Q3 2020 Earnings Call
Ladies and gentlemen, thank you.
And welcome to the V.I.D. solutions third quarter 2020 earnings call.
Time, all participants aren't to listen only mode. After the speakers presentation. There will be a question and answer session to ask questions. During the session you'll need to press star one on your telephone keypad. Please feed bias of today's conference is being recorded if you require further systems. Please press start zero Oh now like to hand, the conference over to your speaker today Bill on head of Investor release.
Please go ahead Sir.
Thank you again welcome to the obvious solutions that call them fiscal year 2020 earnings call. My name is belong together better relations drawing on today's <unk> <unk> <unk> <unk>.
Even though this call them to look at statements about the company's national performance. Due statements are subject to it's going to 72nd call. It actually doesn't give a materially from Oakland expectations estimations. We encourage you to if you are most recent annual report <unk>, particularly to respect as described in those falling.
The poll Lookingstatements, including guidance, we provide doing just called <unk> only yesterday, yeah I'll be undertaken all pissed, Okay D. statements.
He doesn't know that less.
We say otherwise <unk> revenue or not yeah, we reconcile noncapital 12, preliminary got from national and discuss their usefulness and limitations today's findings release.
<unk> plus a supplemental any flights would you put says talk with nested tables are available on the obvious website.
Finally, we also pointed they'd call and we'll make a recording billable by 430 PM Pacific time. This evening on our website Oh now like tend to call the on them.
Thank you build our fiscal Q3 was a challenging quadruple viavi as the covert 19 pandemic impacted all businesses sit on the bill.
Fiscal Q3 Avenue at 256.2 million declined 3.4% year on year.
And was below the guidance range of 268 million two 288 million.
And as he was below the guidance range <unk> exceeded the range.
The obvious operating Martin's at 14.8% increase 10 basis points, you own year and was within the guidance range of 14.5% of 16.5%.
This at 14 cents reached the guidance midpoint of toting sense to 15 cents and was up by a penny from a year ago.
I'm more into our reported cute results by business segments talking with an L.C.
And I see revenue at 187 million declined 90% year on year and was below the guidance range of two or 4 million two 220 million.
Or Mr. Revenue guidance was largely result of covert 19 lockdown.
Within in his seat any revenue at 163.9 million was down 9.2% from a year ago.
Primarily due to declines in the mature access and cable feel instruments.
While lab instruments across both wireless and optical combine was roughly flat.
Yeah.
I see revenue at 23.1 million declined 7.2% from a year ago.
Primarily due to weakness in our mature insurance products, while a good products within S.C. roughly flat.
And as he gross margins at 64.3% increase couldn't be basis points year on year.
We didn't N.S.C. any gross margin at 63.6% decline 60 basis points year on year, primarily due to lower revenue walliams.
I see gross margins at 69.3% expanded 540 basis points from a year ago, you do a favorable mix, but then or crude assurance as well as data center product lines.
<unk> and this he's operating margin at 7.4% was below the guided range and decreased torn 70 basis points from a year ago, reflecting the lower revenue Walliams, Cuba. They back from covered 19, partially offset by good expense control.
No <unk> <unk>.
Revenue at 69.2 million exceeded the guidance range of 64 million to 68 million and increased 15.7% your own yet.
This increase in revenue was the result of better than expected demand in Anticounterfeiting products.
Voice piece gross margin, that's 52.6% increase our intent basis points you to feel good mix of Anticounterfeiting products.
Operating margins at 35% exceeded the 31% to 33% guys Guardians range and expand it 440 basis points year on year, primarily due to expansion in gross margin as well as good or what operating expense management.
[noise] turning to the balance sheet.
Oh told cash in short term investments ending balance was fire in 37.3 million operating cash flow for the quarter was 39.1 million in Q3, B. repurchase approximately 33.1 million of the obvious talk at an average cost basis of $11.49 per share including commissions.
Off the 200 million authorize shared by back and honest during September 2019 analysts day event, we have repurchase approximately $43.8 million of Viavi stopped to date, we plan to continue to be opportunistic and I share repurchase.
Oh you. This week, we closed let's secured revolving line of credit of 300 million.
We had a strong interest from several banks for this credit facility and it was over subscribed to by 70% from what what he's going to target.
This secure credit facility combined with more than 530 million of cash on a balance sheet.
<unk> or liquidity position.
Additionally, we do not have any debt that he's coming due for the next three years, we have to convertible notes without turning 25 million note at 1.75% coupon <unk> 2023, and a foreign 60 million note at 1% coupon you in Twentytwenty for what can we shouldn't prices of $13.
