Viavi Announces Fiscal First Quarter 2016 Results

MILPITAS, CA--(Marketwired - Nov 2, 2015) - Viavi (NASDAQ: VIAV)

• GAAP and Non-GAAP Net Revenue of $229.7 million, up $14.4 million or 6.7% year-over-year
• GAAP operating margin of (1.3)%, up 450 bps year-over-year
• Non-GAAP operating margin of 12.5%, up 650 bps year-over-year
• GAAP EPS from continuing operations of $(0.02), up $0.09 or 81.8% year-over-year
• Non-GAAP EPS from continuing operations of $0.08, up $0.05 or 166.7% year-over-year
• Amounts presented below are on a continuing operations basis unless otherwise noted

Viavi (NASDAQ: VIAV) today reported results for its fiscal first quarter ended October 3, 2015. Fiscal 2016 is a 53-week year and fiscal 2015 was a 52-week year. The extra week of fiscal 2016 fell within the first quarter, resulting in a 14-week versus 13-week sequential quarterly and year-over-year comparisons.

GAAP net revenue was $229.7 million, with net loss of $(4.7) million, or $(0.02) per share. Prior quarter GAAP net revenue was $219.8 million, with net loss of $(32.1) million, or $(0.14) per share. GAAP net revenue for fiscal 2015 first quarter was $215.3 million, with net loss of $(25.8) million, or $(0.11) per share.

Non-GAAP net revenue was $229.7 million, with net income of $19.6 million, or $0.08 per share. Prior quarter non-GAAP net revenue was $219.8 million, with net income of $10.4 million, or $0.04 per share. Non-GAAP net revenue for fiscal 2015 first quarter was $215.3 million, with net income of $7.4 million, or $0.03 per share.

"We delivered solid execution on our first fiscal quarter results as Viavi Solutions. Revenue, operating margin and earnings per share met or exceeded the high end of our guidance range," said Rick Belluzzo, Viavi's Interim President and Chief Executive Officer. "Our OSP business reported record revenue and profitability, while Network Enablement demonstrated signs of business stabilization and Service Enablement saw growth in Location Intelligence and Enterprise, both of which are high-growth markets."

Belluzzo added, "Positive changes are happening in the organization with a new go-to market strategy to drive revenue growth as well as optimizing our operational infrastructure to improve profitability. We are off to a good start in what we expect to be a transformational fiscal year."

Financial Overview:

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

	GAAP Results
	Q1				Q4				Q1				Change
	FY 2016				FY 2015				FY 2015				Q/Q			Y/Y
Net revenue	$	229.7			$	219.8			$	215.3			4.5	%		6.7	%
Gross margin		61.2	%			59.6	%			59.9	%		160 bps			130 bps
Operating margin		(1.3	)%			(8.6	)%			(5.8	)%		730 bps			450 bps

	Non-GAAP Results
	Q1				Q4				Q1				Change
	FY 2016				FY 2015				FY 2015				Q/Q			Y/Y
Net revenue	$	229.7			$	219.8			$	215.3			4.5	%		6.7	%
Adj. Gross margin		63.6	%			62.6	%			64.2	%		100 bps			(60) bps
Adj. Operating margin		12.5	%			7.7	%			6.0	%		480 bps			650 bps

		Non-GAAP Net Revenue by Segment
		Q1			% of Net			Q4			Q1			Change
		FY 2016			revenue			FY 2015			FY 2015			Q/Q		Y/Y
Network Enablement		$	117.6		51.2	%		$	132.2		$	121.5		(11.0	)%	(3.2	)%
Service Enablement			47.9		20.9	%			37.1			50.5		29.1	%	(5.1	)%
Optical Security and Performance Products			64.2		27.9	%			50.5			43.3		27.1	%	48.3	%
	Total	$	229.7		100.0	%		$	219.8		$	215.3		4.5	%	6.7	%

• Americas, Asia-Pacific and EMEA customers represented 51.8%, 19.8% and 28.4%, respectively, of total net revenue for the quarter.
  
  
• The Company held $903.1 million in total cash and investments, which also includes marketable equity investments, and generated $7.7 million of cash from operations for the quarter.
  
