Q4 2024 Viavi Solutions Inc Earnings Call

Emma: Hello everyone. My name is Emma. Welcome to the Viavi Solutions fourth quarter and full year 2024 earnings call.

Operator: Viavi Solutions Fourth Quarter and Full Year 2024 Earnings Calls. All lines have been placed on mute to prevent any background noise.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Operator: After the speaker's remarks, there will be a question and answer session. I will now turn the conference over to Vibhuti Nair, Viavi Solutions, Head of Investor Relations. Please go ahead.

Vibhuti Nair: I will now turn the conference over to Vibhuti Nair, Viavi Solutions, Head of Investor Relations. Please go ahead.

Speaker Change: Oleg Khaykin, Pamela Avent,

Vibhuti Nair: Good afternoon, everyone, and welcome to Viavi Solutions' fourth quarter and full year 2024 earnings call. My name is Vibhuti Nair, Head of Investor Relations for Viavi. And with me on today's call is Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO. Please note that this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations.

Vibhuti Nair: Thank you, Emma.

Speaker Change: Good afternoon, everyone, and welcome to Viavi Solutions' fourth quarter and full year 2024 earnings call.

Vibhuti Nair: We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those files. The forward-looking statements, including the guidance that we provide during this call, are valid only as of today, and Viavi undertakes no obligation to update these statements.

Vibhuti Nair: My name is Vibhuti Nair, Head of Investor Relations for Viavi Solutions, and with me on today's call is Oleg Khaykin, our President and CEO , and Ilan Daskal, our CFO .

Vibhuti Nair: Please note, this call will include forward-looking statements about the company's financial performance.

Vibhuti Nair: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations.

Vibhuti Nair: We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings.

Vibhuti Nair: The forward-looking statements, including the guidance that we provide during this call, are valid only as of today.

Vibhuti Nair: Viavi undertakes no obligation to update these statements.

Vibhuti Nair: Please also note that unless we state otherwise, all results discussed on this call accept revenue.

Arnon Gap: Arnon Gap

Arnon Gap: We reconcile these non-GAAP results to our preliminary GAAP financials.

Arnon Gap: and discuss their usefulness and limitations in today's earnings release.

Arnon Gap: the release as well as our supplemental earning slides which include historical financial tables.

Arnon Gap: are available on VIAVI's website at www.investor.viavisolutions.com

Arnon Gap: Finally, we are recording today's call.

Arnon Gap: And we will make the recording available on our website by 4.30 p.m. Pacific Time this evening.

Ilan Daskal: Please also note that unless we state otherwise, all results discussed on this call, etc., are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release, as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's show, and we will make the recording available on our website by 4.30 p.m. Pacific time this evening. Now, I would like to turn the call over to Ilan.

Ilan Daskal: Thank you, everybody. Good afternoon, everyone.

Arnon Gap: Now, I would like to turn the call over to Ilan.

Ilan Daskal: Thank you, everybody. Good afternoon, everyone. And now I would like to review the results of the fourth quarter of fiscal year 2024.

Ilan Daskal: And now I would like to review the results of the fourth quarter of fiscal year 2020. Net revenue for the quarter was $252 million, which was at the midpoint of our guidance range of $246 to $258 million. Revenue was up sequentially by 2.4% and on a year-over-year basis was down 4.4%. Operating margin for the fourth quarter was 10.9 percent, which was above the midpoint of our guidance range of 9.5 percent to 11.8 percent.

Ilan Daskal: Net revenue for the quarter was $252 million, which was at the midpoint of our guidance range of $246 to $258 million.

Ilan Daskal: Revenue was up sequentially by 2.4% and on a year-over-year basis was down 4.4%.

Ilan Daskal: Operating margin for the fourth quarter was 10.9%, which was above the midpoint of our guidance range of 9.5% to 11.8%.

Ilan Daskal: Operating margin increased 160 basis points from the prior quarter and on a year-over-year basis was down 80 basis points.

Ilan Daskal: Operating margin increased 160 basis points from the prior quarter and on a year-over-year basis was down 80 basis points. EPS was $0.08, at the high end of our guidance range of $0.06 to $0.08, and was up $0.02 sequentially. On a year-over-year basis, EPS was down 2 cents.

Ilan Daskal: EPS at $0.08 at the high end of our guidance range of $0.06 to $0.08 and was up $0.02 sequentially.

Ilan Daskal: On a year-over-year basis, EPS was down two cents.

Ilan Daskal: For the full fiscal year, revenue was $1 billion, down 9.6% on a year-over-year basis, primarily due to conservative spend by service providers and NEM. Operating margin for the full year was 11.5%, down 410 basis points from fiscal year 2023, and full year EPS was $0.33, down $0.22 from the prior year, primarily due to lower year-over-year revenue. Moving on to our fourth fiscal quarter results by business segment, NSE revenue for the quarter came in at $182.2 million, which is at the lower end of our guidance range of $179 to $189 million. And on a year-over-year basis, NSE revenue was down 7.9% for the quarter.

Ilan Daskal: For the full fiscal year, revenue was $1 billion, down 9.6% on a year-over-year basis, primarily due to conservative spend by service providers and NEMS.

Ilan Daskal: Operating margin for the full year was 11.5% down 410 basis points from fiscal year 2023 and full year EPS was 33 cents down 22 cents from the prior year primarily due to lower year-over-year revenue.

Ilan Daskal: NE revenue for the fourth quarter was $158.5 million, which is a 9.7% year-over-year decline as a result of continued conservative spend by service providers and NEM. SE revenue was $23.7 million and up 5.8% from the same period last year, partially supported by revenue that was pushed out from Q3. NSE growth margin for the quarter was 62.1%, which is flat on a year-over-year basis. NE gross margin was 61.3 percent, which is a decline of 40 basis points as compared to the same period last year.

Ilan Daskal: Moving on to our fourth fiscal quarter results by business segment.

Ilan Daskal: NSE revenue for the quarter came in at $182.2 million, which is at the lower end of our guidance range of $179 to $189 million. And on a year-over-year basis, NSE revenue was down 7.9% for the quarter.

Ilan Daskal: NE revenue for the fourth quarter was $158.5 million, which is a 9.7% year-over-year decline as a result of continued conservative spend by service providers and NEMS.

Ilan Daskal: SE revenue was $23.7 million and up 5.8% from the same period last year, harshly supported by revenue that was pushed out from Q3.

Ilan Daskal: NSE growth margin for the quarter was 62.1%, which is flat on a year-over-year basis.

Ilan Daskal: NE gross margin was 61.3%, which is a decline of 40 basis points as compared to the same period last year.

Ilan Daskal: SE's growth margin was 67.5%, which is an increase of 190 basis points from the same period last year and was driven by product mix. NSE's operating margin for the fourth quarter was 1.8 percent, which is an improvement of 360 basis points sequentially and 400 basis points lower than the same period last year. NSC's operating margin was at the low end of our guidance range of 1.4% to 3.6% due to lower revenue.

Ilan Daskal: SE growth margin was 67.5% which is an increase of 190 basis points from the same period last year and was driven by product mix.

Ilan Daskal: NSE's operating margin for the fourth quarter was 1.8%, which is an improvement of 360 basis points sequentially and 400 basis points lower than the same period last year.

Ilan Daskal: NSC's operating margin was at the low end of our guidance range of 1.4% to 3.6% due to lower revenue.

Ilan Daskal: OSP revenue for the quarter came in at $69.8 million, which was above the high end of our guidance range of $67 to $69 million and was up 6.2% on a year-over-year basis as a result of strengths across all products. OSP gross margin was 53%, which is an increase of 640 basis points from the same period last year and was primarily driven by higher revenue, favorable product mix, and production ramp-up at our new manufacturing facility in Shantung.

Speaker Change: OSP revenue for the quarter came in at $69.8 million, which was above the high end of our guidance range of $67 to $69 million and was up 6.2% on a year-over-year basis as a result of strengths across all products.

Speaker Change: OSP gross margin was 53% which is an increase of 640 basis points from the same period last year and was primarily driven by higher revenue, favorable product mix, and production ramp at our new manufacturing facility in Chandler.

Ilan Daskal: OSP's operating margin was 34.8%, which is up 50 basis points sequentially and 530 basis points increase on a year-over-year basis as a result of the higher gross margin for. OSP's operating margin exceeded the high end of our guidance range of 31% to 34%. Moving on to the balance sheet and cash. Total cash and short-term investments at the end of Q4 was $496.2 million, compared to $486.1 million at the end of the third fiscal quarter of 2024.

Speaker Change: Poispese operating margin was 34.8% which is up 50 basis points sequentially and 530 basis points increase on a year of year basis as a result of the higher gross margin fall through.

Speaker Change: OSP's operating margin exceeded the high end of our guidance range of 31% to 34%.

Speaker Change: Moving on to the balance sheet and cash flow.

Speaker Change: Total cash and short-term investments at the end of Q4 was $496.2 million compared to $486.1 million at the end of the third fiscal quarter of 2024.

Ilan Daskal: Cash flow from operating activities for the fourth quarter was $26.2 million, versus $23.5 million in the same period last year. During the quarter, we purchased 1.3 million shares of our stock for about $10 million. For the full year, we purchased 2.3 million shares for about $20 million. We have approximately $215 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 224.2 million shares, down from 224.6 million shares in the prior quarter and versus 225.5 million shares in our guidance for the fourth quarter. PAPEX for the quarter was $3.8 million, compared to $7.4 million in the same period last year when we were completing the construction of our new facility in Chandler.

Speaker Change: Cash flow from operating activities for the fourth quarter was $26.2 million versus $23.5 million in the same period last year.

Speaker Change: During the quarter, we purchased 1.3 million shares of our stock for about $10 million.

Speaker Change: For the full year, we purchased 2.3 million shares for about $20 million.

Speaker Change: We have approximately $215 million remaining under our current authorized share repurchase program.

Speaker Change: The fully diluted share count for the quarter was 224.2 million shares, down from 224.6 million shares in the prior quarter, and versus 225.5 million shares in our guidance for the fourth quarter.

Speaker Change: Pappex for the quarter was $3.8 million compared to $7.4 million in the same period last year. When we were completing the construction of our new facility in Chandler.

Ilan Daskal: In June 2024, we initiated the Restructuring and Workforce Reduction Plan to improve operational efficiencies and better align with the current business needs. We expect approximately 6% of our global workforce to be impacted and estimate to incur approximately $15 million of restructuring charges in connection with this plan. As a result of this initiative, we anticipate to achieve an annualized cost savings run rate of approximately $25 million by the end of fiscal 2025, which will mainly benefit our operating expenses.

Speaker Change: In June 2024, we initiated the Restructuring and Workforce Reduction Plan to improve operational efficiencies and better align with the current business needs.

Speaker Change: We expect approximately 6% of our global workforce to be impacted and estimate to incur approximately 15 million dollars of restructuring charges in connection with this plan.

Speaker Change: As a result of this initiative, we anticipate to achieve by the end of fiscal 2025 an annualized cost savings run rate of approximately $25 million, which will mainly benefit our operating expenses.

Ilan Daskal: Moving on to our guidance, we expect that the first half of fiscal 2025 will continue to experience a conservative spend environment by service providers and consumers. That said, we believe that we are nearing the bottom of the down cycle, and we expect a gradual recovery in demand in the second half of this fiscal year.

Speaker Change: Moving on to our guidance.

Speaker Change: We expect that the first half of fiscal 2025 will continue to experience a conservative spend environment by service providers and NEPs.

Speaker Change: That said, we believe that we are nearing the bottom of the down cycle and we expect a gradual recovery in demand in the second half of this fiscal year.

Ilan Daskal: Given the lingering softness, we are guiding for the first fiscal quarter of 2025 revenue in the range of $235 million and $245 million. Operating margin is expected to be 10.8% plus or minus 90 basis points, and EPS is expected to be between 5 cents and 7 cents. We expect NSE revenue to be approximately $164 million, plus or minus $4 million, with a breakeven operating margin of plus or minus 100 basis points. OSP revenue is expected to be approximately $76 million, plus or minus $1 million, with an operating margin of 34%, plus or minus 100 basis points.

Speaker Change: Even the lingering softness, we are guiding for the first fiscal quarter of 2025 revenue in the range of 235 million, and 245 million dollars.

Speaker Change: Operating margin is expected to be 10.8% plus or minus 90 basis points.

Speaker Change: and EPS to be between 5 cents and 7 cents.

Speaker Change: We expect NSE revenue to be approximately $164 million plus or minus $4 million, with a breakeven operating margin plus or minus 100 basis points.

Speaker Change: OSP revenue is expected to be approximately $76 million, plus or minus $1 million, with an operating margin of 34%, plus or minus 100 basis points.

Ilan Daskal: Our tax expenses for the first fiscal quarter are expected to be about $8 million, plus or minus $500,000, as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3.5 million. And the share count is expected to be about 224.2 million shares. With that, I will turn the call over to Oleg.

Speaker Change: Our tax expenses for the first fiscal quarter are expected to be about $8 million, plus or minus $500,000 is a result of your restriction of mix.

Speaker Change: We expect other income and expenses to reflect a net expense of approximately $3.5 million.

Speaker Change: And the share count is expected to be about 224.2 million shares.

