fiscal 2q 2021 earnings call supplementary slides february ......issue size $460.0m $225.0m current...

Fiscal 2Q 2021

Earnings Call

Supplementary Slides

February 2, 2021

Cautionary Language Concerning Forward-Looking Statements

This presentation contains forward-looking statements under Section 27A of the Securities Act of 1934.

Forward-looking statements are all statements we make other than those dealing specifically with

historical matters. These forward-looking statements include, among other things, financial guidance.

Please refer to the Company’s filings with the Securities and Exchange Commission, including our

annual report on Form 10-K filed August 24, 2020 and our quarterly reports on Form 10-Q filed February

6, 2020, May 7, 2020 and November 10, 2020 for additional factors that could cause actual results to

materially differ from current expectations. The forward-looking statements included in this presentation

are valid only as of today’s date except where otherwise noted. Viavi Solutions Inc. undertakes no

obligation to update these statements.

This presentation and the Q&A that follows include non-GAAP financial measures which complement

the Company’s preliminary consolidated GAAP financial statements. These non-GAAP financial

measures are not intended to supersede or replace the Company’s preliminary GAAP financials. We

provide a detailed reconciliation of preliminary GAAP results to the non-GAAP results in the Appendix to

this presentation and in the “Preliminary Reconciliation of GAAP Measures to Non-GAAP Measures”

schedule in our earnings release issued today. This earnings release is located in the Investor Relations

section of our web site at https://investor.viavisolutions.com.

Note: Amounts presented in all slides are on a continuing operations basis unless otherwise noted.

Fiscal 2Q 2021 Financial Highlights(Amounts reflect non-GAAP and in $millions, unless otherwise noted)

All non-GAAP amounts are reconciled to the corresponding GAAP amounts in the Appendix beginning on slide 13.

Result Y/Y PerformanceRevenue(high-end $290M +/- $10M guidance range)

$299.9 down (4.4)%

Non-GAAP Gross Margin 63.1% down (40) basis points

NE 62.6% down (380) basis points

SE 68.2% up 150 basis points

OSP 62.7% up 790 basis points

Non-GAAP Operating Margin(exceeded 19.5% +/- 0.5% guidance range)

22.3% up 70 basis points

NSE 10.7% down (530) basis points

OSP 47.9% up 970 basis points

Earnings Per Share(exceeded $0.19 +/- $0.01 guidance range)

$0.23 flat 0.0%

GAAP Operating Cash Flow $68.7 up 80.8%

F2Q 2021 F1Q 2021 F2Q 2020 QoQ YoY

Revenue $299.9 $284.7 $313.7 5.3 % (4.4)%

Non-GAAP Gross Margin 63.1% 62.8 % 63.5 % 30 bps (40) bps

Non-GAAP Operating Expenses $122.5 $118.2 $131.3 3.6 % (6.7)%

Non-GAAP Operating Profits $66.8 $60.6 $67.9 10.2 % (1.6)%

Non-GAAP Operating Margin 22.3 % 21.3 % 21.6 % 100 bps 70 bps

Non-GAAP Net Income $52.1 $48.3 $55.6 7.9 % (6.3)%

Non-GAAP EPS $0.23 $0.21 $0.23 $0.02 $0.00

Income Statement(Amounts reflect non-GAAP and in $millions, except per share amounts)

Revenue by Business Segment and Geographic Region(Amounts in $millions)

F2Q 2021 F1Q 2021 F2Q 2020 QoQ YoY

Segment Mix

NE $180.9 60.3% $162.1 56.9 % $203.0 64.7 % 11.6% (10.9%)

SE $25.8 8.6% $21.4 7.5 % $31.2 10.0 % 20.6% (17.3%)

OSP $93.2 31.1% $101.2 35.6 % $79.5 25.3 % (7.9%) 17.2%

Total $299.9 100.0 % $284.7 100.0 % $313.7 100.0 % 5.3% (4.4%)

Region Mix

Americas $108.4 36.2% $95.4 33.5 % $116.8 37.2 % 13.6% (7.2%)

Asia-Pacific $96.4 32.1 % $108.2 38.0 % $113.0 36.0 % (10.9%) (14.7%)

EMEA $95.1 31.7 % $81.1 28.5 % $83.9 26.8 % 17.3% 13.3%

Total $299.9 100.0% $284.7 100.0 % $313.7 100.0 % 5.3% (4.4%)

Business Segment Results(Amounts in $millions)

F2Q 2021 F1Q 2021 F2Q 2020 QoQ YoY

Revenue

NE $180.9 $162.1 $203.0 11.6% (10.9%)

