Attached files
| file | filename |
|---|---|
| 8-K - 8-K - VIAVI SOLUTIONS INC. | viavq3fy178-k.htm |
Exhibit 99.1
VIAVI ANNOUNCES THIRD QUARTER FISCAL 2017 RESULTS
Third Quarter
• | GAAP and Non-GAAP net revenue of $196.0 million, down $24.4 million or (11.1)% year-over-year |
• | GAAP operating margin of (7.8)%, down 1,110 bps year-over-year |
• | Non-GAAP operating margin of 11.9%, remained relatively flat year-over-year |
• | GAAP EPS from continuing operations of $0.11, down (0.01) or (8.3)% year-over-year |
• | Non-GAAP EPS from continuing operations of $0.09, remained relatively flat year-over-year |
Milpitas, California, May 2, 2017 — Viavi (NASDAQ: VIAV) today reported results for its third fiscal quarter ended April 1, 2017. Amounts presented below are on a continuing operations basis unless otherwise noted.
GAAP net revenue was $196.0 million, with net income of $26.0 million, or $0.11 per share. Prior quarter GAAP net revenue was $206.5 million, with net income of $49.2 million or $0.21 per share. GAAP net revenue for the third quarter of fiscal 2016 was $220.4 million, with net income of $28.8 million, or $0.12 per share.
Non-GAAP net revenue was $196.0 million, with net income of $21.9 million, or $0.09 per share. Prior quarter non-GAAP net revenue was $206.5 million, with net income of $23.6 million, or $0.10 per share. Non-GAAP net revenue for the third quarter of fiscal 2016 was $220.4 million, with net income of $21.6 million, or $0.09 per share.
“We exceeded our EPS guidance range with a non-GAAP EPS of $0.09,” said Oleg Khaykin, Viavi’s President and Chief Executive Officer. “OSP revenue came in above expectations due to stronger than expected anti-counterfeiting demand, and in part offset weaker than expected NSE revenue that was impacted by weaker service provider and enterprise spend.”
Khaykin added, “We continue to make progress in reducing NSE’s operating expenses and expect to complete most of the restructuring of the SE business segment in this fiscal quarter. In addition, we are seeing the expected recovery in OSP’s core revenue in second half of fiscal 2017.”
Financial Overview:
The tables below (in millions, except percentage data) provide comparisons of quarterly result to prior periods, including sequential quarterly and year-over-year changes. A reconciliation between GAAP and non-GAAP measures is contained in this release under the section titled “Use of Non-GAAP (Adjusted) Financial Measures.”
Third Quarter Ended April 1, 2017
GAAP Results | |||||||||||||||||
Q3 | Q2 | Q3 | Change | ||||||||||||||
FY 2017 | FY 2017 | FY 2016 | Q/Q | Y/Y | |||||||||||||
Net revenue | $ | 196.0 | $ | 206.5 | $ | 220.4 | (5.1)% | (11.1)% | |||||||||
Gross margin | 59.7 | % | 60.4 | % | 59.6 | % | (70) bps | 10 bps | |||||||||
Operating margin | (7.8 | )% | 3.2 | % | 3.3 | % | (1,100) bps | (1,110) bps | |||||||||
Non-GAAP Results | |||||||||||||||||
Q3 | Q2 | Q3 | Change | ||||||||||||||
FY 2017 | FY 2017 | FY 2016 | Q/Q | Y/Y | |||||||||||||
Net revenue | $ | 196.0 | $ | 206.5 | $ | 220.4 | (5.1)% | (11.1)% | |||||||||
Adj. Gross margin | 62.2 | % | 62.9 | % | 61.9 | % | (70) bps | 30 bps | |||||||||
Adj. Operating margin | 11.9 | % | 13.0 | % | 11.9 | % | (110) bps | 0 bps | |||||||||
1
GAAP and Non-GAAP Net Revenue by Segment | ||||||||||||||||||||
Q3 | % of Net | Q2 | Q3 | Change | ||||||||||||||||
FY 2017 | revenue | FY 2017 | FY 2016 | Q/Q | Y/Y | |||||||||||||||
Network Enablement | $ | 103.4 | 52.8 | % | $ | 117.0 | $ | 123.1 | (11.6 | )% | (16.0 | )% | ||||||||
Service Enablement | 28.7 | 14.6 | % | 40.6 | 35.2 | (29.3 | )% | (18.5 | )% | |||||||||||
Optical Security and Performance Products | 63.9 | 32.6 | % | 48.9 | 62.1 | 30.7 | % | 2.9 | % | |||||||||||
Total | $ | 196.0 | 100.0 | % | $ | 206.5 | $ | 220.4 | (5.1 | )% | (11.1 | )% | ||||||||
• | Americas, Asia-Pacific and EMEA customers represented 43.8%, 20.6% and 35.6%, respectively, of total net revenue for the quarter ended April 1, 2017. |
• | As of April 1, 2017, the Company held $1,454.6 million in total cash and investments, which also includes marketable equity investments. As of April 1, 2017, the Company also had $1,110 million aggregate principal amount of Senior Convertible Notes with a net carrying value of $958.1 million classified as Long-term debt. |
• | During the third quarter ended April 1, 2017 the Company sold 1.3 million shares of the 11.7 million shares of Lumentum common stock retained as part of the spin-off of Lumentum. The Company generated net proceeds from these sales of $62.1 million and had 0.4 million shares remaining valued at $20.8 million at April 1, 2017. |
• | During the fiscal quarter ended April 1, 2017, the Company generated $17.3 million of cash from operations. |
