VIAVI SOLUTIONS INC. SAN JOSE, Calif., Nov. 1, 2017 /PRNewswire/ --
First Quarter
-- GAAP and Non-GAAP net revenue of $195.2 million, down $15.6 million or
(7.4)% year-over-year
-- GAAP operating margin of 5.1%, up 30 bps year-over-year
-- Non-GAAP operating margin of 15.1%, up 210 bps year-over-year
-- GAAP EPS of $(0.02), down $0.35 or (106.1)% year-over-year
-- Non-GAAP EPS of $0.11, up $0.02 or 22.2% year-over-year
Viavi (NASDAQ: VIAV) today reported results for its first fiscal quarter ended September 30, 2017. Amounts presented below are on a continuing operations basis unless otherwise noted.
GAAP net revenue was $195.2 million, with net loss of $(4.8) million, or $(0.02) per share. Prior quarter GAAP net revenue was $198.1 million, with net income of $12.1 million or $0.05 per share. GAAP net revenue for the first quarter of fiscal 2017 was $210.8 million, with net income of $78.0 million, or $0.33 per share.
Non-GAAP net revenue was $195.2 million, with net income of $25.3 million, or $0.11 per share. Prior quarter non-GAAP net revenue was $198.1 million, with net income of $26.9 million, or $0.12 per share. Non-GAAP net revenue for the first quarter of fiscal 2017 was $210.8 million, with net income of $21.7 million, or $0.09 per share.
"We delivered a solid fiscal Q1 as revenue, non-GAAP operating margin and non-GAAP EPS exceeded the high end of our guidance range," said Oleg Khaykin, Viavi's President and Chief Executive Officer. "The results were helped by better than expected NSE instruments demand. Along with strong results from OSP, Viavi delivered non-GAAP EPS at $0.11 and exceeded the $0.06 to $0.09 guidance range."
Khaykin added, "Despite a strong fiscal Q1 performance, our guidance for fiscal Q2 is cautious due to weaker than expected OSP outlook. The 3D Sensing product ramp in fiscal Q2 is expected to be more than offset by lower demand in OSP's core product lines. In addition, OSP margins are expected to see a further negative drag due to the production stoppage related to the Sonoma County wildfires."
Financial Overview:
The tables below (in millions, except percentage data) provide comparisons of quarterly results to prior periods, including sequential quarterly and year-over-year changes. A reconciliation between GAAP and non-GAAP measures is contained in this release under the section titled "Use of Non-GAAP (Adjusted) Financial Measures."
First Quarter Ended September 30, 2017
GAAP Results
Q1 Q4 Q1 Change
FY 2018 FY 2017 FY 2017 Q/Q Y/Y
------- ------- ------- --- ---
Net revenue $195.2 $198.1 $210.8 (1.5)% (7.4)%
Gross margin 59.5% 60.2% 59.3% (70) bps 20 bps
Operating
margin 5.1% 6.1% 4.8% (100) bps 30 bps
Income from
operations 10.0 12.0 10.1 (16.7)% (1.0)%
Net (loss)
income per
share (0.02) 0.05 0.33 (140.0)% (106.1)%
Non-GAAP Results
Q1 Q4 Q1 Change
FY 2018 FY 2017 FY 2017 Q/Q Y/Y
------- ------- ------- --- ---
Net revenue $195.2 $198.1 $210.8 (1.5)% (7.4)%
Adj. gross
margin 62.8% 62.7% 61.8% 10 bps 100 bps
Adj.
operating
margin 15.1% 15.0% 13.0% 10 bps 210 bps
Adj. income
from
operations 29.4 29.8 27.5 (1.3)% 6.9%
Adj. net
income per
share 0.11 0.12 0.09 (8.3)% 22.2%
GAAP and Non-GAAP Net Revenue by Segment
Q1 % of Net Q4 Q1 Change
FY 2018 revenue FY 2017 FY 2017 Q/Q Y/Y
------- ------- ------- ------- --- ---
Network
Enablement $111.8 57.3% $105.0 $118.6 6.5% (5.7)%
Service
Enablement 29.0 14.8% 29.5 36.4 (1.7)% (20.3)%
Optical Security
and Performance
Products 54.4 27.9% 63.6 55.8 (14.5)% (2.5)%
----
Total $195.2 100.0% $198.1 $210.8 (1.5)% (7.4)%
====== ===== ====== ====== ===== =====
-- Americas, Asia-Pacific and EMEA customers represented 49.6%, 19.4% and
31.0%, respectively, of total net revenue for the quarter ended
September 30, 2017.
