Viavi Solutions VIAV Introduction

Investment Analysis Clubs Saul’s Investing Discussions
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VIAVI Solutions is a newer company in my portfolio that I have added to recently. The company makes optical testing products. VIAV is the “cousin” to Lumentum as both companies are spin-offs from JDS Uniphase in 2015. Lumentum is a customer of Viavi for testing their Optical Circuit Switch OCS product. Viavi says they have “all” of the optical transceivers companies as customers. It is also likely that Coherent and Google may be customers for testing their optical switches, but this is unconfirmed as a full customer list is not disclosed.

Revenue and profitability metrics have shown nice growth,

Revenue over the last year: 291M → 299 → 369 → 407 → 443

Corresponding to yoy revenue growth rates: +15% → +26% → +36% → +43% → +53%

EBITDA over last year: 35M → 43 → 61 → 80 → 93

Net income over the last year: 8M → -21 → -48 → 6 → 33

Gross margin in the current quarter was 61%, with a gross margin range of 58% to 62% over the last year. On the balance sheet the company has 650M of cash, and 699M of debt.

Currently the market cap of Viavi Solutions is 11.6B making the run-rate P/S 6.5 for the stock. I view the valuation as quite reasonable as Lumentum has a run-rate P/S of 24.2, albeit with LITE having higher top line growth.

The company is guiding next quarter revenue for 450 - 460M, which would be +54% yoy growth at the top end. It is worth knowing that the next quarter for Viavi going calendar Q2 to Q3 is their slowest typically. In the past going Q2 to Q3 they had either slightly sequentially down revenue or a small uptick.

The company makes infrastructure tools that are used in high speed communication networks. Products are used for building, validating, troubleshooting, and monitoring networks. Management has mentioned the strong demand for lab and field instruments in data centers.

Viavi has been telling investors about how testing intensity is increasing. This is because transceivers 400G and below, did not require as extensive testing. However, as the complexity of transceivers has increased, these transceivers now require extensive testing.

Top highlights from the company’s latest earnings call and tech conferences,

  • Operating margin of 24%, which was versus a guidance range of 22.3% - 23.2%
  • Operating margin grew +280 bps qoq, and +960 bps yoy
  • Next quarter operating margin now guided to 27.1%
  • EPS of 0.34 vs guidance of 0.29 - 0.31, increase of 0.07 sequentially
  • Data center ecosystem customer demand “remains very strong”
  • “Expect continued robust growth” in data center for next several quarters
  • Customer adoption 1.6T transceivers is ramping testing demand, 800G is currently the biggest driver
  • CPO revenues expected to begin this fall, with some recognized in current quarter
  • 500M+ quarter will “come a bit sooner than were were originally thinking”
  • “Cousins” with Lumentum, market share testing for OCS is “extremely high”
  • The industry move to CPO sees VIAVI content per port going up
  • More is being packed into a module, one things goes wrong and it’s a throw away module

Overall I am finding Viavi Solutions to be a compelling growth stock with a reasonable valuation. The company has many of the top players in optical as customers which are ramping up their testing. Data center related revenues are the fastest growing segment for the business.

Any feedback on the stock VIAV is welcome!

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I have not been able to post to Saul’s board in the past. I’m attempting to see if I can post now. If this works, please delete it and will plan to post meaningful posts in the future that hopefully will add value to this board.

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Thanks WPR, good intro. One thing worth adjusting for in the growth rates is the Spirent deal, which closed Oct 16, 2025. VIAVI breaks out the Spirent revenue each quarter, so it’s easy to back out:

  • Dec qtr: $369.3M total, $43M Spirent. Ex-Spirent about +21% YoY (vs +36% reported)
  • Mar qtr: $406.8M total, $54.3M Spirent. Ex-Spirent about +24% (vs +43%)
  • Jun qtr: $443.1M total, $47.7M Spirent. Ex-Spirent about +36% (vs +53%)

So the underlying acceleration is real, it’s just a big jump in the June quarter from the low 20s to the mid 30s rather than a steady climb to 53%. The 450-460 guide includes Spirent, and since Spirent wasn’t in the year-ago Sept quarter, ex-Spirent the guide works out to something like +34-37%. That suggests the June-quarter step-up is holding rather than a one-off.

The December quarter will be the first with Spirent in both years, so reported growth should drop toward the organic rate then.

One caveat on my math: Inertial Labs (acquired in fiscal 2025) also contributed $86M in FY26 and I haven’t pinned down exactly which year-ago quarters it was already in, so the true organic numbers may be a bit lower.

A few questions if anyone has dug into the calls:

  • What drove the jump in the June quarter? 1.6T ramp, or something lumpier like a few big lab orders?
  • Do they say how much of NSE is data center vs the traditional service provider/field business?
  • On CPO, is their content still at the module level, or does some of that testing move upstream to the chip/package level?
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Thanks @wpr101 for surfacing this. Unfortunately I don’t have the time or ability to attempt to really add or challenge anything about Viavi but FWIW…love the growth trajectory and the rationale you laid out for it to accelerate. In my Koyfin dashboard, it isn’t as attractive as of yet as some of the other names I hold (in terms of growth rate vs. valuation), but I’ve bypassed some of your recs in the past only to have them hit some huge quarters as you predict…so I’m heavily considering taking a position.

