Q2 2024 Ciena Corp Earnings Call

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I would like now to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead.

George: Thank you George.

Speaker Change: Morning, and welcome to <unk> 2020 for fiscal second quarter Conference call.

Speaker Change: On the call today is Gary Smith, President and CEO, and Jim Moylan CFO Scott.

Speaker Change: Scott Mcfeely Executive advisor is also with us for Q&A.

Speaker Change: And in addition to this call and the press release, we have posted to the investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter.

Speaker Change: Our comments today speak to our recent performance our view on current market dynamics and drivers of our business as well as a discussion of our financial outlook.

Speaker Change: Today's discussion includes certain adjusted or non-GAAP measures of <unk> results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release.

Speaker Change: Before turning the call over to Gary I'll remind you that during this call, we'll be making certain forward looking statements.

Gary Smith: Such statements, including our quarterly and annual guidance commentary on market dynamics and discussion of opportunities and strategy are based on current expectations forecasts and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ.

Okay.

Gary Smith: Materially from the statements discussed today.

Speaker Change: Ladies and gentlemen, welcome to the CN, our fiscal second quarter 'twenty to 'twenty four financial results call first quarter.

Gary Smith: Assumptions related to our outlook whether mentioned on this call or included in the Investor presentation that we will post shortly after are an important part of such forward looking statements and we encourage you to consider them.

Speaker Change: All participants will be listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Gary Smith: Our forward looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K, and our 10-Q, which we expect to file with the SEC later today.

Speaker Change: After todays presentation, there will be an opportunity to ask questions.

Speaker Change: Last quick question you May Press Star then one on your telephone keypad.

Speaker Change: To withdraw your question. Please press star two.

Speaker Change: <unk> assumes no obligation to update the information discussed in this conference call, whether as a result of new information future events or otherwise.

Speaker Change: Please note that this event is being recorded.

Speaker Change: I would like now to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead.

Speaker Change: As always we will allow for as much Q&A as possible today. So ask that you limit yourselves to one question and one follow up with that I will turn the call over to Gary.

George: Thank you George.

Gregg M. Lampf: Good morning, and welcome to <unk> 2020 for fiscal second quarter Conference call.

Gary Smith: Thanks, Greg and good morning, everyone.

Speaker Change: On the call today is Gary Smith, President and CEO and Jim Moylan CFO.

Gary Smith: As you've seen from the press release today, we reported fiscal second quarter revenue of $911 million and adjusted gross margin of 43, 5%.

Speaker Change: Scott Mcfeely Executive advisor is also with us for Q&A.

Speaker Change: In addition to this call and the press release, we have posted to the investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter.

Q2 performance also included quarterly adjusted operating margin of six 8% and quarterly adjusted EPS of <unk> 27.

Gary Smith: And we generated $42 million in free cash flow in the quarter.

Speaker Change: Our comments today speak to our recent performance our view on current market dynamics and drivers of our business as well as a discussion of our financial outlook.

Gary Smith: Later in the call Jim will provide additional details about our Q2 financial performance as well as highlights from the quarter with respect to our portfolio and business outlook.

Today's discussion includes certain adjusted or non-GAAP measures of <unk> results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release.

Gary Smith: Okay.

Speaker Change: Since we spoke with you about 90 days ago industry dynamics and therefore, our current operating environment are largely unchanged specifically.

Speaker Change: Before turning the call over to Gary I'll remind you that during this call, we'll be making certain forward looking statements.

Speaker Change: Specifically the drivers of bandwidth demand remained strong and durable.

Gary: Such statements, including our quarterly and annual guidance commentary on market dynamics and discussion of opportunities and strategy are based on current expectations forecasts and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ.

Speaker Change: Increasing cloud adoption and a growing number of AI use cases are accelerating global data generation.

Speaker Change: As a result network traffic is increasing and forecast to continue growing at a strong rate.

Gary: Materially from the statements discussed today.

Speaker Change: This all really means that demand for bandwidth will continue to grow at 30% CAGR if not more.

Gary: Assumptions relating to our outlook, while we mentioned on this call or included in the Investor presentation that we will post shortly after are an important part of such forward looking statements and we encourage you to consider them.

Speaker Change: But despite this positive secular demand as we all know it is taking longer than we and others in our industry. Initially expected for service providers to absorb and deploy the large amount of inventory they have accumulated over the last year or so.

Gary: Our forward looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K, and our 10-Q, which we expect to file with the SEC later today.

Speaker Change: And we are still seeing some caution related to macroeconomic concerns, particularly internationally.

Speaker Change: Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information future events or otherwise.

Speaker Change: Importantly, we continue to believe these dynamics are temporary.

Speaker Change: As always we will allow for as much Q&A as possible today do ask that you limit yourselves to one question and one follow up with that I will turn the call over to Gary.

Speaker Change: And we are seeing some encouraging signs of recovery beginning to emerge.

Speaker Change: <unk> with respect to order volumes.

Gary: Thanks, Greg and good morning, everyone.

Speaker Change: In fact, there were several highlights from Q2 that I think illustrate not only on improving service provider environment overall, but also accelerating cloud provider dynamics and the overall momentum.

Gary: As you've seen from the press release today, we reported fiscal second quarter revenue of $911 million and adjusted gross margin of 43, 5%.

Our Q2 performance also included quarterly adjusted operating margin of six 8% and quarterly adjusted EPS of 27.

Speaker Change: Business.

Speaker Change: Specifically with respect to our service provider customers.

Speaker Change: Orders in Q2 increased from the prior quarter and service provider revenue was up sequentially in Q2.

Gary: And we generated $42 million in free cash flow in the quarter.

Speaker Change: Later in the call Jim will provide additional details about our Q2 financial performance as well as highlights from the quarter with respect to our portfolio and business outlook.

Speaker Change: 10% customer in the quarter was a service provider.

Speaker Change: Very importantly service provide our inventory levels are starting to decline and service provider engagement and RFP activity levels are higher than in the past several quarters.

Gary: Okay.

Gary: Since we spoke with you about 90 days ago industry dynamics and therefore, our current operating environment are largely unchanged.

Speaker Change: Resulting in several recent new wins and a growing pipeline of opportunities.

Specifically the drivers of bandwidth demand remained strong and durable.

Speaker Change: For example, we secured a significant design win in Q2 with a leading north American tier one service provider for a multiyear network evolution project that includes both our alliance systems as well as our transponders.

Gary: Increasing cloud adoption and a growing number of use cases are accelerating global data generation.

Gary: As a result network traffic is increasing and forecast to continue growing at a strong rate.

Gary: This all really means that demand for bandwidth will continue to grow at 30% CAGR if not more.

Based on these data points, we believe the order flows from our service provider customers will continue to improve from here.

Gary: But despite this positive secular demand as we all know where he is taking longer than we and others in our industry. Initially expected for service providers to absorb and deploy the large amounts of inventory they have accumulated over the last year or so.

Speaker Change: Turning to our cloud provider customers in Q2.

Speaker Change: We secured important new design wins in this customer segment across terrestrial submarine and coherent plug a hole applications as we leverage the opportunities presented by strategic investments to build out their data center infrastructures.

Gary: And we are still seeing some caution related to macroeconomic concerns, particularly internationally.

Gary: Importantly, we continue to believe these dynamics are temporary.

Speaker Change: Two of these wins include long term awards for deployments of our optical systems across their global network infrastructure.

Gary: And we are seeing some encouraging signs of recovery beginning to emerge, including with respect to order volumes.

Speaker Change: We are also starting to build meaningful momentum with cloud providers for our coherent plug of pools.

Gary: In fact, there were several highlights from Q2 that I think illustrate not only in improving service provider environment overall, but also accelerating cloud provides the dynamics and the overall momentum.

In addition to the significant design win we announced last quarter for our 400 gig ZR plus plugs, we added two new cloud provider wins in Q2 for these products, including one that is a new customer to Siena.

Gary: Business.

Gary: Specifically with respect to our service provider customers.

Gary: Orders in Q2 increased from the prior quarter and service provider revenue was up sequentially in Q2.

Speaker Change: And later this calendar year, we will bring to market wave logic, six nano and next generation coherent plug a hole family.

Gary: 10% customer in the quarter was a service provider.

Speaker Change: With this we will be first to market with the power advantage of three nanometer technology.

Gary: Very importantly service provider inventory levels are starting to decline and service provider engagement and RFP activity levels are higher than in the past several quarters.

Speaker Change: And in Q2, we are pleased to advise that we were already awarded business by a large cloud customer for this 800 gig ZR plus technology.

Gary: The resulting in several recent new wins and a growing pipeline of opportunities.

Speaker Change: As expected in addition to our market leading optical systems business with cloud providers are coherent plug a bull solutions represents an incremental business and market share growth opportunity for ciena with these customers.

Gary: For example, we secured a significant design win in Q2 with a leading north American tier one service provider for a multiyear network evolution project that includes both our line systems as well as our transponders.

Speaker Change: <unk> in shorter reach Dci type applications.

Gary: Based on these data points, we believe the order flows from our service provider customers will continue to improve from here.

Speaker Change: And as a reminder, as much as 50% of our total revenue is driven now directly and indirectly from cloud providers.

Speaker Change: And we anticipate continued growth from this customer segment in the second half of fiscal 2024, particularly as wave logic six becomes generally available for both systems and next generation plug a hole applications.

Gary: Turning to our cloud provider customers in Q2.

We secured important new design wins in this customer segment across terrestrial submarine and coherent plug a hole applications as we leverage the opportunities presented by strategic investments to build out their data center infrastructures.

Speaker Change: This will obviously give us significant time to market advantage with cloud providers, who typically adopt lead these leading type technologies more rapidly.

Gary: Two of these wins include long term awards for deployments of our optical systems across their global network infrastructure.

Speaker Change: Stepping back understandably, there's been a lot of focus on short term industry dynamics in recent quarters, and we continue to manage through those.

We are also starting to build meaningful momentum with cloud providers for our coherent plug of pools.

Gary: In addition to the significant design win we announced last quarter for our 400 gig ZR plus plugs, we added two new cloud provider wins in Q2 for these products, including one that is a new customer to Siena.

Speaker Change: We remain focused on the longer term demand drivers of our business and our growth opportunities.

Speaker Change: With that said I'd like to take a few minutes to walk you through how we're thinking about the market will evolve and how we will benefit from that evolution.

Gary: And later this calendar year, we'll bring to market wave logic, six nano and next generation coherent plug a hole family.

Speaker Change: As I mentioned earlier, the fundamental industry drivers of bandwidth demand network growth traffic continue to increase.

Gary: With this we will be first to market with the power advantage of three nanometer technology.

Speaker Change: These drivers are increasingly being impacted by several business and network architectural trends.

And in Q2, we're pleased to advise that we were already awarded business by a large cloud customer for this 800 gig ZR plus technology.

Speaker Change: Obviously first and foremost an increasing portion of bandwidth demand in network traffic growth will be driven by AI.

Gary: Okay.

Speaker Change: Traffic flows from AI and machine learning will pressure all parts of the network from broadband access to the metro to inside and around the data center.

Gary: As expected in addition to our market leading optical systems business with cloud providers are coherent plug a bull solutions represents an incremental business and market share growth opportunity for ciena with these customers.

Speaker Change: Thereby impacting both service provider and cloud provider networks.

Speaker Change: As an example, one of our North American tier one service provider customers recently reported they are seeing a dramatic rise in demand for high capacity low latency network and edge services, specifically related to the advent of Gen III and the complexity of hybrid multi cloud.

Tequila Lee: Tequila Lee in shorter reach Dci type applications.

Tequila Lee: And as a reminder, as much as 50% of our total revenue is driven now directly and indirectly from cloud providers.

Tequila Lee: And we anticipate continued growth from this customer segment in the second half of fiscal 2024, particularly as wave logic six becomes generally available for both systems and next generation plug a hole applications.

Speaker Change: <unk> architectures.

Speaker Change: Optical delivers the combination of high capacity and low latency essential to supporting this type of traffic.

Speaker Change: Another opportunity, where we have a significant funnel of opportunities is managed optical fiber networks or known as motion.

Tequila Lee: This will obviously give us significant time to market advantage with cloud providers, who typically adopt lead these leading type technologies more rapidly.

Speaker Change: This term motion may be new to you. So let me briefly explain what it means.

Tequila Lee: Okay.

Tequila Lee: Stepping back understandably, there's been a lot of focus on short term industry dynamics in recent quarters, and we continue to manage through those.

Speaker Change: While cloud providers can build than one network infrastructure in many parts of the world.

Speaker Change: Certain countries have specific rules for fiber ownership.

Tequila Lee: We remain focused on the longer term demand drivers of our business and our growth opportunities.

Speaker Change: <unk> is on licensing and standards for workforce qualifications.

Speaker Change: In addition, given the need to add capacity, sometimes very quickly cloud providers are turning to motion even in jurisdictions, where there are no such restrictions.

Tequila Lee: With that said I'd like to take a few minutes to walk you through how we're thinking about the market will evolve and how we will benefit from that evolution.

Speaker Change: With motion Telecom service providers build highly advanced optical networks and lease fiber paths to cloud providers.

Tequila Lee: As I mentioned earlier, the fundamental industry drivers of bandwidth demand network growth traffic continue to increase.

Tequila Lee: These drivers are increasingly being impacted by several business and network architectural trends.

Speaker Change: This enables the cloud providers to quickly expand their reach and better serve their end users.

Speaker Change: This is an example of an indirect source of revenue from the cloud providers through our service provider customers.

Tequila Lee: Obviously first and foremost an increasing portion of bandwidth demand in network traffic growth will be driven by AI.

Speaker Change: Sienna is obviously uniquely positioned to lead this model by leveraging our strong relationships and presence with both global cloud and service providers.

Tequila Lee: Traffic flows from AI and machine learning will pressure all parts of the network from broadband access to the metro to inside and around the data center there.

Tequila Lee: Thereby impacting both service provider and cloud provider networks.

Speaker Change: With all that in mind I'd like to expand upon how we are investing to address these opportunities.

Tequila Lee: As an example, one of our North American tier one service provider customers recently reported they are seeing a dramatic rise in demand for high capacity low latency network and edge services, specifically related to the advent of Gen II and the complexity of hybrid multi cloud.

Speaker Change: And I think to start with I would say that all of our Tam expansion efforts are deeply grounded in the competitive advantage, we have with our optical technology.

Speaker Change: It is well established and recognize that our industry, leading optical technology has been the driving force. Some foundational reason behind that success in serving the long haul subsea metro regional and Dci markets.

Tequila Lee: <unk> architectures.

Tequila Lee: Optical delivers the combination of high capacity and low latency is essential to supporting this type of traffic.

Speaker Change: We expect to continue to lead and take share in these markets with our best in class coherent technology.

Tequila Lee: Another opportunity, where we have a significant funnel of opportunities is managed optical fiber networks or known as motion.

This includes the upcoming availability of wave logic, six which will further extend our leadership in terms of performance scale and sustainability.

Tequila Lee: This term motion may be new to you. So let me briefly explain what it means.

Tequila Lee: While cloud providers can build than one network infrastructure in many parts of the world.

Speaker Change: In addition, as I noted our optical technology is also increasingly applicable to high growth opportunities, where we are investing for growth by expanding our addressable market in three principal key areas.

Tequila Lee: Certain countries have specific rules for fiber ownership policies on licensing and standards for workforce qualifications.

Tequila Lee: In addition, given the need to add capacity, sometimes very quickly cloud providers are turning to motion even in jurisdictions, where there are no such restrictions.

Speaker Change: These include number one broadband access and number two metro routing.

Tequila Lee: With motion Telecom service providers build highly advanced optical networks and lease fiber paths to cloud providers.

Speaker Change: We're both the high capacity optical fiber connectivity, we enable has become a foundational element of next generation edge and Metro networks.

This enables the cloud providers to quickly expand their reach and better serve their end users.

Speaker Change: And number three inside and around the data center.

Tequila Lee: This is an example of an indirect source of revenue from the cloud providers through our service provider customers.

Speaker Change: The superior performance of our foundational optical technologies and a variety of form factors conserve the cloud provide a trend towards disaggregated consumption models.