-- As of September 30, 2017, the Company held $1,231.1 million in total
cash and investments.
-- As of September 30, 2017, the Company had $923.5 million of total
aggregate principal amount of senior convertible notes, with net
carrying value of $802.1 million. The Company had $463.5 million
aggregate principal amount of 0.625% Senior Convertible Notes ("0.625%
Notes"), after repurchasing $146.5 million of principal amount during
the fiscal quarter ended September 30, 2017. The 0.625% Notes with net
carrying value of $443.3 million as of September 30, 2017 was classified
as current portion of the long-term debt. The Company also had $460.0
million aggregate principal amount of 1% Senior Convertible Notes with a
net carrying value of $358.8 million classified as long-term debt.
-- During the fiscal quarter ended September 30, 2017, the Company
generated $11.0 million of cash from operations.
Business Outlook for the Second Quarter of Fiscal 2018
For the second quarter of fiscal 2018 ending December 30, 2017, the Company expects non-GAAP net revenue to be between $175 million to $195 million and non-GAAP earnings per share to be $0.06 to $0.08. 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 gain or loss on debt extinguishment and certain charges related to acquisition and integration. In addition, the Company believes such reconciliations would imply a degree of precision that would 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 November 1, 2017 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 to communications service providers, enterprises and their ecosystems, supported by a worldwide channel community including Viavi Velocity Solution Partners. We deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability. Viavi is also a leader in high performance thin film optical coatings, providing light management solutions to anti-counterfeiting, consumer electronics, automotive, defense and instrumentation markets. 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 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) customer purchasing delays as they assess or transition to new technologies and/or new architectures, 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 plan announced in January 2017 that have caused and may cause short-term disruptions; (h) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand; (i) potential disruptions or delays to our manufacturing and operations due to natural disasters such as the recent wildfires in Northern California; and (j) 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 July 1, 2017 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
bill.ong@viavisolutions.com
Press:
Amit Malhotra
202-341-8624
amit.malhotra@viavisolutions.com
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 30,
2017 October 1, 2016
-------------- ---------------
Net
revenue $195.2 $210.8
Cost
of
revenues 74.9 81.9
Amortization
of
acquired
technologies 4.1 3.8
Gross
profit 116.2 125.1
----- -----
Operating
expenses:
Research
and
development 29.1 36.1
Selling,
general
and
administrative 72.5 75.4
Amortization
of
other
intangibles 3.1 3.5
Restructuring
and
related
charges 1.5 -
Total
operating
expenses 106.2 115.0
----- -----
Income
from
operations 10.0 10.1
Interest
and
other
income,
net 0.2 1.3
Gain
on
sale
of
investments - 81.5
Interest
expense (12.5) (9.2)
(Loss)
income
before
taxes (2.3) 83.7
Provision
for
income
taxes 2.5 5.7
Net
(loss)
income $(4.8) $78.0
===== =====
Net (loss) income
per share:
Basic $(0.02) $0.34
Diluted (0.02) 0.33
Shares
used
in
per
share
calculation
-
basic 228.1 232.4
Shares
used
in
per
share
calculation
-
diluted 228.1 236.8
The preliminary financial statements are estimated based on our current information.
VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
PRELIMINARY
September 30,
2017 July 1, 2017
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $792.7 $1,004.4
Short-term investments 430.9 432.2
Restricted cash 7.5 11.2
Accounts receivable, net 121.2 120.4
Inventories, net 68.9 48.0
Prepayments and other current
assets 47.9 50.8
Total current assets 1,469.1 1,667.0
Property, plant and equipment,
net 140.2 136.9
Goodwill 169.4 151.6
Intangibles, net 50.8 31.1
Deferred income taxes 113.7 109.5
Other non-current assets 14.7 14.4
Total assets $1,957.9 $2,110.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $40.5 $32.6
Accrued payroll and related
expenses 45.7 43.8
Deferred revenue 54.3 60.2
Accrued expenses 29.1 30.8
Current portion of long-term
debt 443.3 -
Other current liabilities 54.1 61.4
Total current liabilities 667.0 228.8
Long-term debt, net of
current portion 358.8 931.4
Other non-current liabilities 165.8 163.9
Total stockholders' equity 766.3 786.4
----- -----
Total liabilities and
stockholders' equity $1,957.9 $2,110.5
======== ========
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 30, 2017
Network and Service Enablement
Network Service Network and Optical Total Segment Reconciling Consolidated
Enablement Enablement Service Security and Measures Items GAAP Measures
Enablement Performance
Products
----------- ----------- ------------ ------------- -------------- ------------ -------------
Net revenue $111.8 $29.0 $140.8 $54.4 $195.2 $ - $195.2
Gross
profit 70.6 20.5 91.1 31.4 122.5 (6.3) 116.2
Gross
margin 63.1% 70.7% 64.7% 57.7% 62.8% 59.5%
Operating income 7.2 22.2 29.4 (19.4) 10.0
Operating margin 5.1% 40.8% 15.1% 5.1%
Three Months Ended October 1, 2016
Network and Service Enablement
Network Service Network and Optical Total Segment Reconciling Consolidated
Enablement Enablement Service Security and Measures Items GAAP Measures
Enablement Performance
Products
----------- ----------- ------------ ------------- -------------- ------------ -------------
Net revenue $118.6 $36.4 $155.0 $55.8 $210.8 $ - $210.8
Gross
profit 77.4 21.3 98.7 31.6 130.3 (5.2) 125.1
Gross
margin 65.3% 58.5% 63.7% 56.6% 61.8% 59.3%
Operating income (loss) 4.1 23.4 27.5 (17.4) 10.1
Operating margin 2.6% 41.9% 13.0% 4.8%
Three Months Ended
September 30,
2017 October 1, 2016
-------------- ---------------
Corporate
reconciling
items
impacting
gross profit:
Total segment
gross profit $122.5 $130.3
Stock-based
compensation (0.9) (1.0)
Amortization of
intangibles (4.1) (3.8)
Other charges
unrelated to
core operating
performance
(1) (1.3) (0.4)
----
GAAP gross
profit $116.2 $125.1
====== ======
Corporate
reconciling
items
impacting
operating
income:
Total segment
operating
income $29.4 $27.5
Stock-based
compensation (7.5) (8.7)
Amortization of
intangibles (7.2) (7.3)
Other charges
unrelated to
core operating
performance
(1) (3.2) (1.4)
Restructuring
and related
charges (1.5) -
GAAP operating
income $10.0 $10.1
===== =====
(1) During the three months ended September 30,
2017 and October 1, 2016, other charges
unrelated to core operating performance
primarily consisted of loss on disposal of
long-lived assets, and transformational
initiatives such as implementation of
simplified automated processes, site
consolidations, reorganizations, and
insourcing or outsourcing of activities.
Additionally, during the three months
ended September 30, 2017, the Company
incurred acquisition related costs.
The preliminary financial schedules are estimated based
on our current information.
Use of Non-GAAP (Adjusted) Financial Measures
The Company provides non-GAAP net revenue, 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 amortization of acquisition-related intangibles, 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 as the Company is no longer active in its discontinued operations.
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 have historically been 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, and (v) other charges unrelated to our core operating performance comprising mainly of one-time acquisition, integration, litigation and other costs and contingencies unrelated to current and future operations, including Viavi-specific incremental charges for professional fees and additional personnel costs to complete the separation as well as 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 incurred a loss in connection with repurchasing certain of its 0.625% Senior Convertible Notes which was recorded in interest and other income, net, in compliance with the authoritative guidance. The Company eliminates these items in calculating non-GAAP net income (loss), and non-GAAP net income (loss) per share, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company's core operating performance.
Gain or loss on sale of available for-sale investments: The Company has sold available-for-sale investments and includes the impact of these activities in its GAAP presentation of net income (loss) and net income (loss) per share. The Company's core business does not include making financial investments in third parties. Moreover, the amount and timing of gains and losses on the sale of available-for-sale investments are unpredictable. Consequently, the Company excludes these items in calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA because it believes gains or losses on these sales are not related to the Company's ongoing core business and operating performance.
