Q2 2022 Viavi Solutions Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the obvious solutions. Second quarter fiscal 2022 earnings call all lines been placed on mute.
Ladies and gentlemen, thank you for standing by and welcome to be Avi solutions second quarter fiscal 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
Speaker 1: 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 one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. Phil Ong, Head of Investor Relations. You may be given your call.
After the Speakers' remarks, there will be a question and answer session.
He would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Bill <unk> head of Investor Relations you May begin your conference.
Speaker 2: Thank you, Josh. Welcome to VRB Solutions second quarter fiscal year 2022 earnings call. My name is Bill Ong, head of investor relations. Joining me on today's call are Olik Huyken, president, CEO , and Hank Duxton, CFO .
Thank you Josh welcomed the obviously the second quarter of fiscal year 2022 earnings call. My name is belong head of Investor Relations joining me on todays call well look hiking, president and CEO and Henk Derksen <unk> CFO .
Speaker 2: Please note this call will include full-looking statements about the company's financial performance. These statements are subject to risk and uncertainty 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 following.
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 that SEC filings, particularly the risk factors described in those filings.
Speaker 2: the forward-looking statements including guidance we provide during this call are valid only as of today. VRB undertakes no obligation to update these statements.
The forward looking statements, including guidance, we provide during this call are valid only as of today. The Abbvie undertakes no obligation to update these statements.
Speaker 2: Please also note that, lest 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 annual
Please also 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.
Speaker 2: The release plus our supplemental earnings sign, which includes historical financial tables, are available on the RVs website. Finally, we are recording today's call. We will make the recording available by 4.30 PM Pacific Time this evening on the website. I would now like to tend to call over to Hank.
The release, plus our supplemental earnings slides, which include historical financial tables are available on the obvious website.
We haven't Quant data court will make the recording available by 430 P. M Pacific time. This evening on our website I would now like to turn the call back.
Speaker 3: Thank you Bill. fiscal Q2 was VIAV's second highest quarter for revenue and a quarterly record for non-GAAP profitability.
Thank you Bill fiscal Q2 was the second highest quarter for revenue and a quarterly record for non-GAAP profitability second quarter revenue came in at $314 $8 million up 5% year over year exceeding our guidance range of 296.
Speaker 3: Second quarter revenue came in at $314.8 million, up 5% year over year, exceeding a guidance range of $296 to $310 million. The strength was driven by record revenue in our NSE business segment, offsetting anticipated temporary weakness in our OSP segment.
<unk> seen a $10 million the strength was driven by record revenue in our NSE business segment.
Setting a dissipated temporary weakness in our OSB segment.
Speaker 3: PRV's record operating profit margin at 23.3% expanded 100 basis points year-over-year and 60 basis points sequentially and exceeded the guidance range of 20 to 21%.
<unk> record operating profit margin at 23.3% expanded 100 basis points year over year, and 60 basis points sequentially and exceeded the guidance of the age of 20% to 21% a function of operating leverage on higher revenue volume.
Speaker 3: a function of operating leverage on higher revenue volume, favorable product mix and disciplined OpEx control. EPS at 24 cents tied a quarterly record high and increased a penny or up 4.3% year over year and exceeded the 18 to 20 cents guidance rate.
Favorable product mix and disciplined Opex control E.
P. S. At 24 cents tied a quarterly record high and increased a penny while up four 3% year over year and exceeded the 18 to 20 cents guidance wage the share count of 242 3 million shares is consistent with our expectations.
Speaker 3: The share count of 242.3 million shares is consistent with our expectations and includes the dilutive impact of the remaining convertible modes of approximately 4 million shares.
And includes the dilutive impact of the remaining convertible notes of approximately 4 million shares now.
Speaker 3: Now moving to our reported Q2 results by business sector.
Now moving to our reported Q2 results by business segment, starting with N. S. E. N. S E achieved a new quarterly revenue records at $244 $2 million up 18, 1% year over year and exceeded our guidance range.
Speaker 3: starting with NSE. NSE achieved a new quarterly revenue record at $244.2 million, up 18.1% year-over-year, and exceeded a guidance range of $230 to $240 million.
$230 million to $240 million.
Speaker 3: Within NSE, N.E. revenue increased 18.5% from a year ago to $214.4 million, reflecting strength in our fiber and wireless products.
Within NSE and <unk> revenue increased 18, 5% from a year ago to $214 $4 million, reflecting strength in our fiber and wireless products.
Speaker 3: SE revenue came in at $29.8 million, increased 15.5% year-over-year living by Slang in our assurance and data center product.
Revenue came in at $29 8 million increased 15, 5% year over year, driven by strength in our assurance and data center products.
Speaker 3: NSE gross profit margin at 65.3% increased 200 basis points year over year. Within NSE, NE gross profit margin at 64.4% increased 180 basis points from last year, primarily a result of leverage on higher revenue volumes.
N S E gross profit margin at 65, 3% increased 200 basis points year over year within NSE E. N E. Gross profit margin at 64, 4% increased 180 basis points from last year.
Natalie result of leverage on higher revenue volume S. E. Gross profit margin at 71, 8% increased 360 basis points year over year, reflecting both higher revenue and favorable product mix.
Speaker 3: S.E. Grosspohen margin at 71.8% increased 360 basis points, year-over-year reflecting both higher revenue and favorable product mix.
This east.
Speaker 3: Record operating profit margin at 18.7% exceeded a guide range of 15.7% to 16.7% primarily result of operating leverage on higher revenue and disciplined office control. Operating profit dollars more than doubled as margins increased 800 basis points from a year ago.
But that Kurt operating profit margin at 18, 7% exceeded our guidance range of $15 seven to 16, 7%, primarily a result of operating leverage on higher revenue and disciplined Opex control.
Letting profit dollars more than doubled as margins increased 800 basis points from a year ago.
Now turning to OSP.
