Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Third Quarter 2025 Earnings Call. Today’s conference is being recorded. 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. [Operator Instructions] At this time, I would like to turn the conference over to the Vibhuti Nayar, Head of Investor Relations. Please go ahead.

Thank you, Audra. Good afternoon, everyone, and welcome to Viavi Solutions fiscal third quarter 2025 earnings call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. And with me on the call today is Oleg Khaykin, 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 tariff impact and 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 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 4.30 p.m. Pacific Time this evening. Now, 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 third quarter of fiscal year 2025. Net revenue for the quarter was $284.8 million, which is above the midpoint of our guidance range of $276 million to $288 million. Revenue was up 5.2% sequentially, and on a year-over-year basis, was up 15.8%. Operating margin for the third fiscal quarter was 16.7%, above the high-end of our guidance range of 13% to 15%. Operating margin increased 1.8% from the prior quarter, and on a year-over-year basis, was up 7.4%. EPS at $0.15 was also above the high-end of our guidance range of $0.10 to $0.13, and was up $0.02 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q3 results by business segment. NSE revenue for the third fiscal quarter came in as $208.2 million, which is slightly above the midpoint of our guidance range of $202 million to $212 million. On a year-over-year basis, NSE revenue was up 22.6%. NE revenue for the quarter was $188 million, which is an increase of 23.9% year-over-year, as a result of strong demand by NEMs for our fiber lab and production products. The year-over-year NE revenue increase included the Inertial Labs revenue, which was in line with our expectations. SE revenue was $20.2 million, which is an increase of 11.6% from the same period last year, and is in line with our expectations. NSE gross margin for the quarter was 63.1%, which is 1.7% higher on a year-over-year basis. NE gross margin was 63.4%, which is an increase of 190 basis points from the same period last year, mainly driven by higher volume and favorable product mix. SE gross margin was 59.9%, which is a decrease of 90 basis points from the same…

Thank you, Ilan. The March quarter was unseasonably strong, continuing a strong recovery and growth momentum that we saw in fiscal Q2. The quarter revenue came in about the midpoint of the guidance, with EPS above the high end of the guidance. Higher volume and richer revenue mix were the primary drivers for stronger EPS. Looking in more details at each of our businesses, starting with NSE. NSE revenue in fiscal Q3 grew 23% year-over-year driven by recovery and growth across many of our product segments. Field instruments business segment continued to see gradual recovery driven by the demand for fiber field instruments and fiber monitoring systems. Service providers and hyperscale data center operators drove the demand as they build out and upgrade their network. We are particularly encouraged to see the embrace and adoption of fiber monitoring by hyperscalers. We expect this trend to continue through calendar 2025. Fiber lab and production saw another strong quarter driven by 800 gig and 1.6 terabit data center ecosystem, which includes semis, optical modules, systems and hyperscalers. We expect 800 gig and 1.6 terabit optical infrastructure and emerging technologies such as co-packaged optics to continue driving strong demand to the rest of calendar 2025. Our aerospace and defense business segment continued its strong growth momentum. We expect the position navigation and timing business strengthened by the acquisition of Inertial Labs to be a strong multiyear growth driver for our aerospace and defense business segment. The wireless business segment saw the same dynamics as in fiscal Q2, a stronger demand for 5G field instruments offset by continued weakness in the infrastructure test products. We believe that the demand for wireless field instruments is a leading indicator for the resumption of 5G network buildout leading to gradual recovery for the overall wireless segment. And…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We’ll take your first question from Ruben Roy at Stifel.

Thank you. Hey, Oleg. Maybe we’ll start with the tariffs discussion. And if you could maybe drilldown a little bit into the revenue side of the equation. So, you mentioned that you have some concerns that some approved POs may get delayed. Are you actually seeing delays today, any push outs, et cetera, or is this just more of a conservative take near-term?