  
• The Company adjusted its current and historical Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets and reportable segment information to reflect the spin-off of the Lumentum business (formerly the Company's communications and commercial optical products business segment and WaveReady product line) on August 1, 2015. The Lumentum business' adjusted results are reflected as discontinued operations for the periods reported in the Company's GAAP Condensed Consolidated Statement of Operations, Condensed Consolidated Balance Sheet and reportable segment information.

Business Outlook for the Fiscal Second Quarter of Fiscal 2016

For the fiscal second quarter of 2016 ending January 2, 2016, the Company expects non-GAAP net revenue to be $212 million to $228 million and non-GAAP earnings per share to be $0.06 to $0.08.

Conference Call

The Company will discuss these results and other related matters at 1:30 p.m. Pacific Time on November 2, 2015 in a live webcast, which will also be archived for replay on the Company's website at www.viavisolutions.com/investors. The Company will post supplementary slides outlining the Company's latest financial results on www.viavisolutions.com/investors under the "Quarterly Results" section concurrently with this earnings press release. This press release and the supplementary slides are 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) software and hardware platforms and instruments deliver end-to-end visibility across physical, virtual and hybrid networks. Precise intelligence and actionable insight from across the network ecosystem optimizes the service experience to enable customers to increase profitability and make quicker transitions to next-generation technologies. Viavi is also a leader in anti-counterfeiting solutions for currency authentication and high-value optical components and instruments for diverse government and commercial applications. Learn more at www.viavisolutions.com and 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 anticipation or guidance as to future financial performance, including future revenue, gross margin, operating expense, operating margin, profitability, cash flow and other financial metrics, as well as the impact and duration of certain trends and market 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) customer purchasing delays as they assess or transition to new technologies and/or new architectures, 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 and product discontinuances that have caused and may cause short-term disruptions; (h) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand; and (i) inherent uncertainty related to global markets and the effect of such markets on demand for our products. Additionally, risks related to the recent separation include the ability to retain key employees, the ability to recognize anticipated cost savings, Viavi's ability to function successfully as a stand-alone entity, potential business disruption caused by the separation, and customer retention and financing risks. 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 June 27, 2015 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.

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 3, 2015				September 27, 2014
Net revenue			$	229.7			$	215.3
Cost of revenues				84.9				78.3
Amortization of acquired technologies				4.3				8.1
Gross profit				140.5				128.9
Operating expenses:
	Research and development			44.3				41.6
	Selling, general and administrative			94.9				93.6
	Amortization of other intangibles			3.8				5.0
	Restructuring and related charges			0.4				1.1
Total operating expenses				143.4				141.3
Loss from operations				(2.9	)			(12.4	)
Interest and other income (expense), net				(1.1	)			0.6
Interest expense				(8.8	)			(8.2	)
Loss from continuing operations before taxes				(12.8	)			(20.0	)
(Benefit from) provision for income taxes				(8.1	)			5.8
Loss from continuing operations, net of taxes			$	(4.7	)		$	(25.8	)
(Loss) income from discontinued operations, net of taxes				(62.3	)			16.1
Net loss			$	(67.0	)		$	(9.7	)
Net (loss) income per share - basic and diluted:
	Continuing operations		$	(0.02	)		$	(0.11	)
	Discontinued operations			(0.26	)			0.07
	Net loss		$	(0.28	)		$	(0.04	)
Shares used in per share calculation - basic and diluted				236.0				230.8

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

VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
PRELIMINARY
			October 3, 2015			June 27, 2015
ASSETS
Current assets:
	Cash and cash equivalents		$	350.0		$	334.5
	Short-term investments			541.9			464.9
	Restricted cash			11.2			26.2
	Accounts receivable, net			157.2			152.3
	Inventories, net			57.9			53.8
	Prepayments and other current assets			39.0			38.2
	Current assets of discontinued operations			--			310.2
Total current assets				1,157.2			1,380.1
Property, plant and equipment, net				142.0			149.2
Goodwill				247.1			255.5
Intangibles, net				85.6			90.6
Deferred income taxes				109.5			117.3
Other non-current assets				19.8			20.9
Non-current assets of discontinued operations				--			204.2
	Total assets		$	1,761.2		$	2,217.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	46.0		$	42.0
	Accrued payroll and related expenses			51.5			52.6
	Income taxes payable			27.5			3.1
	Deferred revenue			80.5			80.6
	Accrued expenses			38.0			23.7
	Other current liabilities			30.1			43.5
	Current liabilities of discontinued operations			--			130.0
Total current liabilities				273.6			375.5
Long-term debt				568.2			561.6
Other non-current liabilities				173.5			168.4
Non-current liabilities of discontinued operations				--			10.9
Total stockholders' equity				745.9			1,101.4
	Total liabilities and stockholders' equity		$	1,761.2		$	2,217.8