Speaker 3: Second quarter revenue at $70.6 million was down 24.2% from a year ago. Revenue was slightly ahead of the high end of our guidance range of $66 to $17 million as demand for IT desensing products improved during the quarter.
Second quarter revenue at $76 million was down 24, 2% from a year ago revenue was slightly ahead of the high end of our guidance range of $66 million to $17 million as demand for our three D sensing products improved during the quarter.
Speaker 3: Gross profit margin at 56.2% decreased 650 basis points year-over-year due to lower revenue Shop in 2014 Massive
Gross profit margin at 56, 2% decreased 650 basis points year over year due to lower revenue volume.
Speaker 3: Operating profit margin at 39.2% decreased 870 basis points from a year ago, as a result of the aforementioned exceeding the high end of the guidance range of 34.5 to 36.5%, primarily due to better than expected expense control.
Operating profit margin at 39, 2% decreased 870 basis points from a year ago as a result of the aforementioned exceeding the high end of the guidance range of $34 five to 36, 5%, primarily due to better than expected.
Control.
Turning to the balance sheet, the ending balance of our total cash and short term investments was $738 5 million up $89 7 million compared to a year ago, primarily a function of free cash flow generation over the last 12 months.
Speaker 3: The ending balance of a total cash and short of investments was $738.5 million up 89.7 million compared to a year ago. Primarily a function of pre-cash regeneration over the last 12 months.
Speaker 3: Operating cash flow for the quarter was $22.2 million, a decrease of $46.5 million compared to $68.7 million in the year ago period.
Operating cash flow for the quarter was $22 2 million a decrease of $46 5 million compared to $68 7 million in the year ago period.
Speaker 3: The reduction is result of non-recurring tax payments during the quarter mainly related to a restructuring project executed during fiscal Q4 of 2021, as well as a temporary increase in inventory levels in anticipation of increased future demand.
The reduction is a result of nonrecurring tax payments during the quarter, mainly related to a restructuring project executed during fiscal Q4 of 2021 as well as a temporary increase in inventory levels in anticipation of increased future demand.
Speaker 3: In addition, we invested $18.4 million in capital expenditures during the quarter compared to $10.5 million in a per year. Yintris Capax reflects the new Arizona production facility.
In addition, we invested $18 4 million.
Dollars and capital expenditures during the quarter compared to $10 $5 million in the prior year.
Increased capex reflects the new Arizona production facility.
Speaker 3: As you may recall, in early September , we completed a transaction to redeem approximately 40% of our 2023 and 2024 convertible notes from the original 685 million in principle to a remaining outstanding balance of $410 million at the end of fiscal Q1.
As you May recall in early September we completed a transaction to redeem approximately 40% of our 2023 and 2024 convertible notes from the original $685 million in principle to our remaining outstanding balance of 410 million.
At the end of fiscal Q1 <unk>.
Speaker 3: During fiscal Q2, we redeemed an additional $45.6 million in convertible notes, which further reduces the principal value of our combined convertible notes outstanding to $364.4 million at the end of the second quarter, or 53% of the original principal value.
During fiscal Q2, we redeemed an additional $45 6 million.
And convertible notes, which further reduces the principal value of our combined convertible notes outstanding to $364 4 million at the end of the second quarter or 53% of the original principal value.
Speaker 3: Also in early September , we settled the combined retirement of 275 million in principal value in comparable notes in part in cash for an amount of $197 million, as well as by issuing 10.6 million shares in VRVCOM stock. Subsequently, the board authorized the repurchase of up to $190 million of these shares, which commenced at the start of the second quarter.
Also in early September we settled the combined retirement of $275 million in principal value and convertible notes and part in cash for an amount of $197 million as well as by issuing 10 6 million shares and VIP common stock subsequently the board authorized.
The repurchase of up to $190 million of the shares which commenced at the start of the second quarter.
Speaker 3: We are pleased to report that as of yesterday, February 2nd, we repurchased 10.9 million shares at an average price of $16.30 per share, including commissions, for a total of $176.4 million and intend to complete the $190 million purchase program before the end of the third quarter.
We are pleased to report that as of yesterday February 2nd we repurchased 10 9 million shares.
At an average price of $16 30 per share, including commissions for a total of $176 4 million and.
And intend to complete the $119 million purchase program before the end of the third quarter.
Speaker 3: We plan to continue to improve a capital structure and provide the financial flexibility to allow us to execute our global objectives.
We plan to continue to improve our capital structure and provides the financial flexibility to allow us to execute our gogo <unk>.
Now onto our guidance.
Speaker 3: We expect the fiscal third quarter 2022 revenue to be approximately $308 million, plus or minus $7 million.
We expect the fiscal third quarter 2022 revenue to be approximately $308 million plus or minus $7 million.
Speaker 3: Operating profit margin is expected to be 21% plus or minus 50 basis points and EBS to be in the range of 20 to 22 cents.
Operating profit margin is expected to be 21%, plus or minus 50 basis points and EPS to be in the range of 20 to 22 sets.
Speaker 3: We expect anisee laveno to be approximately 234 million dollars. Plus or minus 5 million with operating profit margin at 15.5% plus or minus 50 base.
We expect NSE revenue to be approximately $234 million.
Plus or minus $5 million with operating profit margin at 15, 5% plus or minus 50 basis points.
Speaker 3: OSP revenue is expected to be approximately $74 million, plus or minus $2 million, with operating profit margin at 38.5% plus or minus on the basis of the current year.
OSP revenue is expected to be approximately $74 million.
Plus or minus $2 million with operating profit margin at 38, 5% plus or minus on the basis points. Our tax rate is expected to be approximately 16%. We expect other income and expenses to reflect a net expense of approximately $6 million.
Speaker 3: Our tax rate is expected to be approximately 16%. We expect under income and expenses to reflect a net expense of approximately $6 million.