And 94 cents and $30.22 respectively.
Not to a business outlook.
Due to the macroeconomic and business uncertainty as a result of covert 19 global pandemic, we're not providing guidance for fiscal queue for.
That said, we had we expect to for revenue to be flat to slightly better than a fiscal Q3, driven by seasonal trend in N.S.C.
Looking further ahead, we believe most of the fiscal much quarters in a c. revenue shortfall was pushed out but it remains unclear. When these orders would be pleased as a customer's continue to be impacted by local shut down.
<unk> anticipate a three d. sensing product revenue, which is less than 10% of the obvious annual revenue.
Impacted by weaker and market demand for high end smartphones. However, we expect anticounterfeiting product demand to remain stable given that bank note reprints are typically come to cyclical in recessionary periods.
Before it <unk> I'm pleased to note that'd be obvious successfully transition to a new E.R.P. system during a fiscal third quarter.
We have been working on this initiative for more than a year.
This successful transition would drive for their efficiency, you know G.N.A. and other functions well effectively responding to the changing business neat.
Would that I turned the call or to all like.
Thank you <unk>.
School Q3 was a challenging quarter for Viavi us covered 19 pandemic migrated from China to Europe, and then to the U.S. impacting our operations in our in dissenters globally.
Yes, he demand experienced increasing had wins the quarter progress and came in below our expectations or speech and and all their hand, so late quarter recovery due to cough promote a quarter upsides an expert.
And as a result came in above expectations.
While the combined revenue came in below our guidance range.
Sort of disciplined Opic's management were delivered the mid point of our non gap P.B.S. guidance range at 14 cents a share.
The energy business segments was most impacted by covered 19 had the ones.
Customers increasingly wanting to work from home and lock down motive operations menu purchase decisions when either pushed out are placed on hold that sat at this point, we are not seeing any meaningful order cancellations.
We estimate the overall impact of the pandemic on N.S.T. revenue to be around $20 million.
Absent that impact you the Q3 and a few revenue would've been near the mid point of our guidance range of 204 million $220 million.
Nearly half of an S.U. revenue shortfall can be attributed to customer in logistics shutdown that resulted in shipments or acceptance getting delayed since no. One was available at the customer side to receive products. The other half was the result of demand slowed down with orders pushed out into coupons and beyond.
This mainly impacted our field instruments product lines, we expect disorders to recover one customers return to their normal what of operations.
Covered 19 also impacted a c. revenue with insurance product down from a year ago customers under lockdown were unable to provide onside certification an acceptance, thereby pushing out revenue recognition into the next quarter.
This impact was more modest for enterprise some data center, <unk>, which were roughly flat twice a year ago.
Oh 11 production products, which include five you wireless and 400 geeky fibre deliver does expect that are in disbanded generally held up well during the Q3 and continuous strongly into <unk>.
Customers continue to invest in five g. and for how to get you technology robots.
Lastly hour and a c. operations, Tim has performed admirably and we did not experienced any logistical or supply chain issues that would have impacted our deliveries.
The <unk> business segment responded well to the challenge is somebody pandemic lockdown.
And exceeded our guidance range expectations, when our Chinese operations got impacted by the Lockdown or California operations made up the difference on California inactive sheltering place order beginning in mid March were able to leverage our Chinese operations.
And they counterfeiting revenues came in better than expected, we saw increased security pigment demand towards the end of the quarter.
While the visibility remains limited as to whether or not this positive turns would continue works better than minimum the core or speed business to maintain it's 50 million dollar per quarter Ron rate for the next several quarters. Additionally, given the broad based financial stimulus measures Iraq announced by various governments together with that.
How people paying found redesign pipeline, we have a positive you on the medium term Oslo poor and take counterfeiting products.
Are three D. sensing rubbing your came in below our expectations during the quarter <unk> customers reacted to pandemic driven supply chain disruptions and reduced and market demand. We expect these trends to continuing to queue for however, we expect a seasonally stronger second half calendar year 2020.
We expect the end market demand volatility and macroeconomic had wants to persist in the near future. That's sad viavi as well positioned to persevere, we have a strong balance sheet and liquidity, which combined with our market leadership and discipline cost management sets us hopped while to manage the impact.
Our major growth drivers are made intact.
Our core core products, some of which provided counter cyclical benefit during recessionary times.
Historically in a downmarket service providers police more focus on maintaining and improving efficiency of their existing networks versus new construction, which benefit some of our and as he product lines.