SE $25.8 $21.4 $31.2 20.6% (17.3%)

OSP $93.2 $101.2 $79.5 (7.9%) 17.2%

Total $299.9 $284.7 $313.7 5.3% (4.4%)

Non-GAAP Gross Margin

NE 62.6% 63.8% 66.4% -120 bps (380 bps)

SE 68.2% 66.8% 66.7% 140 bps 150 bps

OSP 62.7% 60.3% 54.8% 240 bps 790 bps

Total 63.1% 62.8% 63.5% 30 bps (40 bps)

Non-GAAP Operating Margin

NSE 10.7% 7.2% 16.0% 350 bps (530 bps)

OSP 47.9% 46.7% 38.2% 120 bps 970 bps

Total 22.3% 21.3% 21.6% 100 bps 70 bps


Fiscal 2Q 2021 NSE Business Highlights(Amounts reflect non-GAAP and in $millions)

NE Segment Highlights

▪ Revenue at $180.9 million down 10.9% Y/Y due to pandemic related impact in Field Instruments

▪ Non-GAAP Gross margin at 62.6% down 380 basis points Y/Y due to lower revenue volume

SE Segment Highlights

▪ Revenue at $25.8 million decreased 17.3% Y/Y due to last year's stronger than usual demand in Data Center

products

▪ Non-GAAP Gross margin at 68.2% increased 150 basis points Y/Y due to favorable product mix

▪ NSE revenue at $206.7 million was above the midpoint of the guidance range ($197-$213 million); Operating

margin at 10.7% was within the the guidance range (10.0%-12.0%)

▪ Non-GAAP Operating margin decreased 530 basis points Y/Y due to lower revenue and partially offset by

lower operating expenses


Fiscal 2Q 2021 OSP Business Highlights(Amounts reflect non-GAAP and in $millions)

▪ Revenue at $93.2 million exceeded the guidance range ($83-$87 million); operating margin at 47.9%

exceeded the guidance range (39.5%-40.5%)

▪ Revenue increased 17.2% Y/Y driven by increase in Anti-Counterfeiting and 3D Sensing products

▪ Non-GAAP Gross margin at 62.7% increased 790 basis points due to higher volume, favorable product mix

and high factory utilization

▪ Non-GAAP Operating margin increased 970 basis points Y/Y due to aforementioned higher gross margin

volume and OpEx management control


(1) Includes cash and cash-equivalents, short-term investments and restricted cash.

(2) Carrying value equals outstanding principal amount less the unamortized debt discount and debt issuance cost.

Face amount is $685.0 million.

F2Q 2021

Total Cash Balance (1) $648.8

Long-term Debt (Carrying Value) (2) $612.4

GAAP Cash from Operations $68.7

Balance Sheet Highlights(Amounts in $millions)

Balance Sheet Highlights(Amounts in $millions)

Current Convertible NotesTerms

2024 Notes 2023 Notes

Issue Size $460.0M $225.0M

Current Outstanding * $460.0M $225.0M

Coupon 1.00% 1.75%

Final Maturity 3/1/2024 6/1/2023

Put Date N/A N/A

Call Date N/A 6/1/2021

Call / Put Price (%) 100% 100%

Conversion Price $13.22 $13.94

Shares Underlying * 34.8M 16.1M

SettlementPar in Cash; Balance in

stock & cashPar in Cash; Balance in

stock & cash

* As of January 2, 2021

We expect third quarter revenue to be approximately $280 million to $300 million, non-GAAP

operating margin to be 17.5% to 18.5% and non-GAAP EPS to be $0.16 to $0.18.

▪Business segment revenue guidance:

•For NSE, we expect revenue to be $189 million to $205 million

•For OSP, we expect revenue to be $91 million to $95 million

▪Business segment Non-GAAP operating margin guidance:

•For NSE, we expect non-GAAP operating margin to be 6.0% to 7.0%

•For OSP, we expect non-GAAP operating margin to be 42.0% to 44.0%

▪ Expect non-GAAP tax expenses to be approximately 18% to 20%

▪ Expect non-GAAP Other Income/Expense to be net expense of approximately $3.5 million

▪ Expect share count for EPS calculation to be approximately 240.0 million shares

• ~8 million-plus higher share count Q/Q reflects the dilution impact of 2023/2024 Convertible Notes

Fiscal 3Q 2021 Guidance(Amounts reflect non-GAAP)

Investor Events - F3Q21

Date Event Forum

Jan. 11, 2021 Needham Growth Investor Conference Archive

Jan. 12, 2021 J.P. Morgan CES Tech/Auto Forum Archive

Mar. 1, 2021 Morgan Stanley TMT Investor Conference Virtual

Appendix

Non-GAAP Income Statement(Amounts in $millions, except per share amounts)

