Viavi Solutions Inc. · NASDAQ:VIAV
Viavi Solutions — Investor Day (September 2016)
58 slides from Viavi Solutions's investor day presentation, Sep 15, 2016
Slide 1: Viavi Solutions Analyst Day 2016
Viavi Solutions Analyst Day 2016 September 15, 2016
Slide 2: Safe Harbor
Safe Harbor Forward-looking statements are all statements we make other than those dealing specifically with historical matters which include, among other things, financial guidance. Please refer to the Company’s filings with the Securities and Exchange Commission, including our annual report on For
Slide 3: Agenda
Agenda Time Event Presenter 9:00 - 9:05 am Welcome/Agenda Bill Ong 9:05 -10:00 am Viavi Overview Oleg Khaykin Network Service Enablement Strategy Optical Security and Performance Products Strategy 10:00 - 10:15 am Q&A Bill Ong 10:15 - 10:30 am Break 10:30 - 10:50 am Financial & Capital Allocation Mo
Slide 4: Viavi Solutions Analyst Day 2016
Viavi Solutions Analyst Day 2016 Oleg Khaykin, President and CEO Amar Maletira, Executive Vice President and CFO September 15, 2016
Slide 5: Viavi Today
Viavi Today Leader in Network Service Enablement and Optical Security and Performance Applications Our NSE products and solutions Our OSP group are renown experts help service providers and IT in the manipulation of light, organizations optimize and providing coatings and pigments maintain their net
Slide 6: Created Through Acquisitions
Created Through Acquisitions Viavi Genealogy Uniphase Network Tools Business NE + + + SE JDS Fitel = + Network Solutions Business + = + + + Applied Digital Access + + + + + 1923 1948 1974 1998 1999 2000 2005 2006 to 2009 2010 to 2013 2014 OSP Deep Roots in Instrumentation and Optics for Much of Our
Slide 7: Recent Revenue and Profitability Dynamics
GM% OM% Recent Revenue and Profitability Dynamics $M NSE OSP Viavi 1,000 1,000 80% 1,000 80% 80% 900 900 900 67% 65% 64% 64% 63% 800 800 800 61% 60% 58% 60% 60% 54% 700 700 700 50% 600 600 600 42% 500 40% 500 35% 40% 500 40% 32% 400 400 400 300 300 300 20% 20% 20% 200 200 200 13% 7% 8% 100 100 100 2
Slide 8: Management Perspective on Viavi Today
Management Perspective on Viavi Today Viavi composed of two profitable mature businesses and a number of growth initiatives in various stages of evolution and profitability • Test and Measurement Instruments (NE) and Anti-Counterfeiting Pigments (OSP) generate most of the revenue and profit, but are
Slide 9: Management Perspective on Viavi Today
Management Perspective on Viavi Today Current growth strategy needs to be revised in order to improve operating leverage • Focus on gaining share in Test and Measurement Instrumentation via organic and inorganic means • Significant Sales, Marketing and R&D leverage • Narrowed focus in SE to compleme
Slide 10: Network Service Enablement Strategy
Network Service Enablement Strategy www.viavisolutions.com © 2016 Viavi Solutions Inc. 10
Slide 11: Viavi Today
Viavi Today Leader in Network Service Enablement and Optical Security and Performance Applications Our NSE products and solutions Our OSP group are renown help service providers and IT experts in the manipulation of organizations optimize and light, providing coatings and maintain their networks pig
Slide 12: NSE Provides Solutions for Every Stage of the Network Lifecycle
NSE Provides Solutions for Every Stage of the Network Lifecycle SE – Service Enablement Segment • Network self-optimization and user experience value proposition • Virtualized instruments/Assurance • Above-average market growth Manage Self- Application Monitor Optimize Presentation Session Assurance
Slide 13: Service Enablement SAM Larger Than Network Enablement and Growing Faster
