Exchange: NASDAQ | Sector: Technology | Industry: Communication Equipment
Q1 2025
Published: Nov 1, 2024
Earnings Highlights
Revenue of $238.20M down 3.9% year-over-year
EPS of $-0.01 decreased by 118.4% from previous year
Gross margin of 57.1%
Net income of -1.80M
""we are seeing positive signs around order stabilization, which imply the beginning of recovery in Q2 and continuing into second half of fiscal '25."" - Oleg Khaykin
Viavi Solutions delivered total net revenue of $238.2 million for the quarter ended September 28, 2024 (Q1 FY25), down 3.9% year over year and 5.5% sequentially. Despite a softer top line, the company reported a solid gross margin of 57.1% and an operating margin of 10.0%, with EBITDA of $28.8 million. Net income was negative $1.8 million, corresponding to an EPS of -$0.0081. The results reflect a bifurcated demand environment: Network Enablement (NSE) struggled against slower order pace, while Optical Security and Performance Products (OSP) posted stronger-than-expected performance, driven by anticounterfeiting and 3D sensing, with OSP gross margin of 55.3% and operating margin of 39.6%. Viavi guided Q2 FY25 revenue of $255–$265 million, with total operating margin of about 12.4% (±100 bps) and EPS of $0.09–$0.11, underscoring a management view that NSE normalization is underway and that a multi-quarter recovery is becoming visible. Cash generation remained healthy, with $13.5 million of operating cash flow in the quarter and free cash flow of $6.2 million; Viavi also repurchased $16.4 million of stock and ended the quarter with substantial liquidity (cash and short-term investments around $498 million).
Key Performance Indicators
Revenue
238.20M
QoQ: -5.48% | YoY:-3.91%
Gross Profit
136.10M
57.14% margin
QoQ: -5.68% | YoY:-5.75%
Operating Income
11.50M
QoQ: 32.18% | YoY:-28.13%
Net Income
-1.80M
QoQ: 91.71% | YoY:-118.37%
EPS
-0.01
QoQ: 91.68% | YoY:-118.37%
Revenue Trend
Margin Analysis
Key Insights
Total net revenue: $238.2M; QoQ: -5.5%; YoY: -3.9% (management indicated results were near the midpoint of guidance). Gross margin: 57.1%; Operating margin: 10.0% (low end of guidance). EBITDA: $28.8M (margin ~12.1%). Net income: -$1.8M; EPS: -$0.0081.
NSE (Network Enablement): Revenue $159.4M; GM 60.9%; OPM -4.6% (below guidance due to lower revenue and gross margin fall-through); YoY NSE revenue down about 6.5%.
NE (Network Enablement Core): Revenue $141.6M; GM 60.9%; GM decline ~220 bps YoY; commentary indicates ongoing conservative capex from service providers and NEMs.
SE (Service Enablement): Revenue $17.8M; GM 60.7%; GM decline ~650 bps YoY; softening demand from enterprise customers.
OSP (Optical Security & Performance): Revenue $78.8M; GM 55.3%; OPM 39.6% (outpaced guidance; above high end of prior range); YoY revenue +1.7% driven by anticounterfeiting and 3D sensing.
Financial Highlights
Revenue and Margin Trends
- Total net revenue: $238.2M; QoQ: -5.5%; YoY: -3.9% (management indicated results were near the midpoint of guidance). Gross margin: 57.1%; Operating margin: 10.0% (low end of guidance). EBITDA: $28.8M (margin ~12.1%). Net income: -$1.8M; EPS: -$0.0081.
- NSE (Network Enablement): Revenue $159.4M; GM 60.9%; OPM -4.6% (below guidance due to lower revenue and gross margin fall-through); YoY NSE revenue down about 6.5%.
- NE (Network Enablement Core): Revenue $141.6M; GM 60.9%; GM decline ~220 bps YoY; commentary indicates ongoing conservative capex from service providers and NEMs.
- SE (Service Enablement): Revenue $17.8M; GM 60.7%; GM decline ~650 bps YoY; softening demand from enterprise customers.
- OSP (Optical Security & Performance): Revenue $78.8M; GM 55.3%; OPM 39.6% (outpaced guidance; above high end of prior range); YoY revenue +1.7% driven by anticounterfeiting and 3D sensing.
- Segment perspective: NSE continues to be a drag on near-term profitability; OSP demonstrates higher gross-through and profitability, highlighting product mix benefits.
