Good afternoon. My name is Jael, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAVI Solutions Fiscal First Quarter 2026 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. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star one again. At this time, I would like to turn the conference over to Vibhuti Nair, Head of Investor Relations. Please go ahead.

Thank you, JL. Good afternoon, everyone, and welcome to VIV Solutions Fiscal First Quarter of 2026 Earnings Call. My name is Vibhuti Nair, Head of Investor Relations for VIV Solutions. With me on today's call is Oleg Heiken, 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 reports and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call, and our expectations regarding the acquired business, 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 reconciled these non-GAAP results to our preliminary GAAP financials and discussed 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. Lastly, we are recording today's call, and we'll make the recording available on our website by 4.30 p.m. Pacific time this evening. With that, I would now like to turn the call over to Ilan.

Thank you, Piburi. Good afternoon, everyone. Now I would like to review the results of the first quarter of fiscal year 2026. Net revenue for the quarter was $299.1 million, which is above the high end of our guidance range of $290 and $298 million. Revenue was up 3% sequentially, and on a year-over-year basis was up 25.6%. Operating margin for the first fiscal quarter was 15.7%, above the high end of our guidance range of 14.6% to 15.4%. Operating margin increased 130 basis points from the prior quarter and on a year-over-year basis was up 570 basis points. EPS at $0.15 was also above the high end of our guidance range of $0.13 to $0.14 and was up $0.02 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q1 results by business segment. NSE revenue for the first fiscal quarter came in at $216 million, which is above the high end of our guidance range of $208 to $214 million. On a year-over-year basis, NSE revenue was up 35.5% as a result of strong demand for lab and production as well as field products and was mainly driven by data center ecosystem as well as the acquisition of inertial labs. NSC gross margin for the quarter was 63 percent, which is 210 basis points higher on a year-over-year basis and primarily driven by higher volume and favorable product mix. NSC's operating margin for the quarter was 7.5 percent compared to negative 4.6% during the same quarter last year. NSC operating margin was above the high end of our guidance range of 5.4% to 6.2%, primarily driven by higher fall-through. OSP revenue for the first fiscal quarter came in at $83.1 million, which is in line of our guidance range of 82 to 84 million dollars and was up 5.5 percent 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 52.3 percent down 300 basis points from the same period last year and was mainly due to unfavorable product loss. OSP's operating margin was 37.1 which is below our guidance range of 38.1% to 38.5% due to product mix and higher manufacturing costs. The operating margin decreased 250 basis points on a year-over-year basis. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q1 were $549.1 million, dollars compared to 429 million dollars in the fourth quarter of fiscal 2025. Cash flow from operating activities for the quarter was 31 million dollars versus 13.5 million dollars in the same period last year. CapEx for the quarter was 8.5 million dollars versus 7.3 million dollars in the same period last year. During the quarter we successfully refinanced our 250 million dollars 1.625 percent three-year convertible notes due in March 2026 with 250 million dollars 0.625 percent five and a half years convertible notes due in March 2031. As part of this transaction, existing convert holders exchanged about $100 million for the new convert, and the remaining $150 million raised will serve to pay off the balance of the March 2026 convert. This remaining $150 million is included in the cash balance of $549 million at the end of the first fiscal quarter of 2026. In conjunction with this transaction, we purchased approximately 2.7 million shares of our stock for about $30 million. We have almost $170 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 227.9 million shares, up from 224 million shares in the prior quarter, and versus 228.6 million shares in our guidance for the first fiscal quarter. Moving on to our guidance for the second quarter of fiscal 2026. In mid-October, we successfully closed the acquisition of Spiron's high-speed Ethernet, network security, and channel emulation business lines from Keysight. The acquisition of these business lines is expected to add about $200 million of annual revenue run rate, which is above our prior estimate of around $188 million. We also concurrently closed the previously announced $600 million term loan B, which was used to fund the transaction at close, as well as general corporate purposes. In addition to the acquisition of Spirant's business lines, we expect the second fiscal quarter revenue for VRV to reflect continued strength in many of our end markets. Our guidance includes financial performance of Spirant's business line for approximately 10 weeks. For NSE, we expect continued strong demand for lab and production as well as field products driven by the data center ecosystem. For OSB, we expect quarter-over-quarter revenue to be lower, in line with seasonality of lower demand for both anti-counterfeiting and 3D sensing. For the second fiscal quarter of 2026, we expect VIAVI revenue in the range of $360 and $370 million. dollars. We expect total NSC revenue between 283 and 293 million dollars, including revenue from SPYRENT between 45 and 55 million dollars. OSB revenue is expected to be approximately 77 million dollars. Operating margin for VRV is expected to be 17.9 percent, plus or minus 60 basis points. Total NSC Operating Margin is expected to be 13.6%, plus or minus 70 basis points. This includes SPIRAN's contribution, which is expected to be slightly accretive to existing NSC margins for this quarter. OSP Operating Margin is expected to be 34%, plus or minus 50 basis points. EPS is expected to be between $0.18 and $0.20. VIHVI's standalone EPS is expected to be about $0.18, and we estimate Spirant's contribution to EPS is in the range of $0.02 after allocating pro-rata interest on debt. Historically, Spirant's HSC revenue has been stronger in the second half of the calendar year. This strength in revenue is reflected in the guidance for the fiscal second quarter. We currently plan to leverage the complementary product portfolio and capabilities and report NSE as one business segment going forward. Our tax expense for the second quarter are expected to be around $10 million, plus or minus $500,000, as a result of jurisdictional mix. We expect other income and expense to reflect a net expense of approximately $12.2 million, which increased mainly due to the interest on the TLB, and the share count is expected to be around 228.7 million shares. With that, I will turn the call over to Oleg.

