VIAV - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Viavi Solutions Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded.[Operator Instructions]

I would now like to hand the conference over to Bill Ong, Head of Investor Relations. you. Thank ahead. go Please

Bill Ong

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

and Oleg on President call me CFO. are Joining and today's CEO; Amar Maletira, Khaykin,

We particularly filings, statements we our the factors recent differ Please call Annual financial the expectations materially to to SEC and from performance. most statements. note cause could estimations. subject company's uncertainties are forward-looking current today. about that guidance and those update in including are include of The encourage statements obligation provide risk actual this filings. review undertakes as Reports will risks described this call no Viavi these you forward-looking valid statements, only to These during results and to

that release. release, Please website. to non-GAAP these state financial the usefulness in we we include on which results and financials discuss tables otherwise supplemental results non-GAAP, are historical are except Viavi's and The unless available limitations also plus earnings note our revenue earnings reconcile slide our GAAP preliminary all today's

are Pacific we on this today's Finally, website. the we'll our Time evening X:XX by call recording available make recording PM and

the like now to I would call over to turn Amar.

Amar Maletira

guidance $X.XX delivered year and quarter $X.XX the to also another at X.X% million to X.X% $XXX XX% ago operating a exceeded revenue $X.XX of $XXX.X delivered EPS margins expanded XX% a performance. guidance $XXX range of of year-on-year from revenue strong to record guidance recorded range Viavi points OSP range of Viavi's record XXXX XX.X% million levels. and reflects million. basis Bill. the second you, exceeded at NSE breaking and performance. growth Record XX grew record year-over-year of also fiscal Thank in quarter exceeded and the Both

from products. in results NSE, products revenue by levels year to X.X% of by grew strong and Wireless million conditions QX from million. at Cable starting the revenue a Center grew SE Within revenue $XXX.X $XX.X NSE at our driven and reported market ago with improved million our NE year-over-year $XXX performance range execution. $XXX million X.X% and segments Data by million grew business in NSE. year-over-year to exceeded driven moving at Now strength and guidance Fiber, XX.X% $XXX

Our NSE, Assurance runoff margins at XXX higher XX.X% from XXX growth more XXX XX.X% mix. margin Within year-over-year. products Growth XX% also due products Assurance products. SE product points increased gross which to Assurance offset gross NSE favorable revenue. saw revenue Mature of less than represent volume at margins and expected year NE ago. basis our expanded year-on-year basis currently the points Mature in revenue SE at than gross a points year-over-year basis down was XX.X%

XX% content from NSE software to of and points Last a product guidance is XX% higher gross operating exceeded XX%. products. reflected Mature XX% favorable year favorable at SE mix reflecting also range more record levels Assurance year's the This leverage. and gross operating margin XXX NSE's from basis the and improvement ago at a margin new the margins margin increased

in expanded XXX growth points reflecting XX Operating higher and to at overhead. points basis increased from manufacturing basis higher XD partially offset the gross exceeded of Now absorption decline This $XX.X areas. sensing X.X% the OSP revenue of guidance reached the to efficiencies business OSP. OSP's a high range due gross XX.X% margins in OSP and year-on-year million increased by turning is the range at of offset XX.X% expanded by the declined year-over-year. growth million the to end result demand. levels $XX and margin million decline $XX margins revenue partially at of in core guidance expected in investments

to sheet. turning balance the Now

the the for balance commissions of ending investment cash including Of an approximately flow million. In basis was $X.X cost repurchased stick. $XXX opportunistically plan quarter million $XX.XX repurchase buyback Our September total short-term date share. million authorized million at offset Viavi we and compensation. share have to stock to event, average announced of to cash Viavi We %XXX.X dilution of $XX.X stock to approximately $XX per continue day during Viavi based was repurchased QX Operating from XXXX our analyst million. stock earnings we

guidance. our to on Now

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

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

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

be XX% Our approximately to XX%. rate tax is to expected expense

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

With that, I call to over will turn Oleg. the

Oleg Khaykin

year's in our you, resulting across breaking prior performance strong Thank pleased Amar. I'm record. many record and QX with the in key metrics a quarter

from profit was prior year's million. X.X% major Business our Our came Fiber XG, million $XX.X X-D the $XX.X and of non-GAAP sensing. of up drivers; strength three operating from record growth

test by XG remain R&D. throughout NAMs by calendar leading lab robust driven demand and XG expect We XXXX to continued investment

for instruments field XXXX test in XG calendar is demand or early XXXX. expected ramping calendar The start to late