• | The Company adjusted its historical Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets and reportable segment information to reflect the spin-off of the Lumentum business (formerly the Company’s communications and commercial optical products business segment and WaveReady product line) on August 1, 2015. The Lumentum business’ adjusted results are reflected as discontinued operations for the periods reported in the Company’s GAAP Condensed Consolidated Statement of Operations and reportable segment information. |
Business Outlook for the Fourth Quarter of Fiscal 2017
For the fourth quarter of fiscal 2017 ending July 1, 2017, the Company expects non-GAAP net revenue to be between $188 million to $204 million and non-GAAP earnings per share to be $0.07 to $0.09. With respect to our expectations above, the Company has not reconciled non-GAAP net income per share to GAAP net income (loss) per share in this press release because it is unable to provide a meaningful or accurate estimate of certain reconciling items described in the “Use of Non-GAAP (Adjusted) Financial Measures” section below and the information is not available without unreasonable effort as a result of the inherent difficulty of forecasting the timing and/or amounts of certain items, including restructuring and related charges and gain on sale of investments. In addition, the Company believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.
Conference Call
The Company will discuss these results and other related matters at 1:30 p.m. Pacific Time on May 2, 2017 in a live webcast, which will also be archived for replay on the Company’s website at www.viavisolutions.com/investors. The Company will post supplementary slides outlining the Company’s latest financial results on www.viavisolutions.com/investors under the “Quarterly Results” section concurrently with this earnings press release. This press release is being furnished as a Current Report on Form 8-K with the Securities and Exchange Commission, and will be available at www.sec.gov.
About Viavi Solutions
Viavi (NASDAQ: VIAV) is a global provider of network test, monitoring and assurance solutions to communications service providers, enterprises and their ecosystems, supported by a worldwide channel community including Viavi Velocity Solution Partners. We deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability. Viavi is also a leader in high performance thin film optical coatings, providing light management solutions to anti-counterfeiting, consumer electronics, automotive, defense and instrumentation markets. Learn more about Viavi at www.viavisolutions.com. Follow us on Viavi Perspectives, LinkedIn, Twitter, YouTube and Facebook.
2
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include any anticipation or guidance as to future financial performance, including future revenue, gross margin, operating expense, operating margin, profitability targets, cash flow and other financial metrics, as well as the impact and duration of certain trends and market position and conditions. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the Company’s ability to predict future financial performance continues to be difficult due to, among other things: (a) continuing general limited visibility across many of our product lines; (b) quarter-over-quarter product mix fluctuations, which can materially impact profitability measures due to the broad gross margin ranges across our portfolio; (c) consolidations in our customer base; (d) customer purchasing delays as they assess or transition to new technologies and/or new architectures, which limit near-term demand visibility, and could negatively impact potential revenue; (e) continued decline of average selling prices across our businesses; (f) notable seasonality and a significant level of in-quarter book-and-ship business; (g) various product and manufacturing transfers, site consolidations, product discontinuances and the restructuring and workforce reduction plan announced in January 2017 that have caused and may cause short-term disruptions; (h) the ability of our suppliers and contract manufacturers to meet production and delivery requirements to our forecasted demand; and (i) inherent uncertainty related to global markets and the effect of such markets on demand for our products. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. For more information on these risks, please refer to the “Risk Factors” section included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2016 filed with the Securities and Exchange Commission. The forward-looking statements contained in this press release are made as of the date thereof and the Company assumes no obligation to update such statements.