Thank you, Ilan. The first quarter of fiscal 26 saw the continuation of strong momentum from the fourth quarter of fiscal 25, coming in above the high end of our guidance. It was also significantly up year-on-year and counter-cyclically up quarter-on-quarter. NSCE revenue in Q1 grew approximately 35 percent year-on-year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. The data center ecosystem, which includes high performance SAMIs, optical modules, and NAMs, drove strong demand for lab and production products in support of the AI data center build-out. We saw strong demand across all optical networking product lines. The 800 gig and 1.6 terabit Ethernet test, chip-to-chip interconnect and protocol test, and a broad range of production test equipment. In addition, we are now also seeing a growing demand for our traditional field instruments by hyperscalers as they build out and operate their new AI data centers. We expect this strong momentum to continue well into fiscal 2026. Lastly, with the recent acquisition of the highly complementary Spirance high-speed Ethernet product line, we have further strengthened our position in the data center ecosystem, significantly increasing our business footprint there. Our aerospace and defense business also saw another strong quarter of growth driven by continued high-end demand for our positioning, navigation, and timing products. We expect the strong demand to continue throughout fiscal 2026. The service providers business was generally stable during the quarter. The gradual recovery in fiber was mostly offset by the continued soft demand for wireless products. We expect this trend to continue in the medium term. Looking ahead, we expect strong quarter-on-quarter growth in NSC driven by both the continued strong demand from the data center ecosystem and aerospace and defense customers for Viavi Classic products and the incremental revenue from the recently acquired Spiron product lines. Now, turning to OSP. OSP saw strong year-on-year revenue growth driven mostly by recovery and anti-contrafeiting in other products. the 3D sensing demand was in line with seasonal expectations. We expect fiscal Q2 to be down quarter-on-quarter in line with the seasonally lower demand for both anti-counterfeiting and 3D sensing products. In summary, we expect the strong start in Q1 to continue throughout fiscal 26, supported by the stabilization and recovery of our mature end markets, including the service providers, anti-counterfeiting pigments, and 3D sensing, and the continued strong demand by the data center ecosystem and aerospace and defense customers. In conclusion, I would like to welcome our new employees to Viavi and thank the Viavi team for its continued strong innovation and execution. Lastly, I would also 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.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. One moment for your first question. Your first question comes from the line of Ruben Roy of Stiefel. Your line is open.