In has throughout cable expect benefited by robust cable. European follow-on The into to by spend QX moderate We remainder in also and driven year-on-year begun continued demand XXXX the continued providers. in fiscal DOCSIS we from densification. expect QX fiber to of growth XXXX. we in increase remain year said, driven for cable X.X QX, upgrades at both cable American spend That network and North

In significantly of providers $XX.X at and Growth in Center improved products. Assurance year-on-year sensing XD enterprise good revenue Data service better came demand OSP products. of SE by revenue increased acceptance increased sensing by and expected our our in penetration and by XD million driven driven than adoption

XXXX sensing We up be to year-over-year year XD decline increased fiscal remainder the for diversification. of expect customer revenue reflecting seasonally but

with portfolio. adoption. announced sensing Viavi as continued a a licensing our regarding leader we IP is several expect We claims the XD in agreement technology with diffusers Optical. its IP and XD patents, with filter filters growth settlement to by Sunny momentum including as strong and sensing January continue technology driven agreement of an well our optical LG LG Electronics In Innotek optical

We to efforts banknote our several multiple companies to Anti-counterfeiting came demand. enforcement our against date reprint driven pleased claims in continue in and countries. with by revenue pursue fee are expected mostly as

redesigns expect there fiscal robust, this the major We of continue over visibility several pipeline quarters. redesign launches for trend is the remainder The remains to for XXXX. currency however next banknote limited

December in live ERP system. Viavi our new went Lastly, with

years the operational to We and XG have expanding been working with secular our two past as of our continuous growth in fiber combined on sensing ERP continue growing positions system strong transformation. us profitability. for Improving XD wireless, part our and effectiveness upgrading operational topline well

to will call like team strong and Bill. now Viavi quarter express In the thank my for performance conclusion, their for appreciation turn to my support. shareholders of our I another over and I our would customers to

Bill Ong

you, Thank Oleg.

we Morgan taking This be XX, Francisco. Stanley place on San in quarter will Conference participating in TMT Investor March

question-and-answer Chris, ask followup. one We discussion let's the everyone to limit to question session. begin and one

Operator

Your Instructions] Marchetti question with Stifel. [Operator John first from is

line open. Your is

John Marchetti

numbers talk on actually geographic you hoping trends, Oleg minute just at that it sequential Thanks strongly was the could basis. you just up Europe and was a I like some the reported seemed about pretty spend a maybe of very looking much.

categories You you play on time if geographically little how growth a had could bit some just amount. of the spend APAC you're a right little down almost curious different seeing about of bit now? out the and I'm same that

Oleg Khaykin

also been I has I'd think driving stronger down. Asia up Yes, say America a XXs. the is in that high in mix was so [indiscernible] of to generally U.S. geographic Last high XXs North Europe although our mid was we're about quarter kind and like

driven orders. the of timing I of think it the is really major by some

a what major - I of service sales level our optic procurement there would kind module Most In Asia on of we NAM go and provider well test the Asia in are as call, instrumentation. the of the with we customers we by production of suppliers. fiber seaside our less, major sell only as some cyclicality our lot

coming anti-counterfeiting is, the sales booked other from. thing also the The is on where our orders how and are get

much and read in quarter just may trend. the a can reverse see wouldn't regional that Europe Asia into order I big the a I but big few volatility, next in, too in will you sway mix So European orders coming say would the

that, into mix. from much regional I wouldn't the read too Aside

Amar Maletira

just a year-on-year And on includes trends very business to to because basis, it growth add, quickly there. the Asia point here, XX% see you we ship Oleg's supply to also XD chain our that sensing the Asian typically on in

in reflected - numbers. is that So those in that

John Marchetti

stuff that then Amar, expected impact or just curious the guidance built that Great, be from Year's? guidance now maybe in demand you. the that's your either and that with China itself, of if going on the some may just how at something demand any the into there's coronavirus extra of and to you're right out with meet Thank the ability now China - shutdown the impact seeing of for New least or week your on