Service Enablement SAM Larger Than Service Providers Network Enablement and Growing Faster Enterprise & Cloud Field and Lab Instruments 2016-19 2016-19 CAGR CAGR 1,900 1,961 2,026 3% 6,935 7% 1,843 5% 6,485 6,040 NE SAM 5,603 $M 7% 3% FY16 FY17 FY18 FY19 4,909 9% 4,524 12% 4,140 3,760 7% SE SAM NSE
Slide 14: SE is a Highly Fragmented and Very Crowded Segment
However, SE is a Highly Fragmented and Very Crowded Segment Viavi is a Recent Entrant With Small Share Across Multiple Applications 100% 80% 60% Viavi Competitors 40% 20% Legacy Centralized Video / RAN 2G/3G RAN Service Performance MA&A Geo LI EA Analytics Wireline SON Res. BB solution Optimization
Slide 15: Very Different Picture in Network Enablement
Very Different Picture in Network Enablement Strong Global Market Position in Instruments #2 in Fiber #1 in Metro #1 in Cable #1 in Access Strong Portfolio with New & Exciting Products in FY17 Favorable Near-Term Market Dynamics Opportunity to Exploit Favorable Near-Term Market Dynamics to Gain Shar
Slide 16: Strategic Considerations for NSE Business
Strategic Considerations for NSE Business Strategic Options Pros Cons 1. Stay the course • Higher top line growth over the • Drag on operating performance due to next several years required significant continued investment “Maintain NE, Big SE” • Exploit synergies between NE • Sub-scale “Mile wide
Slide 17: What Does "Big NE, Focused se" Mean?
What Does “Big NE, Focused se” Mean? Focused Virtualized Instruments/Assurance • Invest in “focused se” where there is tight integration and synergies with “Big NE” • Partner with market leaders up-stack Manage Self- Application Monitor Optimize Partner/ Buy / Build Presentation Session Assurance/Op
Slide 18: "Big NE, focused se" Aligned with Industry Macro Trends
“Big NE, focused se” Aligned with Industry Macro Trends Cloud-Based Data 3 Consolidation/ Correlation Virtualization Hardware/Software Core NE & 2 Cross-Domain Consolidation Hardware Platform Focused se Instrument Consolidation Wired Wireless Mobile Data Lab Ethernet Fiber Location SON xHaul Domain
Slide 19: Three Phase Strategy Roadmap
Three Phase Strategy Roadmap Domain-Based Hardware/Software Cloud-Based NSE Data 1 Product Portfolio 2 Consolidation 3 Consolidation/ (NE & SE) (NSE) Correlation 1. Reduce # Instruments #1 in Lab and Field Physical platforms, consolidate Instruments instruments hardware • Cost-Effective Workflow and
Slide 20: Corporate Development Framework to Build Scale and Operating Leverage
Corporate Development Framework to Build Scale and Operating Leverage OPEX as “Go Deep” (NE) % of Revenue Scale Curve (se, NE) III c1 S = Scale Slope 65-85% c2 Viavi c3 (se, NE) II I Today (SE, NE) “Go Wide” (SE) R1 2xR1 4xR1 Revenue www.viavisolutions.com © 2016 Viavi Solutions Inc. 20
Slide 21: Optical Security and Performance Products Strategy
Optical Security and Performance Products Strategy www.viavisolutions.com © 2016 Viavi Solutions Inc. 21
Slide 22: Viavi Today
Viavi Today Leader in Network Service Enablement and Optical Security and Performance Applications Our NSE products and solutions Our OSP group are renowned experts help service providers and IT in the manipulation of light, providing organizations optimize and maintain coatings and pigments for AMI
Slide 23: Targeting $1B+ High-Performance, High-Margin Applications
Targeting $1B+ High-Performance, High-Margin Applications End Market Applications CY 2015 CAGR Anti-Counterfeiting $ 500M 3% - 5% High-Performance Interference $150M 6% Pigments Thin Film Optical Coatings $ 450M 9% Total SAM $1,100M 5% - 7% Source: Industry reports, Viavi estimates www.viavisolution
Slide 24: Two Proprietary Technologies Drive OSP Business
Two Proprietary Technologies Drive OSP Business Proprietary Anti-Counterfeiting Key Differentiators Pigments • State-of-the-art vacuum roll coating technology • Engineered materials – Color through physics • Proprietary IP • Sophisticated process control and tight security www.viavisolutions.com © 2
