 and then will be next year 7.0. So every time you move to a higher speed, you need a corresponding [ PCI Express ] next tender as well. So your -- it's a tick tack. You deliver your network speed, which immediately needs wholesale replacement of all the chip-to-chip interconnect. So that's a force multiplier on the whole data center growth.
Yes. That's really great. And would you say you have a similar set of competitors and similar share in the data center relative to your legacy customer base?
Well, I would actually say, where we play at a purely the Layer 0 Layer 1, we have a significantly greater share because that's traditional strength of JDS Uniphase Viavi, we are very strong in it. With acquisition of Spirent, we have now added Layer 2 to Layer 7 capability as well. And there is a -- there's 2 major competitors in that space. I mean, clearly, one was Spirent and the other one is Keysight through their acquisition of Ixia.
So I would say, today, it's Viavi and Keysight, there are big players in that space. And there's about maybe 4 or 5 additional smaller players playing in individual layers kind of all over the world. But it's very much, I would say, a major players because the level of intensity and speed with which you have to bring out the products. It's not a low-budget game. It drives quite a significant R&D spend. So I would say, in that particular space, I'd say it's Keysight and Viavi.
Great. And maybe just a follow-up, if I could, on the aerospace and defense area. Can you kind of characterize those products are those [ P&T ] like modules you're selling in typically? Or what's the fulfillment model look like? You're selling to drone companies and the like or defense companies?
Yes. So it goes into everything. So we have a smorgasbord. We can sell you inertial measurement unit. It looks like a chip in a specialized package then we can sell you a module that has multiple of these chips with our controller and logic that does the inertial navigation system or we can sell you a full-blown inertial navigation system with sensor fusion receiving sensor data from cameras, the satellite antennas and everything else.
So we have a full solution and depending which customer we engage and what their relative capabilities are, we'll sell them individual components, we sell them the modules or we sell them the complete solution. So if you're looking at the -- some of these drone companies, I would say, in Central and Eastern Europe. I mean, you may -- they may buy the entire solution. If you're dealing with a more sophisticated U.S. companies, I mean, they may be buying modules or individual components that go into their critical systems.
But it's all about autonomous vehicles, payers, ground, or undersea. I mean, you name it, that's what we are servicing. And the nice thing about it, it's the same platform that can address all these different markets, including the mining, agricultural and surveillance drones and all these things that you need. If you think about the fully [ GPF ] independent autonomous kind of robotic vehicles.
[Operator Instructions] Your next question comes from the line of Michael Genovese of Rosenblatt Securities.
Look, I think my phone broke up because I think you gave a new annual revenue number for the HSC acquisition, but I just didn't hear what it was.
Yes. So Ilan, go ahead.
So basically, currently, once we close the transaction, we got a little bit more insight. Currently on an annual run rate, we believe it's about $200 million, including the emulation piece, the channel emulation. And prior to that, we thought more about $188 million. So yes, it is higher right now.
Okay. So I guess my question is...
Spirent business, right?
Yes, yes, yes. And so my question has to do with, does that change on higher revenue or any other reason kind of bring an accretion date sooner than 12 months? Or are we still thinking 12 months before it becomes accretive?
So it depends also on seasonality. Remember that there are stronger half fees on the second calendar half. So that's the reason that this quarter, we see some positive EPS, most likely in the first calendar half, it's a little bit softer. But when you think about it from a full calendar year, yes, it's slightly higher, but when you compare it to our fiscal year, the dynamic changes a little bit.
Yes. But net-net, clearly higher revenue makes the accretion sooner rather than later.
And then I think most of my questions were asked, but I just want to ask specifically on large service provider like AT&T, Verizon or the cable companies. If we look at the wireline part of the network. We heard weak wireless from you on that. But and then it sounds like a lot of the optical activity is being done by optical specialists. But is there anything to say about the Tier 1 large cable and telcos on the wireline side? Is there any trend there that you can call.
I would say gradual recovery. I mean fiber is growing. But we do know there's going to be some big RFPs coming out from major cable operators and the service providers. And it's more -- now when I look at the fiber, we are now starting to segment them into professional grade fiber operators and kind of consumer grade. So AT&T is more of consumer grade. So they just continue like -- they keep talking about adding a lot of fiber customers. And that actually is great news to us, and I just want to hear -- when I see the money, I'll believe it. I mean they did make some pretty bullish announcements. And we do think next year, there will be accelerating some buying. So it all plays very well.
