VIAV - Earnings call transcript Q3 2018

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Operator

Good afternoon. My name is Jessa [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Third Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator Mr. of you Head conference. begin Investor Ong, may Relations, your Bill

Bill Ong

Head you, Solutions My earnings Ong, Viavi Welcome name Investor quarter Bill Thank to XXXX third Jessica. fiscal year is of Relations. call.

Amar to about update are only call our to today's in note historical risks our Viavi are call Khaykin, and this CEO, results also note, on release. of most The non-GAAP uncertainties me otherwise, during their discuss that financial Maletira, you forward-looking website. unless these differ usefulness SEC performance. plus cause call, that slides results are materially our and to provide we we encourage Please risk today's reconcile our actual statements results Joining expectations. available CFO. include subject non-GAAP. valid We statements. statements, on company's including President the those earnings are financials and to these tables, current Oleg particularly guidance review and in except state filings. revenue are GAAP recent forward-looking Please and from obligation the supplementary will filings, as which to statements all this limitations today. We undertakes described These could factors preliminary release, financial no include The

the like turn Pacific X:XX Finally, evening we to are recording over on would today's make the Time this p.m. now website. call, available by to and recording we'll our Amar. I call

Amar Maletira

from acquisition acquired million expenses roughly the profit weeks at note of fiscal QX of businesses the margin in operating acquired non-GAAP was the results The on XX. revenue fiscal reported EPS million. that March the profit XX.X% the and and which financials revenue Please our linear operating an of you, reported QX including Viavi's segment million at was fiscal the Thank revenue queued in contributed $XXX.X were businesses Bill. of two approximately Hence closed the within towards the $XX.X million $X.X at while the the businesses. AvComm $XX.X were end Wireless of acquired at with businesses operating NE $X.XX. acquisition was and QX We into quarter. Viavi's of

business. fiscal slightly our Now margin the EPS. the $X.XX Revenue the $X.XX $XXX guidance grew guidance midpoint our X.X% revenue guidance. for from of guidance OSP both year-on-year NSE Operating at of EPS Viavi's guidance our range revenue, a and EPS NSE acquisition, beat $X.XX profit XX.X% non-GAAP to at at to the exceeded above QX non-GAAP XX.X% range core of midpoint midpoint driven results with $X.XX. contributing $XXX.X exceeded XX.X% excluding overachieving by $X.XX ago in growth of our the business operating exceeded and million Revenue million OSP in to upside. and was while with the year grew NSE

to businesses our reported AvComm NSE. year-on-year. business NSE grew at segment. moving acquired million XX.X% Starting Now $XXX.X $XX.X and the by including revenue million from Wireless QX results with

reflected was driven This XX.X% line product revenue and our strength in in NSE below in fiber demand. the the partially acquisition acquired percentage bill mix. result issuance X.X weak slightly in quarter NSE's one. XXX by ratio basis excluding SE's offset X.X% acquisition XX:XX versus gross was X.X% in offset the the book $XXX.X instruments points at business by XX.X% at and in lab turnaround revenue products. year-on-year. up the cable data partially products performance year-on-year. business matured revenue matured excluding Any the growth million XX by of strong expected margin a NSE's NSE products production reported and declines revenue reflected revenue. was grew product growth benefit SE in at growth up Excluding the growth the points the growth margin X.X% to year-on-year. was from acquisition was revenue basis operating any includes which SE center points

$XX.X recovery sequential increased growth million for XX.X% due Revenue turning products Now XD and demand anti-counterfeiting to sequentially our OSP. in revenue. Sensing to of our

points OSP We to year-on-year due the note major Sensing margins basis revenue. ago. anti-counterfeiting now will revenue a margin product at by upon the the However gross points benefited growth Sensing in pigment XD acceptance and history from in filters was in The ramp Based X.X% of ago, year-over-year shipment a XD continue of revenue fiscal business offset recognize volumes margin positive forward. decline. QX from was OSP down revenue decline year year the XD lower unfavorable basis the operating a going XXX in were was a mix XX.X% declines to decline which to able XXX in gross anti-counterfeiting Sensing on of result a the with so do in shipments. bank as business and redesign

the to sheet. Now turning balance

With million the approximately $XXX cash million was quarter share Notes of total regards Our $XXX Convertible of that to the and callable Viavi QX, of the repurchased share shares we've portable end $X.XX commissions. $XXX million including XXXX. million operating $XX.X fiscal in cash August $X.X for Off investments flow stock short-term balance million authorized worth buyback XXXX we of our in $XXX.X a repurchased at per and as million is basis ending was QX. original cost

