Thank you, Julie. Welcome to Viavi Solutions first quarter fiscal year 2023 earnings call. My name is Sagar Hebbar, Head of Investor Relations. 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 note that unless we state otherwise, all results 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, plus 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 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. Fiscal Q1 2023 was a challenging quarter for Viavi. After record results in 2022, we saw an unanticipated deceleration in demand in the last three weeks of the quarter, concentrated among service providers. Fiscal Q1 revenue came in at $310.2 million down 5.1% year-over-year and below our guidance range of $317 million to $331 million. Viavi's operating profit margin at 21.7% improved 40 basis points from last quarter, although down 100 basis points from last year and came in within our guidance range of 20.7% to 22.1%. EPS at $0.23 was down 4.2% from both prior-year and prior quarter results but within a guidance range of $0.22 to $0.24. The current share count of 230.4 million shares includes dilutive impact of the remaining convertible notes of approximately 1.4 million shares. Now moving to our reported Q1 results by business segment, starting with NSE, NSE quarterly revenue at $218.9 million declined 3.9% year-over-year and was below our guidance range of $231 million to $241 million. As discussed earlier, our missed revenue guidance was a result of weakness in the service providers segment late in the quarter. Within NSE, NE revenue of $194.9 million decreased 4.9% from a year-ago. Field instruments was down 9% year-over-year. Lab instruments across both wireless and optical combined was roughly flat. SE revenue at $24 million increased 4.3% year-over-year. NSE gross profit margin at 64.7% was flat year-over-year. Within NSE, NE gross profit margin at 64.4% decreased 40 basis points from last year, primarily due to declines in volume. SE gross profit margin at 66.7% increased 280 basis points year-over-year because of favorable product mix. NSE operating profit margin at 13.2% was below the guidance range of 14% to 15% and decreased 30 basis points from a year-ago, reflecting the lower volumes partially offset by expense control. Now turning to OSP, first quarter revenue at $91.3 million was down 7.7% year-over-year. Coming off prior year record levels, revenue exceeded our guidance range of $86 million to $90 million. Gross profit margin at 56.7%. This is 100 basis points year-over-year and includes the impact of startup costs in our new Arizona facility. Operating profit margin of 42.3% exceeded the high end of our guidance range of 39% to 41%. But it was a decrease of 180 basis points from a year ago. Now turning to the balance sheet, the ending balance of our total cash and short-term investments was $517.1 million, down $47.8 million sequentially, primarily due to acquisitions, translations, and share repurchases to offset the dilution of our employee equity plan. Operating cash flow for the quarter was $26.6 million, a decrease of $26.8 million compared to $53.4 million in the year-ago period. The reduction was a result of timing of payroll and non-occurring income tax related payments. In addition, we invested $14.8 million in capital expenditures during the quarter compared to $15.7 million the prior year, primarily to build out our new Arizona production facility. During fiscal Q1, we repurchased 1.3 million shares of our common stock for $18.7 million, thereby completing transactions under the 2019 repurchase plan that expired at the end of the quarter. As you may recall, in September, we announced that the board authorized a new common stock repurchase program for up to $300 million worth of our shares. This new plan allows us to be opportunistic as we think of our capital deployment strategy. Now on to our guidance, in view of the sudden and unexpected reduction in demand at the end of fiscal Q1 and continuing into October, we are reducing our outlook. We expect the fiscal second quarter 2022 revenue to be approximately $271 million plus or minus $10 million. Operating profit margin is expected to be 14.4% plus or minus 50 basis points and EPS to be in the range of $0.10 to $0.12. We expect NSE revenue to be approximately $195 million plus or minus $8 million with operating profit margin of 6% plus or minus 50 basis points. OSP revenue is expected to be approximately $76 million plus or minus $2 million with operating profit margin at 36% plus or minus 100 basis points. Our tax rate is expected to be between 24% to 26%. As a result of jurisdictional mix, we expect other income expenses to reflect a net expense of approximately $6 million. Share count is approximately 230.4 million shares based upon current stock price levels and includes the dilutive impact of approximately 1.4 million shares of the remaining convertible notes. With that, I will turn the call over to Oleg.

