Viavi Solutions Inc.

Good afternoon. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Yavi Solutions 4Q 2022 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, Sagar Hibbar, Head of Investor Relations. You may begin your conference.

Thank you, David. Welcome to VRV Solutions' fourth quarter and fiscal year 2022 earnings call. My name is Sagar Hibbar, Head of Investor Relations and Corporate FP&A. Joining me on today's call are Oleg Hykin, 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 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 reconciled these non-GAAP results into our GAAP preliminary financials and discussed their usefulness and limitations in today's earnings release. The release plus our supplemental earnings slides, which include historical financial tables, are available on BRV'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. Fiscal Q4 2022, set an all-time record for VRV revenue and a fourth quarter record for non-GAAP profitability. Fourth quarter revenue came in at $335.3 million, up 7.8% year-over-year, exceeding a guidance range of $315 to $329 million. Growth was primarily driven by improved demand for our core OSP and 3D sensing products. VIAVI's operating profit margin at 21.3% was within our guidance range of 21 to 22%, improving 50 basis points year over year. EPS at 24 cents met the high end of our 22 to 24 cents guidance range and increased 9.1% from 22 cents in the prior year, a combination of strong operating performance and the impact of an improving capital structure. The VUDI diluted shares outstanding at the end of fiscal Q4 2022 of 231.3 million shares decreased from 241.9 million shares in the year-ago period. substantially result of refinancing our convertible debt while continuing to execute on a share repurchase program during fiscal 2022. The outstanding dilution resulting from the remaining convertible notes was 1.6 million shares during the fourth quarter compared to 10.4 million shares a year ago. Moving on to our reported Q4 results by business segment. starting with NSE. NSE quarterly revenue at $246.2 million, up 4.1% year over year, was within our guide range of $240 to $250 million, a new quarterly record in this business segment. Within NSE, NE increased 4.5% from a year ago. to $222.2 million, reflecting continued strong demand for our wireless and optical lab and production products. SE revenue at $24 million was flat year over year, albeit at an improved product mix. NSE gross profit margin at 64.9% increased 150 basis points year over year. Within NSE, NE gross profit margin at 64.2% increased 110 basis points from last year, primarily a result of leverage on growth and favorable product mix. SE gross profit margin at 71.3% increased 580 basis points year over year. NSE's operating profit margin at 15.1% was slightly below our guidance range, albeit flat year-over-year. Higher variable sales commission costs on strong bookings performance during the quarter was offset by gross profit margin expansion. Now turning to OSP, fourth quarter revenue at $89.1 million was up 19.8% from a year ago and improved sequentially by 5.2%. Revenue exceeded the guided range of $75 to $79 million due to better than expected demand for anti-counterfeiting products during the quarter. Close profit margin at 55.9% decreased 160 basis points year over year, driven primarily by raw material costs and startup costs in our new Arizona facility. Operating profit margin at 38.6% was within our guidance range of 38.5 to 39.5%. Although down 20 basis points year over year, a result of the aforementioned close margin factors offset by disciplined OPEX management. Moving to our fiscal 2022 full year performance. Despite the COVID-19, pandemic-related supply chain issues and inflationary pressures, Viavi was able to mitigate much of the impact, resulting in a strong finish to a record of $1.3 million, up 7.8% from fiscal 2021. NSE reached a record revenue of $949.1 million, up 13.3% year-over-year, well within the range of our long-term goal. OSP at $343.3 million saw a modest decline of 4.9% in revenue compared to record levels in 2021, but still exceeded the high end of our 2022 goal provided in 2019. VIAVI's full year 2022 operating profit margin at 22.2% expanded 110 basis points and exceeded the high end of our goal of 21% by 120 basis points. Within our NSE segment, operating profit margins expanded 460 basis points from 11% in 2021 to 15.6% in 2022 due to leverage on revenue growth combined with disciplined OPEX management. Within our OSP segment, operating profit margins reduced from a record level of 44.7% in 2021 to 40.5% in 2022, a result of lower revenues in combination with higher raw material costs. Full-year 2022 EPS at 95 cents increased 14.5% or 12 cents from 83 cents in 2021, and is ahead of the high end of our goal of 90 cents for 2022, a result of operating performance and an improved tax rate. Now turning to the balance sheet. At the end of fiscal Q4 2022, the ending balance of our total cash and short-term investments was $565 million, down $139 million, compared to a year ago, mainly result of refinancing 57% of our convertible debt with longer notes at a favorable rate. During 2022, we generated 178 million in operating cash flow and deployed 73 million or 5.6% of revenues towards capital expenditures, resulting into 106 million in free cash flow generation. We were able to buy back $45.5 million in common shares under the 2019 repurchase program and invested $8.3 million in M&A activity. Looking at just the fourth quarter, operating cash flow was strong at $73.6 million, an increase of $11 million compared to $62.6 million in the year-ago period. The increase is a result of higher operating income coupled with benefits from supply chain investments made early in the year. In addition, we invested $19.1 million in capital expenditures during the quarter, compared to $25.4 million in the prior year, as we progress towards completion of our Arizona production facility. As you may recall, we had targeted the reduction of our 2023 and 2024 outstanding convertible notes to continue to improve our capital structure. During the first three quarters of 2022, we redeemed approximately $370.6 million of these notes from the original $685 million in principal value. In the fourth quarter, we completed transactions to extinguish an additional $22.4 million in principal value of convertible nodes at a total reacquisition cost of $27.2 million. Bring the principal value of our combined convertible nodes outstanding to $292 million at the end of fiscal 2022, or 43% of the original principal value. During fiscal Q4, we repurchased 2.1 million shares of common stock for $28.9 million under the 2019 repurchase plan. The remaining authorization under the 2019 repurchase plan is $67.3 million. Now on to our guidance. We expect the fiscal first quarter 2023 revenue to be approximately $324 million, plus or minus $7 million. Operating profit margin is expected to be 21.4% plus or minus 70 basis points and EPS to be in the range of 22 cents to 24 cents. We expect NSE revenue to be approximately $236 million plus or minus 5 million with operating profit margin at 14.5% plus or minus 50 basis points. OSP revenue is expected to be approximately $88 million, plus or minus $2 million, with operating profit margin at 40%, plus or minus 100 basis points. Our tax rate is expected to be approximately 16% to 17%, and we expect other income and expenses to reflect a net expense of approximately $6 million. Share count is approximately 232 million shares, based on current stock price levels and includes the dilutive impact of approximately 2.5 million of the remaining convertible notes. With that, I will turn the call over to Oleg.