Contact Information
Investors:
Bill Ong
408-404-4512
bill.ong@viavisolutions.com
Press:
Amit Malhotra
202-341-8624
amit.malhotra@viavisolutions.com
The following financial tables are presented in accordance with GAAP, unless otherwise specified.
-SELECTED PRELIMINARY FINANCIAL DATA -
3
VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
PRELIMINARY
Three Months Ended | Nine Months Ended | ||||||||||||||
April 1, 2017 | April 2, 2016 | April 1, 2017 | April 2, 2016 | ||||||||||||
Net revenue | $ | 196.0 | $ | 220.4 | $ | 613.3 | $ | 682.2 | |||||||
Cost of revenues | 75.4 | 85.0 | 235.4 | 255.6 | |||||||||||
Amortization of acquired technologies | 3.6 | 4.1 | 11.1 | 13.0 | |||||||||||
Gross profit | 117.0 | 131.3 | 366.8 | 413.6 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 34.1 | 40.0 | 106.1 | 126.0 | |||||||||||
Selling, general and administrative | 76.2 | 80.6 | 228.5 | 261.3 | |||||||||||
Amortization of other intangibles | 3.5 | 3.6 | 10.4 | 11.1 | |||||||||||
Restructuring and related charges | 18.4 | (0.1 | ) | 20.2 | 1.7 | ||||||||||
Total operating expenses | 132.2 | 124.1 | 365.2 | 400.1 | |||||||||||
(Loss) income from operations | (15.2 | ) | 7.2 | 1.6 | 13.5 | ||||||||||
Interest and other income (expense), net | 5.0 | 0.8 | 10.1 | 1.4 | |||||||||||
Gain on sale of investments | 51.2 | 39.8 | 186.6 | 39.8 | |||||||||||
Interest expense | (10.7 | ) | (9.1 | ) | (29.3 | ) | (26.7 | ) | |||||||
Income from continuing operations before taxes | 30.3 | 38.7 | 169.0 | 28.0 | |||||||||||
Provision for income taxes | 4.3 | 9.9 | 15.8 | 13.9 | |||||||||||
Income from continuing operations, net of taxes | 26.0 | 28.8 | 153.2 | 14.1 | |||||||||||
Income (loss) from discontinued operations, net of taxes | — | 5.0 | — | (45.4 | ) | ||||||||||
Net income (loss) | $ | 26.0 | $ | 33.8 | $ | 153.2 | $ | (31.3 | ) | ||||||
Net income (loss) per share from - basic: | |||||||||||||||
Continuing operations | $ | 0.11 | $ | 0.13 | $ | 0.66 | $ | 0.06 | |||||||
Discontinued operations | — | 0.02 | — | (0.19 | ) | ||||||||||
Net income (loss) | $ | 0.11 | $ | 0.15 | $ | 0.66 | $ | (0.13 | ) | ||||||
Net income (loss) per share from - diluted: | |||||||||||||||
Continuing operations | $ | 0.11 | $ | 0.12 | $ | 0.65 | $ | 0.06 | |||||||
Discontinued operations | — | 0.02 | — | (0.19 | ) | ||||||||||
Net income (loss) | $ | 0.11 | $ | 0.14 | $ | 0.65 | $ | (0.13 | ) | ||||||
Shares used in per share calculation - basic | 229.4 | 232.0 | 230.8 | 234.4 | |||||||||||
Shares used in per-share calculation - diluted | 234.6 | 234.6 | 235.9 | 237.4 | |||||||||||
The preliminary financial statements are estimated based on our current information.
