VIAVI : Announces First Quarter Fiscal 2020 Results

SAN JOSE, Calif., Oct. 30, 2019 /PRNewswire/ -- VIAVI (NASDAQ: VIAV) today reported results for its first fiscal quarter ended September 28, 2019.

First quarter of fiscal 2020 net revenue was $299.8 million. GAAP net income was $6.8 million, or $0.03 per share. Non-GAAP net income was $42.9 million, or $0.18 per share.

Fourth quarter of fiscal 2019 net revenue was $289.7 million. GAAP net income was $12.5 million or $0.05 per share. Non-GAAP net income was $40.1 million, or $0.17 per share.

First quarter of fiscal 2019 net revenue was $268.5 million. GAAP net loss was $(15.3) million, or $(0.07) per share. Non-GAAP net income was $35.2 million, or $0.15 per share.

"VIAVI executed well in fiscal Q1 2020 with revenue, non-GAAP operating margin, and non-GAAP EPS exceeding the updated guidance from our September 2019 Analyst Day event," said Oleg Khaykin, VIAVI's President and Chief Executive Officer.  "Both NSE and OSP business segments exceeded our expectations, driven by strong customer demand."

Financial Overview:

The tables below (in millions, except percentage, and per share data) provide comparisons of quarterly results to prior periods, including sequential quarterly and year-over-year changes. A full reconciliation between the GAAP and non-GAAP measures included in the tables is contained in this release under the section titled "Use of Non-GAAP (Adjusted) Financial Measures."

First Quarter Ended September 28, 2019

	GAAP Results
	Q1				Q4				Q1				Change
	FY 2020				FY 2019				FY 2019				Q/Q			Y/Y
Net revenue	$	299.8			$	289.7			$	268.5			3.5	%		11.7	%
Gross margin	58.2		%		58.5		%		56.0		%		(30) bps			220 bps
Operating margin	6.9		%		9.6		%		(0.4)		%		(270) bps			730 bps
Income (loss) from operations	20.7				27.8				(1.2)				(25.5)	%		1,825.0	%
Net income (loss) per share	0.03				0.05				(0.07)				(40.0)	%		142.9	%

 

	Non-GAAP Results
	Q1			Q4			Q1			Change
	FY 2020			FY 2019			FY 2019			Q/Q			Y/Y
Non-GAAP gross margin	61.3	%		61.9	%		59.8	%		(60) bps			150 bps
Non-GAAP operating margin	17.6	%		17.6	%		16.3	%		—			130 bps
Non-GAAP income from operations	52.7			50.9			43.8			3.5	%		20.3	%
Non-GAAP net earnings per share	0.18			0.17			0.15			5.9	%		20.0	%

 

	Net Revenue by Segment
	Q1				% of Net			Q4				Q1				Change
	FY 2020				revenue			FY 2019				FY 2019				Q/Q			Y/Y
Network Enablement	$	198.9			66.3	%		$	197.3			$	164.5			0.8	%		20.9	%
Service Enablement	20.9				7.0	%		24.1				26.2				(13.3)	%		(20.2)	%
Optical Security and Performance Products	80.0				26.7	%		68.3				77.8				17.1	%		2.8	%
Total	$	299.8			100.0	%		$	289.7			$	268.5			3.5	%		11.7	%

 

• Americas, Asia-Pacific and EMEA customers represented 35.3%, 35.7% and 29.0%, respectively, of total net revenue for the quarter ended September 28, 2019.
• As of September 28, 2019, the Company held $530.3 million in total cash and investments.
• As of September 28, 2019, the Company had $460.0 million aggregate principal amount of 1.00% Senior Convertible Notes and $225.0 million aggregate principal amount of 1.75% Senior Convertible Notes with a total net carrying value of $584.3 million classified as long-term debt.
• During the fiscal quarter ended September 28, 2019, the Company generated $31.3 million of cash from operations.

Business Outlook for the Second Quarter of Fiscal 2020

For the second quarter of fiscal 2020 ending December 28, 2019, the Company expects net revenue to be between $292 million to $312 million and non-GAAP earnings per share to be $0.18 to $0.20.

With respect to our expectations above, the Company has not reconciled non-GAAP net income per share to GAAP net income (loss) per share in this press release because it is unable to provide a meaningful or accurate estimate of certain reconciling items described in the "Use of Non-GAAP (Adjusted) Financial Measures" section below and the information is not available without unreasonable effort as a result of the inherent difficulty of forecasting the timing and/or amounts of certain items, including certain charges related to restructuring, acquisition, integration and related charges. In addition, the Company believes such reconciliations would imply a degree of precision that may be confusing or misleading to investors.