Speaker 3: at the current stock price levels. And as we complete the aforementioned share purchase program, the estimated fully diluted share count used in our calculation is 239 million shares for the third quarter. We also expect the fully diluted share count to reduce to approximately 237 million by the end of the fourth quarter. With that, I will turn the call over to Oleg.
At the current stock price levels and as we complete the aforementioned share repurchase program. The estimated fully diluted share count used in our calculation is 239 million shares for the third quarter. We also expect the fully diluted share count to reduce to approximately 237.
By the end of the fourth quarter with that I will turn the call over to OLED.
Speaker 4: Thank you Hank. I'm pleased with VIavis performance in the fiscal first half of 2022, during which we achieved record revenue and non-gap profitability. Our fiscal first half revenue came in at $641.6 million, and non-gap EPS was 48 cents, which is a new VIavirac.
Thank you Henk I am pleased with the August performance in the fiscal first half of 2022 during which we achieved record revenue and non-GAAP profitability.
Our fiscal first half revenue came in at 641 6 million and non-GAAP EPS was <unk> 48, which is a new <unk> record.
Speaker 4: The NE segment demand strength was driven by Fiber and Wireless, a double digit percentage growth from the same period last year. Our Fiber Field product achieved a new revenue record as service providers, both in America and in Europe , continue to upgrade and expand their networks with Fiber.
And E segment demand strength was driven by fiber and wireless a double digit digit percentage growth from the same period last year.
Our fiber field products achieved a new revenue record as service providers, both in Americas, and Europe continue to upgrade and expand their networks with fiber cut.
Speaker 4: Customers started to adopt our 5G field instruments in late calendar 2021, and we expect this deployment momentum to continue throughout 2022.
Customers started to adapt our <unk> field instruments in late calendar 2021, and we expect this deployment momentum to continue throughout 2022.
Speaker 4: Our 5G lab equipment demand continues to be robust with initial field deployment of all-rant technology expected this calendar.
Our <unk> lab equipment demand continues to be robust with initial field deployment of Orion technology expected this calendar year.
Speaker 4: The cable product demand moderated as our cable customers prioritized fiber deployment over the traditional COX upgrades. That said, we expect the industry to launch a new COX upgrade cycle with Duxes 4.0 sometimes in 2023. A longer term, we expect most cable networks to move to fiber and wireless technology.
The cable product demand moderated as our cable customers prioritized fiber deployment over the traditional coax upgrades that said, we expect the industry to launch a new co ax upgrade cycle with taxes for pointed out sometimes in 2023.
Longer term, we expect most cable networks to move to fiber and wireless technology.
Speaker 4: The 400-giggy optical transport demand continues to be strong with many leading customers starting to make initial investments in the next generation 800-giggy technology.
The 400 gig optical transport demand continues to be strong with many leading customers starting to make initial investments in the next generation 800 gig technology.
Speaker 4: As many of you are aware, our industry has been experiencing component shortages of advanced semiconductor devices. That's that we have been successful in securing critical components and meeting our customers' demands.
As many of you are aware our industry has been experiencing component shortages of advanced semiconductor devices that said, we have been successful in securing critical components and meeting our customers' demands.
Speaker 4: Our ability to execute has resulted in market share gains and enabled us to drive upsides to our revenue guidance. At this time, we are starting to see the supply starting to catch up and we expect to see a much more favorable supply chain situation by mid-calendar 2020.
Our ability to execute has resulted in market share gains and enabled us to drive upside to our revenue guidance. At this time, we are starting to see the supply starting to catch up and we expect to see a much more favorable supply chain situation by mid calendar 2022.
Speaker 4: The SE business segment came in just under $30 million in revenue, reaching a quarterly revenue level last seen in calendar 2018. The SE turnaround is a result of our restructuring of the business segment in early calendar 2017 and subsequent launch of common NYTRO platform for the assurance and data center market segment.
The SCA business segments came in just under $30 million in revenue, reaching a quarterly revenue level last seen in calendar 2018.
The <unk> turnaround is a result of our restructuring of the business segments in early calendar 2017, and subsequent launch of Karma Nitro platform for the assurance and data center market segments.
Speaker 4: We expect a strong SE performance in this calendar year driven by growth in the base business and anticipated strong market demand for 5G assurance. We expect the quarterly revenue run rate during this calendar year to be in the high 20 to low $30 million range.
We expect a strong SCE performance in this calendar year driven by growth in the base business and anticipate strong market demand for five G. Assurance, we expect the quarterly revenue run rate during this calendar year to be in the high 20 to low $30 million range.
Speaker 4: Turning to SP, the OSP business segment delivered better than expected revenue and profitability. Our Q2 anti-controfitting products revenue decreased sequentially, essential banks globally moderated their demand to reflect reduced print volumes, following more than a year of elevated pandemic-driven demand.
Now turning to OSP.
ISP business segment delivered better than expected revenue and profitability. Our Q2 anti counterfeiting products revenue decreased sequentially, a central banks globally have moderated their demand to reflect to reduce print volumes following more than a year of elevated pandemic driven demand strength that said, we expect <unk>.
Speaker 4: That's that we expect during the calendar 2022, the core OSP revenue to remain above the pre-pandemic levels at the high $20 million quarterly run rate. 50 million.
During the calendar 2022 of the core OSP revenue to remain above the pre pandemic levels at the high $20 million quarterly run rate.
$50 million $50 million quarterly run rate, we expect <unk> sensing in fiscal Q3 to be seasonally stronger.
Speaker 4: We expect 3D sensing in fiscal Q3 to be seasonally stronger than in the past years, reflecting stronger customer demand to make up for component supply constraints in late 2021.
Then in the past years, reflecting stronger customer demand to make up for component supply constraints in late 2021.
Speaker 4: Further, we expect the supply and demand seasonality for three-discencing modules to normalize by June quarter and expect seasonally strong demand in the second half of calendar 2022. In conclusion, I would like to express my appreciation to the Viabi team for its continued strong execution in delivering another record quarter and the record first half. I wish all our employees, supply chain partners, customers and our stakeholders to remain safe and healthy.
