Viavi Solutions Inc.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIB Solutions fiscal second quarter 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 would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Sagar Habar, Head of Investor Relations. Please go ahead.

Thank you, Regina. Welcome to BRV Solutions' second quarter fiscal year 2023 earnings call. My name is Sagar Habar, Head of Investor Relations for BRV Solutions. 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 estimation. 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. BRV 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 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 Hank.

Thank you, Sagar. Fiscal Q2 2023 slightly exceeded our lowered expectations. mainly as a result of anticipated headwinds in service provider spending. Fiscal Q2 revenue came in at $284.5 million, down 9.6% year-over-year, and above our guidance range of $261 to $281 million. We have this operating profit margin of 16.2%, decreased 550 basis points from last quarter and 710 basis points from prior year, although above a guidance range of 13.9 to 14.9%. EPS at 14 cents per share was down 41.7% from the prior year and 39.1% from the prior quarter results and exceeded the guidance range of 10 to 12 cents per share. The current share count was 227.1 million during the quarter, down from 242.3 million shares in the prior year, as we continue to improve the quality of the balance sheet. Cash flow from operations was $46.2 million versus $22.2 million in the prior year. And year-to-date, cash flow from operations continues to be strong, at $72.8 million compared to $75.6 million last year during the first half. Now moving to our reported Q2 results by business segment, starting with NSE. NSE quarterly revenue was impacted by lower service provider spend at $207.1 million and declined 15.2% year-over-year, slightly ahead of our guidance range of $187 to $203 million, although on lower levels compared to prior year, and as the quarter progressed, demand patterns stabilized within NSE. NE revenue of $179.7 million declined 16.2% year-over-year, driven by the weakness in service provider spending. SE revenue at $27.4 million decreased 8.1% from last year. NSE gross profit margin at 64.4% decreased 90 basis points year over year. Within NSE and E gross profit margin at 64.1% decreased 30 basis points from the prior year, primarily due to decline in volume. SE gross profit margin at 66.8% decreased 500 basis points from last year primarily due to product mix. NSE, gross profit margin, operating profit margin at 8.9% exceeded our guidance range of 5.5% to 6.5%, albeit down 980 basis points year over year. Now turning to OSP. Second quarter revenue at $77.4 million was up 9.6% year-over-year. Revenue was near the high end of our guidance range of $74 million to $78 million. Gross profit margin at 52.3% decreased 390 basis points from the prior year, mainly a result of startup costs in our new Arizona facility. Operating profit margin at 35.5% was within our guidance range of 35 to 37%, down 370 basis points from a year ago. On February 1st, 2023, the company approved a restructuring and workforce reduction plan to improve operational efficiencies and better align the company's workforce with the current business needs and strategic growth opportunities. The company expects approximately 5% its global workforce to be affected and estimates it will incur charges of approximately 15 million dollars in connection with this plan the company anticipates the plan to be substantially complete by the end of fiscal 2023 now turning to the balance sheet the ending balance of our total cash and short-term investments was $489.7 million, down $27.4 million sequentially as a result of capital deployment towards both acquisitions and stock repurchases. As mentioned earlier, operating cash flow for the quarter was $46.2 million, an increase of $24 million year-over-year. The increase was a result of solid collections. In addition, we invested $18.1 million in capital expenditures during the quarter, compared to $14.8 million in the prior quarter, primarily due to complete the build-out of our new Arizona production facility. During fiscal Q2, we repurchased 2.2 million shares of our common stock for $25.2 million under the share repurchase program announced in September. leaving a remaining balance of $274.8 million worth of shares authorized for repurchase. As you may recall, in September, we announced that the Board authorized a new common stock repurchase program for up to $300 million. In addition, we successfully closed the acquisition of Jackson Labs in fiscal Q2 2023. The total purchase consideration comprised of approximately $49.9 million in cash and contingent consideration of up to $117 million in cash based on the achievement of certain operational and revenue targets to be achieved over a three-year period. This transaction provides VIAVI a leadership position in a resilient P&T, supporting government and service providers in protecting their key infrastructure and assets. The transaction allows us to leverage our existing go-to-market model and utilizes U.S. federal NOLs. Now on to our guidance. We expect the fiscal third quarter 2022 revenue to be approximately 266 million dollars plus or minus 10 million. Operating profit margin is expected to be 13.6 percent plus or minus 60 basis points, and EPS to be in the range of $0.10 to $0.12 per share. We expect NSE revenue to be approximately $197 million, plus or minus $8 million, with operating profit margin at 7.7%, plus or minus 50 basis points. expected to be approximately 69 million plus or minus 2 million with operating profit margins of 30.5% plus or minus 100 basis points. Our tax rate is expected to be between 23 and 25% as a result of jurisdictional mix. We expect our income expenses to reflect a net expense of approximately $4.5 million. Share count is expected to be around 226 million shares based on current stock price levels. With that, I will turn the call over to Oleg.