Good afternoon, and thank you for standing by. Welcome to the Viavi Fiscal Third Quarter 2022 Earnings Call. I will now turn the conference over to Head of Investor Relations, Mr. Sagar Hebbar. Please go ahead.

Thank you, Sarah. Welcome to Viavi Solutions third quarter fiscal year 2022 earnings call. My name is Sagar Hebbar, Head of Investor Relations and Corporate FP&A. Joining me on today’s call are Oleg Khaykin, President and CEO; and Henk Derksen, 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 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, excess 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, plus our supplemental earnings slides, which include historical financial tables, are available on Viavi’s website. 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 Henk.

Thank you, Sagar. Sagar has been with Viavi for more than six years as Head of Corporate Financial Planning and Analysis and now assumes the additional role as Head of Investor Relations. Bill Ong recently left the firm to pursue a new opportunity after having been with Viavi and formerly JDSU, for more than eight years, and we wish him great success in his future endeavors. Now on to Viavi Q3 results. Fiscal Q3 is a record for Viavi’s March quarter for both revenue and non-GAAP profitability. Third quarter revenue came in at $315.5 million, up 4% year-over-year, exceeding a guidance range of $301 million to $315 million. Growth was primarily driven by continued solid performance in our NSE business segment and improving sequential performance in our OSP segment, albeit down year-over-year. Viavi’s operating profit margin at 21.5% came in at the high end of our guidance range of 20.5% to 21.5%, improving 130 basis points year-over-year. EPS at $0.22 increased 22.2% from $0.18 in the prior year, a combination of strong operating performance, reduced tax rate, and lower share count. The share count of 236.8 million shares is lower than expected because of additional redemption of convertible notes. However, it still includes the dilutive impact of the remaining convertible notes of approximately 4.9 million shares. Now moving to our reported Q3 results by business segment, starting with NSE. NSE revenue at $230.8 million, up 9.3% year-over-year, came in at the low end of our guided range of $229 million to $239 million, as a result of COVID-related shutdowns in Shenzhen in China late in the quarter. Within NSE, NE revenue increased 7% from a year ago to $204.3 million, reflecting continued strength in our fiber, wireless and lab and production products. SE revenue at $26.5 million increased 30.5% year-over-year driven by strength in our assurance and datacenter products. NSE gross profit margin at 64.4% increased 20 basis points year-over-year. Within NSE, NE gross profit margin at 63.8% decreased 70 basis points from last year, primarily a result of expedite costs as we proactively secure components to mitigate supply chain constraints. SE gross profit margin at 69.1% increased 800 basis points year-over-year, reflecting both higher revenue and favorable product mix. NSE’s operating profit margin at 14.9% increased 500 basis points year-over-year, a result of operating leverage on higher revenue and disciplined OpEx management. Now turning to OSP. Third quarter revenue at $84.7 million was down 8.1% from a year ago and improved sequentially by 20%. Revenue exceeded the guide range of $72 million to $76 million due to better-than-expected demand for anti-counterfeiting products during the quarter. Gross profit margin at 55.5% decreased 510 basis points year-over-year due to lower revenue volume and higher raw material costs. Operating profit margin at 39.3% was near the high end of our guidance range of 37.5% to 39.5%, albeit down 460 basis points year-over-year, a result of the aforementioned offset by disciplined OpEx management. Now turning to the balance sheet. The ending balance of our total cash and short-term investments was $596 million, down $82.1 million compared to a year ago, primarily due to additional retirements of convertible notes as well as investments in organic initiatives, including increased inventory levels, allowing us to meet and exceed customer demand requirements in an environment of supply chain challenges. Operating cash flow for the quarter was $28.9 million, a decrease of $19.2 million compared to $48.1 million in the year-ago period. The reduction is a result of timing of payroll and inventory related payables. In addition, we invested $19.3 million in capital expenditures during the quarter compared to $8.2 million in the prior year as we continue to build out the new Arizona production facility. As you may recall, we are targeting the reduction of our 2023 and 2024 outstanding convertible notes to continue to improve our capital structure. In the first half of 2022, we redeemed approximately 321 million of these notes from the original 685 million in principal value, leading to a remaining outstanding balance at the end of the first half of 2022 of 364 million or 53% of original principal value. In this quarter, we completed transactions to extinguish an additional 50 million principal value of convertible notes at a total re-acquisition cost of $65.2 million. This brings the principal value of our combined convertible notes outstanding to $314.4 million at the end of the third quarter or 46% of the original principal value. During fiscal Q3, we purchased 4.7 million shares of our common stock for 78.7 million. This includes 4.2 million shares in the amount of $70.6 million repurchased under the 2021 repurchase plan. This completes the 2021 repurchase plan resulting in a total repurchase of 11.7 million shares for a total amount of $190 million. The balance of 0.5 million shares during the quarter were repurchased under the 2019 share repurchase plan. The remaining authorization on this plan is 96 million at the end of the quarter. We plan to continue to improve our capital structure and provide financial flexibility to allow us to execute our growth objectives. Now on to our guidance. We expect the fiscal fourth quarter 2022 revenue to be approximately $322 million plus or minus 7 million. Operating profit margin is expected to be 21.5% plus or minus 50 basis points and EPS to be in the range of $0.22 to $0.24 per share. We expect NSE revenue to be approximately $245 million plus or minus $5 million with operating profit margin at 16% plus or minus 50 basis points. OSP revenue is expected to be approximately $77 million plus or minus $2 million with operating profit margin at 39% plus or minus 50 basis points. Our tax rate is expected to be between 16% and 17%. We expect other income and expenses to reflect a net expense of approximately $6 million. Share count is approximately 234.5 million shares based upon current stock price levels and includes the dilutive impact of approximately 3.5 million of the remaining convertible notes. With that, I will turn the call over to Oleg.