Speaker Change: With that, I will turn the call over to Oleg. Oleg?

Oleg Khaykin: Viavi and the market spend environment continues to be conservative, particularly in North America. Despite these headwinds, our revenue came in at the midpoint of our guidance, with stronger OSP revenue partially offsetting weaker NSE demand. Our EPS was at the higher end of our guidance. Starting with NSE, the fiscal fourth quarter NSE revenue came in at the lower end of our guidance range. NSE revenue declined 8% on a year-over-year basis, driven by softer demand from service providers and wireless nets. We believe that decline in NSE demand is bottoming out, and we should start to see a recovery in the second half of the fiscal year. A bit more color on that.

Oleg Khaykin: Thank you, Ilan.

Oleg Khaykin: The AVI and market spend environment continues to be conservative, particularly the North American service providers.

Oleg Khaykin: Despite these headwinds, our revenue came in at the midpoint of our guidance, with stronger OSP revenue partially offsetting weaker NSE demand.

Speaker Change: Our EPS was at the higher end of our guidance range.

Oleg Khaykin: Starting with NSC, the fiscal fourth quarter NSC revenue came in at the lower end of our guidance range, NSC revenue declined 8% on year over year basis driven by the softer demand from service providers in wireless nouns.

Oleg Khaykin: We believe that decline in NSC demand is bottoming out and we should start to see a recovery in the second half of the fiscal year. A bit more color on that.

Oleg Khaykin: The first is field instrument demand remains largely at maintenance levels due to the absence of major network buildouts and upgrades by Tier 1 service providers, particularly in North America. That said, the investment in data center fiber inter-networking by Tier 2 operators, together with recent comments by major service providers regarding their fiber plans, leads us to expect a pickup in field instrument demand in the second half of fiscal 2025. Our wireless demand continues to be impacted by sharply reduced R&D and production CapEx spend by major wireless NAMs, who have reduced investment in response to significant cutbacks in 5G deployment by wireless operators. However, one positive recent trend we are seeing is the emergence of many new customers pursuing O-RAN development. However, their cumulative spend is still relative.

Oleg Khaykin: The first is field instruments demand remain largely at the maintenance levels due to the absence of major network build-outs and upgrades by Tier 1 service providers.

Oleg Khaykin: particularly in North America.

Oleg Khaykin: That said, the investment in data center fiber internetworking by Tier 2 operators, together with recent comments by major service providers regarding their fiber plans, leads us to expect a pickup in field instruments demand in the second half of fiscal 2025.

Oleg Khaykin: Our wireless demand continues to be impacted by sharply reduced R&D and production Catholics spend by major wireless nouns who have reduced investments in response to significant cutbacks and 5G deployment by wireless operators.

Oleg Khaykin: One positive recent trend we are seeing is the emergence of many new customers pursuing O-RAN development, however their cumulative spend is still relatively small.

Oleg Khaykin: Other parts of NSC are faring much better. Fiber lab and production demand was slightly up. We expect the upcoming transition to 1.6 terabits and ramp of PCI Express 6.0 to drive recovery and growth during the fiscal 25 for fiber lab and production. Mill Aero Business continues to be a bright spot, seeing year-over-year growth in revenue driven by strong customer demand for communication, avionics, and positioning, navigation, and timing products.

Oleg Khaykin: Other parts of NSC are faring much better.

Oleg Khaykin: Fiber 11 production demand was slightly up. We expect the upcoming transition to 1.6 terabits and ramp of PCI Express 6.0 to drive recovery and growth during the fiscal 25 for fiber 11 production.

Oleg Khaykin: Mill Aero business continues to be a bright spot, seeing year-over-year growth in revenue driven by strong customer demand for communication, avionics, and positioning, navigation, and timing products.

Oleg Khaykin: We expect this business segment to enjoy strong demand throughout Fiscal 24. The SE segment grew year-on-year, helped by enterprise orders that were pushed out from Q3. We are seeing a lot of interest in our AIOps product, and it is expected to be a growth driver for fiscal 25 and beyond. As we look at Q1 fiscal 25, we expect a seasonally weaker demand driven by similar dynamics as in Q4. Continued demand weakness from service providers and wireless NEMs led to overall weaker NE and seasonally weaker SE revenue, offset by continued strength in fiber-eleven production and mail-error business.

Oleg Khaykin: We expect this business segment to enjoy strong demand throughout fiscal 25.

Speaker Change: The SE segment grew year on year, helped by enterprise orders that were pushed out from Q3. We are seeing a lot of interest in our AIOps product and expect it to be a growth driver for fiscal 25 and beyond.

Oleg Khaykin: As we look at Q1 fiscal 25, we expect a seasonally weaker demand driven by similar dynamics as in Q4.

Oleg Khaykin: Continued demand weakness from the service providers in wireless and wireless nams leading to overall weaker N.E. and seasonally weaker SE revenue, offset by continued strains in 5 or 11 production and male error business.

Oleg Khaykin: Looking ahead, at fiscal 25 for NSE, we expect the conservative spend environment to persist for the remainder of calendar 24 and a gradual demand recovery in the first half of calendar 20. Now, turning to OSP. The fiscal fourth quarter OSP grew on a year-over-year basis, mainly driven by higher demand for anti-counterfeiting and 3D-sensing products. Overall, our peer results exceeded the higher end of our guidance. Looking ahead, we expect OSP to be sequentially up in the September quarter, mostly driven by seasonally stronger demand for 3D sensing products.

Oleg Khaykin: Looking ahead at fiscal 25 for NSE, we expect the conservative spend environment to persist for the remainder of calendar 24 and a gradual demand recovery in the first half of calendar 25.

Speaker Change: Now, turning to horse feet.

Speaker Change: The fiscal fourth quarter OSP grew on a year-over-year basis, mainly driven by higher demand for anti-counterfeiting and 3D sensing products.

Oleg Khaykin: Overall, OSP results exceeded the higher end of our guidance range.

Oleg Khaykin: Looking ahead, we expect OSP to be sequentially up in the September quarter, mostly driven by seasonally stronger demand for 3D sensing products. Overall, we expect Fiscal 25 OSP demand to be similar to Fiscal 24.

Oleg Khaykin: Overall, we expect Fiscal 25 OSP demand to be similar to Fiscal 21. To summarize, fiscal 24 was a challenging year for Viavi and the industry. While we expect the soft market environment to persist for the remainder of calendar 24, we anticipate the start of a gradual recovery in the first half of calendar 25. I would like to thank my Viavi team for managing through this challenging environment and express my appreciation to our employees, customers, and shareholders for their support. With that, I'll turn it over to everybody.

Oleg Khaykin: To summarize, the fiscal 24 was a challenging year for Viavi and the industry. While we expect the soft market environment to persist for the remainder of calendar 24, we anticipate the start of gradual recovery in the first half of calendar 25.

Oleg Khaykin: I would like to thank my Viavi team for managing through this challenging environment and express my appreciation to our employees, customers, and shareholders for their support. With that, I'll turn it over to Vibhuti.

Operator: We're ready for the Q&A, Emma.

Oleg Khaykin: We're ready for the Q&A, Emma.

Operator: We ask today that you limit yourself to one question and one follow-up. Thank you. Your first question comes from the line of Ruben Roy with Stiefel. Your line is open.

Vibhuti Nair: Thank you.

Emma: We ask today that you limit yourself to one question and one follow-up. Thank you. Your first question comes from the line of Ruben Roy with Stiefel. Your line is open.

Ruben Roy: Thank you. Hi everybody. Oleg, thanks for the detail around how you're thinking about sort of the near-term environment and then the, you know, sort of first half of next calendar year. Can you drill in a little bit on, you know, sort of how you think about inventory levels at your customers, I guess, by field instruments and then also lab instruments? And then I added one or two quick follow-ups. Thank you.

Ruben Roy: Thank you. Hi, everybody. Oleg, thanks for the...

Ruben Roy: the detail around how you're thinking about

Ruben Roy: sort of the near term environment and then the sort of first half of next calendar year, I guess.

Ruben Roy: Can you drill in a little bit on, you know, sort of how you're thinking about inventory levels at your customers, I guess, by field instruments and then also lab instruments? And then I added one or two quick follow-ups. Thank you.

Oleg Khaykin: Sure. I mean, there's really no inventory to speak of. I mean, all of our deliveries of field instruments to our customers are just in time, and it mainly coincides with whenever they are doing any kind of major expansion project or a technology upgrade or things like that. There's also, obviously, when I say we see our revenue at the maintenance level, you know, there is this constant churn. A big chunk of our quarterly revenue is just churn. And it's just basically a low of large numbers, a big install base. You know, the batteries die, equipment gets damaged, and they periodically replace whatever needs to be replaced.

Speaker Change: Sure, I mean there's really no inventory to speak of. I mean all of our deliveries for field instruments to our customers.

Speaker Change: are just in time, and it's mainly coincides with whenever they are doing any kind of major expansion project or technology upgrade or things like that.

Speaker Change: There's also obviously, when I say we see our revenue at the maintenance level, you know, there is this constant churn, that big chunk of our quarterly revenue is just churns.

Speaker Change: And it's just basically a love large numbers, big install base, you know, the better is die, equipment gets damaged, and they periodically replace whatever needs to be replaced.

Oleg Khaykin: And, you know, it's been a fairly consistent number for the past several quarters, which, you know, makes me feel a bit better because it just shows you that the first thing customers come back to is they start replacing what's been damaged. And as they start looking at the major new projects, and we've heard, obviously, from AT&T, but also, we're seeing, you know, Tier 2 players like Lumen recently had a call, and there are others.

Speaker Change: And, you know, it's been a fairly consistent number for the past several quarters, which, you know, makes me feel a bit better because it just shows you that the first thing customers come back to is they

Speaker Change: are replacing what's been damaged and as they start looking at the major new projects and we've heard obviously from AT&T but also we're seeing you know tier two players like

Oleg Khaykin: There's a lot of interest in developing fiber internetworking between all those hyperscale data centers. And these are the players that are actually running projects today, and they're placing orders. And, you know, clearly, so from that perspective, I don't know to what extent they have equipment inventories for, you know, networking gear, but I imagine that is also winding down.

Speaker Change: There was a lot of interest.

Speaker Change: for developing fiber inter-networking between all those hyperscale data centers. And these are the players that are actually running projects today and they're placing orders.

Speaker Change: And, you know, clearly, so from that perspective.

Speaker Change: I don't know to what extent they have equipment inventories.

Speaker Change: for networking gear by a legend that is also winding down.

Oleg Khaykin: And, you know, clearly, as they start talking about the resuming of their expansion and technology upgrade, that is what we view as positive news. In the lab and production, that is also pretty much a just-in-time type business. So when an R&D organization sees a need for new equipment, and it usually comes in when they are developing next-generation products, they start placing orders in the fiber area and the high-speed compute area. You know, high-speed compute is driving PCI Express 6.0 and the upcoming 1.6 terabits. I mean, the budgets are open, and the CapEx is flowing, and we are seeing that purely as soon as the equipment is available, they want it. So in that respect, we feel pretty good.

Speaker Change: And, you know, clearly as they start talking about the resuming their expansion and technology upgrade, that is what we view as a positive news for us.

Speaker Change: On the 11th production, that is also pretty much just in time, type business. So when an R&D organization sees a need for...

Speaker Change: new equipment, and it usually comes in when they are developing next generation product.

Speaker Change: They start placing orders.

Speaker Change: In the fiber area and the high speed compute area, you know, high speed compute is driving PCI Express 6.0 and the, you know, upcoming 1.6 turbo bits. I mean, the budgets are open and the capex is flowing and we are seeing.

Speaker Change: And as soon as the equipment is available, they want it. So in that respect, we feel pretty good. But there's also...

Oleg Khaykin: But there's also, Probably further away in the second half of the fiscal year, or first half of the calendar 25, the 1.6 terabits are flowing into module manufacturing, and we're seeing a lot of interest from the major AI players to drive upgrades in their contract manufacturing factories to be able to deploy 1.6 terabit modules and products. And for the first time, it's really the data centers that are driving the transition to higher speeds rather than service providers.

Speaker Change: probably further away in the second half of the fiscal year or first half of the calendar 25.

Speaker Change: The 1.6 terabits...

Speaker Change: is flowing into the module manufacturing and we're seeing a lot of interest.

Speaker Change: from the Major AI Players.

Speaker Change: to drive upgrades in their country manufacturing factories to be able to deploy 1.6-teravit modules and products.

Speaker Change: And for the first time, it's really the data centers that are driving the transition to the higher speeds rather than service providers. When we saw 400 gig, 800 gig, they were driven by equipment vendors to service providers. This time it's very much...

Oleg Khaykin: When we saw 400 gigabit, 800 gigabit, they were driven by equipment vendors to service providers. This time, it's very much the data centers that are driving the transition to the higher speed of the products. That's why we're feeling much more bullish on our fiber lab and production equipment. So that's kind of, you know, more color on those two areas.

Speaker Change: The data centers that are driving the transition to the higher speed, you know, speeds of the products, and that's why we're feeling much more bullish on our fiber lab and production equipment.

Speaker Change: So that's kind of, you know, more color on those two areas.