Slide 25: Two Proprietary Technologies Drive OSP Business
Two Proprietary Technologies Drive OSP Business Advanced Optical Coatings Key Differentiators • High-transmission magnetron sputtering • Deep blocking over wide spectral ranges: UV to mid- infrared (220nm to 5µ) • Deposition on glass substrate or CMOS wafers • Precise edge placement www.viavisolutio
Slide 26: OSP Strategy
OSP Strategy 1. Defend and expand core anti-counterfeiting business • Proprietary technology enabling banknote features that are difficult to counterfeit • Proprietary high volume manufacturing process and high security supply chain • Long term strategic customer partnerships • Trusted partner for c
Slide 27: Defend and Expand Core Anti-Counterfeiting Business
1. Defend and Expand Core Anti-Counterfeiting Business TM OVP TM OVMP www.viavisolutions.com © 2016 Viavi Solutions Inc. 27
Slide 28: Diversification Opportunities in High-Value AMI Segments
2. Diversification Opportunities in High-Value AMI* Segments Automotive Effect Pigments Sensors and Display • Sensor Technology for: • Natural User Interface • Unique special effect • Blind Spot Monitoring pigments • Display Technology • ChromaFlair® • Anti-reflective Coatings, Ambient • SpectraFlai
Slide 29: Diversification: Defense and Aerospace
2. Diversification Opportunities in High-Value AMI* Segments Defense and Aerospace Laser Eye Protection Satellite Very high optical density (OD) and high-layer count dielectric coatings Night Vision Missile Guidance System Aviator’s Night Vision Imaging System “ANVIS” *Automotive, Military & Industr
Slide 30: Selective Targeting of High-Volume Consumer Applications
3. Selective Targeting of High-Volume Consumer Applications Leveraging Viavi’s advanced Proximity, ambient Optical Coating Technology light, and UV sensors • Unique, protected IP and know-how in 3D sensing filters • Strategic partnerships with major consumer electronics OEMs Front Camera • Current a
Slide 31: Financial and Capital Allocation Model
Financial and Capital Allocation Model www.viavisolutions.com © 2016 Viavi Solutions Inc. 31
Slide 32: Viavi FY16 Revenue and Profit Mix Overview
Viavi FY16 Revenue and Profit Mix Overview Revenue Non-GAAP Net Revenue Operating Profit by Region OSP NSE $116M 27% OSP $103M $906M 73% NSE $13M Americas EMEA APJ OSP NSE $463M $277M $166M SE Mature Other Business SE Growth OP% 12.8% Anti-Counterfeiting NE www.viavisolutions.com © 2016 Viavi Soluti
Slide 33: FY16 Revenue Performance Better than Expected
FY16 Revenue Performance Better than Expected FY16 Viavi Revenue at $906 million; grew 3% Y/Y NSE Revenue Change OSP Revenue Change -3% +29% $681M 0% +29% $248M -37% +29% +20% $658M $193M FY15 NE SE Mature SE Growth FY16 FY15 Anti- Other FY16 Counterfeiting Business • SE Mature business run-off impa
Slide 34: FY16 Non-GAAP Operating Profit Growth and Margin Expansion
Disciplined Execution Drove FY16 Non-GAAP Operating Profit Growth & Operating Margin Expansion Viavi Non-GAAP Operating Profit Change Viavi Non-GAAP EPS Change +70% +100% $116M $ 0.38 $ 0.19 $68M FY15 OP NSE NSE OSP FY16 OP FY15 EPS Operational Non- FY16 EPS Volume OPEX Volume Operational Reduction
Slide 35: FY17 Outlook
FY17 Outlook Key Assumptions • Cautious in NE (Instrument) business due Outlook Operational Metrics to some softness seen in customer spend (Non-GAAP) • SE revenue will be largely impacted from Viavi Revenue $830M to $860M actions to rationalize the SE Growth business and headwinds in SE Mature NSE
Slide 36: FY19 Outlook
FY19 Outlook We expect to have a smaller but more Profitable Revenue Base Key Assumptions Operational Metrics Outlook (Non-GAAP) • Macro environment does not degrade Viavi Revenue (CAGR ‘16-’19) -2% to -4% • NE (Instruments) revenue will be Flat-to-Up as we defend & grow core business NSE Revenue(CA