$XXX.X million of have date QX. amount repurchased notional fiscal the as of in to total a of end We

million. QX, in repurchased Specifically we $XX.X

Our Convertible Note million. balance is remaining XXXX $XXX.X

We'll opportunistic dilution earnings continue Our total offset Viavi compensation. repurchasing XXXX million outstanding to stock stock-based includes of be from debt $XXX.X million in the $XXX to Note.

XXXX at be acquired of includes Viavi range expect and revenue million the for X% in be businesses? operating the Now guidance, fiscal $X.XX. to which million $XXX a XX.X% to fourth minus We to EPS or $X.XX to $XXX to plus quarter margin

X%. be million We minus at expect plus or to margins $XX $XXX plus at NSE revenue operating minus million or with X.X%

revenue X%. The contains be minus the historical or guidance XX% or revenue XD Sensing immaterial $X margins of lower operating amount OSP versus margin OSP at The plus minus guidance at million with an $XX plus expect for revenue. reflect of operating to We transition for prudently million QX XD year's we absorption product building during filters, cost next cycle. under filters as idling XD Since manufacturing production time to Sensing avoid to manufacturing in excess customers we're have just Sensing trends inventory.

Our to is be expected $X.X tax expense approximately million.

expenses is expect income to count a approximately shares. of $X.X Share and We XXX other net expense reflect approximately million million.

to provide guidance Lastly, fiscal the acquired Wireless AvComm businesses I XXXX. for like would year for and some

revenue million This business purchase this businesses expect revenue about down incremental We to of in related deferred to accounting. Viavi's $XXX million write to year $XXX XXXX. price core to includes add fiscal

impact about The acquired XX%, an the implied expected with expect to equation to is partially $X.XX margin with integration corporate in profit offset of EPS XX%. of the We XXXX. revenue in margin which businesses operating have XX% year the the be to write gross This average fiscal of includes $X.XX first down. would synergies deferred the anticipated to in line from realized

overall months. Oleg. the million to most of to synergies over XX XX XX occur I'll $XX call expected the that of We $XX the first over turn months within to With to million expect synergies period with

Oleg Khaykin

the solid performance successfully Amar. Cobham's and fiscal of In businesses. closed recently AvComm delivered in its announced Viavi the you businesses Wireless core acquisition quarter Thank a third and

growth, delivered results was a by to Cable by year-on-year. a a at business product by of meaningfully its a strong spot and with product a that strong pleased X and center SE turnaround lines year-on-year year ago was down revenue all levels, home was PCI product from the performance. NE's growth weak off strong business recovery sequential bright products. its was access our Looking growing a demand while A still We're the strongest which optical spot components of individual fiber the a line from products field any driven QX XX our driver tough deployment instruments, business lastly, the driven by bright fiber grows network more storage instruments followed a ago Express segments; show growth, within doubling levels. small production from year The from base. data helped showing so task particular continued with line customers. than Gen with year-on-year

business. calendar for [indiscernible] Looking ahead the for NSE XXXX rest of

and gigabit and expected positive The and on And is of strong the mobile fiber products. the stabilized until in late the announced deployment seeing is The driven Wireless infrastructure XXX growth test by deployment in decline mature the solutions build-out. We recently pullback military higher cable center delivers data appears avionics product G.fast by to solutions operators. near-term closed SE is expect product early outlook of technology safety the The driven in the deployment strong expecting product and flat outlook demand XG in telecom to XG remain product public provides G.fast X.X remain expected demand it sometime optical on business businesses. calendar and the calibration customers. more North fiber businesses and products partially business speed have by said, demand providers wireless a expect the and we're AvComm home improve Cobham's line lastly, service line avionics The to in XXXX. America. XXXX rough Europe. measurement be military, [indiscernible], driven wireless the XXXX to Wireless adoption. North In continued a and products of to safety acquisitions production driven the spend and public advance in with access be to in continue DOCSIS regionally increasing successfully OEMs to quarters side the have Both some for in deployment That side. to business as American AvComm expected aggressive several network and or following and roughly late mature The mid-March AvComm we appeared calendar offsetting test XX to a and we've XXXX wireless for delaying to to by

