Viavi Solutions Inc.

Good day. Thank you for standing by, and a welcome to the VOV Solutions Third Quarter Fiscal Year 2021 Audience Conference 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'll need to press Star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press Star 0. I would now like to hand the conference over to your speaker today, Bill Ong, Head of Investor Relations. Thank you. Please go ahead.

Thank you, Christina. Welcome to VRB Solutions' third quarter fiscal year 2021 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Olu Kiken, President and CEO, and Hank Dirksen, CFO. Please note, this call will include full looking statements about the company's financial performance. These statements are subject to risk and uncertainties that could 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 forward-looking statements, including guidance, we provide during this call are valid only as of today. VRV 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 their usefulness and limitations in today's earnings release. The release plus our supplemental earnings slide, which includes historical financial tables, are available on VIAVI'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 Hank.

Thank you, Bill, and welcome, everyone, and thank you for joining today's call. My name is Hank Dirksen, and I'm extremely pleased to have joined Viabi. I joined from Berlin where I spent more than 20 years in various finance and operating roles and served as the CFO during the last 10 years prior to coming here. I'm very excited to have the opportunity to work with OLEC and the rest of the VIAVI team. I look forward to speaking and meeting with many of you in the coming months. Now on to VIAVI's results. Fiscal Q3 2021 reflects a strong quarter, with Yavi record revenue and non-GAAP profitability, as well as cash flow for a given March quarter, which is typically a seasonally weaker quarter. Third quarter revenue came in at $303.4 million, which exceeded a guided range of $280 to $300 million. Revenue grew 18.4% from a year-ago level, exceeding pre-pandemic levels and setting an all-time VIAVI Q3 record. The year-over-year performance reflects the robust recovery from last year's pandemic impact, continued strength in wireless and fiber, as well as very strong continued anti-counterfeiting demand in OSP. VRV's operating profit margin at 20.2% expanded 540 basis points year-over-year and exceeded the guidance range of 17.5% to 18.5%. EPS at $0.18 reached the high end of the $0.16 to $0.18 guidance range and increased $0.04 from a year ago. Stronger than expected volume in our Asia-Pacific region resulted in a shift in the jurisdictional mix of income contributing to a higher effective tax rate of 26% versus our 18 to 20% guidance. Going forward for the fourth quarter, we expect the tax rate to normalize within the range of 19 to 21% and be approximately 20% for the full year. Now moving to our reported Q3 results by business segment, starting with NSE. NSE revenue at $211.2 million increased 12.9% year-over-year and grew 2.2% sequentially, exceeding a guided range of $189 to $205 million. Within NSE, NE revenue at $190.9 million increased 16.5% from a year ago and increased 5.5% sequentially, reflecting the recovery from last year's adverse pandemic impact with increases in fiber, cable, and wireless products. The SE revenue decreased 12.1% year-over-year and decreased 21.3% sequentially, reflecting weak demand for our assurance and data center products. We expect the SE business segment to start recovering in the coming quarters. NSE gross profit margin at 64.2% was in line with last year's performance and down 10 basis points year-over-year. Within NSE, NE gross profit margins at 64.5% increased 90 basis points from last year, primarily due to higher revenue volumes and favorable product mix. SE gross profit margins at 61.1% decreased 820 basis points year over year due to lower revenue. Operating profit margin at 9.9% increased 250 basis points year-over-year, exceeding the high end of our guided range of 6% to 7%, primarily as a result of operating leverage on high revenue. Now turning to OSP. OSP had a strong quarter with revenue at $92.2 million, up 33.2% year-over-year, driven by very robust demand for anti-counterfeiting as well as 3D sensing products. Third quarter revenue at $92.2 million was within a guided range of $91 million to $95 million. Gross profit margin at 60.6%, increased 800 basis points year-over-year, driven by higher volume, favorable product mix, and high factory utilization. Operating profit margin of 43.9% at the high end of our guided range of 42 to 44% increased 890 basis points from last year's level as a result of the aforementioned. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $678.1 million, an increase of $29.3 million sequentially. Our operating cash flow for the quarter was $48.1 million, a record third quarter for VIAVI and an increase of $9 million compared to $39.1 million in the year-ago period. We invested $8.2 million in capital expenditures during the quarter compared to $10.3 million in the prior year. In Q3, we repurchased $7.9 million of Yavi stock at an average cost of $15.93 per share, including commissions. In total, as of the end of the third quarter, we repurchased $76.2 million out of the $200 million authorized under the share buyback plan announced in September 2019 at an average price of $12.57 per share. We will continue to be opportunistic in our share repurchase. Now on to our guidance. We expect the fiscal fourth quarter revenue to be approximately $300 million, plus or minus $10 million. Operating profit margin is expected to be between 19.5 and 20.5 percent, and EBS in the range of 18 cents to 20 cents. We expect NSE revenue to be approximately $227 million, plus or minus $8 million, with operating profit margin at 14% plus or minus 50 basis points. OSP revenue is expected to be approximately $73 million plus or minus 2 million with operating profit margin at 39% plus or minus 100 basis points. Our tax expense rate is expected to be approximately 19 to 21% We expect other income and expenses to reflect a net expense of approximately $3.5 million. Estimated fully diluted share count used in our calculation is 243 million shares. This includes an increase of approximately 11 million shares to reflect estimated dilution impact from the 2023 and 2024 convertible notes. The share count without the convert dilution is approximately 232 million shares. With that, I will turn the call over to Oleg.