Well, I tell you, on the first draft of our notes, I had canceled. I’ve removed canceled, because actually nobody has canceled the order. So that’s one thing. Furthermore, we’re seeing actually people accepting the increases and just adding it to their order. So that’s a positive. But I feel, clearly, we’re now, what, 4 weeks into the quarter since the big changes. And, I’m starting to feel a bit better. But, clearly, there is a number of POs that had to go back to be reapproved with the adders to compensate for the tariffs. And at this time, we are seeing some of them coming back. And so far, nobody has canceled. Nobody has reduced the size of the order, and they’re accepting the tariff increases. But, I think it’s probably prudent to be conservative, because the people who are responding the earliest are usually the ones who really need the product. And there’s always a group of customers who said, you know what, if I can always wait another month, maybe things will change again. And, as we’ve seen in the first week, the tariffs fluctuated all over the place. And, I mean, we basically stopped all shipments into U.S., and we kind of took the POs, and we held on to them to see until things stabilize. So, I think, there’s still it’s no longer as volatile as it was in the first 2 weeks, but I think it’s probably prudent to be a bit more conservative. And, I do think there’s going to be some set of customers who will delay placing orders, and that may just result in the revenue, slipping into the fiscal first quarter of next year. So, that’s why we are being a bit cautious on the revenue guidance for this quarter.

Okay. Thank you. As a follow-up, in terms of some of your equipment that’s shipped into the U.S, is there a way to think about how much of that revenue is sourced from China or other areas that we might have to worry about high tariffs? You mentioned you could potentially move in 6 months. I’m just trying to figure out, what the impact is? How much are we talking about here?

Also, I think I said, if I look at it, clearly, just looking trailing 12 months, it’s roughly 15% of our revenue is subject to tariffs overall, right? It is coming into the U.S. Clearly, China, given the magnitude of the tariffs, is the most pronounced thing. And we said that today, roughly 3% of the revenue is the tariff impact, and we can reduce it significantly within the next, say, 6 months or more like 3 to 6 months, because we can just reroute and move our production to, even within the same contract manufacturers by different country of origin. But, it takes some, we’re already working on it, we’re already moving things around. So, I think, within 6 months, the tariff impact will be fairly de minimis.

Okay. Just one final one then…

The tariffs don’t change. Pardon me?

Right. That’s a big yes. Yeah. I had a quick follow-up for, Ilan, I guess, on the cost side of the equation. So the $3 million on the higher costs, a lot of folks have been talking about passing through costs. I would just like to understand how you’re thinking about that. Is this should we think about the increased cost, I guess, as a longer term headwind on margins?

Well, let me take it. Yeah. I’ll take it. So, we made a conscious effort, all the POs that we accepted and committed to, we’re going to eat the tariffs, and that’s about $3 million as we mentioned. Everything else that POs came in but haven’t been confirmed and everything is incoming, is getting universal tariff adder, and it’s a non-negotiable. And so far, we have not seen any issue with people not accepting it. So, I think, there were some people who tried to play the game and said, hey, I’m not going to pay tariff. I said, well, it’s kind of like if you buy a product on Amazon and you refuse to pay the tax, you don’t get the product. So, I think, what we see in the industry is universally of all our peers and everybody’s passing it on. And I think, probably the call even the biggest customers are saying it is what it is, it is the new normal. And, I think, today, we are identifying tariffs. Obviously, as things stabilize and go on, it’ll just become part of the price.

Okay. Got it.

Yes, Ruben. Okay. The $3 million are embedded in our guidance, right? And that’s the one set kind of headwind. But as Oleg mentioned, prospectively, the goal is to pass it through to the customers and to offset the cost. Yeah.

Yeah. And, here, we just basically did not want to argue. On committed appeals, we do not want to go back and uncommitted. So that’s just we decided to take a high road on that one.

Yeah. Makes sense. Thank you, guys.

Thank you.

We’ll move next to Ryan Koontz at Needham & Company.

