VIAV - Earnings call transcript Q3 2019

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Operator

Good afternoon, my name is Cheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAVI's Q3 Fiscal 2019 Earnings 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. [Operator Instructions] Thank you. begin may you Ong, your conference. Bill

Bill Ong

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

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

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

Amar Maletira

at was our OSP and our Revenue upside year upside basis the the year-on-year to end VIAVI's $X.XX driven of anti-counterfeiting and due million XX.X% EPS or down reach points and $XX.X guidance exceeded the at above end from at revenue revenue XX exceeded wireless of and at in revenue high sensing high-end mid-point was guidance of range. XX.X% businesses. ago. and of million revenue a $XXX.X guidance the guidance Bill. products. operating was versus year-on-year. VIAVI's both you, the by range NSE margins fiber reach at range the revenue $XXX.X our XD million guidance flat Thank high grew

leverage ago in one. ratio our runoff margins basis in products. Wireless This assurance continued Now, moving as a across margins QX revenue growth gross primarily year-on-year. have segment lower million NSE acquired margin matured revenue result acquired million increased at businesses the NSE grew ongoing was at decline Within $XXX.X of increased the volumes primarily SE points gross expected from growth from result increase our business data with and levels and products. the solutions from from year products. Wireless year-on-year due of business the This was a an the XX.X% starting NSE's an lab cost AvComm NSE. reported declines a center NSE, organic of X.X XX.X% This by ago year XX.X% declines from to levels. a the and at from businesses declines below bill management. at NSE in points center by and a unfavorable the from our fiber XX.X% results was growth a both annual to margin cable our basis decrease products and in $XX.X at reflecting AvComm partially high levels and partially $XXX.X decline levels offset ago product a demand driven book in data to our year due our a by instruments. operating SE year products XX field ago assurance product upgrade to XXX operating addition runoff declined offset of XX.X% in mix peak the million DOCSIS increase assurance and a from mature and favorable was revenue in cycle. primarily the

at declined OSP from Now, our $XX.X XD lower million in revenue business. X% turning offset sensing year-on-year anti-counterfeiting to by revenue, growth partially

targeted the period, year-on-year. OSP's lower impact recognition points XD in of under ago Excluding in filter XX.X% XXX support grew declined to due investments a absorption operating gross XD growth. as plant XXX of the sensing due margins idling significantly revenue year at prior OSP's the sensing manufacturing at declined as costs expected the from of year declines points XX.X% from revenue the basis gross capacity. one-time and well volumes margin basis some to margins to

sheet. balance the to Turning

the $XXX.X dilution $XXX.X balance million million. cash from was be continue for investments compensation. repurchasing offset $XX.X end share shares for as total stock-based fiscal buybacks, and stock we million. to $XXX million repurchase approximately flow Operating the was We'll of authorized to QX. earnings cash Our of quarter worth by VIAVI opportunistic short-term ending have the Of

Now, turning to our guidance.

$XX expect for at million, operating of to and million margins plus in minus fiscal X% XXXX minus or XX% to We be the $XXX range quarter fourth plus $X.XX or EPS VIAVI revenue $X.XX. to

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

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

for forecast We million. XD increasing to are XXXX our million sensing from fiscal $XX $XX revenue approximately

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

net to million to We Share expect call million. over Oleg. million expense and with reflect turn the a And $X.X will other shares. I $X approximately that, to approximately of expenses is count income $XXX.X

Oleg Khaykin

Thank you, Amar.

revenue in expectations weak our In profits. a wireless products. outperformed resulted the quarter year-on-year strength the in is business market for in a VIAVI, seasonally both with results While and XG adoption pleased has operating NSE, NSE I'm non-GAAP of segments both March Both and water our OSP.

significant in strength our field XXXX. demand declined in for America and DOCSIS North We peak across products Cable to calendar the X.X continue see lab from year-on-year also both fiber early revenue instruments. cyclical

said, the our center data perform to weaker product driven However, revenue from the cable of through demand SE improved we rest the from That's by pick by anticipate below demand expectations demand quarter-on-quarter calendar year. demand customers. business customers. center up driven cable segment European data

expectations in OSP. to by on anti-counterfeiting banknotes Moving driven steady our The products reprintment. with line performed

have we a redesigned forecast. steady pipeline drive state upside which addition, to could the In reprint note bank

However, the launch redesigned visibility dates is limited. currencies the into

products XD in Our were seasonally sensing down QX.