Oleg Khaykin

then continue. So I'll Oleg. this start can Amar is and

four So three into in all Asia. now of in guidance, to on of terms weeks going we three health our have weeks, visibility clearly the good issues

So and impacts. as the impacts on as any of cost pretty some forecast at well potential includes guidance this revenue point, our much information up-to-date

this impact production. major respect as and Now somewhat is point XD in revenue lot It is terms limited on service met a well the topline, the there customer the provider be revenue us as for level with not demand a anti-counterfeiting of at is inventories. of China the can that mostly for instrumentation. because the sensing the In

two the Obviously be various chain supply - the period gets longer demand obviously next even Chinese supply we one though or And disruption our may end we not chain get if potential customers to may a for going is shutdown some into see extended for in impacted. supply impacted, components. chain the weeks,

today into just forecast. going point, might know up everything factored So this happen. I'll to I'm that to that not is say what date speculate we at our

in I but factored gross bit of on expecting in Year, after are to into factories this Chinese said, our China also Amar? the absorption margin given a that's Now we side, under cost New quarter. our see shutdown as a for more extended guidance the

Amar Maletira

well, think it bit revenue so a covered the little you've Yes, side. on I

China. We percentage have in about given revenue X points factored in revenue total X.X the exposure up to maybe our the to of impact

impacted highly lot lab, products lab As go we it Oleg it we high-end, mainly differentiated and to have extent will the already into sell China, that field instruments guidance. under into of But think too. not on I the then mainly production. absorption our so NSE side is OSP sensing, the be on side do XD is mentioned, And in into that that's impact mainly the bigger will baked the business and get factored on on

John Marchetti

much. very you, Thank

Operator

Your Needham. is next question from Henderson with Alex

open. line is Your

Alex Henderson

was so you was some I fairly to know us for second, out out want little help very a flat? the XD I so OSP would exact could don’t be with excluding of trajectory the break number, hoping that you Yes, numbers the a helpful. bit but

Amar Maletira

was the OSP quarter, Alex expect in slightly be $XX still for the fiscal so is million of million $XXX core it the business we full intact year 'XX Yes, averaging baseline but sequentially a about it up, still to so business.

yes go the, On ahead.

Alex Henderson

could, prints we I'm assuming, calendar Yes, that's timeframe so you the the if of point prints some mean see do some without half kind calendar in of so I back are year? 'XX at the major you – assuming baseline there'll I be in do any

Amar Maletira

we be we the assuming redesigns, and updating visibility we reprint March when in extent expect the into results is announce we first the we second XXXX are funnel for which the so the half the the assumes, this business, guys quarter. to I some our for you should so think volumes and do half calendar have of for redesigns second baseline normal the half the the Yes,

where are. visibility do in this think So but the is that's not clear. I redesigns, we some time at very expect We point

Alex Henderson

up that last is just SE that? we really bit, that would Thank should how seasonal with we couple thinking any and you. be be seasonal seasonal and of trajectory about very then kind spiked quarters? or Should How If I the or rebound stronger the a a could one next continues, quickly, should [indiscernible] ask be a but modeling business one seasonally helpful. the success that decline that we assume quite of

Amar Maletira

Sure.