Tequila Lee: Sienna is obviously uniquely positioned to lead this model by leveraging our strong relationships and presence with both global cloud and service providers.

Speaker Change: In support of AI fabric connections.

Speaker Change: And broadband access we have the market, leading ex GFS PON solution, providing our customers with modularity and openness. They haven't enjoyed in previous generations of PON deployments.

Tequila Lee: Yeah.

Tequila Lee: With all that in mind I'd like to expand upon how we are investing to address these opportunities.

Tequila Lee: And I think to start with I would say that all of our Tam expansion efforts are deeply grounded in the competitive advantage, we have with our optical technology.

Speaker Change: This cost effective flexible and sustainable <unk> solution can address residential enterprise and mobility use cases.

Tequila Lee: It is well established and recognize that our industry, leading optical technology has been the driving force. Some foundational reason behind that success in serving the long haul subsea metro regional and Dci markets.

Speaker Change: Looking further out as you know, we also expect to lead and 25 <unk> PON as it emerges next year.

Speaker Change: With prioritized customer investments in broadband access fueled in part by massive public funding around the world, We estimate the tenge and above palm market will grow at a 55% plus catch up to approximately $7 billion by 2027.

Tequila Lee: We expect to continue to lead and take share in these markets with our best in class coherent technology.

Tequila Lee: This includes the upcoming availability of wave logic, six which will further extend our leadership in terms of performance scale and sustainability.

Speaker Change: Secondly, converged IP and optical layers in the metro are now being used to reduce costs simplify networks and achieve new levels of scale to support AI.

Tequila Lee: In addition, as I noted our optical technology is also increasingly applicable to high growth opportunities, where we are investing for growth by expanding our addressable market in three principal key areas.

Speaker Change: This is precisely what our coherent routing solution is designed to address with a purpose built metro routers.

Speaker Change: <unk> 5000, 8000 series platforms as well as our recently expanded wave router family.

Tequila Lee: These include number one broadband access and number two metro routing.

Speaker Change: This solution offers our customers scaling choices common next generation IP Pos integration with the world's best optics, and photonics and the market, leading multilayer domain control to manage and fully converged. These metro networks.

Tequila Lee: We're both the high capacity optical fiber connectivity, we enable has become a foundational element of next generation edge and Metro networks.

Tequila Lee: And number three inside and around the data center.

Speaker Change: We estimate the metro routing market, specifically, we will grow at a 12% CAGR to nearly $5 billion by 2027.

Tequila Lee: The superior performance of our foundational optical technologies in a variety of form factors conserve the cloud provide a trend towards disaggregated consumption models in.

Speaker Change: And finally number three in addition to our strength in data Center interconnect.

Tequila Lee: Supportive AI fabric connections.

Speaker Change: We see an expanding an incremental opportunity inside and around the data center that also leverages, our optical technology leadership.

Tequila Lee: And broadband access we have the market, leading <unk> PON solution, providing our customers with modularity and openness. They haven't enjoyed in previous generations of PON deployments.

Speaker Change: As cloud providers continue to build massive data centers with high data rates to handle AI workloads, they are increasingly reaching power and space limitations.

Tequila Lee: This cost effective flexible and sustainable <unk> solution can address residential enterprise and mobility use cases.

Speaker Change: We believe that coherent technology, and our high speed interconnect solutions will ultimately better address the need for superior scale power and signal quality.

Tequila Lee: Looking further out.

Tequila Lee: As you know, we also expect to lead and 25 <unk> PON as it emerges next year.

Tequila Lee: With prioritized customer investments in broadband access fueled in part by massive public funding around the world, We estimate the tenge and above palm market will grow at a 55% plus kanka to approximately $7 billion by 2027.

Speaker Change: This is similar to what we saw in the Wan and while still early we believe it is largely a function of time is to win a meaningful portion of inside on around the data center moves to these technologies.

Speaker Change: In fact, we are already engaged with several cloud customers and ecosystem partners in this area as a direct result of our leadership in coherent and.

Tequila Lee: Secondly, converged IP and optical layers in the metro are now being used to reduce costs simplify networks and achieve new levels of scale to support AI.

Speaker Change: And we expect these engagements to increase and intensify over time.

Speaker Change: So in summary, we believe we are incredibly well positioned to continue growing our leadership in optical and are leveraging that technology as well as that deep relationships with both cloud and service providers to further expand our addressable market and deliver.

Tequila Lee: This is precisely what our coherent routing solution is designed to address with our purpose built metro routers, including the 5000 8000 series platforms as well as our recently expanded wave router family.

Tequila Lee: This solution offers our customers scaling choices common next generation IP Pos integration with the world's best optics, and photonics and the market, leading multilayer domain control to manage and fully converged. These metro networks.

<unk> long term growth.

Speaker Change: With that I'll turn it over to Jim who will provide details on the quarter's results as well as our business outlook.

Jim Moylan: Thanks, Gary Good morning, everyone.

Jim Moylan: As Gary mentioned, we delivered solid fiscal second quarter financial results.

We estimate the metro routing market, specifically, we will grow at a 12% CAGR to nearly $5 billion by 2027.

Jim Moylan: Revenue in Q2 was $911 million adjusted gross margin was 43, 5% within the range of expectations Q2, adjusted operating expense was $334 million.

Tequila Lee: And finally number three in addition to our strength in data Center interconnect.

Tequila Lee: We see an expanding an incremental opportunity inside and around the data center that also leverages, our optical technology leadership.

Jim Moylan: With respect to profitability measures in Q2, we produced adjusted operating margin of six 8%.

Tequila Lee: As cloud providers continue to build massive data centers with high data rates to handle AI workloads, they are increasingly reaching power and space limitations.

Speaker Change: Adjusted net income of $39 million and adjusted EPS of <unk> 27.

Speaker Change: In addition, we generated $59 million in cash from operations and adjusted EBITDA of $86 million.

Tequila Lee: We believe that coherent technology, and our high speed interconnect solutions will ultimately better address the need for superior scale power and signal quality.

Speaker Change: We ended the quarter with approximately $1 4 billion in cash and investments.

Tequila Lee: This is similar to what we saw in the Wan and while still early we believe it is largely a function of time is to win a meaningful portion of inside and around the data center moves to these technologies.

Speaker Change: We repurchased approximately one 1 million shares for $57 million during the quarter.

Speaker Change: And we continue to target share repurchase at $250 million total during the fiscal year.

Tequila Lee: In fact, we are already engaged with several cloud customers and ecosystem partners in this area as a direct result of our leadership in coherent and.

Speaker Change: Turning to some portfolio highlights from the quarter.

Speaker Change: In optical we added 20, new customers or wave logic five extreme in Q2, bringing our total customer count to 209.

Tequila Lee: And we expect these engagements to increase and intensify over time.

Tequila Lee: So in summary, we believe we are incredibly well positioned to continue growing our leadership in optical and are leveraging that technology as well as our deep relationships with both cloud and service providers to further expand our addressable market and deliver.

Speaker Change: To date, we've shipped more than 123000 wave logic five E modems.

Speaker Change: Revenue in Q2 for our Reconfigurable line system, our Rls platform was up 12% year over year with seven new customers in the quarter.

Tequila Lee: <unk> long term growth.

Speaker Change: And separately from Algar Mentum with the cloud providers that Gary talked about we gained 18 new customers in the quarter for our wave logic, five nano 400, ZR and ZR plus applicable including service providers, who buy these clubs integrated into our optical.

With that I'll turn it over to Jim who will provide details on the quarter's results as well as our business outlook.

James E. Moylan: Thanks, Gary Good morning, everyone.

James E. Moylan: As Gary mentioned, we delivered solid fiscal second quarter financial results.

James E. Moylan: Revenue in Q2 was $911 million adjusted gross margin was 43, 5% within the range of expectations Q2, adjusted operating expense was $334 million.

Speaker Change: Systems and routers.

Speaker Change: We are also seeing strong early traction with with wave logic, six extreme which remains on schedule to become generally available within a few months.

James E. Moylan: With respect to profitability measures in Q2, we produced adjusted operating margin of six 8%.

Speaker Change: With the industry's first and only one six terabits solution. We are looking forward to a favorable competitive dynamic over an extended period.

James E. Moylan: Adjusted net income of $39 million and adjusted EPS of <unk> 27.

Speaker Change: Similar to what we experienced with wave logic five extreme.

James E. Moylan: In addition, we generated $59 million in cash from operations and adjusted EBITDA of $86 million.

Speaker Change: And which we were the exclusive solution and market for more than 18 months.

Speaker Change: In fact, we already have orders from 14 customers around the world for wave logic six extreme.

James E. Moylan: We ended the quarter with approximately one $4 billion in cash and investments.

Speaker Change: In routing and switching we continue to be well positioned to gain share with strong customer engagement and a growing portfolio of industry leading solutions.

James E. Moylan: We repurchased approximately one 1 million shares for $57 million during the quarter.

James E. Moylan: And we continue to target share repurchase at $250 million total during the fiscal year.

Speaker Change: And broadband access we have more than 50 customers globally for our PON solutions. These include tier one service providers major msos, the largest U S rural broadband provider as well as multiple regional tier two and tier three providers.

James E. Moylan: Turning to some portfolio highlights from the quarter.

In optical we added 20, new customers or wave logic five extreme in Q2, bringing our total customer count to 209.

Speaker Change: We also have more than 100 customers using our coherent routing solution.

James E. Moylan: To date, we've shipped more than 123000 wave logic five E modems.

Speaker Change: As Gary mentioned earlier this solution Leverages, our optical leadership, including plug holes and is key to expanding our addressable market in the converged metro.

James E. Moylan: Revenue in Q2 for our Reconfigurable line system, our Rls platform was up 12% year over year with seven new customers in the quarter.

Verizon: This solution includes our wave router family, which Verizon recently selected among other products in our portfolio to evolve its long haul and metro networks.

Speaker Change: And separately from Algar Mentum with the cloud providers that Gary talked about.

Speaker Change: We gained 18 new customers in the quarter for our wave logic, five nano 400, ZR and ZR, plus <unk>, including service providers, who buy these clubs integrated into our optical systems and routers.

Speaker Change: Other portfolio highlights from Q2 include another very good quarter for <unk> platform software and services was 23% revenue growth year over year.

Speaker Change: And our global services business grew 5% year over year, and 6% sequentially driven by another strong quarter for installation and deployment.

We are also seeing strong early traction with with wave logic, six extreme which remains on schedule to become generally available within a few months.

Speaker Change: As we continue to help our service provider customers work through some of their near term challenges.

Speaker Change: With the industry's first and only one six terabits solution. We are looking forward to a favorable competitive dynamic over an extended period.

Speaker Change: Turning now to guidance.

Speaker Change: We continue to believe that the fundamental demand drivers in our business are incredibly strong.

Speaker Change: Similar to what we experienced with wave logic five extreme.

Speaker Change: And the data generation and network traffic will continue to grow at very healthy rates for the foreseeable future.

Speaker Change: And which we were the exclusive solution in market for more than 18 months.

Speaker Change: In fact, we already have orders from 14 customers around the world, but wave logic six extreme.

Speaker Change: We are also seeing signs of improvement in the current environment.

Speaker Change: We can see this playing out in our hardware related orders, which have increased steadily for fiscal year 2004 to date and we expect to continue to increase.

Speaker Change: In routing and switching we continue to be well positioned to gain share with strong customer engagement and a growing portfolio of industry leading solutions.

Speaker Change: Based on our pipeline and current projections, we believe that orders will increase meaningfully in Q3.

Speaker Change: And broadband access we have more than 50 customers globally for our PON solutions. These include tier one service providers major msos, the largest U S rural broadband provider as well as multiple regional tier two and tier three providers.

Speaker Change: And actually have the potential to meet or exceed our revenue during the quarter.

Speaker Change: However, in the near term, while we see signs of improvement the recovery of service provider order patterns is still slower than initially expected as they continue to absorb and deploy large amounts of their inventory.

Speaker Change: We also have more than 100 customers using our coherent routing solution.

Speaker Change: As Gary mentioned earlier this solution Leverages, our optical leadership, including plug holes and is key to expanding our addressable market in the converged metro.

Speaker Change: Based upon all of these dynamics, we now expect fiscal year 'twenty four to be approximately $4 billion.

Which is at the low end of the range. We previously provided.

Speaker Change: This solution includes our wave router family, which Verizon recently selected among other products in our portfolio to evolve its long haul and metro networks.

Speaker Change: We continue to believe that our adjusted gross margin for fiscal year 'twenty four will be in the mid <unk> range.

Speaker Change: With respect to Opex for the fiscal year, we continue to expect it to average $340 million to $345 million per quarter for the full year.

Speaker Change: Other portfolio highlights from Q2 to include another very good quarter for <unk> platform software and services was 23% revenue growth year over year.

Speaker Change: For the fiscal third quarter, we expect to deliver revenue in a range of $880 million to $960 million.

Speaker Change: And our global services business grew 5% year over year, and 6% sequentially driven by another strong quarter for installation and deployment.

Speaker Change: Adjusted gross margin in the low to mid <unk> range, and adjusted operating expense of approximately $345 million.

Speaker Change: As we continue to help our service provider customers work through some of their near term challenges.

Speaker Change: In summary, we feel great about our business today.

Speaker Change: And the continued execution of our long term strategy.

Turning now to guidance.

Speaker Change: We continue to believe that the fundamental demand drivers in our business are incredibly strong.

Speaker Change: We have the world's leading optical technology to underpin our growth from a portfolio perspective, we have strong and expanding relationships with both service providers and cloud providers.

Speaker Change: And the data generation and network traffic will continue to grow at very healthy rates for the foreseeable future.

Speaker Change: We are also seeing signs of improvement in the current environment.

Speaker Change: That combination positions us incredibly well to help our customers address the rise in global data generation and AI driven bandwidth demand that is accelerating traffic growth across their networks.

Speaker Change: We can see this playing out in our hardware related orders, which have increased steadily for fiscal year 2004 to date and we expect to continue to increase.

Speaker Change: Based on our pipeline and current projections, we believe that orders will increase meaningfully in Q3.

Speaker Change: With that George will now take questions from the sell side analysts.

We will now begin the question and answer session.

Speaker Change: And actually have the potential to meet or exceed our revenue during the quarter.

<unk> was your question.

Speaker Change: Press Star and one of your telephone keypad.

Speaker Change: However, in the near term, while we see signs of improvement the recovery of service provider order patterns is still slower than initially expected as they continue to absorb and deploy large amounts of their inventory.

Speaker Change: If you use you can pick your phone please pickup your handset before pressing the keys.

Speaker Change: Your question. Please press star two.

Speaker Change: Our first question comes from Tim Lugo and Barclays. Please go ahead.

Speaker Change: Based upon all of these dynamics, we now expect fiscal year 'twenty four to be approximately $4 billion.

Speaker Change: Okay.

Tim Lugo: Thank you.

Speaker Change: Which is at the low end of the range. We previously provided.

Tim Lugo: Maybe you could talk a little bit about kind of order book in the fiscal Q2 I'm not sure. If you gave that and then it sounds like the telco continues to push out getting you to the lower end of the range.

Speaker Change: We continue to believe that our adjusted gross margin for fiscal year 'twenty four we will be in the mid <unk> range.

Speaker Change: With respect to Opex for the fiscal year, we continue to expect it to average $340 million to $345 million per quarter for the full year.

Speaker Change: What confidence do you have that we will see that in October or January when do you. When do you think we'll start to really see.

Speaker Change: For the fiscal third quarter, we expect to deliver revenue in a range of $880 million to $960 million.

Speaker Change: Telco business fully recovering thank you.

Speaker Change: Yes, I'll speak to the backlog, Tim we ended the quarter at about $1 9 billion in backlog.

Speaker Change: Adjusted gross margin in the low to mid <unk> range, and adjusted operating expense of approximately $345 million.

Speaker Change: <unk>.

Speaker Change: Based on what we see for the rest of the year, we do think our backlog will be down a bit.

Speaker Change: In summary, we feel great about our business today.

Speaker Change: By the end of the year.

Speaker Change: Maybe not in Q3, but by the end of the year it will be down a bit.

Speaker Change: And the continued execution of our long term strategy.

Tim Lugo: Probably not based on what we see now to as low as the long term trend, we had pre all of the Covid and the supply chain situation.