We expect strong fiscal QX in and growth in in half sensing recovery XD in a small a fiscal first rebound XXXX. the of the

in year Looking year a XXXX, the VIAVI. that last is we trends continue. fiscal for growth sensing XXXX the ahead into expect milestone secular and began wireless, Fiscal XD fiber to XG

we VIAVI's September, transformation. now to ready During turnaround phase our achieved schedule outlined goals we the ahead next Analysts of Day. this fiscal XXXX the We're year, of during have that launch

event more now be Day XXXX in and We Santa and the an months. their on our our September save will to Analyst I'd the will to provide support. VIAVI strategy outline I Please XX, thank shareholders my California Clara, we to event Bill. the regarding date coming hosting goals. In call in customers the like to and will my over for team and conclusion, express our turn going-forward appreciation

Bill Ong

Oleg. Cheryl, let's you, session. the question-and-answer begin Thank

to one to have also We limit and discussion one follow-up. question

Operator

ahead. Alex The Henderson first question comes of Needham. Please from go

open. Your line is

Alex Henderson

much. you very Thank

gave into half are cable we back about talk hoping what could was you like center straight gave, that think going I things they're and it in and here little bit. just So, the print a quarter a get guidance. business the line up sounds realize to the I expectations. the little bit one the But like much pretty look gave you cadence you only you the you of guide as

of accordingly. back the provider I half in spend business piece better was wondering if in little expect cable in a So, what and you the service the you're seeing bit of year the

Oleg Khaykin

of you. by new Once clearly, demand, North quarters, Sure. American operators. several Listen, Europe, standards the down, there in chunk slows still when the by Thank driven of the I forth. comes North you Latin deployment America, and cable of the out on new so standard mean starts deployment initial mainly for so first a American are a of huge have significant new technology, that business operators

and factor are life happen the tools the So that leakage of cycle in once as deployment America, zero. a the down, lot operators revenue other North also here, North doesn't network some lagging such more monitoring, monitoring, there still which upgrades detection there drops of but into rate, fiber off I things. installation with mean goes we types to run peak obviously is American it levels. below is just other mean, state of goes It steady grow our

In So, clearly, somewhere strongest you get as propositions -- on think the so in the rate, of calendar the middle less of and extent the I year. give our mean, comes spending the down forth. in calendar a quarter. the so any you rule left unused budgets year, the terms quarterly any But of providers, pop run reality, to it quarter that during a may the the you cable, fourth is quarter. and you and thumb, quarter the there there's for is in the delay product see to first then September more demand see the demand generally of say releases June business a middle But year generally, I other of when And any in extract who value the us in and it's lifecycle and is to for in always really cyclicality given ways of cable have given products revenue we account the different other on managers they mean I and technology. in by have to shifting CapEx

Alex Henderson

front heavily or waited just summary? So, this year linear end more that year was more and of much is is last kind it's a fair it it

Oleg Khaykin

the I the X.X earnest by in operators getting mean, deployed North that's major Yes, last year cable America. I in when started remember DOCSIS

So, that significant peak drove demand.

we happy our compare quarter, with significant significantly that to cable March, quarter, because of in our say tools. run when I at we this I it's sneeze was nothing for down to when the rate. that's pretty first So, a actually-- mean, But cable quarter March to saw It's demand that's year look XXXX, we're where handheld I at. why quarter look you quarter at demand a last that this it revenue

Operator

Please of Your from comes go line next Bank. Vijay of ahead. the Bhagavath question Deutsche

open. is line Your

Vijay Bhagavath

instrument versus competitive asked And differentiation also your follow-up. clients is have a can which would We as peer groups such very the field or a be Keysight lot, by get a opportunity then around and share this you helpful. angle question XG any

Oleg Khaykin

think focused in in in spectrum. various field have on the test, system the instruments. station to Amar engineering we board we Keysight. are when on If complimentary anything, and at At really the to in. Sure. more I this will jump point, emulation. terms they player mainly mainly They're And to mean, I'll is on focused base can not the of really there what ship place head and instruments chip with We're lab, look field start don't the instruments, do. I in RF Keysight system major we XG compete head They the a and XG, designers.