Thank you, Henk. The September quarter was a disappointing quarter for Viavi. Unexpectedly coming in below guidance, we exited fiscal 2022 with strong order momentum and demand visibility. For the most part, Q1 appeared to be on track with strong backlog and healthy demand across all segments. However, in the last three weeks of September, we noticed a significant deceleration in our book ship conversion across many major service providers in North America and Europe. The service provider business dynamics are characterized by a heavy percentage of book ship orders coming in the third month of the quarter. Thus a rapid slowdown in order conversion significantly impacted our field instruments revenue. The Service Providers segment aside from other Viavi and market segments delivered as expected. The end of quarter book ship dynamics that we observed is a reflection of general pullback in spending by major service providers in North America and Europe during September. We expect the slower spending environment to persist over the next several quarters, as service providers work to reduce their OpEx and CapEx by slowing down fiber and wireless deployment. Looking at the quarter in greater detail helps understand the underlying dynamics. The revenue came in at $310 million, which is about $7 million below the lower end of our revenue guidance range. Despite the lower revenue, our EPS came in line with our guidance at $0.23. The revenue mix was entirely driven by the lower revenue in our NSE business units. The OSP revenue came in above our guidance but was insufficient to offset the shortfall in NSE. The NSE was driven solely by the field instruments product line, our 11 production products which include 5G wireless and 400 Gig fiber delivered as expected, SE business unit showed moderate growth of about 4% year-on-year driven by continued improvement in demand for our assurance products. In early October, Viavi acquired Jackson Labs, a leading provider of resilient PNT technology. Resilient PNT, which stands for positioning, navigation, and timing, is a rapidly growing requirement in critical infrastructure and applications including telecommunications, data communications, and energy and transportation networks. This acquisition is part of our strategy to continue reducing Viavi's dependence on volatile telecom service providers' spending budgets and to accelerate Viavi's growth by investing in high growth, high value applications. As we look ahead at the December quarter, we expect the NSE demand environment to continue to be challenging. Specifically, the field instrument segment is expected to continue to see weaker demand as service providers reduce and realign their spending budgets and priorities. Furthermore, it is also highly unlikely that we will see any traditional year-end budget this time around. The 11 production segment is expected to be slightly down as some of our semiconductor and NIM customers are also showing increased conservatism in CapEx spending. The SE business is expected to continue to perform in line with our expectations. Now turning to OSP, the OSP business segment results were better than expected with both revenue and profitability exceeding our expectations. The revenue was driven by stronger than expected demand for both the anti-counterfeiting and 3D sensing products. Looking ahead at the December quarter, we expect revenue to be seasonally down primarily due to lower anti-counterfeiting demand as our customers work to adjust their year-end inventories. We're also seeing slightly softer than expected 3D sensing demand. We expect the macroeconomic headwinds and the end market demand volatility to persist into the near future. That said, the long-term Viavi growth drivers and investment thesis remain intact. Strong liquidity position combined with strong operational execution and financial discipline positions us well to manage through the near-term macroeconomic uncertainty and come out stronger as markets recover. We remain positive on our long-term growth drivers such as 5G Wireless, fiber, 3D sensing, and with the recent acquisition in entry the resilient PNT. In conclusion, I would like to thank my Viavi team for managing in this challenging environment and express my appreciation to our customers and shareholders for their support. I will now turn the call over to Sagar.

Thank you, Oleg. This quarter, Viavi will be participating at the Annual Needham Security Networking and Communications Conference virtually on November 15. Julie, let us begin the question-and-answer session. We ask everyone to limit discussion to one question and one follow-up.

Thank you. Your first question comes from Mehdi Hosseini from SIG. Please go ahead.

Hi, this is Logan on behalf of Mehdi Hosseini. I guess for my first question I wanted to touch on your second quarter guide for NSE operating margin of 5% plus or minus 50 basis points. Can you give a little bit more color on what's driving the significant downforce there? Seems like that is expected to be your lowest operating margin for that segment in several years. So, if you just provide some color there, that'd be great.