4
VIAVI SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
PRELIMINARY
April 1, 2017 | July 2, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 964.2 | $ | 482.9 | |||
Short-term investments | 478.6 | 484.7 | |||||
Restricted cash | 11.8 | 12.2 | |||||
Accounts receivable, net | 142.6 | 148.4 | |||||
Inventories, net | 46.8 | 51.4 | |||||
Prepayments and other current assets | 53.5 | 32.1 | |||||
Total current assets | 1,697.5 | 1,211.7 | |||||
Property, plant and equipment, net | 134.6 | 133.0 | |||||
Goodwill | 150.7 | 152.1 | |||||
Intangibles, net | 37.6 | 59.9 | |||||
Deferred income taxes | 108.0 | 108.8 | |||||
Other non-current assets | 12.3 | 12.6 | |||||
Total assets | $ | 2,140.7 | $ | 1,678.1 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 34.7 | $ | 47.0 | |||
Accrued payroll and related expenses | 47.5 | 44.9 | |||||
Deferred revenue | 67.3 | 78.6 | |||||
Accrued expenses | 27.7 | 24.9 | |||||
Other current liabilities | 69.8 | 31.0 | |||||
Total current liabilities | 247.0 | 226.4 | |||||
Long-term debt | 958.1 | 583.3 | |||||
Other non-current liabilities | 164.4 | 179.1 | |||||
Total stockholders’ equity | 771.2 | 689.3 | |||||
Total liabilities and stockholders’ equity | $ | 2,140.7 | $ | 1,678.1 | |||
The preliminary financial statements are estimated based on our current information.
5
VIAVI SOLUTIONS INC.
REPORTABLE SEGMENT INFORMATION
(in millions, unaudited)
PRELIMINARY
Three Months Ended April 1, 2017 | |||||||||||||||||||||||||||
Network and Service Enablement | |||||||||||||||||||||||||||
Network Enablement | Service Enablement | Network and Service Enablement | Optical Security and Performance Products | Total Segment Measures | Reconciling Items | Consolidated GAAP Measures | |||||||||||||||||||||
Net revenue | $ | 103.4 | $ | 28.7 | $ | 132.1 | $ | 63.9 | $ | 196.0 | $ | — | $ | 196.0 | |||||||||||||
Gross profit | 67.5 | 17.7 | 85.2 | 36.7 | 121.9 | (4.9 | ) | 117.0 | |||||||||||||||||||
Gross margin | 65.3 | % | 61.7 | % | 64.5 | % | 57.4 | % | 62.2 | % | 59.7 | % | |||||||||||||||
Operating (loss)income | (4.4 | ) | 27.8 | 23.4 | (38.6 | ) | (15.2 | ) | |||||||||||||||||||
Operating margin | (3.3 | )% | 43.5 | % | 11.9 | % | (7.8 | )% | |||||||||||||||||||
Three Months Ended April 2, 2016 | |||||||||||||||||||||||||||
Network and Service Enablement | |||||||||||||||||||||||||||
Network Enablement | Service Enablement | Network and Service Enablement | Optical Security and Performance Products | Total Segment Measures | Reconciling Items | Consolidated GAAP Measures | |||||||||||||||||||||
Net revenue | $ | 123.1 | $ | 35.2 | $ | 158.3 | $ | 62.1 | $ | 220.4 | $ | — | $ | 220.4 | |||||||||||||
Gross profit | 80.7 | 19.8 | 100.5 | 35.9 | 136.4 | (5.1 | ) | 131.3 | |||||||||||||||||||
Gross margin | 65.6 | % | 56.3 | % | 63.5 | % | 57.8 | % | 61.9 | % | 59.6 | % | |||||||||||||||
Operating (loss)income | (0.1 | ) | 26.3 | 26.2 | (19.0 | ) | 7.2 | ||||||||||||||||||||
Operating margin | (0.1 | )% | 42.4 | % | 11.9 | % | 3.3 | % | |||||||||||||||||||
Three Months Ended | |||||||
April 1, 2017 | April 2, 2016 | ||||||
Corporate reconciling items impacting gross profit: | |||||||
Total segment gross profit | $ | 121.9 | $ | 136.4 | |||
Stock-based compensation | (0.7 | ) | (1.1 | ) | |||
Amortization of intangibles | (3.6 | ) | (4.1 | ) | |||
Other charges unrelated to core operating performance (1) | (0.6 | ) | 0.1 | ||||
GAAP gross profit | $ | 117.0 | 131.3 | ||||
Corporate reconciling items impacting operating income: | |||||||
Total segment operating income | $ | 23.4 | $ | 26.2 | |||
Stock-based compensation | (8.1 | ) | (9.1 | ) | |||
Amortization of intangibles | (7.1 | ) | (7.7 | ) | |||
Other charges unrelated to core operating performance (1) | (5.0 | ) | (2.3 | ) | |||
Restructuring and related charges | (18.4 | ) | 0.1 | ||||
GAAP operating (loss)income from continuing operations | $ | (15.2 | ) | $ | 7.2 | ||
(1) | During the three months ended April 1, 2017 and April 2, 2016, other charges unrelated to core operating performance primarily consisted of write-down of fixed assets, site consolidations, reorganizations, transformational initiatives such as the implementation of simplified automated processes and the insourcing or outsourcing of activities. |
The preliminary financial schedules are estimated based on our current information.
