Q4 2023 Viavi Solutions Inc Earnings Call
Cash flow from operations was $23 5 million for the fourth quarter versus $73 6 million in the prior year period.
Fiscal 2023 was a challenging year for the.
Full year revenues decreased from a record levels of $1 3 billion in 2022 to $1 1 billion in fiscal 2023 down 14, 4%.
Out of an overall slowdown in service providers network equipment manufacturer and semiconductor spent.
<unk> full year fiscal revenue came in at $801 2 million down 15, 6% year over year from nine.
$949 1 million.
OSP also experienced complexion as central banks digested currency inventory builds during COVID-19, reducing revenues from $343 $3 million in 2022 to $304 9 million in fiscal 2023 or down 11.
<unk>, 2%.
Mainly because of lower revenues, we have a full year 2020 operating profit margin at 15, 6% declined six 6% from 22, 2% in 2022.
Within our <unk> segment operating profit margins declined 8% from 15, 6% in 2022 to seven 6% in 2023.
Within our OSP set APA.
<unk> profit margins reduced.
45% in 2022 to 36, 5% in 2023, which also includes the impact of startup costs related to our new facility in Chandler.
Full year 2023, EPS at 55 <unk>.
Decreased 42, 1% or 40.
From a record EPS levels of 95 and 2022.
Despite headwinds cash flow from operations for the full year continued to be solid as we generated $114 1 million in fiscal 2023.
$63 million and free cash flow compared to $105 6 million free cash flow in fiscal 2022.
While further improving our balance sheet by retiring the remaining 2023 convertible notes and partly exchanging the 2024 notes comparable terms, we continue to execute on our capital allocation strategy and deployed $83 9 million towards our share repurchase program.
And $67 million towards acquisitions.
Average share count during the year reduced from $231 3 million to $223 6 million shares.
As a result, the change in short term outlook early in fiscal 2023, we announced a restructuring program in February of this year that cumulated into a reduction of approximately 5% of the labor force with a nonrecurring expense of $12 million is expected to result.
<unk> net operating expense savings of $28 million on annual basis.
Finalization of this plan is below our original expected nonrecurring expense of $15 million.
And better than originally anticipated savings commitment of $25 million.
Reduced levels of operating expenses in combination with an improved capital structure will allow us to benefit from a meaningful operating and financial leverage as revenue recovers.
Now moving to our reported Q4 results by business segments.
<unk> with MSC.
NSE revenue came in at 197 $9 million exceeded our expectations of 179 million to $195 million, albeit down 19, 6% year over year.
And the revenue of $173 3 million improved 15, 8% sequentially and declined 22% year over year.
<unk> revenue at $24 6 million increased two 5% from last year.
And as he gross profit margin at 62, 1% decreased by 280 basis points year over year.
Within NSE and <unk> profit margins at 61, 5% decreased 270 basis points from the prior year, primarily due to leverage on lower volume in combination with product mix.
<unk> profit margins at 66, 3% decreased 500 basis points from last year, primarily due to unfavorable product mix.
And as East operating profit margin at five 8% was near the high end of our guidance range of 3% to 6%.
Now turning to OSP fourth.
Fourth quarter revenue at $65 7 million and is up slightly ahead of the midpoint of our guidance range of $63 million with $67 million and down 26, 3% year over year.
Gross profit margin at 46, 6% decreased nine 3% year over year.
Slightly lower than expected, mainly a result of leverage on lower revenue now.
Now that the Chandler startup costs are behind us and as revenue returns, we expect gross profit margins to normalize to historical levels.
The operating profit margin of 29, 5% came in slightly below the guidance range of 30% to 31% and declined nine 1% year over year.
Now turning to the balance sheet, the ending balance of our total cash and short term investments was $525 6 million down $39 3 million compared to the prior year.
During the fourth quarter the company repaid the remaining $68 1 million principal value of 2023 convertible notes as well as a <unk> 6 million.
Semi annual interest payment for a total of $68 $7 million at.
At the end of the fourth quarter 2023, we're left with an outstanding balance of $96 $4 million on the 2024 convertible notes that we are planning to pay down with cash on the balance sheet during the upcoming quarters.