Ruben Roy: Yeah, very helpful, Oleg, and you hit my follow-up on the 1.6 terabit side, so thank you for that. I guess then I'll shift over to just a quick follow-up for Ilan on the restructuring. Ilan, you talked about, you know, the OPEX savings through the fiscal year. Maybe you can put a finer point on, you know, sort of how you're thinking about that, you know, between, you know, R&D and projects, you know, versus Sales and Marketing, and how we should kind of think about modeling that through the year in terms of the savings, you know, as it hits the model. Thank you.

Ilan Daskal: Yeah, very helpful, Oleg, and you hit my follow-up on the 1.6 tariff side, so thank you for that. I guess then I'll shift over to just a quick follow-up for Ilan on the restructuring. Ilan, you talked about the OPEX savings through the fiscal year.

Speaker Change: Put a finer pint 20th on, you know, sort of how you're thinking about that, you know, between, you know, R&D and projects, you know, versus, you know, sales marketing and, and how we should kind of think about modeling that through the year in terms of the savings, you know, as it is to model. Thank you.

Ilan Daskal: Sure. So thanks for the question. And obviously, as I mentioned earlier in the prepared remarks, most of it will be a reduction in the overall operating expenses. We don't see any of our major R&D projects being impacted or delayed due to this initiative. So these are across the board operating expenses, but none of the initiatives that we drive in terms of development will be impacted. And also, as I mentioned earlier, the full realization will be by the end of the year. So it's more of a 2026 kind of net spend there.

Speaker Change: So, thanks for the question, and obviously as I mentioned earlier, in the prepared remarks, most of it would be...

Speaker Change: a reduction of the overall operating expenses.

Speaker Change: We don't see any of our, you know, major R&D project being impacted or delayed due to this initiative.

Speaker Change: So these are, you know, across the board of the open expenses, but none of, you know, the initiatives that we drive, you know, in terms of development will be impacted.

Speaker Change: And also, you know, as I mentioned earlier, the full realization, you know, will be by the end of the year. So it's more of a 2026 kind of net spend there.

Ryan Koontz: Your next question comes from the line of Ryan Koontz with Needham. Your line is open.

Speaker Change: Got it. Thank you.

Speaker Change: Your next question comes from the line of Ryan Koontz with Needham. Your line is open.

Oleg Khaykin: Great, thanks for the question. Certainly appreciate your comments about 5G. That doesn't sound like it's coming back around anytime soon. Wanted to double-click a little bit on your comment about data center interconnect for the fiber players. Are you seeing demand there from the data center operators who are leasing dark fiber, or are they leasing actual, you know, you know, connectivity and bandwidth from the service providers on a wholesale basis?

Speaker Change: Great, thanks for the question.

Ryan Koontz: Certainly appreciate your comments about 5G. That doesn't sound like it's coming back around any time soon. I wanted to double-click a little bit on your comment around data center interconnect for the fiber players. Are you seeing demand there from the data center operators who are leasing dark fiber, or are they leasing...

Speaker Change: actual, you know, you know, connectivity and bandwidth from the service providers on a wholesale basis.

Oleg Khaykin: So, I mean, it varies across different data centers and operators, but for the biggest ones, they basically build data centers, and then they pick a vendor who lays fiber, and they lease those fibers from them. And there is a slight difference is... You know, when a service provider lays fiber, there is a lot of dark fiber, and they generally don't connect the dark fiber until they need it, maybe years later. But we're seeing with data centers; they're laying fiber.

Speaker Change: So, I mean, it varies across different data centers, operators, but, I mean, for the biggest ones, they basically build data centers, and then they pick a vendor who lays fiber and

to the Viavi Solutions 4th quarter and full year 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.

Speaker Change: And they leased those fibers from them. And with the little differences.

Unknown Executive: I will now turn the conference over to the Vibhuti Mayor, Viavi Solutions, Head of Investor Relations. Please go ahead. Thank you, Emma.

Speaker Change: You know, when a service provider lays a fiber, there's a lot of dark fiber. And they generally don't connect the dark fiber until they need it maybe years later. What we're seeing with data center, they're laying fiber.

Vibhuti Nayar: Good afternoon, everyone, and welcome to Viavi Solutions 4th quarter and full year 2024 earnings call.

Oleg Khaykin: And they also initially started doing the same thing, just lay the fiber, connect a few strands, and, you know, I'm going to lease them, and then when I need it, I turn it on. But what they are finding is that they need to turn on additional fibers, and additional bandwidth comes a lot faster than everybody thought. And more importantly, it becomes much more sensitive to the quality of performance of that fiber, right, in terms of the latency, you know, the speeds and things like that.

Ryan Koontz: And they also initially started doing the same thing, just lay the fiber, connect a few.

Vibhuti Nayar: My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions, and with me on today's call is Oleg Khaykin, our president and CEO and Ilan Daskal, our CFOs. Please note, this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations.

Speaker Change: strands. And, you know, I'm going to lease them. And then when I need it, you turn it on. What they're finding is that they need to turn on additional fibers. And additional bandwidth comes a lot faster than everybody thought. And more importantly, it becomes also much more sensitive.

Speaker Change: The quality of performance of that fiber, right, in terms of the...

Oleg Khaykin: So they're actually putting pretty strict service-level agreements as to what performance that fiber needs to deliver. And that actually plays very much to our strength because what they are realizing is traditional built fiber is fairly unreliable, and you cannot turn it on as you need it, right? So we are now working with the data center operators and with the people who provision fiber to bridge this gap to make sure that as the fiber gets deployed, you actually characterize it, and you know exactly what you are getting for, and then you can monitor it throughout its life.

Speaker Change: Latency, you know, the speeds and things like that.

Speaker Change: So they're actually putting pretty strict service level agreements as to what performance that fiber needs to deliver. And that actually plays very much to our strength.

Vibhuti Nayar: We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call, are valid only as of today. Viavi undertakes no obligation to update these statements.

Speaker Change: Because what they are realizing is traditional built fiber is fairly unreliable and you cannot turn it on as you need it, right? So we are now working with the data center operators.

Speaker Change: And with the people who provisioned fiber to bridge this gap to make sure as the fiber gets deployed, you actually characterize it and you know exactly what you're getting for, and then you can monitor it throughout the life, and when you need to turn on the next.

Vibhuti Nayar: Please also note that unless we state otherwise, all results discussed on this call, except for revenue, are non-gap. We reconcile these non-gap results to our preliminary gap financials and discuss their usefulness and limitations in today's earnings release. The release, as well as our supplemental earnings slides, which include historical financial tables, are available on Viavi's website at www.investor.viavisolutions.com. Finally, we are recording today's call and we will make the recording available on our website by 4.30 p.m. Pacific time this evening.

Oleg Khaykin: And when you need to turn on the next wavelength, it happens very quickly, which usually means you actually connect everything, and you only, by just turning it on, it becomes a software switch rather than rolling a track and starting to connect the fibers and then finding out that things may not work or things like that.

Speaker Change: Waveland, it happens very quickly, which usually means you actually connect everything, and you only, and by just turning on, it becomes a softer switch, rather than rolling a truck and starting to connect the fibers.

Oleg Khaykin: So we are seeing the level of evolution and forethought in deploying fiber networks truly changing the traditional paradigm that the service provider has been doing. And I guess it's the tier two players who are responding more proactively to the demand of data center operators. And they are the ones who are winning the business. And I think they view it as their new business model.

Speaker Change: And then finding out that things may not work or things like that. So, we're seeing the level of evolution and...

Speaker Change: forethought in deploying fiber network.

Speaker Change: truly changing the traditional paradigm that the service provider has been doing. And I guess it's the tier two players who are responding more proactively to the demand of data center operators, and they are the ones who are winning the business.

Ilan Daskal: Now, I would like to turn the call over to Ilan. Thank you, Vibhuri.

Ilan Daskal: Good afternoon, everyone, and now I would like to review the results of the fourth quarter of fiscal year 2024. Net revenue for the quarter was $252 million, which was at the midpoint of our guidance range of $246 to $258 million. Revenue was ab sequentially by 2.4 percent, and on a year of year basis was down 4.4 percent. Operating margin for the fourth quarter was 10.9 percent, which was above the midpoint of our guidance range of 9.5 percent to 11.8 percent.

Speaker Change: And I think they view it as their new business model going forward.

Ryan Koontz: Thank you, thank you for that, Oleg. And just following up on another big segment, you're within the broadband sector. I know that's been pretty depressed. You've talked about previously some pushouts in cable. Are you seeing any signs of life in cable? And obviously, we're seeing, so I assume you're seeing some pushouts in fiber and bead and these sort of things that would be driving the fiber access industry.

Speaker Change: Thank you for that, Oleg. And just following up on another big segment, you're within the broadband sector. I know that's been pretty depressed.

Speaker Change: You've talked about previously some pushouts in cable. Are you seeing any signs of life in cable? And obviously we're seeing some, I assume you're seeing some pushouts in fiber and be any sort of things. It would be driving the fiber access industry in the comments around broadband.

Oleg Khaykin: Sure, on cable. So the cable upgrade is underway, but unlike in the past, where they would just buy everything in one quarter and just kind of roll it out, they're doing it over multiple quarters, which leads to a smaller bump up in demand within the quarter. But on the other hand, it provides for a smoother shipment over multiple quarters. And I think part of it is because since the fiber to the home players has slowed down or stopped their deployment, I think the pressure is a bit less.

Oleg Khaykin: on cable. So the cable upgrade is underway.

Ilan Daskal: Operating margin increased 160 basis points from the prior quarter, and on a year of year basis was down 80 basis points. EPS at 8 cents, at the high end of our guidance range of 6 to 8 cents, and was up 2 cents sequentially. On a year-over-year basis, EPS was down two cents.

Speaker Change: But unlike in the previous things where they would just buy everything in one quarter and just kind of roll it out, they are doing it over multiple quarters.

Speaker Change: which leads you to a smaller bump up in demand within the quarter. But on the other hand, it provides for a smoother shipment over the multiple quarters. And I think part of it is because.

Ilan Daskal: For the full fiscal year, revenue was $1 billion, down 9.6% on a year-over-year basis, primarily due to conservative spend by service providers and NEMS. Operating margin for the full year was 11.5%, down 410 basis points from fiscal year 2023, and full year EPS was 33 cents, down 22 cents from the prior year, primarily due to lower year-over-year revenue.

Speaker Change: Since the fiber-to-the-home players have slowed down or stopped their deployment, I think the pressure is a bit less.

Oleg Khaykin: However, you know, I saw comments, and AT&T does appear to be serious about resuming their aggressive push for fiber to the home next calendar year. I expect the competitive pressure on cable to accelerate, and we will probably see more aggressive spending by them as well. And you know, the other area that cable was concerned about was fixed wireless. And so far, it has not been, you know, has not been a factor in terms of competitive pressure on them to do anything.

Speaker Change: However, you know, I saw comments, you know, and...

Speaker Change: And 18C does appear to be serious about the resuming.

Speaker Change: They'll aggressive push fiber to the home next calendar year. I expect the competitive pressure

Speaker Change: on cable to accelerate, and we will probably see more aggressive spend by them as well.

Speaker Change: And, you know, the other area that Cable was concerned about is the fixed wireless, and so far it has been...

Ilan Daskal: Moving on to our fourth fiscal quarter results by business segment. NSC revenue for the quarter came in at $182.2 million, which is at the lower end of our guidance range of 179 to 189 million dollars, and on a year-over-year basis, NSC revenue was down 7.9% for the quarter. An year-over-year revenue for the fourth quarter was $158.5 million, which is a 9.7% year-over-year decline, as a result of continued conservative spend by service providers and NEMS.

Speaker Change: has not been a factor in terms of competitive pressure on them to do anything. And as you pointed out earlier, I mean, as I said as well, 5G deployment, I think will be the last piece.

Oleg Khaykin: And as you pointed out earlier, I mean, as I said, as well, 5G deployment is the last piece that's going to start recovering. And, you know, I think the earliest it will be will be the end of our fiscal year or kind of the middle of next year because I'm not seeing any kind of meaningful movement there. And in fact, all the major NAMs have really kind of gone into hibernation mode where they continue to do kind of advanced research, but not much in terms of accelerating new products to market.

Speaker Change: That's going to start recovering and I think earliest will be the end of our fiscal year or kind of middle of next year because I'm not seeing any kind of meaningful movement there and in fact all the major NAMs.

Ilan Daskal: As year-revenue was $23.7 million, and up 5.8% from the same period last year, partially supported by revenue that was pushed out from Q3. NSC gross margin for the quarter was 62.1%, which is flat on a year-over-year basis. And E gross margin was 61.3%, which is a decline of 40 basis points, as compared to the same period last year. As E gross margin was 67.5%, which is an increase of 190 basis points from the same period last year, and was driven by product mix.

Speaker Change: Have really kind of gone into a hibernation mode where they continue to do kind of advanced research, but not much in terms of the accelerating new products to market.

Ryan Koontz: That makes a lot of sense. Thank you.

Ryan Koontz: And just one last quick comment on kind of the operations side. It looks like your inventory on your balance sheet was down quite a bit. Any comments around that? Are you able to kind of sell what you forecasted? And we'll be driving this step down in inventory in-house.