Speaker Change: We have the world's leading optical technology to underpin our growth from a portfolio perspective, we have strong and expanding relationships with both service providers and cloud providers.

Tim Lugo: So Tim let me take the second part of that what gives us confidence to first of all we've seen sort of a steady increase.

Speaker Change: That combination positions us incredibly well to help our customers address the rise in global data generation and AI driven bandwidth demand that is accelerating traffic growth across their networks.

Tim Lugo: In the first half and orders from service providers, we expect that to jump a little more.

Tim Lugo: But of a step function in Q3 as Jim said in his commentary, we expect meaningful order increases in Q3, primarily led by the cloud, but also we expect an improvement in the service provider piece.

Speaker Change: With that George will now take questions from the sell side analysts.

Speaker Change: We will now begin the question and answer session.

Speaker Change: <unk> was a question you May press star and one of your telephone keypad.

Tim Lugo: And we're also seeing awards the pipeline the whole activity level is increasing and sort of just as importantly, I think to talk to your question.

Speaker Change: If you use your speaker phone please pickup your handset before pressing the keys.

Speaker Change: Your question. Please press star two.

Tim Lugo: We're seeing.

Inventory levels come down and they are deploying particularly in North America, we have good visibility into that so I think as we get out of the year. I think you will see service providers in a more balanced supply demand inventory situation as we come out of our.

Speaker Change: Our first question comes from Tim Lugo and Barclays. Please go ahead.

Speaker Change: Okay.

Thank you.

Maybe we could talk a little bit about kind of order book in the in the fiscal Q2 I'm not sure. If you gave that and then it sounds like the telco continuing to push out getting you to the lower end of the range.

Tim Lugo: As we come out of our fiscal year.

Speaker Change: Thank you.

Tim Lugo: Thanks, Tim.

Tim Lugo: Our next question comes from Karl Ackerman, and BNP Paribas. Please go ahead.

Speaker Change: What confidence do you have that we will see that in October or January when do you. When do you think we will start to really see.

Speaker Change: Yes. Thank you good morning.

Speaker Change: The cocoa business fully recovering thank you.

Speaker Change: In your deck today, you highlighted an emerging opportunity for coherent <unk>, both inside and around the data center.

Timothy Paul Savageaux: Yes, I'll speak to the backlog, Tim we ended the quarter at about $1 9 billion in backlog.

Karl Ackerman: For inside the data center are you, suggesting these would be used in seven to 10 kilometer links or would there be shorter reach links also possible and I have a follow up.

Speaker Change: <unk>.

Speaker Change: Based on what we see for the rest of the year, we do think our backlog will be down a bit at the <unk>.

Scott Mcfeely: Thanks, Carlos It Scott.

Speaker Change: By the end of the year.

Scott Mcfeely: I think both.

Speaker Change: Maybe not in Q3, but by the end of the year it will be down a bit.

Scott Mcfeely: Both opportunities are there I think the more near one is the the short.

Speaker Change: Probably not based on what we see now to as low as the long term trend, we had pre all of the Covid and the supply chain situation.

Scott Mcfeely: The shorter kilometer reach links sort of that round. The data center. If you like think of it as a 2% to 10 kilometer type of opportunity.

Think.

Speaker Change: The second one that you mentioned is as.

Speaker Change: So Tim let me take the second part of that what gives us confidence to it first of all we've seen sort of a steady increase.

Speaker Change: The data rates between Gpus are increasing and because of the power the power usage and the restrictions on power, forcing more distributed architectures and these GPU clusters the lengths of the links that need to get communicated those coherent technologies and our belief are going to start.

Speaker Change: In the first half and orders from service providers, we expect that to jump a little more.

Speaker Change: But of a step function in Q3 as Jim said in his commentary, we expect meaningful order increases in Q3.

Speaker Change: To make their way inside.

Speaker Change: Primarily led by the cloud, but also we expect an improvement in the service provider piece.

Speaker Change: Sort of more of the traditional clusters, that's a longer term opportunity, but our position of strength from a coherent technology is pulling us into many of those dialogues around future architectures both with.

Speaker Change: And we're also seeing awards the pipeline the whole activity level is increasing and sort of just as importantly, I think to talk to your question.

Speaker Change: In cloud customers, but also with ecosystem providers that service those customers.

Speaker Change: We're seeing.

Speaker Change: Inventory levels come down and they are deploying particularly in North America, we have good visibility into that so I think as we get out of the year. I think you will see service providers in a more balanced supply demand inventory situation as we come out of our.

Speaker Change: Very interesting and helpful. Thank you for my follow up.

Speaker Change: You indicated that orders you have already received orders for web logic six E products, but do you expect.

Speaker Change: <unk> six <unk> and six nano will be <unk> in the second half of this calendar year and I guess as you address that does a muted outlook for telecom and impede in any way the near term demand uplift you see.

Speaker Change: As we come out of our fiscal year.

Speaker Change: These new products. Thank you.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Yes, so first of all yet to answer.

Speaker Change: Thanks, Tom.

Speaker Change: Our next question comes from Karl Ackerman, and BNP Paribas. Please go ahead.

Speaker Change: Your timing question, yes, both the <unk> and <unk> will be in market generally available this year.

Speaker Change: Yes. Thank you good morning.

Speaker Change: This calendar year.

Karl Ackerman: In your deck today, you highlighted an emerging opportunity for coherent <unk>, both inside and around the data center.

Speaker Change: <unk>.

Speaker Change: We made the comment actually that we had multiple orders for <unk> thats, absolutely true and it comes across both.

Karl Ackerman: For inside the data center are you, suggesting these would be used in 7% to 10 kilometer lengths or would there be shorter reach links also possible and I have a follow up.

Speaker Change: Both service provider and cloud.

Speaker Change: Segments, we also have.

Speaker Change: Awards as well for <unk>, so not just <unk> so.

And then to your question of does the service provider sort of get into the service provider dynamics of inventory and will not get in the way of.

Speaker Change: And as Carlos It Scott.

Speaker Change: I think both.

Speaker Change: Both opportunities are there I think the more near one is the the short.

Speaker Change: The ramp on those technology I would say not because the early movers on those tend to be the folks that are most.

Speaker Change: The shorter kilometer reach links sort of that around the data center. If you like think of it as a 2% to 10 kilometer type of opportunity.

Speaker Change: Had the highest bandwidth demand growth and have the tightest constraint on their fibers. So think of think of the web scale or think of the the bowfin networks that are serving those web scale. There is I think a submarine networks.

Speaker Change: Thank you.

Speaker Change: The second one that you mentioned is as the data rates between Gpus are increasing and because of the power the power usage and the.

Speaker Change: Very helpful. Thank you.

Speaker Change: Frictions on power, forcing more distributed architectures and these GPU clusters, the lengths of the links that need to get communicated those coherent technologies and our belief are going to start to make their way inside.

Sure.

Speaker Change: Our next question comes from Polyone and Bank of America. Please go ahead.

Speaker Change: Hi, guys.

Speaker Change: My question is about the non service provider.

Sort of more of the traditional clusters, that's a longer term opportunity, but our position.

Speaker Change: Two questions first.

Speaker Change: Cloud went down from 33% to 25% of this non cloud portion.

Speaker Change: From a coherent technology is pulling us into many of those dialogues around future architectures, both with the.

Speaker Change: And Im trying I want to understand what is driving the trends right now in the cloud, meaning they are investing heavily inside the data center.

Speaker Change: <unk> cloud customers, but also with ecosystem providers that service those customers.

Very interesting and helpful. Thank you for my follow up.

Speaker Change: These translate into more traffic outside that requires your solutions.

Speaker Change: You indicated that orders you have already received orders for web logic six E products, but do you expect.

Speaker Change: And if that's the case.

Speaker Change: It means that they had tons of inventory before so where are we on the absorption of cloud inventories.

Speaker Change: <unk> six <unk> and six nano will be <unk> in the second half of this calendar year.

Speaker Change: As you address that does a muted outlook for telecom and impede in any way the near term demand uplift you see all.

Speaker Change: The second question is about the government and enterprise this portion is growing.

Speaker Change: And can you talk about trends there, what's driving it et cetera.

Speaker Change: These new products. Thank you.

Speaker Change: Yes.

Speaker Change: Okay, Let me take the first part on the cloud.

Speaker Change: First of all yet.

Speaker Change: Ask your timing question, yes, both the <unk> and <unk> will be in market generally available this year.

Speaker Change: If you look at.

Speaker Change: What we've done in the cloud space, we were up 50%, 57% last year. If you look at the first half of this year were up 14% revenues were down slightly in Q2, that's just normal sort of absent ebbs and flow of frankly.

Speaker Change: This calendar year.

Speaker Change: We made the comment actually that we had multiple orders for <unk> thats, absolutely true and it comes across.

Speaker Change: Both service provider and cloud.

Speaker Change: Segments, we also have.

Speaker Change: And.

Speaker Change: The order flows we expect in Q3 and we are seeing in Q4, we expect both orders and revenue to increase in the second half of the year.

Speaker Change: Awards as well for <unk>, so not just <unk> so.

Speaker Change: And to your question of does the service provider sort of get into the service provider dynamics of inventory and will not get in the way of.

Speaker Change: The other thing I would say about it is yes or invest in heavily inside the data center right now and that cloud business is growing.

Speaker Change: The ramp on those technology I would say not because the early movers on those tend to be the folks that are most.

Speaker Change: As witnessed by those.

Speaker Change: Had the highest bandwidth demand growth and have the tightest constraint on their fibers. So think of think of the web scale or think of the the morphine networks that are serving those web scale and I think a submarine networks.

Speaker Change: Numbers that I just gave you that's really before all of the AI stuff hits and comes out of the data Center. That's really all in front of US. We are now seeing specific plans and engagements around network deployments in the second half of moving into early 'twenty five two.

Speaker Change: Very helpful. Thank you.

Speaker Change: Sure.

Speaker Change: Our next question comes from Tom <unk> and Bank of America. Please go ahead.

Speaker Change: Deal with what they expect to be an increase in AI traffic as well so I think.

Speaker Change: Hi, guys.

Tom: My question is about the non service provider.

Speaker Change: We're very positive around the whole cloud space and if you look at the first half we took market share.

Speaker Change: Two questions first.

Speaker Change: Cloud went down from 33% to 25% of this non cloud portion.

Speaker Change: Even though we have a very high market share in cloud on reverse specific about those we took market share in the first half and that's before you've got wave logic, six coming online, which has a massive technology advantage.

Speaker Change: And I am trying I wanted to understand what is driving the trends right now in the cloud, meaning they are investing heavily inside the data center.

Speaker Change: These translate into more traffic outside that requires your solutions.

Speaker Change: You heard us talk about the orders just in the last couple of quarters, you've got multiple strategic awards for 400 gig ZR plus.

Speaker Change: And if that's the case.

Speaker Change: It means that they had tons of inventory before so where are we on the absorption of cloud inventories.

Speaker Change: And we talked about the new.

Speaker Change: The second question is about the government and enterprise this portion is growing.

Speaker Change: 800 gig ZR, plus as well, which is obviously for a wave logic nano so and that's an incremental market opportunity for us as Scott was just saying around the short reach Wan.

Speaker Change: And can you talk about trends there, what's driving it et cetera. Thanks.

Speaker Change: Okay, Let me take the first part on the cloud.

Speaker Change: If you look at.

Speaker Change: And then eventually into the actual data center itself.

Speaker Change: What we've done in the cloud space, we were up 50%, 57% last year. If you look at the first half of this year were up 14% revenues were down slightly in Q2, that's just normal sort of absent an ebbs and flow of frankly.

Speaker Change: On the government and enterprise side.

Speaker Change: We are showing growth in that sector, particularly on the government side, we were up last year.

Speaker Change: 23%.

Speaker Change: And.

Speaker Change: Year to date were up about 6%.

Speaker Change: The order flows we expect in Q3 and we are seeing in Q4, we expect both orders and revenue to increase in the second half of the year.

A lot of opportunity, particularly on the government side, and we're pushing hard to make sure we have the portfolio the products services and software.

Speaker Change: The other thing I would say about it is yes or invest in heavily inside the data center right now and that cloud business is growing.

Speaker Change: <unk> demands which are increasing.

Speaker Change: Great. Thank you.

Speaker Change: Thanks, Tom.

Speaker Change: As witnessed by those.

Speaker Change: Our next question comes from Ruben Roy with Stifel. Please go ahead.

Speaker Change: Numbers that I just gave you that's really before all of the AI stuff hits and comes out of the data Center. That's really all in front of US. We are now seeing specific plans and engagements around network deployments in the second half and moving into early 'twenty five two.

Gary Smith: Yes, Thank you Gary I want to double click a bit on some of the commentary you had on investing to address some of the opportunities and especially around.

Speaker Change: The cloud service providers and one of them.

Speaker Change: The things that.

Speaker Change: Coming up more recently at OFC. Another event since it seems like there is a demand for customized architectures and that type of thing. So wondering as you think about those types of investments.

Speaker Change: Deal with what they expect to be an increase in AI traffic as well so I think.

Speaker Change: We're very positive around the whole cloud space and if you look at the first half we took market share.

Speaker Change: Are you thinking about this aggregating some of your market, leading technologies at ESPN or optical front ends et cetera.

Speaker Change: Even though we have a very high market share in cloud on reverse specific about those we took market share in the first half and that's before you've got wave logic, six coming online, which has a massive technology advantage.

unknown: Yes, let me take the first part of that Scott.

Speaker Change: To add to it the answer to your question is absolutely and we've been engaged with these guys for a while.

Speaker Change: Yes.

And if you think about it.

Speaker Change: We are an obvious choice for that given our leading coherent technology and however, they want to consume that.

Speaker Change: You heard us talk about the orders just in the last couple of quarters, you've got multiple strategic awards for 400 gig ZR plus.

Speaker Change: Then plug a bull form, albeit at a more discrete component form.

Speaker Change: And we talked about the new.

Speaker Change: It's a basically increases the velocity of our existing investments, they're all things that we need to do we believe to make that applicable into that space, but that is all additional incremental market for us I mean, we have zero market share and zero revenues from inside the data center right now.

Speaker Change: 800 gig ZR, plus as well, which is obviously for a wave logic nano so and that's an incremental market opportunity for us as Scott was just saying around the short reach Wan.

Speaker Change: And then eventually into the actual data center itself.

Speaker Change: And so we are increasingly engaged and given the depth of our relationships with these folks.

Speaker Change: On the government and enterprise side.

Speaker Change: We are showing growth in that sector, particularly on the government side, we were up last year.

Speaker Change: We believe we're very well placed to benefit from that and particularly as you see the the GPU intensity of the of the <unk> build out that is increasing data rates and increasing distances, which really plays into what we think will be in <unk>.

Speaker Change: 23%.

Speaker Change: Year to date were up about 6%, but we see a lot of opportunity, particularly on the government side and we're pushing hard to make sure. We have the portfolio the products services and software government's demands are increasing.

Speaker Change: Intersect point with the coherent technology.

Speaker Change: Yes, when we talked about the opportunity of the coherent coming to solve some of the problems inside the data center, we're very cognizant of the fact that <unk>.

Speaker Change: Great. Thank you.

Tom: Thanks, Tom.

Speaker Change: Our next question comes from Ruben Roy with Stifel. Please go ahead.

Speaker Change: The data center the key players there whether they be in.

Gary: Yes, Thank you Gary I want to double click a bit on some of the commentary you had on investing to address some of the opportunities and especially around the.

Speaker Change: <unk> cloud consumers themselves or other ecosystem players that play there are have really growing up in a disaggregated model consuming technology, where we.

Ruben Roy: The cloud service providers.

Speaker Change: Are you aware of that and we're taking steps to make sure that we are ready to play there and absolutely are willing to play there. That's just the way it's going to get consumed.

Speaker Change: One of the things Thats coming up more recently at OFC. Another event since it seems like there is a demand for customized architectures and that type of thing. So wondering as you think about those types of investments.

Speaker Change: That's great. Thank you just a quick follow up it was great to see the broader deployments of horizon can you, maybe just talk about conversations you're having with <unk>.

Speaker Change: Are you thinking about this aggregating some of your market, leading technologies ESP or optical front ends et cetera.