Further we expect the supply and demand seasonality for three D sensing modules to normalize by June quarter, and expect seasonally strong demand in the second half of calendar 2022.
In conclusion, I would like to express my appreciation to the avid team for its continued strong execution in delivering another record quarter and a record first half I wish all of our employees supply chain partners customers and our stakeholders to remain safe and healthy.
I will now turn the call over to Bill.
Speaker 5: Thank you, Oleg.
Thank you Alex.
Speaker 2: We will be participating at the Susquehanna Technology Investor Conference virtually on March 4, and the Morgan Stanley TMT Investor Conference in San Francisco on March 10, 2022. Josh, let's begin the question and answer session. We ask everyone to limit discussion to one question and one follow up.
We will be participating at the Susquehanna technology Investor Conference virtually on March four and the Morgan Stanley TMT Investor Conference in San Francisco on March 10, 2022.
Josh let's begin the question answer session, we ask everyone to limit discussion to one question and one follow up.
Speaker 1: At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from Alex Henderson. With Needham, your line is open.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
And your first question comes from Alex Henderson with Needham Your line is open.
Speaker 6: Thank you very much. First off, congratulations on a good quarter.
Thank you very much.
Congratulations on a good quarter.
Speaker 6: tough environment. I was hoping you could talk a little bit about the OSP business, what you're thinking in terms of...
The tough environment.
I was hoping you could talk a little bit about the OSP business.
What's your thinking in terms of.
Speaker 6: the degree to which the Tencent security products
The degree to which the Tinson security products.
Speaker 6: stay at this lower run rate that you're talking about, or whether there's some indications of any change in the demand structure there. And then the second piece, if you could talk a little bit about where we are in terms of 5G adoption of 5G cores versus 4G cores. Thanks.
Stay at the slower.
Run rate.
Goodbye.
There is some indications of any change in the demand structure there.
The second piece, if you could talk a little bit about where we are in terms of client adoption.
Adoption.
<unk> versus <unk>.
For GE cores.
Speaker 4: Sure, thank you all. So the
Sure. Thank you Alex so.
The.
Speaker 4: First, the anti-counterfeiting, well, you know, I think the, as I've mentioned, for about five quarters, we ran significantly higher volumes, and then I'd say late last year, we've seen a decrease in demand as everybody continued to digest what they bought. We expect most of that digestion have taken place.
Firstly, the anti counterfeiting well I think the.
I have mentioned for about five quarters, we ran significantly higher volumes and then I'd say late last year, we've seen.
The decrease in demand as everybody continue to digest, what they bought we expect most of that digestion have taken place last quarter and may be this quarter and this business gradually start creeping up a little bit.
Speaker 4: last quarter and maybe this quarter, and this business gradually start creeping up to a little bit better volumes. But we don't think it's going to get to the kind of level we saw during the pandemic. We think high 50s run rate is kind of going to, for core business, going to be kind of the new normal. If you remember a few years back, it was low 50s, then we kind of got it to mid-50s, then it got to the low 60s.
Better volume is but we don't think is going to get to the kind of level that we saw during the pandemic we think high.
Hi, 50, 50 run rate is kind of going to four core business is going to be kind of the new normal. If you remember a few years back. It was low <unk> then we kind of got it to mid 50, <unk>, Let me get to the low 60, <unk> and I would think kind of a higher 50 range is a good assumption for the foreseeable future.
Speaker 4: And I would think, you know, kind of a higher 50 range is the good assumption for the foreseeable future. Now, it doesn't mean that there won't be any quarters where we'll pop over 60, maybe for a quarter, but I don't think it's going to last as long as a year.
It doesn't mean that there won't be any quarters, where we have pop over 60, maybe for a quarter, but I don't think it's going to last as long as a year.
Speaker 4: And that usually would happen when a major economy launches a new redesigned currency. So, I would say as a good way to think long-term, at least an intermediate term, assume like high 50 run rate as the norm for core business.
And that usually what happens when a major economy starts redesign launches a new redesign currency. So I would say is a good way.
Way to think long term at least an intermediate term assume like high <unk> run rate as the norm for core business.
Speaker 4: In terms of the, you didn't ask about 3D sensing, 3D sensing is going to moderate, you know, as I said, you know, our elite customer had challenged getting supplies. So they really took a hard step to rebalance and it just confluence of events. We saw both anti counterfeiting and 3D sensing drop.
In terms of the you didn't ask about <unk> sensing <unk> sensing is going to moderate as I said, our elite customer had challenge getting supply. So they really took a hard step to rebalance and it just confluence of events, we saw both anti counterfeiting and <unk> sensing drop.
Speaker 4: last quarter, we expected to meaningfully start bouncing back this quarter and continue into the fourth quarter. I think as a result of the lower 3D sensing first half, we'll probably see seasonally stronger second half of things level out. And we expect a very strong second half of a year as the majority of the new models are going to be coming.
Last quarter, we expected to meaningfully kind of start bouncing back this quarter and continue into the fourth quarter, but.
I think as.
As a result of the kind of lower <unk> sensing first half, we'll probably see seasonally stronger second half of things kind of level out and we expect a very strong second half of the year.
As majority of the new model is going to be coming out regarding the <unk>.
Speaker 4: Regarding the 5G, we see a very interesting demand developing. We're seeing increased interest in our products. So I think we have the first data points. We clearly saw demand for our RF products increase in the fourth quarter.
We see.
We see very interesting demand.
<unk>, we are seeing increased interest in our products. So I think it's we have the first data points, we clearly saw demand for RF products.
Increase in the fourth quarter.
Speaker 4: And but also, it's not only a wireless RF product, it's also the fiber product. Because actually, a lot of these 5G deployment is also pulling the fiber instruments as well for field instrumentation. So it's becoming a bit of a double whammy for us, which is in a positive way.