Speaker Change: That makes a lot of sense, thank you. And just one last quick comment on kind of the operations side. It looks like your inventory on your balance sheet was down quite a bit. Any comments around that? Are you able to kind of sell what you forecasted? And we'll be driving this step down in inventory.

Oleg Khaykin: Well, I think, you know, as we all know, during the supply chain shortage, you had to agree to a lot of terms, like kind of NCNR, non-cancellable, non-refundable. And, of course, a lot of semi-companies have kind of shoved it all down our throats.

Speaker Change: Well, I think, you know, the as we all know, during the supply chain shortage, you had to agree to a lot of.

Speaker Change: Products like kind of NCNR, non-cancellable, non-refundable, and of course a lot of semi-companies that have kind of shoved it all down our throat, so we built up some components inventory. We have been pretty much working diligently all that inventory down.

Ilan Daskal: NSC's operating margin for the fourth quarter was 1.8%, which is an improvement of 360 basis points sequentially, and 400 basis points lower than the same period last year. NSC's operating margin was at the low end of our guidance range of 1.4% to 3.6% due to lower revenue.

Oleg Khaykin: So we built up some components inventory, and we have been pretty much working diligently to get all that inventory down. But also, you know, in anti-counterfeiting manufacturing, we are holding quite a bit of raw materials. And now as anti-counterfeiting demand is starting to come back, we've been consuming the raw materials as well as the semi-finished goods. And, you know, we've been, you know, bringing inventory more in line with our kind of current run rate.

Speaker Change: But also, you know, our anti-counterfeiting manufacturing, we are holding quite a bit of raw materials.

Speaker Change: And now as the anti-counterfeiting demand is starting to come back, we've been consuming the raw material as well as the semi-finished goods. And, you know, we've been, you know, bringing inventory more in line with our kind of current run rate demand.

Ilan Daskal: OSP revenue for the quarter came in at $69.8 million, which was above the high end of our guidance range of $67 to $69 million, and was up 6.2% on a year-over-year basis as a result of strengths across all products. OSP gross margin was 53%, which is an increase of 640 basis points from the same period last year, and was primarily driven by higher revenue, favorable product mix, and production ramp at our new manufacturing facility in Chandler.

Oleg Khaykin: Perfect. We haven't been buying much new stuff, let's put it that way. Yeah, it's more to categorize it as a more normalized level now, I mean, and it will now, you know, fluctuate, you know, relatively more to revenue as opposed to kind of the prior cycle. That's right. Yeah.

Speaker Change: Perfect. We haven't been buying much new stock, let's put it that way. Yeah, it's more to categorize it as a more normalized level now, I mean, and it will now, you know, fluctuate, you know, a little bit more to revenue as opposed to kind of the prior cycle. That's right. Yep, great stuff. Thank you. That's all I've got.

Ryan Koontz: Yep. Great stuff. Thank you. That's all I've got.

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

Speaker Change: Thank you.

Speaker Change: Your next question comes in the lines of Eddie Hussini with SIG. Your line is open.

Mehdi Hosseini: Yes, thanks for taking my question. The first one has to do, Oleg, can you tell us how the quarter progressed, especially in terms of bookings? Was there significant erosion throughout different business units, service providers, CSPs, and so forth? Or did it start a week and just carry through and have a follow-up?

Eddie Hussini: Yes, thanks for taking my question. The first one has to do, Oleg, can you tell us how the quarter progressed, especially in terms of...

Ilan Daskal: OSP's operating margin was 34.8%, which is up 50 basis points sequentially, and 530 basis points increase on a year-over-year basis as a result of the higher gross margin for the third quarter, through. OSP's operating margin exceeded the high end of our guidance range of 31% to 34%.

Eddie Hussini: booking. Was there significant erosion throughout different business units, service providers, CSPs, and so forth? Or did it start a week and just carry through and have a follow-up?

Oleg Khaykin: Well, you know, actually, I'd say a difference from the prior quarters. And I mean, what we are seeing is that the forecast that we kind of assume early in the quarter largely holds.

Oleg Khaykin: Well, you know, I actually, actually, I say as difference from the prior quarters and I mean what we are seeing is the forecast that we can have.

Ilan Daskal: Moving on to the balance sheet and cash flow. Total cash and short term investments at the end of Q4 was $496.2 million compared to $486.1 million at the end of the third fiscal quarter of 2024. Cash flow from operating activities for the fourth quarter was $26.2 million versus $23.5 million in the same period last year. During the quarter we purchased 1.3 million shares of our stock for about $10 million. For the full year we purchased 2.3 million shares of for about $20 million.

Oleg Khaykin: So we've been seeing fewer decommits or cancellations. The only big cancellation we had was not really a consolation.

Eddie Hussini: Assume early in the quarter largely holds. So, we've been seeing fewer decommeds or cancellations. The only big cancellation we had.

Oleg Khaykin: Our major customer reduced their order by a third, which was on the wireless NAMs. Had that order come through, actually, we would have beaten the high end of our guidance on NSC. And it was really a major wireless player that decided to take a, you know, less product because of slowness in the market.

Speaker Change: And it was not really a cancellation, our major customer reduced the order by a third.

Speaker Change: which was on the wireless NAMS. Had that order came through, actually, we would have beaten the high end of our guidance on NSC. And it was really a major wireless NAMS, decided to take.

Speaker Change: Hey, um...

Eddie Hussini: to take a

Ilan Daskal: We have approximately $215 million remaining under our current authorized share repurchase program. The fully diluted share count for the quarter was 224.2 million shares down from 224.6 million shares in the prior quarter and versus 225.5 million shares in our guidance for the fourth quarter. The topics for the quarter was $3.8 million compared to $7.4 million in the same period last year when we were completing the construction of our new facility in Chandler.

Eddie Hussini: Yo!

Oleg Khaykin: We don't generally track, kind of rely on book-to-ship ratios because, you know, the way our market works, demand works, the June quarter and the December quarter are usually stronger, and we get a lot of bookings within the quarter. And the September and March are generally weaker, and we get, you know, a lot fewer bookings within those quarters. So, I think more and more like the way I gauge the relative health of the funnel is by looking at what kind of bookings will enter the quarter and expectations and how well they hold up or, you know, there's a lot left to go, you know, we forecast the bookings, and then we track how many of the bookings show up as they're supposed to show up.

Speaker Change: Less product!

Eddie Hussini: Because of slowness in the market.

Eddie Hussini: We don't generally track kind of relying on bookship, book-to-ship pressures because...

Eddie Hussini: You know, the way our market works.

Speaker Change: The man works.

Speaker Change: The June quarter and December quarter are usually stronger.

Speaker Change: And we get a lot of bookings within the quarter.

Speaker Change: And the September and March are generally weaker, and we get, you know, a lot less bookings within those quarters. So I look more and more like the way I gauge the relative health of the funnel.

Speaker Change: is that what kind of bookings will enter the quarter and expectations and how well do they hold up or, you know, there's a left to go, you know, we forecast.

Ilan Daskal: In June 2024 we initiated the restructuring and workforce reduction plan to improve operational efficiencies and better align with the current business needs. We expect approximately 6% of our global workforce to be impacted and estimate to incur approximately $15 million of restructuring charges in connection with this plan. As a result of this initiative we anticipate to achieve by the end of fiscal 2025 and annualized cost savings run rate of approximately $25 million which will mainly benefit our operating expenses.

Speaker Change: the bookings, and then we track.

Oleg Khaykin: And the way it makes me feel a little better is they're actually showing up, whereas before they would get pushed out or canceled. So, I think the booking environment, while the revenue may be lower, the booking environment is now more predictable and more robust, so we can plan our quarter better.

Speaker Change: How many of the bookings show up as they're supposed to show up?

Speaker Change: and the way it makes me feel a little better is they're actually showing up. Whereas before they would get pushed out or get cancelled. So I think the booking environment, while the revenue may be lower, the booking environment is now more predictable and more robust, so we can plan better our quarter.

Oleg Khaykin: Great. And then if I just double-click on OSP, should I assume that the MH sensor, what is being reflected in the guides for the September quarter, would that show any year-over-year growth?

Speaker Change: Great, and then if I just double-click on OSP, should I assume that MH sensor, what is being reflected in the guide for the September quarter, would that show any year-over-year growth?

Ilan Daskal: Moving on to our guidance. We expect that the first half of fiscal 2025 will continue to experience a conservative spend environment by service providers and names.

Mehdi Hosseini: You're talking about which segment, the 3D sensing or anti-counterfeiting? 3D sensing.

Speaker Change: You're talking which segment, the 3D sensing or anti-counterfeiting? 3D sensing.

Oleg Khaykin: Well, it's actually lower in revenue year on year because we are now going to the new ASP schedule. So there is a pricing roadmap. So the ASP is lower. The volumes are slightly the same, maybe a little higher.

Speaker Change: Well, it's actually lower in revenue year-on-year because we are now going to the new ASP schedule, so there's, you know.

Ilan Daskal: That said we believe that we are nearing the bottom of the down cycle and we expect a gradual recovery in demand in the second half of this fiscal year. Even the lingering softness we are guiding for the first fiscal quarter of 2025 revenue in the range of 235 million and $245 million. Operating margin is expected to be 10.8% plus or minus 90 basis points and EPS to be between 5 cents and 7 cents.

Speaker Change: Pricing road map, so the ASP is lower, the volumes are slightly the same, maybe a little higher, but the problem is the volume growth is not enough to have said that.

Oleg Khaykin: But the problem is the volume growth is not enough to offset the ASP erosion that just went into effect for the next year. So, but one, you know, and of course, it's still very much driven by a single customer with which we have a very high level of penetration of the product. So it's very much driven by their demand and volumes. But one thing we're also noticing there that is positive. The demand is now being a little bit better linearized throughout the year, and I think it's mainly driven by contract manufacturers who don't want to be heavily overstressed in the September-December quarter and then have a lot less demand in March and June.

Speaker Change: And of course, it's still very much driven by a single customer, which we have a very high level of penetration of product.

Ilan Daskal: We expect NSC revenue to be approximately $164 million plus or minus $4 million with a break even operating margin plus or minus 100 basis points. OSP revenue is expected to be approximately $76 million plus or minus $1 million with an operating margin of 34% plus or minus 100 basis. Our tax expenses for the first fiscal quarter are expected to be about $8 million plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $3.5 million, and the share count is expected to be about 224.2 million shares.

Speaker Change: So, it's very much driven by their demand and volumes. One thing we're also noticing there that is positive, the demand is now being a little bit better linearized throughout the year, and I think it's mainly driven...

Speaker Change: by contract manufacturers who don't want to be heavily overstressed in the September-December quarter.

Speaker Change: And then having a lot less demand in the March and June . But still, I think September-December quarters is a much higher volume.

Oleg Khaykin: But still, I think the September-December quarter is a much higher volume. And one other development I think we are now seeing, if we call them signs of life or interesting new trends, mainly the Chinese Android players are toying with 3D sensing. It's still very small volumes, just a handful of platforms. But if this becomes a major trend in adoption, this would actually be a big positive for us in 3D sensing. And there are also rumors that Samsung may be trying to make another go at it, but after having so many years of false starts, I will hold off on that one.

Speaker Change: And one other development, I think we are now seeing.

Speaker Change: And if we call them signs of life or interesting new trends...

Speaker Change: mainly the China Android players.

Speaker Change: are toying with 3D sensing. It's still very small volumes, just a handful of platforms.

Oleg Khaykin: With that, I will turn the call over to Oleg, Oleg. Thank you, Ilan. Viavi and market spend environment continues to be conservative, particularly the North American service providers. Despite these headwinds, our revenue came in at the midpoint of our guidance with stronger OSP revenue partially of setting weaker NSC demand. Our EPS was at the higher end of our guidance range.

Speaker Change: But if this becomes a major trend in adoption, this would be actually a big positive for us in 3D sensing. And there's also, you know, rumors that, you know, Samsung maybe

Speaker Change: Trying to make it out of the go at it, but after having so many years of full starts, I will hold off on that one as of the year.

Ilan Daskal: And maybe I will let you know it's about two-and-a-half. Sorry Mehdi, I just said it was about two and a half million dollars year-over-year for the first quarter. So, roughly, it could be, you know, the dynamic pricing, etc. that Oleg mentioned, but also, you know, we'll have to monitor the supply chain that Oleg just discussed, and maybe it's kind of more linearized, and over the course of two, three quarters, it will, it will kind of offset itself. Sure.

Speaker Change: And maybe I'll let you know it's about going up.

Oleg Khaykin: Starting with NSC, the fiscal fourth quarter NSC revenue came in at the lower end of our guidance range. NSC revenue declined 8% on year-over-year basis, driven by the softer demand from service providers and wireless NAMS. We believe that decline in NSC demand is bottoming out and we should start to see a recovery in the second half of the fiscal year. A bit more color on that. The first is field instruments demand the remaining largely at the maintenance levels due to the absence of major network buildouts and upgrades by tier 1 service providers, particularly in North America.

Speaker Change: It's about two and a half million dollars a year of year for the first quarter.

Speaker Change: So, actually, could be, you know, the medical pricing, etc., that all I've mentioned, but also, you know, we'll have to monitor the supply chain, the dollars, just discuss, you know, and maybe it kind of more linearized and, you know, over the course of two, three quarters it will, it will kind of offset itself.