Speaker Change: Are there other service providers in North America, or elsewhere or classroom ciders on that product specifically.

Scott Mcfeely: Yes, let me take the first part of that Scott and then to add to it the answer to your question is absolutely and we've been engaged with these guys for a while.

Speaker Change: Yes.

Speaker Change: Bit of a step back wait router is one of the products in a family of products that we call our coherent routing portfolio and what we're seeing is as service providers think about there.

Speaker Change: No.

Speaker Change: And if you think about it.

Speaker Change: We're an obvious choice for that given our leading coherent technology and however, they want to consume that plug a bull form, albeit at a more discrete component form.

Speaker Change: They are sustainable overall in the world going forward Theyre Metro their metro and access connectivity is really important to them and theyre and theyre looking at what theyre going to have to be able to deliver in terms of high capacity.

Speaker Change: It basically increases the velocity of our existing investments, they're all things that we need to do we believe to make that applicable into that space, but that is all additional incremental market for us I mean, we have zero market share and zero revenues from inside the data center right now.

Speaker Change: Low latency type networks and that is again playing into the strength of optics is a more and more important part of it. So we built a family of purpose build routers that.

Speaker Change: Is designed to go after that in an optimized way wave router being being the biggest part of that the biggest big.

Speaker Change: And so we are increasingly engaged and given the depth of our relationships with these folks.

Speaker Change: Big brother over that family if you like.

Speaker Change: If you take more broader from a coherent rado coherent router perspective in the family or 5000 series 8000 series and wave router.

We believe we're very well placed to benefit from that and particularly as you see the the GPU intensity of the of the <unk> build out that is increasing data rates and increasing distances, which really plays into what we think will be in <unk>.

Speaker Change: We've got over 100 customers worldwide deploying that today and they.

Speaker Change: They are buying into the.

Speaker Change: Yes.

Speaker Change: The footprint.

Speaker Change: Optimization that you get on the purpose built router they are buying into the world class of optics and Theyre also very importantly buying into the multilayer domain control.

Speaker Change: Intersect point with a coherent technology.

Speaker Change: Yes, when we talked about the opportunity of the coherent coming to solve some of the problems inside the data center, we're very cognizant of the fact that <unk>.

Speaker Change: That really allows them to enable convergence in their network. So that's where we're seeing the traction.

Speaker Change: Aside of the data center to the key players there whether they be the.

Speaker Change: Lots of them. We've router itself is actually the Redundance chassis version of that so where people are deeper in their network and have high capacity redundancy thats, where they land on wave rider as part of that broader story.

Speaker Change: <unk> cloud consumers themselves or other ecosystem players that play there are have really growing up in a disaggregated model consuming technology, we're very aware of that and we're taking steps to make sure that we are ready to play there and absolutely are willing to play there. That's just the way it's going to get consumed.

Speaker Change #100: Thank you.

Speaker Change #100: Yes.

George Notter: Our next question comes from George Notter Jefferies. Please go ahead.

Speaker Change: That's great. Thank you just a quick follow up it was great to see the broader deployments of horizon can you maybe just talk about conversations you're having with.

George Notter: Hi, guys. Thanks, very much just a couple of modeling questions.

Speaker Change #102: I was looking at the DSO number I think was <unk> 98 in the quarter. That's up 10 days sequentially was there something going on this quarter with linearity or collections. What can you say there and then also I wanted to ask about inventories.

Speaker Change: Are there other service providers in North America, or elsewhere or classrooms fighters on that product specifically.

Yes.

Speaker Change: A bit of a step back and a waiver waive router is one of the products in a family of products that we call our coherent routing portfolio and what we're seeing is as service providers think about.

Speaker Change #103: Your inventories were up sequentially I know that you guys said previously you don't expect them to go down that rapidly this year, but I guess it was a bit surprised to see inventories go up sequentially. So any insights there would be great. Thanks.

Speaker Change: They are sustainable role in the world going forward Theyre Metro their metro and access connectivity is really important to them and theyre and Theyre looking at.

Speaker Change #104: Yes, we still expect George that by the end of the year inventory will be down from the end of last year by a couple of hundred million dollars.

Speaker Change: What theyre going to have to be able to deliver in terms of high capacity.

Speaker Change: Low latency type networks and that is again playing into the strength of optics is a more and more important part of it. So we built a family of purpose built routers that.

Speaker Change #104: There are some movements through the year based on what customers are doing and what our vendors are doing but we think that by the end of the year will be 200 million or so below where we were at the end of last year.

Speaker Change: Is designed to go after that in an optimized way wave router being being the biggest part of that the biggest big.

Speaker Change #105: And the first part of your question was.

Speaker Change: Big brother over that family if you like.

The linearity question Dsos.

Speaker Change: If you take more broader from a coherent rado coherent router perspective in the family. Our 5000 series 8000 series and wave router.

Speaker Change #106: I don't think you should read a lot into that we actually have.

Speaker Change #107: Large customers, who pay large amounts at certain times and we were lucky enough in Q1 to get.

Speaker Change: We've got over 100 customers worldwide deploying that today and they.

Speaker Change: They are buying into the.

Yes.

Speaker Change: The footprint.

Speaker Change #107: End of quarter amount paid that brought our dsos down.

Speaker Change: Optimization that you get on the on the purpose built router or they are buying into the world class of optics and Theyre also very importantly buying into the multilayer domain control.

Speaker Change #108: My guess is our dsos are going to be in a range of 93 to 96 or so for the year, it's a little higher than that now but will be 93% to 96% My guess.

Speaker Change: That really allows them to enable convergence in their network. So that's where we're seeing the traction.

Speaker Change #109: Okay fair enough. Thank you very much.

Speaker Change #108: Okay.

Speaker Change: Lots of interest we've router itself is actually the Redundance chassis version of that so where people are deeper in their network and have high capacity redundancy thats, where they land on wave rider as part of that broader story.

Speaker Change #110: Our next question comes from Amit <unk> with Evercore. Please go ahead.

Speaker Change #108: Okay.

Amit <unk>: Good morning, and thanks for taking my question I have two as well.

Amit <unk>: Maybe the first one is when I think about your back half guide up on the question that folks seem to be kind of struggling with is you sort of implying 20% plus sequential growth in the October quarter. At this point to hit the $4 billion number that seems to be a very steep acceleration given kind of what you've seen so far in the year would love to just understand whats.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question comes from George Notter Jefferies. Please go ahead.

Speaker Change: Hi, guys. Thanks, very much just a couple of modeling questions.

Speaker Change: I was looking at the DSO number I think was <unk> 98 in the quarter. That's up 10 days sequentially was there something going on this quarter with linearity or collections. What can you say there and then also I wanted to ask about inventories.

Amit <unk>: Underpinning from a political basis, maybe the sizable acceleration that you expect in October quarter right now.

Amit <unk>: Yes.

Speaker Change #112: It's a very fair question Amit.

Speaker Change #113: I'd answer it in a number of ways what gives us confidence around that first of all we're seeing incremental improvement on service providers not what we had anticipated coming into the year, but we're clearly seeing incremental improvements in terms of orders pipeline activity et cetera.

Speaker Change: Your inventories were up sequentially I know that you guys said previously you don't expect them to go down that rapidly this year, but I guess it was a bit surprised to see inventories go up sequentially. So any insights there would be great. Thanks.

Speaker Change: Yes, we still expect George that by the end of the year inventory will be down from the end of last year by a couple of hundred million dollars.

Speaker Change #113: Secondly, we still have a very large backlog.

And that also gives us some confidence around.

<unk>.

Speaker Change #113: Q4 step up for the year.

Speaker Change: There are some movements through the year based on what customers are doing and what our vendors are doing but we think that by the end of the year will be 200 million or so below where we were at the end of last year.

Speaker Change #113: And the other thing I would say is we're seeing strong cloud provider engagement as well, even though were up 14% already we expect a very strong second half from the from the cloud providers as well so.

Speaker Change: Okay.

Speaker Change: The first part of your question was.

Speaker Change #113: Incremental improvements on the service providers and <unk> got good visibility, particularly in North America to them.

Speaker Change: The linearity question Dsos.

Speaker Change: I don't think you should read a lot into that we actually have.

Speaker Change #113: <unk> their inventory that they've got and we've got we're seeing good progress on that so I think you put all of those together and Thats what gives us confidence.

Speaker Change: Large customers, who pay large amounts at certain times and we were lucky enough in Q1 to get.

Speaker Change: End of quarter amount paid that brought our dsos down.

<unk>.

Speaker Change #113: And then in Q4.

Speaker Change: My guess is our dsos are going to be in a range of 93 to 96 or so for the year, it's a little higher than that now, but will be 93% to 96% I guess.

Speaker Change #113: Perfect that's really helpful and then.

Speaker Change #114: You sound a lot more incrementally more positive on the AI opportunity and how that's going to ramp up for you folks over the next couple of years.

Speaker Change: Got it fair enough. Thank you very much.

Speaker Change #115: I'm wondering given that you've highlighted so far does that alter your view of the long term growth range for C&I as you go forward and when do you think some of these opportunities will start to show up on your revenue stream.

Speaker Change: Okay.

Speaker Change: Our next question comes from Amit <unk> with Evercore. Please go ahead.

Speaker Change: Okay.

Amit Jawaharlaz Daryanani: Good morning, and thanks for taking my question I have two as well.

Speaker Change #116: Yes, I mean I think the question has always been in our space and we see all the activity inside the data center and logic would say that at some point to monetize that has to come out and I think we've all been collectively.

Amit Jawaharlaz Daryanani: Maybe the first one is when I think about your back half guide one of the question that folks seem to be kind of struggling with is you sort of implying 20% plus sequential growth in the October quarter. At this point to hit the $4 billion number that seems to be a very steep acceleration given kind of what you've seen so far in the year would love to just understand whats.

Speaker Change #115: Looking at that.

Speaker Change #115: We are beginning to see the signs of that right now I mean, AI traffic is been obviously things like.

Speaker Change #115: The current models are being put out there, but the traffic flows are then blended with cloud and it's difficult to say whether.

Amit Jawaharlaz Daryanani: Underpinning from a political basis, maybe the sizable acceleration that you expect in October quarter right now.

Amit Jawaharlaz Daryanani: Yes.

Speaker Change #115: That's driving it or just the cloud expansion. We are now beginning to see specific engagements with the cloud players around provisioning for AI traffic because we as we get through next year. So.

Speaker Change: Thats, a very fair question Amit.

I'd answer it in a number of ways what gives us confidence around that first of all we're seeing incremental improvement on service providers not what we had anticipated coming into the year, but we're clearly seeing incremental improvements in terms of orders pipeline activity et cetera.

Speaker Change #115: Is informing sort of.

Speaker Change #115: Improved confidence around that impacting it then as we've talked a little bit about inside the data center, that's a little more obviously more nascent opportunity for US. We are excited by the disaggregation opportunity, which is all incremental to us there as well. So you put all of that together under a.

Speaker Change: Secondly, we still have a very large backlog and that also gives us some confidence around.

Speaker Change: <unk>.

Speaker Change: Q4 step up for the year.

Speaker Change: And the other thing I would say is we're seeing strong cloud provider engagement as well, even though were up 14% already we expect a very strong second half from the from the cloud providers as well so.

Speaker Change #115: Question.

Speaker Change #115: 6% to 8% that we put out there is basically what we can see right now from the Tam opportunities that we're that we're driving.

Speaker Change: Incremental improvements on the service providers and <unk> got good visibility, particularly in North America to them.

Speaker Change #115: Could that improve or better way of putting it should that improve over the next three years. The answer is probably yes, but really the six to eight is just what we can.

Speaker Change: <unk> their inventory that they've got and we've got we're seeing good progress on that so I think you put all of those together and Thats what gives us confidence.

Speaker Change #115: See right now and have.

Speaker Change #117: I don't have visibility to.

Speaker Change #118: That could obviously increases the AI traffic.

Speaker Change: <unk>.

Speaker Change: And in Q4.

Speaker Change #118: Flows into the both the cloud and the service provider networks, particularly in broadband.

Speaker Change: Perfect that's really helpful and then.

Speaker Change: You sound a lot more incrementally more positive on the AI opportunity and how that's going to ramp up for you folks over the next couple of years.

Speaker Change #118: You have to remember that our core optical business as it grows at only about 2% to 3% and even in that business, we've been able to do very well at take share, but the core of our business is not growing at a rapid rate will depend upon all of the things that Gary spoke about as well as routing and switching.

Speaker Change: I'm wondering given that you've highlighted so far does that alter your view of the long term growth range for C&I as you go forward and when do you think some of these opportunities will start to show up on your revenue stream.

Speaker Change: Yes, I mean I think the question has always been in our space and we see all the activity inside the data center and logic would say that at some point to monetize that has to come out and I think we've all been collectively.

Speaker Change #118: To get to the higher growth rates were calling in and hopefully they will go up from here.

Speaker Change #119: If you look at the Tam.

Speaker Change #119: In aggregate the three main areas of the Tam.

Speaker Change: Looking at that.

Speaker Change #120: <unk> that over 30%.

Speaker Change: We are beginning to see the signs of that right now I mean, AI traffic is been obviously things like.

Gary: So we're hopeful that that will impact our 6% to 8% over time.

Speaker Change: The current models are being put out there, but the traffic flows are then blended with cloud and it's difficult to say, whether that's driving it or just the cloud expansion. We are now beginning to see specific engagements with the cloud players around provisioning for.

Speaker Change #122: Thank you.

Speaker Change #123: Our next question comes from Simon Leopold Raymond James. Please go ahead.

Simon Leopold: Thanks for taking the question I wanted to first ask about the concentration of your cloud customers because.

Speaker Change: AI traffic because we as we get through next year, so that is informing sort of.

Speaker Change: No.

Speaker Change #125: The lumpiness that you've called out should have been expected you had to.

Speaker Change: Improved confidence around that impacting it then as we've talked a little bit about inside the data center Thats, a little more obviously more nascent opportunity for US. We are excited by the disaggregation opportunity, which is all incremental to us there as well. So you put all of that together under a reasonable question.

Simon Leopold: Really big customers in your October and January quarters.

Speaker Change #126: What I'm looking for is an understanding of how you expect.

The concentration within cloud evolves do you expect others to get more significant beyond the two that have been the major drivers of your direct to cloud revenue and then I've got a quick follow up I'll come back with.

Speaker Change: 6% to 8% that we put out there is basically what we can see right now from the Tam opportunities that we're that we're driving.

Speaker Change #127: I would say obviously there are four large network deployed cloud players.

Speaker Change: Could that improve or a better way of putting it should that improve over the next three years. The answer is probably yes, but really the six to eight is just what we can.

Speaker Change #128: We're all aware of I think we are employed with all four and youre going to get ebbs and flows between each of them.

Speaker Change: See right now and have.

Speaker Change #129: As you go through that I think it's fair to say.

Speaker Change: I don't have visibility to.

Speaker Change #129: We're expanding our relationship with all four of those.

Speaker Change: That could obviously increases the AI traffic.

Speaker Change #130: Both in terms of new applications, you sold all the plug a bowl announcements in the last couple of quarters.

Speaker Change: Flows into the both the cloud and the service provider networks, particularly in broadband.

Speaker Change #131: It's a market really in this.

Speaker Change: You have to remember that our core optical business.

Speaker Change #131: Shorter connectivity Dci connected where we really don't have a lot of market share. So thats all incremental market share for us.

Speaker Change: Grows at only about 2% or 3%.

Gary: Even in that business, we've been able to do very well at take share, but the core of our business is not growing at a rapid rate will depend upon all of the things that Gary spoke about as well as routing and switching to get to the higher growth rates were calling in and hopefully they will grow.

Speaker Change #132: So you've seen an expansion of that in addition to submarine in addition to the motion stuff that I talked about around the world with service providers. So you can see.

Speaker Change #133: Our relationship with those four are getting deeper and that broadening out and thats before we have the opportunity inside the data center as well now in addition to that we did announce.

Gary: If you look at the Tam.

Gary: In aggregate the three main areas of the Tam.

Gary: <unk> that over 30%.

Gary: So we're hopeful that that will.

Speaker Change #133: Plug a ball win with a new cloud provider that is not in those four so you are seeing.