But then there is also this whole category or [indiscernible] call professional grade fiber operators, emerging companies like [ Lumin ], similar companies in Europe who all they focus on is interconnecting all these data centers. And I'd say the next one will be, how do you connect them all to the wireless baseband -- I mean, base stations to the towers because you now need to bring a reliable 10-gig, 100-gig traffic to the -- all the towers. So we do expect the combination between the traditional and the professional grade fiber operators continue to grow nicely into next year.
But even -- I'd say, take the base, the base business, the traditional service providers it's all goodness because it's a high tide that raises all the boats. So we cannot call it as a base business and all these other companies who call them speedboats. So it's your profession grade fiber operators the semis, modules, NEMs, these are all kind of speedboats that are growing much faster than the overall market. But I mean, it is encouraging to see even the -- your base service providers. starting to spend more money.
Your next question comes from the line of Andrew Spinola of UBS.
Just one for me. Wondering if you could provide a little bit more color on the business -- the Spirent business that you acquired. With the margin profile on that business consistent with the overall business, was it better or worse? And when I'm thinking about modeling that post the 12 months when it turns accretive, do you think you can drive the margin in that acquired business in line with maybe your targeted 20% for NSE? Or do you think you can do better? How should I think about that?
Well, so I think that business is both higher gross margin than the average NSE and it's higher operating profit than average NSE. So it's net-net accretive and I do believe that through integration and greater efficiency, we can actually expand their margins further. And I think we do have -- I think, on cost of goods, we should be doing a lot better because we have now greater scale in the parts procurement and greater leverage of engineering and sales resources.
And Andrew just specifically on the gross margin, we see [indiscernible] from the mid- to high 60s, which is, as Oleg mentioned, definitely above our corporate average. So it's a nice contribution there.
Got it. And is that business seeing the same acceleration that you're seeing in the rest of your data center business?
Yes. Well, I mean, probably not the same percentage because it's a much bigger -- from a much bigger base. But absolutely, they have a very exciting product called -- there's a traditional HSE high-speed Ethernet test that you sell to chip companies, the modules and systems and enterprise data centers. And then there's a whole different flavor called AI, HSC, which just generates AI workloads so you can test your network on how good it is to run the AI traffic and AI data. So that piece is growing even faster.
I see. And I wanted to ask one last question actually on the data center business. I'm trying to think about that business in terms of units versus what other growth drivers you might have. So how much of that business is -- so if the number of switches being produced doubling, tripling, what have you, how does that translate to benefits for you? Are you seeing most of your growth because of the growth in units in these products? Or is it that there's just a lot more investment in R&D, new SKUs, new players in the space? How should I think of that?
It's a combination. So when we talk about sales to the lab, i.e., to the R&D equipment, it's a number of companies, number of projects, number of chips. And remember, I also said the very fast product turn cycle, right? Like every 2, 3 years, next generation. So that drives the more like the lab sales are driven by projects, right? So it's a number of companies, number of projects and how quickly one generation transitions to the next.
And when we talk about production, that is driven purely by units. So the more units you're producing, the more you're shipping, the more you need to buy to set up more production lines. So this is more like if you think about contract manufacturers, the more lines they add, the more equipment they need to buy.
What's the split in your business between unit-driven business versus project-driven business on the data center side?
We don't really split it that [indiscernible] because it's effectively the same product, the same technology checks into different box.
Your next question comes from the line of Tim Savageaux of Northland Capital.
Congrats on the results and the guide. And I want to focus in on there, in particular. First, on Spirent, you mentioned a larger base interested in what context you meant that. But it sounds like given what you're guiding to, and I don't know if you're 50-30-20 going to 45, 40 15, I'll just assume that's fiscal '25 versus fiscal '26. But it seems like Spirent's going to be well above 50% exposed to data center. Is that fair to say -- go ahead.