realize forward, As cost we to meaningful revenue the with we synergies. and expect move integration

in demand million driven about Sensing during products. about OSP Moving XD saw QX a $XX for anti-counterfeiting strong both quarter OSP; million the December recovery strong and from onto to revenue $XX by

a yield June and operation XXs run choosing from minimum effect to OSP we're during to the idle capacity short-term will segments our quarter and net these expect margins a the to margin inventories, on story. immaterial dip We undergo production continue building year is in The momentum recovery expect customers to the QX calendar a model June revenue be transition XXXX. excess business Sensing outlook consume quarter different into avoid and our XD positive the half and XD inventory. auctions existing The XX% maintain headwinds high in its to factory the in second the where of we the be business The operating products as training expected Sensing To improvement the is efforts. only for into anti-counterfeiting of QX.

snap September We to expect quarter production we volume multiple new ramp as and models. production the XD in Sensing support the to back product customers to full volumes

the expect continuous recovery the December OSP and increased calendar be demand volumes have also quarters. Correspondingly, fiscal margins second expect significantly the overall XXXX year to XXXX a the for XXXX and We September half and we revenue. involve XD in and to of Sensing in operating fiscal

Next our like AvComm Sensing in I strong interest short-term thank the technology for and growth for market aboard quarter the volatility Viavi industries would strong multiple Wireless a and XD delivering on potential. welcome conclusion, and team notwithstanding, potential remain In on applications its across we XD and bullish long-term positive to Sensing and the We Viavi. employees. see

our my appreciation the shareholders now express to to our to want for Bill. and their over will turn support. customers I call I Finally

Bill Ong

Thank you.

and Stifel will We'll we office. on in the quarter XX the on May Bus limit Boston also Investor in one be on let's William in place to Conference question-and-answer Investor UBS the June one session. Jessica? Tour corporate ask and Jessica, the discussion be Investor everyone taking question at June presenting follow-up. San begin our This XX We at Conference participating Blair Jose Chicago. XX to

Operator

the Instructions] question Your first Blair. Please from [Operator ahead. of Dmitry William line comes go Netis from

Dmitry Netis

on the housekeeping couple as of as to items, touch first goes. far maybe guidance touch the items let's Wanted

out Sensing million for in does with June XD Sensing minimis you're $XX original of any So a things it de $XX not June shake to back side sounds quarter? like quarter's question which XD Sensing fiscal XD goes that of your revenue where XXXX, of in the million OSP, your the visibly no of revenue guidance for now guidance assuming for

Amar Maletira

Dmitry. thanks so Yes,

well the in as for in recall XXXX So June decline will that's estimate as said, already March if you entire million quarter. number. roughly estimate we factored our no steep And are that shipment in be we we last $XX maintaining that year fiscal that quarter the exactly, at was we're because in

quarter the quarter look that which that was plus the March we was recognized did our it was the March quarter. roughly So XX% shipment the that in we when about QX the quarter at we fiscal of did the you in did and XXXX in shipment total fiscal did of shipment plus that was included that revenue for was filters The in shipment the shipment X%. in December the about March quarter December the roughly

much recognized QX. how that we've of revenue that's So in

to with So that was we got we it higher filters recognition able we was that. do the the bit that what in because were but recognize shipped we were revenue quarter, March line we in no ruling, expected since little had were expecting, able to we that

the $XX million, because in and in September of March a most to the of revenue your So in summarize you quarter and the the question, revenue saw happened We're lag recognition lot recognized it. quarter quarter. with to line December being shipment but of in answer the still

Dmitry Netis

or and just of in so the assuming behind at numbers December probably that still a revenue give of be of single-digit no June in the take kind Is sort of did well standing that assumption? you revenue fair kind kind mid $XX million put $XX the have If simply Okay, you'll quarter it's kind of and March. million, us. to in the here quarter, you level XX