Absolutely, it's a revenue story for NSE, unanticipated deceleration in demand. It allows us to guide $195 million at the midpoint. And at the moment, the NSE business drops below $200 million in revenues per quarter, we see significant degradation in operating performance margin, the gross profit margins are typically intact. It's just the deleverage that hit us on the bottom line.

So it is volume driven?

All volume left.

Got it, and then I guess sticking to NSE. Can you talk a little bit more about what you're expecting next quarter, especially from the service providers. Do you see any risk that the slowing field instrument demand could lead into slower lab production at some point in the future, if you know, especially if the macro headwinds get worse?

So when we saw the sudden deceleration of book ship conversion at the end of September, our initial thought was that the customers have not cancelled the work, the discussion was all about pushing it out and spreading it over several quarters. So our initial thought was like, well, let's see how October shapes up. If it was really more of the end of quarter cash management or whatever, while October clearly showed that many major service providers are slowing down their plans and spreading the revenue over multiple quarters. So with the weaker demand, we felt it's prudent to lower the expectations. Clearly, if the market bounces back, and some of them decide to accelerate, it will be an upside, but we decided to take a conservative position and reset our internal planning as well as the expectations on the field instruments, in particular with service providers. When we talk about leveling production, the demand continues to be strong. But I think it's only prudent to do this because many of the service names, including semiconductor companies, are seeing their end market demand slow down. Looking at the history in the past, when that happens, you're also seeing a bit more conservatism on R&D CapEx, not as much as not as volatile as the service providers. But it's probably prudent to say that there's going to be some pullback and a bit slower burn rate and more conservative spending environment. So that's why, we're not really taking our level production down that much. But I think it's prudent to take it down in the mid-single-digit outlook.

Your next question comes from Alex Henderson from Needham. Please go ahead.

Thanks. So obviously, you're giving some pretty bearish guidance here for the December quarter. And I guess the question is, and I think you've implied it's going to persist for a couple of quarters beyond that. So, as we look out into the back half year, fiscal year, should we be assuming that the fourth quarter is a good metric to be thinking about as a guide to how we'll be looking at 3Q and 4Q as well?

Sure, Alex. While we can't predict the future with certainty, our perspective is to avoid trying to time the market when we foresee continuous declines. We've analyzed past events, particularly the first quarter during COVID-19, which shows a significant spending freeze that began around mid-March 2020. This was followed by consecutive quarters of reduced spending, typically taking two to three quarters for service providers to stabilize and resume their expenditures. The pace of this adjustment is crucial since providers still require various products and services. However, their decision-making processes can be slow, similar to an aircraft carrier changing course. For instance, we noticed that by the end of September, there was a complete halt on travel and spending was tightly controlled, impacting us since a significant portion of our revenue is classified as operational expenses. Generally, the second quarter reflects adjustments in capital expenditures and major spending decisions, alongside announcements of layoffs. By the third quarter, organizations usually reassess their positions and begin to allocate funds again, which tends to benefit us early on. Therefore, we believe that taking a cautious three-quarter outlook is reasonable, considering that the first quarter of stabilization will likely occur by March, with a potential slight recovery by June. For next year, we anticipate a slower pace with numerous layoffs among service providers as they aim to reduce costs. Regrettably, the slowdown we've experienced came about 14 weeks earlier than expected. Initially, after our Analyst Day, we anticipated stable performance in the first half and a decline in the latter half. However, demand weakened more rapidly than we had predicted.

So based on the December quarter, normally being seasonally one of your strongest quarters of the year. And the guidance of $0.10 to $0.12, that sounds like you're talking about something in the $0.60, $0.65 range for '23 is kind of the ballpark. But if you looked out beyond that to '24, it sounds like you think the recovery will happen but probably in the calendar '24 not in the back half of calendar '23. Is that the right thought process?

Well, that really depends on how deep you think the recession will be, and what the next year brings. I mean, clearly, if you think it's going to be a quicker recovery, then clearly the bounce back will be just as much quicker. If we think next year is really going to be a malaise or kind of dead calendar year, then it's going to be more towards the lower end. But we view it as an opportunity for us to actually further improve the structural positioning of Viavi. So when the recovery does come in, the operating leverage will be that much deeper and will recover much stronger.