And.
And.
But also it's not only a wireless product RF product. It's also the <unk> I mean, the fiber product because actually a lot of these <unk> deployment is also pooling.
The fiber instruments as well fulfilled instrumentation, so it's becoming a bit of a.
Double whammy for us, which is in a positive way. So we do see <unk> as turning to.
Speaker 4: So we do see 5G starting to pick up. There was obviously concerns around the FAA and the safety of radio altimeters.
Pick up there was obviously concerns around the FAA.
And.
The safety of radio Altimeters.
Speaker 4: and 5G frequency. I think there's
And five year frequency I think there is a lot of testing going on we're obviously providing.
Speaker 4: A lot of testing going on, we are obviously providing good advice and technology offering to both sides to make sure that there is no danger or impact on the commercial aviation.
Good.
Advice and <unk>.
Technology offering to both sides to make sure that there is no.
A danger or impact on the commercial aviation.
Okay, great. Thank you very much.
Thanks.
Speaker 1: Your next question comes from Madhi Hasini, with Susgujana International, your line is open.
Your next question comes from Mehdi Hosseini with Susquehanna International Your line is open.
Speaker 7: Yes, I just want to go back to impact of the supply chain disruption. Oleg, can you help us understand what would your December and March quarter upside would be if you didn't have any challenges with procuring components?
Just wanted to go back to impact the supply chain disruption.
Can you help us understand what would your December and March quarter upside would be if you didn't have any challenges with procuring components.
Speaker 4: Well, you know, I mean, let's put it this way, there's two upsides. The first one is we would have significantly lower COGS. So we'd probably pick up one to two percentage points in the gross margin if we did not have to pay through the nose surcharges and expedite fees and things like that to make sure we get the components. And the second one, I'd say on the top line revenue, we probably would be able to ship five to ten.
Well I mean, let's furnish their students to upside. The first one is we will have significantly lower Cox, so we'd probably pick up 1% to two percentage points in the gross margin. If we did not have to pay through the nose surcharges.
Surcharges in expedite fees and things of that to make sure we get the components and the second one I'll say on the top line revenue, we probably would be able to ship by $5 million to $10 million.
Speaker 4: And the reason for that is, it's, you know, if you get components in the quarter, but you get it, let's say, after the 10th of the third month, it's very difficult to build and shift the product. So that's generally, you know, where we see the challenge, getting all the components by the end of the second month, so we can finalize and shift the product into third month. So that's generally how we see. And then it just kind of just keeps rolling over into the next.
And the reason for that is it.
If you get components in the quarter, but you get into let's say after the chance of the third month, its very difficult to build and ship the product. So that's generally.
Where we see the challenge getting all the components by the end of the second months. So we can finalize and ship the product into third month. So that's generally how we see and then just kind of just keeps rolling over into the next quarter.
Speaker 7: Okay, great. And just looking beyond the March quarter, it has been a while since you last updated us on your target, especially for top line and poverty margin. Is this an occasion where you can give us an insight how we should think about the second half, especially as some of the revenue are pushed into the second half of calendar year and how we should be thinking about opportunities looking into the next fiscal year?
Okay great.
Just looking beyond the March quarter.
He has been a while since your last update us on your target, especially for top line and operating margin.
Is this okay.
You can give us an insight how we should think about the second half, especially with some of the revenue.
Push into the second half of calendar year, and how we should be thinking about opportunities looking into that.
Our next fiscal year.
Speaker 4: Sure, so I will start and I'll turn it over to Hank. So, you know, remember, we're gonna have our analyst day in September and that's what will provide a longer term model. But clearly, our current model is already running ahead of what our three year projection was.
Sure So I'll start and I'll turn it over to Hank So remember we're going to have our analyst day in September and that's what will provide longer term model, but clearly our current model is already running ahead of what our three year projection was.
Speaker 4: We expect, so first calendar quarter generally has a lot of statutory costs that we accrue for the year. So generally there's some headwinds on OpEx and Gross margins. But even with that we are looking to be in 20 plus cents.
We expect so first calendar quarter generally is a lot of statutory costs, how we accrue for the year. So generally there is some headwinds on opex.
And gross margins.
But even with that we are.
Looking to be in 20 plus cents.
Speaker 4: In terms of the operating margin, I'd say we're probably looking at low 20 already. We normally consider March quarter to be one of our weaker quarters.
In terms of the operating margin I would say, we're probably looking at la.
<unk> 'twenty.
Already even.
Economically consider a march quarter to be one of our weaker quarters. So in that respect we're already there and I do think as NFC continues to gain momentum and if that momentum sustains we could see our gross margins start moving up to.
Speaker 4: So in that respect, you're already there. And I do think as NSC continues to gain momentum, and if that momentum sustains, we could see a gross margin start moving up towards closer to mid-60s. And obviously as OSP business recovers, it'll make it that much easier.
Two maybe towards closer to mid <unk>.
And obviously as that OSP business recovers that will make it that much easier.
Speaker 3: So yeah, we will be presenting to you a very granular plan upcoming September Investor Day, like we did three years ago. We'll give you a three-year outlook for revenue growth, margins on a consolidated basis, and by segment. And as Oleg said, very pleased with our performance so far. We're ahead of our plan. We averaged 23% of the first half. And with a little bit of statutory costs, we think we will post solid performance for the bank.
Tanker lifting.
Yes.
Presenting to you a very granular plan upcoming September Investor day, like we did three years ago, We will give you a three year outlook for revenue growth.
Margins on a consolidated basis and by segment and as all access very pleased with our performance. So far we are ahead of our plan.
Average, 23% in the first half and with a little bit of statutory cost.
We think we think we will post solid performance for the back half.
Okay.
Speaker 1: Your next question comes from the line of Sammy Shatterjee with J.P. Morgan. Your line is open.
