Viavi Solutions Inc. · NASDAQ:VIAV

Viavi Solutions — Investor Day (September 2019)

57 slides from Viavi Solutions's investor day presentation, Sep 12, 2019

  1. Slide 1: Analyst Day 2019

    Analyst Day 2019 VIAVI Solutions

  2. Slide 2: Agenda

    Agenda 8:00 - 8:30 am Registration Check-in/Breakfast 8:30 - 8:35 am Welcome/Agenda Bill Ong 8:35 - 9:45 am VIAVI Strategy Oleg Khaykin 9:45 - 10:00 am Q&A Bill Ong 10:00 - 10:15 am Break/ Fiber, 5G & 3DS Product Demo Showcase 10:15 - 11:00 am Financial Update/Closing Summary Amar Maletira 11:00 - 1

  3. Slide 3: Safe Harbor

    Safe Harbor This presentation contains forward-looking statements under Section 27A of the Securities Act of 1934. Forward-looking statements are all statements we make other than those dealing specifically with historical matters. These forward-looking statements include, among other things, financ

  4. Slide 4: VIAVI Strategy Presentation

    Speaker Title VIAVI Strategy Presentation Oleg Khaykin viavisolutions.com © 2019 VIAVI Solutions Inc. 4

  5. Slide 5: Recap: VIAVI Strategy September 2016

    Recap: VIAVI Strategy September 2016 Vision To be #1 or a strong #2 in all market segments where we compete Market leadership in Network Enablement (NE), reinforced by highly focused Service Enablement (SE) NSE • Scale NE through share gain, consolidation, and expansion into adjacent markets Strateg

  6. Slide 6: Invested $1.3B+ To Drive Top Line Growth

    Invested $1.3B+ To Drive Top Line Growth R&D + CAPEX ~$700M M&A Investment ~$630M Fiber, Cable, Wireless Cable/DOCSIS 3.1 Instrumentation Platforms 3D Sensing 5G, Mil/Aero Anti-Counterfeiting 3D Sensing Software Platforms Wireless/5G Notes: 1) Investments are from FY16 to FY19; FY16-FY17 investments

  7. Slide 7: Geographically Diversified NSE Revenue Base

    Geographically Diversified NSE Revenue Base Reduced Dependence on North American Spend CAGR% $841M 5.4% $681M 25% 13% - 3% 2015 2019 Americas Europe APAC viavisolutions.com © 2019 VIAVI Solutions Inc. 7

  8. Slide 8: Transformed Financial and Growth Profile of the Company

    Transformed Financial and Growth Profile of the Company Revenue Non-GAAP Operating Profit Non-GAAP EPS $0.68 $ in Millions 1,130 $0.44 $0.38 $0.37 906 874 $0.19 876 OP% Viavi 17.5% 805 OP% OSP 33.9% OP% OP% Viavi 13.9% NSE 11.8% OP% Viavi 12.8% Viavi 12.5% OSP 35.9% 198 Viavi 7.8% OSP 41.5% OSP 43.3

  9. Slide 9: Next Phase: VIAVI Strategy 2019-2022

    Next Phase: VIAVI Strategy 2019-2022 Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-Counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trend

  10. Slide 10: Next Phase: VIAVI Strategy 2019-2022

    Next Phase: VIAVI Strategy 2019-2022 Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-Counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trend

  11. Slide 11: Leadership Position in all Target Market Segments

    1 Leadership Position in all Target Market Segments Test and Measurement Leadership AvComm and Wireless T&M #1 in Cable in RAN-to-Core #1 Network Test #1 in Access NSE in Land-Mobile in Metro and #1 and Military Radio #1 Transport In Nav / Comm #1 and Transponder #1 in Fiber Security Authentication/

