Viavi (VIAV) Q1 2027 earnings review
Viavi's sales outlook tops $500 million, but share dilution grows
Viavi's data-center and defense testing equipment is expanding fast while a larger share count takes a bite out of per-share gains. First-quarter sales rose 57% from a year ago to $469 million, or about 40% by our math after stripping out the initial run-rate of the Spirent product lines acquired last October. Chief executive Oleg Khaykin pointed to demand in data centers and defense, and operating margin excluding one-offs reached 29%, beating the company's own plan even without a 1 percentage point tariff refund boost.
| Sales stripping Spirent at close | +40% reported revenue: $469.3M (+56.9% from a year ago) |
|---|---|
| Operating margin, excluding one-offs | 29.0% 16.3% a year ago (~28% without tariff refund) |
| Profit per share, excluding one-offs | $0.47 +213% from a year ago |
| Second-quarter revenue outlook | $505–515M middle of the range: 38.1% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the second-quarter outlook of $505 million to $515 million crosses the $500 million quarterly sales mark a full year ahead of management's original schedule. In addition, operating cash flow rebounded to $105 million and the board approved a $500 million share buyback. One caution: diluted shares climbed 17% from a year ago on past equity issuance and convertible debt, which absorbed a quarter of the net profit growth.
The question now is whether Viavi can sustain its 28% clean operating margin and strong order growth once it fully laps the Spirent purchase and loses the one-time tariff refund. Either data-center upgrades and $30 million in restructuring savings keep margins near 28%, or cloud spending pauses and pushes profitability back down. Second-quarter margin details on the call and third-quarter sales growth will tell.
🐂 Bull Case
Q2 Outlook Crosses the $500 Million Milestone Early
Viavi makes testing equipment for communication networks and optical filters for 3D sensors and banknotes. Chief executive Oleg Khaykin previously aimed to reach $500 million in quarterly sales sometime during calendar 2027, and he said this quarter that growth will continue “driven by the inherent market demand and expanding opportunities in data center and aerospace and defense end markets”.
The network testing group hit that target a year ahead of its original schedule by forecasting $505 million to $515 million in second-quarter sales. First-quarter revenue in Network and Service Enablement (NSE), its largest division, jumped 74.1% from a year ago to $376.1 million. Because Viavi bought testing product lines from Spirent Communications in October 2025 with a roughly $50 million quarterly run-rate at close, underlying NSE sales still grew 51.0% by our math.
Reaching the $500 million mark early matters because it shows that demand from data-center builders and military customers is outpacing the sluggish traditional telecom business. In addition, Viavi recorded a $12.4 million charge for the rising value of acquisition earn-outs, which confirms that acquired defense businesses like Inertial Labs are beating their internal targets.
What to watch: the exact share of NSE revenue coming from the data-center ecosystem on the earnings call. A reading above 50% would confirm that data-center orders are driving the sequential step-up to $510 million.
Slower Overhead Growth Lifted Operating Margin to 29%
Viavi has been cutting facilities and integrating its Spirent acquisition under a restructuring plan designed to save $30 million a year by the end of calendar 2026. The company had forecast a first-quarter operating margin, excluding one-offs, of 26.7% to 27.5%, which already required a steep step-up from 24.0% in the fourth quarter.
Actual operating margin excluding one-offs reached 29.0%, up 12.7 percentage points from a year ago and 5.0 points from last quarter. Even after stripping out a 1 percentage point net benefit from tariff refunds offset by an extra calendar week, the clean margin was 28.0% by our math, as revenue grew much faster than overhead.
- Gross margin excluding one-offs: 64.4%, up 4.3 percentage points from a year ago
- Research and development (cost of designing products): 14.8% of GAAP revenue, down 3.9 percentage points from a year ago
- Selling, general and administrative (sales and overhead): 27.6% of GAAP revenue, down 7.2 percentage points from a year ago
- GAAP operating margin: 17.4%, trailing the adjusted figure due to $20.1 million in intangible amortization, $15.9 million in stock pay, and $12.4 million in earn-out charges
What to watch: second-quarter operating margin excluding one-offs when the company gives its detailed call outlook. Holding near 28% without the one-time tariff refund would prove the lower cost base is permanent.
Cash Flow Rebounded and Board Approved $500M Buyback
During fiscal 2026, Viavi paused share buybacks after the first quarter to pay down debt from the Spirent deal, and its cash flow lagged behind its reported earnings as receivables and inventory grew. On November 1, the board approved a new plan that will “allow the Company to repurchase up to $500 million of the Company’s common stock” alongside $18.4 million left on its 2022 plan.
The company backed up that authorization by generating $104.7 million in operating cash flow during the first quarter, more than triple the $31.0 million it produced a year ago. By our math, operating cash flow equalled 83.2% of net income excluding one-offs, because accounts receivable fell by $16.3 million to $335.0 million even as sales rose. Viavi ended the quarter with $535.3 million in cash against $642.5 million in debt.
What to watch: actual share repurchases in the second-quarter filing. Buying back stock now would show management is using its $104.7 million cash haul to offset convertible note dilution.
Positives this quarter didn't test
Two standing product growth drivers are not broken out in the preliminary earnings release and await the conference call or quarterly filing.
- Co-packaged optics (CPO, which packages optical connections directly with data-center chips) and optical circuit switching: management expected initial revenue in the September quarter and an acceleration in the December quarter; the call will test whether orders arrived on schedule.