Gary: Our 6% to 8% over time.

Speaker Change: Thank you.

Speaker Change #133: Other cloud provider is not in the big four come through globally, and we're engaged with most of those as well so the overall opportunity and market is getting bigger and we're increasing market share in that space because of the multiple applications that we've got.

Speaker Change: Our next question comes from Simon Leopold Raymond James. Please go ahead.

Simon Matthew Leopold: Thanks for taking the question I wanted to first ask about the concentration of your cloud customers because.

Speaker Change #133: And that's before we start to deliver wave logic six.

Speaker Change: The lumpiness that you've called out should have been expected you had to.

Speaker Change #133: Thanks, and then just the follow up and maybe this is for Scott is that.

Speaker Change: Really big customers in your October and January quarters.

Speaker Change #134: Our market is thought of as a revenue headwind, but I presume you are pluses would be somewhat different because thats. It.

Speaker Change: What I'm looking for is an understanding of how you expect.

Speaker Change: The concentration within cloud evolves do you expect others to get more significant beyond the two that have been the major drivers of your direct to cloud revenue and then I've got a quick follow up I'll come back with.

Speaker Change #135: Product or technology, Thats, not necessarily a standard and provides much better performance than that can.

Can you talk about how ZR plus affects your assumptions in the market overall, thank you.

Speaker Change: I would say obviously there are four large network deployed cloud players.

Speaker Change #136: That's a couple a couple of points on back on your last comment just just a reminder, that the four big ones that Gary talked about all four of those are in our top 10 customer base. So there's distribution there and then there's the next here next year includes logos that you would recognize as well as let's say non north American.

Speaker Change: We're all aware of I think we are employed with all four and youre going to get ebbs and flows between each of them.

Speaker Change: As you go through that I think it's fair to say.

Speaker Change: We're expanding our relationship with all four of those.

Speaker Change: Both in terms of new applications, you sold all the plug a bull announcements in the last couple of quarters.

Speaker Change #136: Providers that are moving outside of their outside there.

Speaker Change #136: National Territory, if you like and looking for.

Speaker Change: It's a market really in this.

Speaker Change: Short of connectivity Dci connected where we really don't have a lot of market share. So that's all incremental market share for us so.

Speaker Change #136: Western suppliers to provide that as well we get.

Speaker Change #136: <unk>.

Speaker Change #136: Good business to begin went through through open opportunities on them and as they get bigger they start to build the infrastructure and the reference that we had on our 400 gig ZR win this quarter was one of those logos or we start to see them sort of growing up if you like and becoming a bigger part of the industry and we are.

Speaker Change: So you're seeing an expansion of that in addition to submarine in addition to the motion stuff that I talked about around the world with service providers. So you can see.

Speaker Change: Our relationship with those four are getting deeper and that broadening out and thats before we have the opportunity inside the data center as well now in addition to that when we did announce.

We're benefiting from that to your question on.

Speaker Change #136: The dynamics of 400 gig ZR and evolution to 800 gig ZR and ZR plus I guess.

Speaker Change: Plug a bowl win with a new cloud provider that is not in those four so you are seeing other cloud.

Speaker Change #136: From our perspective to have a different have a different view of the 400 gig ZR being a headwind.

Speaker Change: <unk> provide is not in the big four come through globally, and we're engaged with most of those as well so the overall opportunity and market is getting bigger and we're increasing market share in that space because of the multiple applications that we've got.

Speaker Change #136: Because if you look at where we actually participate even though we have a.

Speaker Change #136: A massive market share.

Speaker Change #136: Position with the web scale as an all things transport.

Speaker Change #136: We don't really participate with them today on their campus Metro Dci So for US we look at that as a net opportunity and a tailwind whether it would be at current generation 400 gig ZR with or wave logic five nano our next generation and then Youre right as we move to next generation what's happening is.

Speaker Change: And that's before we start to deliver <unk> six.

Speaker Change: Thanks, and then just the follow up and maybe this is for Scott is that Dr. Market is thought of as a revenue headwind, but I presume ZR pluses would be somewhat different because that's it.

Speaker Change #137: Because of the power.

Speaker Change: Product or technology, thats not necessarily a standard.

Speaker Change #137: Constraints and the sheer demand for compute these data centers are getting pushed further and further apart geographical distributions happening performance starts to matter again, so we're not designing to lease common denominators over 400 gig ZR performance matters, and I think that that moves to our strength.

Speaker Change: And provides much better performance than that can.

Speaker Change: Can you talk about how ZR plus affects your assumptions in the market overall, thank you.

Speaker Change: That's a couple a couple of points on back on your last comment just just a reminder, that the four big ones that Gary talked about all four of those are in our top 10 customer base. So there's distribution there and then there's the next here next year includes logos that you would recognize as well as let's say non north American.

Speaker Change #137: <unk>.

Speaker Change #137: The technology provider.

Speaker Change #138: Thank you.

Speaker Change #138: Okay.

Speaker Change #139: Our next question comes from Sean Mccarthy, Rajiv and J P. Morgan. Please go ahead.

Sean Mccarthy: Oh, hi, Thanks for taking my question.

Speaker Change: Providers that are moving outside of their outside there.

Speaker Change #139: Yeah.

Speaker Change #141: I wanted to look more positive in terms of the opportunity with telecom service providers with bandwidth growth as well as AI that you talked about.

Speaker Change: National Territory, if you like and looking for.

Speaker Change: Western suppliers to provide that as well we get.

Speaker Change: <unk>.

Speaker Change #141: With that Investor.

Speaker Change: Good business to begin went through through bolt on opportunities on them and as they get bigger they start to build the infrastructure and the reference that we had on our 400 gig ZR win this quarter was one of those logos or we start to see them sort of growing up if you like and becoming a bigger part of the industry and where we are.

Speaker Change #142: So looking at it is when you look at your telco revenue from 2019, it would be your 2019 2000 22020.

Speaker Change #143: The run rate you are at it's been largely sort of in this.

Speaker Change #143: One 2 billion range pretty consistently and when we think about sort of plug a buzz et cetera. It seems like the telcos have found a way to sort of drive the overall spend that they do despite the increasing bandwidth do a sort of a consistent level.

Speaker Change: We're benefiting from that to your question on.

Speaker Change: The dynamics of 400 gig ZR and evolution to 800 gig ZR and ZR plus I guess.

Speaker Change #143: When you think about the drivers that you called out how do you think about sort of breaking out of that.

Speaker Change: From our perspective to have a different person to have a different view of the 400 gig ZR being a headwind.

Speaker Change #143: In terms of what the telcos are spending in other telcos really willing to spend or look at other ways to keep that spend does that sort of similar level.

Speaker Change: Because if you look at where we actually participate even though we have a.

Speaker Change: A massive market share.

Speaker Change #143: That will largely be able to see that.

Speaker Change: Position with the web scale as an all things transport.

Speaker Change #144: In terms of even as we sort of.

Speaker Change #144: Think about these broader sort of bandwidth that depletion trends.

We don't really participate with them today on their campus Metro Dci So for US we look at that as a net opportunity and a tailwind whether it would be at current generation 400 gig ZR with their way of electrified nano our next generation and then Youre right as we move to next generation what's happening is.

Speaker Change #145: Telcos have really shown their appetite to spend more over time can you just share your thoughts on that please and I have a follow up.

Speaker Change #146: Well, let me start to answer that <unk> I think there are a lot of different.

Speaker Change #147: Dimensions to this question.

Speaker Change: Because of the power.

Speaker Change #148: But the first thing I would say is that we've gone through a very unusual period.

Speaker Change: Constraints and the sheer demand for compute these data centers are getting pushed further and further apart geographical distributions happening performance starts to matter again, so we're not designing to lease common denominators over 400 gig ZR performance matters, and I think that that moves to our strength.

Speaker Change #148: The industry starting in 2020 with Covid.

Speaker Change #149: By the supply chain dynamics in swinging the pendulum back and forth.

Speaker Change #150: So my own view is.

Is that the recent trends and the recent actual spends on the part of service providers are not reflective of a long term trend. The other thing that's happened. During this period is that service providers have spent a large amount of money on building out their <unk> networks. So all.

Speaker Change: <unk>.

Speaker Change: The technology provider.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question comes from Sean Mccarthy, Rajiv and J P. Morgan. Please go ahead.

Speaker Change: Oh, hi, Thanks for taking my question.

Speaker Change: Yeah.

Speaker Change: Good luck more positive in terms of the opportunity with telecom service providers with bandwidth growth as well as <unk>.

Speaker Change #150: That is wireless.

Speaker Change #150: And which we don't participate it's our view that it's not going to be a highly a rapidly growing business, but we do think that over time service providers will start to spend again, particularly on optical every indication that we see is that demand on their networks grow.

Speaker Change: Talked about.

Speaker Change: The way that investors.

Speaker Change: So looking at it is when you look at your telco revenue from 2019, it would be great.

Speaker Change: 2020, even 24 on radio right.

Speaker Change: Largely sort of in this one.

Speaker Change: One 2 billion range pretty consistently.

Speaker Change #151: <unk> at least on their wired networks, and theyre going to have to spend to build that out in the near term as we said on the <unk> side, they are getting that opportunity from the <unk>.

Speaker Change: Can we think about sort of applicable et cetera. It seems like the telcos have found a way to sort of drive the <unk>.

Speaker Change: Despite the increasing bandwidth was sort of pretty consistent level.

Speaker Change #151: <unk> and we've said in the past this is in areas, where the <unk> actually are.

Speaker Change: When you think about the drivers that you called out how do you think about sort of breaking out of that.

Speaker Change #151: Regulated.

Speaker Change: In terms of what the telcos are spending the other telcos really willing to spend.

Rented from owning fiber in owning the networks, but even in places where they can own their own networks. They want to get enough gear out there more quickly than they can do themselves and so they are in or entering into <unk> arrangements with service providers in the U S and other parts of the.

Speaker Change: In other ways, including Le plaque.

Speaker Change: That spend does that sort of thing.

Speaker Change: Below level.

Speaker Change: That will largely be able to see that.

Speaker Change: So and in terms of even as we sort of.

Speaker Change: Do you think about these broader sort of bandwidth that accretion trends.

Speaker Change #152: The world. So we don't think that the near term actuals reflect long term trends, we think the service providers are going to be just fine.

Speaker Change: Telcos have really shown their appetite to spend.

Speaker Change: Can you just share your thoughts on that please and I have a follow up.

Speaker Change #100: Well, let me start to answer that <unk>.

Speaker Change #152: The other thing I would sort of add to that is.

Speaker Change #100: There are a lot of different.

Jim Moylan: You've got traffic growth and you've got as Jim said Mofos cloud driving that we're also winning share.

Speaker Change #101: Dimensions to this question, but the first thing I would say is.

Speaker Change #101: Is that we've gone through a very unusual period.

Speaker Change #153: We have leading technology in this space, leading relationships and we're winning share and there were also expand Tam expansion. Some of that time expansions in terms of convergence of metro routing et cetera means that were.

Speaker Change #101: And the industry starting in 2020 with Covid.

Speaker Change #101: Followed by the supply chain dynamics in swinging the pendulum back and forth and so my own view is that the recent trends and the recent actual spends on the part of service providers are not reflective of a long term trend. The other thing that's happened during.

Speaker Change #153: We're going to take share in those new emerging markets as well so service providers is a challenging market for sure, but we believe it will grow in a space and they will absolutely need to spend and grow their wireline networks as Jim said for all the drivers that we know off and Thats before sort of AI really starts.

Speaker Change #101: This period is that service providers have spent a large amount of money on building out their <unk> networks. So all of that is wireless.

Jim Moylan: They're going to be responsible for delivering a lot of the broadband AI.

Year in which we don't participate it's our view that it's not going to be a highly a rapidly growing business, but we do think that over time service providers will start to spend again, particularly on optical every indication that we see is that demand on their networks is growing.

Jim Moylan: And.

Speaker Change #154: We're quite bullish on that broadband space. So we think that we are going to get to a more normalized state with service providers as we get through to next year from an inventory balance point of view and we are incredibly well positioned to take advantage of that in addition to our confidence in the cloud.

Boeing at least on their wired networks, and theyre going to have to spend to build that out in the near term as we said on the <unk> side, they are getting that opportunity from the.

Speaker Change #154: Cloud relationships.

Speaker Change #155: Got it and if I could just real quick follow up Jim you mentioned, the known amongst that Youre expecting orders in Q3 to be slightly above revenue potentially is that really what's embedded in the Q4 guide because my math would indicate.

Speaker Change #101: <unk>, we've said in the past this is in areas, where the <unk> actually are.

Speaker Change #156: You're sort of implying a 50 people listen inquiries in the orders from Q2.

Speaker Change #101: Regulated.

Speaker Change #101: <unk> from owning fiber in owning the networks, but even in places where they can own their own networks. They want to get enough gear out there more quickly than they can do themselves and so they are in or entering into moping arrangements with service providers in the U S and other parts.

Speaker Change #156: And sort of drive to that.

Speaker Change #157: Q3, I might dwindle.

Speaker Change #158: We're getting it in the ballpark in terms of what's embedded in the revenue recovery in Q4.

Jim: Youre in the ballpark, we do expect a meaningful increase in orders in Q3 based on everything we see now.

Speaker Change #160: And if things fall right, we could approach what we expect to deliver revenue in the quarter, whether we get there or not we're going to be close to what we deliver in revenue in Q3 and that order pattern is what drives a lot of our confidence for Q4.

Speaker Change #101: The world. So we don't think that the near term actuals reflect long term trends, we think the service providers are going to be just fine.

Speaker Change #101: The other thing that I would sort of add to that is.

James E. Moylan: <unk> got traffic growth and you've got as Jim said more fund cloud driving that we're also winning share.

Speaker Change #160: And we're also I'd also point out we're carrying a big backlog.

James E. Moylan: We have leading technology in this space, leading relationships and we're winning share and we're also expand Tam expansion. Some of that time expansions in terms of convergence of metro routing et cetera means that were.

Speaker Change #160: Still.

Thanks, Jimmy.

Speaker Change #161: Our next question comes from Ryan Koontz with Intel Nicole. Please go ahead.

James E. Moylan: We're going to take share in those new emerging markets as well so service providers is a challenging market for sure, but we believe it will grow in a space and they will absolutely need to spend and grow their wireline networks as Jim said for all the drivers that we know off and Thats before sort of AI really starts.

Speaker Change #162: Great. Thanks for the question.

Ryan Koontz: Circle back to some previous commentary around the 800 ZR impacts can you specify when you think the timing of that impacts the cloud business and which segments of cloud you expect 800, ZR impact in terms of Dci Metro long haul subsea.

James E. Moylan: They're going to be responsible for delivering a lot of the broadband AI and.

Yes.

Ryan Koontz: The commercial availability of our product Ryan is going to be late late in the calendar year. This year, we wouldn't expect it to be.

James E. Moylan: And we're quite bullish on that broadband space. So we think that.

James E. Moylan: We are going to get to a more normalized state with service providers as we get through to next year from an inventory balance point of view and we are incredibly well positioned to take advantage of that in addition to our confidence in the <unk>.

Speaker Change #164: Our revenue impact for us until 2025.

Speaker Change #164: Certification cycles, and obviously there needs to be host platforms and whatnot that this is possible go into.

James E. Moylan: Cloud relationships.

Speaker Change #164: The only thing that later in the year.

Speaker Change #102: Got it and if I could just real quick follow up Jim you mentioned, the known amongst that you're expecting orders in Q3 to be slightly above revenue potentially is that really what's embedded in the Q4 guide because my math would indicate that.

Speaker Change #165: Alright, sorry, Ryan.

Speaker Change #165: Yes.

Speaker Change #166: I think it will take a couple of quarters beyond beyond availability for it to start to see any meaningful revenue.

Speaker Change #166: And just to be clear, we still believe that the ultra long haul submarine long haul market is going to be a systems business not applicable business and we think the wave logic six.

Speaker Change #103: You're sort of implying a <unk> with an increase in the orders from Q.

Speaker Change #104: So that sort of drive to that order level in Q3 that might dwindle.

Speaker Change #105: And we're getting it in the ballpark in terms of what's embedded in the.