Our balance sheet is strong we improved the quality of our debt by reducing our convertible notes exposure, adding long term fixed rate debt and as a result extended maturities at a lower cost.
As mentioned earlier operating cash flow for the quarter was $23 $2 million, an increase of five 4 million from the prior quarter and a decrease of $54 million year over year. In addition, we invested $7 4 million in capital expenditures.
During the quarter compared to $10 8 million in the prior.
<unk> prior year quarter.
During fiscal Q4 and in addition to retiring convertible notes as mentioned before we repurchased 1 million shares of common stock for $10 million under our current share repurchase program.
On a full year basis, we repurchased seven 3 million shares of common stock for a total of $83 $9 million and returned over 100% of free cash flow generation in fiscal 2023 to our common shareholders.
As you May recall in September we announced that the board authorized a new common stock repurchase program for up to $300 million as of the beginning of fiscal 2024, we have $234 million available under this program.
Now onto our guidance, we expect the first.
Fiscal quarter 2020 for revenue to be in the range of $240 million to $260 million.
Operating profit margins is expected to be 13, 5% plus or minus 70 basis points and anticipated improvement of 180 basis points sequentially and EPS.
Between nine and 11.
We expect NSE revenue to be approximately $175 million.
Plus or minus 8 million with an operating profit margin of 4% plus or minus 100 basis points.
OSP revenue is expected to be proximately $75 million, plus or minus $2 million with an operating profit margin of 35, 5% plus or minus 50 basis points.
Our tax expense is expected to be around $8 million or 26% for the first quarter. A result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $4 million. The share count is expected to be around 224 million.
Sure.
That I will turn the call over to Olaf.
Thank you Henk during 'twenty two 'twenty three fiscal fourth quarter, we saw initial signs of stabilization and gradual recovery.
Despite the slowdown in overall service provider spend some service providers have begun to free up funds for network maintenance and optimization with.
Which benefits the Army's NSE business segment.
As a result, our fiscal fourth quarter revenue came in slightly above the higher end of our guidance.
And we expect that the stabilization and recovery momentum to continue throughout the fiscal year.
NSE revenue declined year on year, but grew sequentially driven primarily by our <unk> business segment.
And he was up double digit percentage sequentially, reflecting a rebound in demand from cable service providers upgrading their networks.
Demand for 11 production test equipment from wireless and fiber.
<unk> and semiconductor companies, so gradual recovery from the lows in the March quarter.
Ofcom business continued to perform well driven by robust demand from the avionics and Mil Aero customers.
Our <unk> business segment grew two 5% year on year in line with our expectations.
Now turning to OSP OSP demand environment continues to be challenging that said the fourth quarter revenue came in slightly better than expected helped by stronger demand for anti counterfeiting products <unk> sensing revenue was impacted by seasonally lower demand for smartphones and the supply chain transition to new phone models.
Fiscal 2023 was a very challenging year for via <unk>.
Early in the fiscal year NSE demand experienced a rapid slowdown in orders from service providers.
The slowdown pattern was broad based across all customers and geographies.
Slowdown in spend by service providers, then spread to the network equipment manufacturers and semiconductor companies further impacting demand for our MSC products.
SP business unit started the fiscal year strong, but so demand for its two major products impacted by macroeconomic headwinds the demand for anti counterfeiting products was impacted by the inventory corrections as governments dialed back fiscal stimulus and three D. Sensing was impacted by weaker demand for smartphones.
Probably disappointing year, where we continued to invest in new technologies and applications.
Spending into higher growth markets, such as resilient P&C and initiated and completed the restructuring program to reduce expenses. These initiatives combined with our strong position in our traditional markets are expected to result in strong operating and financial leverage as our revenue rebounds in conclusion I'd like to thank.
We have a team for managing in this challenging environment and express my appreciation to our customers and shareholders for their support with that I will now turn it back to operator for Q&A.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad to allow everyone. An opportunity. We ask that you. Please limit yourself to one question and one follow up we'll pause for just a moment to compile the Q&A roster. We will take our first question from Mehdi Hosseini with Susquehanna. Your line is open.
Yes, thanks for taking my question.
I just wanted to go back to your comment regarding service providers.
Towards the extent do you have visibility are we reaching a point where your guide reflect minimum investment and then on the optical side.
