Viavi Solutions Inc. Q3 2026 Earnings Call Summary

Moby Intelligence

3 min read

Performance exceeded expectations driven by the data center ecosystem, specifically high-performance semiconductors, optical modules, and hyperscalers supporting AI infrastructure.
The data center segment is transitioning into a primary driver, with demand for field instruments now approaching 40% to 45% and potentially reaching 50% soon.
Aerospace and Defense growth is accelerating as the company leverages its Inertial Labs acquisition to move from Tier 2 suppliers to Tier 1 U.S. defense players.
The Spirent acquisition is performing in line with expectations, providing critical software-hardened Ethernet traffic testing that complements Viavi’s high-speed hardware.
Service provider demand remains seasonally weak but stable, with early activity in new cable architectures (DAA) offsetting continued weakness in wireless test products.
Management attributes margin expansion to high volume fall-through, with incremental NSE revenue dropping to the bottom line at approximately a 40% to 45% rate.

Management expects data center momentum to continue through calendar 2026, driven by the shift from 800G volume to 1.6T development and co-packaged optics.
The company expects tax expenses for the fourth quarter to be approximately $10 million, plus or minus $500,000, as a result of jurisdictional mix.
Guidance for Q4 assumes sequential growth across all product lines, though management notes September is typically a seasonally down quarter for service provider spend.
Strategic restructuring initiatives are expected to be largely implemented by the end of the June quarter, with approximately one-third of savings slated for reinvestment.
Management views a $500 million quarterly revenue target as realistic over the next upcycle, contingent on a wireless market recovery and continued AI-driven scaling.

The company prioritized debt management over share repurchases, prepaying $150 million of its Term Loan B and settling $49 million in convertible notes.
Inventory levels increased by single-digit millions in the March quarter to secure additional components for specific products, as the company manages its supply chain by looking two to four quarters ahead to mitigate lead time issues and potential shortages.
Cash flow was impacted by a significant earn-out payment to Inertial Labs, reflecting that the business exceeded all initial acquisition performance forecasts.
Management flagged potential share count dilution as the stock price rises, impacting the conversion premium of remaining convertible notes.