Speaker Change #166: Is the one that's going to drive that and we will be ahead of the market on that by.

Speaker Change #105: Revenue recovery in Q4.

James E. Moylan: Youre in the ballpark, we do expect a meaningful increase in orders in Q3 based on everything we see now.

Speaker Change #167: Been a long time.

Speaker Change #167: That's great to hear.

Speaker Change #168: Just shifting gears real quick on the broadband side sounds like some decent momentum there can you maybe.

James E. Moylan: And if things fall right, we could approach what we expect to deliver revenue in the quarter, whether we get there or not we're going to be close to what we delivered revenue in Q3 and that order pattern is what drives a lot of our confidence for Q4.

Speaker Change #169: Kind of outlined the different segments, we're seeing success in terms of cable and tier twos and what's your differentiation is with the competitive environment is like there I appreciate it. Thank you.

Brian: Yes, Brian and just just to remind folks on the call that.

Speaker Change #171: Our play here is to intercept.

Speaker Change #172: Broadband PON at next generation, PON 10 gig and above.

James E. Moylan: And we're also I'd also point out we're carrying a big backlog.

James E. Moylan: Still.

Speaker Change #173: We've got a vertically integrated solution on the <unk> side with our <unk> acquisition.

Speaker Change #106: Thanks Amy.

Speaker Change #107: Our next question comes from Ryan Koontz with Intel Nicole. Please go ahead.

Speaker Change #173: It's a modular solution that brings but the benefits of cost and footprint.

And it's an open solution, unlike sort of sort of past technology. So that's the value proposition resonating I think.

Speaker Change #108: Great Hi, Thanks for the question.

Speaker Change #109: Circle back to some previous commentary around the 800 ZR impacts can you specify when you think the timing of that impacts the cloud business and which segments of cloud you expect 800 ZR impact in terms of Dci Metro long haul subsea. Thanks.

Speaker Change #174: Approaching 60 customers globally on that it's across all the segments that you mentioned so.

Speaker Change #174: Tier one tier one service providers msos.

Speaker Change #175: Large regional broadband providers both you.

Speaker Change #175: <unk> basin and.

Speaker Change #175: And internationally and a number of tier two tier three.

Speaker Change #110: The commercial availability of our product Ryan is going to be late late in the calendar year. This year, we wouldn't expect it to be.

Speaker Change #175: Broadband suppliers.

Speaker Change #175: The majority of those I mentioning are actually whole systems, but.

Speaker Change #175: To remind folks we also saw the <unk> technology as an individual component.

Speaker Change #111: Revenue impact for us until 2025 certification cycles, and obviously there needs to be host platforms and whatnot that this is possible go into.

Speaker Change #175: In the marketplace through other Oems as well.

Speaker Change #176: Perfect. Thanks, a lot guys.

Ryan Koontz: Thank you Ryan and thanks, everyone for joining US today, we look forward to catching up with everyone. Later today and over the next days and weeks and good day.

Speaker Change #111: The other thing that later in the year.

Speaker Change #112: Alright, sorry, Brian.

Speaker Change #111: Yes.

Speaker Change #113: I think it will take a couple of quarters beyond beyond availability for it to start to see any meaningful revenue.

Speaker Change #177: Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change #113: And just to be clear, we still believe that the ultra long haul submarine long haul market is going to be a systems business not applicable business and we think the wave logic six.

Speaker Change #113: Is the one that's going to drive that and we will be ahead of the market on that.

Speaker Change #113: Been a long time.

Speaker Change #114: That's great to hear.

Speaker Change #115: Just shifting gears real quick on the broadband side sounds like some decent momentum there can you maybe.

Speaker Change #116: Kind of outlined the different segments, we're seeing success in terms of cable and tier twos and what's your differentiation is with the competitive environment is like there I appreciate it. Thank you.

Brian: Yes, Brian and just just to remind folks on the call that we have.

Brian: Our play here is to intercept broadband PON at next generation PON 10 gig and above.

Brian: We've got a vertically integrated solution on the <unk> side with our <unk> acquisition.

Speaker Change #118: It's a modular solution that brings but the benefits of cost and footprint.

Speaker Change #118: And it's an open solution, unlike sort of sort of past technology. So that's the value proposition resonating I think we've got approaching 60 customers globally on that it's across all the segments that you mentioned so.

Speaker Change #118: Tier one tier one service providers msos.

Speaker Change #118: Large regional broadband providers, both U S basin and internationally and a number of tier two tier three.

Speaker Change #118: Broadband suppliers.

Speaker Change #118: The majority of those I mentioning are actually.

Speaker Change #118: All systems, but remind remind folks we also saw the <unk> technology as an individual component.

Speaker Change #118: In the marketplace through other Oems as well.

Speaker Change #119: Perfect. Thanks, a lot guys.

Ryan Koontz: Thank you Ryan and thanks, everyone for joining US today, we look forward to catching up with everyone. Later today and over the next days and weeks and good day.

Speaker Change #121: Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Speaker Change #122: Ladies and gentlemen, welcome to the CNS. Please call second quarter 'twenty to 'twenty four financial results Conference call.

Speaker Change #123: All participants will be listen only mode should you need assistance. Please signal a conference specialist by pressing the star keys for advisory role.

Speaker Change #123: After todays presentation, there will be an opportunity to ask questions.

Speaker Change #124: Last quick question you May press Star one on your telephone keypad.

Speaker Change #124: Your question. Please press star two.

Speaker Change #124: Please note that this event is being recorded.

Speaker Change #124: I would like now to turn the conference over to Gregg Lampf, Vice President of Investor Relations. Please go ahead.

George: Thank you George Good morning, and welcome to <unk> 2020 for fiscal second quarter Conference call.

Speaker Change #125: On the call today is Gary Smith, President and CEO and Jim Moylan CFO.

Speaker Change #126: Scott Mcfeely Executive advisor is also with us for Q&A.

Speaker Change #127: And in addition to this call and the press release, we have posted to the investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter.

Speaker Change #127: Our comments today speak to our recent performance our view on current market dynamics and drivers of our business as well as a discussion of our financial outlook.

Speaker Change #127: Today's discussion includes certain adjusted or non-GAAP measures of <unk> results of operations a.

Speaker Change #127: A reconciliation of these non-GAAP measures to our GAAP results is included in today's press release.

Speaker Change #128: Before turning the call over to Gary I'll remind you that during this call, we'll be making certain forward looking statements.

Speaker Change #128: Such statements, including our quarterly and annual guidance commentary on market dynamics and discussion of opportunities and strategy are based on current expectations forecasts and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially.

Gary: Really from the statements discussed today.

Gary: Assumptions related to our outlook. We had mentioned on this call are included in the Investor presentation that we will close shortly after are an important part of such forward looking statements and we encourage you to consider them.

Gary: Our forward looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K, and our 10-Q, which we expect to file with the SEC later today.

Gary: Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information future events or otherwise.

Speaker Change #129: As always we will allow for as much Q&A as possible today do ask that you limit yourselves to one question and one follow up with that I will turn the call over to Gary.

Gary: Thanks, Greg and good morning, everyone.

Gary: As you've seen from the press release today, we reported fiscal second quarter revenue of $911 million and adjusted gross margin of 43, 5%.

Q2 performance also included quarterly adjusted operating margin of six 8% and quarterly adjusted EPS of <unk> 27.

Gary: And we generated $42 million in free cash flow in the quarter.

Speaker Change #130: Later in the call Jim will provide additional details about our Q2 financial performance as well as highlights from the quarter with respect to our portfolio and business outlook.

Gary: Okay.

Gary: Since we spoke with you about 90 days ago industry dynamics and therefore, our current operating environment are largely unchanged.

Gary: Specifically the drivers of bandwidth demand remained strong and durable.

Gary: Increasing cloud adoption and a growing number of AI use cases are accelerating global data generation.

Gary: As a result network traffic is increasing and forecast to continue growing at a strong rate.

Gary: This all really means that demand for bandwidth will continue to grow at 30% CAGR if not more.

Gary: But despite this positive secular demand as we all know it is taking longer than we and others in our industry. Initially expected for service providers to absorb and deploy the large amounts of inventory they have accumulated over the last year or so.

Gary: And we are still seeing some caution related to macroeconomic concerns, particularly internationally.

Gary: Importantly, we continue to believe these dynamics are temporary.

Gary: And we are seeing some encouraging signs of recovery beginning to emerge.

Gary: <unk> with respect to order volumes.

Gary: In fact, there were several highlights from Q2 that I think illustrate not only in improving service provider environment overall, but also accelerating cloud provided dynamics and the overall momentum.

Gary: Business.

Gary: Specifically with respect to our service provider customers.

Gary: Orders in Q2 increased from the prior quarter and service provider revenue was up sequentially in Q2.

Gary: 10% customer in the quarter was a service provider.

Gary: Very importantly service provider inventory levels are starting to decline and service provider engagement and RFP activity levels are higher than in the past several quarters.

Gary: Resulting in several recent new wins and a growing pipeline of opportunities.

Gary: For example, we secured a significant design win in Q2 with a leading north American tier one service provider for a multiyear network evolution project that includes both online systems as well as our transponders.

Based on these data points, we believe the order flows from our service provider customers, we will continue to improve from here.

Gary: Turning to our cloud provider customers in Q2.

Gary: We secured important new design wins in this customer segment across terrestrial submarine and coherent plug a hole applications as we leverage the opportunities presented by strategic investments to build out their data center infrastructures.

Gary: Two of these wins include long term awards for deployments of our optical systems across their global network infrastructure.

Gary: We are also starting to build meaningful momentum with cloud providers for our coherent plug of pools.

Gary: In addition to the significant design win we announced last quarter for our 400 gig ZR plus plugs, we added two new cloud provider wins in Q2 for these products.

Including one that is a new customer to Siena.

Gary: And later this calendar year, we will bring to market wave logic, six nano and next generation coherent plug a hole family.

Gary: With this we will be first to market with the power advantage of three nanometer technology.

Gary: And in Q2.

Gary: We're pleased to advise that we were already awarded business by a large cloud customer for this 800 gig ZR plus technology.

Gary: As expected in addition to our market leading optical systems business with cloud providers are coherent plug a bull solutions represents an incremental business and market share growth opportunity for ciena with these customers, particularly in short.

Gary: Reach Dci type applications.

Gary: And as a reminder, as much as 50% of our total revenue is driven now directly and indirectly from cloud providers.

Gary: And we anticipate continued growth from this customer segment in the second half of fiscal 2024, particularly as wave logic six becomes generally available for both systems and next generation plug a hole applications.

Gary: This will obviously give us significant time to market advantage with cloud providers, who typically adopt lead these leading type technologies more rapidly.

Gary: Stepping back understandably, there's been a lot of focus on short term industry dynamics in recent quarters and we continue to manage through those importantly, we remain focused on the longer term demand drivers of our business and our growth opportunities.

Gary: With that said I'd like to take a few minutes to walk you through how we're thinking about the market will evolve and how we will benefit from that evolution.

Gary: As I mentioned earlier, the fundamental industry drivers of bandwidth demand network growth traffic continue to increase.

Gary: These drivers are increasingly being impacted by several business and network architectural trends.

Gary: Obviously first and foremost an increasing portion of bandwidth demand in network traffic growth will be driven by AI.

Gary: Traffic flows from AI and machine learning will pressure all parts of the network from broadband access to the metro to inside and around the data center, thereby impacting both service provider and cloud provider networks.

Gary: As an example, one of our North American tier one service provider customers recently reported they are seeing a dramatic rise in demand for high capacity low latency network and edge services.

Gary: Specifically related to the advent of Gen II and the complexity of hybrid multi cloud architectures.

Gary: Optical delivers the combination of high capacity and low latency is essential to supporting this type of traffic.

Gary: Another opportunity, where we have a significant funnel of opportunities is managed optical fiber networks or known as <unk>.

This term motion may be new to you. So let me briefly explain what it means.

Gary: While cloud providers can build than one network infrastructure in many parts of the world certain countries have specific rules for fiber ownership policies on licensing and standards for workforce qualifications.

Gary: In addition, given the need to add capacity, sometimes very quickly cloud providers are turning to motion even in jurisdictions, where there are no such restrictions.

Gary: With motion Telecom service providers build highly advanced optical networks and lease fiber paths to cloud providers.

Gary: This enables the cloud providers to quickly expand their reach and better serve their end users.

Gary: This is an example of an indirect source of revenue from the cloud providers through our service provider customers.

Gary: Sienna is obviously uniquely positioned to lead this model by leveraging our strong relationships and presence with both global cloud and service providers.

Gary: With all that in mind I'd like to expand upon how we are investing to address these opportunities.

Gary: And I think to start with I would say that all of our Tam expansion efforts are deeply grounded in the competitive advantage, we have with our optical technology.

Gary: It is well established and recognize that our industry, leading optical technology has been the driving force. Some foundational reason behind that success in serving the long haul subsea metro regional and Dci markets.

Gary: We expect to continue to lead and take share in these markets with our best in class coherent technology.

Gary: This includes the upcoming availability of wave logic, six which will further extend our leadership in terms of performance scale and sustainability.

In addition, as I noted our optical technology is also increasingly applicable to high growth opportunities, where we are investing for growth by expanding our addressable market in three principal key areas.

Gary: These include number one broadband access and number two metro routing.

Gary: We're both the high capacity optical fiber connectivity, we enable has become a foundational element of next generation edge and Metro networks.

Gary: And number three inside into around the data center.

Gary: The superior performance of our foundational optical technologies in a variety of form factors conserve the cloud provide a trend towards disaggregated consumption models in support of AI fabric connections.

Gary: And broadband access we have the market, leading <unk> PON solution, providing our customers with modularity and openness. They haven't enjoyed in previous generations of PON deployments.

Gary: This cost effective flexible and sustainable <unk> solution can address residential enterprise and mobility use cases.

Gary: Looking further out as you know, we also expect to lead and 25 <unk> PON as it emerges next year.

Gary: With prioritized customer investments in broadband access fueled in part by massive public funding around the world.

Gary: We estimate the tenge and above palm market will grow at a 55% plus kanka to approximately $7 billion by 2027.

Secondly, converged IP and optical layers in the metro are now being used to reduce costs simplify networks and achieve new levels of scale to support AI.

Gary: This is precisely what our coherent routing solution is designed to address with our purpose built metro routers.

Gary: <unk> 5000, 8000 series platforms as well as our recently expanded wave route a family.

Gary: This solution offers our customers scaling choices common next generation IP Pos.

Gary: Gration with the world's best optics, and photonics, and the market, leading multilayer domain control to manage and fully converged. These metro networks.

Gary: We estimate the metro routing market, specifically, we will grow at a 12% CAGR to nearly $5 billion by 2027.

Gary: And finally number three in addition to our strength in data Center interconnect.

Gary: We see an expanding an incremental opportunity inside and around the data center that also leverages, our optical technology leadership.

Gary: As cloud providers continue to build massive data centers with high data rates to handle AI workloads, they are increasingly reaching power and space limitations.

Gary: We believe that coherent technology in our high speed interconnect solutions will ultimately better address the need for superior scale power and signal quality.

Gary: This is similar to what we saw in the Wan and while still early we believe it is largely a function of time is to win a meaningful portion of insight around the data center moves to these technologies.

Gary: In fact, we are already engaged with several cloud customers and ecosystem partners in this area as a direct result of our leadership in coherent and.

Gary: And we expect these engagements to increase and intensify over time.

Gary: So in summary, we believe we are incredibly well positioned to continue growing our leadership in optical and are leveraging that technology as well as that deep relationships with both cloud and service providers to further expand our addressable market and deliver.

Gary: <unk> long term growth.

Gary: With that I'll turn it over to Jim who will provide details on the quarter's results as well as our business outlook.

Jim: Thanks, Gary Good morning, everyone.

Jim: As Gary mentioned, we delivered solid fiscal second quarter financial results.

Jim: Revenue in Q2 was $911 million adjusted gross margin was 43, 5% within the range of expectations Q2, adjusted operating expense was $334 million.

Jim: With respect to profitability measures in Q2, we produced adjusted operating margin of six 8%.

Jim: Adjusted net income of $39 million and adjusted EPS of <unk> 27.

