Viavi Solutions Earnings Call Highlights Strong Q2 Beat

Viavi Solutions Inc ((VIAV)) has held its Q2 earnings call. Read on for the main highlights of the call.

Viavi Solutions Delivers Robust Q2 Beat Amid Strategic Restructuring

Viavi Solutions Inc. reported a notably strong quarter, with revenue, margins and earnings all landing at or above the top end of guidance, underscoring solid execution and rising demand in key growth markets such as data centers and aerospace & defense. Management struck a confident tone on near‑term trends and the multi‑year opportunity, while also acknowledging some near‑term challenges, including modest margin pressure in certain segments, slightly softer Spirent-related revenue, restructuring charges tied to a 5% workforce reduction, and increased share dilution. Overall, the call’s sentiment was clearly positive, with management emphasizing momentum, disciplined capital allocation, and constructive guidance for the coming quarter.

Revenue Beat Underscores Strong Top-Line Growth

Viavi posted net revenue of $369.3 million for Q2, landing at the high end of its $360–$370 million guidance range. This represents a 23.5% sequential increase and a robust 36.4% year‑over‑year jump, highlighting strong underlying demand and successful integration of recent acquisitions. The outsized growth is particularly notable against a mixed macro backdrop and suggests Viavi is gaining share and benefiting from secular spending in its core end markets. For investors, the beat and acceleration in growth reinforce the company’s ability to execute and convert new opportunities into tangible top‑line gains.

Margins Expand, EPS Tops Expectations

Profitability moved sharply higher in the quarter, with operating margin reaching 19.3%, above the guided 17.3–18.5% range and improving 360 basis points sequentially and 440 basis points year over year. Non‑GAAP EPS came in at $0.22, beating guidance of $0.18–$0.20 and improving $0.07 sequentially and $0.09 from the prior year. This combination of strong revenue growth and margin expansion points to operating leverage and effective cost control, even as Viavi continues to invest in growth. For shareholders, the EPS outperformance confirms that the company is not only growing but also converting that growth into higher earnings power.

NSE Segment Drives Performance with Data Center Strength

The Network and Service Enablement (NSE) segment was a primary growth engine, delivering revenue of $291.5 million, at the high end of its $283–$293 million guidance and up an impressive 45.8% year over year. This surge was driven by the contribution from acquired assets, including Inertia Labs and Spirent product lines, as well as robust demand across the data center ecosystem. NSE operating margin improved to 15.6%, up from 8.7% a year ago, indicating that integration efforts and scale benefits are starting to pay off. With data center investments accelerating, NSE’s performance underscores Viavi’s leverage to some of the strongest secular trends in networking and cloud infrastructure.

OSP Segment Delivers Steady Growth and Solid Margins

The Optical Security and Performance (OSP/OSB) segment also turned in a solid quarter, with revenue of $77.8 million slightly above the roughly $77 million guidance and up 9.7% year over year. OSP gross margin improved to 50.8%, up 20 basis points from the prior year, while operating margin rose 100 basis points to 33.4%. This performance highlights the segment’s defensive, high‑margin profile and its role as a stable profit contributor within the broader portfolio. For investors, OSP’s consistent growth and strong margin structure provide a counterbalance to the more cyclical or acquisition‑driven elements of Viavi’s business.

Balance Sheet Strength and Proactive Debt Management

Viavi emphasized its fortified balance sheet, ending the quarter with $772.1 million in cash and short‑term investments, up sharply from $549.1 million previously, a gain of about 40.6%. The company took advantage of this position to actively manage its liabilities, exchanging roughly $100 million of convertible notes for 7.9 million shares and prepaying $100 million of its $600 million term loan B. Management made clear it is prioritizing debt reduction over share repurchases for now, signaling a focus on financial flexibility and lower interest expense. This more conservative capital allocation stance may limit buyback‑driven EPS support in the near term but improves long‑term balance sheet resilience.

Restructuring To Unlock Cost Savings and Fund Growth

Viavi announced a restructuring plan affecting about 5% of its global workforce, with estimated one‑time charges of roughly $32 million expected to be recognized mostly by June 2026. The program is targeted to generate around $30 million in annual run‑rate savings, with management intending to reinvest a portion of those savings into higher‑growth areas of the business, particularly where secular trends are strongest. While the move introduces some near‑term execution risk and expense, the company is positioning the restructuring as a way to streamline operations and redirect resources toward opportunities with better growth and return profiles. For investors, this signals a willingness to make tough decisions to improve long‑term competitiveness and profitability.