Conference Call

The Company will discuss these results and other related matters at 1:30 p.m. Pacific Time on October 30, 2019 in a live webcast, which will also be archived for replay on the Company's website at www.viavisolutions.com/investors.  The Company will post supplementary slides outlining the Company's latest financial results on www.viavisolutions.com/investors under the "Quarterly Results" section concurrently with this earnings press release. This press release is being furnished as a Current Report on Form 8-K with the Securities and Exchange Commission, and will be available at www.sec.gov.

About VIAVI Solutions

VIAVI (NASDAQ: VIAV) is a global provider of network test, monitoring and assurance solutions for communications service providers, enterprises, network equipment manufacturers, government and avionics. We help these customers harness the power of instruments, automation, intelligence and virtualization to Command the network. VIAVI is also a leader in light management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, automotive and defense applications. Learn more about VIAVI at www.viavisolutions.com. Follow us on VIAVI Perspectives, LinkedIn, Twitter, YouTube and Facebook.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include any expectation, anticipation or guidance as to future financial performance, including future revenue, gross margin, operating expense, operating margin, profitability targets, cash flow and other financial metrics, as well as the impact and duration of certain trends and market position and conditions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the Company's ability to predict future financial performance continues to be difficult due to, among other things: (a) continuing general limited visibility across many of our product lines; (b) quarter-over-quarter product mix fluctuations, which can materially impact profitability measures due to the broad gross margin ranges across our portfolio; (c) consolidations in our customer base; (d) unforeseen changes in the demand for current and new products, technologies, services, delays or unforeseen events in the roll-out of new industry platforms such as 5G or evolving technology such as 3D sensing and customer purchasing delays as they assess or transition to such new technologies and/or architectures, all of which limit near-term demand visibility, and could negatively impact potential revenue; (e) continued decline of average selling prices across our businesses; (f) notable seasonality and a significant level of in-quarter book-and-ship business; (g) various product and manufacturing transfers, site consolidations, product discontinuances and the restructuring and workforce reduction plans, including the plan announced during the first quarter of fiscal 2019 that may cause short-term disruptions; (h) challenges integrating the businesses  the Company has acquired and realizing all of the expected benefits and savings; (i) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand; (j) potential disruptions or delays to our manufacturing and operations due to natural disasters such as the recent wildfires in Northern California; (k) the uncertain and ongoing impact to our supply chain of tariffs, sanctions and other trade measures imposed by domestic and foreign governments and the possibility of escalation of "trade wars" and retaliatory measures between nations; and (l) inherent uncertainty related to global markets and the effect of such markets on demand for our products. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. For more information on these risks, please refer to the "Risk Factors" section included in the Company's Annual Report on Form 10-K for the fiscal year ended June 29, 2019 filed with the Securities and Exchange Commission. The forward-looking statements contained in this press release are made as of the date thereof and the Company assumes no obligation to update such statements.

Contact Information

Investors:
Bill Ong
408-404-4512
[e-mail]

Press:
Amit Malhotra
202-341-8624
[e-mail]

The following financial tables are presented in accordance with GAAP, unless otherwise specified.

-SELECTED PRELIMINARY FINANCIAL DATA -

VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
PRELIMINARY
	Three Months Ended
	September 28, 2019				September 29, 2018
Net revenue	$	299.8			$	268.5
Cost of revenues	117.0				108.7
Amortization of acquired technologies	8.4				9.4
Gross profit	174.4				150.4
Operating expenses:
Research and development	51.5				42.6
Selling, general and administrative	93.2				84.4
Amortization of other intangibles	8.7				9.8
Restructuring and other charges	0.3				14.8
Total operating expenses	153.7				151.6
Income (loss) from operations	20.7				(1.2)
Interest income and other income, net	2.7				1.7
Interest expense	(8.3)				(10.1)
Income (loss) before taxes	15.1				(9.6)
Provision for income taxes	8.3				5.7
Net income (loss)	$	6.8			$	(15.3)
Net income (loss) per share:
Basic	$	0.03			$	(0.07)
Diluted	0.03				(0.07)
Shares used in per share calculations:
Basic	229.4				227.2
Diluted	236.4				227.2

The preliminary financial statements are estimated based on our current information.

 

VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
PRELIMINARY
	September 28, 2019				June 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	525.3			$	521.5
Short-term investments	1.5				1.5
Restricted cash	3.5				3.5
Accounts receivable, net	232.7				237.7
Inventories, net	99.4				102.7
Prepayments and other current assets	51.8				49.9
Total current assets	914.2				916.8
Property, plant and equipment, net	170.5				179.9
Goodwill, net	376.7				381.1
Intangibles, net	191.8				211.6
Deferred income taxes	104.4				108.4
Other non-current assets	50.1				17.3
Total assets	$	1,807.7			$	1,815.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	60.9			$	63.4
Accrued payroll and related expenses	66.0				58.7
Deferred revenue	51.2				55.3
Accrued expenses	31.3				34.2
Other current liabilities	73.1				72.4
Total current liabilities	282.5				284.0
Long-term debt	584.3				578.8
Other non-current liabilities	232.8				226.5
Total stockholders' equity	708.1				725.8
Total liabilities and stockholders' equity	$	1,807.7			$	1,815.1

The preliminary financial statements are estimated based on our current information.