  12. Slide 12: NSE Ecosystem a Source of Competitive Advantage and Differentiation

    1 NSE Ecosystem a Source of Competitive Advantage and Differentiation viavisolutions.com © 2019 VIAVI Solutions Inc. 12

  13. Slide 13: Traditional OSP End Markets Continue to be Attractive

    1 Traditional OSP End Markets Continue to be Attractive GROWTH MATURE Consumer & Industrial Anti-Counterfeiting Optical components for human-to-machine interface Protection of banknotes and for smartphones, computers, and drones other valuable documents Automotive Government & Defense Optical compon

  14. Slide 14: Banknote Print Volumes Expected to Remain Stable

    1 Banknote Print Volumes Expected to Remain Stable Adoption of Advanced Anti-Counterfeiting Features Driving OSP Demand Top 10 National Banknote Markets (2018 – 2023) VIAVI Average Annual Anti-Counterfeiting (in Millions of Printed Banknotes) Pigment Shipment (in Metric Tons) 2023 2018 China India U

  15. Slide 15: Next Phase: VIAVI Strategy 2019-2022

    Next Phase: VIAVI Strategy 2019-2022 Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trend

  16. Slide 16: Fiber and Wireless at Core of NSE Growth Strategy

    2 Fiber and Wireless at Core of NSE Growth Strategy Lab & Production Service Provider (SP) Field T&M Semis, Optical Modules, Instrumentation Data Access Metro Core NEMs, & SP Labs Center Fiber (FTTx) Fiber Cable (coax) Fiber Fiber Fiber DSL (Cu) Wireless 4G / 5G Wireless Wireless 4G / 5G/ LMR 4G / 5

  17. Slide 17: Fiber Proliferation and Growth Drivers

    2 Fiber Proliferation and Growth Drivers ~1.4 million miles of fiber to deploy 5G in Top-25 Metro areas in the US 100K + field technicians will need fiber test gear - Grand View Research 2016 Hyperscale Data Centers - More apps moving to cloud - More intense SLA 5G Network Buildout - New RAN with co

  18. Slide 18: Speed Progression Further Amplifies the Fiber Demand

    2 Speed Progression Further Amplifies the Fiber Demand 40G 100G 200G 400G 600G 800G 40G ➔ 100G ➔ 200G 100G ➔ 200G ➔ 400G 400G ➔ 600G ➔ 800G Enterprise to Data Center Metro and Core Advanced R&D Interconnect & CSP Metro Networks Network viavisolutions.com © 2019 VIAVI Solutions Inc. 18

  19. Slide 19: VIAVI Offers the Most Comprehensive Set of Fiber Test and Monitoring Solutions

    2 VIAVI Offers the Most Comprehensive Set of Fiber Test and Monitoring Solutions viavisolutions.com © 2019 VIAVI Solutions Inc. 19

  20. Slide 20: VIAVI Wireless Opportunity Growing With Mobile Networks

    2 VIAVI Wireless Opportunity Growing With Mobile Networks Architecture Evolution (2G ➔ 5G) Analog Scale & Virtualization Densification & Automation Voice Data 2G /2.5G 2G/2.5G 3G/3.5G 4G/LTE Small Cell/4.5G/LTE_A 5G RF Vision CA5G small cells Radio Unit CAA (RU) BTS nodeB eNB eNB TM500 CPRI/Cell Adv

  21. Slide 21: 5G Strategy: Parlay Leadership in Lab Test to Field Deployment to Assurance

    2 5G Strategy: Parlay Leadership in Lab Test to Field Deployment to Assurance (L2F2A) RANtoCore™ Fiber, Metro, and RF Field Test Products VIAVI NITRO TM500, E500: Device emulation and T-BERD/ network test CellAdvisor 5G: Fiber optic test MTS-5800-100G • Signal solutions: • Interference T-BERD/MTS-20

  22. Slide 22: VIAVI Leadership in 5G System Test Opened Doors to Field Test Trials

    2 VIAVI Leadership in 5G System Test Opened Doors to Field Test Trials 5G NR FR1/FR2 LLS HLS 5G Core O/XRAN F1 Interfaces 5G NR Radio 5GNR Radio 5G xHAUL Protocols Wireless Transport & Protocols 5G Mobile Network Protocols 5G vCore Testing TM500 + + 5G Devices 5G Beam Scanner / 5G xHAUL Transport 5G

