Viavi Solutions Inc.

Good afternoon and welcome to the VRE Solutions first fiscal quarter of 2023 earnings conference 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'd like to ask a question during the session, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Thank you. I will now turn the call over to Sagar Ebar, Head of Investor Relations. Please go ahead.

Thank you, Julie. Welcome to VRV Solutions' first quarter fiscal year 2023 earnings call. My name is Sagar Hebar, Head of Investor Relations. Joining me on today's call are Oleg Hykin, President and CEO, and Hank Tergson, 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 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 limitation in today's earnings release. The release plus our supplemental earnings slides, which include historical financial tables, are available on VRV's website at www.investor.vrvsolutions.com. 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 Henk. Thank you, Sagar.

Fiscal Q1 2023 was a challenging quarter for VIAVI. After record results in 2022, we saw an unanticipated deceleration in demand in the last three weeks of the quarter, concentrated among service providers. Fiscal Q1 revenue came in at $310.2 million. down 5.1% year-over-year and below our guidance range of $317 to $331 million. PIAVI's operating profit margin at 21.7% improved 40 basis points from last quarter, although down 100 basis points from last year and came in within our guidance range of 20.7% to 22.1%. EBS at 23 cents was down 4.2% from both prior year and prior quarter results, but within a guidance range of 22 to 24 cents. The current share count of 230.4 million shares includes the dilutive impact of the remaining convertible notes of approximately 1.4 million shares. Now moving to our reported Q1 results by business segment, starting with NSE. NSE quarterly revenue at $218.9 million declined 3.9% year-over-year and was below a guided range of $231 to $241 million. As discussed earlier, our mis-to-revenue guidance was a result of weakness in service provider segment late in the quarter. Within NSE, NE revenue of $194.9 million decreased 4.9% from a year ago. Field instruments was down 9% year over year. Lab instruments across both wireless and optical combined was roughly flat. SE revenue at $24 million increased 4.3% year-over-year. NSE gross profit margin at 64.7% was flat year-over-year. Within NSE, NE gross profit margin at 64.4% decreased 40 basis points from last year, primarily due to declines in volume. SE gross profit margin at 66.7% increased 280 basis points year-over-year because of favorable product mix. NSE operating profit margin at 13.2% was below the guide range of 14 to 15% and decreased 30 basis points from a year ago, reflecting the lower volumes, partially offset by expense control. Now turning to OSP. First quarter revenue at $91.3 million was down 7.7% year-over-year, coming off prior year record levels. Revenue exceeded our guidance range of $86 to $90 million. Cross-profit margin at 56.7%, decreased 100 basis points year-over-year, and includes the impact of startup costs in our new Arizona facility. Operating profit margin of 42.3%, exceeded the high end of our guide range of 39 to 41%, but was a decrease of 180 basis points from a year ago. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $517.1 million, down $47.8 million sequentially, primarily due to acquisitions, cursing translations, and sharing purchases to offset the dilution of our employee equity plan. Operating cash flow for the quarter was $26.6 million, a decrease of $26.8 million compared to $53.4 million in the year-ago period. The reduction was a result of timing of payroll and non-recurring income tax related payments. We invested $14.8 million in capital expenditures during the quarter compared to $15.7 million in the prior year, primarily to build out our new Arizona production facility. During fiscal Q1, we repurchased 1.3 million shares of our common stock for $18.7 million, thereby completing transactions under the 2019 Repurchase Plan that expired at the end of the quarter. As you may recall, in September, we announced that the Board authorized a new common stock repurchase program for up to $300 million worth of our shares. This new plan allows us to be opportunistic as we think of our capital deployment strategy. Now on to our guidance. In view of the sudden and unexpected reduction in demand, At the end of fiscal Q1 and continuing into October, we are reducing our outlook. We expect the fiscal second quarter 2022 revenue to be approximately $271 million, plus or minus $10 million. Operating profit margin is expected to be 14.4%, plus or minus 50 basis points, and EPS to be in the range of 10 cents to 12 cents. We expect NSE revenue to be approximately $195 million, plus or minus 8 million, with operating profit margin of 6%, plus or minus 50 basis points. OSP revenue is expected to be approximately $76 million, plus or minus 2 million, with operating profit margin at 36%, plus or minus 100 basis points. Our tax rate is expected to be between 24 to 26% as a result of jurisdictional mix. We expect other income expenses to reflect a net expense of approximately $6 million. Share count is approximately 230.4 million shares based upon current stock price levels and includes the dilutive impact of approximately 1.4 million shares of the remaining convertible notes. With that, I will turn the call over to Oleg.