Unaudited Q220 Q320 Q420 Q121 Q221

Non-GAAP Income Statement Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

($ in millions, except per share amounts)

Net revenue $ 313.7 $ 256.2 $ 266.6 $ 284.7 $ 299.9

Cost of revenues 114.5 99.5 102.2 105.9 110.6

Gross profit 199.2 156.7 164.4 178.8 189.3

Operating expenses:

Research and development 47.8 44.2 42.3 46.6 47.9

Selling, general and administrative 83.5 74.5 69.8 71.6 74.6

Total operating expenses 131.3 118.7 112.1 118.2 122.5

Income from operations 67.9 38.0 52.3 60.6 66.8

Interest income and other income (1.9) 2.1 (3.1) (3.0) (2.5)

Income before income taxes 66.0 40.1 49.2 57.6 64.3

Provision for income tax 10.4 8.1 8.4 9.3 12.2

Net income $ 55.6 $ 32.0 $ 40.8 $ 48.3 $ 52.1

Net income per share, basic $ 0.24 $ 0.14 $ 0.18 $ 0.21 $ 0.23

Net income per share, diluted $ 0.23 $ 0.14 $ 0.18 $ 0.21 $ 0.23

Shares used in per-share calculation (basic) 230.0 230.0 228.1 228.8 228.8

Shares used in per-share calculation (diluted) 238.3 234.1 230.3 231.8 231.1


% Total Non-GAAP Revenue Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

Gross margin 63.5 % 61.2 % 61.7 % 62.8 % 63.1 %

Research and development 15.2 % 17.3 % 15.9 % 16.4 % 16.0 %

Selling, general and administrative 26.6 % 29.1 % 26.2 % 25.1 % 24.9 %

Total operating expenses 41.9 % 46.3 % 42.0 % 41.5 % 40.8 %

Operating margin 21.6 % 14.8 % 19.6 % 21.3 % 22.3 %

Reconciliation of GAAP Measures to Non-GAAP Measures(Amounts in $millions)


Gross Profit - GAAP to Non-GAAP Reconciliation Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020


GAAP segment gross profit $ 189.5 $ 146.8 $ 154.6 $ 169.4 $ 180.1

Stock-based compensation 1.0 1.2 1.1 1.2 1.2

Amortization of intangibles 8.4 8.0 7.9 8.2 8.4

Other charges unrelated to core operating performance 0.3 0.7 0.8 — (0.4)

Non-GAAP gross profit $ 199.2 $ 156.7 $ 164.4 $ 178.8 $ 189.3


Operating Income - GAAP to Non-GAAP Reconciliation Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

GAAP operating income $ 45.0 $ 9.1 $ 43.3 $ 31.3 $ 42.3



Change in fair value of contingent liability (6.0) — (27.2) — (1.5)

Other charges unrelated to core operating performance 1.3 1.9 2.6 0.7 (0.6)

Restructuring and related charges (benefits) (0.9) (1.6) 5.7 (0.6) 0.2

Non-GAAP operating income $ 67.9 $ 38.0 $ 52.3 $ 60.6 $ 66.8

Q220 Q320 Q420 Q121 Q221

Unaudited Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

GAAP net income (loss) $ 28.0 $ (32.8) $ 26.7 $ 14.3 $ 21.9



Restructuring and related charges (benefits) (0.9) (1.6) 5.7 (0.6) 0.2

Change in fair value of contingent liability (6.0) — (27.2) — (1.5)

Other charges unrelated to core operating performance 1.3 1.9 2.6 0.7 (0.6)

Non-cash interest expense 5.2 5.2 5.2 5.4 5.4

Withholding income taxes — 31.6 — — —

Benefit from Income Tax (0.5) (0.9) (0.1) (0.7) 0.3

Non-GAAP net income $ 55.6 $ 32.0 $ 40.8 $ 48.3 $ 52.1

Financial Information by Segment(Amounts in $millions)


Segment Results ($ in millions) Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

Net revenue:

