Viavi Solutions Inc.

call 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. VIAVI undertakes no obligation 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 BIAVI's website at www.investor.biavisolutions.com. Finally, we are recording today's call. and we will make the recording available on our website by 4.30 p.m. Pacific time this evening. With that, I would 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 second quarter of fiscal year 2025. Net revenue for the quarter was $270.8 million. which is above the high end of our guidance range of $255 to $265 million. Revenue was up 13.7% sequentially and on a year-over-year basis was up 6.4%. Operating margin for the second fiscal quarter was 14.9%, significantly above the high end of our guidance range of 11.4% to 13.4%. Operating margin increased 490 basis points from the prior quarter and on a year-over-year basis was up 170 basis points. EPS at 13 cents was also above the high end of our guidance range of 9 to 11 cents and was up 7 cents sequentially. On a year-over-year basis, EPS was up 2 cents. Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at $199.9 million, which was above the high end of our guidance range of $184 to $192 million. This was mainly driven by strong order pays from service providers and NEMs for field instruments, in addition to the recovery across many of our product segments. On a year-over-year basis, NSE revenue was up 11.3%. NE revenue for the quarter was $179 million, which is up 15.1% year-over-year as a result of strong demand by service providers and NEMs for both lab and field instruments. SE revenue was $20.9 million and declined 13.3% from the same period last year, driven mainly by enterprise customers' conservative spend. NSE gross margin for the quarter was 64.8%, which is 140 basis points higher on a year-over-year basis. NE gross margin was 64.5%, which is an increase of 200 basis points from the same period last year as a result of higher volume and product mix. SE gross margin was 67.5%, which is a decrease of 140 basis points from the same period last year due to lower revenue. NSE's operating margin for the quarter was 8.7%, which is a 510 basis points increase on a year-over-year basis, and came in significantly above our guidance range of 3.8% to 5.8%, driven by higher gross margin fall-through. OSP revenue for the second fiscal quarter came in at $70.9 million, which is slightly below the low end of our guidance range of $71 to $73 million. On a year-over-year basis, revenue was down 5.3%, primarily due to weaker demand for 3D sensing products. OSP growth margin was 50.6%, down 150 basis points from the same period last year, and was primarily driven by lower volume and product mix. OSP's operating margin was 32.4%, which is a decrease of 400 basis points on a year-over-year basis as a result of lower gross margin fall through. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 was $512.8 million, compared to $497.9 million in the first quarter of fiscal 2025. Cash flow from operating activities for the quarter was $44.7 million versus $20.4 million in the same period last year. CapEx for the quarter was $8.2 million versus $5.8 million in the same period last year. During the quarter, we did not purchase any shares of our stock as we prioritized our capital allocation towards M&A with the acquisition of inertial labs. Fully diluted share count for the quarter was 224.8 million shares, up from 223.5 million shares in the prior year, and versus 224 million shares in our guidance for the second fiscal quarter. Moving on to our third fiscal quarter guidance. For NSC, we are expecting a stronger seasonality trend across most segments. For OSP, we expect softer demand for 3D sensing products. We anticipate demand for anti-counterfeiting products to start stabilizing as the end customers continue to work down their inventories. For the third fiscal quarter of 2025, we expect revenue in the range of 276 and $288 million. Operating margin is expected to be about 14% plus or minus 100 basis points and EPS to be between 10 cents and 13 cents. We expect NSE revenue to be approximately $207 million plus or minus $5 million with an operating margin of 7% plus or minus 100 basis points. Our revenue guidance for NSC includes a high single-digit million from inertial labs, which is in line with our previous communication of $50 million annual revenue run rate. OSP revenue is expected to be approximately $75 million, plus or minus $1 million, with an operating margin of 33% plus or minus 100 basis points. Our tax expenses for the third quarter are expected to be around $9 million plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a higher net expense of approximately $4.2 million as a result of lower interest on cash on hand used for the inertial labs transaction. Lastly, the share count is expected to be around 226.1 million shares. With that, I will turn the call over to Oleg. Oleg?

Thank you, Ilan. During the December quarter, our revenue in EPS came above the higher end of our guidance range. As we mentioned in prior call, many of NSC traditional end markets have stabilized and are showing signs of gradual recovery as we enter calendar 25. Now let's look at in more detail at each of our businesses, starting with NSE. NSE revenue in fiscal Q2 grew year over year, driven by recovery and growth across many of our product segments. We expect this momentum to continue through the remainder of fiscal 25. A bit more color on individual product segments. Fiber field saw solid demand from service providers and NAMPs, particularly in fiber monitoring systems. in support of fiber network build out. We expect this momentum to continue. As we mentioned in our prior call, we're also seeing signs of stabilization and green shoots in our wireless business, driven mostly by the resumption of 5G deployment in North America. We expect the gradual recovery to continue during the first half of calendar 25. Fiber lab and production demand was up significantly in the December quarter, driven by growth in lab fiber and optical transport. We also shipped our first 1.6 terabit fiber product, and so continued demand for our 800 gig products, which should drive significant growth for the remainder of fiscal 25. Our aerospace and defense business segment continued its robust year-on-year growth, driven by growth in our mission-critical products, including communications, avionics, and P&T. which stands for Positioning, Navigation, and Timing. Earlier this week, we closed the acquisition of Inertia Labs, which strengthens VIAVI's position in the P&T space by complementing our industry-leading, resilient timing technology with positioning and navigation solutions. Our expanded P&T portfolio positions us well in the high-growth markets such as alternative navigation and autonomous air, land, and sea vehicles. Lastly, SE was down year-on-year, primarily driven by lower enterprise customer spend. Looking ahead for NSE, we expect a seasonally stronger Q3 across the broad base of our product portfolio with continued recovery momentum for the remainder of fiscal 25. Now turning to OSP. During the fiscal second quarter, OSP declined on a year-over-year basis, primarily due to lower demand for 3D sensing products. We expect fiscal Q3 to be roughly flat year-over-year, characterized by seasonally weaker 3D sensing. We continue to monitor inventory levels of anti-counterfeiting products, and we currently expect to reach demand-supply equilibrium within the next two quarters. To summarize our near-to-mouth look, we expect Q3 to be seasonally stronger and recover momentum to continue through the rest of fiscal 25. In conclusion, I would like to welcome employees of Inertia Labs to VIAVI and thank the VIB team for managing through the challenging environment over the past two years. Lastly, I would like to thank our customers and shareholders for their continued support. With that, I will now turn it back to the operator for the Q&A.