  23. Slide 23: 5G Deployment Plays to VIAVI Core Strengths

    2 5G Deployment Plays to VIAVI Core Strengths Workflow Automation Using Field Instruments and Service Assurance Software GEO 3D Coverage, Fiber Monitoring NITRO™ Construction and Installation NITRO 5G Installer Tool Kit Site Certification and NITRO™ Antenna Alignment Test Process Automation 3Z RF St

  24. Slide 24: 3D Sensing Principal Growth Driver for OSP

    2 3D Sensing Principal Growth Driver for OSP GROWTH MATURE Consumer & Industrial Anti-Counterfeiting Optical components for human-to-machine interface Protection of banknotes and for smartphones, computers, and drones other valuable documents Automotive Government & Defense Optical components for AD

  25. Slide 25: 3D Sensing: Consumer Applications Major Focus Today

    2 3D Sensing: Consumer Applications Major Focus Today Leading technology and market position in both prevalent 3D Sensing Solutions • Technology and market leader in LAS IR filters • Leading position on the engineered diffusor on TOF projector side • Strong position on the flood illuminator Structur

  26. Slide 26: 3D Sensing: Automotive Application Major Opportunity Longer Term

    2 3D Sensing: Automotive Application Major Opportunity Longer Term High-performance Filters and Engineered Diffusers for Automotive Applications • In cabin driver and passenger monitoring for personalization, comfort and security • Facial and gesture recognition for driver monitoring and interior co

  27. Slide 27: Next Phase: VIAVI Strategy 2019-2022

    Next Phase: VIAVI Strategy 2019-2022 Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-Counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trend

  28. Slide 28: Disciplined Corporate Development / M&A Framework

    3 Disciplined Corporate Development / M&A Framework Drive Scale and Operating Leverage “Go Deep” OPEX as % Operating Leverage of Revenue Scale Curve Diversification VIAVI 2019 c1 (NE, SE, AC, 3DS) “Go Wide” III c2 VIAVI 2016 c3 (SE, NE, AC) II I (SE, NE, AC) “Go Deep” “Go Wide” R1 2xR1 4xR1 Revenue

  29. Slide 29: Next Phase: VIAVI Strategy 2019-2022

    Next Phase: VIAVI Strategy 2019-2022 Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trend

  30. Slide 30: Driving Operational Effectiveness Across the Company

    4 Driving Operational Effectiveness Across the Company viavisolutions.com © 2019 VIAVI Solutions Inc. 30

  31. Slide 31: Summary

    Summary Vision #1 or a strong #2 in all market segments where we compete Defend and expand the base business 1 • NSE: Continue with “Big NE, focused SE” strategy • OSP: Anti-Counterfeiting pigments and high value Optical Coatings “Ride the Waves” – leverage secular trends to drive growth and expand

  32. Slide 32: Vi ae

    —— Vi ae VIAVI Solutions

  33. Slide 33: Financial Update

    Speaker Title Financial Update viavisolutions.com © 2019 VIAVI Solutions Inc. 33

  34. Slide 34: Delivered on 3-Year Financial Commitment

    Delivered on 3-Year Financial Commitment Key Drivers Sept. 2016 FY19 Results • Restructured SE Non-GAAP Guidance • Surgically reduced cost and improved ✓ efficiencies across-the-board VIAVI Revenue* $805M - $875M $1,130M • Invested in growth: 3D Sensing, Fiber, NSE $555M - $595M $841M Wireless, DOCS

  35. Slide 35: Grew Revenue While Improving the Mix

    Grew Revenue While Improving the Mix FY15* • No clear growth areas OSP 22% • NSE revenue concentrated in Americas $874M NSE 78% • Several unprofitable businesses / product lines FY19 • 50%+ of revenue in secular growth areas OSP FY19 vs FY15 26% $1.13B VIAVI 29% • Diversified NSE revenue outside Ame