Slide 37: FY16-FY19 EPS Expansion
FY16-FY19 EPS Expansion from De-emphasizing unprofitable product lines & OPEX reductions $0.55+ $0.55 $0.50 $0.38 Upside FY16 Focused OPEX OSP NE NE Automation FY19 OSP Rev NE Rev Focused FY19 Share FY19 EPS "se" Efficiency Rev Rev Investment EPS "se" & EPS Buybacks EPS (Mid) OPEX (High) (High+) www
Slide 38: Operational Efficiency is ongoing and part of our DNA
Operational Efficiency is ongoing and part of our DNA Several initiatives in the OPEX efficiency funnel Automation of standardized processes Simplification and standardization of business Long-Term processes spanning Quote-to-Cash and Procure- to-Pay Real estate consolidation Mid-Term Legal
Slide 39: Our Healthy Cash Flow Strengthens Our Capital Structure
Our Healthy Cash Flow Strengthens Our Capital Structure FY16 Reported FY16 Adjusted $105M $70M $53M $17M 1 Cashflow from FCF Ops Adjusted Cashflow Adjusted FCF 3 from Ops 2 High quality of earnings and solid management of working capital (1) Free cash flow includes cash flow from Ops less capital ex
Slide 40: Long-Term Capital Allocation Priorities
Our Long-Term Capital Allocation Priorities aligned to our Operational and Financial strategy Maintenance and Run-Rate Investments 1 OPEX Net Cash CAPEX Required Pension Funding Net Cash Organic Investments in Initiatives 2 • Revenue Growth • Productivity 3 Return Capital to Shareholders throu
Slide 41: Increased Share Repurchase Program from $100M to $150M
Increased Share Repurchase Program from $100M to $150M Repurchased ~$21 million of Viavi shares in Q1’17 (Sept. 14, 2016) $ million Lumentum Stake • Lumentum stake of 19.9% or 11.7 million 400 shares at spin-off $347 M • Monetized 8.3 million shares for cash 300 Unrealized proceed of $224 million $2
Slide 42: Our Capital Structure Supports Investments & Cash Return
Our Capital Structure Supports Investments & Cash Return in the Long–Term Capital Structure Key Highlights $ Million (as of July 2, 2016) • Good liquidity position Total Cash $980M* • Strong Net cash position provides capital deployment flexibility Debt $650M • 2018 Put date Convert limits flexibili
Slide 43: Convertible Notes – Alternatives & Considerations
Convertible Notes – Alternatives & Considerations Current Convertible Terms Notes Issue Size $650M Alternatives • Status Quo – Refinance in 2018 Coupon 0.625% • Early Repurchase Final Maturity 8/15/2033 • Convertible Exchange Put Date 8/15/2018 Call date 8/20/2018 Core Considerations Call/Put Price
Slide 44: Our Net Operating Losses-Considerations
Our Net Operating Losses-Considerations • U.S. Federal NOLs totaled $5.0B at the end of FY16 • NOLs have a 20-year carry-forward period • First significant tranche to expire to occur in FY21 (~$1.2B) • NOLs have been utilized by: • Super Distributor Model brought back $100M+ in overseas profits and
Slide 45: Summary
Summary www.viavisolutions.com © 2016 Viavi Solutions Inc. 45
Slide 46: Summary
Summary Vision: #1 or a strong #2 in all market segments where we compete NSE Strategy: Market leadership in NE reinforced by highly focused se • Scale NE through share gain, consolidation, and expansion into adjacent markets • Scaled down, highly focused investment in se that is synergistic with an
Slide 47: Viavi Investment Thesis
Viavi Investment Thesis Near-term: • Operating Margin expansion in NSE • De-emphasizing unprofitable assurance product lines accompanied with significant OPEX reduction • Scale profitable instruments segment to drive Operating Margin expansion • Continuing SG&A OPEX productivity improvements • Recov
Slide 48: Q&A
Q&A www.viavisolutions.com © 2016 Viavi Solutions Inc. 48
Slide 49: NSE / OSP Demos & Product Showcase
NSE / OSP Demos & Product Showcase www.viavisolutions.com © 2016 Viavi Solutions Inc. 49
Slide 50: Where Does Fiber Inspection Occur?