You know speak we expect stable demand for banknote reprints during the economic downturns, which was the result, instead you demand for Anticounterfeiting products.
In conclusion, I would like to express a special thanks to my Viavi team for their extraordinary performance. During during these challenging times I also wish all our employees supply chain partners customers in our shareholders to stay safe and healthy I will not trying to come over to bill.
Thank you all like this call that we will be participating in the following houses virtually the J.P. Morgan Global technology Investor confidence on May 14th the great tell them about the conference on May 27th and the people prospect to incite investor confidence on June line.
Let's begin the question asked sessions.
At this time, if you would like to ask the question over the phone lines. Please press star than one on toward telephone keypad. Please limit yourself to one question and one follow a question.
Pause for a moment compelled to to Wednesday roster.
Your first question comes from the line of many Oh Sunny obsessed Stena Caroline is open.
Thanks for taking the question I want to.
I want to get an update on does rolled out over 400 gig been hard to use that you're bobbing over the next a few quarters and not have the Fargo.
Sure well I mean, a lot of our customers are rolling out 400 gig modules. So when we talk about our 400 gig rollout that basically means we are selling production test equipment as well as some of the lab equipment to these costs.
Tourist both the modular manufacturers as well as the system manufacturers.
And we are continuing to see very strong demand for wrote a modules and I think Chinese clearly wanted the big 400 gig a rule out.
Destinations also.
We are seeing.
Did you meant continue into the queue for and probably be on for the rest of the year. So very strong demand across sure all second.
Perhaps if I may reward the question.
As the recording to production.
Step puppy revenue you know if some of that.
Incremental revenue double was supposed to happen into March quarter, and got pushed out.
Into the second half.
In other words can.
Hundred gig production be a strong enough to make up for some of the revenues that though indefinitely pushed out.
Well first of all I don't think I said any revenues indefinitely pushed out I think it's kind of.
Pushed out to the near term as the well I mean indefinitely.
We assumed the customer start coming back to work and they will make a decision. So indefinitely is probably just trying to work are they said during my I prepared remarks, well did not see any a 400 gig pushout. In fact, both are 11 production for 400 gig and.
You are less all the products shift I was expected it and the customers to come in fact, there is a strong demand for this product because he was because I think the oh, well our customers seem very healthy demand in the market, even with a downturn. So I don't think we go.
<unk> any additional demand beyond what we are planning that would.
<unk> any shortfall so I think the shortfall did we saw in a field instruments.
I don't think it's going to be that your friends will be made up by hard demand for 400 gig I think 400 gig is continuing on its own trajectory.
What do you. Thank you.
Sure.
You are nuts question comes from the line of Alex Henderson of need them.
And it's open.
Text.
Hey, guys. So I was hoping you could talk a little bit more about the Oh, it's p. counterfeiting business. Obviously this is a very important.
Product line in this environment.
And it's demand seems to have a dynamic that's pretty independent of economic activity, which is nice.
But I think.
Prior to this commentary you hit really thought about this is potentially you know several quarters out before you would see a a pickup in in this arena and so I'm I'm trying to understand what it is it's caused it to.
<unk>.
Think of people expediting orders for pigments.
And security products and you know to what extent do you think you're pulling from the back half a potential a reprint opportunity.
Well. So this this particular pool in I mean first of all they just give you a bit more color on this thing so.
The most of the printing plans for justice heavily impacted by shut down. So in fact, most of the printing facilities haven't been shut down for the last.
Month month, and a half okay. Two months what the concerns are also becoming with significant reduction in number of flight.
People are getting concerned about the level of inventories of the hold on hand, and some of it was really driven they wish to have a bit more supply chain security and having product closer to the source.
That's sad.
Also what we're seeing initially happens there's plenty of inventory. So initially when they know what's are being distributed they come out of inventory, which depletes their inventory of finished notes.
Then to the extend these knows me to be replenished. That's one the printing starts and that's when you want to have a enough pigment on hand to make the ink.
This thing progress this it generates a the demand for additional huh.
Volume So does I would say our pieces that there is a lag of several quarters still holds but you know just as with a lot of other products. I mean, we were somewhat guilty ourselves we pulled in some of our critical components for our product to build up inventory internally.
Hearing some of the supply chain disruptions, that's why we have not experienced any supply chain disruption, because well well prepared and have all the critical components in house to be able to meet.
400 gig and five G. demand.
So if I could just follow up on that so.
