Exchange: NASDAQ | Sector: Technology | Industry: Communication Equipment
Q4 2024
Published: Aug 16, 2024
Earnings Highlights
Revenue of $252.00M down 4.4% year-over-year
EPS of $-0.10 decreased by 19% from previous year
Gross margin of 57.3%
Net income of -21.70M
""1.6 terabits will be driven all by data centers. And what we are seeing with data centers is a more strands being enabled from get go... as they need it, they turn them up quicker. This is a positive for us because it means much more frequent changes and need for faster responsiveness."" - Oleg Khaykin
Viavi Solutions Inc (VIAV) QQ4 2024 Results: OSP Momentum and Near-Term NSE Softness, with 1.6 Tb/s Data-Center Tailwinds and Margin Expansion from Restructuring
Executive Summary
Viavi Solutions reported a mixed Q4 FY2024, with total net revenue of $252 million, up 2.4% sequentially but down 4.4% year over year. The quarter featured robust performance from the Optical Security and Performance Products (OSP) segment, which delivered $69.8 million in revenue and an operating margin of 34.8%, driven by higher gross margins and favorable mix aided by the Chandler manufacturing ramp. In contrast, Network Enablement (NSE) and its sub-segments faced a softer demand environment, with NSE revenue totaling $182.2 million and NSE gross margin remaining healthy at 62.1%, but NSE operating margin at 1.8% (below peers’ scale due to revenue mix and lower NSE volumes). The Service Enablement (SE) segment posted $23.7 million in revenue, up 5.8% year over year, aided by order push-outs from Q3, while NE and NSE benefited from a favorable product mix that supported overall gross margins around 57.3% for the quarter. Full-year revenue declined 9.6% to $1.0 billion, with an operating margin of 11.5% and annual EPS of $0.33. The company announced a restructuring program in June 2024 intended to reduce operating expenses by about $25 million on an annualized basis by the end of fiscal 2025, with approximately $15 million of charges in the near term and ~6% of global headcount affected. Management signaled a cautious near-term environment (calendar 2024) with a leaner path to recovery, noting that the first half of fiscal 2025 will remain conservative, with a gradual recovery anticipated in the second half and into fiscal 2025. The near-term guidance for Q1 FY2025 projects revenue of $235–$245 million and operating margin around 10.8%, with EPS in the $0.05–$0.07 range. Management highlighted 1.6 Tbps fiber/memo product transitions as a key growth driver for fiscal 2025, driven by data-center demand rather than traditional carrier-driven upgrades, and stressed that the data-center segment is likely to lead the next cycle of higher-speed testing (1.6 Tbps). The call emphasized AI OPS, ORAN developments, and Mil/Aero as growth pillars, along with stabilization in OSP anti-counterfeiting demand and 3D sensing, albeit with ASP erosion in 3D sensing. Investors should monitor the pace of NSE recovery, the execution of the restructuring savings, and the evolution of 1.6 Tbps-related opportunities as core drivers of Viavi’s updated growth trajectory.
Key Performance Indicators
Revenue
252.00M
QoQ: 2.44% | YoY:-4.40%
Gross Profit
144.30M
57.26% margin
QoQ: 5.79% | YoY:-1.16%
Operating Income
8.70M
QoQ: 170.16% | YoY:-26.27%
Net Income
-21.70M
QoQ: 11.79% | YoY:-21 600.00%
EPS
-0.10
QoQ: 11.45% | YoY:-19 380.00%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $252.0 million (Q4 2024); QoQ +2.4%; YoY -4.4%
- Revenue: $252.0 million (Q4 2024); QoQ +2.4%; YoY -4.4%
- Gross Profit: $144.3 million; gross margin 57.3%
- Operating Income: $8.7 million; operating margin 3.45%
- Net Income: -$21.7 million; net margin -8.61%
- EPS: -$0.0974; diluted -$0.0974
- NSE Revenue: $182.2 million; NSE gross margin 62.1%; NSE operating margin 1.8%
- NE Revenue: $158.5 million; NE gross margin 61.3%
- SE Revenue: $23.7 million; SE gross margin 67.5%
- OSP Revenue: $69.8 million; OSP gross margin 53%; OSP operating margin 34.8%
- Cash & Equivalents: $476.3 million; Total cash & ST investments: $491.2 million; Net debt: $210.9 million
- Operating cash flow: $26.2 million; Free cash flow: $22.4 million
- Share repurchases: 1.3 million shares for ~$10 million in Q4; full-year ~2.3 million shares for ~$20 million
- Balance sheet: Total assets $1.736B; Total liabilities $1.055B; Total equity $0.682B