Question: Where Does Fiber Inspection Occur? Answer: Everywhere! Devices | Premises RAN | Access Backhaul | Metro Packet | IP Core FEMTO WIFI HOME C-RAN OTTCDN 5G CDN 5G 5G CELLSITE BACKHAUL 4G LTE OTHER 4G LTE CELLSITE 4G LTE MOBILE SMALL CELL MOBILE DAS NETWORKS DEVICE 2G/3G 2G/3G CELLSITE 2G/3G P
Slide 51: Industry Challenge: WiFi Growth has Caused an Explosion of Complaints
Industry Challenge: WiFi Growth has Caused an Explosion of Complaints • Mobile devices and the IoT makes residential WiFi a necessity • 50% of customer complaints are WiFi related Internet of • Customers blame operators for slow service caused by Things customer owned WiFi Viavi provides visualizati
Slide 52: Optical Security and Performance Products (OSP)
Optical Security and Performance Products (OSP) Come see how OSP enables new applications in Anti-counterfeiting, Consumer Electronics, Government & Aerospace, Healthcare and the Automotive industries. Anti-Counterfeiting Automotive Military & Aerospace Industrial Consumer Electronics Assured Curren
Slide 53: Thank You
Thank You www.viavisolutions.com
Slide 54: Appendix: Board Governance Update, Historical Financials
Appendix: Board Governance Update Historical Financials GAAP and Non-GAAP Income Statements and Reconciliation www.viavisolutions.com © 2016 Viavi Solutions Inc. 54
Slide 55: Viavi Governance Update
Viavi Governance Update Directors elected on an annual basis – no classified board Majority vote standard for election of directors (except in contested elections) No poison pill/rights plan Single class of voting stock Average tenure of 4.7 years for non-employee directors All members o
Slide 56: GAAP Income Statement
GAAP Income Statement FY 2015 FY 2016 GAAP Income Statement Jun-15 Jun-16 ($ in millions, except per share amounts) Net revenue $ 873.9 $ 906.3 Cost of revenues 321.9 339.3 Amortization of acquired technologies 31.9 17.3 Total cost of revenues 353.8 356.6 Gross profit 520.1 549.7 Operating expenses:
Slide 57: Non-GAAP Income Statement
Non-GAAP Income Statement Unaudited FY 2015 FY 2016 Non-GAAP Income Statement Jun-15 Jun-16 ($ in millions, except per share amounts) Net revenue $ 873.9 $ 906.3 Cost of revenues 316.5 334.1 Gross profit 557.4 572.2 Operating expenses: Research and development 161.4 154.3 Selling, general and admini
Slide 58: Reconciliation of GAAP Measures to Non-GAAP Measures
Reconciliation of GAAP Measures to Non-GAAP Measures Unaudited FY 2015 FY 2016 Gross Profit - GAAP to Non-GAAP Reconciliation Jun-15 Jun-16 ($ in millions) GAAP gross profit $ 520.1 $ 549.7 Stock-based compensation 4.2 4.8 Amortization of intangibles 31.9 17.3 Other charges unrelated to core operati