Jim: In addition, we generated $59 million in cash from operations and adjusted EBITDA of $86 million.

Jim: We ended the quarter with approximately $1 $4 billion in cash and investments.

Jim: We repurchased approximately one 1 million shares for $57 million during the quarter.

Jim: And we continue to target share repurchase at $250 million total during the fiscal year.

Jim: Turning to some portfolio highlights from the quarter.

Jim: In optical we added 20, new customers or wave logic five extreme in Q2, bringing our total customer count to 209.

Jim: To date, we have shipped more than 123000 wave logic five E modems.

Jim: Revenue in Q2 for our Reconfigurable line system, our Rls platform was up 12% year over year with seven new customers in the quarter.

Speaker Change #132: And separately from our momentum with the cloud providers that Gary talked about.

Speaker Change #133: We gained 18 new customers in the quarter for our wave logic, five nano 400, ZR and ZR, plus <unk>, including service providers, who buy these clubs integrated into our optical systems and routers.

Speaker Change #133: We are also seeing strong early traction with with wave logic six extreme.

Speaker Change #133: Which remains on schedule to become generally available within a few months.

Speaker Change #133: With the industry's first and only one six terabits solution, we're looking forward to a favorable competitive dynamic over an extended period.

Speaker Change #133: Similar to what we experienced with wave logic five extreme.

Speaker Change #133: In which we were the exclusive solution in market for more than 18 months.

Speaker Change #133: In fact, we already have orders from 14 customers around the world, but wave logic six extreme.

Speaker Change #133: In routing and switching we continue to be well positioned to gain share with strong customer engagement and a growing portfolio of industry leading solutions.

Speaker Change #133: And broadband access we have more than 50 customers globally for our PON solutions. These include tier one service providers major msos, the largest U S rural broadband provider as well as multiple regional tier two and tier three providers.

Speaker Change #133: We also have more than 100 customers using our coherent routing solution.

Speaker Change #134: As Gary mentioned earlier this solution Leverages, our optical leadership, including plug holes and is key to expanding our addressable market in the converged metro.

Speaker Change #134: This solution includes our wave router family, which Verizon recently selected among other products in our portfolio to evolve its long haul and metro networks.

Speaker Change #134: Other portfolio highlights from Q2 include another very good quarter for <unk> platform software and services was 23% revenue growth year over year.

Speaker Change #134: And our global services business grew 5% year over year, and 6% sequentially driven by another strong quarter for installation and deployment as we continue to help our service provider customers work through some of their near term challenges.

Speaker Change #134: Turning now to guidance.

Speaker Change #134: We continue to believe that the fundamental demand drivers in our business are incredibly strong.

Speaker Change #134: And the data generation and network traffic will continue to grow at very healthy rates for the foreseeable future.

Speaker Change #134: We are also seeing signs of improvement in the current environment.

Speaker Change #134: We can see this playing out in our hardware related orders, which have increased steadily from fiscal year 2004 to date and we expect to continue to increase.

Speaker Change #134: Based on our pipeline and current projections, we believe that orders will increase meaningfully in Q3.

Speaker Change #134: And actually have the potential to meet or exceed our revenue during the quarter.

Speaker Change #134: However, in the near term, while we see signs of improvement the recovery of service provider order patterns is still slower than initially expected as they continue to absorb and deploy large amounts of their inventory.

Speaker Change #134: Based upon all of these dynamics, we now expect fiscal year 'twenty four to be approximately $4 billion.

Speaker Change #134: Which is at the low end of the range. We previously provided.

Speaker Change #134: We continue to believe that our adjusted gross margin for fiscal year 'twenty four we will be in the mid Forty's range.

Speaker Change #134: With respect to Opex for the fiscal year, we continue to expect it to average $340 million to $345 million per quarter for the full year.

Speaker Change #134: For the fiscal third quarter, we expect to deliver revenue in a range of $880 million to $960 million.

Speaker Change #134: Adjusted gross margin in the low to mid <unk> range, and adjusted operating expense of approximately $345 million.

Speaker Change #134: In summary, we feel great about our business today.

Speaker Change #134: And the continued execution of our long term strategy.

Speaker Change #134: We have the world's leading optical technology to underpin our growth from a portfolio perspective, we have strong and expanding relationships with both service providers and cloud providers.

Speaker Change #134: That combination positions us incredibly well to help our customers address the rise in global data generation and AI driven bandwidth demand that is accelerating traffic growth across their networks.

Speaker Change #135: With that George will now take questions from the sell side analysts.

Speaker Change #136: We will now begin the question and answer session.

Speaker Change #137: <unk>, what's your question.

Speaker Change #138: Press Star and one of your telephone keypad.

Speaker Change #139: If you use you can pick your phone please pickup your handset before pressing the keys.

Speaker Change #139: Your question. Please press star two.

Speaker Change #140: Our first question comes from Tim Long and Barclays. Please go ahead.

Speaker Change #139: Okay.

Speaker Change #141: Thank you.

Timothy Patrick Long: Maybe we could talk a little bit about kind of order book in the in the fiscal Q2 I'm not sure. If you gave that and then it sounds like the telco continues to push out getting you to the lower end of the range.

Timothy Patrick Long: What confidence do you have that we will see that in October or January when do you. When do you think we will start to really see that.

Speaker Change #143: Telco business clearly recovering thank you.

Speaker Change #143: Yes, I'll speak to the backlog, Tim we ended the quarter at about $1 9 billion in backlog.

Speaker Change #143: <unk>.

Speaker Change #144: Based on what we see for the rest of the year, we do think our backlog will be down a bit.

Speaker Change #144: By the end of the year.

Speaker Change #144: Maybe not in Q3, but by the end of the year it will be down a bit.

Speaker Change #144: Probably not based on what we see now to as low as the long term trend, we had pre all of the Covid and the supply chain situation.

So Tim let me take the second part of that what gives us confidence to it first of all we've seen sort of a steady increase in.

Speaker Change #144: In the first half and orders from service providers, we expect that to jump a little more.

Speaker Change #144: But of a step function in Q3 as Jim said in his commentary, we expect meaningful order increases in Q3.

Speaker Change #144: Primarily led by the cloud, but also we expect an improvement in the service provider piece.

Speaker Change #144: And we're also seeing awards the pipeline the whole activity level is increasing and sort of just as importantly, I think to talk to your question.

Speaker Change #144: We're seeing.

Speaker Change #144: Inventory levels come down and they are deploying particularly in North America, we have good visibility into that so I think as we get out of the year. I think you will see service providers in a more balanced supply demand inventory situation as we come out of our.

As we come out of our fiscal year.

Thank you.

Speaker Change #144: Yes.

Speaker Change #145: Our next question comes from Karl Ackerman, and BNP Paribas. Please go ahead.

Speaker Change #146: Yes. Thank you good morning.

Karl Ackerman: In your deck today, you highlighted an emerging opportunity for coherent plugging holes, both inside and around the data center.

Karl Ackerman: For inside the data center are you, suggesting these would be used in 7% to 10 kilometer lengths or would there be shorter reach links also possible and I have a follow up.

Speaker Change #148: And as Carlos It Scott.

Speaker Change #149: Yes, I think.

Speaker Change #150: The opportunities are there I think the more near one is the the short.

Speaker Change #150: In the shorter kilometer reach links sort of that around the data center. If you like think of it as a 2% to 10 kilometer type of opportunity.

Speaker Change #150: <unk>.

Speaker Change #150: The second one that you mentioned is as the data rates between Gpus are increasing and because of the power the power usage and the restrictions on power, forcing more distributed architectures and these GPU clusters, the lengths of the links that need to get <unk>.

Speaker Change #150: Indicated those coherent technologies and our belief are going to start to make their way inside.

Speaker Change #150: More of the traditional clusters, that's a longer term opportunity, but our position of strength from a coherent technology is pulling us into many of those dialogues around future architectures both with.

Speaker Change #150: And cloud customers, but also with ecosystem providers that service those customers.

Speaker Change #151: Very interesting and helpful. Thank you for my follow up.

Speaker Change #152: You indicated that orders you have already received orders for wave logic six E products, but do you expect.

Speaker Change #153: <unk> six <unk> and six nano will be <unk> in the second half of this calendar year and I guess as you address that does a muted outlook for telecom and impede in any way the near term demand uplift you see.

Speaker Change #154: These new products. Thank you.

Speaker Change #155: Yes, so first of all yet to ask your timing question, yes, both the <unk> and <unk> will be in market generally available this year.

Speaker Change #155: This calendar year.

Speaker Change #156: We made the comment actually that we had multiple orders for <unk> thats, absolutely true and it comes across.

Speaker Change #156: Both service provider and cloud.

Speaker Change #156: Segments, we also have.

Speaker Change #156: Awards as well for <unk>, so not just <unk> so.

Speaker Change #156: And to your question of does the service provider sort of get into the service provider dynamics of inventory and will not get in the way of.

Speaker Change #156: The ramp on those technology I would say not because the early movers on those tend to be the folks that are most.

Speaker Change #156: Had the highest bandwidth demand growth and have the tightest constraint on their fibers. So think of think of the web scale or think of the the morphine networks that are serving those web scale and I think a submarine networks.

Speaker Change #157: Very helpful. Thank you.

Speaker Change #157: Yes.

Speaker Change #158: Our next question comes from Tom <unk> and Bank of America. Please go ahead.

Speaker Change #159: Hi, guys.

Speaker Change #158: Sure.

Tom: My question is about the non service provider.

Speaker Change #158:

Two questions first cloud went down from 33% to 25% of this non cloud portion.

Speaker Change #158: And Im trying I wanted to understand what is driving the trends right now in the cloud, meaning they are investing heavily inside the data center.

Speaker Change #160: Doesn't translate into more traffic outside that requires your solutions.

Speaker Change #160: If that's the case.

Speaker Change #160: That they had tons of inventory before so where are we on the absorption of cloud the inventories.

Speaker Change #160: The second question is about the government and enterprise this portion is growing.

And can you talk about trends there, what's driving it et cetera. Thanks.

Speaker Change #161: Okay, Let me take the first part on the cloud.

Speaker Change #161: If you look at what.

Speaker Change #162: What we've done in the cloud space, we were up 50%, 57% last year. If you look at the first half of this year were up 14% revenues were down slightly in Q2, that's just normal sort of absent an ebbs and flow of frankly.

Speaker Change #161: And.

Speaker Change #161: The order flows we expect in Q3 and we are seeing in Q4, we expect both orders and revenue to increase in the second half of the year.

Speaker Change #161: The other thing I would say about it is yes. They are investing heavily inside the data center right now and that cloud business is growing.

Speaker Change #161: Witnessed by those.

Speaker Change #161: Numbers that I just gave you that's really before all of the AI stuff hits and comes out of the data Center. That's really all in front of US. We are now seeing specific plans and engagements around network deployments in the second half and moving into early 'twenty five two.

Speaker Change #161: Deal with what they expect to be an increase in AI traffic as well so I think.

Speaker Change #161: We're very positive around the whole cloud space and if you look at the first half we took market share.

Speaker Change #161: Even though we have a very high market share in cloud on reverse specific about those we took market share in the first half and that's before you've got wave logic, six coming online, which has a massive technology advantage.

Speaker Change #161: You heard us talk about the orders just in the last couple of quarters, you've got multiple strategic awards for 400 gig ZR plus.

Speaker Change #161: And we talked about the new.

Speaker Change #161: 800 gig ZR, plus as well, which is obviously for a wave logic nano so and that's an incremental market opportunity for us as Scott was just saying around the short reach Wan.

Speaker Change #161: And then eventually into the actual data center itself.

Speaker Change #161: On the government and enterprise side.

Speaker Change #161: We are showing growth in that sector, particularly on the government side, we were up last year.

Speaker Change #161: 23%.

Speaker Change #161: Year to date were up about 6%, but we see a lot of opportunity, particularly on the government side and we're pushing hard to make sure we have the portfolio the products services and software.

Speaker Change #161: Governments demands are increasing.

Speaker Change #163: Great. Thank you.

Tom: Thanks, Tom.

Speaker Change #163: Yes.

Speaker Change #164: Our next question comes from Ruben Roy with Stifel. Please go ahead.

Ruben Roy: Yes, Thank you Gary I want to double click a bit on some of the commentary you had on investing to address some of the opportunities and especially around the cloud service providers and one of the things Thats coming up more recently at OFC and other events. It seems like there is a demand for customized.

Speaker Change #165: Architectures and that type of thing. So wondering as you think about those types of investments.

Speaker Change #165: Are you thinking about this aggregating some of your market, leading technologies ESP or optical front ends et cetera.

Scott Mcfeely: Yes, let me take the first part of that Scott.

Speaker Change #166: To add to it the answer to your question is absolutely and we've been engaged with these guys for a while.

Scott Mcfeely: No.

And if you think about it.

Scott Mcfeely: We are an obvious choice for that given our leading coherent technology and however, they want to consume that plug a bull form, albeit at a more discrete component form.

Scott Mcfeely: It basically increases the velocity of our existing investments, they're all things that we need to do we believe to make that applicable into that space, but that is all additional incremental market for us I mean, we have zero market share and zero revenues from inside the data center right now.

Scott Mcfeely: And so we are increasingly engaged and given the depth of our relationship with these folks.

We believe we're very well placed to benefit from that and particularly as you see the the GPU intensity of the of the <unk> build out that is increasing data rates and increasing distances, which really plays into what we think will be in <unk>.

Scott Mcfeely: Intersect point with the coherent technology.

Speaker Change #167: Yes, when we talked about the opportunity of that coherent coming to solve some of the problems inside the data center, we're very cognizant of the fact that <unk>.

The data center to the key players there whether they be in.

Speaker Change #167: <unk> cloud consumers themselves or other ecosystem players that play there are have really growing up in a disaggregated model consuming technology.

Speaker Change #167: Are you aware of that and we're taking steps to make sure that we are ready to play there and absolutely are willing to play there. That's just the way it's going to get consumed.

That's great. Thank you just a quick follow up it's great to see the broader deployments of horizon can you maybe just talk about conversations you're having with.

Speaker Change #168: Are there other service providers in North America, or elsewhere or classrooms fighters on that product specifically.

Speaker Change #167: Yes.

Speaker Change #169: A bit of a step back and a waiver waive router is one of the products in a family of products that we call our coherent routing portfolio and what we're seeing is as service providers think about their sustainable role in the world going forward Theyre Metro their metro and access connectivity is really important to them.

Speaker Change #169: And Theyre looking at what Theyre going to have to be able to deliver in terms of high capacity.

Speaker Change #169: Low latency type networks and that is again.

Speaker Change #169: <unk> into the strength of optics is a more and more important part of it. So we built a family of purpose build routers that.

Is designed to go after that in an optimized way wave router being being the biggest part of that the biggest big.

Speaker Change #169: Big brother over that family if you like.

Speaker Change #169: If you take more broader from a coherent rado coherent router perspective in the family. Our 5000 series 8000 series and wave router.

Speaker Change #169: We've got over 100 customers worldwide deploying that today and they.

Speaker Change #169: They are buying into the.

Speaker Change #169: Yes.

Speaker Change #169: The footprint.

Speaker Change #169: Optimization that you get on the purpose built router or they are buying into the world class optics and Theyre also very importantly buying into the multilayer domain control.

Speaker Change #169: That really allows them to enable convergence in their network. So that's where we're seeing the traction.

Speaker Change #169: Lots of interest we've router itself is actually the Redundance chassis version of that so where people are deeper in their network and have high capacity redundancy thats, where they land on wave rider as part of that broader story.

Speaker Change #170: Thank you.

Speaker Change #169: Okay.

Speaker Change #169: Yes.

Our next question comes from George Notter Jefferies. Please go ahead.

Speaker Change #171: Hi, guys. Thanks, very much just a couple of modeling questions.

Speaker Change #172: I was looking at the DSO number I think was <unk> 98 in the quarter. That's up 10 days sequentially was there something going on this quarter with linearity or collections. What can you say there and then also I wanted to ask about inventories your.

Speaker Change #172: Your inventories were up sequentially I know that you guys said previously you don't expect them to go down that rapidly this year, but I guess it was a bit surprised to see inventories go up sequentially. So any insights there would be great. Thanks.