6
VIAVI SOLUTIONS INC.
REPORTABLE SEGMENT INFORMATION
(in millions, unaudited)
PRELIMINARY
Nine Months Ended April 1, 2017 | |||||||||||||||||||||||||||
Network and Service Enablement | |||||||||||||||||||||||||||
Network Enablement | Service Enablement | Network and Service Enablement | Optical Security and Performance Products | Total Segment Measures | Reconciling Items | Consolidated GAAP Measures | |||||||||||||||||||||
Net revenue | $ | 339.0 | $ | 105.7 | $ | 444.7 | $ | 168.6 | $ | 613.3 | $ | — | $ | 613.3 | |||||||||||||
Gross profit | 219.5 | 66.1 | 285.6 | 96.5 | 382.1 | (15.3 | ) | 366.8 | |||||||||||||||||||
Gross margin | 64.7 | % | 62.5 | % | 64.2 | % | 57.2 | % | 62.3 | % | 59.8 | % | |||||||||||||||
Operating income | 5.7 | 72.1 | 77.8 | (76.2 | ) | 1.6 | |||||||||||||||||||||
Operating margin | 1.3 | % | 42.8 | % | 12.7 | % | 0.3 | % | |||||||||||||||||||
Nine Months Ended April 2, 2016 | |||||||||||||||||||||||||||
Network and Service Enablement | |||||||||||||||||||||||||||
Network Enablement | Service Enablement | Network and Service Enablement | Optical Security and Performance Products | Total Segment Measures | Reconciling Items | Consolidated GAAP Measures | |||||||||||||||||||||
Net revenue | $ | 377.1 | $ | 120.0 | $ | 497.1 | $ | 185.1 | $ | 682.2 | $ | — | $ | 682.2 | |||||||||||||
Gross profit | 247.0 | 77.7 | 324.7 | 105.7 | 430.4 | (16.8 | ) | 413.6 | |||||||||||||||||||
Gross margin | 65.5 | % | 64.8 | % | 65.3 | % | 57.1 | % | 63.1 | % | 60.6 | % | |||||||||||||||
Operating income | 10.3 | 75.1 | 85.4 | (71.9 | ) | 13.5 | |||||||||||||||||||||
Operating margin | 2.1 | % | 40.6 | % | 12.5 | % | 2.0 | % | |||||||||||||||||||
Nine Months Ended | |||||||
April 1, 2017 | April 2, 2016 | ||||||
Corporate reconciling items impacting gross profit: | |||||||
Total segment gross profit | $ | 382.1 | $ | 430.4 | |||
Stock-based compensation | (2.7 | ) | (3.7 | ) | |||
Amortization of intangibles | (11.1 | ) | (13.0 | ) | |||
Other charges unrelated to core operating performance (1) | (1.5 | ) | (0.1 | ) | |||
GAAP gross profit | $ | 366.8 | $ | 413.6 | |||
Corporate reconciling items impacting operating income: | |||||||
Total segment operating income | $ | 77.8 | $ | 85.4 | |||
Stock-based compensation | (25.9 | ) | (34.0 | ) | |||
Amortization of intangibles | (21.5 | ) | (24.1 | ) | |||
Other charges unrelated to core operating performance (1) | (8.6 | ) | (12.1 | ) | |||
Restructuring and related charges | (20.2 | ) | (1.7 | ) | |||
GAAP operating income from continuing operations | $ | 1.6 | $ | 13.5 | |||
(1) | During the nine months ended April 1, 2017 and April 2, 2016, other charges unrelated to core operating performance primarily consisted of write-down of fixed assets, site consolidations, reorganizations, transformational initiatives such as the implementation of simplified automated processes, the insourcing or outsourcing of activities and Viavi-specific incremental charges for professional fees and additional personnel costs to complete the separation. |
The preliminary financial schedules are estimated based on our current information.
