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VIAVI SOLUTIONS INC. (VIAV)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 was a clean beat versus company guidance: revenue $270.8M, non-GAAP operating margin 14.9%, and non-GAAP EPS $0.13 were all above the high end of guidance; strength came from NSE (service providers and NEMs) while OSP was slightly below guidance due to softer 3D sensing demand .
  • Management highlighted a multi-quarter recovery underway in traditional service provider end-markets, with incremental secular tailwinds from AI-driven data center fiber lab/production and aerospace/defense; hyperscalers are adopting fiber monitoring, supporting durable NSE demand .
  • Q3 FY2025 guidance implies sequential revenue growth ($276–$288M) with NSE seasonally stronger and OSP ~flat YoY; mix and statutory accruals temper margin versus Q2 (NSE OM ~7% ±100 bps; OSP OM ~33% ±100 bps) .
  • Stock-relevant narrative: improving visibility in North America fiber and early wireless field test orders (4G→5G spectrum re-farming), accelerating AI interconnect builds (800G ramp; first 1.6T shipments), and A&D expansion (Inertial Labs close) are catalysts; OSP faces 3D sensing ASP erosion and anti-counterfeiting inventory normalization as near-term headwinds .

What Went Well and What Went Wrong

What Went Well

  • NSE demand recovery: “VIAVI’s financial performance exceeded expectations, largely driven by recovering NSE demand” (CEO); NSE revenue $199.9M and OM 8.7% significantly exceeded guidance as field and lab instruments improved .
  • AI/data center momentum: First 1.6T fiber product shipped; strong 800G demand from module builders for AI infrastructures, setting up growth through FY25 .
  • Cash generation and margins: CFFO $44.7M; GAAP GM expanded to 59.4% (+230 bps q/q) and non-GAAP OM to 14.9% (+490 bps q/q), demonstrating operating leverage on higher NSE volumes .

What Went Wrong

  • OSP softness and ASP pressure: OSP revenue $70.9M slightly below guidance; YoY -5.3%, with GM down 150 bps, driven by weaker 3D sensing demand and annual ASP reductions .
  • SE remained weak: SE revenue $20.9M (-13.3% YoY) on conservative enterprise spend; pipeline-to-revenue conversion (AIOps/private networks) slower than engagement pace .
  • Higher tax and OI&E headwinds ahead: Q3 tax ~$9M and OI&E net expense ~$4.2M expected, reflecting jurisdictional mix and lower interest income post Inertial Labs funding .

Financial Results

Consolidated P&L vs prior quarters and prior year

MetricQ4 FY2024 (oldest)Q1 FY2025Q2 FY2025 (newest)Q2 FY2024 (YoY)
Net Revenue ($M)$252.0 $238.2 $270.8 $254.5
GAAP Gross Margin (%)57.8% 57.1% 59.4% 58.2%
Non-GAAP Gross Margin (%)59.6% 59.1% 61.1% 60.0%
GAAP Operating Margin (%)-2.3% 4.8% 8.2% 8.8%
Non-GAAP Operating Margin (%)10.9% 10.0% 14.9% 13.2%
GAAP Diluted EPS ($)-0.10 -0.01 0.04 0.05
Non-GAAP EPS ($)0.08 0.06 0.13 0.11
Adjusted EBITDA ($M)$36.9 $33.5 $50.1

Segment Revenue and Margins

SegmentQ4 FY2024 Revenue ($M)Q1 FY2025 Revenue ($M)Q2 FY2025 Revenue ($M)Q2 FY2025 GM (%)Q2 FY2025 OM (%)
Network Enablement (NE)$158.5 $141.6 $179.0 64.5% —
Service Enablement (SE)$23.7 $17.8 $20.9 67.5% —
NSE (NE+SE)$182.2 $159.4 $199.9 64.8% 8.7%
Optical Security & Performance (OSP)$69.8 $78.8 $70.9 50.6% 32.4%
Total$252.0 $238.2 $270.8 59.4% 8.2%

KPIs and Balance Sheet Highlights

KPIQ4 FY2024Q1 FY2025Q2 FY2025
Cash, ST Investments, Restricted Cash ($M)$496.2 $497.9 $512.8
Cash & Equivalents ($M)$471.3 $467.9 $488.0
Long-term Debt (net carrying, $M)$636.0 $637.6 $639.3
Cash from Operations ($M)$26.2 $13.5 $44.7
Diluted Share Count (Non-GAAP EPS calc)224.2M 224.0M 224.8M

