Viavi Solutions Inc.

Good afternoon and thank you for standing by. Welcome to the VIAVI fiscal third quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. Should you require any assistance, please press star zero on your telephone keypad and an operator will assist you. I will now turn the conference over to head of investor relations, Mr. Sagar Hebar. Please go ahead.

Thank you, Sarah. Welcome to VRV Solutions' third quarter fiscal year 2022 earnings call. My name is Sagar Habbar, Head of Investor Relations and Corporate FP&A. Joining me on today's call are Oleg Hyken, President and CEO, and Hank Dirksen, CFO. Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Excuse me. from our current expectation 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. VRP 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 slides, which include historical financial tables, are available on VRV'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, Sagar. Sagar has been with VRV for more than six years as head of corporate financial planning and analysis, and now assumes the additional role as head of investor relations. Bill Ong recently left the firm to pursue a new opportunity after having been with VRV and formerly JDSU for more than eight years, and we wish him great success in his future endeavors. Now on to VRV Q3 results. Fiscal Q3 is a record for VIAVI's March quarter for both revenue and non-GAAP profitability. Third quarter revenue came in at $315.5 million, up 4% year-over-year, exceeding a guidance range of $301 to $315 million. Growth was primarily driven by continued solid performance in our NSE business segment, and improving sequential performance in our OSP segment, albeit down year-over-year. VIAVIC's operating profit margin at 21.5% came in at the high end of our guidance range of 20.5% to 21.5%, improving 130 basis points year-over-year. EPS at 22 cents, increased 22.2% from 18 cents in the prior year, a combination of strong operating performance, a reduced tax rate, and lower share count. The share count of 236.8 million shares is lower than expected because of additional redemption of convertible notes. However, it still includes the dilutive impact of the remaining convertible notes of approximately 4.9 million shares. Now moving to our reported Q3 results by business segment, starting with NSE. NSE revenue at $230.8 million, up 9.3% year-over-year, came in at the low end of our guided range of $229 to $239 million as a result of COVID-related shutdowns in Shenzhen in China late in the quarter. Within NSE, NE revenue increased 7% from a year ago to $204.3 million, reflecting continued strength in our fiber, wireless, and lab and production products. SE revenue at $26.5 million increased 30.5% year-over-year, driven by strength in our assurance and data center products. NSE gross profit margin at 64.4%, increased 20 basis points year-over-year. Within NSE, NE gross profit margin at 63.8% decreased 70 basis points from last year, primarily a result of expedite costs as we proactively secure components to mitigate supply chain constraints. SE gross profit margin at 69.1% increased 800 basis points year-over-year, reflecting both high revenue and favorable product mix. NSE's operating profit margin at 14.9% increased 500 basis points year-over-year, a result of operating leverage on higher revenue and disciplined OPEX management. Now turning to OSP. Third quarter revenue at $84.7 million was down 8.1% from a year ago and improved sequentially by 20%. Revenue exceeded the guided range of $72 to $76 million due to better than expected demand for anti-counterfeiting products during the quarter. Cost profit margin at 55.5% decreased 510 basis points year over year due to lower revenue volume and higher raw material costs. Operating profit margin at 39.3% was near the high end of our guidance range of 37.5% to 39.5%, albeit down 460 basis points year-over-year, a result of the aforementioned offset by disciplined OPEX management. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $596 million, down 82.1 million compared to a year ago, primarily due to additional retirements of convertible notes as well as investments in organic initiatives including increased inventory levels allowing us to meet and exceed customer demand requirements in an environment of supply chain challenges operating cash flow for the quarter was 28.9 million dollars a decrease of 19.2 million compared to 48.1 million in the year-ago period the reduction is a result of timing of payroll and inventory related payables in addition we invested $19.3 million in capital expenditures during the quarter compared to $8.2 million in the prior year as we continue to build out the new Arizona production facility. As you may recall, we had targeted the reduction of our 2023 and 2024 outstanding convertible nodes. to continue to improve our capital structure. In the first half of 2022, we redeemed approximately $321 million of these notes from the original $685 million in principal value, leading to a remaining outstanding balance at the end of the first half of 2022 of $364 million, or 53% of original principal value. In this quarter, we completed transactions to extinguish an additional $50 million in principal value of convertible nodes at a total reacquisition cost of $65.2 million, bringing the principal value of our combined convertible nodes outstanding to $314.4 million at the end of the third quarter, or 46% of the original principal value. During fiscal Q3, we repurchased 4.7 million shares of our common stock for $78.7 million. This includes 4.2 million shares in the amount of $70.6 billion repurchased under the 2021 Repurchase Plan. This completes the 2021 Repurchase Plan, resulting in a total repurchase of 11.7 million shares for a total amount of $190 million. The balance of 0.5 million shares during the quarter were repurchased under the 2019 share repurchase plan. The remaining authorization under this plan is 96 million at the end of the quarter. We plan to continue to improve our capital structure and provide financial flexibility to allow us to execute our goal objectives. Now on to our guidance. We expect the fiscal fourth quarter 2022 revenue to be approximately $322 million, plus or minus 7 million. Operating profit margin is expected to be 21.5% plus or minus 50 basis points, and EBS to be in the range of 22 cents to 24 cents per share. We expect NSE revenue to be approximately $245 million, plus or minus 5 million, with operating profit margin at 16%, plus or minus 50 basis points. OSP revenue is expected to be approximately $77 million plus or minus $2 million, with operating profit margin at 39% plus or minus 50 basis points. Our tax rate is expected to be between 16% and 17%. We expect other income and expenses to reflect a net expense of approximately $6 million. Share count is approximately 234.5 million shares based upon current stock price levels and includes the dilutive impact of approximately 3.5 million of the remaining profitable notes. With that, I will turn the call over to Oleg.