Just curious to hear what you're seeing with upcoming.
Product cycle in the smartphone how do you see.
That compared to the prior year upgrades.
So thank you so the first one is.
Let's put it this way there are signs of life in multiple discussions with service providers I mean, it took them about six months to put a hold and anr canceled backlog and a lot of capex.
When we announced in October remember, they can effectively xeros out within a month, because it's mainly coming out of opex, but for a lot of big capital items. They have normally a six month lead time that they cannot cancel.
<unk>.
As of March quarter pretty much all the big spend has been put under control in a lot of the backlog has been capex has been pushed out right.
Now as they are stepping back.
They are looking okay, well I still got to run my network or Theres things.
Accumulating and people are screaming for supplies. So we are seeing more and more conversation around.
Upgrading equipment and be.
Providing there.
And network maintenance and optimization.
Folks with tools to manage their network. So I think if you ask me that question, let's say three four months ago. It was all crickets, they're silent.
Silence and.
Right now there is clearly some are more dynamic and aggressive than the others like I say cable guys are actually very.
Aggressive in.
Upgrading their networks, but also we are seeing.
Select mobile network and fiber network operators are returning back end.
<unk> optimization and upgrades.
I think this momentum will continue to pick up.
Through our fiscal year.
Now with respect to the three D sensing.
I'll say this coming year.
Hard to predict the coming year I mean, the market for these are prime application is fairly saturated I mean, we are now in both front and rear cameras.
So really the revenue is really driven more by total market demand and.
I think what we're seeing is somewhat more sluggish smartphone demand than we saw let's say a year ago.
And I think in that respect we are taking a more cautious outlook on the volumes that are going to be commended.
This fiscal year.
Sure.
Can I ask a follow up question.
Sure.
Just looking into calendar 'twenty four.
<unk>.
Hi.
I wanted to hear your opinion in <unk>.
Terms of.
The catalysts.
I personally don't see.
<unk> urge to.
Install equipment upgrades equivalent for flagship plus there is plenty of fiber underground.
What else could happen with service provider.
Cable operators that could.
Leased entice them for some.
Technology upgrades.
Tell me if I'm thinking about this the right way.
Well I think.
Tend to agree with you, but remember we don't depend actually our business is driven more by turning on what you've already got and starting to putting it into exploitation.
So in that respect, yes, there's plenty of fiber in the ground. There is plenty of equivalent in the warehouse, but every time, we turn on a circuit or are you.
In production or point to put the equipment into exploitation.
You do need.
Field operations to do the work and the maintenance of the network and things like that are an ongoing thing.
And as you have bad weather area of wear and tear and constantly got to be doing something to your network. So in that respect we are.
Sure.
More money gets spent on opex to get more of what your GAAP, that's actually very good for us.
Somebody is building network, it's very good for us what's not so good for us is one.
They are kind of in between so I think the.
I think.
Yes.
Service providers had to take the equipment deliveries they took they probably know which probably now have a bit access of the equipment. Some of its sitting in a warehouse, but little by little once you have it you've got to put it into operation and that's what's driving demand for our products now the second element is competition.
All it takes is your biggest competitor announced theyre going to be more aggressive than they than you are well, whether you wanted or not youre going to have to respond appropriately.
Appropriately so and we are seeing in them.
At least in a more mobile and mobile space, It's a three way <unk>.
<unk>, our Mexican standoff and.
When you have more than two strong operators there is a very strong tendency to cheat.
Try to do a little more and of course the other two are watching so I think.
As much as everybody in their logic says hey, we're better off doing nothing if we all agree on it. It's inevitably takes one person to try to pull a fast one and respond accordingly now in case of the I think cable operators. They are seeing it as a very good opportunity for them since I think many of them are healthier.
On telecom operators I think they have they're taking an opportunity to upgrade the speeds on their network to be more competitive against the fiber and.
Definitely try to avoid wireless broadband steel.
Stealing their customers so I think.
The competitive pressure is probably the single biggest thing that.
Yes.
Our service provider spending money.
They want it or not.
Okay, great. Thanks for the details.
Thank you.
Next we'll go to Tim <unk> with Northland Capital Your line is open.
Hi, good afternoon.
Couple of questions here.