I Two did I of the a as mentioned business happened think orders we Center in was see December actually good, business you quarter, our recall to execution since, time were out This formed. think some did grew is our record September was and is we quarter XX.X% business SE our really our we improved, conditions capture push for those have time Data into in orders. since year-on-year. performance able this the for things there, first Viavi we market one the first

so was for quarter it a center strong And data very our business.

quite able also business well to Growth business some and Similarly acceptances. were executing for get saw we Assurance the our we

that's $XX.X plus sequential of a fiscal million So our a to low how growth in $XX saw you million from QX.

our about be for business $XX Now same. at on average going considered SE fiscal forward, before be this roughly XXXX 'XX. We I believe that business guidance this an the we as should of think is quarterly stabilization million should fiscal fiscal business in least pivot for year XXXX this per and quarter grow a basis to is

from So March we in the QX roughly $XX.X about $XX in our million quarter it go March fiscal to that to million the posted quarter. which down is expect December I the in sequentially quarter

to close about sequentially. So be XX% it will down

Alex Henderson

you Perfect, much. thank very

Amar Maletira

Yes.

Operator

Your with comes from Hosseini next question Mehdi Susquehanna.

line open. Your is

Mehdi Hosseini

into XXX couple my I market that calendar and evolving trending into second upgrade, half of question. half, a follow-up. how gig want should half? do the dive the into second see expect pickup you to taking we a for you have And from material Yes, year thanks the first I see the follow-ups, do how A the

Oleg Khaykin

gig lab Sure, selling customers we've of you know, at years. to for gear a several NAMs the now the our lot XXX been

see to modules the being equipment. starting robust for now well the both production as for are very demand We equipment as

lab gig as customers the see do and to would measurement. robust XXX production both and we to continued we momentum pipeline demand the see, have calendar for we is will as well a throughout test emerging year imagine So the orders and from strong of going continue gain I

Mehdi Hosseini

operating Great, a be imagine I utilization installed I we context, on, first have base that targeted unit nicely a under the into test your instrument and with should the especially the second rebounding maybe of in half happening margin given you half? half. is much hitting field as the some that in your turn Should half XG as imagine growth would second same –should some fact the half follow-up, range the second stations in see the so some from so see shipment, perhaps into there we first and the

Oleg Khaykin

June are think I the is December it quarters. the first generally March Well the for and quarters and weaker the and the quarters September us are quarters stronger

the XG get quite conservative, equipment terms are line always of we our our into good in in deploy operating carriers, more the and Right? Now XG updates in field deployment we and a pretty operators of from as I how is been telling demand we will So outlook expectations. time and terms – have infrastructure the were in pipeline very quarters. leverage XG latest December the think June for largely more we it now much some lab major we've given with for

carriers Because mean when be the do will any to seeing of of expect year. towards starting start do many kind calendar ramp half that's year I think calendar infrastructure deployments. the to physically second XG the we instrumentation in end, field or the I So timing demand actually meaningful of early to kind next or able

more March say would get as operating I June well quarter rule thumb, of September quarter. leverage leverage less operating and the in quarter, So the December as the we

Mehdi Hosseini

Great, thank you.

Operator

Your next Tim from with question is Northland Capital. Savageaux

is line open. Your

Tim Savageaux

significant a Comcast clearly Pardon wanted working tough yet on – grow to fact focusing the it able the more of a and see what the good or any general, in were about did to year the you to quarter degree really the a flush you me, pretty of in NE last in some are hi drivers either something in unexpected in could I I a you fiber, been, if whether there, might up did budget on type able strength standpoint expected? wondering am that in have your on growth kind you were budget afternoon. with business start show you spend comp or flush product or of you where from you than business. the even were XG talk is catch see

Oleg Khaykin

and will I start continue. Amar I'll So, let

I strong I a also This the strong very mean a some example, September strong very some calendar So we quarter December there very had around listen, but quarter. last I was quarter, very and mean prior quarter puts were quarter the and was September year mean remember December I takes. in year weak. think, clearly for time

in revenue may normally of that might September taken have the So some the be we December have fallen would into quarter.

just So growth that you if purely on half quarter. alone on I overall at think meaningful more quarter look than the the much is half, compare

XD had for fairly was higher we demand strong or December last more this quarter very by baseline. for anti-counterfeiting less around sensing. demand Also compensated a time was that But which

December at XD time the was look what really a all our So across XG. would if and fiber, I our the it it, multifaceted this around, markets, strength drove really quarter sensing major

kind So bird carried that's one away. I'll there no blue say was of

the And did the wave customers cable, was orders for on European is placed thing some we and of upgrade North of of add a but their I secondary and a other would uptake I'd not where but like major say more in the – wave, the the secondary - a DOCSIS there have came X.X. American some