Speaker Change #173: Yes, we still expect George that by the end of the year inventory will be down from the end of last year by a couple of hundred million dollars.

Speaker Change #173: There are some movements through the year based on what customers are doing and what our vendors are doing but we think that by the end of the year will be 200 million or so below where we were at the end of last year.

Speaker Change #174: And the first part of your question was.

Speaker Change #175: The linearity question Dsos.

Speaker Change #175: I don't think you should read a lot into that we actually have.

Large customers, who pay large amounts at certain times and we were lucky enough in Q1 to get.

Speaker Change #175: End of quarter amount paid that brought our dsos down.

Speaker Change #175: My guess is our dsos are going to be in a range of 93 to 96 or so for the year, it's a little higher than that now, but will be 93% to 96% I guess.

Speaker Change #176: Got it fair enough. Thank you very much.

Speaker Change #175: Yeah.

Speaker Change #177: Our next question comes from Amit <unk> with Evercore. Please go ahead.

Speaker Change #177: Okay.

Good morning, and thanks for taking my question I have two as well.

Amit Jawaharlaz Daryanani: Maybe the first one is when I think about your back half guide one of the question that folks seem to be kind of struggling with is you sort of implying 20% plus sequential growth in the October quarter. At this point to hit the $4 billion number that seems to be a very steep acceleration given kind of what you've seen so far in the year.

Speaker Change #178: Just understand what's on.

Speaker Change #179: Underpinning from a political basis, maybe the sizable acceleration that you expect in October quarter right now.

Speaker Change #179: Yes.

Speaker Change #180: It's a very fair question Amit.

Speaker Change #181: I'd answer it in a number of ways what gives us confidence around that first of all we're seeing incremental improvement on service providers not what we had anticipated coming into the year, but we're clearly seeing incremental improvements in terms of orders pipeline activity et cetera.

Speaker Change #181: Secondly, we still have a very large backlog.

Speaker Change #181: And that also gives us some confidence around.

Speaker Change #181: Sure.

Speaker Change #181: Q4 step up for the year.

Speaker Change #181: And the other thing I would say is we're seeing strong cloud provider engagement as well, even though were up 14% already we expect a very strong second half from the from the cloud providers as well so <unk>.

Speaker Change #181: Incremental improvements on the service providers and <unk> got good visibility, particularly in North America to them.

Speaker Change #181: <unk> their inventory that they've got and we've got we're seeing good progress on that so I think you put all of those together and Thats what gives us confidence.

Speaker Change #181: <unk>.

Speaker Change #182: Hey, Dan.

In Q4.

Speaker Change #183: Perfect that's really helpful and then.

Speaker Change #184: You sound a lot more incrementally more positive on the AI opportunity and how that's going to ramp up for you folks over the next couple of years.

Speaker Change #185: I'm wondering given that you've highlighted so far does that alter your view of the long term growth range for C&I as you go forward and when do you think some of these opportunities will start to show up on your revenue stream.

Speaker Change #186: Yes, I mean I think the question has always been in our space and we see all the activity inside the data center and logic would say that at some point to monetize that has to come out and I think we've all been collectively.

Speaker Change #185: Looking at that.

Speaker Change #185: We are beginning to see the signs of that right now I mean, AI traffic is been obviously things like.

Speaker Change #185: The current models are being put out there, but the traffic flows are then blended with cloud and it's difficult to say, whether that's driving it or just the cloud expansion. We are now beginning to see specific engagements with the cloud players around provisioning for.

Speaker Change #185: AI traffic because we as we get through next year, so that is informing sort of been.

Speaker Change #185: Improved confidence around that is impacting it.

Speaker Change #185: Then as we've talked a little bit about inside the data center, that's a little more obviously more nascent opportunity for US. We are excited by the disaggregation opportunity, which is all incremental to us there as well. So you put all of that together and there is a reasonable question.

Speaker Change #185: 6% to 8% that we put out there is basically what we can see right now from the Tam opportunities that we're that we're driving.

Speaker Change #185: Could that improve or better way of putting it should that improve over the next three years. The answer is probably yes, but really the six to eight is just what we can.

Speaker Change #185: See right now and have.

Speaker Change #185: I don't have visibility to.

Speaker Change #185: That could obviously increases the AI traffic.

Speaker Change #185: Flows into the both the cloud and the service provider networks, particularly in broadband.

Speaker Change #185: You have to remember that our core optical business as it grows at only about 2% or 3% and even in that business. We've been able to do very well at take share, but the core of our business is not growing at a rapid rate will depend upon all of the things that Gary spoke about as well as routing the switch.

Speaker Change #187: <unk> to get to the higher growth rates were calling in and hopefully they will go up from here.

Speaker Change #187: If you look at the time.

Speaker Change #187: In aggregate the three main areas of the Tam it blends that over 30% CAGR. So.

Speaker Change #187: Hopeful that will impact our 6% to 8% over time.

Speaker Change #188: Thank you.

Speaker Change #189: Our next question comes from Simon Leopold Raymond James. Please go ahead.

Simon Matthew Leopold: Thanks for taking the question I wanted to first ask about the concentration of your cloud customers because.

Speaker Change #190: I guess, the Lumpiness that you've called out should have been expected you had two really big customers in your October and January quarters, what Im looking for is an understanding of how you expect.

Speaker Change #190: The concentration within cloud evolves do you expect.

Speaker Change #190: Others to get more significant beyond the two that have been the major drivers of your direct to cloud revenue and then I've got a quick follow up I'll come back with.

Speaker Change #191: I would say obviously.

Speaker Change #192: For large network deployed cloud players.

Speaker Change #192: We're all aware of I think we are employed with all four.

Speaker Change #192: And youre going to get ebbs and flows between each of them.

Speaker Change #192: You go through that I think it's fair to say.

Speaker Change #192: We're expanding our relationship with all four of those both in terms of new applications you sold all the plug a bull announcements in the last couple of quarters.

Speaker Change #192: Thats a market really in this.

Speaker Change #192: Yeah.

Speaker Change #192: Shorter connectivity Dci connected where we really don't have a lot of market share. So thats all incremental market share for us.

Speaker Change #192: So you've seen an expansion of that in addition to submarine in addition to the motion stuff that I talked about around the world with service providers. So you can see our relationship with those four are getting deeper and that broadening out and thats before we have the opportunity inside.

Speaker Change #192: The data center as well now in addition to that we did announce.

Speaker Change #192: A plug a ball win with a new cloud provider that is not in those four so you are seeing.

Speaker Change #192: All of the cloud provide is not in the big four come through globally, and we're engaged with most of those as well so the overall opportunity and market is getting bigger and we're increasing market share in that space because of the multiple applications that we've got.

Speaker Change #192: And that's before we start to deliver wave logic six.

Speaker Change #193: Thanks, and then just the follow up and maybe this is for.

Speaker Change #194: Scott is that Dr market is thought of as a revenue headwind, but I presume ZR pluses would be somewhat different because that's it.

Speaker Change #195: Our technology, that's not necessarily a standard.

Speaker Change #195: And provide much better performance than that can.

Speaker Change #196: Can you talk about how ZR plus affects your assumptions in the market overall, thank you.

That's a couple a couple of points on back on your last comment just just a reminder, that the four big ones that Gary talked about all four of those are in our top 10 customer base. So there's distribution there and then there's the next year next year includes logos that you would recognize as well as I'll just say non north American.

Speaker Change #196: Cloud providers that are moving outside of their outside there.

Speaker Change #196: National Territory, if you like and looking for.

Speaker Change #196: Western suppliers to provide that as well we get.

Speaker Change #196: <unk>.

Speaker Change #196: Good business to begin went through through open opportunities on them and as they get bigger they start to build the infrastructure and the referenced that we had on our 400 gig ZR win this quarter was one of those logos or we start to see them sort of growing up if you like and becoming a bigger part of the industry and where we are.

Speaker Change #196: We're benefiting from that to your question on.

Speaker Change #196: The dynamics of 400 gig ZR and evolution 800 gig ZR and ZR plus I guess.

Speaker Change #196: From.

Speaker Change #197: From our perspective to have a different person to have a different view of the 400 gig ZR being a headwind.

Speaker Change #197: Because if you look at where we actually participate even though we have a.

Speaker Change #197: A massive market share.

Speaker Change #197: Our position with the web scale as an all things transport.

Speaker Change #197: We don't really participate with them today on their campus Metro Dci So for US we look at that as a net opportunity and a tailwind whether it would be at current generation 400 gig ZR with our wave logic five nano our next generation and then Youre right as we move to next generation what's happening is.

Speaker Change #198: Because of the power.

Speaker Change #198: Constraints and the sheer demand for compute these data centers are getting pushed further and further apart geographical distributions happening performance starts to matter again, so we're not designing to lease common denominators over 400 gig ZR performance matters, and I think that that moves to our strength.

Speaker Change #198: As a technology provider.

Speaker Change #199: Thank you.

Speaker Change #199: Okay.

Speaker Change #200: Our next question comes from Sean Mccarthy, Rajiv and J P. Morgan. Please go ahead.

Speaker Change #201: Oh, hi, Thanks for taking my question.

You call them.

Speaker Change #202: Good luck more positive in terms of the opportunity with telecom service providers with bandwidth growth as well as AI that you talked about.

Speaker Change #203: With that Investor.

Speaker Change #204: Looking at it is when you we look at your telco revenue from 2019, it would be your 'twenty late 'twenty.

Speaker Change #205: And when you feel like even greater default around radio right, it's been largely sort of at this point.

Speaker Change #205: One 2 billion range pretty consistently and when we think about sort of plug a buzz et cetera. It seems like the telcos have found a way to sort of drive the overall spend that they do despite the increase in bandwidth.

Speaker Change #205: Consistent level.

Speaker Change #206: When you think about the drivers that you called out how do you think about sort of breaking out of that.

Speaker Change #206: In terms of what the telcos are spending the other telcos really willing to spend are they going to look.

Speaker Change #206: <unk>, including <unk> to keep that spend does that sort of thing.

Speaker Change #206: Low level.

Speaker Change #206: That would largely be able to see that.

Speaker Change #206: So and in terms of even as we sort of.

Think about these broader sort of bandwidth that depletion trends.

Speaker Change #206: Telcos, Havent really shorten their appetite to spend.

Speaker Change #207: Can you just share your thoughts on that please and I will follow.

Speaker Change #208: Well, let me start to answer that.

Speaker Change #209: There are a lot of different.

Speaker Change #210: Dimensions to this question, but the first thing I would say is that we've gone through a very unusual period.

Speaker Change #210: And the industry starting in 2020 with Covid.

Following by the supply chain dynamics in swinging the pendulum back and forth and so my own view is that the recent trends.

Speaker Change #210: The recent actual spends on the part of service providers are not reflective of a long term trend. The other thing that's happened. During this period is that service providers have spent a large amount of money on building out their <unk> networks. So all of that is wireless.

Speaker Change #210: Year in which we don't participate it's our view that it's not going to be a highly a rapidly growing business, but we do think that overtime service providers will start to spend again, particularly on optical every indication that we see is that demand on their networks as <unk>.

Speaker Change #210: <unk> at least on their wired networks.

Speaker Change #210: And theyre going to have to spend to build that out in the near term as we said on the <unk> side, they're getting that opportunity from the.

Speaker Change #210: <unk> and we've said in the past this is in areas, where the <unk> actually are regulated prevented from owning fiber in owning the networks, but even in places where they can own their own networks. They want to get enough gear out there more quickly than they can do themselves.

And so they are in or entering into <unk> arrangements with service providers in the U S and other parts of the world. So we don't think that the near term actuals reflect long term trends. We think the service providers are going to be just fine.

Speaker Change #210: The other thing I would sort of add to that is.

Speaker Change #211: You've got traffic growth and you've got as Jim said <unk> cloud driving that we're also winning share.

Speaker Change #211: We have leading technology in this space, leading relationships and we're winning share and there were also extra Tam expansion. Some of that time expansions in terms of convergence of metro routing et cetera means that were.

Speaker Change #211: We're going to take share in those new emerging markets as well so service providers is a challenging market for sure, but we believe it will grow in a space and they will absolutely need to spend and grow that wireline networks as Jim said for all the drivers that we know off and Thats before sort of AI really starts.

Speaker Change #211: They're going to be responsible for delivering a lot of the broadband AI.

Speaker Change #211: And we're quite bullish on that broadband space. So we think that we are going to get to a more normalized state with service providers as we get through to next year from an inventory balance point of view and we are incredibly well positioned to take advantage of that in addition to our confidence in the cloud.

Speaker Change #211: Chips.

Speaker Change #212: Got it and if I could just real quick follow up Jim you mentioned, the known amongst that you're expecting orders in Q3 to be slightly above revenue potentially is that really what's embedded in the Q4 guide because my math would indicate that you're sort of implying a 50 people listen inquiries in the orders from Q2.

Speaker Change #212: To then drive to that order level in Q3 that might dwindle.

Speaker Change #213: Getting it in the ballpark in terms of what's embedded in them.

Speaker Change #214: Recovery in Q4.

Jim: Youre in the ballpark.

Jim: We do expect a meaningful increase in orders in Q3 based on everything we see now.

Jim: And if things fall right, we could approach what we expect to deliver revenue in the quarter, whether we get there or not we're going to be close to what we delivered revenue in Q3 and that.

Jim: Order pattern is what drives a lot of our confidence for Q4.

Jim: And we're also I'd also point out we're carrying a big backlog.

Jim: Still.

Speaker Change #215: Thanks Amy.

Speaker Change #216: Our next question comes from Ryan Koontz with Intel Nicole. Please go ahead.

Speaker Change #217: Great. Thanks for the question.

Circle back to some previous commentary around the 800 ZR impacts can you specify when you think the timing of that impacts the cloud business and which segments of cloud you expect 800 ZR impact in terms of Dci Metro long haul subsea. Thanks.

The commercial availability of our product Ryan is going to be late late in the calendar year. This year, we wouldn't expect it to be.

Speaker Change #217: Our revenue impact for us until 2025.

Speaker Change #217: Certification cycles, and obviously there needs to be host platforms and whatnot that this is possible go into.

Speaker Change #217: Later in the year.

Speaker Change #218: Alright, sorry, Ryan.

Speaker Change #217: Yes.

Speaker Change #219: I think it will take a couple of quarters beyond beyond availability for it to start to see any meaningful revenue.

Speaker Change #220: And just to be clear, we still believe that the ultra long haul submarine long haul market is going to be a systems business not applicable business and we think the wave logic six he.

Speaker Change #220: Is the one that's going to drive that and we will be ahead of the market on that by.

Speaker Change #220: The long tenure.

Speaker Change #221: That's great to hear and just shifting gears real quick on the broadband side sounds like some decent momentum there can you maybe.

Speaker Change #222: Kind of outlined the different segments, we're seeing success in terms of cable and tier twos.

Speaker Change #223: Differentiation is with the competitive environment is like there I appreciate it thank you.

Brian: Yes, Brian and just just to remind folks on the call that we have.

Speaker Change #224: Our play here is to intercept broadband PON.

Speaker Change #225: Next generation PON 10 gig and above.

Speaker Change #226: We've got a vertically integrated solution on the oil side with our <unk> acquisition.

Speaker Change #226: It's a modular solution that brings but the benefits of cost and footprint.

Speaker Change #226: And it's an open solution, unlike sort of sort of past technology. So that's the value proposition resonating I think.

Scott Mcfeely: Scott approaching 60 customers globally on that it's across all the segments that you mentioned so.

Scott Mcfeely: Tier one tier one service providers msos.

Scott Mcfeely: Large regional broadband providers both.

Scott Mcfeely: U S basin and internationally and a number of tier two tier three.

Scott Mcfeely: Broadband suppliers.

Scott Mcfeely: The majority of those I mentioning are actually.

Scott Mcfeely: <unk> systems, but remind to remind folks. We also saw the <unk> technology as an individual component.

Scott Mcfeely: The marketplace through other Oems as well.

Speaker Change #227: Perfect. Thanks, a lot Scott.

Ryan Boyer Koontz: Thank you Ryan and thanks, everyone for joining US today, we look forward to catching up with everyone. Later today and over the next days and weeks have a good day.

Speaker Change #229: Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation you may now disconnect.