Viavi Solutions Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Avi Solutions second quarter 2021 fiscal year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then the number one on your telephone keypad. If you require any further assistance, please press star zero. I would like to hand the call over to your speaker today, Mr. Bill Ong, Head of Investor Relations. Please go ahead.

Thank you, Grace. Welcome to VRB Solutions' second quarter fiscal year 2021 earnings. I'm Bill Ong, Head of Investor Relations. Joining me on today's call is Oleg Hykin, President and CEO, and Pam Evans, CFO. Please note, this call will include follow-up statements about the company's financial performance. These statements are subject to Some of these that can cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The full looking statements, including guidance we provide during this call, are valid only as of today. reality undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss the usefulness and limitations of today's earnings. Plus, our supplemental earnings slides, which include historical financial tables, are available on DRB's website. Finally, we are recording today's call and will make the recording available by 4.30 p.m. Pacific time this evening on our website. I would now like to turn the call over to Pam.

Thank you, Bill. Fiscal second quarter revenue came in at $299.9 million, at the high end of our guidance range of $280 million to $300 million. The Q2 results represent a 4.4% year-on-year decline and a 5.3% quarter-on-quarter growth. The sequential growth was driven by continued recovery in NSC and strong OSP performance. The AVI's record operating margin at 22.3% expanded 70 basis points year-on-year and exceeded the guidance range of 19 to 20%. EPS at 23 cents tied the record EPS from a year ago and exceeded the guidance range of 18 to 20 cents. Now moving to our reported results by business segment, starting with NSC. NSC revenue at $206.7 million declined 11.7% year-on-year and grew 12.6% sequentially. Within NSC, NE revenue at $180.9 million declined 10.9% from a year ago, primarily due to pandemic-related declines in field instruments. SE revenue decreased 17.3% due in part to last year's strongest unusual demand in data center products. NSC gross margin at 63.3% declined 310 basis points year on year. Within NSC, NE gross margin at 62.6% declined 380 basis points from last year, primarily due to lower volumes. SE gross margin at 68.2% increased 150 basis points year on year due to favorable product mix. NSD's operating margin at 10.7% decreased 530 basis points year on year, primarily as a result of lower revenue partially offset by lower operating expenses. Now turning to OSP. OSP had a strong quarter with revenue at $93.2 million, up 17.2% year on year, driven by strong demand in anti-counterfeiting and 3D sensing. Growth margin was at a record 62.7%, up 790 basis points year-on-year, driven by higher volume, favorable product mix, and high factory utilization. OSP also delivered a record operating margin of 47.9%, up 970 basis points from last year's levels, as a result of higher gross margin and OpEx management. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $648.8 million, an increase of $53.3 million sequentially. Our operating cash flow quarter was a record $68.7 million. In Q2, we repurchased approximately $17.1 million of the AVI stock at an average cost of $13.26 per share, including commissions. Overall, we have repurchased approximately $68.3 million out of the $200 million authorized under the share buyback plan announced in September 2019. At the end of Q2, cumulatively under this plan, the average overall cost was $12.28 per share. We will continue to be opportunistic in our share repurchase. Now on to guidance. We expect the third quarter revenue to be approximately $290 million, plus the combined $10 million. Operating margin is expected to be between 17.5% to 18.5% and 18%. in the range of 16 cents to 18 cents. We expect NSC revenue to be approximately $197 million, plus or minus $8 million, with operating margin at 6.5% plus or minus 50 basis points. The OSP revenue is expected to be approximately $93 million, plus or minus $2 million, with operating margin at 43%, plus or minus 100 basis points. Our tax expense rate is expected to be approximately 18 to 20 percent. We expect other income and expenses to reflect a net expense of approximately $3.5 million. The estimated fully diluted share count used in our calculation is 240 million shares. This includes an increase of approximately 8 million shares from Q2 as an adjustment to reflect the estimated dilution impact from our 2023 and 2024 convertible notes. With that, I will turn the call over to Oleg.