So higher. the a that to kind revenue helped bit of push bit us a

As qualify budget this flashes, as kind flash. anything to don’t I budget would a believe year we of really I that any saw

as was ship this something quarter, the appeared quarter our the us much the that much, had we mean that quarter quarter [Indiscernible] that December not expect revenue pretty in I be pretty I budget pipeline was to we pipeline. during of Pretty it everything we in classify most flash and revenue our in much to the did

Amar Maletira

Yes, well. you've it covered I think

that to where We that's did know, beat of also The did December from and NSE you execute I we SE push say it quarter, at deals we business QX, out and and conditions the is you we NSE, within which good when quarter also – is Tim, September improved. the - in see mentioned, to a Center as contributed it. are you business at into of beginning quarter. from versus go both going the able I So beat expectation Data the think the look fiscal market were

also side. so seeing lab addition strength; the to the we optical to strong, on the to probably well wave. in NE, as products contributed this in also production the are cable Oleg to lab we on - In wireless were that And again, clearly and are but is - strength NE. secondary as seeing And beat, these as side, SE mentioned,

Tim Savageaux

Got could or has these been that, quickly results guess it. in And component as reports given if from quarter, as system concern calendar might and if I don't seem be up of of well be there spend various I deployment, conflicting your given data you there follow pause XG in just the about comments to I likely us out on points? some suppliers sort some help about to your of your seeing that. reconcile wonder outlook you 'XX, able some kind

Oleg Khaykin

conflicting Well, I data don't there is points. a think

recall is were rollout how if you our as to going consistently the of XG all in we we've to kind conservative think always more guided accordingly. I communication, happen, and

result, you've - expectations to your what and expect you communicated. what So as down comes a what it's all were

we and playing out. pretty line we much think laid with saying, we it. pretty along out I much the In didn't were that much are So other we words, overwrite scenario in it's pretty what have

Tim Savageaux

on the strong it pass my on. and congrats I'll Thanks understood. quarter. Yes,

Operator

question Genovese with is Partners. next Your MKM from Michael

open. is Your line

Michael Genovese

the that's today, I'm TAM curious your add that for Earlier an world get what the a facing your and into extent year? to to just supply talked does half chain much. expectations and second in to fiscal calendar sensing opportunity 'XX, company we XD very Thanks early as as of about

Oleg Khaykin

the it I'm But what be, - happen speculate an not it the on Well, it going earlier, delayed. will clearly timing delayed, if will will does it it will be If upside. depending timing. to gets get

the you're I I'm not buy about on lasers remember, any of may lasers, speculate particular think major customers timing. I Mike, talking in if So going to mean several advance ramp. quarters Because

are We in time. just more supplying much

business get orders the we So when the materializes.

Michael Genovese

two, to go or does I of XX% all how we does per that to your XD think customer that if it or it from guess, module that? But double were one phone Okay. should TAM at to we add

Oleg Khaykin

really margin it to come Well, looks down I the what think will like.

facing smaller sensors the are so smaller, somewhat a area. like So in it's world

So in the ASPs smaller. area are that

wasn't deployed. into also of meaningfully. won't But - then you Right? it but models have run So increases I were double, how to many say assumption it

volume I to end not mean, pallet it's model the so if model, of are meaningful. whole it's board, products it's across clearly, then one be and it's a only and significant. incremental high If revenues the then that the going

it, So world many is built. at the the you've got then you're models assumptions model facing of on look of those making what going but the ASP, by what to also is which driven and module, area to volumes be how

take year, I mean be was the upside, going to it's think if of second would man but I I think for I betting this it's going kind So a don't half huge an a listen, I upside. of be to

Michael Genovese

then just Right. optical helpful about thanks. on - And it way just very don't finally think opportunity fiber. from test me, think I calls, in could you've you a previous mentioned That's lab XXXG is and - it, finally since to

ago, on that or you there mentioned is it…? update one Just or anything, is think I - any you business are two - it quarters

Oleg Khaykin

a still in people So lab. our really that's that's think are very R&D. I very, Well, Right? something advanced much playing that

it's from years shipping But we start - were remember, - it's So ago. far five about we production. gig XXX

a a is now it it of lot only just tells So you reality. becoming

So of line I you for the somewhere XXXX gig would terms demand. say XXX would put in in

Michael Genovese

very thanks Great, much.