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 3, 2015
	Network and Service Enablement
	Network Enablement				Service Enablement				Network and Service Enablement				Optical Security and Performance Products				Total Segment Measures				Corporate Reconciling Items				Consolidated GAAP Measures
Net revenue	$	117.6			$	47.9			$	165.5			$	64.2			$	229.7			$	--			$	229.7
Gross profit		75.7				33.4				109.1				37.0				146.1				(5.6	)			140.5
Gross margin		64.4	%			69.7	%			65.9	%			57.6	%			63.6	%							61.2	%
Operating income (loss)										2.4				26.3				28.7				(31.6	)			(2.9	)
Operating margin										1.5	%			41.0	%			12.5	%							(1.3	)%

	Three Months Ended September 27, 2014
	Network and Service Enablement
	Network Enablement				Service Enablement				Network and Service Enablement				Optical Security and Performance Products				Total Segment Measures				Corporate Reconciling Items				Consolidated GAAP Measures
Net revenue	$	121.5			$	50.5			$	172.0			$	43.3			$	215.3			$	--			$	215.3
Gross profit		80.2				35.0				115.2				23.1				138.3				(9.4	)			128.9
Gross margin		66.0	%			69.3	%			67.0	%			53.3	%			64.2	%							59.9	%
Operating income (loss)										(1.3	)			14.3				13.0				(25.4	)			(12.4	)
Operating margin										(0.8	)%			33.0	%			6.0	%							(5.8	)%

				Three Months Ended
				October 3, 2015				September 27, 2014
Corporate reconciling items impacting gross profit:
Total segment gross profit				$	146.1			$	138.3
	Stock-based compensation				(1.2	)			(1.0	)
	Amortization of intangibles				(4.3	)			(8.1	)
	Other charges related to non-recurring activities				(0.1	)			(0.3	)
		GAAP gross profit		$	140.5				128.9
Corporate reconciling items impacting operating (loss) income:
Total segment operating income				$	28.7			$	13.0
	Stock-based compensation				(16.0	)			(10.5	)
	Amortization of intangibles				(8.1	)			(13.1	)
	Other charges related to non-recurring activities (1)				(7.1	)			(0.7	)
	Restructuring and related charges				(0.4	)			(1.1	)
		GAAP operating loss from continuing operations		$	(2.9	)		$	(12.4	)

(1)

During the three months ended October 3, 2015, other charges related to non-recurring activities primarily consisted of a) incremental expenses impacting our continuing operations of $3.2 million related to post-separation activities such as site consolidations, reorganizations, insourcing or outsourcing of activities and b) $3.5 million of non-recurring incremental severance and related costs upon the exit of a key executive.

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

Use of Non-GAAP (Adjusted) Financial Measures

The Company provides non-GAAP net revenue, non-GAAP gross margin, non-GAAP operating income, 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 amortization of acquisition-related intangibles, stock-based compensation, restructuring, separation costs, 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 as the Company is no longer active in its discontinued operations.

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 have historically been 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) other non-recurring charges comprising mainly of one-time acquisition, integration, litigation and other costs and contingencies unrelated to current and future operations, including post-separation activities such as small site consolidations, reorganizations, insourcing or outsourcing of activities and severance related costs related to the exit of key executives, (vi) product-line termination costs such as the write-off of inventory no longer being sold, and (vii) impairment charges resulting from a write-down or write-off of the carrying value of intangible assets assessed in accordance with authoritative guidance. The Company excludes these items in calculating non-GAAP gross margin, non-GAAP operating income, 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 income, 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.