 

VIAVI SOLUTIONS INC.
REPORTABLE SEGMENT INFORMATION
(in millions, unaudited)
PRELIMINARY
	Three Months Ended September 28, 2019
	Network and Service Enablement
	Network Enablement				Service Enablement				Network and Service Enablement				Optical Security and Performance Products				Other Items (1)				Consolidated GAAP Measures
Net revenue	$	198.9			$	20.9			$	219.8			$	80.0			$	—			$	299.8
Gross profit	128.0				12.6				140.6				43.3				(9.5)				174.4
Gross margin	64.4		%		60.3		%		64.0		%		54.1		%						58.2		%
Operating income									22.3				30.4				(32.0)				20.7
Operating margin									10.1		%		38.0		%						6.9		%
	Three Months Ended September 29, 2018
	Network and Service Enablement
	Network Enablement				Service Enablement				Network and Service Enablement				Optical Security and Performance Products				Other Items (1)				Consolidated GAAP Measures
Net revenue	$	164.5			$	26.2			$	190.7			$	77.8			$	—			$	268.5
Gross profit	102.9				18.3				121.2				39.4				(10.2)				150.4
Gross margin	62.6		%		69.8		%		63.6		%		50.6		%						56.0		%
Operating income									16.4				27.4				(45.0)				(1.2)
Operating margin									8.6		%		35.2		%						(0.4)		%

(1) Other items include charges unrelated to core operating performance primarily consisting of stock-based compensation, amortization of acquisition-related intangibles, restructuring and related charges, changes in fair value of contingent consideration liabilities and other charges unrelated to core operating performance.

The preliminary financial schedules are estimated based on our current information.

 

Use of Non-GAAP (Adjusted) Financial Measures

The Company provides non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA financial measures as supplemental information regarding the Company's operational performance. The Company uses the measures disclosed in this release to evaluate the Company's historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company's core operating performance, which the Company believes represent its performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition-related intangibles and inventory step-up, stock-based compensation, restructuring, separation costs, and certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and customary course activities. Additionally, the Company excludes the results of discontinued operations in calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA for all periods reported. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company's core operational performance.

The Company believes providing this additional information allows investors to see Company results through the eyes of management. The Company further believes that providing this information allows investors to better understand the Company's financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

The non-GAAP adjustments described in this release are excluded by the Company from its non-GAAP financial measures. The non-GAAP adjustments, and the basis for excluding them, are outlined below.

Cost of revenues, costs of research and development and costs of selling, general and administrative: The Company's GAAP presentation of gross margin and operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation, (v) changes in fair value of contingent consideration liabilities and (vi) other charges unrelated to our core operating performance comprising mainly of acquisition related transaction costs, amortization of  acquisition related inventory step-up, integration costs related to acquired entities, litigation and other costs and contingencies unrelated to current and future operations, including transformational initiatives such as the implementation of simplified automated processes, site consolidations, and reorganizations. The Company excludes these items in calculating non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company's core operational performance.

Amortization of intangibles: The Company includes amortization expense related to intangibles in its GAAP presentation of cost of revenues and operating expense. The Company excludes these significant non-cash items in calculating non-GAAP gross margin, non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, because it believes doing so provides investors a clearer and more consistent view of the Company's core operating performance in terms of cost of revenues and operating expenses.

Non-cash interest expense and other expense: The Company incurred non-cash interest expense accretion of the debt discount on its convertible debt instruments. The Company eliminates this in calculating non-GAAP net income (loss), and non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company's core operating performance.

Income tax expense or benefit: The Company excludes certain non-cash tax expense or benefit items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit, the impact of US tax reform enacted in December 2017 and the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income (loss) and non-GAAP net income (loss) per share. As the Company excludes amortization of certain intangibles assets in calculating non-GAAP gross margin, non-GAAP operating profit or (loss) and non-GAAP income or (loss), the tax benefit resulting from non-tax deductible amortization expense of such intangible assets is also excluded from non-GAAP metrics. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company's core operational performance.

Interest, taxes, depreciation, amortization and other adjustments: The Company's EBITDA calculation primarily excludes interest income and other income (expense), interest expense, taxes, depreciation and amortization, and other items that are not part of its core operating performance described above. The Company's adjusted EBITDA excludes items in addition to the items excluded from the EBITDA calculation such as stock-based compensation, restructuring and related charges (benefits), gain or loss on sale of available for-sale investments, changes in fair value of contingent consideration liabilities arising from prior acquisitions  and other charges related to activities that are not part of its core operating performance described above. Management believes adjusted EBITDA is a helpful indicator of the Company's core operational cash flow.