Mehdi Hosseini: Sure, just for the sake of modeling. The implied midpoint of your guide implies about a 9% sequential growth in OSP. Is that driven by both 3D sensing and fraud?

Speaker Change: Sure, just for proof of modeling.

Speaker Change: The implied, midpoint of your guide implies by a 9% sequential growth in OSP, is that driven by both 3D-10s in canofread?

Oleg Khaykin: Well, I think the anti-counterfeiting business is starting to rebound. I mean, a lot of the inventories have been consumed. So we have a I mean, there's an uptick in there, but also, 3D sensing has higher numbers, but you have to discount it for some of the ESP erosion. So, yes, you know, you probably would be in closer to an $80 million range between the two of them. But of course, its both segments are doing better demand wise and volume wise than in the prior year.

Oleg Khaykin: That said, the investment in data center fiber internet working by tier 2 operators, together with recent comments by major service providers regarding their fiber plans, leads us to expect a pickup and field instrument demand in the second half of fiscal 2025. Our wireless demand continues to be impacted by sharply reduced R&D and production capex spent by major wireless NAMS who have reduced investments in response to significant cutbacks and 5G deployment by wireless operators.

Speaker Change: Well, I think the I think the anti-counterfeiting business is

Speaker Change: Starting to rebound.

Speaker Change: I mean a lot of the inventories have been consumed so we have a

Speaker Change: I mean, there's an uptick in there, but also 3D sentencing has a higher numbers.

Speaker Change: But you have to discount it for some of the ASP erosion, so you know, you probably would be in the...

Speaker Change: A quarter to an $80 million range between the two of them, but of course, it's both segments are doing better demand-wise, volume-wise than in the prior year.

Mehdi Hosseini: Okay. Well, thank you.

Oleg Khaykin: And, you know, for us, it's very important for anti-counterfeiting to start recovering because that's where, you know, a lot of big iron is sitting in terms of the manufacturing assets. So, clearly, driving better absorption of stronger anti-counterfeiting demand has a bigger impact on the operating margin of the OSPB.

Oleg Khaykin: One positive recent trend we are seeing is the emergence of many new customers pursuing or ran development however their cumulative spend is still relatively small. Other parts of NSC are faring much better fiber lab and production demand was slightly up. We expect the upcoming transition to 1.6 terabits and ramp of PCI Express 6.0 to drive recovery and growth during the fiscal 25. For fiber 11 production. Mill error business continues to be a bright spot seeing year over year growth in revenue driven by strong customer demand for communication, avionics and positioning navigation and timing products.

Speaker Change: Okay. Well, thank you.

Speaker Change: And, you know, for us, it's very important.

Speaker Change: for anti-counterfeiting to start recovering because

Speaker Change: That's where, you know, a lot of big iron is sitting in terms of the manufacturing assets. So clearly driving a better absorption on a stronger anti-counterfeiting demand has a bigger impact on the operating margin of the OSP business unit.

Mehdi Hosseini: Thank you.

Oleg Khaykin: God.

Speaker Change: God, thank you.

Operator: The next question comes from the line of Michael Genovese with Rosenblatt. Your line is open.

Speaker Change: Your next question comes from the line of Michael Genovese with Rosenblatt. Your line is open.

Michael Genovese: Great, thanks. I just have one question, which is, you know, Oleg, you've spoken a lot about how AI and data center investment can improve or help field testing over time. I just wanted to kind of more directly connect the dots on how it could help field test. And so, you know, is the Lumen announcement about their investment in AI key to the second half recovery, or, you know, other things like that? Do we expect other service providers to announce something similar? I guess there are a few questions in there, but if you could kind of run with those thoughts, I would appreciate it.

Michael Genovese: Great, thanks. I just have one question, which is, you know, Oleg, you've...

Oleg Khaykin: You've spoken a lot about how AI and data center investment

Oleg Khaykin: We expect this business segment to enjoy strong demand throughout fiscal 25. SE segments grew year on year helped by enterprise orders that were pushed out from Q3. We are seeing a lot of interest in our AI ops products and expected to be a growth driver for fiscal 25 and BF.

Speaker Change: you know, can improve or help.

Speaker Change: field test over time. I just wanted to...

Speaker Change: kind of more directly connect the dot on how it could...

Speaker Change: Help Field Test. And so, you know, is the Lumen announcement about their investment in AI, is that key to the second half recovery or, you know, other things like that? Do we expect other service providers to announce something similar? I guess there's a few questions in there, but if you could kind of run with those thoughts, I would appreciate it.

Oleg Khaykin: As we look at Q1 fiscal 25 we expect a seasonally weaker demand driven by similar dynamics as in Q4. Continued demand weakness from the service providers in wireless and wireless NAMS leading to overall weaker NE and seasonally weaker AC revenue offset by continued strength and 5 or 11 production and male error business. Looking ahead at fiscal 25 for NSC, we expect the conservative spend environment to persist for the remainder of calendar 24 and a gradual demand recovery in the first half of calendar 25.

Oleg Khaykin: Well, sure. I think all of that is goodness. Actually, those are all positive things.

Speaker Change: Well, sure. I think all of that is good, and actually those are all positive things. I mean, to be fair. I mean, Lumen.

Oleg Khaykin: I mean, to be fair, I mean, Lumen, to give them credit, even when they were really beaten down in the last 12 months, they've actually been, you know, when I talk about the Tier 2s being more aggressive, I think Lumen has been one of the more proactive and more innovative companies in that space, in terms of what technology they deploy and how they roll out their value proposition. And I mean, we like Lumen because they actually listen to a lot of good innovative ideas, and they're one of the more innovative players in terms of implementing things that truly differentiate them from the run-of-the-mill fiber operators.

Speaker Change: to give them credit, even when they were really beaten down in the last 12 months.

Speaker Change: They've actually been, you know, when I talk about the tier twos being more aggressive, I think Lumen has been one of the...

Speaker Change: More proactive and more innovative companies in that space in terms of how what technology they deploy and how they roll out their value proposition and I mean

Oleg Khaykin: Now turning to OSP, the fiscal fourth quarter OSP groom on a year-over-year basis mainly driven by higher demand for anti-counterfearing and 3-d sensing products. Overall, OSP results exceeded the higher end of our guidance range. Looking ahead, we expect OSP to be sequentially up in the September quarter, mostly driven by seasonally stronger demand for 3-d sensing products. Overall, we expect fiscal 25 or OSP demand to be similar to fiscal 24.

Speaker Change: We like Lumen because they actually listen to a lot of good, innovative ideas and they're one of the more innovative players in terms of implementing

Oleg Khaykin: So, you know, I'm not going to say any more on that, but Lumen, you know, they didn't just start it. They've been doing it for the past year and a half, even when they were beaten down to the pulp.

Speaker Change: All these are things that truly differentiate them from the round of the mill fiber operators. So, you know, I'm not going to say any more on that. But Lumen, you know, they didn't just start it. They've been doing it for.

Speaker Change: for the past year and a half, even when they were beaten down into the pulp, they continued with the innovation.

Michael Genovese: I guess there's any more. I mean, I guess you did touch on this a bit earlier, but any more color or commentary prediction on, you know, this AI investment, creating more, whether it's optical or fiber, you know, whether it's an optical kind of core or fiber access demand. So that's why I zeroed in on Lumen there, because it seems like their AI investment will do that. Yes, because when I was talking about it, in particular, if you look at one point six terabits.

Oleg Khaykin: To summarize, the fiscal 24 was a challenging year for Viavi in the industry. While we expect the soft market environment to persist for the remainder of calendar 24, we anticipate the start of gradual recovery in first half of calendar 25.

Speaker Change: I guess there's any more. I mean, I guess you did touch on this a bit earlier, but any more color or comments?

Speaker Change: A prediction on, you know, this A.I. investment.

Speaker Change: Creating more, whether it's optical or fiber, you know, so optical kind of core or fiber access.

Oleg Khaykin: I would like to thank my Viavi team for managing through this challenging environment and express my appreciation to our employees, customers and shareholders for their support.

Speaker Change: So that's why I zeroed in on Lumen there because it seems like their AI investment will do that.

Vibhuti Nayar: With that, I'll turn it over to the booty. We're ready for the Q&A, Emma. Thank you.

Unknown Executive: We ask today that you limit yourself to one question and one follow-up. Thank you.

Speaker Change: Because, so when I was talking about it is the, in particular if you look at 1.6 tbps.

Michael Genovese: I mean, traditionally, you know, driving from 10 gigabits to 100 gigabits, 100 gigabits to 400 gigabits, 400 gigabits, maybe to 800 gigabits. Traditionally, the drive to adoption of higher speeds was driven by NEMS supplying services providers.

Speaker Change: I mean, traditionally, driving from 10 gig to 100 gig, 100 gig to 400 gig, 400 gig maybe to 800 gig, traditionally, the drive to adoption of the higher speeds was driven by NAMS supplying into service providers.

Ruben Roy: Your first question comes from the line of Rubin Roy with Stiefel. Your line is open. Thank you. Hi, everybody. Oh, like thanks for the detail around how you're thinking about the near-term environment and then the first half of next calendar year.

Oleg Khaykin: 800 gigabits was kind of like a mix between service providers and data centers. 1.6 terabits is being driven all by data. And what we are seeing is the rate of fiber bandwidth consumption. You know, whereas let's say a service provider will lay a fiber and then maybe every couple of years, they would turn on another fiber strength. And they generally only connect one, and then they roll the tracks to connect the others as they need them.

Speaker Change: 800 gig was kind of like mixed between service providers and data centers. 1.6 terabytes is being driven all by data centers.

Oleg Khaykin: Can you drill in a little bit on how you're thinking about inventory levels at your customers by field instruments and then also lab instruments and then I had one or two quick follow-ups. Thank you. Sure. I mean, there's really no inventory. Just speak of all of our deliveries for field instruments to our customers are just in time and it's mainly coincides with whenever they are doing any kind of major expansion projects or technology upgrade or things like that.

Speaker Change: And what we are seeing is the rate of fiber bandwidth consumption.

Speaker Change: You know whereas let's say a service provider will lay a fiber and then maybe every couple years they would turn on another fiber strand

Speaker Change: And they generally only connect one and then they throw the trucks to connect the others as they need it.

Oleg Khaykin: What we are seeing with data centers is, A, more strands being enabled from the get-go. They just may be sitting dark, but they actually pay for connecting all the strands. So then, as they need it, they trim them down quicker. And the reason they're doing it is that the time between lighting up one fiber and lighting up the next fiber is much, much shorter. And they see their traffic grow much faster than the service provider.

Speaker Change: What we are seeing with data centers is...

Speaker Change: Hey!

Speaker Change: More strands being enabled from get-go.

Speaker Change: They just may be sitting dark, but they actually pay for connecting all the strands, so then as they needed.

Oleg Khaykin: There's also obviously, when I say we see our revenue at the maintenance level, there is this constant turn that big chunk of our quarterly revenue is just turns and it's just basically low of large numbers, big install base. The batteries die, equipment gets damaged and they periodically replace whatever needs to be replaced and it's been a fairly consistent number for the past several quarters which makes me feel a bit better because it just shows you that the first thing customers come back to is they start replacing what's been damaged and as they start looking at the major new projects and we've heard obviously from AT&T but also we're seeing tier two players like those Lumen recently had a call and there's others.

Speaker Change: They turn them up quicker and the reason they're doing it is the time between lighting up fiber and lighting up the next fiber, the time is much, much shorter. And they see their, as they see their traffic grow much faster than the service provider. So in that respect, I see.

Oleg Khaykin: So in that respect, I see them looking at the fiber interconnection between their data centers completely differently than the service provider would look at for their metro and core network. And I view that as a positive for us because that basically means much more frequent changes and a need for a much faster response.

Speaker Change: them looking at the fiber interconnecting between their data centers are completely different than the service provider would look for their metro and core network. And I view it as a positive for us because that basically means

Speaker Change: Much more frequent changes and need for a much faster response of this.

Speaker Change: Thanks. I appreciate the callers.

Operator: Your next question comes from the line of Meta Marshall with Morgan Stanley.

Speaker Change: it

Speaker Change: Your next question comes from the line of Mita Marshall with Morgan Stanley. Your line is open.

Karan Juvekar: Hi, this is Karan Juvekar on Formida. So first question, just on the NSE side, I know you're sort of expecting a conservative spend environment throughout the calendar year. I guess as you look into the first half of next year, where you expect some uptick, are you expecting sort of a step function recovery in revenues or a more gradual recovery? And I guess just parsing out between European and U.S. carriers, just any trends to be mindful in terms of how you're thinking about the recovery. I know North America is the most challenged today, but I expect the recovery there to play out.

Oleg Khaykin: There's a lot of interest for developing fiber internet working between all those high-per-scale data centers and these are the players that are actually running projects today and they're placing orders and clearly so from that perspective, I don't know to what extent they have equipment inventories for networking gear but I imagine that is also winding down and clearly as they start talking about the resuming their expansion and technology upgrade, that is what we view as a positive, for us. On the 11 production, that is also pretty much just in time type business.

Oleg Khaykin: What you said, service, what function?

Karan Juvekar: Hi, this is Karan Juvekar on Formida. So first question just on the NSE side, I know you're sort of expecting a conservative spend environment throughout the calendar year. I guess as you look into the first half of next year where you expect some uptick, I guess.