Other income (loss), net and non-cash interest expense: The Company incurred non-cash interest expense accretion of the debt discount on its convertible debt instruments and a one-time write-off of unamortized issuance cost related to its revolving credit facility upon termination of the facility. The Company has sold investments or adjusted the value of investments from time to time based on market conditions, and includes the impact of these activities in its GAAP presentation of other income (expense), net. The Company eliminates these items in calculating non-GAAP net income (loss), 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 non-cash tax expense related to the utilization of net operating losses where valuation allowances were released, non-cash income tax, intra-period tax allocation benefit and other significant one-time events, such as the spin-off of Lumentum. 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, 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 and restructuring and related charges (benefits), and other charges related to non-recurring activities that are not part of its core operating performance described above. Management believes adjusted EBITDA is a good indicator of the Company's core operational cash flow.

Non-GAAP financial measures are not in accordance with, 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 indicative of its core operating expenses and 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 from continuing operations to non-GAAP measures:
						Three Months Ended
						October 3, 2015								September 27, 2014
						Net income (loss)				Diluted EPS				Net income (loss)				Diluted EPS
GAAP measures from continuing operations						$	(4.7	)		$	(0.02	)		$	(25.8	)		$	(0.11	)
	Items reconciling GAAP net loss and EPS from continuing operations to non-GAAP net income and EPS:
	Related to cost of revenues:
		Stock-based compensation					1.2				0.01				1.0				--
		Other charges related to non-recurring activities					0.1				--				0.3				--
		Amortization of acquired technologies					4.3				0.02				8.1				0.03
			Total related to gross profit				5.6				0.02				9.4				0.04
	Related to operating expenses:
		Research and development:
			Stock-based compensation				2.8				0.01				1.9				0.01
			Other charges related to non-recurring activities (1)				1.3				0.01				--				--
		Selling, general and administrative:
			Stock-based compensation				12.0				0.05				7.6				0.03
			Other charges related to non-recurring activities (1)				5.7				0.02				0.4				--
		Amortization of other intangibles					3.8				0.02				5.0				0.02
		Restructuring and related charges					0.4				--				1.1				--
				Total related to operating expenses			26.0				0.11				16.0				0.07
	Non-cash interest expense and other income (expense), net						6.5				0.03				6.3				0.03
	Income taxes						(13.8	)			(0.06	)			1.5				0.01
				Total related to net income and EPS			24.3				0.10				33.2				0.14
Non-GAAP measures from continuing operations						$	19.6			$	0.08			$	7.4			$	0.03
Shares used in per share calculation for Non-GAAP EPS											238.7								233.3
Note: Certain totals may not add due to rounding

(1)

During the three months ended October 3, 2015, other charges related to non-recurring activities primarily consisted of a) incremental expenses impacting our continuing operations of primarily $3.2 million related to post-separation activities such as site consolidations, reorganizations, insourcing or outsourcing of activities and b) $3.5 million of non-recurring incremental severance and related costs upon the exit of a key executive.

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

VIAVI SOLUTIONS INC.
RECONCILIATION OF GAAP NET LOSS FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA
(in millions, unaudited)
PRELIMINARY
			Three Months Ended
			October 3, 2015				September 27, 2014
GAAP net loss from continuing operations			$	(4.7	)		$	(25.8	)
	Interest and other income (expense), net			1.1				(0.6	)
	Interest expense			8.8				8.2
	Income taxes			(8.1	)			5.8
	Depreciation			9.3				9.2
	Amortization			8.1				13.1
EBITDA from continuing operations				14.5				9.9
	Costs related to restructuring and related charges			0.4				1.1
	Costs related to stock-based compensation			16.0				10.5
	Costs related to other non-recurring activities (1)			7.1				0.7
Adjusted EBITDA from continuing operations			$	38.0			$	22.2

(1)

During the three months ended October 3, 2015, other charges related to non-recurring activities primarily consisted of a) incremental expenses impacting our continuing operations of primarily $3.2 million related to post-separation activities such as site consolidations, reorganizations, insourcing or outsourcing of activities and b) $3.5 million of non-recurring incremental severance and related costs upon the exit of a key executive.

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