Hi, Oleg and Nilan. Thanks for the questions and great to see the progress and congrats on the closing of the Spirent business. I guess the first question I'll like would be as you continue down the road of diversifying your revenue, maybe you can give us an update of what the mix is. If you think about your kind of core telecom service provider revenue in NSE versus some of the new products that you're selling at the Hyperscale.

And then obviously you've been talking a lot about aerospace and defense doing well uh very well uh with uh expectations for continuing growth so maybe maybe we could just uh give us give us the mix uh as a first question thank you sure thanks um so i would say if we look at our exit of the fiscal year we did about 50 30 20 so 50 percent service provider uh 30 percent um data center ecosystem and 20 percent aerospace and defense now as we close the the the aspiring business it's about what 40 45 percent about you know 40 percent and then the remainder so 45 percent is service provider 40 percent data center and 15 percent airspace and defense purely as you average it out so we are now getting to the point where the data center revenue is almost approaching uh the traditional uh service provider which you know significantly derisks the volatility of the service provider spent and the airspace in defense continues to grow as well so i think you know as we look forward we are uh going to probably i would say exiting the share we may see uh data center ecosystem surpass the service provider and And, you know, service provider will still grow, but it's growing at a much lower rate than data center. And our airspace defense will also continue to grow. So we'll have a much more balanced portfolio and less, I would say, dependent on the neurotic service provider spent.

Great. Thanks for that detail, Oleg. And if I take Spirits out of the guidance, it looks like my math is right. You're still growing around 10% sequentially on that core NSE business, almost 20% year over year. And I was wondering if you could maybe, you know, break out, you know, given that service providers still sort of mixed with wireless, you know, still having some headwinds, et If you think about that growth on the core business, can you break it out between, you know, sort of what you're seeing in data center versus the R space and defense business? Sure.

So I think when we look at data center, we look at everything that pulls into data center. So we're going to see a very strong demand, believe it or not, for our field instruments. But it's a field instrument by the data center ecosystem. It's these specialist fiber companies that are doing now IntraConnect. I mean, you probably saw some very interesting dynamics with NVIDIA investing in the Nokia. I can kind of elaborate on that. But what we are seeing is, you know, initially it was all about building our data center. Then they realized the fiber interconnect between data centers is crap. So they said, okay, we cannot accept the traditional fiber network providers. So there's been a significant investment and emergence of the specialist fiber interconnect companies that are now spending quite a bit of money really improving the reliability and performance of the fiber networks. And we're actually seeing that is driving also the revenue of our traditional, what we call field instrument business. Then, of course, the classical data center, you know, the, you know, 1.6 terabit, 800 gig, the, you know, production, optical production test equipment continues to grow very nicely into the December quarter. and there's going to be an additional momentum building as far back, as far further into the March quarter. And airspace defense will continue to, you know, gradually grow on the continued basis that he has been doing. And the only, I would say, kind of the cylinder in our engine that is still fairly weak is the wireless business due to the, you know, the wireless spend dynamics by the major wireless carriers but you saw a very interesting thing just as we said about two years ago that eventually somebody will wake up that the fiber is awful and they'll start investing in fiber and that's already happening now so this whole thing is trickling down from data center into fiber networks well the next bottleneck that is you know not ready for the whole AI ecosystem is the wireless RAN and that's why actually we were not surprised at all that NVIDIA put in a billion dollars into AI ran in Nokia. And we do hope, I mean, we are seeing that's really accelerating the 5G advanced and 6G development. We will likely pull this in closer. And we know the others are seeing it and they're also going to be start scaling their investment. So we do think our wireless business probably will be kind of the last cylinder in the engine to turn on into the next calendar year. So that's kind of hopefully gives you a good color on all the elements of the NSC business.

Yeah, absolutely. Thanks, Oleg. If I could think one in for Elon, great to see the operating margin guidance for NSC. Obviously, Spiron's starting to contribute there. But can you give us maybe how you're thinking about operating margins as you sort of run rate the business to fill a quarter, you know, kind of exiting CISL 26 and into CISL 27.