Have we seen an increase churn and.
Currency installed base, that's a result of <unk>.
Causing them to destroy bills or.
Anything of that sort that that is facilitating a an acceleration of demand or is that just.
Not not occurring.
Reconcile the demand acceleration.
Oh I think.
I don't I don't know the how much extra currency got destroyed or released I mean that kind of information you get from central banks.
But generally in the past whenever you got to any type of fiscal stimulus part of it comes out in terms of physical notes and the one of the things we did see the paper notes actually proving to be a lower risk and then the plastic no. There has been in some past there's been migration.
To mylar type money, apparently that's currency is proving to be more risky.
Then the paper notes, which are have some of the antibacterial properties and so on in support so.
For us it's not an issue because we don't really play on on my letter plastic notes were mainly supply inks into the pigments into into go in the paper notes and I was in the past I do believe we going to see some of the fresh nodes being released either to stimulate the economy or replace some of the.
Retiring notes.
Oh very helpful.
<unk>.
Oh sure.
You weren't that's question comes from the line of Chan Machete of Stiefel Your line it's open.
Thanks, very much Oh like I was hoping you could just take a moment you know it sounds like the lab business held up fairly well I would've thought that in this environment with people you know working from home and some things like that that might have been a a little bit weaker because you you didn't have people in the lab you know sort of doing work I'm. Just curious if he can talk about that a little bit it.
In contrast that with the field, where again I would've thought as technicians are out there, making sure networks are still running we might have seen that actually be a little bit stronger on the fiber cat side or things like that <unk> Yep I'm, just curious sort of how you look at that used to it in this current environment right now.
Sure. Let me give you more color and that so first of all I mean.
When we look at the New Technology released ride, which is now we're in the midst of tomb Big Rollouts. One is the optical networking I mean, these things are still being built and being shipped and from what we see yeah. There maybe not all of the engineers are in a lab, but many.
Companies are running essential Ah staffing a lab and continue to do the development. So well we have seen it be new technology that are being rolled out to continue to be aggressively pursued and by even by the way even within viavi, even though we have a lot of work from home we do maintain.
Some level of engineering labs activity.
It goes in a lab and <unk>, while other engineers can work remotely so in that respect what we've seen and I've seen the same thing happened 2008, 2009 key new products. Some of the better companies use that opportunity to continue to accelerate product launches. So they can come out stronger and pick up share during the downturn. So.
We seeing exactly same thing really the advanced products lab in production.
For 400, geeky and five Gee I continued to be as strong as ever.
In terms of the field operations run of the things you see if there's two types. So far I technicians in a field, there's the ones. They do the customer turn on and the go into your house and you are these operations most of those they're staying at home right now because most vendors have told those.
To basically a stay at home the area of the networks, where most the operators are working and continue to send their a technician to is the maintenance of the quarter of the network.
So it's a smaller component of the field force and we continue to see shipment of instruments and orders to those parts of operations to be pretty strong.
We saw a big drop off is really at the very edge, which is dealing directly with the customer premises. So for the time being if you want to get a new service you probably not going to get it but what a lot of operators are doing is trying to increase effective bandwidth within their network and get more.
Efficiency out of their existing.
Foreign planned to provide additional capacity to the existing customers. So that's why you know when we talk about field instruments. There are field instruments kinda decor maintenance over the network and then there is the kind of <unk> customer a client maintenance the client Maintenances, where we saw a drop off.
Demand, whereas in the quarter of the network that business continues you could pretty good so just to add to that John in my prepared in market said cable and access is we have access we should on the D.S. inside it's bad we saw most of the decline.
As well as the gap in button, Oh guidance and what the actually you know we had appointed and you know I don't know how it is where you live but I know here in the Bay area.
Pretty much told by your local service providers that they're not going to send any technicians to your house.
So you kind of on your own and see if you are connected it's great. If you are not it's not so great. So that's where there is some pause he went under construction site given the logged on and construction is old Canadian we sell to in addition to the maintenance at the edge of the network. So <unk>, we see a pause.
Thank you very much appreciate the color.
Sure.
[noise]. Your next question comes from the line of 10 Salvo of North Island for line is open.
[noise] I hate pardon me good afternoon.
I wanted to follow on to that a little bit.
With regard to some of the dynamics at the edge it among service providers.
Right.
Maybe well.
First off.
Couldn't you quantify do you expect to similar impact that you would attributes to lockdowns.
Doesn't sound like there's much in the way of supply chain disruption, but.
For the fourth quarter I guess first question is more broadly.