First I'm just I'm trying to reconcile your commentary about stabilization and growth throughout the year with your.
Q1 guide for NFC.
Got it down a fair bit after a.
Better than expected.
Q4.
Anything going on in there.
We reconcile those two seemingly conflicting comments.
Yes.
How are you seeing seasonality in the first part of your.
Fiscal year or what have you and I'll follow up from there.
So I mean, if you take the I'll say last couple of years out.
During cover it there was a supply constrained customers wanted to take product.
Anytime you could deliver it so I think in that respect.
The usual seasonality that we have an NFC, whereas you have March and September are the down quarters and June and December are the stronger quarters that was like for the last couple of years. It's almost became a non event because whenever you had a product somebody wanted to take it now.
With the lead times.
Collapsing and effectively you can place the usual order intake delivery within the same quarter.
We see the ordering cadence is back to what traditionally was.
Worthy September and March quarters are generally the lower end lower end of the demand.
Range and the June and December or the higher end of the <unk>.
Demand range, so I think what we see.
And.
It's all within our normal way of business clearly, it's not as a run rate is not as high as it was a year ago, but it's following the same kind of fluctuations, but also I'm looking at the booking funnel and the.
Opportunity final and it is a hell of a lot healthier than I would say it was in the March quarter of this year, where everything was just shut down so the level of conversations.
Engagements negotiation there is going on.
<unk> leads to.
Expectations that we're going to see continuous gradual recovery the second element is the.
Nance and semiconductor companies after retrenching in the first half of the calendar year.
We are seeing the competitive pressure and new product introduction.
Driving continuous quarter on quarter increase in the lab elapsed patent then that's obviously the second half.
Element of our NSE business there was.
Kind of down it was.
It was about a quarter of lagging of the service providers wanted one down and I think it's finally, starting to come back also lagging about by a quarter. The service providers and then the last but not the least I think the on our service enablement business the software business.
We feel pretty good about the momentum and the opportunity funnel that we are seeing for our new solutions and in that respect I mean, even though those things take longer lead times to go from booking into revenue. It is nevertheless, a positive momentum.
Okay got it.
The follow up I don't know if this is contributing to this improving funnel either one.
Service provider side.
Or or NIM side, but.
What are you seeing around 800 gig kind of high speed connectivity, either inside or outside the data center.
In terms of current trends for <unk>.
So I think that is a very.
Yes, I remember, we've been selling 800 gig into lab for quite a while it's now moving to our production. Although it's still there is a lot of test there's a lot of fiber operators I mean, theres, both actually I mean I'm not so sure how much. It is an 800 gig right now happening in the data center, but we are seeing.
A lot of interest from the <unk>.
Fiber operators.
To.
Tasks and.
Play with the 800 gig to interconnect various data centers right now.
400 gig as a norm, but there is a early discussions and testing going on with the 800 gig and summer cooking Vice Chairman, Chris I don't know a terabyte is maybe a little too far out.
About 800 gig is something.
There is on the drawing board, but right now the name of the game is 400 gig.
Within the network Thats put shipping today, the 800 gig is really more around the house.
Even though it's been in the lab for awhile with service providers.
And it's really select service providers not the mainstream.
This is now entering a what's called testing.
Proof of concept stage.
And those are usually also service providers that are very tight strapped for cash and liquidity, but when it comes to that this is one area that we're going to spend the money because their ideas. If they can directly interconnects hyperscale data centers without bypassing.
Third parties.
They feel they can grab some good business.
Okay.
Great. Thanks very much.
Sure.
Next we will go to Michael Genovese with Rosenblatt Securities. Your line is open.
Great. Thanks.
I want to follow up on.
Tim's questions.
First of all with them.
800, GE inside the data center.
And for instance, AI clusters.
We thought that there were design wins that you.
Maybe you spoke about mid quarter.
So maybe there's a lag.
My understanding was maybe it's not driving the current business, but it's an interesting growth driver for the future are we are we understanding that correctly are we ahead of ourselves there.
Well I mean, the this is when we talk about design wins, it's usually anam, that's selling equipment that they are using in the lab and production to do both one is to produce the <unk>.
Assistance and second produce the modules.
To those system, so, but I don't think this is at least this quarter was that much of a demand in that respect.