Well, thanks for the question, Ruben. So currently, including Spirant, you know, we are towards kind of the $160 million a quarter. I believe, you know, that obviously we are still working on or just starting to work on integration, et cetera. So, probably for, you know, the early part of the 2026 calendar, it can reach, you know, maybe 5 million higher or so at around, you know, the 165 range. Okay. Thank you.

Your next question comes from the line of Mehdi Hosseini of SIG. Your line is open.

Thanks for taking my question too from my end. Oleg, let's assume wireless doesn't come back. It's kind of a worst-case scenario. Given the aspiring and baseline assumption that it would be $0.08 and creative, and a strength in fiber, and perhaps a slightly higher growth rate for a smartphone next year, It seems to me that you should be exiting calendar year 26 at close to like a dollar annualized EPS. And if wireless were to come back, there will be growth above that target. And I'm not asking you for a guide, but given the scenario you laid out, wireless could come back and just be extra and help you with a higher earning power. Any thoughts here would be great.

Well, so, I mean, as you can see, just as our business started tanking from the cutback in service providers in 2022, I mean, we had a significant operating de-leverage. Well, now that we're going in the other direction, we're getting significant operating leverage where every incremental dollar just drops right to the, you know, big chunk of it drops to the bottom line. So, I mean, you're right. I mean, getting up to if things continue as they are, I mean, it's entirely possible we'll be running around close to a dollar a share next year. I mean, you know, your words and God's ears. And you're right. Wireless is a significant incremental catalyst once it gets going because it's really been one of the segments that's kind of been left behind in this whole recovery. And, I mean, clearly, as it starts turning around, it will be a major contributor to the bottom line.

Okay, great. And just double-clicking on the OSB, and given the upcoming changes to the full factor for a smartphone application, should i assume that some of the past pricing pressure is going to abate and go away and at least you should have some operating leverage there without contemplating what the real smartphone unit growth would be sure i think you're right i mean it's a more maturing segment i mean the volumes i mean you know we're fairly saturated uh in that market so the only incremental

on growth comes from, you know, the unit growth and maybe a greater adoption of the world-facing 3D cameras. But, you know, we're seeing actually also incremental upticking of the facial recognition technologies with the Android players in Asia. Not the big ones like Samsung, but it's mostly the Chinese. So we do think it will provide some additional growth. And there we sell wafers to module integrators, and so it provides a bit more leverage there. But also, the automotive market with LiDAR in Asia is becoming a big consumer of the 3D sensing filters. Now, we've got to put it in perspective. It's kind of hard to compete with 300-plus million units. I mean, automotive is like maybe $10 million, but let's say it's a nice welcome growth in the unit volume. And in terms of the ASP erosion, I think it's fairly stabilized at this point. And I'd say the volume is the only thing that matters right now in terms of growing the revenue in that segment.

Okay. Thank you. Your next question comes from a line of Ryan Kuntz of Needham & Company. Your line is open.

Great, thanks. If we could double-click on the data center opportunity, I think that's been a little bit of a quiet market for you in terms of, I think, investors understanding your exposure there. Great to hear you're working that up. Oleg, do you feel like your execution in that customer segment is where it needs to be today? Do you need to invest more and go to market? And do those customers have different product requirements that you might need to re-spend new products for data center, or is it largely the same products as your traditional SPs?

Well, you know, it's a great question. We've been investing in this business for the last three years. And, you know, the term that I've borrowed from distribution business is turns and earns. And let me just clarify what it means. So what we're seeing today as we shifted from telecom service providers driving the roadmap to the data center driving our roadmap. You're going from anywhere six to eight years between the generations of products to about two to three years. So you have a very much faster turnover of the technologies. Means you got to deliver your products now every two to three years, but also because it is driven by engineering labs and new product development, it comes in at much higher margin. So you are turning the product portfolio much faster, which means you're not you don't have this like a long value of waiting for the next generation and you're earning higher percentage gross profits because it's a, you know, first to market always wins big. So, in that respect, we really like it because it's increasing the size of the market for us, and it's accelerating the revenue velocity for us, and we get paid for the value we deliver by being always the leader in this market. So, today, I mean, the reason I use the word the data center ecosystem is because our products don't just address a particular segment, they address everything along the entire value chain. It's your processor companies, you know, you all know who they are. It's your physical layer communication companies like Sertis and the, you know, the module integrators. It's your system companies, optical gear like Ciena, Riso, Cisco, and so on and so forth. And it's actually ultimately the actual hyperscaler who have extensive internal R&D developing anything from optical modules to MEMS switches to full-blown data center equipment. So, I mean, this is like the best thing you can have. And you're dealing with engineering budgets and the, you know, intense competition where everybody's trying to be first to market with a better technology. So, I mean, this is like, you know, truly living inside a tornado. And our team loves it because that's actually plays very well to our traditional strength to be at the bleeding edge of bringing, you know, leading edge technology to the optical networking.