Liquidity and cash flow
- Cash and short-term investments: end of Q1 $497.9M; balance sheet cash per period end $467.9M; net debt $220.7M.
- Operating cash flow: $13.5M; Capex: $7.3M; Free cash flow: $6.2M.
- Shareholder returns: 2.0M shares repurchased for $16.4M; diluted shares ~224M.
Balance sheet health
- Total assets: $1.738B; total liabilities: $1.035B; total stockholders’ equity: $0.702B; leverage remains moderate with long-term debt ~$678.9M and total debt ~$688.6M; current ratio 3.71 and quick ratio 3.31, indicating strong liquidity relative to near-term obligations.
Guidance and outlook
- Q2 FY25 guidance: revenue $255–$265M; operating margin 12.4% (±100 bps); EPS $0.09–$0.11.
- Segment guidance: NSE around $188M (+/−$4M) with ~4.8% operating margin (±100 bps); OSP around $72M with ~32.3% operating margin (±100 bps).
- Tax and other: tax around $7M (±$0.5M); net other expenses around $3.5M; share count ~224M.
- Management tone: anticipate a stronger Q2 across NSE with a gradual recovery in H2 FY25; OSP expected to be seasonally weaker in Q2 due to inventory normalization; preservation of long-term investments in high-growth opportunities (e.g., 1.6 Tbps testing for AI workloads).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
238.20M
-3.91%
-5.48%
Gross Profit
136.10M
-5.75%
-5.68%
Operating Income
11.50M
-28.13%
32.18%
Net Income
-1.80M
-118.37%
91.71%
EPS
-0.01
-118.37%
91.68%
Key Financial Ratios
currentRatio
3.71
grossProfitMargin
57.1%
operatingProfitMargin
4.83%
netProfitMargin
-0.76%
returnOnAssets
-0.1%
returnOnEquity
-0.26%
debtEquityRatio
0.98
operatingCashFlowPerShare
$0.06
freeCashFlowPerShare
$0.03
priceToBookRatio
2.86
priceEarningsRatio
-278.43
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes and quotes from the earnings call:
- NSE recovery and order momentum: “we are seeing positive signs around order stabilization, which imply the beginning of recovery in Q2 and continuing into second half of fiscal '25.” (Oleg Khaykin)
- Market dynamics and capacity deployment: “AT&T became very vocal and very aggressive about their upcoming fiber deployment in calendar of '25. Then we saw Verizon re-entered the fiber market … spurring cable providers to upgrade.” (Oleg Khaykin)
- AI/Data center testing milestone: “Valor Lab in Chandler Arizona … test as a service for open rent ecosystem” and “industry’s first 1.6 terabits per second high-speed Ethernet testing for AI workloads.” (Oleg Khaykin)
- Lead times for bleeding-edge tech: “lead times longer than eight to ten weeks … 1.6 terabit, 800 gigabits … three to six months for bleeding-edge products.” (Oleg Khaykin)
- Enterprise softness and AI ops opportunity: “Enterprise software spend is slower … AI ops driving interest … expect to be in the 20s quarterly run rate in calendar 2025.” (Meta-style synthesis from Oleg/Viavi remarks)
- OSP strengths and near-term caution: “near-term demand for anticounterfeiting products to be on the software side as end customers work down inventories.” (Oleg Khaykin)
"we are seeing positive signs around order stabilization, which imply the beginning of recovery in Q2 and continuing into second half of fiscal '25."
— Oleg Khaykin
"Valor Lab in Chandler Arizona, which will provide test as a service for open rent ecosystem. The second milestone is the release of industry's first 1.6 terabits per second high-speed Ethernet testing for AI workloads."
— Oleg Khaykin
Forward Guidance
Assessment of the QQ1-2025 guidance and outlook:
- Short-term trajectory: Management guides Q2 FY25 revenue of $255–$265M with EPS $0.09–$0.11 and an anticipated operating margin of ~12.4%. NSE is expected to be around $188M with ~4.8% operating margin, while OSP is expected to be about $72M with ~32.3% margin. This implies a meaningful margin expansion versus Q1 and a gradual revenue stabilization as NSE recovers.
- Recovery thesis: The company cites stabilization across traditional NSE end markets and an improving demand backdrop in wireless, fiber, and Mil/Aero after a historically protracted soft cycle. The management expectations of a Q2 rebound and continued momentum into the second half of fiscal 2025 support a multi-quarter recovery narrative, particularly if macro conditions remain supportive and carriers’ capex remains constructive.
