0001628280-26-028926
SEC filingRevenue surged 42.8% YoY to $406.8M, driven by acquisitions and data center demand, with non-GAAP operating margin expanding 430 bps to 21.0%.
For the third quarter of fiscal 2026 (ended March 28, 2026), Viavi Solutions reported net revenue of $406.8 million, a 42.8% increase year-over-year, driven primarily by the acquisitions of Spirent's HSE and CE business (contributed $54.3M) and Inertial Labs ($22.6M vs $7.7M prior year). GAAP gross margin improved 110 bps to 57.5% due to higher volume and favorable product mix in NSE, partially offset by OSP mix and higher amortization. GAAP operating margin rose 310 bps to 6.1%, while non-GAAP operating margin expanded 430 bps to 21.0%. GAAP net income declined 67.2% to $6.4 million, primarily due to $17.3 million in restructuring charges, $3.7 million loss on debt extinguishment, and higher amortization. Diluted GAAP EPS was $0.03 versus $0.09 in the prior year. Non-GAAP net income increased 99.4% to $67.6 million, with non-GAAP EPS of $0.27.
Network and Service Enablement (NSE): Revenue grew 54.4% YoY to $321.5 million, driven by strong demand in Lab & Production (Spirent HSE contributed $52.5M), Aerospace & Defense (Inertial Labs added $22.6M), and Fiber & Access Solutions, partially offset by lower Wireless revenue. NSE gross margin improved 220 bps to 65.3% on favorable mix and higher volume. Operating margin surged 680 bps to 17.2%, benefiting from operating leverage.
Optical Security and Performance Products (OSP): Revenue increased 11.4% to $85.3 million, led by anti-counterfeiting and other products, including 3D Sensing. Gross margin declined 130 bps to 50.3% due to unfavorable product mix, while operating margin improved 140 bps to 35.3% on higher volume.
Management expects sequential revenue growth in the fourth quarter of fiscal 2026, supported by continued strength across NSE and OSP end markets. The long-term strategy focuses on defending core business, investing in secular trends (data center, 5G, 3D sensing), and expanding into adjacent markets. Recent tariffs remain a risk, but the company is optimizing supply chain and implementing pricing actions. The Fiscal 2026 restructuring plan (targeting ~5% workforce reduction) is expected to yield ~$30 million in annualized cost savings upon completion by end of calendar 2026. Capital allocation priorities include debt management, share repurchases ($168.4M remaining under 2022 plan), and strategic M&A.
As of March 28, 2026, Viavi held $499.0M in cash and cash equivalents, plus $1.8M in short-term investments, providing a strong liquidity position. Total debt stood at $1,080.8M, comprising $244.5M in short-term debt (including the reclassified 0.625% Senior Convertible Notes due 2031) and $836.3M in long-term debt. Shareholders' equity was $846.5M, up from $780.2M at June 28, 2025, driven by stock issuance related to convertible note settlements and stock-based compensation, partially offset by a net loss and share repurchases. Inventory increased to $147.9M from $117.9M, reflecting the acquisition of Spirent's HSE and CE business.
The company reported $533.8M in remaining performance obligations as of March 28, 2026, with approximately 92% expected to be recognized as revenue within the next 12 months. Deferred revenue totaled $121.7M, including $85.2M current and $36.6M non-current. A significant contingent consideration liability of $68.2M exists for the Inertial Labs acquisition, with $43.0M classified as current and $25.2M as non-current. The company also has operating lease obligations of $50.5M in future minimum payments.
Viavi repurchased 2.7 million shares for $30.0M during the nine months ended March 28, 2026, leaving $168.4M remaining under the $300M 2022 Repurchase Plan. No dividends were declared. The company engaged in significant debt activity: issued $749.1M in new debt (including $250M of 0.625% Senior Convertible Notes due 2031 and $450M Term Loan B), repaid $199.0M, and recorded a $46.2M loss on debt extinguishment. Capital expenditures were $20.0M, representing 1.9% of total net revenue.
For the three months ended March 28, 2026, the Network and Service Enablement (NSE) segment generated $321.5M in revenue (up 54.4% YoY) with a 17.2% operating margin, while the Optical Security and Performance Products (OSP) segment generated $85.3M (up 11.4% YoY) with a 35.3% margin. Geographically, the Americas contributed $182.8M (45% of total), Asia-Pacific $128.2M (32%), and EMEA $95.8M (24%). The United States was the largest single country at $154.0M.
Operating cash flow (CFO) of $47.2M was significantly lower than the prior-year $66.0M, despite a net loss of $63.1M versus net income of $26.8M. The divergence is partly explained by large non-cash adjustments: depreciation and amortization totaled $77.7M, stock-based compensation $41.2M, and a loss on debt extinguishment of $46.2M. However, working capital consumed cash, notably a $62.5M increase in accounts receivable and a $37.3M inventory build, offset by modest payables growth.
Capex of $20.0M was nearly unchanged from $22.3M, indicating steady investment intensity. Free cash flow (CFO minus capex) was $27.2M, down from $43.7M a year ago. The company returned $30.0M to shareholders via share repurchases, which was covered by FCF.
Investing cash flow was heavily negative at $(417.3)M, driven by $399.3M in acquisitions (net of cash acquired). Financing activities provided $449.2M, primarily from $749.1M in debt proceeds, partially offset by $199.0M in debt repayments and $23.4M in debt issuance costs. The large debt issuance and extinguishment activities are notable anomalies in the period.