That's super helpful. Would you say, Oleg, you have to say?

And actually, you know, I would add one more thing. You know, I would add one more thing. You know, we talk always about speed, so 400, 800, 1.6, 3.2. That's a network speed. What you also have in parallel is chip-to-chip interconnect. You go from PCIe 3.0, 4.0, 5.0, today in 6.0, and then it will be next year 7.0. So every time you move to a higher speed, you need a corresponding PCI Express next standard as well. So it's a tick-tock. You deliver your network speed, which immediately needs a wholesale replacement of all the chip-to-chip interconnect. So that's a force multiplier on that whole data center growth. And would you say you have a similar set of competitors and similar share in the data center relative to your legacy customer base? well i would actually say where we play um you know at the like purely the layer zero layer one we have a significantly greater share because that's traditional strength of jds uniface viavi we were very strong in it um with acquisition of spirant we have now added layer two to layer seven capability as well and there you know it's a there's two major competitors in that space i I mean, clearly one was Byron and the other one is Keysight through their acquisition of Ixia. So I would say, I don't know, today it's Vyavi and Keysight that are big players in that space. And, you know, there's about maybe four or five additional smaller players playing in individual layers kind of, you know, all over the world. But it's very much, I would say, a two major players because the level of intensity and speed with which you have to bring out the product, it's not a low-budget game. It drives quite a significant R&D spend. So I would say in that particular space, I'd say it's Keysight and the VIAVI.

Great. And maybe just a follow-up if I could on the aerospace and defense area. Can you kind of characterize those products of those P&T modules you're selling in typically? Or, you know, what's the fulfillment model look like? You're selling to, you know, drone companies and the like or defense companies?

Yeah, so it goes into everything. So we have a smorgasbord. We can sell you inertial measurement unit. It looks like a chip in a specialized package. Then we can sell you a module that has multiple of these chips with a controller and logic that does the inertial navigation system or we can sell you a full-blown inertial navigation system with sensor fusion receiving a sensor data from cameras the satellite antennas and everything else so we have a full solution and depending which customer we engage and what their relative capabilities are we'll sell them individual components we sell them the modules or we sell them the complete solution so if you're looking at the some of these you know uh drone companies you know um i would say in central and eastern europe i mean you may buy they may buy the entire solution if you're dealing with a more sophisticated u.s companies and i mean they may be buying modules or individual components uh that go into their critical systems but it's all about autonomous uh vehicles airs uh ground sea or undersea i mean you name it uh that's uh what we are servicing and the nice thing about it's the same platform that can address all these different markets including the mining agricultural and surveillance drones all these things that you need um if you think about the um uh fully gps independent autonomous um kind of robotic vehicles again if you have a question please press star one

Your next question comes from the line of Michael Genovese of Rosenblatt Securities. Your line is open.

Thanks. I think my phone broke up because I think you gave a new annual revenue number for the HSC acquisition, but I just didn't hear what it was.

Yeah, so Yvonne, go ahead.

So basically, currently, you know, once we close the transaction, we got a little bit more insight. currently on an annual run rate we believe it's about 200 million uh including you know the emulation piece the channel emulation and uh prior to that we we thought of more about 188. so yes it is higher right now okay so my my i guess my question is firing business right yes yes yes and and so so so my um my question has to do with uh you know does that change on higher revenue or any other reason, you know, kind of bring an accretion date, you know, sooner than 12 months, or are we still thinking 12 months before it becomes accretive?