Your next question comes from the line of <unk> <unk> with Jpmorgan. Your line is open.
Speaker 8: Great thanks, thanks for taking my question. I guess if I can just start with one for Hank first. Hank, just a bit surprised after the record margin or operating margin that you had this quarter. I'm a bit surprised with the guidance for the March quarter does.
Great. Thanks, Thanks for taking my question I guess, if I can just start with one for Hank first Hank.
I think just a bit surprised after the record margin or operating margin that you had this quarter.
Surprised with the guidance for the March quarter. It does look like you are expecting a sequential moderation in a material sequential moderation in March despite almost like similar or maybe a slight moderation in the revenue, but OSB is going up in terms of mix as well. So I am just so if you can unpack that a big deal for them.
Speaker 8: look like you're expecting a sequential moderation and a material sequential moderation in March. Despite almost similar or maybe a slight moderation in the revenue, but OSP is going up in terms of mix as well. So I'm just so, if you can unpack that a bit, just because I'm surprised with the magnitude of the moderation, sequential in terms of operating margin.
As with the magnitude of the moderation sequentially in terms of operating margins.
Speaker 3: Yeah, so our margin outlook, as you said, in the high end, the revenues are consistent with what we just posted, but we do have to factor in the typical increase in statutory costs, which is about $4 to $5 million, so that's about a percent or a half.
Yes, so our margin outlook as you said in the high end as evidenced ecosystem.
With what we just posted but we do have to factor in a typical increase in statutory costs.
Which is about $4 million to $5 million, so thats about a percent or half.
Speaker 3: And then we anticipated maybe a little bit normalized mix. Our guidance is typically prudent, so that's the rationale here. On the tax rate, we posted a 12.5% tax rate for the second quarter, and our guidance embeds a 16% tax rate for the March.
And then we anticipated that may be a little bit normalized mix.
Our guidance is typically prudent.
So thats the rationale here on the tax rate, we posted a 12, 5% tax rate for the second quarter and our guidance Embeds, a 16% tax rate for the March quarter.
Speaker 8: Okay, and just for my follow up then, Oleg, you've been
Okay and just for my follow up then OLED <unk> bin.
Speaker 8: more recently focused on investing and growing the SE business. This is obviously higher on rate in terms of quarterly revenue for SE, but based on how the portfolio looks today, what the KPGs are, what's the sort of opportunity set for SE, what can be the ceiling in terms of quarterly revenue, what does that portfolio allow you to do before you have to sort of acquire to add more capability.
More recently focused on investing and growing the EBIT.
This is obviously higher run rate in terms of quarterly revenue per FTE, but based on how the portfolio looks today, what the capabilities are what's the sort of opportunity set for SCE, what can be the ceiling in terms of quarterly revenue what does that portfolio allow you to do before you have to sort of acquire to add more capability.
Speaker 4: Well, I think listen, we think organically we could probably well approach.
Well.
Well I think listen we think organically.
We could probably.
While our pricing.
Speaker 4: Get out of my self. We think we can grow that business as a much higher rate than overall Viabi if everything goes as planned.
Get ahead of myself.
We think we can grow that business.
At a much higher rate than overall <unk>.
<unk> goes as planned and.
Speaker 4: And, you know, at least double the rate, you know, we want to target. And obviously, with the new platform, a new, a new.
Or at least double the rate.
We weren't a target and obviously with the new platform a new.
Speaker 4: product is coming in at meaningfully higher gross margin than the rest of the other.
A new.
Product, it's coming in at meaningfully higher gross margin than the rest of the <unk>, but it is really a function of scale, obviously for Ed to make a meaningful impact, but we think.
Speaker 4: But it's really a function of scale, obviously for it to make many meaningful impact. But we think, at the very least, we should grow at double the rate of NSE business overall.
At the very least we should grow at double the rate of NSE business overall.
Okay. Thank you thanks for taking my questions.
Sure.
Youre welcome.
Speaker 1: Your next question comes from the line of Tim Savichaux with Northland Capital. Your line is open.
Your next question comes from the line of Tim <unk> with Northland Capital. Your line is open.
Speaker 9: Well, good afternoon. Congrats on the quarter and that's good timing. Because that sort of begs the question, what is the...
Well good afternoon, congrats on the quarter and Thats good timing.
Because that sort of begs the question what is the.
Overall NSE growth rate.
Speaker 9: double that, and that's really going to be the focus of my question.
He is going to grow double that and that's really going to be the focus of my question.
Speaker 9: You know, like you talked about double digit growth in fiber and wireless in the quarter, you've got some easy comps here, but you're pretty be guiding to something.
Like you talked about double digit growth in fiber and wireless in the quarter and you've got some easy comps here, but you appear to be guiding to.
Around 10% growth.
And any here going forward.
Speaker 9: And so, you know, my question is, given the trends you see in the market here, which look pretty positive,
And so my question is given the trends you see in the market here, which which looked pretty positive.
Speaker 9: is double-digit growth achievable in the network?
Is double digit growth for <unk>.
<unk>.
And the network enablement enablement business.
Sustainable well into next year.
Speaker 4: You know, one thing I learned, 10% growth here over a year is becomes increasingly more and more difficult. So the comparable, you know, easy comparable is done last that long. And 10% on 100 million is one thing, 10% on 800 million is a different number, right? And so I think, listen, I mean, when we talked originally, we were talking more like
And one thing I learned.
10% growth year over year is that becomes increasingly more more and more difficult. So the comparables.
Easy Comparables don't last that long and 10% on a $100 million is one thing 10% on an $800 million is a different number right.
And so I think listen I mean, we when we talked originally we were talking more like.
Speaker 4: 5% type growth, we think, you know, for the overall NSC business.
Five 5% type growth, we think for the overall NSE business, maybe moving into the higher single digits is a reasonable number I remember we do have some I expect some of the.