So, be space, our will we with very have there for much newcomer and pretty are us, service they we instruments we And we much transition I now -- very Schwarz. or our technical from their but there that like instruments installation [indiscernible], are and expertise while standard set evaluation a trials, it's more test right Rohde the have That's early for field as tool in I hope new workflow early it evaluations. fiber are mean leadership companies and the and force. we relative a is set example, deployment, wireline. RF provider tool instruments said, -- every And to and to mean position that our major And undergoing for our field field with become provide do broader deployment. market that to adopt system significantly we trying qualification they for test the in will the leverage in the our introduce extensive our

Vijay Bhagavath

demand putting like or North realignment Oleg, the is said, in you the follow-on and terms money quick perhaps that as just with management of are, in terms and in you American be, carriers. you would what Amar and could gets portfolio where to M&A Perfect. trends overall opportunities focused A on work? Anything market demand they are the cable do, portfolio of

Oleg Khaykin

good profile do we versus when always It's at mean, growth perspective, creative, a at things we have business got a would opportunities and always have decision be to at organic I reasonable make a risk And we our always what look look we got at It's emanates from return that buy. sense. not to internal when opportunities and like it's Well, and sure. we a It's potential inorganic. different opportunities. look from look that. got to

walk shown if with again, when the price, always the at So, time that find look and have at that in gets time we we and we But also, that's deal the we a obviously things do mind, good beyond we a fit reasonable. think we deal. as level right different a

Amar Maletira

And I two that any, to than her think we've a of will bit provided, look and more in little as you fiber even is when you we will which those wireless. been here, be as instrument is fiscal do combined QX look color progress made fiber we've highlighting, Organically, today the lot portfolio And growing businesses when have our XX% core just been -- well when both a business, a just of look areas growth. at as more revenue. at it wireless you all And organically. that guidance at be organic and

OSP assurance to year-on-year. the going segments this the is grow of So, NSE NSE as segments grow year-on-year except well within segments to runoff. All mature organically as organically for all SE going is because are other within the

NSE claim. have an we from perspective, just good think I a organic very So,

a there. We are of lot making traction

Oleg Khaykin

a That's promptly seven, of fact, R&D extra additional grab we targeted $X saw increased we've million that right. in of And, opportunities in we areas and five, number required certain opportunities some investment. XG to had six,

Operator

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

Your line is open.

Jun Zhang

Thanks.

kind opening any [indiscernible]. in on a get June coming to cost bit for DPS Where's increase the stress margin looks it is Is the any like quarter? from And wanted [indiscernible] with better line guidance there or also, idea. March little the the quarter? there June this Thanks. gross the just the impacts I if in side for So, And on quarter. the of

Amar Maletira

and color the some on quarter also So, do with March guidance. the I start

So, my our but a trend more in mentioned and also within fiber XD our in March strength business on in importantly, wireless as anti-counterfeiting And we quarter broad-based mainly side, OSP remarks. sensing saw business. I business, in saw NSE, prepared strength our we

strength from for the the because so, $XX side million note, June Android we we quarter, on up. did guidance we the comes to $XX guidance versus the if seeing was. When our it street up building you revenue up guidance And took take million are to where

so or increasing We also versus on operating profit and tax EBITDA took estimates. our operating we are up street But the also up our expenses. margin guidance is estimates also dollars

usually XX% to recall, expenses you our between tax If are XX%.

to about jurisdictions so, XX% some That's a pay profit we where we roughly And are guiding as tax tax. PBT. percentage the is rate some because tax through of of in landing have

although street marginally is. from actually where that's an and So, the line at guidance is the in The guidance a revenue up versus EPA. perspective, EBIT the

Jun Zhang

is it. Thanks. Got XG My the second question about testing business.

countries with So, going started I lot demand XG the networks the then deployment and probably think start of slow some in a testing is people deployments. down concerned the equipment in to

this cycle the in XG what's whole So, how this about of your view plays VIAVI deployment? Thanks. cycle