- Hyperscaler fiber monitoring: previously reached 40% to 45% of field instrument sales; the call commentary will show whether big cloud companies continued expanding their fiber test deployments.
🐻 Bear Case
Share Dilution Absorbed a Quarter of Profit Growth
Khaykin highlighted that “Fiscal 2027 is off to a strong start with first quarter performance coming in above the high end of our guidance”. While profit grew rapidly, issuing new stock for debt exchanges, a May 2026 share offering, and convertible notes meant existing shareholders kept a smaller slice of the gain.
Net income excluding one-offs rose 262.5% from a year ago to $125.8 million, but diluted profit per share excluding one-offs grew at a slower 213.3% rate to $0.47. That gap happened because the diluted share count climbed 16.8% from a year ago to 266.2 million shares, up from 227.9 million.
Although the 266.2 million count came in slightly below the 268.0 million shares management forecast, Viavi still carries $245.1 million of 0.625% convertible notes in short-term debt with a $13.79 conversion price. Because those notes are deep in the money, they continue to add shares to the diluted count and weigh on per-share earnings.
What to watch: the diluted share count in the second quarter. A rise above 268 million shares would show that convertible note dilution is still outrunning the new buyback program.
Acquisition Lapping Cuts Headline Growth in Q2
Viavi closed its purchase of Spirent's high-speed ethernet and network security testing lines on October 16, 2025, which means the first quarter of fiscal 2027 was the last period compared against a prior year with zero Spirent sales. In addition, first-quarter results included a 14th calendar week and a roughly 1 percentage point margin boost from tariff refunds.
As the comparison base picks up a partial quarter of Spirent revenue in the second quarter, the company's outlook calls for headline sales growth to slow from 56.9% in the first quarter to 38.1% at the $510 million middle of the range. Meanwhile, Viavi noted in its risk disclosures that evolving tariff rules and trade tensions remain an ongoing uncertainty for its supply chain.
What to watch: third-quarter revenue growth outlook next quarter, when Spirent sits fully in the prior-year base. That number will reveal Viavi's true underlying growth rate without acquisition tailwinds.
Risks this quarter didn't answer
Four standing operational and market risks are not addressed with numbers in the earnings release and remain open until the call or quarterly filing.
- AI data-center spending digestion: production test equipment tracks capacity additions; order book trends on the call will show whether cloud customers are pausing orders.
- Component supply and memory shortages: Viavi listed component constraints in its risk factors and raised inventory 11.9% from last quarter; the call will test if part shortages delayed any shipments.
- Customer concentration in Optical Security and Performance Products (OSP): one 3D-sensing customer accounted for 11.5% of total sales last year; the 10-Q filing will show how much of Q1's $93.2 million OSP revenue came from that buyer.
- Wireless infrastructure weakness: traditional wireless testing has been weak for eight quarters; management's call remarks will clarify if telecom demand remains flat.
💲 Other KPIs
Stockpiles of components and finished goods rose 11.9% from last quarter and 39.6% from a year ago, reaching $173.8 million. Viavi has been building inventory over the past four quarters to guard against semiconductor and memory shortages and to support higher data-center shipments, which tied up $18.5 million of working capital this quarter.
Deferred revenue — cash customers have paid upfront for support and services not yet delivered — dipped by $3.8 million, or 3.7%, from the fourth quarter. Compared with a year ago, the balance is up 52.8% largely because Viavi took on $25.6 million of service contracts when it bought the Spirent product lines.
Sales in the optical security and 3D-sensing division rose 12.2% from a year ago and 4.5% from last quarter, beating the $90 million to $92 million forecast. Segment operating margin expanded by 6.0 percentage points from a year ago to 43.2% on higher seasonal volume.
🔮 Guidance
New. The plan calls for revenue to rise 8.7% from the first quarter at the $510 million middle of the range, or 38.1% from a year ago. Year-over-year growth slows from 56.9% because the comparison period includes a partial quarter of Spirent sales. Viavi has beaten its revenue range midpoint for eight straight quarters; if the 2.6% four-quarter average beat holds, Q2 revenue would reach $523.3 million by our math.
New. Management expects profit per share excluding one-offs to rise 8.5% from the first quarter at the $0.51 middle of the range, and 131.8% from $0.22 a year ago. That sequential gain comes despite losing the first quarter's $0.02 per share net benefit from tariff refunds and the extra calendar week.
❓ Key Questions
What are the Q2 segment and operating margin targets?
The earnings release only gave company-wide revenue and per-share profit ranges for the second quarter. Investors need the Network and Service Enablement (NSE) and Optical Security (OSP) margin targets to see how much of Q1's 29.0% margin holds without tariff refunds.
What share of NSE revenue came from data centers?
Data-center products reached roughly 50% of NSE sales last quarter, up from 45% two quarters earlier. Disclosing the exact first-quarter share and its growth excluding Spirent will show whether cloud customers are still accelerating their equipment purchases.
Did co-packaged optics test revenue start as planned?
Chief executive Oleg Khaykin previously said testing revenue for co-packaged optics (CPO) would begin in the September quarter and accelerate in December. Quantifying initial orders will test whether this new market is contributing to the $510 million Q2 revenue outlook.
How will Viavi deploy its new $500 million buyback?
Diluted shares jumped 16.8% from a year ago to 266.2 million, and $245.1 million of convertible notes remain in short-term debt. Management has not said how quickly it will spend the $500 million authorization or how it will settle upcoming note conversions.