Great. Thanks for the question. Oleg, any particular technology domains you’d call out as you look forward, obviously, you talked about the third quarter strength across fiber and wireless and optical. As you look forward over the next couple of quarters, any changes in behavior you’re hearing from the different customer segments? And then secondarily, the follow-up, how’s your exposure looking across data center and AI? And can you comment on that opportunity? Thanks.

So I would say – it’s a great question. So increasingly, when I say fiber lab and production, that’s pretty much think of it today as a code word for data center. Because the days when fiber core and telecom drove that business are over today disproportional. I mean, today, I’d say majority of it goes to fund the data center, and the new nodes are being pushed by the data center. It’s your leading semis. It’s your leading fiber optic module manufacturers, leading NAMs, and the top data centers. I mean, that’s pretty much the whole ecosystem that’s driving it. The March quarter was a very strong growth quarter-on-quarter for that business. We’ve shipped into a number of projects. This quarter, we expect a bit of a pullback, but it’s still going to be stronger than December. And we expect another very strong quarter, in September. So, there we have some visibility and the customers are coming in and placing a longer-term order. So, we expect, I would say, the data center ecosystem, which is basically means for us fiber lab and production, is going to be very strong throughout the rest of this year. On the other segment is the aerospace and defense. With the acquisition of Inertial Labs and some of our earlier acquisition of Jackson Labs and our whole play in P&T, we continue to win big programs. And as those things start going into production, it’s a very different business from the rest of VIAVI, where we do a book ship. This one is all about design wins. And I tell you, I’m just blown away. You’re looking some of the programs we are winning, where the size of the program is bigger than the time for our test and measurement business. And that’s why I think as these things start materializing and going into production, it’s going to be a very strong grower. But even this year, it’s already quarter-on-quarter. And through the rest of the year, we expected to be posting pretty strong growth. So, I would say two businesses that are going to be really standouts and kind of driving the growth of weighted average growth is the data center business, which is fiber lab and production, and aerospace and defense. We expect the fiber field, which is the instruments and fiber monitoring, to be the kind of steady-eddie recovery and gradual recovery trajectory. And the wireless, I think we expect, clearly, we’re already seeing activity in the field for field instrumentation. And we’ve seen, obviously, that confirmed with some of the leading wireless NAMs confirming that 5G construction is resuming, and we expect that to lead in the second half to recovery in our wireless infrastructure. And then, on SE business, I think it continues to perform well. And, I think there’s a lot of great opportunities for us later in the year.

Great. Really helpful. Any commentary you can make about the process and where you are, with regards to the divestiture from the Keysight acquisition?

So I would always kind of just, given that Keysight in a driving seat on this one, it’s all depends on their they provided update that they believe it’s going to be during their July quarter. So, basically, anytime between now and end of July is what is the stated dates are. That’s we just leave it at that.

Great. Appreciate the thoughts. Thanks so much.

Yeah.

We’ll move next to Meta Marshall at Morgan Stanley.

Hi. This is Mary on for Meta. I just wanted to go back to your comments on the OSP business. Is there anything else that you would add in terms of some of the headwinds or tailwinds on the OSP business as we think about the second half of the calendar year? Thank you.

Well, I think it’s kind of premature to talk about second half of the calendar year. But, generally, it’s a stronger half for the 3D sensing, and it’s kind of fairly steady for anti-counterfeiting. But what we’ve seen now the anti-counterfeiting has stabilized, and we’re actually seeing upside in the first half of the calendar year. And it just leads us to believe that a lot of the inventory has been burned off in the channel. And we were expecting actually during the March quarter to burn off some inventory and run lower production. It didn’t happen because the demand came in stronger. So, we actually did both of – managed to get the best of both worlds. We burned down the inventory, and we ran a higher utilization that’s giving us better gross margin for that segment. So, we expect the anti-counterfeiting to be in a much healthier shape for the room going forward than it was in the last 12 months. And the 3D sensing, I mean, you guys all see the news and, actually, it’s been pretty strong. I mean, I would even say the Q3 was stronger than we thought. And, generally, our June quarter is a seasonally weaker quarter, and then the stronger demand comes in the second half of the calendar year.