Speaker Change: Are you expecting sort of a step function recovery in revenues, or a more gradual recovery, and I guess just parsing out between European and U.S. carriers, just any trends to be mindful in terms of how you're thinking about a recovery? I know North America is the most challenged today. How do you expect the recovery there to play out?

Speaker Change: Now, would you say service, what function do you mean like an E and a C or?

Karan Juvekar: No, no, just the recovery.

Oleg Khaykin: or sort of more gradual. Oh, step function. Got it, got it.

Speaker Change: No, no, just the recovery being a step function or sort of more gradual. Oh, step function. Got it, got it. I think it's, you know, so look at it, so there's the basic things like field instruments. I think that's being a...

Oleg Khaykin: I think it's, you know, so look at it. So there are the basic things like field instruments. I think that's being a, I would say not a big step, but lots of little steps because those are driven by projects. So I think it's a gradual recovery, you know. And I would say, you know, amazingly, Europe has not been that bad. Yes, they have slowed down, but nowhere near as bad as North America. North America has been crickets, basically, for the last two years.

Oleg Khaykin: So when an R&D organization sees a need for new equipment, and it usually comes in when they are developing next-generation products, they start placing orders in the fiber area and the high-speed computer area. High-speed computer is driving PCI Express 6.0 and the upcoming 1.6 terbits. I mean, the budgets are open and the CAPEX is flowing and we are seeing purely, as soon as the equipment is available, they want it. So in that respect, we feel pretty good.

Speaker Change: I would say not a big step, but like a lot of little stuff because of the driven by projects.

Speaker Change: So I think it's a gradual recovery.

Speaker Change: And I would say, you know, amazingly, Europe has not been that bad. Yes, they've slowed down, but nowhere near as bad as North America, and North America has been crickets, basically, for the last two years.

Oleg Khaykin: So I think in terms of a step function, clearly, if AT&T will continue to proceed with their plans to accelerate and resume their fiber to the home, in a way, it will be a bit of a step function for the fiber instruments. And usually, if somebody as big as AT&T restarts a deployment, it sends a, you know, a shock through the industry, which means the cable guys are going to have to accelerate. The wireless may have to do something more because then it creates a nice competitive whirlwind that everybody needs to start responding to.

Speaker Change: So, I think, in terms of a step function, clearly,

Oleg Khaykin: But there's also probably further away in the second half of a fiscal year or first half of the calendar 25. The 1.6 terbits is flowing into the module manufacturing and we're seeing a lot of interest from the major AI players to drive upgrades in their contract manufacturing factories to be able to deploy 1.6 terbits modules and products. And for the first time, it's really the data centers that are driving the transition to the higher speeds rather than service providers.

Speaker Change: If AT&T will continue to proceed with their plans

Speaker Change: to accelerate and resume their fiber to the home. In a way, it will be a bit of a step function for the fiber instruments. And usually, if somebody as big as...

Speaker Change: AT&T restarts deployment it sends a you know a shock through the industry which means the cable guys are going to have to accelerate the wireless may have to do something more because then it creates a nice

Speaker Change: competitive whirlwind that everybody needs to start responding so

Oleg Khaykin: So it generally, just as when they stop spending, everybody else stops spending. When they start spending, others are usually going to follow, usually. But, you know, I don't want to create an expectation of a step function.

Oleg Khaykin: When we saw 400 gig, 800 gig, they were driven by equipment vendors to service providers. This time, it's very much the data centers that are driving the transition to the higher speed, you know, speeds of the products. And that's why we're feeling much more bullish on our fiber, lab and production equipment. So that's kind of, you know, more color on those two areas. Yeah, very helpful. Again, and you hit my follow-up on the 1.6 terbits side. So thanks for that.

Speaker Change: It generally, just as when they stop spending, everybody else stops spending. When they start spending, others are going to follow usually. But you know, I don't want to create expectation of a step function. I'd rather go with a gradual recovery in the base demand.

Oleg Khaykin: I'd rather go with a gradual recovery in base demand, but where I see a greater acceleration is really the fiber lab and production. And we do think 1.6 terabits will be a big driver in the first half of next calendar year. OK, and in terms of the clear, as North America starts to recover, I mean, Europe follows pretty quickly. But the good news is Europe never really did not really get down as much as North America.

Speaker Change: Where I see a greater acceleration is really the fibre lab and production, and we do think 1.6 terabits will be a big driver in the first half of next calendar year.

Speaker Change: Okay, and in terms of the, clearly as North America starts to recover, I mean, Europe follows pretty quickly. But the good news is Europe never really, did not really get down as much as...

Oleg Khaykin: So I expect the recovery in Europe to be a bit more mild. But what's also really interesting is we're seeing a lot more aggressive plans in Latin America, which you think always will be the last ones, but they are actually, in many ways, playing catch up. And we're seeing some of the more interesting opportunities, especially for our AI operations and some of the other products coming out of Central and South America as well. And they have been pretty solid all along.

Ilan Daskal: I guess then I'll shift over to just a quick follow-up for Elon on the restructuring. Elon, you talked about, you know, the OPEX savings through the fiscal year, maybe you can put a firing point on sort of how you're thinking about that, you know, between, you know, R&D and projects versus sales and marketing and how we should kind of think about modeling that through the year in terms of the savings, you know, as it is to model.

Speaker Change: North America, so I expect.

Speaker Change: The recovery in Europe to be a bit more mild, but what's also really interesting is we're seeing a lot more aggressive.

Speaker Change: plans in Latin America, which is you think always will be the last ones, but they are actually in many ways been playing catch-up, and we're seeing some of the more interesting opportunities, especially for our AI ops.

Speaker Change: and some of the other products coming out of Central and South America as well.

Karan Juvekar: Okay, okay, that's very helpful. And then I know you mentioned earlier that sort of on the OSP side, inventories are sort of depleted, but I just wanted to get a little bit more color on trends you're seeing there. What sort of drove the upside? Is it run inventory builds or new prints and just expectations on that moving forward? That would be helpful. Thank you.

Speaker Change: And it has been pretty solid all along.

Ilan Daskal: Thank you. Sure. So thanks for the question. And obviously, as I mentioned earlier, in the preparation, more explicitly, most of it will be a reduction of the overall operating expenses. We don't see any of our, you know, major R&D project being impacted or delayed due to this initiative. So these are, you know, across the board of the open expenses, but none of, you know, the initiatives that we drive, you know, in terms of development will be impacted. And also, you know, as I mentioned earlier, the full realization, you know, will be by the end of the year.

Speaker Change: Okay, okay, that's very helpful. And then I know you mentioned earlier that sort of...

Speaker Change: On the OSP side, inventories are sort of depleted, but I just wanted to get a little bit more color on trends you're seeing there. What sort of drove the upside? Is it around inventory builds or new prints and just expectations on that moving forward? That would be helpful. Thank you.

Oleg Khaykin: You're talking about our internal inventories, right? Not the inventories of the service providers. Which inventories are you talking about?

Speaker Change: You're talking about our internal inventories, right, not the inventories of the service providers. Which inventories are you talking about?

Karan Juvekar: Like the OSP side of inventories, so yeah, Europe. OSP, yes.

Oleg Khaykin: So, as I mentioned earlier, we are seeing some recovery in the anti-counterfeiting demand, and it's really driving, I mean, a lot of the inventory that was built up in the channel during COVID because they also ordered a lot of material and products to keep on hand. A lot of it has been wound down and consumed. So the orders that are coming back are really more in line with demand and consumption and less of a restocking orientation. Okay, that's helpful. Thank you.

Speaker Change: Like the OSP side in Victoria, so as I mentioned earlier, we are seeing some recovery in the anti-contro feeding demand, and it's really driven a lot of the inventory that was

Ilan Daskal: So it's more of a 2026 kind of net spend there. Thank you.

Ryan Koontz: Your next question comes from the line of Ryan Coots with Needham. Your line is open. Great. Thanks for the question. Let me appreciate your comments about 5G. That doesn't sound like it's coming back around anytime soon.

Speaker Change: Built up in the channel during COVID because they also ordered a lot of material and products to keep on hand. Finally, a lot of it has been wound down and consumed. So the orders that are coming back is really...

Oleg Khaykin: One of the double click a little bit on your comment around data center interconnect for the fiber players. Are you seeing demand there from the data center operators who are leasing dark fiber or are they leasing actual, you know, you know, connectivity and bandwidth from the service providers on a wholesale basis? So, I mean, it varies across different data centers operators, but I mean, for the biggest ones, they basically fill data centers and then they take a vendor who lays fiber and and they lease those fibers from them.

Speaker Change: more in line with the demand and consumption and less of the restocking or anything like that.

Speaker Change: Okay, that's helpful. Thank you.

Operator: Your next question comes from the line of Tim Savageaux with Northland Capital.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Tim Savageaux with Northland Capital.

Timothy Savageaux: Hey, good afternoon. I have a couple questions. First, on the guide, I think if I heard you right, because you would expect to see kind of a double-digit million sort of sequential increase in OSP, And I guess you're saying you would have seen something closer to that, were it not for the ASPs and that comment about, you know, 80 million or initially looking at it, you think maybe something, there's some negatives in the currency business, but, but it sounds like maybe

Speaker Change: Your line is open.

Tim Savageaux: Hey, good afternoon. A couple questions. First on the guide, I think if I heard you right, because you would expect to see kind of a double-digit million sort of sequential increase in OSP.

Speaker Change: And I guess you're saying you would have seen something closer to that, were it not for the ASPs and that comment about, you know, $80 million or...

Oleg Khaykin: And what's a little difference is, you know, when a service provider lays a fiber, there's a lot of dark fiber and they generally don't connect the dark fiber until they needed maybe years later. But we're seeing with data center, they're laying fiber and they also initially started doing the same thing, just lay the fiber, connect a few strands and, you know, I'm going to lease them and then when I need it, you turn it on.

Speaker Change: initially looking at it you think maybe something so there's some negatives in the currency business but but it sounds like maybe not did I get that right?

Oleg Khaykin: No, there are no negatives in the currency business. I think the people were just talking about 3D sensing demand. I mean, we have a new pricing in place, and clearly, with the ASP erosion, it's taken down some of the revenue because the volumes are not that much more than they were a year ago. So that was what I was talking about. Yeah, I get that. We would have been getting closer. I get that relative.

Speaker Change: No, there's no negators in the currency bill business. I think the people were just talking about.

Speaker Change: 3D-sensing demand

Speaker Change: I mean, we have a new pricing in place, and clearly with the ASP erosion, it's taken down some of the revenue, because the volumes are not that much more than they were a year ago. So that was what I was talking about. Yeah. I get that. We would have been closer. I get that relative.

Oleg Khaykin: What they are finding is that they need to turn on additional fibers and additional bandwidth comes a lot faster than everybody thought. And more importantly, it becomes also much more sensitive, the quality of performance of that fiber, right, in terms of the latency, you know, the speeds and things like that. So they're actually putting pretty strict service level agreements as to what performance that fiber needs to deliver. And that actually plays very much to our strength because what they are realizing is traditional built fiber is fairly unreliable and you cannot turn it on as you need it, right?

Timothy Savageaux: I get that relative to last year, I was just talking sequentially, but I think we're talking about the same thing. And a similar question on NSE coming down sequentially, and it looks like that could be some seasonality that you see typically there, but is there any particular product or end market driving that sequential decline in NSE for Q125? I think it's really more seasonality. I mean, just weaker demand. But I mean, clearly, we normally would have gotten some more orders. I think I'd say wireless NAMS is probably one area where the demand is lower. And I would say just in general, you know, the service provider field instrumentation just, you know, demand is weaker.

Speaker Change: I'll see you next time.

Speaker Change: I get that relative to last year, I was just talking.

Speaker Change: sequential, but I think we're talking about the same thing. And a similar question on NSE coming down sequentially. It looks like that, you know, could be some seasonality that you see typically there, but is there any particular product or end markets driving that sequential decline in NSE for Q125?

Speaker Change: I think it's really more a seasonality. I'm just weaker demand, but I'm in clearly.

Oleg Khaykin: So we are now working with the data center operator and with the people who provision fiber to bridge this gap to make sure as the fiber gets deployed, you actually characterize it and you know exactly what you're getting for. And then you can monitor it throughout the life. And when you need to turn on the next wavelength, it happens very quickly, which usually means you actually connect everything and by just turning on, it becomes a softer switch rather than rolling a truck and starting to connect the fibers and then finding out that things may not work or things like that.

Speaker Change: We normally would have gotten some orders

Speaker Change: I think I'd say wireless NAMS is probably one area where the demand is lower. And I would say just general, you know, the service provider field instrumentation.

Speaker Change: and just, you know, demand is weaker.

Oleg Khaykin: Okay, thanks. And then, back on the... kind of AI data center side. And I don't know if you break it out or look at it this way, but

Speaker Change: Okay, thanks, and then on back on the...

Speaker Change: Kind of AI data center, so I don't know if you break it out or look at it this way, but I think it'd be interesting to get a sense for within.

