PR Newswire | Nov 4, 2021 04:02PM EDT

11/04 15:01 CDT

VIAVI Announces First Quarter Fiscal 2022 Results SCOTTSDALE, Ariz., Nov. 4, 2021

SCOTTSDALE, Ariz., Nov. 4, 2021 /PRNewswire/ --

First Quarter

* Net revenue of $326.8 million, up $42.1 million or 14.8% year-over-year * GAAP operating margin of 14.4%, up 340 bps year-over-year * Non-GAAP operating margin of 22.7%, up 140 bps year-over-year * GAAP EPS of $(0.24), down $0.32 or (400.0)% year-over-year * Non-GAAP EPS of $0.24, up $0.03 or 14.3% year-over-year

VIAVI (NASDAQ: VIAV) today reported results for its first fiscal quarter ended October 2, 2021.

First quarter of fiscal 2022 net revenue was $326.8 million. GAAP net loss was $(54.8) million, or $(0.24) per share. Non-GAAP net income was $58.2 million, or $0.24 per share.

Fourth quarter of fiscal 2021 net revenue was $310.9 million. GAAP net income was $3.3 million or $0.01 per share. Non-GAAP net income was $52.5 million, or $0.22 per share.

First quarter of fiscal 2021 net revenue was $284.7 million. GAAP net income was $19.7 million, or $0.08 per share. Non-GAAP net income was $48.3 million, or $0.21 per share.

"In Q1, VIAVI delivered strong results despite supply chain challenges, achieving record revenue and non-GAAP profitability. End market strength came from Fiber, Wireless and Cable products in NSE and robust demand for Anti-Counterfeiting and 3D Sensing products in OSP," said Oleg Khaykin, VIAVI's President and Chief Executive Officer. "As we look ahead, we expect the strong momentum in NSE to carry over into 2022."

Khaykin added, "In Q1, we also completed a $400 million high yield 2029 note offering at an attractive rate of 3.75% interest and retired about 40% of the convertible notes. This allows us to optimize our capital structure to provide financial flexibility to execute on our growth objectives namely, Wireless, Fiber, 3D Sensing and potential inorganic synergistic assets."

Financial Overview:

The tables below (in millions, except percentage, and per share data) provide comparisons of quarterly results to prior periods, including sequential quarterly and year-over-year changes. A full reconciliation between the GAAP and non-GAAP measures included in the tables is contained in this release under the section titled "Use of Non-GAAP (Adjusted) Financial Measures."