Speaker 4: Maybe moving into the higher single digits is a reasonable number. I remember we do have some, I expect some of the segments like DSL and cable decline over time, things like fiber and wireless increase over time. So overall, clearly the gross segments will grow meaningfully in the double digits, but you also got to assume some of the legacy segments will decline so net net.
Segments, like DSL and cable decline over time things like fiber and wireless increase over time.
So overall.
Clearly the growth segments will grow meaningfully in the.
The double digit but you also got to assume some of the legacy segments as both declined so net net we kind of thinking.
Speaker 4: We kind of thinking, you know, our goal is to get from mid single digits to maybe higher single digits for that segment.
Our goal is to get from mid mid single digits to maybe higher single digits.
For that segment.
Great. Thanks very much.
Sure.
Speaker 1: Your next question comes from the line of Richard Shannon. Let's crack Halum Capital. Your line is open.
Your next question comes from the line of Richard Shannon with Craig Hallum Capital. Your line is open.
Speaker 10: The first one is on 5G and the field instruments. Sounds like you're showing some signs of early progress there. We'd love to get a sense of how far out you could see these share gains starting to manifest themselves and any way that you can characterize the dollar opportunity relative to the base that you have in 5G today. If any way you can help us think of that, that'd be great, please.
First one is on <unk> in the field instruments sounds like Youre getting.
Showing some signs of early progress there.
To get a sense of of how far out you see you could see kind of the share gains starting to manifest themselves in any way that you can characterize the kind of the.
Dollar opportunity here relative to the base that you haven't <unk> today, if any way you can help us think of that that'd be great. Please.
Speaker 4: Sure, I mean, well, 5G is a little tricky, right? So it's that we have a 5G system task, which is a significant business for us today already. You know, for infrastructure tasks, primarily targeting network equipment manufacturers, but also the service provider lab.
Sure.
<unk> is a little tricky right. So it's a we have a <unk> system task, which is a significant business for us today already.
Right.
Our infrastructure.
Primarily targeting.
In network equipment manufacturers, but also the service provider labs and some of these new players like Rakuten and others, who are coming in and the Oran right. So thats on a more on infrastructure.
Speaker 4: and some of these new players, like Raku-chan and others who are coming in and the Oren.
Speaker 4: Right, so that's one of the more infrastructure, kind of big iron, you know, big software type products. And then there is a field instrumentation business where we are a newcomer and
Big Iron Big software type product and then there is a field instrumentation business, where we are a newcomer and.
Speaker 4: There we are, you know, viewing the market maybe about $300 million a run rate per year when it's fully conversed to 5G. And we're targeting, you know, 25 to 33 percent market share. So we think this year,
There we are.
Viewing that market, maybe about $300 million around.
Run rate.
Per year, when its fully converts to <unk> and we're targeting 25% to 33% market share. So we think this share.
Speaker 4: We probably should be, you know, when all said and done, things start ramping up. It should be comfortably, maybe in the 20s, maybe hit 30. And then continue growing into next year as Europe and other regions start adopting.
It should be.
When all set and done as things start ramping up we should be comfortably maybe in the Twenty's, maybe hit 30, and then <unk>.
Continued growing into next year as Europe , and other regions start adapting.
Speaker 4: 5G and as the 5G starts rolling out into private nets.
<unk> and as the <unk> starts rolling out into private networks.
Speaker 10: Okay, great. That's a great perspective. My follow on question is on gross margins. I may have misheard you into preparing marks, Olig, but I thought I heard you say about gross margins go higher as you grow here. And I guess with 5-year field instruments, I guess my understanding was those would be slightly lower gross margins that are generally a higher volume kind of a product. So I just want to make sure that level fits together.
Okay, Great. That's a great perspective my follow on question is on gross margins.
You may have misheard you in your prepared remarks OLED, but.
I thought I heard you say.
Gross margins go higher as you grow here and I guess with <unk>.
<unk> field instruments, I guess my understanding was that was it.
Slightly lower gross margin sensor generally at higher volume kind of a product. So I just wanted to make sure that level sets together.
Speaker 4: Well, so let me give you a little perspective. If you take a fiber cable DSL, a kind of wireline instrumentation, and you'll take wireless instrumentation.
Well, so let me give you a little perspective.
If you take like fiber cable DSL or kind of wireline instrumentation and youll take wireless instrumentation.
Speaker 4: The wireless market generally carries higher margins. So even let's say the same things, you have a hand held for cable, you have a hand held for wireless.
The wireless market generally head carries higher margins, so even let's say.
The same things you have a handhelds for cable you have a handheld for wireless.
Speaker 4: There is a significantly higher gross margin on the wireless instrument than there is on the cable. And part of it is, you know, you don't need as many, you just don't sell as many wireless instruments, but they generally come at a higher margin. So I guess you need to have that in order to recoup your investment, right? So, for example, you'd be selling tens of thousands.
There is a significantly higher gross margin on the wireless instrument than there is on the cable and part of it is that you don't need as many of you just don't sell as many.
Wireless instruments, but they generally come at higher margins. So I guess you need to have that in order to recoup your investment right. So for example, you'd be selling tens of thousands.
Speaker 4: of units in cable space, and you may be selling 10 to 20,000 in the wireless space. All said and done. So as we get more wireless content in our instrumentation, we expect the average JSP to go up and the average margins to go up actually.
Units.
In cable space and you may be selling a.
10% to 20000.
In the wireless space.
All set now so as.
As we get more wireless content in our instrumentation.
And we expect the average ASP to go up and the average margins to go up actually as well.
Speaker 10: Okay, that's very helpful. Thanks for all that.
Okay, that's fair.
Very helpful.
Thanks for all that.
Okay.
Your next question comes from the line of meta Marshall with Morgan Stanley . Your line is open.
Speaker 1: Your next question comes from the line of Mita Marshall with Morgan Stanley . Your line is open.