You look at dynamics like you know for example cable operators recording you know beyond record increases in.
Scriber ads in the market quarter [noise].
In general trend across network to see increase.
Network traffic.
Wonder you know per view hobby as a test supplier yeah what.
What sort of impact that has on your business you wouldn't.
Do you like it would be as positive to some of the infrastructure guys, but.
You know as you look at these dynamics among service providers.
Considering increase traffic increases subscriber.
I guess, how long do you expect that to last and what are you seeing kind of real time date.
You have any.
Positive exposure to increase network traffic.
Sure I mean, clearly increase network traffic is good news for us it's not just increased traffic. It's also.
The symmetry of traffic wanted the biggest challenges.
We are seeing with some of our customers is the significant increase in the <unk> upstream traffic. So I mean clearly most people are used to have just downloading the data, but now people are trying to even if we see something significant increasing uploading. So one of the big challenges with capacities.
Service providers of dealing with it's how to create more bandwidth for the output.
That means usually opening up some of the less desirable bands with more noise and things like that which require a lot of troubleshooting. So I'd say as the the amount of bandwidth demand is increasing and the mix over the bandwidth.
Changing it's going to it's going to create more technical requirements I think in the short term you know I remember a has been a very dynamic environment. It's various states one on a lock down starting at the end of February some at the beginning of March somebody mid March I mean, there's been it's been pretty chaotic and.
You know when.
People were suddenly we're told don't come toward go home a lot of things kinda fell fell off.
The wagon, what we're seeing now as things are stabilizing everybody's getting there are bearing in figuring out okay. What what is a must have what is a nice to have what are the priorities and as this situation stabilizes, even though there's still quite a bit of uncertainty as to which states are going to reopen when and how and who's going to come back to work.
I expect at least we are seeing some of the normalcy and things are just kind of starting to.
Get themselves figured out in terms of the operations, referring back to normal no clearly wanted the big things is a you know.
<unk> recalling all the technicians back to work.
And that drives the a lot of the edge demand for us we're seeing how p. demand on that kind of mid stream over the network, we seeing healthy demand for the product that managed decor.
Bandwidth.
<unk> management.
The area, that's still kind remains a T.V.D. is the edge.
And the number of opportunities that are outstanding there there are pending.
Resolution one the rest of the workforce that comes back to Mark.
So for Q. for although we are not giving any guidance, but we did give some color on what we expect him from revenue perspective, we expect all viavi revenue to beautifully flatish to slightly better than Q3.
Mainly driven by seasonal strengthened in the C. and the seasonal trend is coming from the lab side of the business as well as as Orlick mentioned in the mid hall, and the and the back wall of the network.
The the access piece, we are expecting it to continue.
We do believe that some of this demand is getting pushed out because and of the t.
The <unk>, we'll have to continue with the construction and maintenance of the exercise board on the fiber as well as you on the cable site.
The subscriber is demanding for higher bandwidth and it's also willing to pay up what the bandwidth. So they will expect higher service level from from the service providers, but going into queue for I think it was more prudent for us to assume that this is this is going to be the same as what we saw in Q3, what's trends in lab.
Listen the mid Holland about call. It the network yeah, the uncertainty around the edge of the network is where we have.
Biggest reservations for this quarter until things open up.
And just to quantify the edge of the network is roughly about one third of the revenue for R.S.C. right. So just to put things in perspective, it's a sizeable chunk. We do have one other business, which is also feet.
And that's on the avionic test, but that is less than 5% of the revenue. So just a form and all viavi perspective.
Okay, if I could follow up real quickly with the question.
<unk> when you mention it'll be I think that reference was to.
The M. development work kind of continuing a pays him does five g. in 400 gig optical but oh like from your perspective.
Are you seeing anything changing you know pushing out or maybe even pulling in with regard to overall.
Carrier five Jude according to plan.
Well right now a lot of our demand I mean, we do have already some carrier demand, but it's really more related to trial installation on testing Boko five g.'s demand driven today's by the Nams color is still a very aggressively ramping up there.
Product launches and preparing for a production so that's where we seeing the bulk of on demand coming today, but we also starting to see more and more interest from the service providers in.
Orders for kind of the I'll say mid stream and the kind of quarter of the network monitoring for the five g.
The other thing is also there's a lot of interest in the already which is the open ready access network as all the operators are insisting on interoperability across all the different vendors and there's a machine strong demand emerging from both the.
The nams as well as the service providers to provide a level of independent third party testing to I should ensure compliance and an interoperability between different parts.