Thank you, Henk. The second half of fiscal 2022 is off to a good start. During fiscal Q3, we have achieved new historical highs in revenue and non-GAAP profitability. I'm pleased with both NSE and OSP performance in delivering strong results despite supply chain challenges and COVID-related shutdowns in China. The NE segment growth was driven by fiber and wireless. Fiber grew double-digit percentages from the same period last year as North American service providers upgrade and expand their networks with fiber. The Optic 11 production business also saw strong customer demand, driven by 400 GigE and initial deployment of 800 GigE. Wireless demand continues to be strong, up mid-single-digit percentages from a year ago levels as customer mix shifts from NEMs to O-RAN deployment. Demand for cable products moderated cyclically lower. The SE business segment had a robust Q3 with revenues growing 30% year-on-year. We saw strong growth in assurance solutions and data center products. We expect SC to benefit from the anticipated strong market demand for 5G and growth in network traffic. We continue to execute successfully despite supply chain shortages. Our ability to secure critical components, build inventory, and meet customer demands has been a great differentiator and enabled us to grow revenue and market share. Now turning to OSP. The OSP business segment delivered better-than-expected revenue and profitability with revenue exceeding our guidance range. Although our Q3 anti-counterfeiting product revenue decreased year-on-year as central banks globally moderated their demand from COVID high stimulus spending, it was up 20% quarter-on-quarter as 3D sensing and anticounterfeiting demand recovered from the December quarter. Looking ahead, we expect Q4 revenue to be up year-on-year, benefiting from stronger anti-counterfeiting and 3D sensing demand. Fiscal 2022 is expected to be another record year for revenue and profitability at Viavi. Fiscal 2022 is also the last year of our three-year guidance provided during the Analyst Day in September 2019. We are proud to have exceeded our three-year targets despite the global pandemic and challenges in the supply chain. As we plan the next phase of our growth, we will be hosting an Analyst Day in Boston on September 13, 2022, to outline our strategy and goals for the next three year cycle. Please save the date, and we hope to see you there. We will continue to provide more information regarding the event in the coming months. In conclusion, I would like to thank my Viavi team for another quarter of strong performance and express my appreciation to our supply chain partners, customers, and our shareholders for their support. I will now turn the call over to Sagar.

Thank you, Oleg. Sarah, let us begin the question-and-answer session. Please go ahead.

Thank you. Your first question comes from the line of Alex Henderson with Needham. Please go ahead.

Great. Thanks. So first off all, congratulations. Good quarter. You made a comment fairly late in the quarter. You saw some pressures on supply chains out of China. It seems pretty clear that China has gotten worse in April. Is there additional pressures evident in Q2? And can you quantify the magnitude of the impacts for the two quarters? And while we're on the subject, did the change in conditions in Europe as a result of the war in Russia have any impact on demand in EMEA? And do you have any operational exposure to Russia or Ukraine? Thanks.

Sure. Thank you, Alex. So in China, I would say it's kind of a one-time impact that permanently shifted some supply because what they've done is they increased the number of days in quarantine for incoming products, and outgoing products have to be. So once you've done that adjustment, I’d say, it roughly cost us about $8 million in revenue shipment, which will come in the June quarter. That's part of the reason the June quarter is going to be extremely strong. And I think once that's factored in, the new lag and lead time is now built in. So the product is flowing accordingly. And it was really just the additional requirements for incoming components to sit a few days in quarantine, and then outgoing components have to go into quarantine. So that's now all fully factored in our guidance for the June quarter. As to the situation in Europe, Viavi overall, I think we have about $8 million to $10 million of revenue in that region, and that's all now being factored in. We have some salespeople in the region that we have been working to either move or let go. So that's where we are.

