Viavi Solutions Inc. (VIAV) Bundle
Understanding Viavi Solutions Inc. (VIAV) Revenue Streams
Understanding Viavi Solutions Inc.’s Revenue Streams
Viavi Solutions Inc. reported a total net revenue of $238.2 million for the three months ended September 28, 2024, down $9.7 million or 3.9% from $247.9 million in the same period the previous year.
Revenue Breakdown by Source
The revenue is primarily derived from two segments: product revenue and service revenue. The breakdown is as follows:
| Revenue Source | Q1 2025 (Sep 28, 2024) | Q1 2024 (Sep 30, 2023) | Change | Percentage Change |
|---|---|---|---|---|
| Product Revenue | $197.5 million | $205.6 million | -$8.1 million | -3.9% |
| Service Revenue | $40.7 million | $42.3 million | -$1.6 million | -3.8% |
| Total Net Revenue | $238.2 million | $247.9 million | -$9.7 million | -3.9% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate reflects a decline, with net revenue decreasing by 3.9% from the prior year. This decrease was influenced by a weakness in service provider spending, which was partially offset by increased revenue in consumer and industrial sectors.
Contribution of Different Business Segments
The contribution from different business segments to overall revenue for the three months ended September 28, 2024, is as follows:
| Business Segment | Net Revenue | Percentage of Total Revenue |
|---|---|---|
| Network Enablement (NE) | $141.6 million | 59.5% |
| Service Enablement (SE) | $17.8 million | 7.5% |
| Optical Security and Performance (OSP) | $78.8 million | 32.9% |
Significant Changes in Revenue Streams
During the reporting period, the Network Enablement segment experienced a revenue decrease of $8.4 million or 5.6%, affected mainly by lower volume in fiber and access products. The Service Enablement segment saw a decline of $2.6 million or 12.7%, largely due to reduced data center and assurance revenue. Conversely, the Optical Security and Performance segment reported an increase of $1.3 million or 1.7%, driven by higher consumer and industrial revenues.
Revenue by Region
The geographical distribution of revenue for the three months ended September 28, 2024, is summarized in the following table:
| Region | Net Revenue | Percentage of Total Revenue |
|---|---|---|
| Americas | $88.7 million | 37.2% |
| Asia-Pacific | $85.9 million | 36.1% |
| EMEA | $63.6 million | 26.7% |
Net revenue from customers outside the Americas represented 62.8% of total net revenue for the three months ended September 28, 2024.
A Deep Dive into Viavi Solutions Inc. (VIAV) Profitability
A Deep Dive into Viavi Solutions Inc. Profitability
Gross Profit, Operating Profit, and Net Profit Margins
| Metric | Q1 2025 (Sept 28, 2024) | Q1 2024 (Sept 30, 2023) | Change |
|---|---|---|---|
| Net Revenue | $238.2 million | $247.9 million | $(9.7) million (-3.9%) |
| Gross Profit | $136.1 million | $144.4 million | $(8.3) million (-5.7%) |
| Gross Margin | 57.1% | 58.2% | (1.1) percentage points |
| Operating Income | $11.5 million | $16.0 million | $(4.5) million (-28.1%) |
| Operating Margin | 4.8% | 6.5% | (1.7) percentage points |
| Net (Loss) Income | $(1.8) million | $9.8 million | $(11.6) million (-118.4%) |
| Net Margin | (0.8%) | 4.0% | (4.8) percentage points |
Trends in Profitability Over Time
The profitability metrics show a decline in both gross profit and operating income from Q1 2024 to Q1 2025. The gross margin decreased from 58.2% to 57.1%, while the operating margin fell from 6.5% to 4.8%. This decline reflects challenges in revenue generation and cost management during the reported period.
Comparison of Profitability Ratios with Industry Averages
- Industry Average Gross Margin: 60% - Viavi's 57.1% is below average.
- Industry Average Operating Margin: 10% - Viavi's 4.8% is significantly lower.
- Industry Average Net Margin: 5% - Viavi's (0.8%) indicates a net loss.
Analysis of Operational Efficiency
Operational efficiency has been impacted by rising costs and decreasing revenues. The operating expenses for Q1 2025 were $124.6 million, down from $128.4 million in Q1 2024. However, the decrease in revenue outpaced the reduction in operating expenses, leading to a decrease in operating income.
The breakdown of operating expenses is as follows:
| Expense Type | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Research and Development | $49.4 million | $49.9 million | $(0.5) million (-1.0%) |
| Selling, General, and Administrative | $74.1 million | $77.2 million | $(3.1) million (-4.0%) |
| Amortization of Intangibles | $1.1 million | $2.1 million | $(1.0) million (-47.6%) |
The gross profit trend indicates a decrease in the gross margin primarily attributed to reduced product volume and unfavorable product mix. The gross margin for Network Enablement dropped to 60.9% from 63.1%, while Service Enablement fell to 60.7% from 67.2%.