Operator

next Your Morgan. Samik is with from JP question Chatterjee

open. is Your line

Samik Chatterjee

for opportunity I the Hi, in the question. around taking or my changes off Oleg, forced thoughts you thanks your for vendor view network. wanted how just of to some Viavi with for start the asking

vendor changes landscape get XG an if opportunity XG some the on of some U.K. decision So there, see vendors in for example, it you do reworked? as as the as forces vendors as Huawei well the

Oleg Khaykin

of buy all everybody companies is pretty biggest Right? our customer. In much Huawei think a I with XG systems. is case mean exception Well, with sourcing. They work Huawei, capacities. the I merchant in their internal various many companies largely there - cases, In test of wireless, like we the competition

And so we respect, have spend. that much in to Huawei exposure don't XG

to extent more is us. for rather say business, picks there restriction, less other I'd one of the customers it's than So positive the and restriction up more marginally

Samik Chatterjee

I about you've Got wireless follow-up visibility late the already can if just being talked field the on, the And it. timing on XXXX. XG and calendar deployment

Just give seeing, kind of how and the timing? service first that of what improving details providers why to as are thinking in can kind your wanted this and that you see if more service of geographies providers kind the the are about which timing to about kind is at feeling of point, more go confidence you're which confident

Oleg Khaykin

I've about there has XG. Everybody listen story many reality. I story marketing separate for is real a of Well, got talking the physical XG, on their hype mean, let's quarters. then been and it versus deploying

with we topology. different is along, As technology were a vastly saying different XG a all

market, how my economics show the customers going take the get, deploy solution. Basically all this go any that spend the going most I are very test the a astute. to here they're me. show your importantly to me be vendors it to show is operators, to go going you and - money, it principle apply all me of show They're of benefit, they you before all and financially able and will are So benefits me deploy and

being the that product of something, at to be available. a XG field, element there able going they've hand have they put other to - a so a got an off show check is on mark to Now the

an comes then got new streams So so of on for deployment, clearly means open trucks, have physical a to in could field, interesting so comes there and field, equipment, in But physical installed, you've the physical it's forth. calibrated, economic a many the revenue provisioned wise, that technology operators. is connected story, and people, then a get it physical point

with XG, start that whole six XG thing and sites talking many you undertaking my expand within an allows view a not is When will consideration current their that will out then to locations, you that realizing increase and as times have their of level operations just it you as And how them of five level network - start cadence it ultimately operators maintain that into is. roll their take about big to headcount. the operations significantly or certain

I'm So gets the deployed. that's and by and skeptical more quickly spend velocity speed operators at it all how XG why, of

Samik Chatterjee

it, for my thank questions. you. Got taking Thanks

Oleg Khaykin

Sure.

Operator

from is Meta question Stanley. Morgan Marshall with last The

is Your line open.

Meta Marshall

kind carrier additional Great, just kind and of kind get to just filter what through guys business had process that of was the kind [technical And that of settlements kind the to have success you on speaking cases the just the kind had the test XD of wireless measurement of the difficulty] And or settlement? then to after for wanted pulling in what maybe guys sales go were of on of to thanks. I kind settlements use of those you quarter. able you into of kind just during

Operator

the Ladies is and this difficulty] [Technical operator. gentlemen,

currently technical are difficulties, Thank experiencing the you. We on line. please [Technical difficulty] remain

Ladies operator. and the gentlemen, is this

participation, the decided now do call. thank have We your to lines. conclude your phone disconnect and We you for may you

Viavi Solutions (VIAV) 4 Feb 202020 Q2 Earnings call transcript