Speaker 11: Great, thanks. Maybe first question from me. You know, all of you mentioned that you were seeing some share gains right now on any business, just from ability to...
Great. Thanks, maybe first question for me.
Alright, you mentioned that you were seeing some share gains right now on any business from ability to you know.
Speaker 11: not having as many supply chain issues. Just wondering, you know, as supply chain reverts or loosens, you know, how do you hold on to some of those share gains?
Alright, not having as many supply chain issues. Just wondering you know as supply chain reverts or lose and how do you hold onto some of those share gains that you've seen them and then second maybe kind of building. Upon tims question that was just.
Speaker 11: And then second, maybe kind of building upon Tim's question of just, you know, clearly fiber is going to be a growth market for years, but, you know, just, you know, do you see digestion periods over time? Do you see labor or supply chain kind of being a gating item to how fast that business is moving?
Clearly fiber is going to be a growth market for years, but.
Do you see digestion periods over time, do you see labor or supply chain kind of being a gating item to how fast that business could grow in the near term. Thanks.
Speaker 4: Sure. So I think the first question was for much of that.
Sure So I think the.
So your first question was how much on that.
Speaker 4: I'm not saying share. So, you know, so...
And maintain share so so.
Sure.
Speaker 4: In many deployments, generally when they do it, they kind of try to do 80-20. Ideally, they want to have 100%, but they want to keep everybody honest for, to squeeze your own prize. They bring a second, that's called price rabbit, for 20%. Well, a lot of these price rabbits often cannot actually...
In many deployments.
Generally when they do it they kind of try to do 80, 20, ideally they want to have 100% but.
They want to keep everybody honest to squeeze you on price they bring a second ago price rebate for.
Two 420% well a lot of these price rabbits, often cannot execute right and as is the case right now and what we're doing is we're taking 100% sure and as you're doing all these deployments, it's kind of like possession is 80% of the law. Once your equipment is in everybody's practice.
Speaker 4: Right, and as is the case right now, and what we are doing is we're taking 100% share.
Speaker 4: And as you're doing all these deployments, it's kind of like possession is 80% of the law. Once your equipment is in and everybody's practiced, at certain point, when things do get back to normal, you continue to have that natural momentum because people are used to using a certain type of equipment. They're trained, you create a whole new barrier for switching costs and things like that. Also, at the same time when we're doing that, we are introducing a lot more software content. And the kind of...
At certain point.
Things do get back to normal you continue to have that natural momentum because people are used to using a certain type of equipment. They're trains you create a whole new barrier for switching costs and things like that also at the same time when we're doing that we are introducing a lot more software content and the Kennedy.
Speaker 4: software like a cloud applications where all these instruments upload data into the cloud and it generates reporting and visibility. Well, as you get more and more VIAVI instruments and you use VIAVI software to optimize your network operations.
Our software like our cloud applications were all these instruments upload data into the cloud and that generates reporting and visibility well.
As you get more and more <unk> instruments, and you used <unk> software to optimize your network operations and monitor your network. It just becomes really yes somebody can offer you much lower priced but.
Speaker 4: and monitor your network. It just becomes really, yes, somebody can offer you much lower price, but it's gonna be pennywise and power and foolish since you cannot use that instrument for a lot of other things. So we obviously do our best to make these barriers permanent. Obviously there's gonna be some of the share may go back.
Youre going to be Penny wise and pound foolish since you cannot use that instrument for a lot of other things. So we obviously.
Do our best to make these barriers permanent obviously theres going to be some of the share may go back.
Speaker 4: for them to keep a son of us, I guess. But generally, once you gain share, it...
Just for them to keep us honest I guess, but.
Generally once you gain share as it becomes like a new normal okay now regarding the constraints.
Speaker 4: it becomes like a new normal. Now regarding the constraints.
Speaker 4: Listen, labor is a big constraint. And in North America, they are rolling out fiber. And it is a huge challenge. Because the same people who are building your fiber, you need those people to build your wireless network, right?
Listen labor is a big constraint and in North America. They are rolling out fiber and it is a huge challenge because the same people who are building fiber you need those people to build your wireless network right. So to the extend we fused the two together and we introduce a lot of automation in Nevada.
Speaker 4: So to the extent we fuse the two together and we introduce a lot of automation and a lot of the solutions that can run in the background on your network and reduce the truck rolls and reduce, you know, improve the productivity of your constrained assets.
Solutions that can run in the background and your network and reduce the truck rolls and reduce.
Improve the productivity of your.
Constrained assets.
Speaker 4: that gives us tremendous opportunities. And we actually seeing that a lot in fiber. I mean, we view the whole build out of wireless and 5G networks and fiber networks.
And that gives us tremendous opportunities and we actually seeing that a lot in fiber I mean, we we.
We view the whole build out of wireless and <unk> networks and fiber networks.
Speaker 4: will present us with significant opportunities for this whole field of fiber monitoring, where it's not just instruments, you actually sell a lot of big products and a lot of software that resides in the network and actively and passively monitoring your network operations and triggers alarms when there is a problem. So we actually like the more constrained you are on resources, the more our value proposition resonates with you.
We will present us with significant opportunities for this whole field of fiber monitoring where it's not just instruments you actually saw a lot of big products and a lot of software that resides in the network and actively and passively monitoring your network operations and triggers alarms when there is a problem.
So we actually like the more constrained you are on the resources the more our value proposition resonates with you.
Perfect. Thanks, so much.
Okay.
Sure.
Speaker 1: There were no further questions at this time. I'll turn the call back to Bill on for closing remarks.
There are no further questions at this time I will turn the call back to Bill <unk> for closing remarks.
Speaker 2: Thank you, Josh. This concludes our earnings call for the day. Thank you, everyone.
Thank you Josh This concludes our earnings call for today. Thank you everyone.
This concludes the call you may now disconnect.
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Okay.
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Okay.
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