But we are seeing and market interest for that.
Okay.
I guess I wanted to follow up on Tim's. Other question and then I'll ask my question I just have one.
But the follow up would be like I, just wanted to crystallize that I think what I heard is that any of the upside in any in the June quarter, largely came from cable and even though that the funnel of business opportunities has greatly improved versus six to nine months ago.
Any guide is sequentially down because of seasonality and not for any other reason is that does that is that generally right.
Yeah, that's pretty much right and I would say I would say the upside I mean came clearly cable, but we also had some major wireless snaps do.
During their annual purchase we have several major names that at various parts during the year.
Significant deliveries.
Okay and then this is my question.
And I know you don't give guidance more than a quarter at a time.
Unless youre, giving in a three year CAGR, but.
But.
R 22.
It was a $1 3 billion in the 90 days of non-GAAP sense and then this last year was.
1.1 and below 60.
Wondering I mean, we've got the first quarter guide and it is what it is but but.
The sense that things should strengthen throughout the year. So I mean do you envision this year sort of looking in between those two years or more like one or the other if you could comment.
Any kind of thought.
Yes, so the way I look at it usually <unk>.
Are you starting strong and then it gets weak joke within our fiscal year ends in June right. So now if you take the opposite mirror image like Kennedy the first half of the year as it continues to recover it's almost like you ended up with the two mirror images of the same thing. So if you think about <unk>.
23% fiscal year was slightly above $1 1 billion.
I mean from our.
Poorly.
We cannot see beyond one quarter, but as we have but we have to operate a certain scenario. So we're taking a fairly conservative look and say hey, let's say this year will be a demand wise a mirror image of the.
Prior year, so our exit velocity would be equal to the entry velocity of the prior fiscal year, but now we're doing it with a much lower operating cost structure and a smaller.
Outstanding share count. So you then the overlay.
You overlay.
The operating and financial leverage onto it right and that shows you, okay, even like roughly flattish topline you're going to see a nice growth at the EPS level.
So thats, how we operationally thinking about upcoming fiscal 'twenty four.
Alright, Thank you very much helpful.
Next we'll go to Alex Henderson with Needham Your line is open.
Alright couple of civil operational stuff.
Has the benefit of the improved production out of Chandler, Arizona.
Now.
We have been fully feathered into the.
The margins on OSP.
Yes, sure. So Chandler is now running in production. So all the startup costs are behind it the startup yields an observation, it's all behind US now as the volume increases.
All the Unabsorbed expenses are being absorbed so it's clearly whatever the gross margin drag. We were getting ahead of time is now behind us So June to September in OSB.
And that production facility is fairly stable on the margin side, it's already steady state yes perfect.
Second the cost cutting.
Moves that you've done those or fully in the June quarter.
They are poorly in the June quarter, there will be fully in the September quarter. So the full quarter impact you will see in the September quarter.
Having with Opex levels of call it 118 $120 million a quarter for the September quarter.
That's the run rate going forward, obviously with some seasonality to it.
Absolutely with some seasonality to it and as revenue recovers some variable costs, but you should think of that as the run rate.
And on the OSP side.
Can you characterize whether we're.
Yeah on the.
Okay counterfeiting products at a point where.
We're at baseline or are we below baseline or how do we how do we.
Characterize that historically.
You've talked about a baseline and then you'd have these spikes above it.
You are talking about it being down from last year because of absorption but.
It wasn't an above normal and therefore, we're we're kind of back to baseline here.
Well I think the baseline has gone up over the years right. So in terms of when you're talking baseline you're talking about revenue not the cost, yes, sorry, I'm talking about.
Revenue. So I think this year, we believe.
It's running below the baseline.
Because of the.
Two four effects on one hand.
Fiscal stimulus.
Has ended a lot of countries are pulling back but it has further reinforced the they are not only pulling back.
I'll also have taken all the delivery of a lot of product in the past several years. So now they have to burn down all that inventory.
On one hand, they are printing less on the other hand is taking their inventory that's taken them. Some time came to consume and we think we probably should be back in equilibrium by the end of this calendar year and the second half we should see.
Beginning of recovery in the anti counterfeiting demand, which obviously will drive significant operating leverage for our business quarterly baseline.