First Quarter Ended October 2, 2021

GAAP Results

Q1 Q4 Q1 Change

FY 2022 FY 2021 FY 2021 Q/Q Y/Y

Net revenue $326.8 $310.9 $284.7 5.1 %14.8 %

Gross margin 59.7 %58.8 %59.5 %90 bps 20 bps

Operating margin 14.4 %10.5 %11.0 %390 bps 340 bps

Income from operations 46.9 32.7 31.3 43.4 %49.8 %

Net income (loss) per (0.24) 0.01 0.08 (2,500.0)%(400.0)%share



Non-GAAP Results

Q1 Q4 Q1 Change

FY 2022 FY 2021 FY 2021 Q/Q Y/Y

Non-GAAP gross margin 62.6 % 62.0 % 62.8 %60 bps (20) bps

Non-GAAP operating margin 22.7 % 20.8 % 21.3 %190 bps 140 bps

Non-GAAP income from 74.3 64.7 60.6 14.8 %22.6 %operations

Non-GAAP net earnings per 0.24 0.22 0.21 9.1 %14.3 %share

Net Revenue by Segment

Q1 % of Q4 Q1 Change Net

FY 2022 revenueFY 2021 FY 2021 Q/Q Y/Y

Network Enablement $204.962.7 %$212.7$162.1(3.7)%26.4 %

Service Enablement 23.0 7.0 %23.8 21.4 (3.4)%7.5 %

Optical Security and 98.9 30.3 %74.4 101.2 32.9 %(2.3)%Performance Products

Total $326.8100.0%$310.9$284.75.1 %14.8 %

* Americas, Asia-Pacific and EMEA customers represented 37.2%, 38.6% and 24.2%, respectively, of total net revenue for the quarter ended October 2, 2021. * As of October 2, 2021, the Company held $921.7 million in total cash, short-term restricted cash and short-term investments. * As of October 2, 2021, the Company had $278.8 million aggregate principal amount of 1.00% Senior Convertible Notes, $131.2 million aggregate principal amount of 1.75% Senior Convertible Notes and $400 million aggregate principal amount of 3.75% Senior Notes with a total net carrying value of $800.7 million classified as long-term debt. * During the fiscal quarter ended October 2, 2021, the Company generated $53.4 million of cash from operations.

ASU 2020-06

On July 4, 2021, VIAVI adopted Accounting Standards Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for convertible instruments with characteristics of liability and equity. The Company adopted the standard under the full retrospective method, which requires the Company to restate each prior period presented in conformity with the new guidance. As a result of adopting the new standard, the permanent equity components of the Company's 1.00% and 1.75% Senior Convertible Notes were reclassified to long-term liability on the Condensed Balance Sheet as of July 3, 2021. The temporary equity related to the Company's 1.00% Senior Convertible Notes was reclassified to short-term debt on the Condensed Balance Sheet as of July 3, 2021. Additionally, the non-cash debt discount amortization is removed from Interest Expense on the Condensed Consolidated Statement of Operations for the three months ended July 3, 2021. The Condensed Balance Sheets and Condensed Consolidated Statements of Operations herein are presented as adjusted for the new standard.

Business Outlook for the Second Quarter of Fiscal 2022

For the second quarter of fiscal 2022 ending January 1, 2022, the Company expects net revenue to be between $296 million to $310 million and non-GAAP earnings per share to be between $0.18 to $0.20.

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 certain charges related to restructuring, acquisition, integration and related charges. In addition, the Company believes such reconciliations would imply a degree of precision that may 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 4, 2021 in a live webcast, which will also be archived for replay on the Company's website at https://investor.viavisolutions.com. The Company will post supplementary slides outlining the Company's latest financial results on https://investor.viavisolutions.com 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 for communications service providers, enterprises, network equipment manufacturers, government and avionics. We help these customers harness the power of instruments, automation, intelligence and virtualization to Command the network. VIAVI is also a leader in light management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, automotive and defense applications. Learn more about VIAVI at https://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 expectation, 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) unforeseen changes in the demand for current and new products, technologies, services, delays or unforeseen events in the roll-out of new industry platforms such as 5G or evolving technology such as 3D sensing and customer purchasing delays as they assess or transition to such new technologies and/or architectures, all of 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 restructuring and workforce reduction plans; (h) challenges integrating the businesses the Company has acquired and realizing all of the expected benefits and savings; (i) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand; (j) potential disruptions or delays to our manufacturing and operations due to natural disasters such as the recent wildfires in Northern California and related blackouts and power outages in the region; (k) the uncertain and ongoing impact to our supply chain of tariffs, sanctions and other trade measures imposed by domestic and foreign governments and the possibility of escalation of "trade wars" and retaliatory measures between nations; (l) the impact of infectious disease outbreaks, epidemics, and pandemics including the ongoing effects of the COVID-19 global pandemic on our financial results, revenues, customer demand, business operations and manufacturing and on the business operations of our customers, contract manufacturers and suppliers; and (m) inherent uncertainty related to global markets, including recessions and tightening liquidity 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 3, 2021 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 Ong408-404-4512bill.ong@viavisolutions.com

Press:Amit Malhotra202-341-8624amit.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

October 2, October 3, 2021 2020

Net revenue 326.8 284.7

Cost of revenues 123.9 107.1

Amortization of acquired technologies 7.9 8.2

Gross profit 195.0 169.4

Operating expenses:

Research and development 53.6 48.8

Selling, general and administrative 91.8 81.4

Amortization of other intangibles 2.7 8.5

Restructuring and related benefits - (0.6)

Total operating expenses 148.1 138.1

Income from operations 46.9 31.3

Interest income and other income (expense), net(84.5) 0.6

Interest expense (3.6) (3.6)

(Loss) income before taxes (41.2) 28.3

Provision for income taxes 13.6 8.6

Net (loss) income $(54.8) $ 19.7



Net income (loss) per share:

Basic $(0.24) $ 0.09

Diluted $(0.24) $ 0.08



Shares used in per share calculations:

Basic 231.1 228.8

Diluted 231.1 231.8



The preliminary financial statements are estimated based on our current information.