  36. Slide 36: Significant Turnaround In Profitability

    Significant Turnaround In Profitability Non-GAAP Non-GAAP Non-GAAP EPS Cash Flow Operating Profit Operating Margin from VIAVI $68M VIAVI 8.0% Operations FY15* NSE 0 NSE 0% $0.19 $36M** OSP $68M OSP 35% VIAVI $198M VIAVI 17.5% FY19 NSE $100M NSE 12% $0.68 $139M OSP $98M OSP 34% 190% 950bps 258% 286%

  37. Slide 37: How We Did It

    Levers How We Used DidtoIt!! Drive Improved Profitability Operational Growth Efficiency Organic and Inorganic viavisolutions.com © 2019 VIAVI Solutions Inc. 37

  38. Slide 38: Relentless Execution of Cost Initiatives

    Relentless Execution of Cost Initiatives Efficiency Funnel • AvComm and Wireless Synergies (ongoing) FY19 • Launched IT system upgrade (ongoing) FY19 • Consolidated R&D platforms and selective offshoring (ongoing) FY18 • Improved Sales efficiency (ongoing) FY18 • Restructured SE • Exited unprofitabl

  39. Slide 39: Solid Improvement in Operating Efficiency

    FY15-19 SG&A % of in Solid Improvement Revenue Operating Efficiency VIAVI OpEx Trend VIAVI Margin Trend OPEX % SG&A % R&D% Gross Margin Operating Margin 63.8% 63.1% 62.0% 60.8% 61.1% 56.0% 50.4% 49.5% 46.8% 43.6% 37.5% 33.4% 33.7% 32.2% 27.8% 18.5% 17.0% 17.5% 15.8% 14.6% 15.8% 12.8% 12.5% 13.9% 7.8

  40. Slide 40: Invested $1.3B+ To Drive Top Line Growth

    Invested $1.3B+ To Drive Top Line Growth R&D + CAPEX ~$700M M&A Investment ~$630M Fiber, Cable, Wireless Cable/DOCSIS 3.1 Instrumentation Platforms 3D Sensing 5G, Mil/Aero Anti-Counterfeiting 3D Sensing Software Platforms Wireless/5G Notes: 1) Investments are from FY16 to FY19; FY16-FY17 investments

  41. Slide 41: Significant Improvement in Cash Flow

    Significant Improvement in Cash Flow Cash Flow from Operations Free Cash Flow 88% 85% Adj. CFO / OP 78% 167 122 139 94 94 89 95 56 51 53 66 24 FY17 FY18 FY19 FY17 FY18 FY19 Reported Adjusted CapEx 38 42 45 All figures in $M All figures in $M Notes: 1) Adjustments include one-time cashflows related t

  42. Slide 42: FY2020 Outlook

    FY2020 Outlook Raising Q1 FY20 Outlook with Strength in both NSE & OSP Q1 FY20 FY20 Outlook VIAVI Updated Outlook (Non-GAAP) (Non-GAAP) Revenue $282M - $294M $1,140M - $1,170M Operating Margin 16% - 18% 17.5% - 18.5% EPS $0.15 - $0.17 $0.67 - $0.73 Key Assumptions for FY2020 Outlook Wireless and Fib

  43. Slide 43: FY2022 Outlook

    FY2022 Outlook Expect EPS Growth to Outpace Topline Growth FY22 Outlook CAGR Key Assumptions VIAVI (Non-GAAP) (FY19-FY22) ▪ Macro environment does not degrade Revenue $1,200M - $1,300M 2% - 5% ▪ Wireless/5G, Fiber, and 3D Sensing key drivers of growth Operating Profit $230M - $270M 5% - 11% ▪ Core O

  44. Slide 44: FY2022 Base Case Revenue Drivers

    FY2022 Base Case Revenue Drivers (+$125M, +3.5% CAGR) CAGR Low Single Digit% $1.255B CAGR High Single Digit% to Low Double Digit% CAGR Double Digit% CAGR $1.13B Low Single Digit% FY19 Fiber 3D Sensing Wireless / 5G Other Businesses FY22 Lab & Field Lab to Field to Assurance (Base Case) Wireless / 5G