7
Use of Non-GAAP (Adjusted) Financial Measures
The Company provides non-GAAP net revenue, non-GAAP gross margin, non-GAAP operating income, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA financial measures as supplemental information regarding the Company’s operational performance. The Company uses the measures disclosed in this release to evaluate the Company’s historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company’s core operating performance, which the Company believes represent its performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from core operating performance items such as those relating to amortization of acquisition-related intangibles, stock-based compensation, restructuring, separation costs, and certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and customary course activities. Additionally, the Company excludes the results of discontinued operations in calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA for all periods reported. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance as the Company is no longer active in its discontinued operations.
The Company believes providing this additional information allows investors to see Company results through the eyes of management. The Company further believes that providing this information allows investors to better understand the Company’s financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.
The non-GAAP adjustments described in this release have historically been excluded by the Company from its non-GAAP financial measures. The non-GAAP adjustments, and the basis for excluding them, are outlined below.
Cost of revenues, costs of research and development and costs of selling, general and administrative: The Company’s GAAP presentation of gross margin and operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation, and (v) other charges unrelated to our core operating performance comprising mainly of one-time acquisition, integration, litigation and other costs and contingencies unrelated to current and future operations, including Viavi-specific incremental charges for professional fees and additional personnel costs to complete the separation as well as transformational initiatives such as the implementation of simplified automated processes, site consolidations, reorganizations, and the insourcing or outsourcing of activities and severance related costs related to the exit of key executives. The Company excludes these items in calculating non-GAAP gross margin, non-GAAP operating income, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.
Amortization of intangibles: The Company includes amortization expense related to intangibles in its GAAP presentation of cost of revenues and operating expense. The Company excludes these significant non-cash items in calculating non-GAAP gross margin, non-GAAP operating income, non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, because it believes doing so provides investors a clearer and more consistent view of the Company’s core operating performance in terms of cost of revenues and operating expenses.
Non-cash interest expense and other income: The Company incurred non-cash interest expense accretion of the debt discount on its convertible debt instruments. The Company from time to time recognizes certain non-operating income in its GAAP presentation of other income (expense), net. The Company eliminates these items in calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company’s core operating performance.
Gain or loss on sale of available for-sale investments: The Company has sold available-for-sale investments and includes the impact of these activities in its GAAP presentation of net income (loss) and net income (loss) per share. The Company’s core business does not include making financial investments in third parties. Moreover, the amount and timing of gains and losses on the sale of available-for-sale investments are unpredictable. Consequently, the Company excludes these items in calculating non-GAAP net income (loss), non-GAAP net income (loss) per share, EBITDA and adjusted EBITDA because it believes gains or losses on these sales are not related to the Company’s ongoing core business and operating performance.
8
Income tax expense or benefit: The Company excludes certain non-cash tax expense items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and other significant one-time events, such as the spin-off of Lumentum. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.
Interest, taxes, depreciation, amortization and other adjustments: The Company’s EBITDA calculation primarily excludes interest, taxes, depreciation and amortization, and other items that are not part of its core operating performance described above. The Company’s adjusted EBITDA excludes items in addition to the items excluded from the EBITDA calculation such as stock-based compensation, restructuring and related charges (benefits), and other charges related to activities that are not part of its core operating performance described above. Management believes adjusted EBITDA is a good indicator of the Company’s core operational cash flow.
Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net income (loss) is net income (loss). The GAAP measure most directly comparable to non-GAAP net income (loss) per share is net income (loss) per share. The Company believes these GAAP measures alone are not indicative of its core operating expenses and performance.
9
VIAVI SOLUTIONS INC.
RECONCILIATION OF GAAP MEASURES FROM CONTINUING OPERATIONS TO NON-GAAP MEASURES
(in millions, except per share data)
(unaudited)
PRELIMINARY
The following tables reconcile GAAP measures from continuing operations to non-GAAP measures:
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
April 1, 2017 | April 2, 2016 | April 1, 2017 | April 2, 2016 | ||||||||||||||||||||||||||||
Net income (loss) | Diluted EPS | Net income (loss) | Diluted EPS | Net income (loss) | Diluted EPS | Net income (loss) | Diluted EPS | ||||||||||||||||||||||||
GAAP measures from continuing operations | $ | 26.0 | $ | 0.11 | $ | 28.8 | $ | 0.12 | $ | 153.2 | $ | 0.65 | $ | 14.1 | $ | 0.06 | |||||||||||||||
Items reconciling GAAP net loss and EPS from continuing operations to non-GAAP net income and EPS: | |||||||||||||||||||||||||||||||
Related to cost of revenues: | |||||||||||||||||||||||||||||||
Stock-based compensation | 0.7 | — | 1.1 | — | 2.7 | 0.01 | 3.7 | 0.02 | |||||||||||||||||||||||
Other charges unrelated to core operating performance (1) | 0.6 | — | (0.1 | ) | — | 1.5 | 0.01 | 0.1 | — | ||||||||||||||||||||||
Amortization of acquired technologies | 3.6 | 0.02 | 4.1 | 0.02 | 11.1 | 0.05 | 13.0 | 0.05 | |||||||||||||||||||||||
Total related to gross profit | 4.9 | 0.02 | 5.1 | 0.02 | 15.3 | 0.06 | 16.8 | 0.07 | |||||||||||||||||||||||
Related to operating expenses: | |||||||||||||||||||||||||||||||
Research and development: | |||||||||||||||||||||||||||||||
Stock-based compensation | 1.3 | 0.01 | 2.0 | 0.01 | 4.6 | 0.02 | 6.7 | 0.03 | |||||||||||||||||||||||
Other charges unrelated to core operating performance (1) | 2.3 | 0.01 | 0.8 | — | 3.1 | 0.01 | 2.9 | 0.01 | |||||||||||||||||||||||
Selling, general and administrative: | |||||||||||||||||||||||||||||||
Stock-based compensation | 6.1 | 0.03 | 6.0 | 0.03 | 18.6 | 0.08 | 23.6 | 0.10 | |||||||||||||||||||||||
Other charges unrelated to core operating performance (1) | 2.1 | 0.01 | 1.6 | 0.01 | 4.0 | 0.02 | 9.1 | 0.04 | |||||||||||||||||||||||
Amortization of other intangibles | 3.5 | 0.01 | 3.6 | 0.02 | 10.4 | 0.04 | 11.1 | 0.05 | |||||||||||||||||||||||
Restructuring and related charges | 18.4 | 0.08 | (0.1 | ) | — | 20.2 | 0.09 | 1.7 | 0.01 | ||||||||||||||||||||||
Total related to operating expenses | 33.7 | 0.14 | 13.9 | 0.06 | 60.9 | 0.26 | 55.1 | 0.23 | |||||||||||||||||||||||
Gain on sale of investments (2) | (51.2 | ) | (0.22 | ) | (39.8 | ) | (0.17 | ) | (186.6 | ) | (0.79 | ) | (39.8 | ) | (0.17 | ) | |||||||||||||||
Non-cash interest expense and other income | 7.9 | 0.03 | 6.8 | 0.03 | 21.9 | 0.09 | 19.9 | 0.08 | |||||||||||||||||||||||
Income taxes | 0.6 | — | 6.8 | 0.03 | 2.5 | 0.01 | 0.1 | — | |||||||||||||||||||||||
Total related to net income and EPS | (4.1 | ) | (0.02 | ) | (7.2 | ) | (0.03 | ) | (86.0 | ) | (0.36 | ) | 52.1 | 0.22 | |||||||||||||||||
Non-GAAP measures from continuing operations | $ | 21.9 | $ | 0.09 | $ | 21.6 | $ | 0.09 | $ | 67.2 | $ | 0.28 | $ | 66.2 | $ | 0.28 | |||||||||||||||
Shares used in per share calculation for Non-GAAP EPS | 234.6 | 234.6 | 235.9 | 237.4 | |||||||||||||||||||||||||||
Note: Certain totals may not add due to rounding | |||||||||||||||||||||||||||||||
