Viavi Solutions Inc.

Good afternoon. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAVI Solutions Fiscal Fourth Quarter and Full Year 2025 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any backward noise. After the speaker's remarks, there will be a question and answer session. At this time, I would like to welcome and turn the conference over to Viberi Niyir, Head of Investor Relations. Please go ahead.

Thank you, Bella. Good afternoon, everyone, and welcome to VIAVI Solutions' fourth quarter and fiscal 2025 earnings call. My name is Vibhuti Nair, Head of Investor Relations for VIAVI Solutions, and with me on today's call is Oleg Saikin, 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 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 the 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 supplementary 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 will make the recording available on our website by 430 p.m. Pacific time this evening. Now, I would like to turn the call over to Ilan.

Thank you, Vibhuti. Good afternoon, everyone. Now, I would like to review the results of the fourth quarter of fiscal year 2025. Net revenue for the quarter was $290.5 million. which is at the high end of our guidance range of $278 to $290 million. Revenue was up 2% sequentially and on a year-over-year basis was up 15.3%. Operating margin for the fourth fiscal quarter was 14.4%, at the high end of our guidance range of 12.5% to 14.5%. Operating margin decreased 230 basis points from the prior quarter and on a year-over-year basis was up 350 basis points. EPS at 13 cents was also at the high end of our guidance range of 10 to 13 cents and was down 2 cents sequentially. On a year-over-year basis, EPS was up 5 cents. Moving on to our Q4 results by business segment. Given VIAVI's revenue growth and recent acquisition, the service enablement revenue as a percent of total revenue is lower and led us to combine network enablement, NE, and service enablement, SE, into one reportable segment, network and service enablement, or NSE. The ongoing reportable two segments will be NSC and OSP. NSC revenue for the fourth fiscal quarter came in at $209.1 million, which is above the midpoint of our guidance range of $203 to $213 million. On a year-over-year basis, NSC revenue was up 14.8% as a result of strong demand for fiber lab and production products, mainly driven from the data center ecosystem, as well as growth in aerospace and defense products, including the acquisition of Inertia Labs. NSC gross margin for the quarter was 62.2%, which is 10 basis points higher on a year-over-year basis. NSC's operating margin for the quarter was 4.7%, an increase of 290 basis points on a year-over-year basis. NSE operating margin was slightly lower than the midpoint of our guidance range of 4% to 6%, mainly as a result of fiscal year-end employee variable costs, as well as higher R&D expenses. OSP revenue for the fourth fiscal quarter came in at $81.4 million, which is above the high end of our guidance range of $75 to $77 million. and was up 16.6% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anti-counterfeiting and other products. OSP gross margin was 54.7%, up 170 basis points from the same period last year, and was primarily driven by higher volume and favorable product mix. margin was 39.4%, which is above our guidance range of 36 to 38%, and is an increase of 460 basis points on a year-over-year basis as a result of the higher fall through. Moving on to the full year results of fiscal year 2025. For the full fiscal year, revenue was $1,084,000,000. which is up 8.4% on a year-over-year basis. The revenue growth was mainly driven by strong demand for lab and production and field products, primarily from the data center's ecosystem. This was partially offset by a declining spend for wireless and cable products by NEMS and service providers. We also saw growth in our aerospace and defense products, including the acquisition of Inertia Labs. For OSP, we saw growth in our anti-counterfeiting and other products as the industry's inventory levels normalized. Operating margin for the full year was 14.2%, up 270 basis points from fiscal year 2024, and was driven by higher revenue and favorable product mix, resulting in a higher fall through. Full year EPS was 47 cents, up 14 cents from the prior year. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q4 were $429 million compared to $400.2 million in the third quarter of fiscal 2025. Cash flow from operating activities for the quarter was $23.8 million versus $26.2 million in the same period last year. During the quarter, we did not purchase any shares of our stock. For the full year, we purchased 2 million shares for about $16.4 million. We have almost $200 million remaining under our current authorized share repurchase program. In fiscal year 2025, we prioritized our capital allocation towards M&A with the acquisition of Inertia Labs and the pending acquisition of Spirant's high-speed Ethernet, network security, and channel emulation business lines. The fully diluted share count for the quarter was 227 million shares, up from 224.2 million shares in the prior year, and versus 227.4 million shares in our guidance for the fourth fiscal quarter. CAPEX for the quarter was $5.5 million versus $3.8 million in the same period last year. CAPEX for the full fiscal year was $27.8 million versus $19.5 million in the prior year. Moving on to our first quarter guidance. Historically, Q1 is a softer quarter relative to Q4. However, we expect the first fiscal quarter revenue to be slightly up sequentially. For NSE, we expect first fiscal quarter revenue to be slightly up relative to the prior quarter, which reflects a seasonally strong quarter, driven mainly by data center ecosystem, as well as aerospace and defense, and offset by continued weakness in wireless. For OSP, we also expect quarter-over-quarter revenue to be slightly higher, driven by seasonally stronger 3D sensing products. For the first fiscal quarter of 2026, we expect revenue in the range of $290 and $298 million. Operating margin is expected to be 15% plus or minus 40 basis points, and EPS to be between 13 cents and 14 cents. We expect NSE revenue to be approximately $211 million plus or minus $3 million with an operating margin of 5.8% plus or minus 40 basis points. OSP revenue is expected to be approximately $83 million plus or minus $1 million with an operating margin of 38.3% plus or minus 20 basis points. Our tax expenses for the first quarter are expected to be around $8.5 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 $5 million, and the share count is expected to be around 228.6 million shares. Our guidance does not include financial performance from our announced acquisition of certain SPIRANs business lines, And we currently estimate the transaction to close by the end of September. During the fourth quarter, we successfully priced and allocated a $600 million term loan B, which will be used to fund the transaction at close, as well as general corporate purposes. The term loan B will close concurrently with the transaction. Over the long term, we target a four times gross leverage and below three times net leverage. With that, I will turn the call over to Oleg.