- Guidance for Q1 FY2025: Revenue $235–$245 million; Op margin 10.8% ±90 bps; EPS $0.05–$0.07; NSE ~$164 million ±$4; OSP ~$76 million ±$1; tax ~$8 million ±$0.5; ~224.2 million share count.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
252.00M
-4.40%
2.44%
Gross Profit
144.30M
-1.16%
5.79%
Operating Income
8.70M
-26.27%
170.16%
Net Income
-21.70M
-21 600.00%
11.79%
EPS
-0.10
-19 380.00%
11.45%
Key Financial Ratios
currentRatio
3.55
grossProfitMargin
57.3%
operatingProfitMargin
3.45%
netProfitMargin
-8.61%
returnOnAssets
-1.25%
returnOnEquity
-3.18%
debtEquityRatio
1.01
operatingCashFlowPerShare
$0.12
freeCashFlowPerShare
$0.1
priceToBookRatio
2.25
priceEarningsRatio
-17.64
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and growth drivers: Oleg emphasized data-center-driven demand for higher-speed testing technologies. Quote: 1.6 terabits will be driven all by data centers, with data centers leading the transition to higher speeds rather than traditional service providers. This underpins Viavi’s optimism for FY2025 as the AI/Data Center cycle accelerates. (Oleg Khaykin)
- Near-term outlook and profitability: Ilan highlighted that the restructuring will reduce operating expenses with full realization by the end of FY2025 and into FY2026, while maintaining R&D momentum for core products. Quote: “most of it will be a reduction of the overall operating expenses… full realization by the end of the year… 2026 kind of net spend there.” (Ilan Daskal)
- NSE weakness versus NSE stability: Oleg noted ongoing conservatism in North American service providers and NAMs, with expectation of a bottoming in NSE demand and gradual recovery in H2 FY2025, supported by Fiber Lab and 11 production demand. (Oleg Khaykin)
- OSP strength and product mix: OSP benefited from higher anti-counterfeiting and 3D sensing demand, with MOSP gross margin expansion and operating margin above guidance. Management expects OSP to be sequentially up in the September quarter driven by seasonality in 3D sensing. (Oleg Khaykin)
- AI OPS and ORAN as growth vectors: SE benefited from AI OPS interest, with potential growth driver for FY25 and beyond, while ORAN activity and multi-vendor data-center interconnect trends emerged as a tailwind. (Oleg Khaykin)
"1.6 terabits will be driven all by data centers. And what we are seeing with data centers is a more strands being enabled from get go... as they need it, they turn them up quicker. This is a positive for us because it means much more frequent changes and need for faster responsiveness."
— Oleg Khaykin
"We initiated a restructuring and workforce reduction plan to improve operational efficiencies and better align with the current business needs. We expect approximately 6% of our global workforce to be impacted and estimate to incur approximately $15 million of restructuring charges... full realization by the end of fiscal 2025, with an annualized cost savings run rate of about $25 million."
— Ilan Daskal
Forward Guidance
Viavi’s near-term guidance reflects a cautious environment through calendar 2024 with an expected bottoming of NSE demand and a gradual recovery in the second half of FY2025. The company projects Q1 FY2025 revenue of $235–$245 million and operating margin of about 10.8%, with EPS of $0.05–$0.07. The mix highlights NSE near-term softness (NSE revenue guided at ~$164 million, flat to down modestly on QoQ seasonal dynamics) offset by OSP strength (~$76 million) and ongoing SE contribution. Management cited the following catalysts and risks:
- 1.6 Tbps transition led by data centers (vs. carriers in prior cycles) as a key driver for FY2025, particularly in Fiber Lab and Mil/Aero; potential for faster equipment refresh and higher test demand from AI/ML compute platforms.
- ORAN and AI OPS growth potential in SE, with AI OPS highlighted as a growth driver for FY25 and beyond.
- Mil/Aero strength expected to persist in FY25, providing a more durable offset to NSE weakness.
- OSP anti-counterfeiting and 3D sensing demand rebound, with ASP erosion in 3D sensing partially offset by higher volumes and improved mix.
- Restructuring-driven OpEx reduction targeted at a roughly $25 million annualized run-rate by end-FY2025, with the majority realized in FY2026; modeling note: exclude one-time charges when projecting ongoing EBITDA.
