Viavi Solutions Inc.

Hello, everyone. My name is Tamika, and welcome to Viabi Solutions fiscal first quarter 2025 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. I will now turn the conference over to Nabi Nayyar, Viabi Solutions Head of Investor Relations. Please go ahead.

Thank you, Tamika. Good afternoon, everyone. Welcome to VIAVI Solutions Fiscal First Quarter 2025 Earnings Call. My name is Vibhuti Nair, Head of Investor Relations for VIAVI Solutions. With me on the call today is Oleg Hykin, our President and CEO, and Ilan Daskal, our 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 that we provide during this call, are valid only as of today. VRB undertakes no obligations to update these statements. Please also note that unless we state otherwise, all results discussed on this call, 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, as well as our supplemental earnings slides, which include historical financial tables, are available on VIAVI's website at www.investor.viavisolutions.com. Finally, we are recording today's call, and we'll make the recording available on our website by 4.30 p.m. Pacific time this evening. With that, I would now like to turn the call over to Ilan. Ilan?

Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the first quarter of fiscal year 2025. Net revenue for the quarter was $238.2 million, which is slightly below the midpoint of our guidance range of $235 to $245 million. Revenue was down 5.5% sequentially, and on a year-over-year basis was down 3.9%. Operating margin for the first fiscal quarter was 10% at the low end of our guidance range of 9.9 to 11.7%. Operating margin decreased 90 basis points from the prior quarter and on a year-over-year basis was down 240 basis points. EPS at 6 cents at the midpoint of our guidance range of 5 to 7 cents and was down 2 cents sequentially. On a year-over-year basis, EPS was down 3 cents. Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $159.4 million, which is around the low end of our guidance range of $160 to $168 million. This was mainly driven by slower order pace from service providers for field instruments. On a year-over-year basis, NSE revenue was down 6.5%. NE revenue for the quarter was $141.6 million, which is a 5.6% year-over-year decline as a result of continued conservative spend by service providers and NEMS. SE revenue was $17.8 million, and declined 12.7% from the same period last year, driven mainly by conservative spend by enterprise customers. NSE gross margin for the quarter was 60.9%, which is 270 basis points lower on a year-over-year basis. NE gross margin was 60.9%, which is a decrease of 220 basis points from the same period last year, due to lower volume and product mix. SE gross margin was 60.7%, which is a decrease of 650 basis points from the same period last year as a result of lower revenue. NSE's operating margin for the quarter was negative 4.6%, which is a 550 basis points decline on a year-over-year basis. NSC operating margin was below our guidance range due to low revenue and gross margin fall through. OSP revenue for the first fiscal quarter came in at $78.8 million, which was above the high end of our guidance range of $75 to $77 million, primarily driven by anti-counterfeiting and 3D sensing. On a year-over-year basis, revenue was up 1.7%, driven by strength across all products. OSP gross margin was 55.3%, up 280 basis points from the same period last year, and was primarily driven by higher volume. OSP's operating margin was 39.6%, which is an increase of 180 basis points on a year-over-year basis, as a result of the higher gross margin falls through. OSP operating margin exceeded the high end of our guidance range of 33 to 35%. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 was $497.9 million. compared to $496.2 million in the fourth quarter of fiscal 2024. Cash flow from operating activities for the quarter was $13.5 million versus $50.3 million in the same period last year. During the quarter, we purchased 2 million shares of our stock for about $16.4 million. The fully diluted share count for the quarter was 224 million shares, down from 224.2 million shares in the prior year, and versus 224.2 million shares in our guidance for the first fiscal quarter. CapEx for the quarter was $7.3 million, versus $6.7 million in the same period last year. Moving on to our guidance. For NFC, we are seeing signs of recovery and normalization of seasonality trend and expect a stronger second fiscal quarter. For OSP, we expect a seasonally weaker second fiscal quarter, mainly driven by softer demand in anti-counterfeiting products. We expect the near-term demand for anti-counterfeiting products to be on the softer side as the end customers work down their inventories. For the second fiscal quarter of 2025, we expect revenue in the range of $255 and $265 million. Operating margin is expected to be 12.4% plus or minus 100 basis points, and EPS to be between 9 cents and 11 cents. We expect NSE revenue to be approximately $188 million, plus or minus $4 million with an operating margin of 4.8% plus or minus 100 basis points. OSP revenue is expected to be approximately $72 million plus or minus $1 million with an operating margin of 32.3% plus or minus 100 basis points. Our tax expenses for the second quarter are expected to be around $7 million plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3.5 million, and the share count is expected to be around 224 million shares. With that, I will turn the call over to Oleg. Oleg? Thank you, Ilan.