Over the network in different vendors.
Thank you.
Your next question comes from the line of <unk>.
M.K.M. partners her line it's open.
Thanks, very much first question on the O.S.P. a upside at the end of the corridor, that's sort of Poland's what's that all on the core O.S.P. or was was any of that on three d. sensing as well.
Oh It was all on the <unk> Mike.
And on the P.D. sensing 30 cents in came in a little below what we had forecast. It. If you recall, we had to test it a forecast in in a guidance in February for some of the impact could pretty sensing.
The supply chain site as code 19 was impacting China. So we had factor that in and but you know we came in a little below the that forecast what treaty sensing, but it was more than offset by this Trent we saw in anticounterfeiting as well as some of the expected daughters.
Okay. So I.
I guess can you help us just think about three something for.
Fiscal 21 jump in general terms, I think there's going to be some kind of content increase.
At the customer, but obviously, there's macro concerns and I don't know if there's any share concerns or not but but just at a high level, how should we think about the market and 2021.
So I think we are pretty comfortable with our market share I think the biggest had to win in three d. sentencing is just fundamentally Oh lore expected volume is all of a higher and phones. There is going to be some content increase I mean.
There is talk off the a world facing cameras now, it's obviously a subject to what's a relative mix is going to be between phones with only one three d. sensing a module versus having both rear facing in the world facing.
Modules, so I mean, where we are clearly happy with whatever the mix is going to be because we are playing in both sides of it and I think for us.
You know the model altercation or model mix aside the biggest thing that we worry about is the ultimate total market demand.
That's the the risk that we are seeing corner ourselves.
I appreciate it thanks.
Oh.
<unk> and that's question comes from the line of Senate Chatterjee of J.P. Morgan Morgan you're aligned it's open.
Hi, good afternoon. Thanks for taking my question Oh look if I can just awesome queue for work to read you kind of.
Volume and his barking logistics bucket.
But as you can <unk>.
<unk>, Oh, what to read it dumps off which customer group some more like.
Spending plans for the or.
Oh, yeah the back.
Cruel, but we've seen some tell causing.
Yeah.
<unk>.
Kind of expenses, but.
There, we spend a bit more but do you see that benefitting be cooled off the nickel or the wireless site.
Well I think the.
So I think we're not seeing anybody reevaluating their spending I think it's really a issue off timing right for most of the I'd say European North American and Saudi Asian operators I think the issue here is really more on the edge because.
Those are the technicians that have been sent home.
And we don't know what what the rate they're going to be brought back and how quickly if you're going to be brought back. So that's where we saw the slowed down and spend what however, there is one area, where I'm more concerned about and it's not a big part of our sales, but it's still a part of our sales is the L. Latin America, So South America in Central America.
There's been significant devaluation of their local currency. So everything in the dollar denominated spanned has been has become a significant burden for them. So I do think we're going to see reduction in spanned in those regions as the deal with the.
<unk> currency devaluation.
Okay.
I'm just follow up with.
The kind of what's the best living.
Topics to think about in which you look around the business before you go see the demand recovery true can you said some light on how to think about fixed costs too little supposed to be anybody because when I look at the gross profit.
I think there was 70.
Marginal revenue.
Cost actions.
<unk>.
Yeah sure. So I think Oh <unk>, we will when you think about are <unk> is the guidance.
He came and all.
$10 million below what the what what was implied in a guidance folk you three no. We didn't think about it in a one third of that was mainly because so for Lord travel and entertainment expenses and marketing expenses as most of the even smell getting cancelled, but we very effectively.
Shifted to online.
Media and I think that's becoming really effective as we have more symposiums and events happening online. So one third of that was because of that.
One third was mainly because we were able to.
Quickly pick a proactive action and freeze <unk>.
Although we I would see we have very we are still hiding in targeted areas. Because we believe there's a long term secular crude.
And so we'll continue hiding in those areas, but the generally we said, let's let's freezer hiding so one third of the <unk> and then the other one third was mainly as a result off some efficiency program said, we had in place.
Will continue in the company.
That's how you should look at how are we actually brought down there <unk>. So it was a half of it was a actions that we took in the past as well as proactively in the other half was traveling entertainment et cetera, which I think he's a variable expenses that will come back as as a revenue comes back.
Now when you think about our our <unk>.
Oh, what all business at the Poodle Viavi level, you know we have roughly.