Your next question comes from Tim Savageaux from Northland Capital Markets. Please go ahead.

Hi, good afternoon. A couple of questions on the nature of the slowdown you're seeing with the carriers. First would be, are you seeing similar trends across fiber and wireless? On the one hand? And then can you comment on what you're seeing out of the cable operators? I have a follow-on.

Interestingly, we did not anticipate much activity from the cable operators in the second half. However, we are observing a more positive trend among them, as they seem to be executing their plans effectively. Cable operators generally exhibit more consistency in their quarter-to-quarter spending; they have a strategy in place and follow through with it. In contrast, the telecom service providers are primarily focused on wireless and fiber these days, with minimal involvement in DSL. The situation largely depends on whether they are canceling their programs. While they are proceeding, the pace of progress is indeed slowing down. This slowdown is partly due to our involvement in field deployments and physical installations at their infrastructure sites, where they often request a reduced pace. They still require all the equipment but are looking to distribute it across several quarters and extend their payment terms. This approach clearly reflects that while their plans remain unchanged, they are opting to stretch the implementation over a longer timeframe, reducing their immediate cash outflow. Remarkably, we haven't encountered any order cancellations; instead, there is a trend of pushing timelines and negotiating payment terms. Currently, we haven't seen any program cancellations, and in contrast, the cable sector has shown impressive stability so far.

Okay, great. Since you're focusing on field instruments for the weakness, I assume that with your relatively recent entry into the wireless market, it relates more to the fiber side. Can you discuss this in relation to my next question, which is about how widespread the decline you're observing with AT&T is? It seems pretty extensive, particularly with their completion of the CBN build, which is well established and likely influencing many factors. It sounds like you're noticing additional issues, but how significant is AT&T in this overall picture for you?

Well, I don't want to bring any particular things. But clearly, when I say major North American and European, you can pretty much assume who we are talking about, right. But it's not just AT&T, it's actually broader, including them as well as the others. And the reality is when they finish building out, it's this time comes in to turn up the services. And that's usually when a lot of our equipment comes in. And what we're seeing is they're slowing down some of that as well. So I think once they realign, who knows, they might come back and accelerate equipment purchases. But generally, whenever a CFO says reduce the OPEX, one of the easiest things to do in any company is to shut down the travel and entertainment, and any expenses that are in your OPEX. And unfortunately, field instruments for the purposes of service providers are in their OPEX budget, not in their CapEx budget. So the first thing they cut is any kind of OPEX related purchases, and then they go and adjust their capital spend. But actually, the good news is when they reduce their CapEx, usually their OPEX spends on instruments goes up, because you do more with what you've got rather than buying new equipment. So it's a bit counter-cyclical in that respect. And we saw the same thing happen during COVID and in prior cycles.

Your next question comes from Angela Jin on for Samik Chatterjee from JPMorgan. Please go ahead.

Hi, good afternoon. This is Angela. So just wanted to dig into pricing here. I know, probably a few quarters ago, you had mentioned that you had taken pricing up sort of ahead of all of these costs. And now that some of these input costs are coming down, and you're seeing demand slow down. Are you seeing any pressure on pricing, especially from sort of your large tier one providers? And then I have a follow-up.

So the good news is there is no pressure on pricing. It's really ultimately demand. On the positive side, we are no longer doing any expedite; I think pretty much the components are becoming readily available. And the situation continues to improve as we speak. And I think this quarter, we're not really seeing we're not really chasing any components in any case. If anything, we're seeing some of the semiconductor device pricing starting to come down. So in that respect, if you notice on the much lower revenue, our gross margin is holding really well. And that actually is more positive than that. Because what's in the gross margin is the whole operating costs, there are operations, overhead is built in there. So in the lower volume, if your gross margin is holding up pretty well, on the lower volume, it actually tells you that when you get back to the higher volume, your margins are going to expand. So in that respect, I think our pricing is holding very well. And it's really comes down to the velocity at which customers want to take up equipment I don't think they are really looking for. It's not really, I would say a competitive price environment.

Got it. So I guess just to follow-up quickly on that. First apply, there's no components that you're saying not even like FPGAs or any other certain sort of special components where you're seeing pressure?