Oleg Khaykin

just let Well, tell how kind me works. you so it of

we test. so right So, in right time sell now an our test, now engineering a it's level every system --

shift this production demand is load to testing will towards So, traffic. ability you we the its Once handle and deliver network the preloaded system now. the demand right a the software. load rack And where with equipment and are what's load starts, and stack driving testing,

of standard the test it's also, remember different But type is but a expect demand test we to be So, evolving. profile meaningful. XG

there nonstop revenue us. So, extensions become And it standards new nonstop features is becomes of and -- come that for and annuity this parade a will new stream a out.

now sailing software to since quarter for up licenses and sold we'll deployment XG upgrades. the system of we've So, every and beginning that next quarter be various this in for

it rack have actually I margin today. through goods it you're be lower top pressing than the and of So, on what be on extent cost but of higher revenue stack may the clearly, some then we in contribution, maybe a operating mean line system, will when

And sad, cycle at to and look field that's Clearly, we'll when updates time for at it over. over the testers. to a Over business, a the upgrades instrumentation. testers itself this on early as there and look and new shifts is cycle. engineering then So, for lot life demand the we production software standard it and features repeats then of

of our some the ramps a no volume So, is for we far than continue But out the bring portfolio understood look engineering to will grow we -- at business. may troughs business decline. and to that XG. as But that why cycle that it's critical starts cyclicality in in XG different just not it's fluctuations win in are instrumentation wireless build tester transition field apart terms and that's as it's and to and well that people us the between extent That not may of space, field instrument suspect. the the peaks out we also if some the actually to big

Amar Maletira

to addition the too. extend field also we into and then space in instrument insurance And instrumentation, ourselves

Oleg Khaykin

right. That's

So are SE exactly left business, -- a also that we Amar. points we mean, several and untouched good I space. when technologies entering mainly there's maturing point, now the restructured the it's than our

As more you it's for deployment different at XG communications. requests people already and the testing go struggle and many the realized assurance coming at the challenging in networks. seeing in to than the much because type a of quality And to proving XG. reliability field are a we issues is various be for with from customers level with different And level, as XG from significant XG quite provider you XG service they need of software

Operator

question comes Meta Morgan Your of from next Stanley. Marshall go Please ahead.

open. is Your line

Meta Marshall

thanks. Great,

of think the about. of fiber their of homes kind is direct the homes out, original build TV of build AT&T the and I on to the portion moving kind kind deployments kind ending on of passed connected

the increasingly being fiber see year second can So, half on relationships? the connected to of or it RPC, homes? in Just fiber or would helpful. Thanks. sensing you that to of if portion of just wondering, the are second, building acquisition you just that of any expecting just kind the guide helped maybe stronger of to then XD from just impact of performance on is that kind kind And trends stronger be has speak

Oleg Khaykin

Maybe pick question the I'll up and you the Amar, AT&T can start on RPC.

So, last AT&T couple you're years right. I spent deploying the mean of fiber.

it's or to of it connecting it's However, fiber AT&T near-term is companies have for like much of to the feet a There it and a fiber and end to we just to lot of much the now the We rather We like lot XXX from others or actually density home because economical traditional so European makes the building. more who they G.fast run see for potential cities home, demands because to actually technology than a home. actually, many fiber. fiber not believe distance of the some to with of are more last think always run when Europe about just building fiber economical products do networks, the And the a more density subscriber. within starting in G.fast not, fiber. these to a see

interest in optical as more and the tools So, a of passive the fiber we the well fiber not typical to some instruments being like U.S. it's tools building. of Europe on, Asia are network so to access in we in more But seeing are seeing terms swing. G.fast as connecting the of curb in fiber and And big demanded. the

any actually North gives question on... last low versus meaningful providers given American And the companies now in that pickup have been tailwind year, a However, very a -- service us kind ago. year of the

Amar Maletira

RPC. the on Yes,

the is to two on contributing XD some I we the forecast upside. customer. side, months update for are flagship to starting RPC because on the seeing least RPC think Android number in the components at the sensing the two, And on also sort side, the stable see Meta, has One, demand. in it. pickup So, has definitely we the last also, few to been But with are filter of demand a

where the mainly as is a the we demand side of have as filter in on a as on ramp So, up well they side. it Android combination pickup diffuser the both

combination add the a it's So RPC But did of upside. to both.