Timothy Savageaux: I think it'd be interesting to get a sense for within the NE segment, you know, what sort of revenue level you can attach to data center overall, fiber-driven data center, whether that, You know, 800 gigabit test going to 1.6 in lab and production. You can assume, you know, a good bit of that's probably data center driven. And you've mentioned the potential for more field instrumentation driven by that. But... You know, if you had to take a swing at it, would you say... You know, data centers have the prospects of getting up toward, you know, 10% of your business over time, or is it there now, or some sort of order of magnitude.

Oleg Khaykin: So we are seeing the level of evolution and forethought in deploying fiber network truly changing the traditional paradigm that the service provider has been doing. And I guess it's the tier two players who are responding more proactively to the demand of data center operators and they're the ones who are winning the business. And I think they view it as their new business model going forward. Thank you for that.

Speaker Change: The Any Segment

Speaker Change: You know, what sort of revenue level can you attach to...

Speaker Change: You know, data center overall, or...

Speaker Change: fiber-driven data center whether that's

Speaker Change: You know, 800 gig tests going to 1.6 in lab and production.

Speaker Change: You can assume, you know, a good bit of that's probably data center driven, and you've mentioned the potential for more field instrumentation driven by that.

Oleg Khaykin: And just phone up on another big segment, your It was in the broadband sector. I know that's been pretty depressed. You've talked about previously some pushouts in cable. Are you seeing any signs of life in cable? And obviously we're seeing some pushouts in fiber and be any sort of things that will be driving the fiber access industry. New comments around broadband. So the cable upgrade is underway, but unlike in the previous things where they would just buy everything in one quarter and just kind of roll it out, they're doing it over multiple quarters, which leads you to a smaller bump up in demand within the quarter, but it on the other hand, it provides for a smoother shipment over the multiple quarters.

Speaker Change: You know, if you had to take a swing at it, would you say...

Speaker Change: You know, data centers has the prospects of getting up toward, you know, 10% of your any business over time or is it there now or some sort of order of magnitude.

Oleg Khaykin: You know, I'm not going to get into this thing because, I mean, any number I give you will ultimately be a BS number anyway. So, I mean, I don't think there's really any good research or understanding because, I mean, the one thing I can tell you is the 1.6 terabits next year will be driven all by data centers, right? Whereas when we went from 400 to 800, it was primarily driven by carriers and NAMS supplying carriers.

Speaker Change: You know, I'm not going to get into this thing because, I mean, any number I give you will ultimately be a BS number anyhow. So I mean, I don't think there's really any good research or understanding because

Speaker Change: I mean, the one thing I can tell you is the...

Speaker Change: 1.6 TB is next year, we'll be driven all by data centers, right? Whereas when we went from 400 to 800, it was primarily driven by a carryers and names supplying carryers.

Oleg Khaykin: So, I think, you know, I don't really try to supply a data center or carry nodes. I mean, fundamentally, it's all driven by technology. But I would just say that 1.6 terabits will be driven by data center demand. I mean, if you want to ascribe that revenue to that, I mean, maybe, eventually, we can start doing segmentation on the end market use. But usually, the same line, just like for 800 gigabit, the line that was built originally for service providers ends up supplying data centers.

Oleg Khaykin: And I think part of it is because since the fiber to the home players have slowed down or stopped their deployment, I think the pressure is a bit less. However, you know, I saw comments and AT&T does appear to be serious about resuming their aggressive push fiber to the home next calendar year. I expect the competitive pressure on cable to accelerate and we will probably see more aggressive spend by them as well.

Speaker Change: I think, you know, I don't really try to splice data center or carry node. I mean, fundamentally, it's all driven by technology.

Speaker Change: But I would just say that 1.6 terabytes will be driven by data-centered demand.

Speaker Change: If you want to subscribe that revenue to that, I mean, maybe eventually we think stabilized, we can start doing segmentation on the end market use.

Speaker Change: But usually the same line, just like for 800 gig, the line that was built originally for service providers.

Oleg Khaykin: When service providers start spending, you know, you can't really control it because it's a multi-use technology. So, we think of it more as to who will be the lead customer driving it. And, you know, for the first time, I think data centers will drive the next technological node. And in terms of the build out of the networks, it is still the service providers, but fiber, but it's tier two service providers who are providing those fiber interconnects between all the data centers rather than the big players like say AT&T or Verizon.

Oleg Khaykin: And, you know, the other area that cable was concerned about is the fixed wireless and so far, it has been, you know, has not been a factor in terms of competitive pressure on them to do anything. And as you pointed out earlier, I mean, as I said, as well, 5G deployment, I think will be the last piece that's going to start recovering. And, you know, I think earliest will be the end of our fiscal year or kind of middle of next year.

Speaker Change: Ended up supplying data centers when the service provider starts planning, you know, you can't really because it's a multi-use technology

Speaker Change: So we think of it more as to who will be the lead customer driving it, and you know for the first time I think data centers will drive the next technology node.

Speaker Change: in terms of the build-out of the networks.

Speaker Change: It is still the service providers, but it's the Tier 2 service providers who are providing those fiber interconnect between all the data centers, rather than the big players like say AT&T or Verizon. So I mean... Thank you.

Oleg Khaykin: So I'm not seeing any kind of meaningful movement there. And in fact, all the major names have really kind of gone into hibernation mode where they are continue to do kind of advanced research, but not much in terms of the accelerating new products market. That makes a lot of sense.

Oleg Khaykin: So, I mean, whether it's a data center today or they take some of that fiber and give it to them in the future for 5G towers, I mean, it's a multi-use. So, we don't really sweat trying to figure out what the end market is.

Speaker Change: I mean, whether it's data center today, or they take some of that fiber and give it to in the future for 5G towers. I mean, it's a multi-use, so we don't really sweat trying to figure out what's the unmarked event.

Unknown Executive: Thank you.

Timothy Savageaux: Okay, I understand. Let me..., take one last desperate attempt at that question and say, Art, if you were to replace the 800 gigabit data center in my question or AI data center with 800 gigabits, it might be a little bit easier to give us a sense of the..., the size of your 800 gigabit business relative to your overall test business, in network, in any.

Art: Okay, I understand. Let me take one last desperate attempt at that question and say, Art, if you were to replace 800 gig and replace data center in my question or AI data center with 800 gig

Ilan Daskal: And just one last quick comment on the operation side, click your inventory on your balance sheet was down quite a bit. Any comments around that? Are you able to kind of sell what you forecasted and will be driving the step down in inventory in house? Well, I think, you know, the as we all know during the supply chain shortage, you had to agree to a lot of product, like kind of NCNR, non-cancellable, non-refundable.

Speaker Change: It might be a little bit easier to give us a sense of the...

Speaker Change: The size of your 800 gig business relative to your overall test business.

Speaker Change: in network, in any.

Oleg Khaykin: Well, I have the numbers, but now you're asking me to go into the segment reporting that we don't report. Because, I mean, there is a 400 gigabyte, 800 gigabyte, and now later this calendar year we're going to have 1.6 terabytes. I mean, those things are, it's just like a sediment chart. There keeps going down, and the other one goes back up, and there is a substitution. So I don't think I'm going to go into that level of detail.

Speaker Change: I have the numbers but now you ask me to go into this segment reporting that we don't report because I mean there's a, at any given time we have a 400 gig, 800 gig and now.

Ilan Daskal: And of course, a lot of semi companies have kind of shoved it all down our throat. So we built up some components inventory. We have been pretty much working diligently all that inventory down, but also, you know, our anti counterfeiting manufacturing, we're holding quite a bit of raw materials. And now as the anti counterfeiting a demand is starting to come back, we've been consuming the raw material as well as the semi finished goods. And, you know, we've been, you know, bringing inventory more in line with our current kind of current run rate demand.

Art: Later this calendar year, we're going to have 1.6 terabits. I mean, those things are, it's just like a sediment chart that keeps, you know, one goes down, the other one goes back up, and there's a substitution. So I don't think I'm going to go into that level of detail.

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

Speaker Change: Fair enough. Thanks.

Mediosini: Your next question comes from the line of Mediosini with SIG. Your line is open.

Mehdi Hosseini: Yes, sir. Thank you.

Ilan Daskal: Perfect. We haven't been buying much in stock. Let's put it L.A. Yeah, it's more to categorize it as a more normalized level now. I mean, and it will now fluctuate, you know, relative more to revenue as opposed to kind of the virus cycle. That's right. Yep. Great stuff. Thank you. That's all I've got.

Mehdi Hosseini: A couple of housekeeping items. Given the fact that the $25 million of annualized cost savings is going to materialize in the second half of fiscal year 2025, should I keep the OPEX kind of slavish from here? And the implied OPEX for September is 120. And I'm just wondering how I should model that for the rest of the fiscal year.

Unknown Executive: Thank you.

Speaker Change: Given the fact that the 25 million of annualized cost savings is going to materialize second half of fiscal year 25

Speaker Change: Should I keep the OPEX kind of slavish from here and the implied OPEX for the September is 120 and I'm just wondering how should I model that for the rest of the fiscal year?

Eddie Hosseini: Your next question comes from the lines of Eddie Hosseini with SIG. Your line is open. Yes, thanks for taking my question. The first one has to do Oleg. Can you tell us how the quarter progress, especially in terms of booking, was there significant erosion throughout different business units, service providers, CSPs and so forth? Oh, did it start week and just carry to run a half a follow-up? Well, you know, the actually, I say as difference from the prior quarters and I mean what we are seeing is the forecast that we kind of assume early in the quarter largely holds. So we've been seeing fewer decommage or cancellations. The only big consolation we had in it was not really consolation.

Ilan Daskal: Generally, yes. You know, there are several puts and takes. Obviously, some of it has to do with merit increases and variable employee costs. But generally, yes, you're right. OK.

Speaker Change: Generally, yes, there are several puts and takes, obviously some of it has to do with merit increase and variable employee costs, but generally yes, you're right.

Mehdi Hosseini: Okay. And what about the fiscal year tax rate?

Speaker Change: Okay. And what about the fiscal year tax rate?

Ilan Daskal: So, you know, we got it for about $8 million, then, you know, for the remainder of the year, it will depend on the jurisdictional kind of mix, obviously, as long as the North American kind of region recovers, then obviously, it lowers our effective tax burden. You can see that, you know, in the first quarter, it's still, you know, at $8 million, which is a higher than normal effective tax rate. But that's kind of the future. Yeah, I

Speaker Change: So, you know, we got it for about 8 million dollars, then, you know, for the remainder of the year, it will depend on the jurisdictional kind of mix, obviously, as, you know, as long as the North American kind of region will recover, then obviously it lowers our effective tax rate.

Speaker Change: You can see that, you know, in the first quarter, it's still, you know, at $8 million, which is a higher than normal effective tax rate, but that's kind of the thinking.

Oleg Khaykin: Yeah, I think you should look at the absolute dollar amount of taxes, because they're really driven by statutory things like that. And ironically, the more money we make, the lower percentage of taxes we pay. Because in North America, we have NOLs and a lot of other offsets that, you know, will effectively lower our taxes.

Oleg Khaykin: Our major customer reduced their order by a third, which on the wireless namps had that order came through actually we would have beaten the high end of our guidance on NFC and it was really a major wireless namp decided to take a less product because of slowness in the market. We don't generally track kind of reliant book ship book to ship ratios because you know the way our market works, demand works, the June quarter and December quarter are usually stronger and we get a lot of bookings within the quarter and the September and March are generally weaker and we get you know a lot less bookings within the quarter.

Speaker Change: I think you should look at the absolute dollar amount of taxes because they're really driven by statutory kind of things

Speaker Change: And ironically, the more money we make, the lower percentage in taxes we pay, because in North America we have NOLs and a lot of other offsets that will effectively lower our tax rate.

Mehdi Hosseini: Okay, I got it. Thank you, guys.

Speaker Change: Okay. We got it. Thank you, guys.

Operator: This concludes our Q&A portion of the call. I turn it back to Vibhuti for final comments. Thank you, Emma.

Speaker Change: Thank you.

Speaker Change: Rick concludes our Q&A portion of the call. I turn it back to the booty for a final comment.

Vibhuti Nair: This concludes our earnings call for today. Thank you for joining us, everyone. Have a good afternoon.

Emma: Thank you Emma.

Speaker Change: This concludes our earnings call for today. Thank you for joining everyone. Have a good afternoon.

Speaker Change: You may now disconnect.

Operator: Please wait.

Oleg Khaykin: So I look more like the way I gauge the relative health of the funnel is that what kind of bookings we enter the quarter and expectations and how well do they hold up or you know there's a left to go you know we forecast the bookings and then we track how many of the bookings show up as they're supposed to show up and the way it makes me feel a little better is they actually showing up whereas before they would get pushed out or get canceled so I think the booking environment while the revenue may be lower the booking environment is now more predictable and more robust so we can plan better our quarter. Great and then if I just double click on or it's actually should I assume the MX sensor what is being reflected in the guides for the September quarter would that show any year-over-year growth?

Oleg Khaykin: You're talking which segment the 3D sensing or anti-contracting? 3D sensing. Well it's actually a lower in revenue year-on-year because we have now going to the new ASP schedule so there's a you know pricing roadmap so the ASP is lower the volumes are slightly the same maybe a little higher but the problem is the volume growth is not enough to offset the ASP erosion that I just want in the fact for the next year so but one you know and of course it's still very much driven by a single customer which we have a very high level of penetration of products so it's very much driven by their demand and volumes.