60% of for our our expenses fixed and about 40% plus roughly sort of variable and even under 60% fixed when I talk about 60% fix it is fixed what a six month peanut butter anything you know nine one stroke them and everything is reliable right. So I've just taken a six month window and said what that would be.
We have efficiency programs that we continue to run that we discussed during the endless stays will will continue to run those and so we believe that we will very effectively manage our our picks.
Down as the revenue comes down.
And so that we will still deli were to to the operating profit requirement.
All for fiscal 21, as we are looking out we are not assuming <unk> I think that would be prudent to do it. So yes, <unk> thinking that more of the theme for the next two quarters. So first couple of fiscal 21, and then sort of a recovery starting to happen in fiscal 20 for a calendar.
First off Oh 521.
And so from that perspective, you could think about our <unk> business you know as Olic mention <unk>, we'll see some pressure on the edge of the network and I think document probably will come back in the in the first half of calendar 2021.
And so on at all and is he we think that it says law single digit decline so to speak on the wispy side. We believed that you know 30 syncing, we'll see pressure, although we will be on multiples cues and and it will be multiple sockets, but given the end market demand will below so.
We are assuming that the there'll be pressure on treaty sensing, but that could be more than offset by anticounterfeiting. So wispy shouldn't be roughly flatish on a year on year basis in fiscal 21 compared to preschool 20. So when you think about that dynamics I think we will be operating at an <unk> level that you saw in a in Q3.
And I think that should be that plus you know as the revenue come back, but I mean, it comes back we'll scale the objects to that accent on the way they will say.
Now when you think about our manufacturing I think we have on the clock site.
We have a business with.
Is in the R., let's see in a in his c. business.
We have more reliable cost in our <unk> than in a caulks than than fixed cost right. It's roughly.
Let's see 80% is sort of <unk> roughly 20% is fixed it's always almost opposite in the always beside when we had roughly 70% fixed in about 30% variable. So all we have a good mix on the clock side.
Are available <unk>, 40% is fixing the V.I.B. level and roughly about 60% available.
You know we have a lot of good <unk> <unk> on the clock site as we can do that's the reason that able to deliver good operating on gross margins, even when the volumes actually came down in our in a c. business.
Hopefully that gives you enough.
Yep <unk>. Thank you.
Your next question comes from the line of <unk>, let's see any of.
<unk> your line or something.
Yes, I just couldn't I don't follow up <unk>, you'll recorded Catholics.
Oh are you planning.
You're Catholic schools in.
June and.
<unk> I have a little yeah. So you know for <unk>, maybe was about $10.3 million.
Four Q3, and you know we are we have the food and in how we spend our Catholics, we spent about 3% to 5% off cap picks.
As a percentage of revenue in our business.
And what you should expect is we will we will continue to focus on on on making sure that we are maintaining a strong but very focus investment program, which are targeted in our <unk> idiots as we talk about in five G.C.D.S. build out as well as fibre and so all our investments will be continue.
To be guided based on a board a strategic and operational and financial discipline that we are sort of yeah, an exercise in the last two to four years. So we will manage the Catholics range of P., two 5% going forward you know more towards the mid too low and what's with the high end.
And and we will continue to do that in the next three to four court is our whole philosophy is that we want to remain invested in the eighties, maybe think that is potential quote and be noted that is one so as we emerged out of this recessionary period, we want to be much much stronger than B.R. and as you saw we also.
Not only have a strong cash balance, but we also put the 300 million dollar credit facility in place and it was Oh subscribed.
By you know multiple banks were really interested in actually lending money to us. So again this is just <unk>.
Okay, and then I just for better understand your forecasting is is the booking or the mix of backlog different between the any and Oh with <unk> with any would either segment require your customers book well in that sense.
No I think.
He business is mainly a book ship business, but we didn't see we have R.S. he business and there's an assurance business, which is software business, but we have good backlog position. So I think about the some of the resilient businesses. We have that's one of them lab also comes in with the <unk> larger backlog compared to the feel instrument business and then in oil speed.
Optical security in performance business. It's you know, it's it's a sort of oh within the core a lot of the orders I mean, we get in the Onyx Moscow meeting, if we get a kind of six month base forecasts, but it can be go go off or go down during the the quarter and on three dissenting.
We get a kind of longer term forecasts, but the real forecast in really looking no more than like a two to four weeks because we have a very short lead time in getting so yeah, we get a general forecasts, but I mean, it can go up and down you know throughout the quarter. So.
I would say a big chunk of our business I would say is the within the quarter bookshop.
Okay. So when you say that <unk>.