VIAVI SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, unaudited)

PRELIMINARY



October 2, 2021 July 3, 2021

ASSETS

Current assets:

Cash and cash equivalents $915.6 $697.8

Short-term investments 1.6 1.6

Restricted cash 4.5 4.3

Accounts receivable, net 243.1 256.5

Inventories, net 102.8 94.9

Prepayments and other current assets 65.0 57.0

Total current assets 1,332.6 1,112.1

Property, plant and equipment, net 203.1 196.0

Goodwill, net 393.9 396.5

Intangibles, net 78.2 88.0

Deferred income taxes 104.7 109.3

Other non-current assets 57.0 59.5

Total assets $2,169.5 $1,961.4

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $66.9 $63.2

Accrued payroll and related expenses 68.3 76.0

Deferred revenue 66.6 69.7

Accrued expenses 33.3 24.8

Current portion of long-term debt - 456.6

Other current liabilities 57.4 57.1

Total current liabilities 292.5 747.4

Long-term debt 800.7 224.1

Other non-current liabilities 217.7 226.0

Total stockholders' equity 858.6 763.9

Total liabilities and stockholders' equity $2,169.5 $1,961.4



The preliminary financial statements are estimated based on our current information.

VIAVI SOLUTIONS INC.

REPORTABLE SEGMENT INFORMATION

(in millions, unaudited)

PRELIMINARY



Three Months Ended October 2, 2021

Network and Service Enablement

Network Optical Network Service and Security Other Consolidated EnablementEnablementService and Items GAAP EnablementPerformance(1) Measures Products

Net revenue $204.9 $ 23.0 $227.9 $ 98.9 $ - $ 326.8



Gross profit 132.7 14.7 147.4 57.1 (9.5) 195.0

Gross margin 64.8 %63.9 % 64.7 %57.7 % 59.7 %



Operating 30.7 43.6 (27.4) 46.9 income

Operating 13.5 %44.1 % 14.4 % margin



Three Months Ended October 3, 2020

Network and Service Enablement

Network Optical Network Service and Security Other Consolidated EnablementEnablementService and Items GAAP EnablementPerformance(1) Measures Products

Net revenue $162.1 $ 21.4 $183.5 $ 101.2 $ - $ 284.7



Gross profit 103.5 14.3 117.8 61.0 (9.4) 169.4

Gross margin 63.8 %66.8 % 64.2 %60.3 % 59.5 %



Operating 13.3 47.3 (29.3) 31.3 income

Operating 7.2 %46.7 % 11.0 % margin



(1) Other items include charges unrelated to core operating performance primarily consisting of stock-based compensation, amortization of acquisition-related intangibles, restructuring and related charges, changes in fair value of contingent consideration liabilities and other charges unrelated to core operating performance.



The preliminary financial schedules are estimated based on our current information.

Use of Non-GAAP (Adjusted) Financial Measures

The Company provides 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 certain purchase price accounting adjustments, amortization of acquisition-related intangibles and inventory step-up, stock-based compensation, restructuring, separation costs, changes in fair value of contingent consideration liabilities 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.

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 are 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, (v) changes in fair value of contingent consideration liabilities and (vi) other charges unrelated to our core operating performance comprising mainly of acquisition related transaction costs, amortization of acquisition related inventory step-up, integration costs related to acquired entities, litigation and other costs and contingencies unrelated to current and future operations, including 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 a loss of $85.9M in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes which was recorded in interest income and other income (expense), net, in compliance with authoritative guidance. The Company eliminates this in calculating non-GAAP net income (loss), and non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company's core operating performance.