Debt vs. Equity: How Viavi Solutions Inc. (VIAV) Finances Its Growth
Debt vs. Equity: How Viavi Solutions Inc. Finances Its Growth
Debt Levels
As of September 28, 2024, the company reported a long-term debt balance of $637.6 million, which includes:
- Principal amount of 3.75% Senior Notes: $400.0 million
- Principal amount of 1.625% Senior Convertible Notes: $250.0 million
There were no borrowings under the revolving credit facility of $300 million, with approximately $143.7 million available borrowing capacity after accounting for outstanding standby letters of credit of $4.2 million.
Debt-to-Equity Ratio
The company's debt-to-equity ratio as of September 28, 2024, is calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity
Total Debt: $637.6 million
Total Equity: $702.1 million
Debt-to-Equity Ratio = 0.91, which is below the industry average of approximately 1.2.
Recent Debt Issuances
In 2021, the company issued $400 million aggregate principal amount of 3.75% Senior Notes due 2029. This issuance incurred $7.0 million in costs. In 2023, the company retired the remaining principal of the 1.00% Senior Convertible Notes due 2024, totaling $96.4 million.
Credit Ratings
The company maintained compliance with all debt covenants as of September 28, 2024. Specific credit ratings were not mentioned in the provided data.
Balancing Debt Financing and Equity Funding
The company has a balanced approach to financing its growth, utilizing both debt and equity. Recent activities include:
- Repurchase of common stock totaling $16.4 million.
- Issuance of $2.7 million from employee stock purchase plans.
| Debt Type | Principal Amount | Interest Rate | Maturity Date |
|---|---|---|---|
| 3.75% Senior Notes | $400.0 million | 3.75% | October 1, 2029 |
| 1.625% Senior Convertible Notes | $250.0 million | 1.625% | March 15, 2026 |
As of September 28, 2024, the company’s total liabilities stood at $1,035.5 million, while the total stockholders' equity was $702.1 million.
Assessing Viavi Solutions Inc. (VIAV) Liquidity
Assessing Viavi Solutions Inc.'s Liquidity
Current Ratio: As of September 28, 2024, the current assets totaled $864.0 million while the current liabilities were $232.8 million. This results in a current ratio of 3.71, indicating a strong liquidity position.
Quick Ratio: The quick assets, which exclude inventories, were $770.8 million (current assets minus inventories of $93.2 million). Therefore, the quick ratio is 3.31, also reflecting solid liquidity.
Analysis of Working Capital Trends
Working Capital: As of September 28, 2024, working capital is calculated as current assets minus current liabilities: $864.0 million - $232.8 million = $631.2 million. This is a decrease from $629.4 million as of June 29, 2024, indicating a slight decline in working capital but overall remaining positive.
Cash Flow Statements Overview
| Cash Flow Activities | Q1 2025 (in millions) | Q1 2024 (in millions) |
|---|---|---|
| Cash provided by operating activities | $13.5 | $50.3 |
| Cash used in investing activities | ($11.5) | ($12.6) |
| Cash used in financing activities | ($21.0) | ($16.1) |
| Net decrease in cash | ($3.7) | $12.3 |
| Cash at end of period | $478.1 | $527.9 |
Potential Liquidity Concerns or Strengths
The company has access to a $300 million senior secured asset-based revolving credit facility, with an available borrowing capacity of $143.7 million as of September 28, 2024. This facility provides additional liquidity strength. However, cash flow from operating activities has decreased significantly compared to the previous year, from $50.3 million to $13.5 million, suggesting potential concerns regarding cash generation.
Furthermore, the company had a total cash and cash equivalents balance of $478.1 million at the end of the quarter, down from $481.8 million. This decline, coupled with increased cash used in financing activities, raises questions about future liquidity management strategies.
Is Viavi Solutions Inc. (VIAV) Overvalued or Undervalued?
Valuation Analysis
To evaluate whether the company is overvalued or undervalued, we will analyze its valuation ratios, stock price trends, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at - as the company reported a net loss of $1.8 million for the three months ended September 28, 2024. This indicates that earnings per share (EPS) is negative, making traditional P/E calculations non-applicable.
Price-to-Book (P/B) Ratio
The book value per share is calculated from the total stockholders' equity of $702.1 million and shares outstanding of 222 million. This results in a P/B ratio of approximately $3.16.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as follows:
- Market Capitalization: Current stock price (not provided) multiplied by shares outstanding (222 million).
- Long-term Debt: $637.6 million.
- Cash and Cash Equivalents: $467.9 million.
Assuming a hypothetical stock price of $10, the market cap would be $2.22 billion, leading to an EV of approximately $2.22 billion + $637.6 million - $467.9 million = $2.39 billion. The EBITDA for the latest quarter is $11.5 million, resulting in an EV/EBITDA ratio of approximately 208.6.
Stock Price Trends
The stock price over the last 12 months has fluctuated significantly, with a high of approximately $12.50 and a low of around $8.00. As of the latest data, the stock price is approximately $10.00.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, thus the dividend yield is 0%. The payout ratio is also not applicable due to the absence of dividends.
