Viavi Solutions Inc.

Ladies and gentlemen, thank you for standing by, and welcome to BIAVI Solutions' second quarter fiscal 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Bill Ong, Head of Investor Relations. You may begin your conference.

Thank you, Josh. Welcome to VRV Solutions' second quarter fiscal year 2022 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 full-looking statements about the company's financial performance. These statements are subject to risk and uncertainty that could cause action 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. VRB 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 file, which includes historical financial tables, are available on VRB's website. Finally, we are recording today's call. We 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 Henk. Thank you, Bill.

Fiscal Q2 was VIAVI's second highest quarter for revenue and a quarterly record for non-gap profitability. Second quarter revenue came in at $314.8 million, up 5% year-over-year, exceeding a guidance range of of $296 to $310 million. The strength was driven by record revenue in our NSE business segment, offsetting anticipated temporary weakness in our OSP segment. BRV's record operating profit margin at 23.3% expanded 100 basis points year over year and 60 basis points sequentially, and exceeded the guidance range 20 to 21%, a function of operating leverage on high revenue volume, favorable product mix and disciplined OPEX control. EPS at 24 cents tied a quarterly record high and increased a penny or up 4.3% year over year and exceeded the 18 to 20 cents guidance range. The share count of 242.3 million shares is consistent with our expectations and includes the dilutive impact of the remaining convertible modes of approximately 4 million shares. Now moving to our reported Q2 results by business segments, starting with NSE. NSE achieved a new quarterly revenue record at $244.2 million, up 18.1% year-over-year, and exceeded our guidance range of $230 to $240 million. Within NSE, an eRevenue increased 18.5% from a year ago to $214.4 million, reflecting strength in our fiber and wireless products. S eRevenue came in at $29.8 million, increased 15.5% year-over-year, driven by strength in our assurance and data center products. NSE gross profit margin at 65.3% increased 200 basis points year over year. Within NSE, NE gross profit margin at 64.4% increased 180 basis points from last year, primarily a result of leverage on higher revenue volume. SE gross profit margin at 71.8% increased 360 basis points year over year reflecting both higher revenue and favorable product mix. This is record operating profit margin at 18.7% exceeded a guide range of 15.7 to 16.7% primarily result of operating leverage on higher revenue and disciplines OPEX control. Operating profit dollars more than doubled as margins increased 800 basis points from a year ago. Now turning to OSP. Second quarter revenue at $70.6 million was down 24.2% from a year ago. Revenue was slightly ahead of the high end of our guidance range of $66 to $17 million. at demand for our three defencing products improved during the quarter. Gross profit margin at 56.2% decreased 650 basis points year-over-year due to lower revenue volume. Operating profit margin at 39.2% decreased 870 basis points from a year ago as a result of the aforementioned, exceeding the high end of the guidance range of 34.5% to 36.5%, primarily due to better-than-expected expense control. Turning to the balance sheet, the ending balance of our total cash and short-term investments was $738.5 million, up $89.7 million compared to a year ago, primarily a function of pre-cash regeneration over the last 12 months. Operating cash flow for the quarter was $22.2 million, a decrease of $46.5 million compared to $68.7 million in the year-ago period. The reduction is a result of non-recurring tax payments during the quarter, mainly related to a restructuring project executed during fiscal Q4 of 2021, as well as a temporary increase in inventory levels in anticipation of increased future demand. In addition, we invested $18.4 million in capital expenditures during the quarter, compared to $10.5 million in the prior year. The increased capex reflects the new Arizona production facility. As you may recall, in early September, we completed a transaction to redeem approximately 40% of our 2023 and 2024 convertible notes from the original $685 million in principle to a remaining outstanding balance of $410 million at the end of fiscal Q1. During fiscal Q2, we redeemed an additional $45.6 million in convertible notes, which further reduces the principal value of our combined convertible notes outstanding to $364.4 million at the end of the second quarter, or 53% of the original principal value. Also in early September, we settled the combined retirement of $275 million in principal value in convertible notes in part in cash for an amount of $197 million. as well as by issuing 10.6 million shares in VRB common stock. Subsequently, the board authorized the repurchase of up to $190 million of these shares, which commenced at the start of the second quarter. We are pleased to report that as of yesterday, February 2nd, we repurchased 10.9 million shares at an average price of $16.13 per share, including commissions. for a total of $176.4 million and intent to complete the $119 million purchase program before the end of the third quarter. We plan to continue to improve our capital structure and provide the financial flexibility to allow us to execute our global objectives. Now on to our guidance. We expect the fiscal third quarter 2022 revenue to be approximately $308 million, plus or minus $7 million. Operating profit margin is expected to be 21% plus or minus 50 basis points, and EPS to be in the range of 20 to 22 cents. We expect NSE revenue to be approximately $234 million, plus or minus $5 million, with operating profit margin at 15.5% plus or minus 50 basis points. OSP revenue is expected to be approximately $74 million, plus or minus 2 million, with operating profit margin at 38.5% plus or minus 100 basis points. Our tax rate is expected to be approximately 16%. We expect under income and expenses to reflect a net expense of approximately $6 million. At the current stock price levels, And as we complete the aforementioned share repurchase program, the estimated fully diluted share count used in our calculation is 239 million shares for the third quarter. We also expect the fully diluted share count to reduce to approximately 237 million by the end of the fourth quarter. With that, I will turn the call over to Oleg.