<unk>.
See you expect to be rather slow for two three chord. It's just missing your assumption that it would take some from for people to go back to work and work from home would would with phase out is that is that we have to think about how you for casting your business.
Correct. So if you think about our field instruments, it's very much a bookshelf business within the corner I'd say probably 80%.
Of the demand happens within the quarter not clearly we know the customer program is one of their place in planning to play the orders, but the time between the time the place in order and the time the received the product is within three months. So that's why you know we don't really have I would say a lot.
Long term, we have almost a real time I demand. Unlike with some of the capital products that network service providers by from the likes of Cisco and others. They are they have water so well in advance and it's no longer term orders because part of their capital spend most of the instrumentation falls under <unk>.
Spanned such a the timing between the the time, we receive an order and the time we're ship it is usually less than a quarter.
Okay, well thank you.
Hmm.
You are and that's question comes from line of how it's Henderson need them Caroline is open.
Thanks, So I just want to check a couple of things he said so.
You are saying that O.S.P.'s going to be in around 50 million dollar range excluded.
Is what I heard you imply a is that is that correct.
No. So so no no no Alex if you're referring to fiscal 21, we expect the quota wispy business to be higher than the 50 million dollar average because we do believe that anticounterfeiting business.
<unk> cyclical and we will see and increase demand in <unk>.
Right, but I thought you'd said that that was good to be around $50 million in the upcoming quarter is alright.
Well in the set up at the least and the least yeah. Yeah, Oh, Okay. So I mean, that's down sequentially from where it was such excluding three d.. So it's down sequentially.
It excludes three descent.
So when are we talking about fiscal Q4, because we're not doing any particular guidance of fiscal coupons I was given color on fiscal 21 just <unk>.
I see okay, so, but it does sound like that Spike had at the end of the quarters probably not.
Oh, it's p., excluding three d. it should be down.
If you're revenues are flat.
A little bit up and.
And yeah. That's the case, that's I got a mix ship to lower margin product within it.
And then the second point I think.
You said no no no suffering you can make a jump to a lower margin product.
Well the operating margin levels definitely lower on.
<unk>.
But but you're right from that perspective, yes, but sequentially you feel to any in this he mic schools up you'll also see higher.
Option and higher operating leverage on these fixed costs, all <unk> Oh, yes on the in exactly yeah.
Yeah, and then the.
The.
Other piece of that would be.
The sounds like the three D. sensing is down sequentially.
<unk>.
Guide out of life is not a good indicator for you guys everybody on this.
<unk> system is just talked to.
And.
Quite sharply in the June quarter.
You're talking about much more flat or kind of sequential declines <unk>. It well first of all I remember, we have a different dynamic order than they do because if you're buying a semiconductor products like laser she have a much longer lita right.
We are demand is much closer a matched to what the customer actually builds and chips.
Right so.
Just just to make sure everybody says.
Directly that would be.
Maybe down, but it's not going to fall off the table.
Exactly exactly.
We are shipping almost just in time, so I mean, we so for example in the queue three.
You might have seen a bigger drop from us because you know we can respond on a on a dime.
Whereas if you order it semiconductor products, you're going to have to accept it because you place those orders six months ago, and they're coming out right, whereas the for US it's more away.
You don't get as much.
I'll take one things really turned around you also don't get as much downdraft when things go down the other way, it's really more matched to the actual and market shipments.
I see one last question.
Clearly you guys have ER acquisition.
Policy.
You guys acquisition.
Wildly successful.
A lot of companies.
Reluctant in terms of giving you the pricing that you talked about I assume that in this environment.
You would take advantage of that.
Conditions in the.
Similarly, depressed prices to take advantage of it it's reasonable to think that.
Your appetite for acquisitions is higher in this environment or are you conserving cash and therefore choosing not to go that route.
Well I'd say I'd say, our appetite always stays the same it just got to make sure the dealers right and the prices right. So I think I don't think we are a shying away from doing a deal in this environment I would feel comfortable about our fundamental business cats generation also.
We are pretty decent balance sheet and we have.
With the new credit facility, we have more drypowder. So if I write opportunity comes along absolutely where we will definitely take a look.
<unk>.
Change and the people you've talked to a about.
Willingness.
I think there's still some denial I think it usually takes a few quarters for things to per call eight and settle down.
Yeah.
<unk>.
Sure.
There are no further questions at this time I turn the ball back to Bill on.
Again, that's concludes our these calls today that you have one.
Just to include today's conference call you may know disconnect.
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