So just to be clear, $8 million to $10 million annually or quarterly or...

Annually, annually.

Right. And so that's been backed out of the forecast and zero exposure at this point. And receivables exposure?

Pretty much been zeroed out.

No receivables.

Perfect. And the last question that was in that opening salvo - has there been a change in demand in EMEA as a result of the war causing either cancellations or longer close times? I did notice your European business was a little bit weaker than we had expected. Any change in demand conditions?

No, I think there is no impact. I mean, in the quarter, it’s a few hundred thousand dollars so it didn't really move the needle one way or the other. But in general, in Western Europe, no impact.

Okay, thank you.

Thanks, Alex.

Thank you. Your next question comes from the line of Tim Savageaux with Northland Capital Markets. Please go ahead.

Hi, good afternoon and congrats on the good results. I want to follow up on a comment you made, Oleg, about double-digit growth in fiber in the quarter, which is pretty strong and kind of lever off some commentary from very large fiber suppliers, such as Corning, talking about expectations, even at their scale for double-digit growth for many years, maybe to be enhanced by some of these infrastructure stimulus projects. I mean, do you think that type of double-digit growth in fiber is sustainable over a period of time? Or is there anything in particular driving that this quarter? And I have a follow-up.

Well, I mean, I don't think anything is sustainable at 20% growth. I think you got to look at the March quarter a year ago. That's where a lot of things were just starting to recover. So we have obviously an easier compare. Although the March quarter was already quite good for us last year as well. So I would say what's been driving it is several major players are aggressively ramping up their fiber - they've been deploying fiber for many years. Now they're turning it on and they are turning on new customers. And that requires significant spend on field instrumentation and outfitting all the checks with all the equipment. We have pretty much won a significant chunk of that business. And also, in some ways, thanks to our amazing job of our supply chain organization, we're able to deliver the product where none of our competitors can even source the components. So that's what I said in my comments, the prowess of our supply chain management has really been instrumental in not only benefiting from this increased spend in fiber, but also capturing share for the remaining business because many major players would give you 70%, 80%, and they would have a second source for 20%, 30%. And if a second source cannot deliver, then you take the entire 100%. So that clearly has been an additional icing on the cake.

Got it. And I wouldn't hold you to 20%. Just trying to get you to 10% there. But that's fair enough.

Well, I think higher single-digit growth is obviously something we can definitely strive for.

Okay. I'll take that. And the follow-up is on the wireless side where you mentioned mid-single-digit growth. I wonder if you've seen a material contribution on the wireless field instrumentation side. And to the extent you really haven't yet, and that's more second half, can that take wireless growth to the same rate as fiber or maybe even greater for a while at least?

Well, I don't think wireless will ever be as big as fiber, because fiber is just fundamentally a much bigger market. If you think about the number of fiber checks we need in this country, it’s in tens of thousands, whereas the wireless industry is obviously much more compact. There, we have about maybe several thousand, right? We feel very good about our position in the wireless field. We've upgraded our goal for entering this market now to be more like one-third of the market instead of a quarter. We're already seeing orders coming in and it’s starting to ramp. I do believe the second half will be much stronger in terms of deployment. When I talk about wireless, it's traditional NAMs taking their deliveries, but we're also now seeing more and more orders coming from new entries as well as service providers as they’re deploying ORAN. We feel particularly good about our position in the ORAN. If you think about ORAN, it’s between NAM equipment and field equipment, we're actually having a strong position in both. It makes us, by far, the best choice for ORAN deployment in the industry. We feel as things really pick up pace, ORAN could become a major growth driver for the wireless business, where traditionally, it was more driven by NAM’s demand. The unbundling or opening up architecture for 5G to other players is increasing the number of customers for us. It’s also increasing the number of test points that need to be tested, and it creates more applications, not only as a service provider but also increasingly for private networks. In that respect, the market expansion for the infrastructure test with the emergence of Open RAN is expanding our addressable market significantly on the infrastructure side. As that gets bigger, it creates an even more flywheel effect on our field instruments for the wireless instruments.

Got it. Thanks very much.

Your next question comes from the line of Samik Chatterjee of JPMorgan. Please go ahead.

Hi, thanks for taking my questions. I guess my first one, Oleg, if I can take you back to your comments about the targets issued at the 2019 Analyst Day. When I look back, I think at that point, you had issued a growth target of 2% to 5% CAGR – revenue CAGR. Obviously, the cadence through the three years didn’t probably track as you expected because we started with a tough year initially after that Analyst Day. But for the last two years, you’re on track to hit the high end or be higher than the high end of your range that you guided to. I'm curious how you're thinking about sustainability of the growth beyond sort of the 2% to 5%, above the high end of that range you issued in the past. Do you think the current growth rates are higher primarily due to pent-up demand? Or do you see some of the drivers that are helping you deliver this growth being more sustainable as you sort of think about the next two years to three years? I have a follow-up, please.