So, you know, it depends also on seasonality. Remember that, you know, their stronger half is on the second calendar half. So that's the reason, you know, that this quarter we see some positive EPS. Most likely in the first calendar half, it's a little bit softer, But when you think about it from a full calendar year, yes, it's slightly higher. But when you compare it to our fiscal year, the dynamic changes a little bit.

Yeah, but clearly higher revenue makes the accretion sooner rather than later.

And then, you know, I think most of my questions were asked. But I just want to ask, you know, specifically on large service providers like AT&T, Verizon, or the cable companies. If we look at the wire line part of the network, you know, we heard weak wireless from you on that. And then it sounds like a lot of the optical activity is being done by optical specialists. But is there anything to say about the Tier 1 large cable and telcos on the wire line side? Is there any trend there that you can call?

Well, yeah, I would say gradual recovery. I mean, fiber is growing, but we do know there's going to be some big RFPs coming out from major cable operators and the service providers. And it's more with, when I look at the fiber, we're now starting to segment them into professional grade fiber operators and kind of consumer grade. So AT&T is more of a consumer grade. So they just continue like, you know, they keep talking about adding a lot of fiber customers. And that actually is great news to us. And I just want to hear, when I see the money, I'll believe it. I mean, they did make some pretty bullish announcements. And we do think next year they'll be accelerating some buying. So it all plays very well. But then there is also this whole category of what I call professional-grade fiber operators, emerging companies like Lumen. There's similar companies in Europe who all they focus on is interconnecting all these data centers. And I'd say the next one will be how do you connect them all to the wireless base bands, I mean, base stations, you know, to the towers? Because you now need to bring a reliable 10 gig, 100 gig traffic to all the towers. So we do expect the combination between the traditional and these professional grade fiber operators continue to grow nicely into next year. But even, you know, I would say, you know, take the base, you know, the base business, the traditional service providers. it's all goodness because it's a high tide that raises all the boats so we call it we kind of call it as a base business and all these other you know companies we call them speed boats so it's your professional grade fiber operators the samis modules nams these are all kind of speed boats that are growing much faster than the overall market but I mean it is encouraging to see even the-your base, you know, service providers starting to spend more money.

Great. Thanks for the color.

Sure. Thanks.

Your next question comes from the line of Andrew Spinola of UBS. Your line is open.

Thank you. Just one for me. Wondering if you could provide a little bit more color on the business-the business that you acquired. With the-with the margin profile on that business, you know, consistent with the overall business? Was it better or worse? And when I'm thinking about modeling that, you know, post the 12 months when it turns to creative, do you think you can drive the margin in that acquired business in line with maybe your targeted 20% for NSE, or do you think you can do better?

How should I think about that well so i think this uh that that business is both higher uh gross margin than the average nsc and it's higher operating profit than ever chance so it's net net accretive and i do believe that through you know integration and a greater efficiency we can actually expand their margins um further and i think we do have a i think on cost of goods we should be doing a lot better because we have now greater scale in the parts procurement and the greater leverage of engineering and sales resources.

And Andrew, just specifically on the on the gross margin, we see it in, you know, from the mid to high 60s, which is, as Oleg mentioned, definitely above our corporate average. So it's a nice contribution there.

Got it.

And is that business seeing the same acceleration that you're seeing in the rest of your data center business yes well i mean probably not the same percentage because it's a much bigger from a much bigger base but absolutely they have a very exciting product called there's a traditional hsc high speed ethernet test that you you know sell to chip companies the modules and systems and enterprise data centers and then Then there's a whole different flavor called AI HSC, which tests – generates AI workloads so you can test your network on how good it is to run the AI traffic and AI data. So that is – that piece is growing even faster.

I see. And I wanted to ask one last question actually on the data center business. I'm trying to think about that business in terms of units versus what other growth drivers you might have. So how much of that business is so, you know, if the number of switches being produced is doubling, tripling, what have you, how does that translate to benefits for you? are you seeing most of your growth because of the growth in units in these products or is it that there's just a lot more investment in R&D, new SKUs, new players in the space? How should I think of that?