- Risks and sensitivities: Macro uncertainty (rates, election cycles), potential slower enterprise spend in SE, and persistent lead times for bleeding-edge products (e.g., 1.6 Tbps) could delay upside. Currency dynamics and geopolitical restrictions impacting anticounterfeiting programs may also temper near-term OSP volumes.
- Signals to monitor: order stabilization in NSE, progression of 800G/1.6 Tbps testing into production in late calendar year 2025, and the pace of AI-ops adoption in SE and enterprise software markets. Investors should watch Q2 and Q3 bookings cadence, inventory normalization among customers, and any additional customer wins in data-center/AI infrastructure.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
VIAV Focus
57.14%
4.83%
-0.26%
-278.43%
LITE
23.10%
-24.50%
-9.20%
-13.37%
NTGR
29.30%
-12.50%
-3.65%
-6.19%
KVHI
33.50%
-13.00%
-2.18%
-7.77%
TSAT
50.60%
43.30%
-2.17%
-2.59%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Viavi appears positioned for a multi-quarter recovery trajectory, anchored by NSE stabilization and a high-margin OSP base. The company’s AI-forward product roadmap—especially 1.6 Tbps testing for AI workloads and Valor Lab offerings—addresses growing demand in hyperscale data centers and advanced telecom infrastructure. The near-term profitability risk is primarily tied to NSE’s recovery pace and macro-driven enterprise software spend. If NSE order momentum accelerates into Q2 and beyond, and AI/data-center testing adoption scales as forecast, Viavi could generate meaningful margin expansion and improved earnings visibility in the second half of FY25 and into FY26. Valuation remains premium relative to peers, reflecting growth expectations tied to next-gen optical testing capabilities; investors should monitor NSE bookings cadence, enterprise software spend recovery, and the rollout pace of high-speed optical testing programs.
Key Investment Factors
Growth Potential
NSE recovery anticipated to accelerate into H2 FY25 with potential acceleration in 5G densification, fiber deployment, and private networks. AI-centric demand for 800G and 1.6 Tbps testing in data centers—driven by AI workloads and hyperscale deployments—represents a significant long-term growth vector. Valor Lab and 1.6 Tbps testing position Viavi to win higher-margin, strategic testing contracts in wireless, data center, and HPC segments.
Profitability Risk
Near-term profitability is exposed to NSE demand volatility and enterprise software spend cycles. Macro weakness, currency/regulatory headwinds, and longer-than-typical lead times for bleeding-edge products could compress near-term upside. High reliance on a few large customers for NSE and enterprise segments could amplify volatility; ongoing geopolitical and policy shifts affecting anticounterfeiting markets may impact OSP volumes.
Financial Position
Healthy liquidity with ~$498M in cash and short-term investments and net debt of ~$221M, enabling continued R&D investment and selective share buybacks. Strong balance sheet metrics (current ratio ~3.7, quick ratio ~3.3) support working capital needs and potential strategic investments. The company generated $13.5M operating cash flow in Q1 and $6.2M of free cash flow, reinforcing a solid cash generation profile despite a modest net income print.
SWOT Analysis
Strengths
Diversified product portfolio across NSE, NE, SE, and OSP providing multiple growth vectors.
OSP segment delivers higher gross margins (55.3%) and operating margins (39.6%), contributing resilience to overall profitability.
Solid liquidity and modest leverage with strong cash generation and stock repurchase activity supporting capital discipline.
Strategic R&D investments and AI/data-center oriented testing platform (1.6 Tbps) position Viavi at the forefront of next-gen communications testing.
Weaknesses
Net income negative in QQ1 2025; NSE margins negative (-4.6%) signaling near-term margin pressure from lower volumes.
Cyclicality and customer concentration in NSE and enterprise software spend create earnings volatility.
Longer-than-typical lead times for bleeding-edge products (3–6 months) can delay revenue realization.
Opportunities
NSE stabilization and recovery in H2 FY25 with potential channel and carrier exposure to fiber and wireless upgrades.
AI-centric testing demand in data centers (1.6 Tbps) and related module suppliers; expansion into 800G and higher-speed optics.
Geographic and market tailwinds in Europe for fiber deployment and private networks; continued anticounterfeiting and 3D sensing adoption.
Threats
Macro uncertainty and potential adoptions delays from carriers and enterprises.
Anticounterfeiting market sensitivity to currency redesigns and sanctions impacting OSP volumes.
Competition and rapid technological shifts potentially compressing pricing power and profitability.