Amar Maletira

quarter. the was to in I $XX roughly this to XX% way plus March $XX range. best was of said I million XX% estimate think million to recognized overall is, $XX the XX% ballpark the million recognized about

Dmitry Netis

XXXX, the the that and thank including as of XX-month the is correct recognition timeframe, what number $XX and the some Okay, period that very be guidance impact will the else are as Cobham, model equal appreciated. number for so, there And if all XXXX as sort revenue of translate giving $XX to synergy synergies. you as is all the us million by mentioned start given that fiscal into deferred Thanks the kind but Amar should in moving onto My understanding then about you the EPS million rolling assuming you goes. far you good. that offsetting goes being talking far there won't fiscal is

Amar Maletira

So because write guidance. that I said to of Dmitry, of purchase you revenue guidance accounting, so that our already includes already the have is think take down - our part deferred we

Oleg Khaykin

it backed already We out.

Amar Maletira

We backed it out, right.

the profit of a XXXX. fiscal fiscal deferred synergies Now in write quarter year there this offset first is is in which XXXX that is revenue we're impact cost down getting because that driving but the

Now going fiscal we the cost the synergies that synergies into XXXX. in in cost see we fiscal that realize plus XXXX realize you'll XXXX, fiscal

will a earnings here the businesses think that think it revenue XXXX. of acquired two So stable, power earning's remains likelihood that this I we is lot from in on there business these assuming there's believe which strong a fiscal happen, particular there's I power

Dmitry Netis

And is goes for midpoint to again of sort as off revenue your and line. number the well, Okay roughly and maybe sort the at one, XXX that guidance Cobham I may of XXXX. last the jump if I then fiscal of

on, XG opportunity. the think investors biggest growth here I might focusing driver that is wireless be

Cobham there's specific the things, the as Nokia your a of China interesting collaboration with deal things on points the So [indiscernible] side. Mobile well of there Mobile relationship XG all well with, your that example that relationship your been mentioned side the as was China TMXXX and data and it lot with there included. your comes for to as for of presume with I side

talk second the Cobham us to in Any been two, as of partnerships, there, in and to relates it ramp operators the - from relative address the starting raising timing when the love provider activity half service Cobham from now? of starting so unit of that raise sort the your end the and sort XXXX, years of is, noting I'd And business is the are four seems the may the are XG. people that I in about what of test where mean even network bar manufactured trial bar, hear three, it that here of XG expectation to and give related then tide, rising right like core all the US to XG it's what would as is to in maybe well. measurement helpful? to the four sense you be up the you could that business Given timing

Oleg Khaykin

Thank you Sure. Dmitry.

in early So in mix There's clearly have if mean business and a engaged of significant of it, across wireless much look unit. our and we ramping clearly share where started value if past a chain, wireless even it say I'd just I XG the entire the engaged where they look pretty we of we is they're what XX as lot kind are of at XG and XG unit some the and XG extensions a a market supply months on, the business and deeply really today, at the chain.

the So processors, with ICs the to infrastructure the the the service equipment NEMs, all the chips, trials. various starting and to way providers manufacturers the they're

clearly So this launch single bucket they're we're engineering is where point for NEM the business side the point systems and they're mainly sure on preparing systems seeing the today providers biggest integrate time, working, increasingly where their on systems making their the at also to to it's the but they're we're starting in into wanting and see trials. that their service to proving acquire as

the also a to as ramping, of then production obviously migrating production. seeing products be starts lot So these we'll

developers of we'll as towards and say of, the be well the probably of from into end providers where the service of the the obviously in it year, and is there the testing. equipment will focused on, now kind if rollout, as at see, in technology third starting first not goes were to to volume kind the coming service say NEMs we're the the it midpoint as the I'd quite but provider heavily So I today into it's on it's I'll high production say picture. production heavily

Dmitry Netis

I'll Thanks Okay, you rest offline. guys. the very Appreciated. thank much. take

Operator

Capital with from question next of Kisner comes Loop Markets. Your James ahead. the line go Please

James Kisner

So second, impact, gave did also deferred just what QX I you know the revenue you expected year? contribution this, off you what you for besides the housekeeping. from for a idea have if the give quick dropped sorry answered that I've you then is don't and whole this so I - year but do I'm Cobham. the for the think an

Amar Maletira

so anything, think, James into give is plan I two you me were all because will business, little No not have our integrated our color. we businesses this roll NSE We additional didn't let didn't very those going you into color, think I miss T&M we but but first give time to this any they our breakout since forward tightly a business.