Yes. So I mean the percentage just gave you, that's exiting this calendar year. It's like exiting December, the mix, including now the new Spirent business. Now in terms of their exposure, I would say, if I define the data center ecosystem, I'm in line's share of their business is data center ecosystem. But they also have enterprise and enterprise data center. So I mean -- when I say data center ecosystem, it's chips, modules, systems and hyperscalers. They also have the enterprise, like, say, financial, insurance and other companies we test their own firewalls and things like that. So that's -- I would say probably it's an 80-20 split probably.
Okay. That makes sense. And looking at the organic guide, which is still pretty impressive, I guess, 310 to 320 and understanding you're getting a healthier Spirent contribution despite the shortened time period and you explained that. But as you look at that, and kind of asked this a little bit before, but we've seen some pretty good numbers in terms of what some of the big U.S. carriers are looking to spend I might have looked at that organic number and thought an old-fashioned budget flush. Apparently not, it doesn't look like you're building much in there. Am I right, for the traditional Tier 1 telecom providers, are you looking at that [indiscernible] Q4?
No, there is some [indiscernible] traditional. Sorry. So for the traditional. Sorry, [indiscernible] for traditional, there is some incremental growth, but I mean, I won't say budget flash, I mean the incremental demand is coming from what I call the professional grade kind of Tier 2, Tier 3 focused players. I mean you can call it budget flash, you can call it. But I think their stuff is driven by projects today and contracts that they signed with hyperscalers.
And what we are seeing now increasingly I mean what we used to call you have field instruments where we would sell 90-plus percent to service providers, we are now seeing like a 1/4 up to 1/3 of revenue is going into the whole data center-driven service provider ecosystem.
Okay. So you look at organic growth going in September to December.
Yes. So we've all seen the Verizon, AT&T saying that next year, they're going to expand. Hey, if that happens, that will be just like a further tide that will raise all the boats.
Got it. So it looks like anything...
Tim also for -- we're not guiding for March, but it's not that we see anything materially different going into March.
So I mean the only thing I'd say about Tier 1s, every 0.25% drop in interest rate, for example, for a lot of cash for them to do things, and there's a lot of pent-up demand. I mean basically, it's like they've been sweating the assets for the last 3 to 4 years. And these things like anything else, it wears out, it needs to be updated. And so I do think as they're getting a little bit they're feeling better and more comfortable with the debt load, the interest load.
And I mean, they've all been sending all the right signals. So that's actually quite encouraging, and that's a positive thing for us. It will be further, I would say, accelerator or a boost to the overall demand.
That concludes our Q&A session. I will now turn the conference back over to Vibhuti for closing remarks.
Thank you, Jale. This concludes our earnings call for today. Thank you for joining. Have a good evening.
This concludes today's conference call. You may now disconnect.
Viavi Solutions Inc. — Q1 2026 Earnings Call
Financial data from Viavi Solutions Inc.
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 1,518 1,518 |
40%
40%
100%
|
|
| - Direct Costs | 643 643 |
39%
39%
42%
|
|
| Gross Profit | 875 875 |
41%
41%
58%
|
|
| - Selling and Administrative Expenses | 469 469 |
34%
34%
31%
|
|
| - Research and Development Expense | 263 263 |
26%
26%
17%
|
|
| EBITDA | 144 144 |
128%
128%
9%
|
|
| - Depreciation and Amortization | 23 23 |
369%
369%
1%
|
|
| EBIT (Operating Income) EBIT | 121 121 |
108%
108%
8%
|
|
| Net Profit | -30 -30 |
187%
187%
-2%
|
|
In millions USD.
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Viavi Solutions Inc. Stock News
Company Profile
Viavi Solutions, Inc. engages in the provision of network test, monitoring, and assurance solutions. It operates through the following segments: Network Enablement, Service Enablement, and Optical Security and Performance. The Network Enablement segment offers integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks. The Service Enablement segment covers solutions and services primarily for communication service providers, and enterprises that deliver and/or operate broadband and IP networks (fixed and mobile) supporting voice, video, and data services as well as a wide range of applications. The Optical Security and Performance segment leverages its core optical coating technologies and volume manufacturing capability to design, manufacture, and sell products targeting anti-counterfeiting, consumer and industrial, government, healthcare, and other markets. The company was founded in 1979 and is headquartered in San Jose, CA.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Khaykin |
| Employees | 3,600 |
| Founded | 1979 |
| Website | www.viavisolutions.com |


