Yahoo Finance Viavi Solutions Inc. (NASDAQ:VIAV) Q3 2024 Earnings Call Transcript
Viavi Solutions Inc. (NASDAQ:VIAV) Q3 2024 Earnings Call Transcript May 2, 2024
Viavi Solutions Inc. misses on earnings expectations. Reported EPS is $-0.11031 EPS, expectations were $0.07. Viavi Solutions Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, everyone. My name is Jericho. Welcome to Viavi Solutions Third Quarter FY '24 Earnings Call. [Operator Instructions] I will now turn the conference over to Ilan Daskal, Viavi Solutions' CFO. Please, go ahead.
Ilan Daskal: Thank you, Jericho. Good afternoon, everyone, and welcome to Viavi Solutions' third quarter fiscal year 2024 earnings call. My name is Ilan Daskal, Viavi Solutions' CFO, and with me on today's call is Oleg Khaykin, our President and CEO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance that we provided during this call, are valid only as of today.
Viavi takes -- undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call and will make the recording available on our website by 4:30 p.m. Pacific Time this evening. Now I would like to review the results of the third quarter of fiscal year 2024. Net revenue for the quarter was $246 million, which was above the low end of our guidance range of $245 million to $253 million.
Revenue was down sequentially by 3.3%, and on a year-over-year basis was down 0.7%. Operating margin for the third fiscal quarter was 9.3%, which is slightly above the low end of our guidance range of 8.8% to 12%. Operating margin decreased 390 basis points from the prior quarter and on a year-over-year basis, was down 210 basis points. EPS at $0.06 within our guidance range of $0.05 to $0.09 and was down $0.05 sequentially and on a year-over-year basis, was down $0.02. Moving on to our Q3 results by business segment. NSE revenue for the third fiscal quarter came in at $169.8 million, which is below our guidance range of $173 million to $179 million. This was mainly driven by more conservative spend environment at enterprise customers. On a year-over-year basis, NSE revenue was down 4.2%.
NE revenue for the quarter was $151.7 million, which is a 0.1% year-over-year decline. SE revenue was $18.1 million, and declined 28.7% from the same period last year, driven by a slowdown in enterprise customer spend. NSE gross margin for the quarter was 61.4%, which is 190 basis points lower on a year-over-year basis. NE gross margin was 61.5%, which is a decrease of 70 basis points from the same period last year as a result of lower volume as well as product mix. SE gross margin was 60.8%, which is a decrease of 930 basis points from the same period last year as a result of lower volume. NSE's operating margin was negative 1.8%, which is a 540 basis points decline sequentially and a 320 basis points decline on a year-over-year basis. NSE operating margin was below our guidance range of 0% to 3%.
OSP revenue for the third fiscal quarter came in at $76.2 million, which was above the high end of our guidance range of $72 million to $74 million and was up 8.1% on a year-over-year basis. OSP gross margin was 50.1%, which is a decrease of 50 basis points from the same period last year and was primarily due to a reversal of variable incentive compensation that benefited Q3 last year. OSP's operating margin was 34.3%, which is 210 basis points lower sequentially and decreased 230 basis points on a year-over-year basis as a result of a reversal of variable incentive compensation that benefited Q3 last year. OSP operating margin exceeded the high end of our guidance range of 29.8% to 33.8%. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q3 was $486.1 million compared to $571.8 million in the second quarter of fiscal 2024.
Cash flow from operating activities for the quarter was $19.5 million versus $17.8 million in the same period last year. We have not purchased any shares of our stock in the third quarter. During the quarter, we repaid our outstanding balance of our 2024 convertible notes in the amount of $96.4 million. The fully diluted share count for the quarter was 224.6 million shares, down from 225.3 million shares in the prior year and versus 224.7 million shares in our guidance for the third quarter. CapEx for the quarter was $3.2 million, which is $7.6 million lower versus the same period last year when we were completing the construction of our new facility in Chandler. Moving on to our guidance. For the fourth fiscal quarter of 2024, we expect revenue in the range of $246 million and $258 million.
Operating margin is expected to be 10.6% plus or minus 120 basis points, and EPS to be between $0.06 and $0.08. We expect NSE revenue to be approximately $184 million plus or minus $5 million, with an operating margin of 2.5% plus or minus 110 basis points. OSP revenue is expected to be approximately $68 million, plus or minus $1 million, with an operating margin of 32.5% plus or minus 150 basis points. Our tax expenses for the fourth quarter are expected to be about $8 million plus or minus $500,000, as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3 million, and the share count is expected to be around 225.5 million shares. With that, I will turn the call over to Oleg. Oleg?
Oleg Khaykin: Thank you, Ilan. Viavi end market spend environment continues to be challenging, particularly the service providers and enterprise customer segments. In view of these continued headwinds, our revenue came in at the lower end of our guidance, with stronger OSP demand, partially offsetting weaker-than-expected NSE demand. Our EPS was in the lower half of our guidance range, driven by lower NSE volume and less favorable product mix. Starting with NSE. For the third quarter, NSE revenue came in below the lower end of our guidance. NSE revenue declined on a year-over-year basis, driven by softer North American service provider, NAMs and enterprise customers' demand. Decline in field instruments has driven -- was driven by reduced demand for field fiber and cable instruments.
Revenue decline in SE was primarily due to the push out of several major projects by our enterprise customers. Fiber lab and production demand was relatively flat with stronger 800-gig demand, offsetting weaker computing and storage. And AvComm remained a bright spot, seeing year-over-year increase in revenue driven by growth of customer orders for our PNT business. Looking ahead, a seasonally stronger Q4 across all product segments, notwithstanding, we expect the conservative spend environment to persist for the remainder of calendar '24. Now turning to OSP. In fiscal third quarter, OSP grew on a year-over-year basis, driven by higher demand for anti-counterfeiting and 3D sensing products. Overall, OSP results exceeded the higher end of our guidance range.
Looking ahead, we expect OSP to be seasonally down in the June quarter, mostly driven by seasonally weaker demand for 3D sensing products. We expect the demand for 3D sensing to rebound in the first half of fiscal '25, together with the continued recovery in demand for the anti-counterfeiting products. In conclusion, I would like to thank my Viavi team for managing in this challenging environment and express my appreciation to our employees, customers and shareholders for their support. With that, I will now turn it back over to operator for Q&A.
Operator: [Operator Instructions] Our first question comes from the line of Ruben Roy with Stifel. Please go ahead.
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