I believe we are reaching a balance with FPGAs, as lead times are decreasing quickly. In some instances, what was previously an 18-month lead time is now available on the spot market, indicating a significant turnaround for certain components. While FPGAs still have a reasonable standard lead time, they are not as readily available on the spot market. This aspect is the last to improve, but overall, there has been a notable enhancement in lead times and availability.

Your next question comes from Mike Genovese from Rosenblatt Securities. Please go ahead.

Great, thanks. You've touched on some of this before, but I just want to ask, maybe another way, which is, it sounds like you're saying that you're early, an early economic indicator here and that, so do you think then that the NEMS, the lab test customers will slow down further in the future? Because you're kind of an early indicator? Is that a right way to look at it?

I would say field instruments tend to be more impacted because they are considered an operating expense. This is typically where we see initial effects. In contrast, companies are less willing to cut their R&D budgets compared to how service providers may reduce deliveries to field technicians. As a result, R&D spending tends to be more stable. However, I do anticipate a slight pullback, possibly around 5%, or it might lead to orders being delayed by a quarter. Lab equipment is generally not as volatile as field instruments, although it also doesn't recover as quickly. Field instruments experience sharp downturns and recoveries, while lab instruments tend to be more stable but may take a bit longer to bounce back, possibly a couple of quarters.

Okay, that's fair. Okay, so as you mentioned like, and Henk, you guys did the Analyst Day and gave a three-year outlook, and then things started to change. So obviously, the beginning of this three-year outlook is different. So is the three-year outlook the same? Or do we have to reevaluate that?

Well, we continue to be committed to the three-year outlook. We early in the cycle. And we have to better understand how demand plays out here over the next couple of quarters. But especially in terms of profitability, and cash flow generation, we're committed to the plan. And we feel good about our end markets, it's just that we have to work through the current softness, so give us one or two quarters to see where we are before we give you an update there.

We mentioned that this is the first year of a three-year plan and we anticipate it will be relatively flat due to a potential recession. The first half looks strong, and our outlook for the second quarter is positive, but we expect the second half to be weaker. It seems like this was accelerated by about 14 weeks. Overall, I believe this fiscal year will likely see a slight decline compared to the previous year. However, looking at the three-year outlook, we still expect a recovery, and the market fundamentals and trends remain unchanged. As the economy and demand recover, it feels too early to make any downgrades.

Your next question comes from Meta Marshall from Morgan Stanley. Please go ahead.

Hi, this is Mary Lenox on for Meta Marshall. I had a question on where you're seeing the weakness in the OSP segment and your guidance. Was there pull forward of the 3D sensing or our currency volumes coming down in your assumptions?

Well, I think generally what we see is that in the December quarter, the anti-counterfeiting slows down, which is the biggest cyclical downturn. The September quarter for 3D sensing was pretty strong. Last year, our major customer pulled in a lot more and then realized that the rest of the industry couldn't deliver, resulting in a much weaker December quarter. This time, I think the September demand was roughly in line with the market demand, and for December, we did see a slight reduction in the forecast based on our rolling forecast. Listening to Qualcomm and others, it seems reasonable given the potentially more conservative outlook for foreign sales. However, it's not as severe as it was last year. Overall, it's still pretty good, maybe a little weaker than we initially expected, but the December quarter pullback is primarily driven by traditional cyclical anti-counterfeiting adjustments.

Julie, is that the last question?

And we have one more question coming again from Mike Genovese from Rosenblatt Securities, please go ahead.

Thank you. I have a couple of questions about the numbers in the model. I am looking to get a clearer breakdown between core OSP and 3D sensing. Can you tell me if core OSP was in the mid-60s or high-60s? What was the actual figure?

Mid-60s in the first quarter.

Okay, great. Finally, regarding the increase in the tax rate, I assume this is due to fixed or international taxes. The tax rates are higher now because the earnings are lower. Is that correct? And how long do you expect to maintain this rate of 25 compared to the 17 we discussed previously?

I think it's specific to this quarter is exactly how you described it. It's geographical jurisdiction mix in countries where we are paying tax. We're generating in Q2, expect to generate higher income and we think that will normalize during the rest of the year.

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