So, if I think about it, clearly, we did not foresee the global pandemic. We thought there may be a recession or so and we figured we’d handily blow away through our growth. We had plenty of buffers built in, and it proved to be a lot tougher. But we still exceeded on the top line and significantly exceeded on the bottom line through the operating leverage. What we’re seeing is that the market has improved in dynamics. Before, it was very much driven by DSL and cable on the field instruments, but today, we fundamentally have a much more diverse and more dynamic, I’d say, higher growth environment where fiber is becoming a major play in field instrumentation and wireless with our new wireless tools, opening up new markets. Some of the new segments like ORAN and 5G with our revamped SC business, we actually think we’re going to be in a higher growth segment than we were while we were restructuring the business from the JDS Uniphase days to the modern Viavi. I don’t want anybody to steal my thunder for the Analyst Day, but we do feel that we are much more optimistic about the next three years than we were about the last three years. The first three years were really about stabilizing the business, the last three years were about getting the business in fighting shape and gaining market share. I think going forward, it’s all about full speed ahead. We feel that the dynamics of our end markets and the diversity of our end markets, and the new applications we are playing in will create a more dynamic environment in the coming three years compared to what we have seen in the last three years.

Got it. For my follow-up, on the 3D sensing piece of the business, you mentioned you’ve seen demand pick up from the low point in December, which is contrary to the seasonality on the unit front for your primary customer there. You have a lead time of two to three weeks, which is generally pretty closely aligned to unit demand that the customer sees. It does suggest the customer might be changing their buying pattern in terms of building a bit more inventory. Just curious to get any more color on that front and does that sort of impact then the timing of the benefit that you see or the ramp that you see into the next product cycle?

Sure. I remember December was a very unusual quarter in that respect, and our customer actually talked about it at length. The reality is they weren’t able to get all the chipsets. So their demand was artificially constrained. Since we have a short lead time, they knew they could not get all the product they needed so they reduced their number of bills and that impacted us adversely within the quarter. However, in the March quarter, they built more units and they placed more orders with us. I do see some level of linearization in the March and June quarter. The builds are a little bit higher because traditionally they would build a lot in the second half of the calendar year and clear back in the first half, transitioning to the next product. Given the shortages and supply constraints in the December and September quarters, they’re now making up some of the volume in the first half of the calendar year, which is creating a bit of stronger demand. I don't claim to know if it changes their pattern, but we can respond on a dime and, in that respect, I think we are the least of their worries when it comes to supply chain.

Great. No, thank you. Thanks for the color. I'll see the floor here. Thank you.

Sure.

Thank you. Your next question comes from the line of Karan Juvekar. Please go ahead.

Hey, this is Karan Juvekar on for Meta. Thank you for the question. I have just two quick questions. One, are you seeing any disruption in demand from supply chain complications elsewhere in the installation chain, for example, inability to find labor or availability of equipment? Are you seeing those sorts of things differing demand?

Well, I wouldn’t say about inability to find labor. There are two types of supply chain challenges. One is especially if you're exposed to China production, as you're probably aware with the zero COVID policy, they've implemented several additional controls that increase quarantine on incoming components and outgoing products. As a result, you now have to factor in longer lead times for getting parts into China, getting products manufactured, and shipped out of China. That’s the one-time adjustment that happened late in the third quarter, in our March quarter. The second challenge is with steel components, which are a narrow set of components. By and large, we don't have an issue anymore with semiconductor devices or passive components, but high-performance analog, mixed-signal, and FPGA continue to be under tight supply. We think we will see the situation improve by summer.

Got it. Okay. Thank you. And then just one quick follow-up, you mentioned earlier in the call that you’re seeing share gains. I just wondered if there are any particular end markets you’re seeing share gains right now, given these supply chain challenges and maybe you being able to mitigate them a little bit better? Thank you.

I'd say in the NSE across the board, we are seeing share gains. Some of them are very tactical, like in field instruments where you have multiple sources. A lot of our competitors cannot deliver the product; they cannot get the parts they need to build their product. The ability of your supply chain to execute versus your competitor leads to customers giving you 100% of the business, which is a significant advantage because once you have 100%, you have it for the entire product cycle with replacement parts, support, and so forth. In the advanced technology space, like our wireless business with the 800 GigE products and so on, having cutting-edge performance with the latest standards, we are winning market share by extending our technological leadership over our competitors.

Got it. Thank you. Helpful.

There are no further questions at this time, Mr. Hebbar, I turn the call back over to you.

Thank you, Sarah. This concludes our earnings call for today. Thank you everyone.

Thank you. You may now disconnect your lines.