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WPR,

Nice find of a company. I took a small position in VIAV.

One Yellow Flag I have of VIAVI is dilution. VIAV’s actual shares outstanding increased roughly 11% year over year, while the diluted share count used for quarterly EPS rose about 15%. Most of the actual issuance came from May’s 12.8M-share offering and another 9.7M shares issued to settle convertible notes. The offering helped repay the acquisition loan.

That loan is now fully repaid, which removes the specific reason for that offering. There are still $250M of convertible notes due in 2031 that could result in more shares, though potential dilution is already accounted for in diluted EPS where applicable.

Drew

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@Wilson3 Great callout there of the adjustments to revenue growth rates for the Spirent acquisition! I have some details about the Spirent acquisition in my notes but did not adjust the revenue growth rates. I had seen the amount for the acquisition was 425M, which is on the smaller side for a 10B company, but enough to have a revenue impact. It does make a fair difference of a growth rate of +53% yoy versus what would have been +36% yoy otherwise.

What drove the jump in the June quarter? 1.6T ramp, or something lumpier like a few big lab orders?

800G is still higher volume for Viavi currently, but 1.6T related solutions are moving more into volume production now. The company’s data center revenue more than doubled year over year, even excluding Spirent. Optical Security and Performance Product or the OSP division is 20% of the business and growing slower. I’m basically okay with this trade off of having a fast growing data center business and a smaller legacy business that grew 9% yoy.

Do they say how much of NSE is data center vs the traditional service provider/field business?

Yep, they have given some metrics here that data center is roughly 50% of NSE revenue, with aerospace & defense being about 17%. This leaves what they call traditional service providers around 33% of NSE sales.

On CPO, is their content still at the module level, or does some of that testing move upstream to the chip/package level?

I was looking up some more details on this question, and it seems like the answer is that it is both. CPO moves some testing upstream to the chip and package level, while optical-engine module and system level testing still need to be done. The management said that content per port goes up with CPO meaning more “test insertions”.

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@drew1618t Nice point on dilution there. It looks like there was a smaller December 2025 issuance, and the larger May 2026 you mentioned. I agree that it is a yellow flag and something to keep an eye on. For me, it’s not a blocker as the story lines up that they are scaling up and would want more capital. The good news as I see for the business is that they are hitting GAAP profitability in the last couple quarters, and I’d expect that to continue.

Here’s the shares outstanding looks from a quarterly perspective,

Quarterly oustanding
Quarterly oustanding3182×1118 142 KB

I just checked the shares outstanding from an annual perspective as well, and they do not appear to be a habitual diluter.

Annual outstanding
Annual outstanding2304×1148 120 KB

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Great addition to this thread @Wilson3. For those that have been around awhile, this is exactly the type of analysis and additional information that initially earned Saul’s its reputation. It’s never been about one person’s opinion. It’s been about the crowd coming together to make everyone better investors.

To @wpr101 's point, for a long time the monthly summaries were the highlight here. Having posted them religiously myself for six straight years (yes, 72 straight months) I agree one-million percent with his observation on how useful they are in honing your investing skills. After all, it’s hard to fool yourself on where you stand when you have to put it in writing. Those summaries led to great discussions on the present performance and future prospects on hundreds of companies.

The truth is as time passed, fewer and fewer people decided to carry the load and participate in the conversations. Questions and comments on monthly summaries that used to number in the dozens have shrunk to no more than a handful on most. The easy observation is limiting access to the board lowered the number of new voices. The more introspective and likely less comfortable one is wondering what kept the thousands (tens of thousands?) of other readers who were already here from stepping up and participating further in the conversation.

The recent threads about the benefits of posting here versus Reddit are all valid. I also agree there are ease-of-use benefits in keeping the conversation right where it started here at the Fool. I think it’s awesome this thread has taken off since VIAV is an interesting company. I also think it’s important to acknowledge @wpr101 basically had to respond to a complaint to point out this thread has been here quite a while and no one chose to respond. Saul did yeoman’s work building and maintaining this board. He also earned the right to pass the baton. It’s up to us to decide if and how we want to pick it up and keep going. It’s not up to @PaulWBryant or @wpr101 or @ryshab or @SlowAndFast or @anthonyms or any of the others posting monthly updates to do the work for us. It’s for the rest of us to join in so we can all benefit from the conversation they are so graciously starting.

If we want to keep the conversation here, then it’s up to us to make it a conversation worth returning to. I, for one, am excited to see what all the new voices coming on board have to offer…

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Thanks WPR, that’s really helpful, and it matches what I found going back through the calls. CEO gives a rough mix in the Q&A , and data center has gone from about 30% of NSE a year ago to 40% right after Spirent closed, then 45%, high 40s, and now around 50%. That jump when the deal closed suggests Spirent is counted inside the data center number.

Your “more than doubled ex-Spirent” checks out too. About 30% of $209M a year ago is roughly $63M. About 50% of $354M now, minus Spirent’s $48M, is roughly $129M, so around +105%. He said the same on the Q4 call. With the core service provider business only growing low single digits, data center is really carrying the whole story, which makes the 800G to 1.6T transition the main thing to watch.

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Thanks, appreciate that, especially from someone who posted 72 straight monthly summaries… :slightly_smiling_face:

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