Oleg Khaykin: One thing we're also noticing there that is positive the demand is now being a little bit better linearized throughout the year and I think it's mainly driven, by contract manufacturers who don't want to be heavily overstressed in the September December quarter and then having a lot less demand in the March and June, but still I think September December quarter is a much higher volume. And one other development I think we're now seeing, if we call them signs of life or interesting nutrients, mainly the China Android players are between with a 3D sensing.

Oleg Khaykin: It's still very small volumes, just a handful of platforms, but if this becomes a major trend and adoption, this would be actually a big positive for us in 3D sensing. And there's also rumors that Samsung may be trying to make another go at it, but after having so many years of full starts, I will hold off on that one as a year outlook. It's about $2.5 million a year over the year for the first quarter.

Oleg Khaykin: So it could be another dynamic up pricing, etc, that Oleg mentioned, but also we'll have to monitor the supply chain that Oleg just discussed. And maybe it's kind of more linearized and over the course of 2-3 quarters, it will offset itself. Just for proof of modeling, the implied, midpoint of your guide implies about a 9% sequential growth in OSB, is that driven by both 3D sensing and canister? Well, I think the anti-controfitting business is starting to rebound.

Oleg Khaykin: I mean, a lot of inventories have been consumed, so there's an uptick in there, but also 3D sensing has a higher numbers, but you have to discount it for some of the ASP erosion. You probably would be closer to an $80 million range between the two of them, but of course both segments are doing better, demand-wise, volume-wise, than in the prior year. Okay, well, thank you. And you know, for us it's very important for anti-controfitting to start recovering because that's where a lot of big iron is sitting in terms of the manufacturing assets, so clearly driving a better absorption on a stronger anti-controfitting demand has a bigger impact on the operating margin of the OSB business units. Good.

Oleg Khaykin: Thank you.

Michael Genovese: Your next question comes from the line of Michael Genovies with Rosenblatt. Your line is open. All right, great. Thanks. I just have one question, which is, you know, all like you've spoken a lot about how AI and data center investment, you know, can improve or help field test over time. I just wanted to kind of more directly connect the dot on how it could help field test, and so you know, is the Lumen announcement about their investment in AI? Is that key to the second half recovery or you know, other things like that? We expect other service providers to announce something similar.

Oleg Khaykin: I guess there's a few questions in there, but if you kind of run with those thoughts, I would appreciate it. Well, sure. I think all of that is goodness. Actually, those are all positive things. I mean, to be fair, I mean, Lumen, to give them credit even when they were really beaten down in the last 12 months, they've actually been, you know, when I talk about the tier two's being more aggressive.

Oleg Khaykin: I think Lumen has been one of the more proactive and more innovative companies in that space in terms of how what technology they deploy and how they roll out their value proposition. And I mean, we like Lumen because they actually listen to a lot of good innovating ideas. And they're, and they're one of the, you know, more innovative players in terms of implementing things that truly differentiate them from the Iran of the male fiber operator.

Oleg Khaykin: So, you know, I'm not going to say any more than that, but Lumen, you know, they didn't just start it. They've been doing it for the past year and a half, even when they're beaten down into the pop. They continued with the innovation. I guess any more.

Oleg Khaykin: I guess you did touch on this a bit earlier, but any more color or comment prediction on, you know, this AI investment, you know, creating more whether it's optical or fiber, you know, whether it's a optical kind of core or fiber access demand. So that's why I zero in on Lumen there. Because it seems like they're AI investment. Yes, because so when I was talking about is the, in particular, if you look at 1.6 terabets, I mean, traditionally, you know, driving from 10 gig to 100 gig, 100 gig to 400 gig, 400 gig, maybe to 800 gig.

Oleg Khaykin: Traditionally, the drive to adoption of the higher speeds was driven by names supplying into service providers. 800 gig was kind of like mixed between service providers and data centers. 1.6 terabets is being driven all by data centers. And what we are seeing the rate of fiber bend with consumption. You know, whereas let's say service provider will lay a fiber and then maybe every couple of years, they would turn on another fiber strength.

Oleg Khaykin: And they generally only connect one and then they roll the trucks to connect the others as they needed what we are seeing with data centers is a more strands being enabled from get go. They just may be sitting dark, but they actually pay for connecting all the strength. And so then as they needed, they turned them up quicker. And the reason they are doing it is the time between lighting up fiber and lighting up the next fiber.

Oleg Khaykin: The time is much, much shorter. And they see there as they see their traffic grow much faster than the service provider. So in that respect, I see them looking at the fiber interconnecting between their data centers completely different than the service provider would look for their metro and core network. And I view it as a positive for us because that basically means much more frequent changes and need for much faster response. Thank you. Appreciate the color.

Karan Juvekar: Your next question comes from the line of Meta Marshall with Morgan Stanley. Your line is open. Hi, this is Karan Juvekar, on for me, so first question just on the NSC side, I know you're sort of expecting a conservative spend environment throughout the calendar year. I guess as you look into the first half of next year where you expect some take, I guess, are you expecting sort of a step function recovery in revenues or a more gradual recovery?

Karan Juvekar: And I guess just parsing out between European and US carriers just any trends to be mindful in terms of how you're thinking about a recovery I know North America is the most challenge today and how you expect the recovery there to play out. What you said service, what function? I do mean like an NEC or a... No, no, just like the recovery being a step function or sort of more gradual. Or step function, got it, got it.

Karan Juvekar: I think it's, you know, so look at it, there's the basic things like field instruments. I think that's being a, I would say not a big step but like a lot's a little step because of the driven by projects. So I think it's a gradual recovery and I would say, you know, amazingly Europe has not been that bad. Yes, they slowed down but nowhere near as bad as North America and North America has been crickets basically for last two years.

Karan Juvekar: So I think in terms of a step function, clearly if AT&T will continue to proceed with their plans to accelerate and resume their fiber to the home. In the way it will be a bit of a step function for the fiber instruments. And usually if somebody as big as AT&T restarts deployment, it sends a shock through the industry, which means the cable guys are going to have to accelerate. The wireless may have to do something more because then it creates a nice competitive whirlwind that everybody needs to start responding. So it generally, just as when they stop spending, everybody else stops spending, when they start spending, others are going to follow usually.

Oleg Khaykin: But, you know, I don't want to create expectation of a step function or rather go with a gradual recovery in the base demand. Where I see a greater acceleration is really the fiber lab and production. And we do think 1.6 terabits will be a big driver in the first half of next calendar year. Okay. And in terms of the clearly as North America starts to recover, I mean Europe follows pretty quickly.

Oleg Khaykin: But the good news is Europe never really did not really get down as much as North America. So I expect the recovery in Europe to be a bit more mild. But what's also really interesting is we're seeing a lot more aggressive plans in Latin America, which is you think always would be the last ones, but they are actually in many ways been playing catch up. And we're seeing some of the more interesting opportunities, especially for our AI ops and some of the other products coming out of Central and South America as well. And this has been pretty solid. Okay. That's very helpful.

Ilan Daskal: And then I know you mentioned earlier that sort of on the OSP side if the tours are sort of depleted, but I just wanted to get a little bit more color on trends you're seeing there. What sort of drove the upside? Is it run inventory builds or new prints and just expectations on that. So that would be helpful. Thank you. You're talking about our internal inventory, right? Not the inventories of the service providers, which inventories are you talking about?

Ilan Daskal: Like the OSP side inventory. So as I mentioned earlier, we are seeing some recovery in the anti counterfeiting demand and it's really driven. I mean, a lot of the inventory that was built up in the channel during COVID because they also order a lot of material and products to keep on hand. Finally, a lot of it has been wound down and consumed. So the orders that are coming back is really more in line with the demand and consumption and last of the restocking or anything like that. Okay. That's helpful.

Ilan Daskal: Thank you.

Tim Savageau: Your next question comes from the line of Tim Savageau with Northland Capital. Your line is open. Hey, good afternoon. Couple questions. First on the guide, I think if I heard you're right, because you would expect to see kind of a double digit million sort of sequential increase in OSP. And I guess you're saying you would have seen something closer to that word, not for the ASPs in that comment about 80 million or initially looking at it, you think maybe something.

Tim Savageau: I mean, there's some negatives in the currency business, but what it sounds like maybe not. Did I get that right? No, there's no negatives in the currency business. I think the people are just talking about 3G sensing demand. I mean, we have a new pricing in place and clearly with the ASP erosion, it taken down some of the revenue because the volumes are not that much more than they were. Or a year ago.

Tim Savageau: So that was what I was talking about. Yeah, I get that. We would have been. I get that relative. Yeah, I get that relative to last year. I was just talking sequential, but I think we're talking about the same thing. In a similar question on NSD, NSD coming down sequentially, and it looks like that, you know, could be some seasonality that you see typically there. But is there any particular product or and markets driving that sequential decline in NSD or Q125?

Tim Savageau: I think it's really more seasonality. I mean, just weaker demand, but I mean, clearly, we normally would have gotten some orders more. I think I'd say wireless NAMS is probably one area where the demand is lower. And I would say just general, you know, the service provider field instrumentation in just, you know, a demand as we. Okay, thanks.

Oleg Khaykin: And then back on the kind of AI data center side, I don't know if you break it out or look at it this way, but I think it'd be interesting to get a sense for within the any segments, what sort of revenue level can you attach to data center overall or fiber-driven data center, whether that's 800 gig tests, going to 1.6 in lab and production, a good bit of that's probably data center driven. And you've mentioned the potential for more field instrumentation driven by that.

Oleg Khaykin: But, you know, if you had to take a swing at it, would you say data center has a prospect of getting up toward, you know, 10% of your any business over time, or is it there now or some sort of order of magnitude? You know, I'm not going to get into this thing because I mean any number I give you will ultimately be a BS number anyhow. So, I mean there's I don't think there's really any good research or understanding because I mean one thing I would I can't tell you is the 1.6 terabits next year will be driven all by data center, right?

Oleg Khaykin: Whereas when we went from 400 to 800, it was primarily driven by carriers and NAMS supplying carriers. So I think, you know, I don't really try to supply data center or carry note. I mean, fundamentally it's all driven by technology. But I would just say that 1.6 terabits will be driven by data center demand. I mean, if you want to scribe that revenue to that, I mean, maybe eventually we, as things stabilize, we can start doing segmentation on the end market use.

Oleg Khaykin: But usually the same line, just like for 800 gig, the line that was built originally for service providers ended up supplying data centers when the service providers start explaining, you know, you can't really, but it's a multi-use technology. So we think of it more as to who will be the lead customer driving it. And, you know, for the first time, I think data centers will drive the next technology node. And in terms of the buildout of the networks, it is still the service providers, but fiber, but it's a tier two service providers who are providing those fiber interconnect between all the data centers, rather than the big players like C-H-N-T or Verizon.

Oleg Khaykin: So I mean, I mean, whether it's data center today, or they take some of that fiber and give it to in the future for 5G towers, I mean, it's a multi-use, so we don't really sweat trying to figure out what's the end market you meant. Okay, I understand.

Oleg Khaykin: Let me take one last desperate attempt at the question and say, Art, if you would have replaced 800 gig and replaced data center in my question or AI data center with 800 gig, it might be a little bit easier to give us a sense of the yeah, the size of your 800 gig business relative to your overall test business. I have the numbers, but now you ask me to go into the segment reporting that we don't report because I mean there's a at any given time we have a 400 gig 800 gig and now later this calendar, calendar year we're going to have 1.6 terabits.

Oleg Khaykin: I mean those things are it's just like sediment chart there's keeps you know one goes down the other one goes back up and there's a substitute. So I don't think I'm going to go into that level of detail. Fair enough. Thanks.

Mehdi Hosseini: Very next question comes from the line of Mehdi Hosseini with SIG. Your line is open. Yes, thank you. A couple of house keeping items. Given the fact that the 25 million of annualized cost savings is going to materialize second half of fiscal year 25. Should I keep the archives kind of flatish from here and the implied archives for the September is 120 and I'm just wondering how should I model that for the rest of the fiscal year?

Mehdi Hosseini: Generally yes, you know there are several you know puts and takes obviously some of it has to do with merit increase and variable employee costs, but generally yes you're right. And what about the fiscal year tax rate? So so you know we got it for for about $8 million then you know for the remainder of the year. It will depend on the jurisdictional kind of mix obviously as you know as long as the North American kind of region will recover then obviously it lowers our effective tax rate.

Mehdi Hosseini: You can see that you know in the first quarter it's still you know at $8 million which is a higher than normal effective tax rate, but that's kind of the thinking. Yeah, I think you should look at the absolute dollar amount of taxes because they're really driven by statutory kind of things. And ironically the more money will make the lower percentage in taxes we pay because in North America we have NOLs and a lot of other offsets that you know will effectively lower our tax rate.

Ilan Daskal: Okay, thank you guys. Thank you.

Vibhuti Nayar: Concludes are Q&A portion of the call I turn it back to the the booty for final comments. Thank you Emma.

Unknown Executive: This concludes our earnings call for today. Thank you for joining everyone. Have a good afternoon.

Unknown Executive: You may now disconnect.

Unknown Executive: Please wait the conference will begin shortly. Thank you very much.