Income tax expense or benefit: The Company excludes certain non-cash tax expense or benefit items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income (loss) and non-GAAP net income (loss) per share. 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 income 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, restructuring and related charges (benefits), gain or loss on sale of available for-sale investments, changes in fair value of contingent consideration liabilities arising from prior acquisitions and other charges related to activities that are not part of its core operating performance described above. Management believes adjusted EBITDA is a helpful indicator of the Company's core operational cash flow.

Non-GAAP financial measures are not in accordance with, preferable to, 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 fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company's overall 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 to non-GAAP measures:



Three Months Ended

October 2, 2021 October 3, 2020

Gross Gross Gross Gross Profit Margin Profit Margin

GAAP measures $195.0 59.7 % $169.4 59.5 %

Stock-based compensation 1.6 0.5 % 1.2 0.4 %

Amortization of intangibles 7.9 2.4 % 8.2 2.9 %

Total related to Cost of Revenue9.5 2.9 % 9.4 3.3 %

Non-GAAP measures $204.5 62.6 % $178.8 62.8 %



Three Months Ended

October 2, 2021 October 3, 2020

OperatingOperating OperatingOperating Income Margin Income Margin

GAAP measures $46.9 14.4 % $31.3 11.0 %

Stock-based compensation 13.6 4.1 % 12.5 4.4 %

Change in fair value of 0.3 0.1 % - - %contingent liability

Other charges unrelated to core 2.9 0.9 % 0.7 0.2 %operating performance (1)

Amortization of intangibles 10.6 3.2 % 16.7 5.9 %

Restructuring and related - - % (0.6) (0.2) %benefits

Total related to Cost of Revenue27.4 8.3 % 29.3 10.3 %and Operating Expenses

Non-GAAP measures $74.3 22.7 % $60.6 21.3 %

Three Months Ended

October 2, 2021 October 3, 2020

Net IncomeDiluted Net Diluted (Loss) EPS Income EPS

GAAP measures $(54.8) $(0.24)$19.7$0.08

Items reconciling GAAP net income and EPS to non-GAAP net income and EPS:

Stock-based compensation 13.6 0.06 12.5 0.05

Change in fair value of contingent 0.3 - - - liability

Other charges unrelated to core 2.9 0.01 0.7 - operating performance (1)

Amortization of intangibles 10.6 0.04 16.7 0.07

Restructuring and related charges - - (0.6) - (benefits)

Non-cash interest expense and other 85.9 0.35 - - expense

Benefit from income taxes (0.3) - (0.7) -

Total related to net income and EPS 113.0 0.47 28.6 0.12

Non-GAAP measures $58.2 $0.24 $48.3$0.21

Shares used in per share calculation 242.3 231.8 for Non-GAAP EPS

Note: Certain totals may not add due to rounding.

(1) Other items include charges unrelated to core operating performance primarily consisted of acquisition and integration related charges, transformational initiatives such as site consolidations, and reorganization, loss on sale of investments and loss on disposal of long-lived assets.

The preliminary financial schedules are estimated based on our currentinformation.

VIAVI SOLUTIONS INC.

RECONCILIATION OF GAAP MEASURES FROM CONTINUING OPERATIONS

TO ADJUSTED EBITDA

(in millions, unaudited)

PRELIMINARY



Three Months Ended

October 2, October 3, 2021 2020

GAAP net (loss) income $(54.8) $19.7

Interest income and other income (expense), net 84.5 (0.6)

Interest expense 3.6 3.6

Provision for income taxes 13.6 8.6

Depreciation 8.9 8.8

Amortization 10.6 16.7

EBITDA 66.4 56.8

Costs related to restructuring and related - (0.6) benefits

Costs related to stock-based compensation 13.6 12.5

Change in fair value of contingent liability 0.3 -

Other charges unrelated to core operating 2.9 0.7 performance (1)

Adjusted EBITDA $83.2 $69.4

Note: Certain totals may not add due to rounding.

(1) Other items include charges unrelated to core operating performance primarily consisted of acquisition and integration related charges, transformational initiatives such as site consolidations, and reorganization, loss on sale of investments and loss on disposal of long-lived assets.

The preliminary financial schedules are estimated based on our currentinformation.

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SOURCE VIAVI Financials