(1) | During the three and nine months ended April 1, 2017 and April 2, 2016, other charges unrelated to core operating performance primarily consisted of write-down of fixed assets, site consolidations, reorganizations, transformational initiatives such as the implementation of simplified automated processes and the insourcing or outsourcing of activities as well as Viavi-specific incremental charges for professional fees and additional personnel costs to complete the separation. |
(2) | During the three and nine months ended April 1, 2017, the Company sold 1.3 million shares and 6.9 million shares, respectively of the 11.7 million shares of Lumentum common stock which was retained as part of the separation of Lumentum. The Company recognized a realized gain of $51.2 million and $186.5 million on the sale. During the three and nine months ended April 2, 2016, the Company sold 2.5 million shares and 2.5 million shares, respectively of the 11.7 million shares of Lumentum common stock which was retained as part of the separation of Lumentum. The Company recognized a realized gain of $39.7 million and $39.7 million on the sale. |
The preliminary financial schedules are estimated based on our current information.
10
VIAVI SOLUTIONS INC.
RECONCILIATION OF GAAP MEASURES FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA
(in millions, unaudited)
PRELIMINARY
Three Months Ended | Nine Months Ended | ||||||||||||||
April 1, 2017 | April 2, 2016 | April 1, 2017 | April 2, 2016 | ||||||||||||
GAAP net income from continuing operations | $ | 26.0 | $ | 28.8 | $ | 153.2 | $ | 14.1 | |||||||
Interest and other income (expense), net | (5.0 | ) | (0.8 | ) | (10.1 | ) | (1.4 | ) | |||||||
Gain on sale of investments (1) | (51.2 | ) | (39.8 | ) | (186.6 | ) | (39.8 | ) | |||||||
Interest expense | 10.7 | 9.1 | 29.3 | 26.7 | |||||||||||
Income taxes | 4.3 | 9.9 | 15.8 | 13.9 | |||||||||||
Depreciation | 6.7 | 8.1 | 22.2 | 26.1 | |||||||||||
Amortization | 7.1 | 7.7 | 21.5 | 24.1 | |||||||||||
EBITDA from continuing operations | (1.4 | ) | 23.0 | 45.3 | 63.7 | ||||||||||
Costs related to restructuring and related charges | 18.4 | (0.1 | ) | 20.2 | 1.7 | ||||||||||
Costs related to stock-based compensation | 8.1 | 9.1 | 25.9 | 34.0 | |||||||||||
Other charges unrelated to core operating performance (2) | 5.0 | 2.3 | 8.6 | 12.1 | |||||||||||
Adjusted EBITDA from continuing operations | $ | 30.1 | $ | 34.3 | $ | 100.0 | $ | 111.5 | |||||||
(1) | During the three and nine months ended April 1, 2017, the Company sold 1.3 million shares and 6.9 million shares, respectively of the 11.7 million shares of Lumentum common stock which was retained as part of the separation of Lumentum. The Company recognized a realized gain of $51.2M and $186.5M on this sale. During the three and nine months ended April 2, 2016, the Company sold 2.5 million shares and 2.5 million shares, respectively of the 11.7 million shares of Lumentum common stock which was retained as part of the separation of Lumentum. The Company recognized a realized gain of $39.7 million and $39.7 million on the sale. |
(2) | During the three and nine months ended April 1, 2017 and April 2, 2016, other charges unrelated to core operating performance primarily consisted of write-down of fixed assets, site consolidations, reorganizations, transformational initiatives such as the implementation of simplified automated processes and the insourcing or outsourcing of activities as well as Viavi-specific incremental charges for professional fees and additional personnel costs to complete the separation. |
The preliminary financial schedules are estimated based on our current information.
11