The counterfeiting businesses.
I think the base business today, we are seeing running around $50 million.
Lots of closer to 50 from.
From the normal by 55 and kind of higher end about 60%. We said 55 was debate at the higher end, we get up to 60.
Right now I'd say this is kind of the lowest demand I've seen in a long time, okay. So baseline is around $55 million.
65, <unk> back to once we get through this correction in metal.
And as you can imagine this is pretty much almost everything with exception of materials drops to the bottom line because it is a pure high fixed cost business.
And at that level.
What type of operating margin at 55.
Well when we were well if you got to take combination of the baseline business and the anti counterfeiting. So as I say when both of them are filing hiring firing in all cylinders, we get into the mid forty's.
When both of them are in the worst possible shape you get into the lottery.
Great.
Base line on the.
Counterfeiting, excluding the three D sensing is.
Higher.
End of that range right.
Yeah, we don't break it out, but I would say.
When you're kind of running steady state you should be in the high Thirty's.
And therefore, the whole business unit one more question. So it sounds like the strength in the June quarter came as a result of.
The seasonal uptake of cable, which is pretty clearly.
Seasonal.
Patterns around the summer.
They spend and deploy over the summer and they tend to pull back into.
And to the.
To the colder weather.
As we go into the fourth quarter I would think that most telcos are under enormous pressure to deliver significantly improved cash flow certainly AT&T.
As promised that theyre going to see deliver a much improved cash flow is in the back half. So are we at risk that we are getting a little bit of improvement here over the course of the summer driven primarily by cable, but at risk of a fourth quarter disappointment.
As a result of the pulling back into that.
Seasonally critical fourth quarter for them.
Their cash flow.
Well I would say don't believe that I mean.
Youre right about the cash flow and what they want to do but remember the 800 pound gorilla in their cash flow is the capex they spend on equipment and construction.
If they're going to do it thats, where they are pulling and remember they couldnt do it a year ago, because they had six months of NCR contracts noncancelable nonrefundable. So they had to go in.
Initially shutdown all the Opex expenses and Thats, what got US here right now if you think about the.
What they spend on network maintenance, it's a pimple on the elephants behind relatively speaking, but it.
Giving them significant operational effectiveness.
By keeping their networks running so I think the mining pool from which we are drawing even though they're not it's not burning a hole in their pocket. They are.
Spending the money not at the same rate as it was a year ago, but this is one area that they are looking to do to spend to get more out of what they already have installed.
Rather than adding to the capacity so I think youre right on the on them buying new equipment and doing new construction, but what I do see them spending money trying to get more.
The more bang for the Buck they already spent.
And Thats, what <unk> benefit primarily from.
That makes good sense I appreciate that.
Differentiation.
Just one last question if I could.
When I look out into <unk>.
The back half of the year.
<unk>.
<unk> recovery in the first half of next year.
<unk> sitting at two 5% kind of revenue growth zero to five if you want to do.
Band 61, I don't know.
You don't want to guide but.
Do you feel like those are reasonably attainable or do you think that there are a little challenging or do you think that they're easily beautiful.
Give us some tone around it.
I mean, it's really depends on the first half of calendar next calendar year right. I mean, we don't have much visibility, but we do know that we think our 11 production part of the business is going to continue to recover.
We are seeing R&D at semi and <unk> kind of getting back I mean, there is a strong competitive angle to it I mean, they cannot forever.
<unk> reduced their engineering spend.
We do think the.
Anti counterfeiting business is going to continue to recover and especially in the second half of the year.
And.
I would say.
Mil Aero, it's actually pretty strong as well so the only thing that I as that.
We have to wait and see as to how aggressive the service providers will do in the second half of the calendar year. So if they are conservative when we are thinking you've got to be roughly flattish if they decide to start getting getting back and spending a bit more money than you could have then the growth projections could be a reason.
Alright. Thank you alright. Thank you. Thank you.
Thanks, Alex next we'll go to the next will go to meta Marshall with Morgan Stanley .
Great. Thanks, maybe I just wanted to spend a second on the SBA business you guys have had a number of products that kind of can help drive revenue for your customers.
Just wondering.
In this environment are they are less likely to adopt those or are you kind of seeing traction with those products that Ken.
