Viavi Solutions Inc.

Hey, and thank you for standing by. Welcome to the VIP Solutions fourth quarter and fiscal year-end 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to Bill Ong, Head of Investor Relations. Please go ahead.

Thank you, Ashley. Welcome to VRV Solutions' fourth quarter and fiscal year 2021 earnings call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Oleg Hykin, President and CEO, and Hank Dirksen, CFO. Please note this call will include follow-up statements about the company's financial performance. These statements are subject to risk and uncertainty 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 proposed looking statements, including guidance we provide during this call, are valid only as of today. VIARI 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 VIARI's website. Finally, we are recording today's call and we'll 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 Henk.

Thank you, Bill. Fiscal Q4 2021 reflects a strong quarter with VIAVI, record revenue, non-cap profitability, and operating cash flow for a given June quarter. Fourth quarter revenue came in at $310.9 million. which exceeded our guidance range of $290 to $310 million. Revenues grew 16.6% from a year-ago level and set an all-time Viavi Q4 record. Consistent with the prior quarter, the year-over-year performance continues to reflect robust recovery from last year's pandemic impact, as well as continued strength in wireless and fiber and solar demand for anti-counterfeiting products. BIAVI's operating profit margin at 20.8% expanded 120 basis points year-over-year and 60 basis points sequentially and exceeded the guidance range of 19.5% to 20.5%. EPS at 22 cents per share exceeded the high end of the 18 to 20 cents guidance range and increased 4 cents from the year-ago period. In addition to strong operating performance, we benefited from a lower than anticipated tax rate of 17%. The share count of 241.9 million shares includes the dilutive impact of the convertible nodes of 10 million shares. Now moving to our reported Q4 results by business segment, starting with NSE. NSE revenue at $236.5 million increased 13.5% year-over-year, exceeding a guide range of $219 to $235 million. Within NSE, NE revenue increased 17.6% from a year ago to an all-time record high of $212.7 million. reflecting strength for our fiber, wireless, and cable products. SE revenue at $23.8 million decreased 13.5% year-over-year and increased 17.2% sequentially, a result of the lack in recovery for our assurance and data center products. NSE gross profit margin at 63.4% decreased 120 basis points year-over-year. Within NSE, NE gross profit margin at 63.1% decreased 60 basis points from last year, primarily due to unfavorable product mix. SE gross profit margin at 65.5% decreased 500 basis points year-over-year due to lower revenue. NSEs operating profit margin at 15.1 percent exceeded the high end of a guide range of 13.5 to 14.5 percent, primarily as a result of operating leverage on higher revenue. Year over year, operating profit margins decreased 180 basis points, mainly a result of lower gross profit margins. Sequentially operating profit margins improved by 520 basis points as a result of leverage on higher revenue. Now turning to OSP. Fourth quarter revenue at $74.4 million, up 27.8% year-over-year, was at the high end of our guided range of $71 to $75 million. The strength was driven by robust anti-counterfeiting demand, offset by a modest signal decline in our 3D sensing products. Gross profit margin at 57.5% increased 650 basis points year-over-year, driven by higher volume and favorable product mix. Operating profit margin of 38.8% was within a guided range of 38 to 40% and increased 940 basis points from last year's levels as a result of the aforementioned higher gross profit margin. Now moving to our fiscal 2021 performance. While the COVID-19 pandemic impacted the start of fiscal 2021, Viari experienced a sharp recovery beginning in late last calendar year with a strong finish to record revenue at $1.2 billion, up 5.5% from fiscal year 2020. OSP reached a record revenue of $361 million, up 25.8% year-over-year, while NSE at $837.9 million saw a modest decline of 1.4% in revenue. The AVI's full-year 2021 gross profit margin at 62.7% increased 70 basis points from a year ago level, reflecting leverage on volume, resulting in improved cross-profit margins within our OSP segment. Operating profit margin at 21.1% expanded 250 basis points, reflecting gross profit margin expansion combined with operating expense control. Operating profits at $253.5 million grew 20.2%, increasing $42.6 million year-over-year. EPS at 83 cents per share grew 13.7%, or 10 cents from last year. Stronger volume in our Asia-Pacific region resulted in a shift in jurisdictional mix of income contributing to an increased tax rate of 19.4% in fiscal 2021 compared to 17.5% in fiscal 2020. The share count used includes the dilution of the convertible notes and is calculated both on a full year basis and on a quarterly basis. Hence, the resulting full-year EPS of 83 cents is one cent lower than the summation of the individual quarters. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $703.7 million. an increase of $25.6 million sequentially from the prior quarter and up $159.7 million compared to the prior fiscal year. Operating cash flow for the quarter was $63 million, a four-quarter record and an increase of $35.8 million compared to $27.2 million in the year-ago period. We invested $25.4 million in capital expenditures during the quarter, compared to $8.3 million in the prior year. The increased capex reflects a new production facility in support of increased future demand built in Arizona. On a full year basis, we generated record operating cash flow of $243.7 million, up 79.7% and reflecting an increase of $108.1 million compared to fiscal year 2020 at $135.6 million. On July 1st, 2021, the 1% convertible notes due in 2024 with a face value of $460 million met the 130% pricing trigger, resulting in the notes becoming convertible at the option of holders until September 30th, 2021. As a result, we have reclassified the $414.2 million book value of the notes to short-term debt and reported the difference in the book value and the face value of $45.8 million as temporary equity on the face of the balance sheet. This change has no impact to reported interest expense, EPS, or the diluted shares calculation. In addition, we are not aware at this time of any note holders electing conversion. In Q4, we repurchased $10.9 million of Yavi stock at an average cost of $16.77 per share, including commissions. In total, as of the end of the fourth quarter, we repurchased $87.1 million out of the $200 million authorized under the share buyback plan announced in September 2019 at an average price of $12.98 per share. We will continue to be opportunistic in our share repurchases, and we continue to develop and intend to execute on our capital allocation and debt management strategy. Now on to our guidance. We expect fiscal first quarter 2022 revenue to be approximately $310 million, plus or minus $7 million. Operating profit margin is expected to be between 21.5% to 22.5%. And earnings per share to be in the range of 20 cents to 22 cents. we expect NSE revenue to be approximately $215 million, plus or minus $5 million, with operating profit margin at 12.5%, plus or minus 50 basis points. OSP revenue is expected to be approximately $95 million, plus or minus $2 million, with operating profit margin at 43.5%, plus or minus 100 basis points. Our tax expense rate is expected to be approximately 20%. 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 244 million shares. This includes an increase of approximately 12 million shares to reflect the estimated dilutive impact from the 2023 and 2024 convertible notes. The share count without the convert dilution is approximately 232 million shares. With that, I will now turn the call over to Col Ouellette.