Vistance Networks, Inc. Common Stock 2026 Q2 Earnings Call

Thank you for joining us today to discuss Vistance Networks' 2026 second quarter results. I'm Jenny Thompson, Vice President of Investor Relations for Vistance Networks, and with me on today's call are Charles Treadway, President and CEO, and Kyle Lorentzen, Executive Vice President and CFO. You can find the slides that accompany this report on our investor relations website. Please note that some of our comments today will contain forward-looking statements based on the current view of our business and actual future results may differ materially. Please see our recent SEC filings, which identify the principal risks and uncertainties that could affect future performance. Before I turn the call over to Chuck, I have a few housekeeping items to review. Today, we will discuss certain adjusted or non-GAAP financial measures, which are described in more detail in this morning's earnings material.

Reconciliations of our non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. All references during today's discussion will be to our adjusted results. All quarterly growth rates described during today's presentation are on a year-over-year basis, unless otherwise noted. I'll now turn the call over to our President and CEO, Charles Treadway.

Thank you, Jenny. Good morning, everyone. I'll begin on slide three. Before discussing our second quarter results, I'd like to discuss the recent RUCKUS transaction. On July 1st, 2026, we announced the closing of the previously announced sale of RUCKUS to Belden for $1.846 billion. Net proceeds resulting from this transaction were approximately $1.75 billion. There was considerable interest in RUCKUS over the years. We feel this transaction provides our shareholders with significant value being an all-cash transaction. We want to thank all of our RUCKUS employees for their dedication in driving value in the RUCKUS business and wish them continued success under Belden leadership. As a result of this transaction, this morning, we announced the Board of Directors has approved a special distribution of $5 per share. The special distribution will be paid by the end of August 2026.

We expect that the special distribution will be treated as a return of capital for tax purposes. The cash associated with the special distribution will be supported by the proceeds from the RUCKUS sale. In total, between the special distribution after both the CCS and RUCKUS divestitures, we will have distributed $15 per share back to our shareholders while paying off all of our debt and redeeming all of our preferred equity. We are very pleased with this result, as the sale of these two businesses have unlocked significant equity value. As we evaluated the amount of special distribution, we considered the cash on hand, expected cash flows, as well as future investment opportunities and strategies. We would expect to end the year with between $700 million and $750 million of cash on the balance sheet.

In addition, we expect a tax refund of approximately $160 million in the second half of 2027 as a result of our divestiture tax strategy. The strong cash balance and unlevered balance sheet allows us to evaluate investments, both organic and inorganic, including expanding outside of the cable market. In addition to business investments, we will evaluate stock buyback opportunities, including taking advantage of the $100 million buyback program the board approved in the second quarter. As we continue to work on our go-forward strategy, we will provide updates as appropriate. Now that we've completed the RUCKUS transaction, we will focus on growing Aurora, including taking advantage of the current DOCSIS 4.0 upgrade cycle that we believe will last for several years. We are well-positioned in the amplifier space, which will be the largest segment of the market over the next few years.

In addition to our focus on the DOCSIS 4.0 upgrade cycle, we are working closely with our customers on next generation cable architecture. We will evaluate growth opportunities, including organic and inorganic investments. These investments could range from investing more aggressively in existing or new technology to evaluating potential acquisitions to broaden the markets we participate in, our technology portfolio, and our customer base. As we evaluate acquisitions, we will be disciplined on valuations, including understanding long-term return opportunity. In addition to the core DOCSIS and DAA cable business, we are evaluating investments that allow us to participate in large markets outside cable in technology that we already own, like PON, vBNG, and security solutions. In PON, we have a commercial agreement with Altice Labs. This agreement allows us to bring best-of-breed technology, including providing a robust portfolio of PON solutions for next generation fiber to the home networks.

Together, we can cover traditional GPON, XGS-PON, and 50G-PON technologies. Providing scalable, ultra-high speed broadband services while optimizing network density and energy efficiency. Our vBNG, our virtual broadband network gateway products, were acquired as part of our Casa acquisition in 2024. Our vBNG is a cloud-native software solution that separates routing and subscriber management functions from physical hardware. It allows service providers to dynamically scale and control user planes on standard servers to manage multiple access networks, such as fixed, wireless, and fiber with low latency. One specific use case is mobile data offload, where using our virtualized system helps enable wireless gateways. In the second quarter, we signed an arm's length agreement with RUCKUS to partner with them on specific mobile data offload products being sold to major U.S. wireless carriers.