AvComm is sequentially is so taking, that revenue we're our and revenue X% Wireless use we're X% expecting say is for actually to what which AvComm should numbers decline extrapolated - fiscal mind, and business our and XXXX we're business, to our how a think In into XXXX. to and look NSE midpoint our million don't between Wireless we're an in you that's should also business what for XX% keep $XXX business Also core when but look so this in in So which XXXX. four call [indiscernible] year-on-year slightly, that NSE what this number of look what QX, SE QX the that our anywhere to back like grow to there's say at of number the up [ph]. so instrument business will come like you when guiding NE, X% guidance about can with that grow deferred be expecting of a you about we flattish should

James Kisner

it million, $XX over $XX impact over million? [Indiscernible] is

Amar Maletira

Say it again?

James Kisner

revenue going what's impact, right? sheet that's deferred balance the? us can revenue you understand deferred The disappears, and kind to formula Like help be [indiscernible] how of all Cobham's big the like and

Amar Maletira

business, disappear start there are won't pieces of the less and - But there Well on deferred that - there's the of I details not nature revenue sitting the on the it's all two the will and of more side sitting is not the business getting all, business. deferred here. of into there revenue piece on of the wireless business there AvComm because of

from typically, in purchase from anywhere give kind So a of or Right. XX% you take [indiscernible] accounting take XX%. to this

James Kisner

that right, all Okay, helps.

just recently your carriers but going with two any perhaps acquisition Sprint you announced does before deal. reach really turn below I just interesting you if I'm like would increase historically I'm could of helpful. for was I exposure those T-Mobile more So Cobham. thoughts and normally the to to you a see [indiscernible] to Obviously think, deal. disruption of just announced, be mean it roughly, us your is give to Cobham the you would anticipate X% exposure but after It just the wondering kind

Oleg Khaykin

I but rationalize us, they're you networks, some nowhere fairly as actually two I anytime mean, for percentages small customers. get assuming. an minor it's that's know them, We're you you're got each, integrate to you you merge the For you because revenue got where more instrumentation. near them, pretty opportunity to need with it see

So don't it see as this it's revenue too be threat. to point kind at any may but an early It tell. opportunity of I really actually

James Kisner

there have competitive at Okay all? changes and one, Thanks. update do any environment filters, to any visibility you the last any

Oleg Khaykin

can Well mean as we we products as up still I whole bunch a had more. see, we I and picked all far have the

success. So seen the know major replay been about particular having I talking but in it, anybody special you any there's all number haven't I frankly

James Kisner

much. Thank very you

Operator

question comes Please from next line MKM the ahead. of Michael Genovese go Your from Partners.

Michael Genovese

something that you calculating So correct? in in is want said before on fiscal that based XX% OSP assumptions were given ballpark up core revenues for I'm those about that XD XXXX Sensing what your check. about to sequentially I just the

Amar Maletira

it's think double-digit. I up Well

Michael Genovese

million the on XD you then any you help for kind ballpark give in in growth Sensing and $XX XXXX of outlook us the - can saw? and Okay the that

Oleg Khaykin

linked million, the mean into and customers. but models today than we about on highly - our we I production volatile I said is with that significantly heard go multiple more was business expect multiple product. XXXX As our is $XX as XXXX to you one guidance in on

industry will decrease we'll run our as and September quarter. As will and the number rate smooth increase somewhat technology volatility the aiding capacity as which and of new the well proliferates actually also out, new will going in we deeper models a broader but the customers into significantly add

Michael Genovese

finally. you then business, to have the don't and exposure exposure I think think what China China of great much to talk the part could it's here but I Okay, is? you NE through and about your lab publicly

Oleg Khaykin

you Well that, I thinking by - that think is well probably China ZTE, the right? sanctions like and things

Michael Genovese

Well just in general.

Oleg Khaykin

China economy in general.