Meta Marshall

to Are intent follow-up RPC Maybe that it where Android you seeing you RPC was to leverage ecosystem. to revenue seeing? part today, just that ability Thanks. with me. of that, the And are it. the of kind relationships but within at hat? hasn't grow Got maybe relationships that's a on been And for the just

Oleg Khaykin

buy we actually the products same buying PC mean, were customers product. good I Sure. on have our -- who our very filter relationship

address. of clearly, have in for that mind So, a now share them we are respect, never we two now because bigger sockets we

of mean, with I customers our fast think I light good. Android structured bigger watching clearly adopting that to things all is because technologies demand. what the ultimately is how ecosystem time our or drives sensing flight XD very is that's I'm relationship the my and

Operator

Morgan. Your comes Samik line go the ahead. JP question Please of of from Chatterjee next

line Your is open.

Unidentified Analyst

[ph] Joe is Samik. for this Hi, on

technology we data Just was And that Is market progress about I you one question what's going the our we as changes given there you. positive past that for through from that know share of Thank -- to what couple weaknesses see should to me, the center driving that's that dynamics curious guys. just grow becomes quarters. any returns confidence has then there? on more the year? or

Amar Maletira

very much. you Thank

context, that twofold the little south I So, think of NSE things of put in center X% to of business business. roughly is sort data world was

March in data delayed we demand center of sort saw lot in is of saw the release we products. for our what fiscal quarter, so the for and a softness the which quarter budget a again, of beginning the customers, Now, our

have team share we we well, be believe that picking executing a the should as great starts We on up, a of product, very have market. demand quite ground a good and the fair we getting

loss. becoming was of ago, the share and also the that year a bigger it which the half just It a size So than closing just market say or there's seeing means delays We're year no time. weak. are that ago the demand deals

So, those factors. the are

it. about concerned We are not too

good have think I product. we

believe picks market. good we share the get as We up, have should demand we fair team a and that a of

Operator

Dave of please the from ahead. FBR, comes B question of last go Riley Kang Your line

is open. Your line

Dave Kang

that sensing where wins. trying $X quarter incremental terms current out kind the that between First the curious XD upside talk falls? of quarter million upside, the question, with and $X to of of Just the is the of customer or overlay seasonality about just in on can you million kind whether mix maybe -- just

Oleg Khaykin

Yes.

So, half million, a take in of to to $XX should see look put a you that as even the in QX, it at things first and QX just you I when last sensing here growing. call, context number, from the again, is I mentioned actually in in think second my our $XX fiscal that of the is the and And roughly one-third revenue half. slightly is XD two-thirds

from that So, we'll growth some see number QX to QX. from in going

Dave Kang

Do That always sense. And that and Got it. out little downplay makes then it I note the the terms occur actually but is longer of you 'XX refreshes a guys refreshes argue calling guess terms in for about? of visibility. business new in business, calendar you pipeline, of bank in expect have would pipeline means the timeline or kind the you better that visibility to I a talked bit guys kind that the you

Amar Maletira

Yes.

closing, redesigns. The redesigns you pipeline for So, the visibility we of said something that's timing have those think of I is rightly uncertain.

assumption 'XX, we've fiscal anti-counterfeiting given And but roughly for what minus reprint you guidance first likely our of run of will with assuming we that we planning come of the go than if million in half for it. maybe on we but the be we do top not But just that I So, in, fiscal plus which this redesigns volumes assuming, always assuming volumes until better just It we of are can be reprint half QX, QX, for will fiscal the it'll is think business or second that, XXXX. rest is get we're visibility. more the $XX are assumptions, come, already calendar for rate.

Oleg Khaykin

get decides upside. whenever a upfront Bank basically, to it's more reality new an one quarter than And is disability. we note, Central so launch some Yes, no

you to As tight that information very central can banks keep imagine, their chest.

Operator

no Bill like are remarks. I call further turn the would questions for to Ong to over at closing There time. this

Bill Ong

Thank our you today. everyone. you, This earnings Thank Cheryl. concludes for call

Operator

conference This concludes today's call.

may You disconnect. now

Viavi Solutions (VIAV) 2 May 192019 Q3 Earnings call transcript