Finally, I would like to touch on our security solutions business that includes our PKI or public key infrastructure products. Our PKI products provide end-to-end device security, digital certificate provisioning, and software licensing for IoT devices, smart networks, and digital video systems. This is a business that we've been in for some time and have agreements with Motorola and Texas Instruments, among others. We have a unique broad offering that we feel has significant potential for investment and growth. The three examples above show the diversity of our business product offerings. In many cases over the last few years, due to the need to focus on the deleveraging and managing our balance sheet, we have not focused on these product lines and limited investment. Now that we have a strong balance sheet with substantial cash flow and available cash, we have the funds to make investments in these product lines.

These investments may be organic or inorganic and may broaden our product portfolio through research and development funding or additional resources supporting go-to-market. Our security solutions business alone has the opportunity to create substantial value with investment in PKI as a service and further product offerings. The security solutions business will allow us to diversify beyond our traditional cable markets at very attractive valuation multiples. I'm very excited about the opportunity we have in our non-DOCSIS product lines. We will continue to keep you posted as we continue to define our strategies. Now, on the second quarter results on slide four. Aurora Networks delivered net sales of $319 million and adjusted EBITDA of $46 million. Revenue was down 1% year-over-year, and adjusted EBITDA was down 43%. Adjusted EBITDA was in line with our expectations.

As indicated in our first quarter earnings call, the second quarter was going to be a challenging quarter-over-quarter comparative due to very strong legacy product and license sales in the second quarter of 2025. Our Aurora adjusted EBITDA guidance for the full year is now $200 million-$225 million. As indicated on our last call, the business continues to be impacted by two major items in 2026: memory chip issues and stranded G&A costs. On the memory chip issue, the impact on our forecast is approximately $40 million. This is higher than our previous forecast. In addition, we are experiencing some customer upgrade delays. We continue to deal with memory availability and pricing issues associated with memory chips. Our visibility is limited. However, we successfully managed the first half of the year with multi-year forecasted demand, as well as passing on a portion of the increased cost to our customers.

We continue to be focused on alternatives to minimize the impact of memory costs and availability. Our stranded cost impact in 2026 is approximately $20 million. We expect the majority of stranded costs associated with CCS and RUCKUS divestitures to be eliminated by 2027, with all stranded costs eliminated by 2028. The market for DOCSIS 4.0 products continues to be strong as we deploy our suite of products, including amplifiers and nodes. Our FDX deployment with Comcast continues to go well. We continue to make headway with our suite of next generation ESD amplifiers and are now shipping to multiple large North American MSOs.

We expect shipments to ramp up over the next couple of quarters. These products will continue to ship over multiple years. We continue making progress on the unified products. We shipped and deployed the unified node in the second quarter. The unified node allows our customers to choose between either the ESD or FDX technology within a single device. The unified amplifiers have started lab testing. We expect to start shipping at the beginning of 2027. In the second quarter, cable operators continued upgrading their E6000 and C100G CCAP deployments to help them deliver low latency internet without requiring major infrastructure replacement. During the quarter, we continued our development of our vCCAP with a Remote PHY solution to key customers in Europe with a significant win and deployment program which will span three years. During the quarter, Aurora continued to solidify its relationship with dbSum.

As announced last year, Aurora began partnering with dbSum to offer an AI version of Aurora ServAssure NXT platform. The solution combines dbSum's self-service analytics technology for call center and network operations with Aurora's ServAssure network monitoring solution. This AI-based tool allows for advanced triage and proactive analytics, network optimization, and fault management. The recently signed agreement allows Aurora to participate in dbSum's growth through a warrant. Initially modest, dbSum's AI product offering has an opportunity to be used in a multitude of applications beyond Aurora ServAssure. We had our first win with the platform in Latin America to monitor both HFC and PON networks.