  45. Slide 45: FY2019 to FY2022 Non-GAAP EPS Drivers

    FY2019 to FY2022 Non-GAAP EPS Drivers $0.90++ CAGR ~ +10% CAGR $0.90+ ~ +8% $0.90 $0.85 $0.68 NSE OSP Investments FY22 Faster FY22 Additional FY22 M&A FY22 FY19 Share Base Case Adoption (Upside) (Upside +) (Upside ++) of 3DS/5G Buyback Notes: 1. Figures are directional and show approximations based

  46. Slide 46: FY2020-FY2022 Operational Efficiency & Effectiveness Initiatives

    FY2020-FY2022 Operational Efficiency & Effectiveness Initiatives Efficiency Funnel • Tax optimization outside of the U.S. • Real estate consolidation Long Term • Legal entity rationalization • Continued focus on Sales and Marketing efficiencies • Ongoing Operations/Manufacturing efficiency program M

  47. Slide 47: VIAVI Operating Model

    VIAVI Operating Model Revenue Sensitivity -10% Mid-Point +10% -2.0 to 17.5% 19% - 21% +1.5 to Operating Margin -3.0 ppts FY19 FY22 +2.5 ppts Resilient against Minor Downturns and Highly Leverageable to Upsides Note: Operating Margin is Non-GAAP viavisolutions.com © 2019 VIAVI Solutions Inc. 47

  48. Slide 48: Strong Balance Sheet and Flexible Capital Structure

    Strong Balance Sheet and Flexible Capital Structure Leverage Profile Good Liquidity FY2019 year-end (June 29, 2019) ~$500M+ in available liquidity 1.75% Convertible Notes due 2023 $225M • $526M in cash / cash equivalents 1.00% Convertible Notes due 2024 $460M • Strong balance sheet provides flexibil

  49. Slide 49: Capital Allocation Priorities Remain Unchanged

    Capital Allocation Priorities Remain Unchanged Reinvest in Disciplined Return Core Business M&A of Capital • Targeted investments in • Aligned to growth strategies • Opportunistically repurchase R&D and go-to-market to and industry consolidation shares to manage earnings drive organic growth dilutio

  50. Slide 50: Net Operating Losses Remain a Key Asset

    Net Operating Losses Remain a Key Asset NOLs1 – Ending Value Key Highlights • Significant U.S. Federal Net Operating Losses FY19 $5.1B [NOLs] remain even after ~$1.2B expires in FY21 • Shielded $150M+ in U.S. Federal profits from FY16-FY192 • Super Distributor Model brought back $100M+ in FY20 $5.0B

  51. Slide 51: Financial Summary

    Financial Summary • Delivered on our previous 3-year Commitment • Positioned the Business for Growth • Execution Discipline and Focus on Efficiency is Ongoing • FY2019 to FY2022 Profit growth will Outpace Topline growth • Capital Allocation priorities focused on Organic & Inorganic investments and C

  52. Slide 52: Summary – VIAVI Investment Thesis

    Summary – VIAVI Investment Thesis • Defensible core business with significant financial leverage I. Core Business • Continued improvement in operational effectiveness across Optimization all functions to drive margin expansion • 5G Wireless • OEMs/NEMs: Simulation/Testing • Field Instruments: 5G Tri

  53. Slide 53: Vi ae

    —— Vi ae VIAVI Solutions

  54. Slide 54: viavisolutions.com

    VIANI VIAVI Solutions viavisolutions.com

  55. Slide 55: Appendix

    Appendix Vi ae VIAVI Solutions

  56. Slide 56: viavisolutions.com © 2019 VIAVI Solutions Inc.

    viavisolutions.com © 2019 VIAVI Solutions Inc. 56

  57. Slide 57: viavisolutions.com © 2019 VIAVI Solutions Inc.

    viavisolutions.com © 2019 VIAVI Solutions Inc. 57

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