0000912093-25-000153
SEC filingQ1 FY2026 revenue grew 25.6% YoY to $299.1M, driven by NSE data center and aerospace/defense strength, but GAAP operating margin fell 230 bps.
For Q1 FY2026, VIAVI reported net revenue of $299.1M, a 25.6% increase from $238.2M in Q1 FY2025. The growth was primarily driven by NSE segment strength in lab and production products serving the data center ecosystem, aerospace and defense, and a $18.7M contribution from the Inertial Labs acquisition. GAAP gross margin declined 60 bps to 56.5% due to increased amortization of intangibles and inventory step-up charges, partially offset by higher volume and favorable mix. GAAP operating margin fell 230 bps to 2.5% as SG&A expenses rose 40.6%, largely from fair value changes on contingent consideration ($10.9M charge) and acquisition-related costs. Non-GAAP operating margin, which excludes these items, improved 570 bps to 15.7%, reflecting operational leverage. GAAP net loss widened to $(21.4M) from $(1.8M), driven by the $3.8M loss on convertible note extinguishment and higher tax provision ($19.0M vs. $9.0M). Non-GAAP net income more than doubled to $33.1M, with non-GAAP diluted EPS of $0.15 versus $0.06.
The NSE segment posted revenue of $216.0M, up 35.5% YoY, with strength across lab and production, aerospace and defense, and fiber and access solutions, partially offset by lower wireless revenue. NSE gross margin expanded 2.1 points to 63.0% on higher volume and mix; operating margin swung to positive 7.5% from (4.6)% a year ago, reflecting the revenue growth and operational efficiency. OSP segment revenue grew 5.5% to $83.1M, driven by anti-counterfeiting and other products. However, OSP gross margin contracted 3.0 points to 52.3% due to unfavorable product mix, and operating margin declined 2.5 points to 37.1%.
Management expects NSE to continue to grow in Q2 FY2026, driven by the data center ecosystem, aerospace and defense, and the newly acquired Spirent high-speed ethernet testing business. The company remains focused on strategic priorities: defending core leadership, investing in secular trends (e.g., 5G, data center, defense), and expanding into adjacent markets. The U.S. tariff situation presents a near-term headwind, but the company is optimizing supply chains and considering pricing actions. The acquisition of Spirent's testing business (closed after quarter-end) was funded by a new $600M term loan B facility, and the company issued $149.1M in 0.625% convertible notes due 2031 to refinance upcoming 2026 note maturities. No specific numeric guidance was provided.
The balance sheet shows a strong cash position of $543.8M in cash and equivalents plus $1.8M in short-term investments, totaling $545.6M in near-cash assets. Total debt was $791.6M ($151.1M short-term, $640.5M long-term), reflecting the issuance of $250M aggregate principal of 0.625% Senior Convertible Notes due 2031 in August 2025. The company's total stockholders' equity stood at $723.9M, decreasing $56.3M from June 28, 2025 due to net loss and share repurchases. Contingent consideration liabilities were $128.3M (fair value), up $10.9M from June 28, 2025, mainly from the Inertial Labs earn-out. The fair value of debt was $805.2M (Level 2).
The Notes disclose no specific purchase commitments (e.g., supply or capacity) beyond standard operating lease obligations ($47.7M total lease payments, $39.5M present value) and product warranty reserves ($6.5M). The company had standby letters of credit of $6.3M and performance bonds of $2.0M collateralized by restricted cash. A $600M senior secured term loan was entered into on October 16, 2025 (subsequent event) to partly fund the Spirent acquisition. The absence of disclosed purchase commitments contrasts with companies that report material supply agreements.
Stock buybacks totaled $30.0M (2.7M shares) during the three months ended September 27, 2025, leaving $168.4M remaining under the $300M 2022 Repurchase Plan. No dividends were paid. Debt issuance activity included $250M aggregate principal of 0.625% Senior Convertible Notes (2031), with $149.1M sold in a subscription and $100.9M exchanged for 2026 Notes. The extinguishment of the exchanged portion of the 2026 Notes resulted in a $3.8M loss. Capital expenditures were $8.5M, or 2.8% of total revenue.
Two reportable segments: Network and Service Enablement (NSE) and Optical Security and Performance Products (OSP). NSE revenue grew 35.4% YoY to $216.0M (72.2% of total), with operating income of $16.3M (7.5% margin). OSP revenue grew 5.5% to $83.1M, with operating income of $30.8M (37.1% margin). Geographically, the Americas contributed $128.8M (43.1%), Asia-Pacific $92.1M (30.8%), and EMEA $78.2M (26.1%). The U.S. alone generated $106.7M (35.7%). Unallocated expenses totaled $39.5M, including stock-based compensation, amortization, restructuring, and contingent consideration fair value changes.
Operating cash flow of $31.0M significantly exceeded the net loss of $(21.4)M, indicating strong cash generation from non-cash charges and working capital management. Key non-cash adjustments included depreciation ($9.8M), amortization ($8.4M), stock-based compensation ($13.4M), and a net change in fair value of contingent liabilities ($10.9M). Working capital provided a net inflow of $10.1M, driven by a $17.4M decrease in accounts receivable, partially offset by inventory build ($11.6M) and deferred revenue decline ($10.7M).
Capex of $8.5M was modest relative to operating cash flow, yielding a free cash flow (CFO minus capex) of $22.5M. This FCF comfortably covered share repurchases of $30.0M, though the company also issued $149.1M in debt (net of $7.8M issuance costs) and paid $16.2M in withholding taxes on equity awards.