Non-GAAP adjustment context: The uplift from GAAP OM 8.2% to non-GAAP OM 14.9% and GAAP EPS $0.04 to non-GAAP $0.13 reflects add-backs for stock-based comp, amortization, fair value changes in contingent liabilities, restructuring, and acquisition/integration costs; reconciliations detailed in the release .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Revenue ($M)Q2 FY2025$255–$265 Actual $270.8 Beat vs guidance
Non-GAAP EPS ($)Q2 FY2025$0.09–$0.11 Actual $0.13 Beat vs guidance
NSE Revenue ($M)Q2 FY2025~$188 ±$4 Actual $199.9 Beat
OSP Revenue ($M)Q2 FY2025~$72 ±$1 Actual $70.9 Slight miss
Consolidated Revenue ($M)Q3 FY2025N/A$276–$288 New
Non-GAAP EPS ($)Q3 FY2025N/A$0.10–$0.13 New
NSE Revenue ($M)Q3 FY2025N/A~$207 ±$5; OM ~7% ±100 bps New
OSP Revenue ($M)Q3 FY2025N/A~$75 ±$1; OM ~33% ±100 bps New
Tax Expense ($M)Q3 FY2025N/A~$9 ±$0.5 New
Other Inc/Exp (net, $M)Q3 FY2025N/A~$(4.2) New
Diluted Shares (M)Q3 FY2025N/A~226.1 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024, Q1 FY2025)Current Period (Q2 FY2025)Trend
AI data center optical (800G→1.6T)Expect 800G entering volume; 1.6T driven by data centers; lead times 3–6 months First 1.6T shipped; 800G strength across semis/NEMs/module builders for AI infrastructure Improving
Wireless 5G recoveryNAMs in hibernation; recovery likely later FY25 Early wireless field instrument orders in NA; 4G→5G spectrum conversion (cost per bit ↓80–90%) Improving
Fiber monitoring & hyperscalersTier 2 fiber interconnect builds; Europe stable Hyperscalers deploying sophisticated fiber monitoring; telcos/cable also engaged Increasing adoption
OSP anti-counterfeiting & 3D sensingInventory depletion underway; ASP erosion in 3D sensing OSP slightly below guide; managing inventories to accelerate demand/supply rebalance Mixed; normalizing
AIOps & SEStrong interest; slower conversion; private networks building Continued SE softness; AIOps/private networks momentum but revenue conversion lagging Stable to improving
M&A (Inertial Labs)Deal announced; accretive over 12 months Closed Jan 28; Q3 guide includes high single-digit $M NSE revenue contribution Strategic expansion

Management Commentary

  • CEO framing: “VIAVI’s financial performance exceeded expectations, largely driven by recovering NSE demand…diversification and growth opportunities in new end markets such as the data center ecosystem and aerospace and defense” .
  • Data center and AI: “We shipped our first 1.6-terabit fiber product and saw continued demand for our 800-gig products…should drive significant growth for the remainder of fiscal ’25” .
  • Wireless inflection: “Placement for wireless field instruments…indicates…major 5G deployment restart in the next 2 quarters…accelerating conversion of 4G spectrum to 5G…80–90% drop in cost per bit” .
  • Hyperscaler fiber monitoring: “Hyperscalers…putting very sophisticated fiber monitoring…to protect billions invested in data centers…hold service providers accountable for SLAs” .
  • OSP approach: Proactively reducing internal inventories to balance demand/supply even at the expense of 1–3 pts of operating profit .

Q&A Highlights

  • Fiber monitoring demand is broadening from telcos to hyperscalers; hyperscalers require stringent SLAs and are investing to actively monitor dark fiber readiness, a new driver of NSE demand .
  • 800G remains the 2025 “workhorse” while 1.6T ramps in R&D and begins production toward year-end; strong Asia module production testing linked to AI infrastructure buildouts .
  • Wireless rebound evidence: field test instrument orders signal near-term deployment; core driver is spectrum re-farming from 4G to 5G to lower cost per bit, primarily in North America (Europe likely lags by 3–6 months) .
  • OSP dynamics: 3D sensing seasonally weaker in H2 with ASP erosion; anti-counterfeiting stabilizing as inventories normalize; conscious inventory reduction weighs on margin near-term .
  • Capital allocation/M&A: appetite remains focused on EPS-accretive, margin-accretive targets; Inertial Labs complements PNT to deliver alternative navigation modules for A&D and autonomous systems .

Estimates Context

  • S&P Global Wall Street consensus data was unavailable at the time of request due to rate limits; therefore, explicit consensus comparisons cannot be provided.
  • As an alternative anchor, Q2 results exceeded company-issued guidance on revenue ($270.8M vs $255–$265M), non-GAAP OM (14.9% vs 11.4–13.4%), and non-GAAP EPS ($0.13 vs $0.09–$0.11), indicating likely upward estimate revisions for NSE-driven lines and potential adjustments for OSP mix .

Key Takeaways for Investors

  • NSE recovery is broadening beyond maintenance to project-driven demand in NA fiber and early wireless deployment; this is the primary driver of Q2 beat and supports Q3 sequential growth .
  • AI data center optical test and production is a durable secular tailwind; 800G ramp and 1.6T entry should sustain lab/production demand into FY2025–2026, with Asia module production a volume lever .
  • OSP near-term headwinds (3D sensing ASPs, inventory normalization) are manageable; anti-counterfeiting stabilization expected over next two quarters, but margin mix may soften sequentially .
  • Statutory tax and OI&E will dilute Q3 EPS versus Q2 despite revenue growth; monitor cash redeployment to M&A and share count drift (~226.1M guided) .
  • Inertial Labs adds high-margin A&D exposure and completes PNT/P&N capability, improving medium-term margin profile and diversifying away from telecom cyclicality .
  • Near-term trading: favor strength on NSE momentum and AI lab/production narrative; watch OSP print, taxes/OI&E, and guide cadence.
  • Medium-term thesis: data center-driven optical cycles and A&D portfolio expansion underpin margin and growth durability; monitor enterprise SE AIOps conversion and European carrier catch-up .