Michael Genovese

Yes exactly.

Oleg Khaykin

China not in single big, digits. digits it's Our risk, at its and single accounts the is that exposure low particular

Michael Genovese

much. very Thanks Great.

Operator

Your next Please question comes Dave from Riley. from ahead. of the Kang line B. go

Lee Krowl

revenue? questions you for with customer XD Lee where you customers Dave out curiosity a ship filling Sensing dynamic have you revenue guys your Krowl first for Two first I quarter. standpoint. expect and on of congrats you revenue is This mentioned timing similar the my taking from questions, Kang. a Thanks ahead that recognition guess your of multiple on in just Do

Amar Maletira

that No I established case, don't a be the believe now good we record track have to here. I think

at product trend, etc. a the In last saw was - you it fact look quality three when quarters. very the we in positive the

customers. recognize ship that same think type be will the able we we'll we revenue Sensing other to as XD it because technology shipped I no to is So of

Lee Krowl

Okay and then business. the on NSE

the the guys dynamics below driving if a the you X. book-to-bill of color could curious just on little below kind more You book-to-bill mentioned X bit provide

Oleg Khaykin

quarter clearly end was in year. of booking Well strong quarter I its a the this very a think December industry calendar

years service it's weakest tells you first And it's result the The a the is. the generally think get fact, are in is and quarter and releases is actually generally or unpredictable first figure many in the their bookings to how quarter guidance so I first providers the which what itself trying this seasonally out JDS the did in be, budgets March March quarter a in weaker telecom is not miss quarter. in as to quarter of lot going Viavi

and point to. there's nothing out beyond seasonality that say can I'd just I specific really So

Lee Krowl

Got Thanks it. guys.

Operator

last the from Zhang comes Your go from question Please Jun Rosenblatt of line Securities. ahead.

Jun Zhang

volume second could you camp field of first half the And calendar related half, my sector, the volume related [indiscernible] this also So smartphone is second of android if margin in the or gaming question and of field Sensing product from on now about, shipments. also comment automotive year. to gross the Thanks. XD in

Oleg Khaykin

it's driven by it's camp but predominantly fairly is than obviously on guess fiscal Sure, lot is heavily the the a people more phones. clearly our unevenly, And technology proving android coming be XD our guidance mobile so to challenging XXXX estimating. many in, this Sensing I

and some really on have are and get will the the it particular model But them the be in it will particular all to XXXX it the mean some coming still during are depends OEM. whether of trying So it do be the work net-net, of working, they some fiscal it to several deferring fall by months behind. in or in spring. I

volumes We in be XD leader our with in Sensing. Sensing the of majority XD to expect

we you they're meaningfully significantly comment as overall but operating margins comment profitability but operating can gross the anti-counterfeiting, usual assume and In we did than company terms margins our of OSP margins that such then the don't gross operating gross margins, on margin. above the lower

Jun Zhang

quarters. also you you have of share testing the the and with grow in Okay, few market. over think about share Thanks. current big next great about market could And market XG XG the how us we could how testing should

Oleg Khaykin

don't always forth. Viavi And gross don't at. very Well that's unit bleeding and all the the where not technologies share. more - on they I strong and so plays so market of the the wireless in we new that out the field adopter edge we're terms and the there in high at play early new share think what the and business product is always in the introduction XXs very saying mature in in for - in traditionally margin, [indiscernible] very play migrates early guess becomes adopter and if they but maintain play they instruments, technology market into course Where normally and

family the a with and actually the follow the our in through leadership enable technologies parlay out and hoping XG we're into deploying of production So field customers for lab our bring systems that. same products to space to and

growth of and business. wireless part market our that's So share market the expansion strategy for

Jun Zhang

Okay cool.

Oleg Khaykin

very the [indiscernible] little - wireless Viavi in space.

Jun Zhang

a lot. Thanks great. Okay,

Operator

time. further are I this at no Mr. turn There Ong back over questions the to call you.

Bill Ong

That everyone. you, our Jessica. call for Thank earnings you Thank concludes today.

Operator

This concludes conference. today's

disconnect. now may You

Viavi Solutions (VIAV) 3 May 182018 Q3 Earnings call transcript