Non-GAAP financial measures are not in accordance with, preferable to, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net income (loss) is net income (loss). The GAAP measure most directly comparable to non-GAAP net income (loss) per share is net income (loss) per share. The Company believes these GAAP measures alone are not fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company's overall performance.

VIAVI SOLUTIONS INC.
RECONCILIATION OF GAAP MEASURES FROM CONTINUING OPERATIONS
TO NON-GAAP MEASURES
(in millions, except per share data)
(unaudited)
PRELIMINARY
The following tables reconcile GAAP measures to non-GAAP measures:
	Three Months Ended
	September 28, 2019							September 29, 2018
	Gross Profit				Gross Margin			Gross Profit				Gross Margin
GAAP measures	$	174.4			58.2	%		$	150.4			56.0	%
Stock-based compensation	1.0				0.3	%		0.8				0.3	%
Other charges unrelated to core operating performance	0.1				—	%		—				—	%
Amortization of intangibles	8.4				2.8	%		9.4				3.5	%
Total related to Cost of Revenue	9.5				3.1	%		10.2				3.8	%
Non-GAAP measures	$	183.9			61.3	%		$	160.6			59.8	%
	Three Months Ended
	September 28, 2019							September 29, 2018
	Operating Income				Operating Margin			Operating Income				Operating Margin
GAAP measures	$	20.7			6.9	%		$	(1.2)			(0.4)	%
Stock-based compensation	10.3				3.4	%		8.1				3.0	%
Change in fair value of contingent liability	1.7				0.6	%		—				—	%
Other charges unrelated to core operating performance (1)	2.6				0.9	%		2.9				1.1	%
Amortization of intangibles	17.1				5.7	%		19.2				7.1	%
Restructuring and related charges	0.3				0.1	%		14.8				5.5	%
Total related to Cost of Revenue and Operating Expenses	32.0				10.7	%		45.0				16.7	%
Non-GAAP measures	$	52.7			17.6	%		$	43.8			16.3	%

 

	Three Months Ended
	September 28, 2019								September 29, 2018
	Net Income				Diluted EPS				Net (Loss) Income				Diluted EPS
GAAP measures	$	6.8			$	0.03			$	(15.3)			$	(0.07)
Items reconciling GAAP net income (loss) and EPS to non-GAAP net income and EPS:
Stock-based compensation	10.3				0.04				8.1				0.04
Change in fair value of contingent liability	1.7				0.01				—				—
Other charges unrelated to core operating performance (1)	2.6				0.01				3.1				0.01
Amortization of intangibles	17.1				0.07				19.2				0.08
Restructuring and related charges	0.3				—				14.8				0.06
Non-cash interest expense and other expense	5.1				0.02				6.6				0.03
Benefit from income taxes	(1.0)				—				(1.3)				(0.01)
Total related to net income and EPS	36.1				0.15				50.5				0.22
Non-GAAP measures	$	42.9			$	0.18			$	35.2			$	0.15
Shares used in per share calculation for Non-GAAP EPS					236.4								230.5

Note: Certain totals may not add due to rounding

(1) Other items include charges unrelated to core operating performance primarily consisted of certain acquisition and integration related changes, transformational initiatives such as, site consolidations, and reorganization, loss on sale of investments and loss on disposal of long-lived assets.

The preliminary financial schedules are estimated based on our current information.

 

VIAVI SOLUTIONS INC.
RECONCILIATION OF GAAP MEASURES FROM CONTINUING OPERATIONS
TO ADJUSTED EBITDA
(in millions, unaudited)
PRELIMINARY
	Three Months Ended
	September 28, 2019				September 29, 2018
GAAP net income (loss)	$	6.8			$	(15.3)
Interest income and other income, net	(2.7)				(1.9)
Interest expense	8.3				10.1
Provision for income taxes	8.3				5.7
Depreciation	9.8				9.9
Amortization	17.1				19.2
EBITDA	47.6				27.7
Costs related to restructuring and related charges	0.3				14.8
Costs related to stock-based compensation	10.3				8.1
Change in fair value of contingent liability	1.7				—
Other charges unrelated to core operating performance (1)	2.6				3.1
Adjusted EBITDA	$	62.5			$	53.7

Note: Certain totals may not add due to rounding

(1) Other items include charges unrelated to core operating performance primarily consisted of acquisition and integration related charges, transformational initiatives such as site consolidations, and reorganization, loss on sale of investments and loss on disposal of long-lived assets.

The preliminary financial schedules are estimated based on our current information

 

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SOURCE VIAVI Financials