It's a combination. So when we talk about sales to the lab, i.e. to the R&D equipment, it's number of companies, number of projects, number of chips. And remember I also said the very fast product turn cycle, right? Like every two, three years, next generation. So that drives more like the lab sales are driven by projects, right? So it's number of companies, number of projects, and how quickly one generation transitions to the next. And when we talk about production, that is driven purely by units. So the more units you're producing, the more you're shipping, the more you need to buy to set up more production lines. So this is more like, if you think about contract manufacturers, the more lines they add, the more equipment they need to buy.

What's the split in your business between unit-driven business versus project-driven business on the data center side, roughly?

You know, we don't really split it.

That's, uh you know dicing it very thin because it's effectively the same product the same technology packaged into different box got it thank you very much thank you your next question comes from the line of tim savageo of northland capital your line is open hey good afternoon and congrats on the results and the guide, and I want to focus in on there in particular. First, on Spirant, you mentioned a larger base. Interested in what context you meant that, but it sounds like given what you're guiding to, and I don't know if you're 50, 30, 20, going to 45, 40, 15, I'll just assume that's fiscal 25 versus fiscal 26, but it seems like Spirant's got to be well above 50 percent exposed to uh to data center um yeah so uh what is that fair to say go yeah so i mean the percentages gave it that's exiting this calendar year it's like exiting december um the mix including now the new spiral business now in terms of their exposure i would say if i define the data center ecosystem i'm in line share of their business is a data center

ecosystem but they also have um you know enterprise uh an enterprise data center so i mean i thought when i say data center ecosystem it's uh chips modules systems and hyperscalers uh they also have the enterprise like say financial um insurance and other companies with their own would test their own firewalls and things like that so that's a i'll say probably it's an 80 20 split probably okay well that makes sense um and looking at the organic guide um which is still you know pretty impressive i guess you know 310 to 320 um and uh understanding you're getting a

a healthier aspiring contribution despite the shortened time period you know and you explain that but as you look at that um and kind of asked this a little bit before but we've seen some pretty good numbers in terms of what some of the big u.s carriers are looking to spend in q4 um you know i might have looked at that organic number and thought you know an old-fashioned budget flush apparently not it doesn't look like you're building much in there um am i right you know for the you know traditional tier one telecom providers are you looking at that no there is some incremental for traditional sorry so for the traditional

sorry guys so for traditional there is some incremental growth but i mean i won't say budget flash i mean the incremental demand is coming from what i call the professional grade kind of tier two tier three focus players i mean you can call it budget flash you can call it but i think their their stuff is driven by projects that they and contracts that they signed with um hyperscalers and um and what we are seeing now increasingly i mean what we used to call you know you have field instruments where we would sell 90 plus percent to service providers we're now seeing you know uh like a quarter up to a third of the revenue is going into the whole data center driven service provider ecosystem okay so you look you look at that organic growth going on September to December yeah so we all see in the Verizon AT&T saying that next year they're going expand, you know, hey, if that happens, that will be just like a further tide that will raise all the boats.

Got it. So it looks like anything good happening with the tier one.

You know, Tim, you know, also for, we're not guiding for March, but it's not that we see anything, you know, materially different, you know, going into March.

So, you know, I mean, the only thing I say about tier ones, every quarter percent drop in interest rate frees up a lot of cash for them to do things and there's a lot of pent-up demand i mean basically it's like they've been sweating the assets for the last uh three to four years and uh you know a lot you know these things like anything else it wears out it needs to be updated and so i do think um as they they're getting a little bit they're feeling better more comfortable with the debt load the interest load and um you know i mean they've all been sending all the right signals so uh that's actually quite encouraging and that's a positive thing for us. It would be a further, I would say, accelerator or a boost to the overall demand.

Great. Thanks very much. Congrats again.

Sure. That concludes our Q&A session. I'll now turn the conference back over to Vibhuti for closing remarks.

Thank you, JL. This concludes our earnings call for today. Thank you for joining. Have a good evening.

This concludes today's conference call. You may now disconnect.