Sort of help with more revenue upside for customers.
And then maybe just a second question.
Obviously M&A in the space has been a little bit tough in the past.
Kind of more elevated valuation expectations I would assume with some more challenged customer sat right now.
That may be people's expectations are a little bit more reasonable so does that change how you kind of view the M&A landscape. Thanks.
Sure.
So we're actually.
Feeling pretty good about our <unk> business. These days it has been a I'd say five six years, the restructuring we've reduced spend significantly and within the existing R&D, we had to retool.
<unk> architecture and.
More importantly focus where we are.
Going to invest going forward and the area, where we have a very strong product offering today is around the AI ops, which is the in kind of your.
Our automation natus.
Network Operation Center automation.
Artificial artificial intelligence, helping you with the preventive maintenance and things around that.
Landscape, we're seeing pretty good traction and we are winning some pretty.
Some very heavy hitters in the market, which would gives me.
Confidence that this is not a.
One off type of opportunity. So we see we do feel that as he has every opportunity to become a gaining.
Gaining momentum through this.
This year, which is finally.
This is the year is going to finally start contributing to the overall and by now we are pretty much flushed all delight declining legacy business, which was roughly around $50 million to $60 million six seven years ago, putting my 12 of it has gone away and we've been replacing it in from this point on it's all kind of firing and <unk>.
In the same direction. So in that respect we feel our Sci business.
On both on the enterprise and service provider side has some.
Very exciting story to tell and we think that they could achieve.
Pretty good success in.
In the coming years on the M&A environment, it's probably an interesting I mean, clearly theres only a handful of big transformational M&A opportunities and we all know what those are I mean, I think they are still fairly in actionable, but what we are seeing very interesting is the lack of liquidity and all of us on a lot of <unk>.
Sizable software.
Mainly on the software side companies that are complementary to our <unk> business all of her son.
We've seen the company, where I just give you. One example that we saw a year ago and we gave them.
A very respectable offer and they walked away laughing at us. They just got sold for one fourth of our offer a year ago at liquidation because they couldnt repay the debt that we're carrying so there isn't actually now a lotta very interesting technologies that you can pick up of the bargain basement as tuck ins.
So it's purely becoming a make versus buy and all of a sudden you can pick up modules for your software offering below the cost of make and this is what we are seeing right now and we obviously.
Aggressively looking at these opportunities.
Perfect. Thanks, so much.
Sure.
Next we'll go to Ruben Roy with Stifel. Your line is open.
Thank you.
I had a couple of like on the.
The topic of improving conversations how would you characterize that is that sort of broad based across your customer base or is it.
Relegate it to sort of your larger customers and also geographically are you seeing that.
Again broad based geographically or is it sort of centered in any specific areas.
Yes, I mean I would say.
Customer conversation is actually fairly broad based it's not one off I mean, clearly theres more intense conversations with the <unk>.
Companies like cable.
Amazingly also the conversations are with the tier two telecom providers, mainly many of them are private equity funded like fiber deployed and things like that I mean, there were the first ones to kind of pull back but they also not coming back in.
<unk>.
Looking whats going to be doing and.
On the 11 production with engineering organizations I think after about two quarters of pulling back their back because they need to deliver their roadmap from products to their customers. So we're seeing that coming back.
So I would say between the.
Engineering Capex customers and the.
I will say cable and fiber service providers.
The talk is much more.
Intensive.
The wireless I think.
It's kind of quiet still I think theres still digesting, what they've already got but we do think the wireless.
Is is going to be coming back probably in the second half of the year.
Got it thank you for that detail and just a quick follow up just a clarification on the lab spend it sounded like you're starting to see a little bit of the discussion of our improvement in.
And then maybe even orders from from semiconductor companies and some of the equipment companies, but then we.
We are still lagging behind the field stuff. So I guess are you are you expecting lab to be down again, and then stabilize in the current quarter or is it already stabilized.
No I think.
The bottom quarter for lab was the March quarter.
And it had some recovery in June and I expect it to continue.
To recover throughout the year.
Got it thank you Ali.
Sure.
That concludes today's question and answer session and today's call. We thank you for your participation you may now disconnect.
Yeah.
Okay.
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Okay.
Yeah.