Great. Thank you.

We’ll go next to Andrew Spinola at UBS.

Hi. Thank you. I wanted to ask some follow-up. Last quarter, we saw some strength return to the NSE business as the service providers started to spend again. This quarter looked pretty strong and then the guide is for a little bit of a slowdown next quarter. I think we were hoping that there was a real return to spending by the service providers that maybe it wasn’t indicative of a headache, and it was a return to growth that would hopefully be followed in Europe and beyond in 6 months, et cetera. I’m wondering, first, do you think there was any sort of pull forward of demand by the service providers in either both Q2 and Q3? Or do you think that this trend of a return to spend is intact and we should hope to see it continue going forward?

Well, I mean, first of all, I don’t think there was any pull in, because that’s not how they operate. And, if you think about it seasonally with service provider, March quarter is one of the weakest quarters, and it was almost on par with the December quarter. So, the demand was actually quite healthy, right? But then there’s another one with service providers is the wireless field instrument. Well, that was, it continued to be pretty strong from December as well, so it leads us to believe that, we’re starting to see a resumption of a 5G build out. So in other respect, I would say the service provider field instrumentation and kind of demand is very much in line, and I would say, it’s getting back to normal. I mean, it’s not something that you’re seeing big growth. I think it’s a low-single-digits kind of quarter-on-quarter, and it’s generally adding the pattern. Maybe one quarter, it’ll be stronger; and next quarter, maybe a little bit weaker; but its trajectory is in the right direction. And I would say, generally, we would see significant drop from December quarter to the March quarter. So if you kind of think about it, the March was roughly flat to December quarter in that business. That is actually significant growth.

And we also assume for next quarter kind of a more prudent approach in terms of tariffs, et cetera.

Yeah. We expect that probably some of that will probably push out into the September quarter, because if you don’t place your orders early on and you place it later and it takes a lot long time for, if you revise your PO, it has to recirculate and collect all the signatures. By the time it gets in, you may not have enough weeks in a week in the quarter to build the product, so it probably will push out into the next quarter.

Yeah. It’s overall last quarter, this quarter, next quarter, it’s about timing, the dynamic of timing of orders. We don’t see any change in our thinking in terms of the end markets that we operate, the demand there.

Got it. So, the best way to think about the fourth quarter guide is sort of you’re just assuming across the board, everyone is just going to be a little slower, pull back a little bit. It’s not that you’re seeing weakness in one specific part of the business, because of the tariffs and others are stronger. It’s just a general expectation of some pause and some slowdown in the next quarter related to just waiting to see what’s happening.

Well, so I mean, it varies. So in OSP business, there is no impact, because you have a long-term forecast and you execute, and there is very de minimis tariff impact in that business, because we have factories in different geographies that produce for those geographies. So we don’t have an impact there. It’s really on the NSE side. And within that, it’s a service provider, who take the longest to reapprove POs with adders. I mean, when you look at the lab and production data centers, I mean, the turnaround has been pretty quick. I mean, they say, yeah, it is what it is. That’s the tariff. Here’s the PO back. So I would say, if any segment that’s going to push out and you may see some slippage of revenue, that would be more for the service provider segment rather than the lab and production, which is semi companies, the equipment vendors, data centers, and the module integrators.

Got it. Thank you.

Thanks.

Our next question comes from Michael Genovese at Rosenblatt Securities.

Great. So just back on the tariffs for a minute here. Do you have manufacturing exposure to places where tariffs, there’s a risk? I mean, I know people don’t think tariffs are going to go up and those full rates in Southeast Asia and Taiwan would be implemented, but that’s still on the table and a possibility. So, I know you said they don’t behave to pull things forward, but do you have any customers that are exposed more to those regions than China and would want to pull things forward for that reason?