Key factors investors should monitor: (i) the pace and geographic spread of NSE recovery (especially North America vs. Europe and LATAM), (ii) execution of the 1.6 Tbps/AI OPS-driven growth, (iii) durability of OSP margin expansion amid ASP pressure in 3D sensing, and (iv) the waterfall impact of restructuring on operating expenses and free cash flow generation.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
VIAV Focus
57.26%
3.45%
-3.18%
-17.64%
LITE
10.40%
-31.20%
-26.40%
-3.42%
NTGR
34.80%
-1.52%
-0.31%
-64.69%
KVHI
2.44%
-38.80%
-8.27%
-2.08%
TSAT
49.60%
42.30%
1.53%
4.65%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Viavi is navigating a soft near-term NSE environment while indexing its longer-term growth to 1.6 Tbps data-center-driven testing, AI OPS, and ORAN-enabled network modernization. The company’s Q4 FY2024 performance confirms OSP is a key margin anchor, offsetting NSE softness, and the restructuring program provides a credible path to sustainable OpEx reduction and margin expansion by FY2026. The near-term revenue trajectory remains contested, with Q1 FY2025 guidance implying subdued top-line growth, but the floor appears supported by maintenance revenues in NSE and continued strength in OSP. The real inflection will likely come from the data-center segment with 1.6 Tbps adoption and from AI OPS deployments that could unlock incremental opportunities across NSE and SE. The stock’s investment case rests on: (1) successful execution of the $25M annualized OpEx savings, (2) the pace of NSE recovery in H2 FY2025, (3) the durability of OSP margin gains and anti-counterfeiting/3D sensing rebound, and (4) the upside from data-center interconnect demand creating a higher-value testing portfolio. Given Viavi’s liquidity position and targeted cost discipline, investors should monitor quarterly progress on 1) data-center driven bookings, 2) ASP stabilization in OSP, and 3) the timing of a sustained turn in NSE demand, particularly in North America.
Key Investment Factors
Growth Potential
- 1.6 Tbps data-center driven growth across fiber lab and production equipment, supported by AI/ORAN demand and 1.6 Tbps adoption; Mil/Aero remains a bright spot with durable demand in FY25.
- AI OPS and ORAN initiatives as new growth vectors in SE, with potential cross-sell opportunities into NSE and OSP as networks modernize.
- Data-center interconnect and dark-fiber market evolution create an expanded TAM for Viavi’s test and measurement platforms.
Profitability Risk
- Near-term NSE headwinds from conservative carrier capex and 5G delays, particularly in North America; risk of further revisions to timing of fiber-to-the-home deployment (AT&T or other NAMs).
- ASP erosion in OSP’s 3D sensing segment could cap near-term OSP revenue growth despite higher volumes.
- Macro volatility and FX exposure can impact revenue recognition and profitability; continued supply chain volatility could affect component availability and production ramp at Chandler.
- Execution risk in accelerated restructuring and achieving $25M annualized savings by FY2025 end; potential temporary margin compression during transition.
Financial Position
- Liquidity remains strong with cash and short-term investments of ~$491M and total cash of ~$476M; net debt around ~$211M, implying a conservative balance-sheet posture given current earnings dynamics.
- Balance sheet supports ongoing capex and share repurchase programs; long-term debt remains a meaningful component (total debt ~$687M; long-term debt ~$677M).
- Retained earnings negative, reflecting cumulative losses; the company’s cash-generating ability and restructuring cost-savings path are critical to restoring leverage and improving ROIC over time.
SWOT Analysis
Strengths
Diversified product portfolio across NSE, NE, SE, and OSP with mix benefits (OSP margin expansion to 34.8% operating margin)
Strong near-term OSP demand (anti-counterfeiting, 3D sensing) and favorable manufacturing ramp at Chandler
Solid cash generation and liquidity (cash ~$476M; operating cash flow ~$26.2M in Q4) enabling buybacks and capex flexibility
Restructuring program targeting $25M annualized OpEx savings by FY2025 end, with 6% headcount reduction reducing long-term cost curve
Weaknesses
Q4 2024 net loss and negative net income margins (-8.61%) reflecting a weak year-over-year revenue base
Near-term NSE weakness, particularly in North America, with a risk of prolonged demand softness
ASP erosion in OSP 3D sensing moderating top-line gains; heavy reliance on a few large customers for some segments (e.g., 3D sensing)
Opportunities
1.6 Tbps data-center driven growth cycle; ORAN adoption and AI OPS as new growth vectors
Expansion of data-center interconnect and fiber lab/production opportunities with Tier-2 data-center players
Geographic diversification (LATAM) with secular adoption of AI/OPS and enhanced fiber testing
Mil/Aero revenue growth and product penetration in avionics locations
Threats
Macro and telecom capex cycle volatility; potential re-synchronization of carrier/wireless cycles (5G deployments)
Competitive dynamics in test & measurement (KEYS and smaller peers) and potential price/margin pressure
FX and supply-chain volatility impacting cost of goods and operating margins