Network Enablement $ 203.0 $ 163.9 $ 180.9 $ 162.1 $ 180.9

Service Enablement 31.2 23.1 27.5 21.4 25.8

Network and Service Enablement 234.2 187.0 208.4 183.5 206.7

Optical Securities and Performance Products 79.5 69.2 58.2 101.2 93.2

Net revenue $ 313.7 $ 256.2 $ 266.6 $ 284.7 $ 299.9

Gross profit

Network Enablement $ 134.8 $ 104.3 $ 115.3 $ 103.5 $ 113.3

Service Enablement 20.8 16.0 19.4 14.3 17.6

Network and Service Enablement 155.6 120.3 134.7 117.8 130.9


Total segment gross profit $ 199.2 $ 156.7 $ 164.4 $ 178.8 $ 189.3

Operating income

Network and Service Enablement $ 37.5 $ 13.8 $ 35.2 $ 13.3 $ 22.2


Total segment operating income $ 67.9 $ 38.0 $ 52.3 $ 60.6 $ 66.8


Non-GAAP Revenue by Segment (%) Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

Network Enablement 64.7 % 64.0 % 67.9 % 56.9 % 60.3 %

Service Enablement 10.0 % 9.0 % 10.3 % 7.5 % 8.6 %

Optical Securities and Performance Products 25.3 % 27.0 % 21.8 % 35.6 % 31.1 %

GAAP Income Statement(Amounts in $millions, except per share amounts)


GAAP Income Statement Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020


Net revenue $ 313.7 $ 256.2 $ 266.6 $ 284.7 $ 299.9

Cost of revenues 115.8 101.4 104.1 107.1 111.4

Amortization of acquired technologies 8.4 8.0 7.9 8.2 8.4

Total cost of revenues 124.2 109.4 112.0 115.3 119.8

Gross profit 189.5 146.8 154.6 169.4 180.1

Operating expenses:

Research and development 50.3 46.8 45.0 48.8 50.0

Selling, general and administrative (1) 86.3 83.6 51.9 81.4 79.5

Amortization of other intangibles 8.8 8.9 8.7 8.5 8.1

Restructuring and related charges (0.9) (1.6) 5.7 (0.6) 0.2

Total operating expenses 144.5 137.7 111.3 138.1 137.8

Income (loss) from operations 45.0 9.1 43.3 31.3 42.3

Interest income and other income1.3 5.3 0.3 0.6 1.1

Interest expense (8.4) (8.4) (8.6) (9.0) (9.0)

Income before income taxes 37.9 6.0 35.0 22.9 34.4

Provision for Income Tax 9.9 38.8 8.3 8.6 12.5

Net income (Net loss) $ 28.0 $ (32.8) $ 26.7 $ 14.3 $ 21.9

Net income (Net loss) per share, basic $ 0.12 $ (0.14) $ 0.12 $ 0.06 $ 0.10

Net income (Net loss) per share, diluted $ 0.12 $ (0.14) $ 0.12 $ 0.06 $ 0.09

Shares used in per-share calculation (basic) 230.0 230.0 228.1 228.8 228.8

Shares used in per-share calculation (diluted) 238.3 230.0 230.3 231.8 231.1


% Total GAAP Revenue Dec 2019 Mar 2020 Jun 2020 Sep 2020 Dec 2020

Gross margin 60.4% 57.3% 58.0% 59.5% 60.1%

Research and development 16.0% 18.3% 16.9% 17.1% 16.7%

Selling, general and administrative (1) 27.5% 32.6% 19.5% 28.6% 26.5%

Total operating expenses 46.1% 53.7% 41.8% 48.5% 45.9%

Operating margin 14.3% 3.6% 16.2% 11.0% 14.1%

(1) Includes Loss (gain) on disposal of long-lived assets

Condensed Balance Sheet(Amounts in $millions)

Unaudited Q420 Q221

Balance Sheet (in millions) Jun 2020 Dec 2020

ASSETS

Current assets:

Cash and cash equivalents $ 539.0 $ 644.2

Short-term investments 1.5 1.6

Restricted cash 3.5 3.0

Accounts receivable, net 235.5 251.3

Inventories, net 83.3 88.2

Prepayments and other current assets 50.8 58.1

Total current assets 913.6 1,046.4

Property, plant and equipment, net 172.5 181.7

Deferred income taxes 105.4 117.0

Goodwill, net 381.4 395.4

Intangibles, net 148.1 120.8

Other non-current assets 55.3 53.9

Total assets $ 1,776.3 $ 1,915.2

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 53.0 $ 53.5

Accrued payroll and related expenses 51.4 69.7

Deferred revenue 54.6 61.9

Accrued expenses 22.6 22.1

Current portion of long-term debt 2.8 —

Other current liabilities 48.4 56.4

Total current liabilities 232.8 263.6

Long-term debt 600.9 612.4

Other non-current liabilities 231.2 238.2

Total stockholders’ equity 711.4 801.0

Total liabilities and stockholders’ equity $ 1,776.3 $ 1,915.2

fiscal 2q 2021 earnings call supplementary slides february ......issue size $460.0m $225.0m current...

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