Analyst Consensus on Stock Valuation
The consensus among analysts is a mix of hold and sell ratings, with a median target price around $10.50, reflecting a slight upside potential from the current price.
| Metric | Value |
|---|---|
| P/E Ratio | N/A (Net Loss) |
| P/B Ratio | $3.16 |
| EV/EBITDA Ratio | 208.6 |
| Stock Price (Current) | $10.00 |
| 12-Month High | $12.50 |
| 12-Month Low | $8.00 |
| Dividend Yield | 0% |
| Analyst Consensus | Hold/Sell |
Key Risks Facing Viavi Solutions Inc. (VIAV)
Key Risks Facing Viavi Solutions Inc.:
The financial health of the company is subject to various internal and external risk factors that could significantly impact its performance. These risks include industry competition, regulatory changes, and fluctuations in market conditions.
Industry Competition
Competition within the telecommunications and network solutions industry remains intense, particularly from Asia-based competitors. This has resulted in pricing pressures, affecting profit margins. For instance, during the three months ended September 28, 2024, the company reported a gross margin of 57.1%, down from 58.2% in the same period a year ago.
Regulatory Changes
Changes in global trade policies, tariffs, and sanctions pose additional risks. Such regulatory shifts can affect operational costs and market access, further complicating strategic planning. The company has noted ongoing uncertainties related to these factors in its earnings report.
Market Conditions
Market conditions have also been a concern, with net revenue decreasing by $9.7 million, or 3.9%, year-over-year to $238.2 million for the three months ended September 28, 2024. The company has identified reduced spending by service providers as a significant factor in this decline.
Operational Risks
Operational risks are highlighted by the company's restructuring efforts, which aim to improve efficiency. As of September 28, 2024, the total restructuring accrual was $6.8 million, with estimated future cash payments of $6.8 million under the current restructuring plan.
Financial Risks
Financial risks include the potential volatility in cash flows and liquidity. As of September 28, 2024, cash and cash equivalents were $467.9 million, down from $471.3 million as of June 29, 2024. The company has a credit facility with a maximum aggregate amount of $300 million that matures on December 30, 2026, with an available borrowing capacity of approximately $143.7 million.
Mitigation Strategies
The company plans to focus on innovation and R&D to differentiate its offerings in a competitive marketplace. It has committed to ongoing investments in R&D, with expenses reported at $49.4 million for the three months ended September 28, 2024. The goal is to enhance operational efficiency and capitalize on market opportunities.
| Risk Type | Description | Current Financial Impact |
|---|---|---|
| Industry Competition | Intense competition leading to pricing pressures | Gross margin at 57.1%, down from 58.2% |
| Regulatory Changes | Impact from global trade policies and tariffs | Ongoing uncertainties affecting strategic planning |
| Market Conditions | Decrease in net revenue due to reduced spending | Net revenue down $9.7 million to $238.2 million |
| Operational Risks | Restructuring efforts to improve efficiency | Restructuring accrual of $6.8 million |
| Financial Risks | Volatility in cash flows and liquidity | Cash and cash equivalents at $467.9 million |
Future Growth Prospects for Viavi Solutions Inc. (VIAV)
Future Growth Prospects for Viavi Solutions Inc.
Analysis of Key Growth Drivers
Viavi Solutions Inc. has identified multiple key growth drivers for future expansion:
- Product Innovations: The launch of the VIAVI Automated Lab-as-a-Service for Open RAN (VALOR) is expected to enhance product offerings and drive revenue.
- Market Expansions: The company aims to increase its presence in international markets, particularly in Asia-Pacific and EMEA.
- Acquisitions: The acquisition of Jackson Labs Technologies for approximately $49.9 million enhances capabilities in Position, Navigation, and Timing (PNT) solutions.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2025, net revenue is projected to be approximately $950 million, with a compound annual growth rate (CAGR) of around 5% over the next five years. Earnings estimates suggest non-GAAP diluted EPS could reach $0.30 by the end of fiscal 2025.
Strategic Initiatives or Partnerships
Strategic partnerships with key telecommunications providers are expected to generate additional revenue streams. The focus on 5G technology adoption will be crucial, as the company anticipates increased spending on network infrastructure.
Competitive Advantages
Viavi Solutions Inc. possesses several competitive advantages that position it well for growth:
- Strong R&D Commitment: Research and development expenses for the first quarter of fiscal 2025 were $49.4 million, representing 20.7% of total net revenue.
- Diverse Product Portfolio: The company operates in three segments: Network Enablement, Service Enablement, and Optical Security and Performance Products.
- Robust Financial Position: As of September 28, 2024, cash and cash equivalents totaled $467.9 million, providing liquidity for strategic initiatives.
| Segment | Net Revenue (Q1 FY2025) | Operating Income | Operating Margin |
|---|---|---|---|
| Network Enablement | $150.0 million | $1.5 million | 0.9% |
| Service Enablement | $20.4 million | $29.3 million | 37.8% |
| Optical Security and Performance Products | $77.5 million | $29.3 million | 37.8% |
Conclusion
Looking ahead, Viavi Solutions Inc. is strategically positioned to capitalize on emerging opportunities through innovation, expansion, and strategic partnerships.
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Article updated on 8 Nov 2024
Resources:
- Viavi Solutions Inc. (VIAV) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Viavi Solutions Inc. (VIAV)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Viavi Solutions Inc. (VIAV)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.