I have not seen any customers that are pulling products forward, because in the end, they all have their quarterly budgets, and you got to – I have not seen – they spend what they get in any given quarter. And the only thing we’ve seen is, like, okay, we have to put an adder, and they just have to reapprove it. That’s about it. I have not seen anybody who’s saying, hey, I’ll take everything now, because I don’t want to wait. It’s just which – you think you would see it, because by that it’s not the case.

Okay. And then just on the total inventory for the company, and I think it went up about 25% quarter-over-quarter. Was that you buying in front of the tariffs or something else going on?

No. That is the incremental inventory from the Inertial Labs acquisition that closed end of January. If you back out their inventory, actually, our inventory was slightly down quarter-over-quarter.

Okay. Perfect. And then last question for me is just an update and color on the aviation military business.

Which business? Sorry.

Military aviation.

Aerospace and defense. Yeah. What about it?

Just a color update on how that market is.

Oh, yeah. So no, I mean, listen, that business is doing very well. It’s got very healthy quarter-on-quarter growth. I mean, there’s parts of that business that are more, like, mature with a slow growth like, I would say, the mission critical communication, like two way radios and avionics, they go slower. But the area that’s really driving significantly higher growth is the whole P&T, positioning, navigation, and timing. And that is all about drones. It’s all about anti-spoofing, anti-jamming of GPS, and things like that. So that’s the business that has very strong quarter-on-quarter growth.

Okay. Thanks very much.

Thank you.

Next, we’ll go to Tim Savageaux at Northland Capital Markets.

Hey, good afternoon. Two questions and really both trying to quantify a couple of things that we’ve been talking about here. First, in terms of the overall size of the fiber lab and production business, which is a real growth area for you guys, I think you’re talking about growing into the June. If I were to put that around 20%, 25% of NE revenue, would I be too far off there? Any color on that would be interesting. And then, I want to take a shot at quantifying the degree of your prudence, but why don’t we follow-up with that and start with lab and production?

Well, I think this one is that, so the June quarter, we expect some pullback from the March quarter, because we ship into a lot of big projects. So there was a big significant increase December or March quarter. Then June quarter is there some pullback, and we expect September quarter to be another increase in the shipment. So, I’d say, today, 25% maybe on NSE is probably a little too much, but 20% is probably more like it.

On NE?

No, NSE.

On NSE. Okay.

Yeah. Okay. So that’s on that. And what was your second part? You’re talking about the push like, how much? I think probably anywhere $5 million to maybe $10 million is a reasonable number to take a hedge slip out.

Right. Yeah. That was that was going to be my follow-up, which is normally, you might even see high-single-digit sequential growth in any on a seasonal basis. And so that that gets me a little bit higher, closer to maybe kind of 15…

Well, you got to also remember what is seasonal. I mean, seasonally, March quarter is down. Here, we actually had a March quarter up, right? So, I mean, it’s a different kind of compare. So if you had a typically seasonally March quarter, the June quarter would be exactly what you would expect it to be up. So, I mean, it wasn’t a seasonal. I don’t know if that pattern will maintain, but, clearly, if it is, we may have to redefine what’s seasonal.

Understood. But, we’ll settle on 5 to 10. That’s the data…

I think it’s really the data center is what probably broke the traditional seasonality. But even then, you look at the field instruments, they were roughly flat quarter-on-quarter, which is like, in that particular space you could consider growth.

Great. Appreciate it. Thanks very much.

All right.

Thank you.

And there are no further questions at this time. I will turn the conference back over to Vibhuti for closing remarks.

Thank you, Audra, and thank you, everyone. This concludes our earnings call for today. Have a good evening. Bye-bye.

And this does conclude today’s conference call. Thank you for your participation. You may now disconnect.