Income tax expense or benefit: The Company excludes certain non-cash tax expense items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and other significant one-time events, such as the spin-off of Lumentum. 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 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, impairment of goodwill, restructuring and related charges (benefits), and other charges related to activities that are not part of its core operating performance described above. Management believes adjusted EBITDA is a good indicator of the Company's core operational cash flow.
Non-GAAP financial measures are not in accordance with, 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 indicative of its core operating expenses and 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 from continuing operations to non-GAAP measures:
Three Months Ended
September 30, 2017 October 1, 2016
Net income Diluted Net income
(loss) (loss) Diluted
EPS EPS
----
GAAP measures $(4.8) $(0.02) $78.0 $0.33
Items reconciling GAAP net income (loss)
and EPS to non-GAAP net income and EPS:
Related to cost of revenues:
Stock-based compensation 0.9 - 1.0 -
Other charges unrelated to
core operating performance
(1) 1.3 0.01 0.4 -
Amortization of acquired
technologies 4.1 0.02 3.8 0.02
Total related to gross
profit 6.3 0.03 5.2 0.02
--- ---- --- ----
Related to operating expenses:
Research and development:
Stock-based compensation 1.1 - 1.7 0.01
Other charges unrelated to
core operating performance
(1) 0.3 - 0.7 -
Selling, general and administrative:
Stock-based compensation 5.5 0.02 6.0 0.03
Other charges unrelated to
core operating performance
(1) 1.6 0.01 0.3 -
Amortization of other
intangibles 3.1 0.01 3.5 0.01
Restructuring and related
charges 1.5 0.01 - -
Total related to operating
expenses 13.1 0.06 12.2 0.05
---- ---- ---- ----
Gain on sale of investments
(2) - - (81.5) (0.34)
Non-cash interest expense
and other expense 12.7 0.05 6.9 0.03
(Benefit) provision for
income taxes (2.0) (0.01) 0.9 -
Total related to net income
(loss) and EPS 30.1 0.13 (56.3) (0.24)
---- ---- ----- -----
Non-GAAP measures $25.3 $0.11 $21.7 $0.09
===== ===== ===== =====
Shares used in per share calculation for
Non-GAAP EPS 232.7 236.8
----------------------------------------
Note: Certain totals may not add due to rounding
(1) During the three months ended September 30,
2017 and October 1, 2016, other charges
unrelated to core operating performance
primarily consisted of loss on disposal of
long-lived assets, and transformational
initiatives such as implementation of
simplified automated processes, site
consolidations, reorganizations, and
insourcing or outsourcing of activities.
Additionally, during the three months
ended September 30, 2017, the Company
incurred acquisition related costs.
(2) During the three months ended October 1,
2016, the Company sold 3.9 million shares
of the 11.7 million shares of Lumentum
common stock which was retained as part of
the separation of Lumentum. The Company
recognized a realized gain of $81.5
million on the sale.
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 30, October 1,
2017 2016
--------------
GAAP net
(loss)
income $(4.8) $78.0
Interest
and
other
income,
net (0.2) (1.3)
Gain on
sale of
investments
(1) - (81.5)
Interest
expense 12.5 9.2
Provision
for
income
taxes 2.5 5.7
Depreciation 8.4 7.9
Amortization 7.2 7.3
---
EBITDA 25.6 25.3
---- ----
Costs
related
to
restructuring
and
related
charges 1.5 -
Costs
related
to
stock-
based
compensation 7.5 8.7
Other
charges
unrelated
to core
operating
performance
(2) 3.2 1.4
Adjusted
EBITDA $37.8 $35.4
===== =====
(1) During the three months ended October 1,
2016, the Company sold 3.9 million shares
of the 11.7 million shares of Lumentum
common stock which was retained as part of
the separation of Lumentum. The Company
recognized a realized gain of $81.5
million on the sale.
(2) During the three months ended September 30,
2017 and October 1, 2016, other charges
unrelated to core operating performance
primarily consisted of loss on disposal of
long-lived assets, and transformational
initiatives such as implementation of
simplified automated processes, site
consolidations, reorganizations, and
insourcing or outsourcing of activities.
Additionally, during the three months
ended September 30, 2017, the Company
incurred acquisition related costs.
The preliminary financial schedules are estimated based
on our current information.
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SOURCE Viavi Financials