Spirent Product Lines Lag Expectations on Timing

Revenue tied to Spirent product lines came in at about $43 million, slightly below the company’s $45–$55 million expectation. Management attributed the shortfall to the timing of certain opportunities, suggesting that some government and other orders may slip into Q3 rather than reflecting a deterioration in underlying demand. With a full 13 weeks of Spirent contribution expected in the next quarter versus 10 weeks in Q2, Viavi appears confident that the near‑term shortfall is largely a matter of booking timing. Still, the miss highlights that integration and timing issues can introduce volatility, particularly around large or public‑sector deals.

Share Count Rises, Highlighting Dilution Concern

A key point for equity investors was the rising share count. Fully diluted shares increased to 233.4 million from 224.8 million a year earlier, with management guiding to around 245 million shares for the next quarter. The increase is primarily due to the exchange of convertible notes for equity, which supports balance sheet strength but also dilutes existing shareholders. While this trade‑off reduces future cash outflows and interest costs, it tempers some of the per‑share benefit from the company’s operational outperformance and is an important consideration for valuation and EPS modeling.

Restructuring Charges Add Near-Term Cost and Risk

Beyond headcount reductions, the restructuring carries approximately $32 million in one‑time charges that will weigh on reported results as they are recognized over the next couple of years. While these actions are expected to deliver about $30 million in annual savings, investors must factor in near‑term cost and execution risk as the organization adjusts. Management’s plan to reinvest savings into high‑growth initiatives adds strategic upside, but the transition period could create some noise in margins and profitability metrics before the full benefit is realized.

Debt and Remaining Convertible Obligations

Despite progress on deleveraging, Viavi still has about $50 million of convertible note principal to be settled in cash and ongoing obligations under its remaining term loan. The company has already settled a portion of its convertible notes via share issuance, contributing to the rising share count, and it prepaid $100 million on the term loan. While these steps demonstrate prudent liability management, the remaining debt and the mix of cash and equity used for future settlements will continue to influence both balance sheet strength and dilution, and thus remain key points for investors to monitor.

Margin Pockets of Pressure and Higher Variable Costs

Not all margin trends were uniformly positive. NSE gross margin was 64.7%, down 10 basis points year over year, and OSP operating margin, although up year over year, came in slightly below guidance due to somewhat higher variable costs. These modest pressures suggest that while the company is enjoying strong overall margin expansion, some product areas face cost dynamics or mix effects that limit upside. Management’s commentary implied that these issues are manageable, but they underscore the importance of mix and cost discipline in preserving margin momentum as the business scales.

Operating Cash Flow Dips Slightly on Working Capital

Cash generation was stable but slightly lower, with operating cash flow at $42.5 million compared to $44.7 million in the prior‑year period, a decline of about 4.9%. Management attributed this primarily to the timing of working capital. Given the strong earnings performance and increased cash balance, this modest decline is not alarming, but it does highlight the impact that inventory, receivables and payables management can have on quarter‑to‑quarter cash flow. Investors will watch to see whether operating cash flow tracks earnings more closely in coming quarters.

Ongoing Weakness in Wireless Infrastructure Test

One soft spot in the portfolio remains wireless infrastructure test, where demand continues to be weak, though described as stable. This reflects a broader slowdown in wireless infrastructure spending relative to more dynamic areas like data centers and aerospace & defense. While not a major drag on the overall story given the strength elsewhere, this segment’s subdued growth limits upside and underscores Viavi’s strategy of reallocating resources toward more attractive end markets.

Guidance Signals Continued Growth and Margin Stability

Looking ahead to fiscal Q3, Viavi guided to sequential revenue growth, with total revenue expected between $386 million and $400 million. NSE revenue is forecast at $304–$316 million and OSP at $82–$84 million, with Q3 including a full 13 weeks of Spirent product line contributions versus 10 weeks in Q2. The company expects an operating margin of roughly 19.7% plus or minus 50 basis points, implying a range of about 19.2–20.2%, and NSE operating margin of about 15.5% plus or minus 50 basis points (roughly 15.0–16.0%). Other income and expense is projected to be a net expense of about $12.5 million, with fully diluted shares around 245 million and an anticipated earn‑out payment related to Inertia Labs during the quarter. Management highlighted ongoing strength from data center and aerospace & defense customers and believes these secular drivers can sustain momentum into calendar 2026.

In summary, Viavi Solutions delivered a strong earnings call characterized by a top‑line beat, margin expansion, and EPS outperformance, supported by vibrant demand in data center and aerospace & defense markets and disciplined balance sheet management. While investors must weigh the headwinds of restructuring charges, modest margin pressure in some lines, slightly softer Spirent revenue, and rising share dilution, the overall narrative remains constructive. With sequential growth embedded in guidance and clear strategic moves to streamline costs and invest behind high‑growth opportunities, Viavi’s latest quarter reinforces a positive outlook for the business and keeps the stock firmly on the radar for growth‑oriented investors.